CONTRACTS

McInnes

TABLE OF CONTENTS

NATURE OF CONTRACT ......................................................................................................................7

ENFORCEMENT OF CONTRACTS (GENERAL REMEDIES) .......................................................................................... 8

UNJUST ENRICHMENT...................................................................................................................................... 8

SOFT FACTORS IN OUTCOME DETERMINATION .................................................................................................... 8

INTENTION TO CREATE LEGAL RELATIONS ...........................................................................................9

FAMILY ARRANGEMENTS.................................................................................................................................. 9

Balfour v Balfour [1919] England ........................................................................................................... 9

COMMERCIAL ARRANGEMENTS ......................................................................................................................... 9

Rose Frank Co v JR Crompton and Bros. Ltd [1923] England ................................................................. 9

Toronto Dominion Bank v Leigh Instruments [1999] OnCA .................................................................. 10

CAPACITY .................................................................................................................................................... 10

Exceptions ............................................................................................................................................. 10

OFFERS ............................................................................................................................................ 11

OFFERS & INVITATIONS TO TREAT ................................................................................................................... 11

Pharmaceutial Society v Boots Cash Chemists [1953] UK .................................................................... 11

Fisher V Bell [1960] Eng CA ................................................................................................................... 11

R v Dawood [1976] ABCA...................................................................................................................... 11

WIld Ed’s Stereo Shop – class exercise ................................................................................................. 11

Carlill v Carbolic Smoke Ball [1893] UK................................................................................................. 12

Harvela Investments v Royal Trust [1986] HL ....................................................................................... 13

TENDERING PROCESS..................................................................................................................................... 13

R v Ron Engineering & Construction [1981] SCC .................................................................................. 14

MJB Enterprises v Defence Construction [1999] SCC ............................................................................ 15

COMMUNICATION OF OFFER .......................................................................................................................... 15

Blair v Western Mutual Benefit [1972] BCCA ....................................................................................... 15

Williams v Carwardine [1833] UK ......................................................................................................... 16

R v Clarke [1927] Aust HC ..................................................................................................................... 16

ACCEPTANCE.................................................................................................................................... 17

COUNTER-OFFER .......................................................................................................................................... 17

Livingstone v Evans [1925] ABSC .......................................................................................................... 17

BATTLE OF THE FORMS .................................................................................................................................. 17

Butler Machine Tool Co v Ex-Cell-o-Corp [1979] England .................................................................... 18

Tekdata Interconnection Ltd V Amphenol Ltd, [2009] EWCA ............................................................... 19

ACCEPTANCE OF INCORPORATED TERMS ........................................................................................................... 20

ProCd v Zeidenberg [1996] USCA .......................................................................................................... 20

ACCEPTANCE BY PERFORMANCE ...................................................................................................................... 21

Dawson v Helicpoter Exploration Co [1955] SCC .................................................................................. 22

ACCEPTANCE BY SILENCE OR CONDUCT ............................................................................................................ 22

Felthouse & Bentley [1862] EXCH ??? .................................................................................................. 23

St. John Tug Boat Co v Irving Refinery Ltd [1964] SCC .......................................................................... 23

COMMUNICATION OF ACCEPTANCE ................................................................................................. 24

WAIVER OF COMMUNICATION REQUIREMENT: UNILATERAL CONTRACTS ............................................................... 24

MODE OF COMMUNICATION .......................................................................................................................... 24

Eliason v Henshaw [1819]..................................................................................................................... 24

Carmichael v Bank of Montreal [1972] MANQB .................................................................................. 25

INSTANTANEOUS COMMUNICATION................................................................................................................. 26

Brinkibon Ltd v Stahag [1983] HL ......................................................................................................... 26

POSTAL RULE ............................................................................................................................................... 26

Household Fire & Carriage v Grant [1879] CA ...................................................................................... 27

Holwell Securities v Hughes [1974] CA ................................................................................................. 28

Electronic Transactions Act, SA 2001 ................................................................................................... 28

TERMINATION OF OFFER .................................................................................................................. 29

COUNTER-OFFER .......................................................................................................................................... 29

REVOCATION ................................................................................................................................................ 29

Byrne v Van Tienhoven [1880] CPD??................................................................................................... 29

Dickinson v Dodds [1876] CA ................................................................................................................ 30

REVOCATIONOF UNILATERAL OFFER ................................................................................................................ 30

Errington v Errington and wood [1959] ................................................................................................ 31

LAPSE OF TIME ............................................................................................................................................. 31

Barrick v Clarke [1951] SCC ................................................................................................................... 31

Occurance of Contemplated Event ....................................................................................................... 32

DEATH ........................................................................................................................................................ 32

CERTAINTY OF TERMS ...................................................................................................................... 32

VAGUENESS (MOST LIKELY TO FIND A CONTRACT) ............................................................................................. 33

R v CAE Industries Ltd [1986] FCA ......................................................................................................... 33

Nicolene Ltd v Simmons [1953] QBCA .................................................................................................. 33

MISSING TERMS (SECOND MOST LIKELY TO FIND A CONTRACT) ........................................................................... 33

Hillas Ltd v Arcos Ltd [1932] ................................................................................................................. 34

AGREEMENTS TO AGREE (THIRD MOST LIKELY TO FIND A CONTRACT) ................................................................... 34

May & Butcher v R [1934] HL ............................................................................................................... 35

Foley v Classique Coaches Ltd, [1934] .................................................................................................. 35

Reconcilling – Arcos, May & Butcher, Foley ......................................................................................... 35

GOOD FAITH NEGOTIATIONS (FOURTH MOST LIKELY TO FIND A CONTRACT) ........................................................... 36

Empress Towers v Bank of NS [1991] BCCA .......................................................................................... 36

Molson Canada v Miller Brewing [2013] ONSC ................................................................................... 37

Mannpar Enterprises v Canada [1999] BCCA ....................................................................................... 37

ANTICIPATION OF FORMALIZATION (LEAST LIKELY TO FIND A CONTRACT) ............................................................... 38

Bawitko Investments v Kernels [1991] ONCA ....................................................................................... 38

CONTINGENT AGREEMENTS: THE PARTIE’S OBLIGATIONS ................................................................. 38

CONTRACT OR NO CONTRACT? ....................................................................................................................... 38

Wiebe v Bobsein [1985] (BCSC) (BCCA) ................................................................................................ 39

RECIPROCAL SUBSIDIARY OBLIGATIONS ............................................................................................................ 40

Dynamic Transport v OK Dealing [1978] SCC ....................................................................................... 40

REMEDIES FOR BREACH OF SUBSIDIARY OBLIGATIONS ......................................................................................... 41

CONTINGENT AGREEMENTS: UNILATERAL WAIVER ........................................................................... 42

Turney v Zhilka [1959] SCC ................................................................................................................... 42

Beauchamp b Beauchamp [1973] ONCA .............................................................................................. 43

Barnett v Harrison [1976] SCC .............................................................................................................. 43

CONSIDERATION .............................................................................................................................. 44

PROPOSITIONS ............................................................................................................................................. 44

Thomas v Thomas [1982] UK ................................................................................................................ 44

Brantford General Hospital Foundation v Marquis Estate [2003] ONT SC ........................................... 45

EXECUTORY CONSIDERATION .......................................................................................................................... 45

PAST CONSIDERATION ................................................................................................................................... 45

Eastwood v Kenyon [1840] UK .............................................................................................................. 45

EXECUTED CONSIDERATION ............................................................................................................................ 46

Lampeigh v Braithwait [1614] UK ........................................................................................................ 46

FOREBEARANCE TO SUE ................................................................................................................................. 46

B (DC) v Arkin [1996] MAN QB.............................................................................................................. 46

PRE-EXISTING OBLIGATIONS: PUBLIC DUTY ....................................................................................................... 47

Example ................................................................................................................................................ 47

PRE-EXISTING OBLIGATION TO THIRD PARTY ..................................................................................................... 48

Example ................................................................................................................................................ 48

Pao On v Lau Yiu Long [1980] PC .......................................................................................................... 48

PRE-EXISTING CONTRACTUAL OBLIGATION TO SAME PARTY ................................................................................. 49

Example ................................................................................................................................................ 49

Gilbert Steel v University Construction [1976] Ont CA ......................................................................... 49

Williams v Roffery BRos & Nicholls Ltd [1990] UK ................................................................................ 50

Greater Fredricton Airport v Nav Canada [2008] NBCA ....................................................................... 50

Rosas v Toca [2018] BCCA .................................................................................................................... 51

Quach v Mitrux Services [2020] BCCA .................................................................................................. 52

PARTIAL PAYMENT OF A PRE-EXISTING DEBT ..................................................................................................... 52

Foakes v Beer [1884] UKHL ................................................................................................................... 52

Re SelectmoVe [1995] UKCA ................................................................................................................. 53

MWB Business Exchange Centres V Rock Advertising [2016] UK ......................................................... 53

Simantob v Shavleyan [2018] UK .......................................................................................................... 53

Foot v Rawlings [1983] SCC .................................................................................................................. 53

EXCEPTIONS TO GENERAL RULE ...................................................................................................................... 54

PROMISSORY ESTOPPEL ................................................................................................................... 54

Central London Property v High Trees, [1947] UK ................................................................................ 55

NATURE OF PROMISE .................................................................................................................................... 55

John Burrows v Subsurface Surveys [1968] SCC ................................................................................... 55

EQUITY ....................................................................................................................................................... 55

D&C Builders v Rees [1966] QBCA ........................................................................................................ 56

NOTICE ....................................................................................................................................................... 56

RELIANCE .................................................................................................................................................... 56

SWORD V SHIELD .......................................................................................................................................... 56

Combe v Combe [1951] UK ................................................................................................................... 57

Waltons Stores v Maher [1988] AUST .................................................................................................. 57

PRIVITY ............................................................................................................................................ 57

TRADITIONAL APPROACH ............................................................................................................................... 58

Tweddle v Atkinson [1861] UK QB ........................................................................................................ 58

Dunlop Pneumatic Tyre v Selfridge [1915] UK HOL .............................................................................. 58

AMELIORATING “EXCEPTIONS” (WAYS TO GET AROUND PRIVITY – FAKE EXCEPTIONS) ............................................. 58

Specific performance: Beswick v Beswick [1966] UK ............................................................................ 59

assignment ........................................................................................................................................... 60

Trusts .................................................................................................................................................... 60

Statute .................................................................................................................................................. 61

Agency .................................................................................................................................................. 61

EMPLOYMENT .............................................................................................................................................. 62

Longon Drugs v Kuehne & Nagal, 1992 SCC ......................................................................................... 62

Edgeworth construction v ND Lea & Associates, 1993 SCC .................................................................. 62

Subrogation – First Party (Property) Insurance .................................................................................... 63

MISREPRESENTATION ...................................................................................................................... 65

Distinguishing Between Puffs, Representations and Terms ................................................................. 65

TYPES OF MISREPRESENTATION ....................................................................................................................... 66

ELEMENTS OF MISREPRESENTATION ................................................................................................................ 66

REMEDIES FOR FRAUDULENT MISREPRESENTATION............................................................................................ 67

Equity .................................................................................................................................................... 67

Law ....................................................................................................................................................... 68

REMEDIES FOR INNOCENT MISREPRESENTATION ................................................................................................ 68

Equity .................................................................................................................................................... 68

Law ....................................................................................................................................................... 69

SMITH V LAND & HOUSE PROPERTY CORP, 1884 UK ......................................................................................... 69

BANK OF BC V WREN DEVELOPMENT LTD, 197 BCSC ........................................................................................ 69

REDGRAVE V HURD, 1882 UK ........................................................................................................................ 69

REDICAN V NESBITT, 1924 SCC ...................................................................................................................... 70

KUPCHAK V DAYSON HOLDINGS CO LTD., 1965 BCCA – GOOD CASE FOR REMEDIES ............................................ 71

TERMS ............................................................................................................................................. 72

HONG KONG FIR SHIPPING CO LTD. V KAWASKAI KISEN KAISHA LTD, 1962 QBCA ................................................. 72

KRAWCHUK V ULRYCHOVE, 1996 ABSC .......................................................................................................... 73

IMPLIED TERMS ............................................................................................................................................ 74

SALE OF GOODS ACT 1893 ........................................................................................................................ 74

Bhasin v Hrynew, 2014 SCC .................................................................................................................. 75

Bhasin Applied: Churchill Falls (Labrador) Corp v Hydro-Quebec [2018] SCC ...................................... 77

Bhasin Applied: CM Callow Inc v Zollinger [2020] SCC ......................................................................... 77

Bhasin Applied: Wastech Services Ltd v Greater Vancouver Sewage and Drainage District [2021] SCC

.............................................................................................................................................................. 78

CLASSIFICATION OF TERMS ............................................................................................................................. 78

EXCLUSION CLAUSES ........................................................................................................................ 79

NOTICE OF WRITTEN CONDITIONS: PARKER V SOUTH EASTERN RAILWAY, 1877 ENG CA ........................................ 80

PARTICULARIZED NOTICE AND SUBSTANTIVE FAIRNESS: INTERFOTO PICTURE V STILETTO VISUAL, 1989 ENG CA ......... 80

TILDEN RENT-A-CAR V CLENDENNING, 1978 ONT CA ....................................................................................... 81

STRICT CONSTRUCTION .................................................................................................................................. 82

Tercon Contractors Ltd v BC, 2010 SCC ................................................................................................ 82

CONTRACTUAL DEFECTS ................................................................................................................... 83

PRIORTITY RULES .......................................................................................................................................... 83

IMPROPERLY INDUCED CONTRACTS .................................................................................................................. 83

Duress ................................................................................................................................................... 84

Economic Duress ................................................................................................................................... 84

Undue Influence .................................................................................................................................... 85

Unconscionability ................................................................................................................................. 87

FRUSTRATION............................................................................................................................................... 91

Alberta’s Frustrated Contracts Act ....................................................................................................... 92

MISTAKE ..................................................................................................................................................... 93

Mistake about Subject Matter: Preventing Creation of Contracts ....................................................... 94

Mistake about Identity: Preventing Creation of Contract .................................................................... 94

Mistakes Rendering Contract Impossible to Perform ........................................................................... 95

Non Est Factum ..................................................................................................................................... 95

Rectification .......................................................................................................................................... 96

ILLEGALITY ................................................................................................................................................... 98

Rewriting and Severance .................................................................................................................... 100

TERMINATION ............................................................................................................................... 101

DISCHARGE BY PERFORMANCE...................................................................................................................... 101

DISCHARGE BY AGREEMENT.......................................................................................................................... 102

DISCHARGE BY OPERATION OF LAW................................................................................................................ 102

DISCHARGE FOR BREACH OF CONDITION......................................................................................................... 103

DAMAGES ...................................................................................................................................... 104

EXPECTATION DAMAGES .............................................................................................................................. 104

Chaplin v Hicks, 1911 .......................................................................................................................... 104

Groves v John Wunder, 1939 MinnCA ................................................................................................ 105

Ruxley v Forsyth, 1996 HOL ................................................................................................................ 106

EXPECTATION: REMOTENESS OF DAMAGE....................................................................................................... 107

Hadley v Baxendale, 1854 .................................................................................................................. 107

Victoria Laundry (Windsor) v NEwman Industries, 1949 CA .............................................................. 108

Scyrup v Economy Tractor Parts, 1963 MacCa ................................................................................... 109

Transfield Shipping v Mercatory shipping, 2008 HOL ........................................................................ 109

EXPECTATION DAMAGES: INTANGEBLE INJURIES .............................................................................................. 110

Fidler v Sun Life of Canada, 2006 SCC................................................................................................. 111

MITIGATION OF DAMAGES ........................................................................................................................... 112

Asamera v Sea Oil, 1979 SCC .............................................................................................................. 112

Repudiciatory Breach and Mitigation of Losses ................................................................................. 113

RELIANCE DAMAGES ................................................................................................................................... 114

McRae v Commonwealth Disposals Ltd, 1951 HCA ............................................................................ 114

Bowlay Logging v Domtar, 1982 BCCA ............................................................................................... 114

EXCEPTIONAL MEASURES OF RELIEF ............................................................................................... 116

DISGORGEMENT ......................................................................................................................................... 116

Attorney General v Blake, 2001 HOL .................................................................................................. 118

Nunavut Tunnagavik Inc v Canada (AG), 2012 Hun CJ ....................................................................... 119

PUNITIVE DAMAGES & AGGRAVATED DAMAGES.............................................................................................. 120

Vorvis v Insuance Corporation of British Columbia, 1989 SCC ........................................................... 121

Whiten v Pilot INsurance, 2002 SCC ................................................................................................... 121

OTHER EXCEPTIONAL MEASURES................................................................................................................... 122

SPECIAL ENFORMCEMENT .............................................................................................................. 123

SPECIFIC PERFORMANCE .............................................................................................................................. 123

Remedial Advantages ......................................................................................................................... 124

Scope of Availability............................................................................................................................ 125

INJUNCTIONS ............................................................................................................................................. 125

Warner Bros Pictures Inc v Nelson (QB 1937) .................................................................................... 126

Page One Records Ltd v Britton (Ch D 1968) ...................................................................................... 126

NATURE OF CONTRACT

• Law of Contract (singular) o Must have intention (animus contrahendi) to create legal relations: willingness to be bound o Must have offer and acceptance: a meeting of minds (consensus ad idem); have to be on the

exact same terms; one person must be offeror and other acceptor. Can’t have two offers o Must have consideration: an exchange of value – the bargain element; must give something

of economic value; love, affection and moral obligation are NOT consideration

• Law of Contracts (plural) o Specifics of each contract, rules that are applied in individual way, specific terms

ENFORCEMENT OF CONTRACTS (GENERAL REMEDIES)

• Fulfillment of expectations o Contractual damages are forward looking – fulfil expectations while tort damages are

backward looking –to restore to original state. o Ex. I buy business for $500 000 and you promise me it will make $750 000 but it actually

makes 0 Tort = backwards looking = $500 000 in damages Contract = forwards looking = $750 000 in damages

• Specific enforcement: judicial order to perform obligations of contract (rare in contract)

• Damages: monetary value of performance (common) o Contractual: expectation damages: fulfill expectations (forward looking) o Tort: restores status quo ante (backward looking)

UNJUST ENRICHMENT

• Three-part cause of action: (1) enrichment to D, (2) corresponding deprivation to P (3) absence of juristic reason. Necessarily backward looking. Remedy is always restitution.

• Remedial restitution: every time P proves UE, D must give back the value received from P

SOFT FACTORS IN OUTCOME DETERMINATION

• Bad Faith: Not simply changing mind, but must have intention of detriment to the other from offset of contract. Knew from the outset that person was going to screw them over.

o Wild Ed Exercise o Carbolic Smoke Ball o Hillas v Arcos o Foley v Classique Coaches

• Detrimental Reliance: Relied on misrepresentation to my detriment, I lost something. o Carbolic Smoke Ball o Hillas v Arcos

• Undue influence: one person takes advantage of a position of power over another, contract may be voidable (remedy is rescission)

• Unconscionability/duress: terms that are so extremely unjust or overwhelmingly one-sided in favor of the party who has the superior bargaining power that they are contrary to good conscience

• Fundamental mistake: if the contract went through and the events transpired like they were supposed to but it makes NO sense for you to have entered into the contract.

o Ex. If I make a contract to rent someone’s cottage and then the cottage burns down o Hillas v Arcos o Foley v Classique Coaches

• Snapping Up: If you see an offer that is too good to be true then you can’t create a contract – VERY LIMITED

o Ex. Airline puts out an offer for unlimited around the world travel for $100 for the year but they mean to write $100 000

• Business efficacy on officious bystander test: implied terms only if they are necessary in order to give the contract “business efficacy” – only if the officious bystander would think that it was obvious that the terms were implied (“obviously that is part of the contract, no need to even mention it”. See MJB Enterprises

• Quantum meruit – “as much as its worth”. Ex. Two people have a contract but they didn’t stipulate price, court will fill in gap.

o Alternatively, if there is no contract and the P proves unjust enrichment you can also get quantum meruit (this is restitutional)

o Any time you see quantum meruit, you have to do the work to determine if from contract or unjust enrichment

INTENTION TO CREATE LEGAL RELATIONS

• Reasonable person test: objective standard and fallacy. o Parties’ actual intentions not determinative: can have contract or no contract despite actual

intentions

• Burden of proof: plaintiff has to prove case on balance of probabilities, more likely than not.

• Question of fact, not law – cannot appeal unless outrageous finding. o Question of law: standard of correctness; can appeal if judge to the law wrong o Question of fact: standard of reasonableness, very hard to appeal

FAMILY ARRANGEMENTS

• Rebuttable presumption that there is NO intent to create legal relations in family arrangements, P must prove there was intention to create legal relations

• Does not apply when family is estranged at time of agreement (eg. Separating couple is assumed to have intent) (Merritt v Merritt – 1970 England CA)

• Same sex parties – Anderson v Luoma – 1986 BCSC

BALFOUR V BALFOUR [1919] ENGLAND Ratio: There is no intention to create legal relationships in amicable family arrangements. Facts: Husband & wife lived oversees came to England for trip. Wife couldn’t return due to illness and husband said he would give her 30 pounds/month. The relationship deteriorated and she sued when he didn’t pay.

• Made arrangement when they were amicable and under assumption they would be reunited Issue: Is contractual intention presumed in domestic context Analysis (Atkin LJ): (1) Had no intention to create enforceable rights, (2) Improper interference with domestic matters - Family matters should be kept private, (3) Policy: Judges also have own agenda, elderly Caucasian men would be the ones getting sued. Don’t want to extend their liability – critical theory Holding: Not a contract b/c there was no intention to create legal relations

COMMERCIAL ARRANGEMENTS

• Assume there is intent during commercial arrangements. P has to prove there is no intent.

ROSE FRANK CO V JR CROMPTON AND BROS. LTD [1923] ENGLAND Ratio: In commercial arrangements, rebuttable presumption is that parties DID intend to create legal relations Facts: P are distribution agents for the D’s paper company. D supplied paper to P for many years under contract. New ‘contract’ with honourable clause saying don’t intend to be legally bound, D stopped fulfilling orders, P sued for breach of contract. Issue: (1) Is contractual intention presumed in commercial context? (2) What is needed to rebut intention presumption? Analysis: Trial judge it was an enforceable contract b/c honourable clause is repugnant to agreement as whole. Holding: No contract b/c parties are free to enter or not enter contractual relations

Notes: Scrutton LJ: Unjust enrichment to explain past dealings.

• HoL: Atkin LJ: UE not needed, each individual transaction was a small contract o D has to make sure $$ given for paper already sent but no obligation for future dealings o Currently, modern courts only find legally binding with this sort of clause if there was an

imbalance of power (took advantage).

TORONTO DOMINION BANK V LEIGH INSTRUMENTS [1999] ONCA Ratio: Comfort letter interpreted based on RP. Comfort letters are not legally binding b/c there is no intention Facts: Leigh Instruments is a subsidiary company of the larger company Plessey. Plessey provided letters of comfort to the Bank on behalf of Leigh

• Letter of comfort is not a guarantee. Contained a clause: Company policy that Leigh be managed in such a way that it can always repay its debts. Leigh can’t repay its debts so TD wants to go after Plessey

Issue: (1) Are comfort letters legally binding; (2) What purpose do comfort letters serve? Analysis: (1) Surrounding circumstances: sophisticated business parties and the purpose of document was to meliorate concerns regarding loan

• (2) Plessey continually refused to give guarantee

• (3) Policy: Comfort letters are practically useful without being legally enforceable (business reputation)

Holding: Plessey not liable for Leigh Instruments debts b/c comfort letter is not binding. Presumption that Plessey would be bound b/c of commercial context but comfort letter is enough to rebut that presumption

CAPACITY

• General concept not restricted to contracts; ability to create or alter legal relationship

• Not all-or-nothing: can have capacity for some relationships but not others

• Not exclusively related to mental ability; related to legal policy (<18)

• Presumption of capacity: Burden rests on person denying capacity

EXCEPTIONS • Corporations

o Business Corporations Act s 16: same capacity as natural person Capacity obtained only if and when incorporated – no capacity prior to incorporation

o Business Corporations Act s 15: liability on company if it ratifies contract post-incorporation If corporation has not ratified contract, liability on person signing for the company

• Mental Incapacity (illness or intoxication) o Certified incapacity = VOID o Not certified = VOIDABLE

Only voidable if at the time contract was made, the other party knew or should’ve known (RP) that the person lacked capacity

Policy: don’t want to infantilize seniors

• Infants (<18) o Presumptive rule: Contract not to infant’s benefit - their choice until reasonable time after

majority = VOIDABLE Age of Majority Act s 1: 18 in AB

o Necessaries of life + beneficial employment = ENFORCEABLE Policy: want vendors to interact with children on their own

Employment: if terms favorable for employer, then may be VOIDABLE, if terms favorable for child then ENFORCEABLE

OFFERS

OFFERS & INVITATIONS TO TREAT

• Offer is an expression of willingness to be bound to certain terms.

• Offeror’s subjective intention to be bond is not determinative. Must be OJBECTIVE

• Danger of Offers: Contract formed immediately upon acceptance o If what constitutes an offer is too broad, then there is indeterminate liability to

indeterminate number of people.

• Criteria for offers: o (1) Offer doesn’t have to have special form – only requirement is unequivocal words or

conduct that the RP would understand to be an offer o (2) Recognition of offer depends on totality of circumstances – prior and subsequent events

help explain whether RP would interpret it as an offer or not. Precedents and presumptions play a role

• Presume NOT OFFER if: statement of intent “we intend to offer X for $Y”, price quotation “we sell X at $Y” or statement of inquiry “do you sell X for $Y?”

• Invitation to treat: non-binding invitation to receive offers. o Rebuttable presumption: Items on shelves or advertisements are usually invitations to treat

PHARMACEUTIAL SOCIETY V BOOTS CASH CHEMISTS [1953] UK Item displayed on shelves is invitation to treat, contract formed at the counter when payment becomes acceptance. Rebuttable presumption that initial communications are invitations to treat Facts: Legislation requires that sales of poisons be monitored by pharmacists. Store laid out items on shelf, people picked up items and brought them to the counter to pay. Customers were not informed of pharmacist supervision requirement until they were paying at counter.

• P argued that items on shelves were offers, and putting them in basket was acceptance and therefore transaction was against legislation and not overseen by pharmacist

• D argued shelves were invitations to treat, customers bringing them to counter was offer, payment is acceptance

Analysis: If items on shelf were offers, then once a person picked up an item they would not be able to change their mind and replace items in basket

• Policy: promotes self-service

• Policy: broad, clear rule b/c of the mischiefs associated with offers. So presume that initial communications are invitations to treat (this is rebuttable)

• Policy: catalogue shopping and advertisements: limited stock and unlimited acceptability Holding: D won, P appealed, appeal dismissed. The items on the shelves are not offers, therefore the transaction is overseen by pharmacist (not contrary to legislation)

FISHER V BELL [1960] ENG CA Proposed sale of illegal items: Displayed a knife for sale in window, which was illegal. Not charged because merely invitation to treat.

R V DAWOOD [1976] ABCA Price-tag switching: Switched the tags on items. In order to be crime there needs to be a contract. Merely making a different price offer for the same items

WILD ED’S STEREO SHOP – CLASS EXERCISE Ran an ad saying, “first 3 three people in the store on Monday can have a TV for $500”. When P arrived, offer did not exist, pointed her toward radios.

• NO CONTRACT: Generally, ads are treated as invitations to treat because of unlimited liability. If applied, she would be making the offer and no damages.

• CONTRACT: Mischief, unlimited liability, that animates general rule doesn’t apply – ad specifically said first 3 people. Soft factor of detrimental reliance: waited overnight, and bad faith: knew there were no TV’s.

CARLILL V CARBOLIC SMOKE BALL [1893] UK (1) Advertisements usually invitation to treat but in this case, advertisement was offer of unilateral

contract. (2) Pre-emptory revocation prevented through collateral contract. (3) Offeror impliedly waived their right to be communicated of acceptance

Facts: P bought the smokeball, used it as prescribed and got the flu. Ad stated “anyone who uses the ball and gets sick will get $100”. To show how sincere we are, put deposit of $1000 at the bank. D claimed merely an invitation to treat.

• D says advertisement was too broad and vague to be a legitimate offer, also unreasonable to suppose it was an offer b/c nobody would try to contract the infection just to see if the ball would work. No time limit specified

Analysis: Ad must be read in plain meaning as the public would understand it and implication of ad was the smoke ball would be a protection while in use

• Merit to the advertisement as an offer b/c company put $1000 into the bank

• Offer mischief of having too many acceptances of the offer is at play

• Soft factors: detrimental reliance b/c she sniffed the ball every day for 2 weeks o Bad faith: not a legitimate product that D was willing to stand behind, it was a scam to get

people to spend money

• Bilateral contract: promise exchanged for promise. No performance by either party prior to formation of contract and both parties have outstanding obligations

• Unilateral: act exchange for promise. Offer accepted through performance by offeree. Offer has no outstanding obligations. There is no contract until offeree accepts by FULL performance. Only offeror has obligations at the outset– optional for offeree to perform or not (they have no obligation to perform)

• Policy: 1891 the flu epidemic was rampant and there was lots of medical quackery. Court wanted to stop this

Holding: Rule for P. Ad was an offer of a unilateral contract (once accepted, only offeror’s obligations remained. Can only accept through FULL, SPECIFIC performance Other considerations:

• Pre-emptory revocation: offeror generally free to revoke any time before acceptance (ex. Carbolic could revoke after 13 days of P diligently using ball)

o Prevent pre-emptory provocation through collateral contract – little contract that runs alongside small contract. Usually implied. Offeror puts out two contracts. The individual accepts the small contract by beginning to perform. Offeror’s consideration is now that they will not revoke big contract. If offeree fully accepts, and completes specific performance then big contract becomes a contract. Offeree still has no obligation to fully perform

o Policy: problem this collateral contract is neither party was likely thinking about having a smaller contract so having presence of this contract feels like it is imposing rules onto the parties, which is not supposed to happen in contracts

• Intention to create legal relations based on RP test: $1000 bank deposit showed true intentions

• Consideration by both parties: offeror – promise to pay $100 in event of illness. Offeree – detriment of using product, or purchase of item

• Communication of acceptance impliedly waived by offeror o This is likely due to the fact that it was a unilateral contract through an advertisement o Totality of circumstances and mischief associated with having a unilateral advertisement as

an offer and it not being reasonable to have every person communicate that their acceptance

HARVELA INVESTMENTS V ROYAL TRUST [1986] HL Use for fair selection problems. Terms of invitation to treat MAY be binding on eventual offeree. Case good for right result but no explanation for why invitation to treat can be binding

• Facts: Respondent vendors (Royal Trust) invited the appellant (Harvela and another party (Sir Leonard) to make offers to purchase the vendors shares in another company. Royal trust sent out their invitation by telex message and said that:

o offers (1) must be made by sealed tender by (2) day after invitation sent (fixed/specific deadline), and (3) they would accept highest offer

o Harvela offered $2 175 000 and Sir Leonard offered $2 100 000 or $101 000 higher than any other offer. Seller accepted Sir Leonard’s offer

• Issue: Are terms of invitation to treat binding on eventual offeree?

• Analysis o Sales to highest bidder occur via auction or fixed bidding o In auctions:

Bidders adjust bid by reference to rival bids Purchaser pays more than any other bidder is prepared to pay but not necessarily as

much as the purchaser was prepared to pay o In Fixed bidding:

Bidder many not adjust bid, each specifies a fixed amount that he hopes will be sufficient but not more than sufficient to exceed any other bid

Purchaser does not necessarily pay as much as they were prepared to pay but any bidder who specifies less than his best price knowingly takes a risk of being outbid

o A vendor chooses b/w fixed bidding and auction and the bidder can only choose to participate in the sale or to abstain

To determine whether vendor meant to have fixed or auction, the invitation must be read as a whole based on reasonable person test

o All that is necessary for a fixed sale was to invite confidential offers and undertake to accept highest offer. Both occurred in the invitation by the Respondent

o Leo’s referential bid was therefore invalid b/c this was fixed bidding

• Holding. Appeal granted. Based on presumed intention of the vendor, three provisions of the invitation are consistent with a fixed sale and inconsistent with an auction

Comments: Right result but no explanation. Why was the D bound to honor the terms of invitation when there was no contract? Pre-contractual obligation? Free-standing policy obligation?

TENDERING PROCESS

• Call for tender = invitation to treat. Tenders = offers.

• In traditional contracts party submitting tender entitled to revoke prior to acceptance

• Party calling for tenders entitled to accept or reject each or all tenders

• Policy: Need for commercial certainty and integrity of process.

o Risk on both sides: contractor wants assurances the process will be fair and not decided based on favoritism, especially b/c of all the time and money put into making tender

o Gov’t wants assurance that once contractor submits bid they will not walk away during gov’t deciding time

o Technically, until contract comes into effect (gov’t selecting tender) neither party has any rights or obligations

R V RON ENGINEERING & CONSTRUCTION [1981] SCC Use for problems regarding withdrawal of tenders prior to selection. Tendering process with two bilateral contracts (KA/KB); one governing process, one governing contract. KA/KB IS LIMITED TO TENDERING PROCESS

• Facts: Call for tenders put out with terms: specific deadline, $150 000 deposit, and cannot revoke offer once submitted. Contractor submitted a tender to build a project for $2, 748, 000 and submitted a deposit of $150 000. After tender opening, company learns their tender was $632 000 lower than the next. Contacted company adding $700K to their price and requesting opportunity to withdraw. Later determined contractor had not actually withdrawn but tender was incapable of being accepted

• Analysis: Traditionally, no contract until gov’t selects winning tender and they form contract. Under this methodology no one has any rights/obligations so gov’t can choose anyone they want and it doesn’t have to be fair and contractors can withdraw whenever they want before being selected

o Call for tenders can’t be offer – not enough details and the danger of too many acceptances o Solution to problem: KA/KB

• Offer facilitated by statement of proposed terms of KA

• Judge says KA is a unilateral contract but this is wrong, actually a bilateral contract created b/w gov’t and EACH contractor (there are lots of KAs)

o Gov’t must honor obligations stated in the call for tenders (KA offer) o Gov’t required to fairly select winning bid and award KB lowest/best offer o Companies must honor obligations in the offer (KA) – can’t withdraw offer, forfeit

deposit if tender withdrawn or if KB not executed

• Normally, bilateral contract is promise/promise and unilateral is promise/act but here it is a bilateral contract with promise/act (but that act contains implicit promises – promise not to revoke, promise to build in the future)

• Crown executed KA by choosing lowest bid. Contractor required by KA to sign KB within one week. Contractor breached KA by not signing KB. Remedy for gov’t under KA breach is retention of the deposit

Comment:

• $150 000 is an example of liquidated damages o Expectation damages can be hard to calculate so liquidated damages used instead. They are

basically parties’ best guess of what penalty should be if one party doesn’t execute – easier than going through process of determining expectation damages

• There is no evidence of undue influence, unconscionability, fundamental mistake or snapping up

Tendering Process Process Contract (Contract A) Project Contract (Contract B)

Call for Tenders (bids) Offer Invitation to treat

Tenders (bids) Acceptance Offer

Selection Acceptance

• Policy: Similar to problem of preemptory revocation, KA doesn’t appear to “come up” from the parties – neither party was likely thinking about it (imposed on the parties?)

• KA/KB (question of fact) is the norm in tendering process now, but parties can decide not to use it if they are explicit.

• Holding : SCC confirmed dismissal by trial judge of the contractor’s claim for the return of the deposit, appeal allowed. Tendering process of KA/KB was created to ensure call for tenders as an invitation to treat was binding

MJB ENTERPRISES V DEFENCE CONSTRUCTION [1999] SCC Privilege clause generally effective only for “cost”, not effective for non-compliant bids. Three instances where terms can be implied into contract: (1) custom, (2) legal incident for particular type of contract, (3) presumes SUBJECTIVE intentions of parties under business efficacy and officious bystander test

• Facts: Gov’t wanted to build a structure that could have three different materials with different costs. Tender conditions included that it wanted one price and privilege clause – “lowest or any other tender shall not necessarily be accepted”. Gov’t chose winning tender that had different prices for different materials.

• Analysis: general instances where terms may be implied in a contract that are not expressly written: o (1) Custom or usage o (2) Legal incidents of a particular class or kind of contract o (3) Presumed (subjective) intention of the parties where the implied term must be

necessary For “business efficacy” on “officious bystander test” Terms applied into contract if they are necessary in order to give the contract

business efficacy and the “officious bystander” would say that “obviously this term is implied into the contract”

When dealing with implied terms, important to focus on the ACTUAL intentions of the parties, not the intentions of REASONSABLE PARTIES

o Implied term in to consider only compliant bids, no implied term to accept lowest cost bid Costs of making tender is only reasonable if KB applies to only compliant bids Lowest cost often extends beyond just price (consider length of project, likelihood

of success, experience of bidder) o Privilege clause permits good faith aware to non-lowest bidder but doesn’t mean they can

pick JUST ANY bid (also outweighs custom)

• Remedy: D breached KA by accepting non-compliant bid (not b/c they didn’t pick lowest bid – they didn’t have to) so P entitled to expectation damages (amount gov’t paid – costs = amount they would’ve profited)

COMMUNICATION OF OFFER

Requirement of consensus ad idem (meeting of the minds). Parties must objectively agree to enter contract on proposed terms. Offer must be put “out into the world” – communicated to the world as an offer

Carlill v Carbolic Smoke Ball [1893] UK – SEE ABOVE • Offeror entitled to make unilateral contract to specific person or to the entire world

• Contract formed only upon performance of act or acceptance of offer

• Difference b/w this and Blair: lady in Carbolic was directly motivated by the offer, she didn’t communicate acceptance

BLAIR V WESTERN MUTUAL BENEFIT [1972] BCCA

Only applies to unilateral offers. No contract unless statement communicated as offer (no intention to create legal relations), and acceptance must be motivated by desire to accept offer. Facts: During meeting, members agreed that Blair, upon her retirement, would get two years salary. They got to her transcribe the notes – never mentioned the ‘offer’ to her. She retired, and they didn’t give her money. No causal connection, she didn’t retire because of offer. She also took no action to accept the offer Analysis: No contract b/c message was not communicated as an offer (no intention to create legal relations). No contract b/c when she retired she was not motivated by the offer (PROF DISAGREES WITH THIS) Holding: No contract b/c message was communicated for stenographic purposes only, no retirement $

WILLIAMS V CARWARDINE [1833] UK Unilateral Offers: Motivation irrelevant as long as offeree (know about offer) performs stipulated act Facts: Ad asking for info about murderer. Deceased brother published handbill saying: “that whoever would give such information as should lead to a discovery of the murderer of Walter Carwardine should, on conviction, receive a reward of 20l; and it then added, that information was to be given, and application for the above reward was to be made to Mr. William Carwardine, Holmer”

• P had been with deceased the night of his murder, and through other motivations (she feared for her life after later being beaten), she voluntarily made a statement containing info that led to the conviction of the murderer

Analysis: Doesn’t matter that she wasn’t motivated by offer. Motivation irrelevant. That she knew about the offer was enough (specific for unilateral contracts). RP – if you knew about offer and fulfilled act then reasonable expectation to receive reward Holding: There is a contract, she should receive reward money

R V CLARKE [1927] AUST HC Offeree cannot accept offer in ignorance – must KNOW (intention) about it but does NOT have to be motivated by it. Presumption: knowing about offer=remembering offer. Unilateral contracts can only be accepted by FULL and COMPLETE performance

• Facts: Police offered reward for information, terms are critically important for this case, offer said: “reward paid for anyone who provides information leading to arrest and conviction of the person(s) who committed the murderS”. P saw the offer but initially refused. Later provided information (that led to conviction) for self-preservation reasons but forgot about the reward. Crown refusing to pay

• Analysis: Clarke was an accessory and his motivation was to clear his name, he had no intention to accept the offer from the Crown. Party has to know that the offer exists – can’t “accept” without knowing it exists

o Fact that he had forgotten the offer is the same as never seeing the offer (both are ignorance of the offer) – can’t accept in ignorance of the offer

o Extra comments: unilateral contract is only complete when there is FULL and COMPLETE acceptance. Didn’t happen here, by the time Clarke came forward the police had already arrested one of the individuals so Clarkes information did not lead to the ARREST AND CONVICTION of MURDERERS

Good contract law, bad public policy o Rebuttable presumption: if a person knows about the offer then they remember it unless

there is explicit evidence to show they forgot about it (this case)

• Holding: appeal allowed. No contract created. Don’t have to pay Clarke

• Difference between Clarke and Williams o Rebuttable presumption that once someone knows about the offer, they are relying on it

and thinking about it In Clarke, he explicitly said that he had no recollection of the offer In Williams, it was implied that she had no recollection of it but that was never

explicitly said o Big difference: info in Williams did lead to the discovery and thus conviction of the murder

but in this case, the information did not lead to the conviction of the murder, as the murderer was already in custody wshen the information was given

Ratio from Blair, Cardwardine and Clarke: Offer must be communicated as an offer. Person has to at least know about and remember unilateral offer but does not have to be motivated by offer. Contract only occurs when this FULL and COMPLETE acceptance

ACCEPTANCE

• An expression on willingness to enter contract on terms stated in offer. Subjective intention not determinative: reasonable person in circumstances as a whole.

• Must be in response to offer, no contract: if in ignorance or if identical offers are exchanged.

• Must be absolute, unconditional assent to offer. “Your offer is agreeable” may not constitute acceptance. If you accept, you accept EVERYTHING. Even terms you had not thought about previously

• If no form of acceptance stipulated, any reasonable form is presumed permissible. Bilateral contract generally accepted through promise, while unilateral contract accepted through complete performance.

COUNTER-OFFER

LIVINGSTONE V EVANS [1925] ABSC Counter-offer is a rejection of older offer and creation of new offer. Mere inquiries are not counter-offers Facts: D (seller) sends offer of $1800. P (buyer)- “send lowest cash price, will pay $1600”. D (seller) – “cannot reduce price”. P(buyer) – accepting $1800 Analysis: P offer of $1600 was counter-offer that killed the original $1800. By themselves, now that P has offered $1600 they cannot go back and accept $1800.

• D statement “cannot reduce price” is implicit counter-offer to the $1600 – rejecting counter offer of $1800 and re-offering $1800

• P was able to only accept the third offer (the revival of the $1800) Holding: There is a contract ** Mere “inquiry” is not a counter offer – “Would you accept $1600?” – NOT a counter-offer Policy: counter-offer counts as a rejection for certainty and predictability. When original offer is dead, this allows the seller/buyer to walk away, no harm, no foul. If counteroffer didn’t kill original then the original offeror would be required to continue to negotiate and couldn’t leave negotiations

BATTLE OF THE FORMS

• Recurring problem due to widespread use of standard form documents (commercial convenience and efficiency).

• Policy: Three advantages: (1) Company can hire cheaper labor that doesn’t need to know how to negotiate, (2) Provides precedent (once document has been litigated, no question of further interpretation, (3) Allocates risk – each party knows where they stand and what insurance they need to buy

• Policy: Two problems: (1) Risk of exploitation – terms from corporation favor corporation, (2) Battle of the Forms – each party has a standard form and each assumes they are operating on their version

• Parties may communicate by means of forms on differing terms – offer made on one, acceptance purportedly made on basis on another party’s forms. No contract if parties never ad idem.

o Here, the “acceptance” that was made by the other party is actually just a counter-offer – rejection of original offer

• If BOTF before exchange: no contract. If afterwards (a) create contract by court interpretation or (b) no contract but use unjust enrichment – detrimental reliance. No legal explanation. UE looks backwards, K forwards.

BUTLER MACHINE TOOL CO V EX-CELL-O-CORP [1979] ENGLAND Various means for resolving battle of the forms. Traditional – whenever there is consensus ad idem. Denning – first shot wins, last shot wins, shots construed together as a whole (DON’T FOLLOW HIS REASONS IN EXAM) Facts: P offer (seller) contained base price and escalation clause. D counter-offer (buyer) included base price with no escalation clause

• Sellers quoted a price to the buyers with terms on the back of the offer saying that their terms/conditions would “prevail over any terms and conditions in the buyer’s order”. One of these allowed the seller to change their price after delivery (10 months later) to the prevailing price

• Buyer sent order form in and it said that deal accepted “on the terms and conditions stated thereon. When the product was delivered the sellers were asking $2000 more than price

• Buyers took position that their order prevailed and there was a fixed price contract; sellers said their version won out

Issue: There was a contract created, but on what grounds? Analysis:

Traditional view: seller’s made an offer and b/c the buyer gave something back with different terms and conditions (it was not exactly the same) then according to Hyde v Wrench this was a counter-offer that killed the original offer

• When the sellers signed and sent back the buyer’s form that contained the new provisions, this constituted acceptance of the counter-offer (parties ad idem on D’s terms)

Lord Denning – three non-traditional approaches to resolving BOTF

• Strong judicial desire to find valid contract especially if contract executed

• (1) Last shot wins o Whichever part put their standard form in first wins o If there is no objection to the last set of terms – this is deemed acceptance o Would be D (buyer) in this case

• (2) First shot wins o Whichever party put their standard form in first wins o Later terms irrelevant unless highlighted o Would be P (seller) in this case

• (3) Reconciling the shots (preferred) o All terms construed together

If consistent… valid contract on such terms If contradictory – judicially create reasonable terms

o Basically – “tell me all the information and I’ll decide” Holding: Appeal allowed, judgement for the buyers that their version of terms and conditions prevailed

TEKDATA INTERCONNECTION LTD V AMPHENOL LTD , [2009] EWCA Typically, orthodox analysis should occur where you don’t have a contract until the parties both agree to the exact same terms at one point in time. This case, when a little bit of a stretch and said that P’s receipt of D’s counter-offer constituted acceptance b/c looking at the package as a whole (P and D exchanged money for goods) and this suggests they had a contract Facts: Supply chain: Rolls Royce Goodrich Tekdata Amphenol

o Tekdata buys parts from Amphenol and then gives them to Goodrich (all part of supply chain of Rolls Royce) o Tekdata had a contract with Goodrich that Tekdata would purchase the stuff from Amphonel at the price and specifications of Goodrich o Goodrich also had a contract with Tekdata saying that they would send the parts to Tekdata at the price and specifications that Tekdata asked for o Tekdata generated a “purchase order” (OFFER)

to amphenol with terms favoring things like quality control and best possible quality o Tekdata believed that a contract was created as soon as they sent the Purchase order,

but this legally can’t be true and there was no evidence of such except for the fact that the parties had enjoyed a business relationship for >20 yrs

o Amphenol responded with “acknowledgement” (COUNTER-OFFER) that contains lots of terms about exclusionary clauses and insurance

o Parts get to RR and there is a problem so they are trying to figure out who’s problem

• Issue: When considering “battle of the forms” a traditional offer and acceptance analysis can be displaced by reference to the conduct of the parties over a long-term relationship?

• Analysis: o Trial: Contract on Tekdata’s terms b/c

(1) the occasional contract that Goodrich had with Amphenol was similar to Tekdata’s so that should prevail

(2) Problem first happened, Amphenol didn’t mention their standard form contract, and instead said nothing was wrong with the part

(3) Public policy and in the interest in public safety – want a contract that is based on highest possible quality

o CA (response to trial judge): (1) Fact that Goodrich-Amphenol and Tekdata-Amphenol had similar contracts is

irrelevant (2) Irrelevant that Amphenol didn’t mention standard form contract. This is

something lawyers do, not business people (3) Public policy irrelevant – Parl can get involved if they have a problem

o CA Reasons Orthodox analysis: no contract unless we can find both parties on exactly the

same terms at exactly the same time - unless there is intention otherwise (Rare) Contrary intention might (?) need to be express but definitely evidenced by

documents and conduct

P believed there was a contract when they sent “Purchase Order” but you cannot have a contract w/o acceptance

• No acceptance in mere receipt of offer unless other contractual duty to accept

Little of a stretch: Contract created by P’s acceptance of D acknowledgment (included D terms) and the fact that the parties exchanged goods for money (looking at the whole package suggests there was a contract – but on Amphenol’s terms)

• Holding: does not think that this situation amounts to enough to displace the traditional analysis so traditional analysis must be used. Appeal allowed and it is the terms and conditions of Amphenol that apply to the contract

COMMENTS: If there was no contract (if the Court had applied the traditional orthodox analysis) then how would you justify the exchange of goods and money? Unjust enrichment

• Gives the remedy of restitution – makes Tekdata pay to A the value of the part, but that is all that it can do (it can’t import terms regarding the quality of the part or any warranty policy on them)

ACCEPTANCE OF INCORPORATED TERMS

General rule: offer must be accepted or rejected in entirety at outset (terms cannot beaded after contract has been formed.

• Price reflects original benefits and burdens o Ex. Buying an airline ticket, contract in effect when you pay but there are conditions

in effect that you didn’t know about

• Condition precedent – contract in place but doesn’t come into effect until a certain event happens

• Condition subsequent – transaction valid at outset but if a certain event happens, then the contract comes to an end

Exception to general rule: terms may be incorporated by reference

• Terms may exist at outset even though details discoverable later o Ex. Original airline contract is subject to more detailed terms – this only works if the

person knows at the beginning that there are terms that are coming later They have to be given notice

o If detailed terms (of which you had previous notice) are unreasonable and unacceptable, this is condition subsequent and contract comes to an end

o Ex. Concert ticket: prohibition on recording o Ex. Airline ticket: limit on baggage

• Existence of terms must be sufficiently disclosed at outset o If condition subsequent occurs and contract comes to an end there needs to be

restitution on both sides o Unjust enrichment on both sides and they need to switch back

PROCD V ZEIDENBERG [1996] USCA Prof doesn’t like case – says that neither trial nor appeal level judge know the law. Notice of terms is sufficient: shrink wrap terms are enforceable. To make analysis better, have three contracts all subject to condition subsequent. Terminable if unhappy. Acceptance is through performance

Facts: ProCD cells a CD covered in plastic that has phone numbers of people. Engaging in price discrimination (personal use = $50, commercial use = $150). Differentiates b/w customers b/c in every box software comes with restrictions stated in enclosed licenses in the box, license is also on the CD, and in the printed manual and appears on the user’s screen every time the software runs. D bought the personal product, ignored the licenses, and published all the info on the internet for a cheaper price than the commercial price that ProCD sells. Analysis (trial):

• Licenses didn’t have effect b/c their terms do not appear on the outside of the CD and contract formed in entirety when purchased, before it is opened. Purchaser cannot be bound by terms that were secret at time of purchase

Analysis (CA):

• Contract contains only terms agreed upon

• Terms may be incorporated by notice – details discoverable later o Rule of commercial efficacy

Transactions where exchange of money precedes communication of detailed terms are common (ex. Airline tickets) and reversing this process increases transaction costs

o Impractical to state all terms on package o Impossible to externally state terms if no packaging – like buying things online o Product returnable if terms unsatisfactory once discovered

• Offeror may stipulate mode of acceptance o Contract formed when D agreed to terms on screen

Holding: For Plaintiff, appeal allowed. The license inside the packaging is part of the contract and cannot be ignored

COMMENTS (to make result better):

• PROF: right idea but not enough details given. There is a contract when D agreed to terms on screen but there are other contracts

• 3 Contracts total for 3 different transactions: o (1) ProCD (manufacturer) sells to the retailer – tangible item o (2) Retailer to the customer – tangible o (3) Customer and ProCD – intangible (license created online)

• All three are subject to condition subsequent

• Contract terminable if terms unsatisfactory

• Terms accepted though conduct (agree on terms)

ACCEPTANCE BY PERFORMANCE

• Offeror as master of the offer o Offeror entitled to stipulate form of acceptance o If no form stipulated...any reasonable form presumed permissible o Even if method of acceptance is stipulated but the reasonable person thinks that in the

circumstance that mode of acceptance was more of a suggestion then you might be able to accept in other methods

• Bilateral contract and unilateral contract: forms of acceptance o Offer of bilateral contract (generally) accepted through promise

Obligations on both sides

Exchange promise for promise – can be verbal, written words or actions (we look at substance, not form)

o Offer of unilateral contract accepted through complete performance – this is the only way to accept unilateral contract

Carlill v carbolic smoke ball...directed use of product Williams v carwardine...provision of information

o How are offers of bilateral and unilateral contract distinguished? Usually pretty obvious There are situations where it is ambiguous – and its important to differentiate

b/w the two b/c that dictates the mode of acceptance

Carlill v Carbolic Smoke Ball [1893] UK – SEE ABOVE Williams v Carwardine [1833] UK – SEE ABOVE

DAWSON V HELICPOTER EXPLORATION CO [1955] SCC Rebuttable presumption that contract/offer is bilateral if unclear. Also example of condition subsequent – D to use best efforts to find pilot. Contract would end if pilot could not be found Facts: Letters back and forth about staking a claim, offer from D of “if we go up together, and if we decide to stake you will get 10% of profits...however contingent on us finding a helicopter.” P, on active duty, agreed to terms. D revoked – found helicopter but not economically good for them to buy land. P didn’t answer. D staked claim with another company. P wants 10%.

• P argued they had a bilateral contract, D says they only had a unilateral contract that would’ve been satisfied only when the P took them to the mineral site and the found minerals

• And b/c it wasn’t the P who took D to find the minerals, there was not complete performance so there was no contract

Issue: When will an offer be classified as pertaining to a unilateral contract? Analysis:

• Presumption: offer of bilateral contract and not unilateral contract (for policy reasons to lock the parties in at the outset)

o If unilateral contract then it is revocable any time prior to full acceptance Protection for offeror but no protection for offeree

o If bilateral contract, then irrevocable after acceptance by promise Protection for both offeror and offeree Presumption said to generally accord with expectations

• Acceptance must be clear but not necessarily express – gleaned from circumstances as a whole

• D’s offer was of a bilateral contract subject to condition subsequent o D to pay 10% if claim successfully exploited o D to use best efforts to find pilot and arrange flight to claim area (condition)

• P accepted offer of bilateral contract through promise to perform o Promised to leave Army once pilot was found and promised to show D the area

• D breached contract by refusing to transport P to area o Damages assessed on basis that full compliance was possible

Holding: Appeal allowed, D breached contract b/c it was a bilateral contract.

ACCEPTANCE BY SILENCE OR CONDUCT

FELTHOUSE & BENTLEY [1862] EXCH ??? Prof likes this case. Silence by itself is not acceptance but silence can be acceptance if you previously agreed that silence can be acceptance. Subjective intentions of the parties is not determinative. Consensus ad idem determined objectively Facts: Uncle purchase horse from nephew. Original confusion to price – 30 pounds or 30 guineas. Uncle suggested splitting the difference, “if I hear no more from you, I’ll consider the horse mine.” Both thought contract was formed. Auctioneer sold horse and uncle sued for conversion. Court held no contract, nothing was communicated or done to bind himself. Analysis:

• D not liable in conversion b/c horse didn’t belong to P o No contract formed b/w P and nephew through silence (offeror cannot stipulate just

silence as acceptance)

• Policy: acceptance is determined based on RP test o Irrelevant that parties believed they had a contract before the auction o Desirable that acceptance requires outward manifestation o Mischief: Ex. If silence was acceptance then companies would give you products you

didn’t want and say that if you didn’t respond back then this would be acceptance o BC & ON have laws that if companies send unsolicited goods you don’t have to return

them but you can use them

• Exceptions to general rule: o Contract agreement to allow subsequent silence to be acceptance (ex. Book of the

month club) – if you previously agreed that silence in future can be acceptance; you agreed to allow club to send you books every month and silence would be acceptance so when they send you books, then you have to pay for them

ST. JOHN TUG BOAT CO V IRVING REFINERY LTD [1964] SCC Silence can be acceptance based on reasonable person test (objective), especially if coupled with past behavior or behavior after acceptance. Positive action on the part of offeree plainly signals agreement to terms (ex. All you can eat, shoe-shine) Facts: D used P’s boats to guide tankers in. Previous contracts expired – boats wait on standby so when D needs them they can bring the tankers in to the harbor quickly. D ignored request for new contract. D used services of P, who sent invoices. P wants to be paid. Could get UE for the services provided, but not for the times waiting. Analysis:

• From Bentley – mere silence cannot be acceptance

• Objective test for acceptance: if the parties’ objective intentions (based on reasonable person test) showed that they consented to the terms on both sides, then there is a contract

• If silent about acceptance after receiving services, services are to be paid for at their fair value, or at offered price if that is known to offeree before acceptance

• P not unreasonable in thinking that silence from D was acceptance b/c they had a prior contract

• Acceptance reasonably construed on actual facts o D knew P held tug for its use o D knew P expected payment (sent invoices) o D took benefit of tug service – used it in the time in question after the contract had

expired and before action filed

• Unjust enrichment

o P could claim unjust enrichment but this would only give restitution for the services, not the time.

o Also if P damaged D’s boats, then UE won’t protect P like “exclusion clauses” in contract would (protect from liability for damage or other rights)

Holding: There was a contract and D must pay. Silence was acceptance based on reasonable assumption that silence was acceptance b/c they had a previous contract together

COMMUNICATION OF ACCEPTANCE

Parties must objectively agree to enter contract on the same terms – offeror and offeree must both show objective willingness to be bound on the same terms Requirement of communicated acceptance protects offeror

• Generally no contract until acceptance is communicated

• No obligations incurred until acceptance communicated

• Practical: Communication signals need to offeror to withdraw offer Offeror generally master of the offer

• General rule: offeror entitled to stipulate mode of acceptance and usually mode of acceptance only effective in that stipulated mode

• Exceptions: (1) stipulated mode presumed to be more of a general guideline and not mandatory o (2) Requirement of communication of acceptance can be waived

Only the offeror is entitled to waive the requirement (the requirement exists to protect the offeror)

Waiver of requirement may be express or implied (Carbolic Smoke Ball) but is determined objectively

o (3) Non-conformity to stipulated mode of acceptance may be permissible if it does not prejudice offeror

• Any reasonable mode of acceptance is permissible if no mode is stipulated

WAIVER OF COMMUNICATION REQUIREMENT: UNILATERAL CONTRACTS

Carlill v Carbolic Smoke Ball [1893] UK – SEE ABOVE

MODE OF COMMUNICATION

ELIASON V HENSHAW [1819] Prof: EXCELLENT judgement – applies law in common sense way that is practical. Precise mode of acceptance is irrelevant (as long as the timing requirements are the same) but precise place of acceptance is relevant Facts: Buyer (in Harper’s Ferry) wants shipment of flour in the spring. Sent offer by wagon and requested response by way of return horse. Seller sent letter to place of business in Georgetown. Sent flour in spring, buyer says no contract, already bought flour from somewhere else Analysis:

• D buyer requested acceptance by return wagon but knew this was literally impossible b/c of the winter – buyer meant that they wanted a return answer in the same time frame as a wagon

o Any mode satisfying this time frame would’ve been permissible

• Precise place of acceptance is relevant – buyer entitled to demand communication at specific location, because that served a specific purpose

o Buyer would not be at the place in Georgetown until the Spring, they knew that so they asked for acceptance where they would be residing for the winter in order to ensure they received the acceptance

Holding: No contract. Acceptance by return horse means time frame (as quick as) and location (Harper’s Ferry). EXAM: The offeror can stipulate a particular mode of acceptance. Even though offeror and reasonable person believe its true, Court should go through interpretive exercise to determine exactly what the offeror had in mind when it stipulated that mode of acceptance

CARMICHAEL V BANK OF MONTREAL [1972] MANQB Prof: Court went too far in this case. Pre-contractual obligations can exist, the offeror cannot frustrate attempted communication of acceptance. Problem – there is no source for these obligations b/c they don’t have a contract Facts: Cuthbert as agent and Tilley as sub-agent for seller Bank (D). D offers to sell property to Carmichael (P). D offer stipulated acceptance needed by Friday by 6 in writing. Accept 5:10, signed 5:45, phoned bank but manager gone. Left message with employee. Bank manager returned at 5:59/6:01? Too late. Also accepted by signed document at manager’s house at 6:15pm Issue: Must offeree comply with communication requirements, can offeror frustrate attempted communication? Analysis: Bank motivated to find a contract b/c bank trying to get out of contract and sell price to someone else for higher price

• Broad, flexible approach to approved methods of communication. Acceptance established on facts:

• D’s manager received oral communication before the deadline (court holds that he received it at 5:59pm)

• OR Court holds: oral communication to D’s employee before 6pm was sufficient, communication doesn’t need to be THE person in authority (Prof disagrees – not realistic that random employee can be authorized to receive acceptance)

• OR if writing required: communication to bank manager at his house by 6:15pm is sufficient o Court holds that if you stipulate a mode of acceptance then you have an obligation that

you’re available to receive that acceptance o Same problem as Harvela – why does bank manager have a pre-contractual obligation

• Offeror cannot frustrate attempted communication (problem – what is the source of this obligation?)

Holding: They had a contract, and the acceptance was valid. Recurring problem for Court wanting to impose obligations

Held: Contract – broad and flexible approach to approved modes of communication. Acceptance on facts (1) D’s manager received oral communication before deadline [McInnes says only valid] OR (2) Oral communication to D’s employee before 6:00 sufficient, OR (3) if writing required: communication to C at 6:15 sufficient. Offeror cannot frustrate attempted communication. [problem – where is the source of offeror’s obligation from?]. *Recurring problem of court wanting to impose obligations.

INSTANTANEOUS COMMUNICATION

General rules (Subject to exception) (1) Contract concluded when and where acceptance

becomes effective. (2) Instantaneous communication –acceptance effective

when and where received (ex. Telephone) a. Application of precedent (Entores) makes the

default rule that instantaneous is when and where received

b. No unreasonable hardship to offeree if no contract if message fails.

i. Offeree better able to determine if transmission fails.

ii. Offeree can use telephone to immediately confirm. Thus, allocation of risk on the most efficient risk avoider.

iii. Compared to mail – immediate confirmation impossible c. No unreasonable hardship to offeror if contract, if message works.

i. Reasonable offeror monitors machines for message. ii. Offeror entitled to displace presumptive rules.

d. Rule for instantaneous is not necessarily universal i. Exceptions can arise (Ex. Parties reasonably may not monitor machine)

ii. Final determination based on circumstances, intentions and risk (3) Non-instantaneous communication – acceptance effective when and where sent (ex. Mail)

BRINKIBON LTD V STAHAG [1983] HL Telex considered instantaneous communication – acceptance effective when and where received Facts: Offer from Vienna, Acceptance through telex from London to Vienna. What is the contract jurisdiction? Telex classified as instantaneous and thus contract in Austria (when and where received)

POSTAL RULE

Acceptance by mail is effective upon posting. (1) Even if lost (2) Offeror notice of revocation effective only upon arrival (3) Jurisdiction is place of mailing – place contract was created. Policy Considerations: (1) Impossibility of apportioning burden of inevitable hardships (2) Ability of offeror to stipulate actual receipt of acceptance (may be implied_

(3) Desirability of providing offeree with certainty of position. [may be required act on belief of contract or no contract. Offeror similarly positioned but able to preclude postal rule.

(4) Prevention of fraud by offer or (but possibility of offeree fraud) Postal Rule does NOT apply when (a) express terms specify acceptance must reach offeror (b) if its application would produce manifest inconvenience and absurdity.

HOUSEHOLD FIRE & CARRIAGE V GRANT [1879] CA Prof: GOOD LAW. Postal rule is default rule when dealing with non-instantaneous communication – this is a rebuttable presumption though. Tension of theoretical consensus ad idem and practical requirement of concluding contract through mail. Treating post service as agent [McInnes hates]. Dissent: Need communication of acceptance. Hard on offeror. Concerned about scope of rule – only applied if expressly or impliedly allowed. Facts: D gave offer/application for shares, P sent letter confirming. Added name as investor. Letter got lost in the mail and D never received it. D bankrupt, come for $100 owed. P never got acceptance. Analysis:

• Tension b/w two requirements: o Theoretical requirements for consensus ad idem o Practical requirements of concluding contract through mail

• POLICY considerations for favoring the “postal rule” o Impossibility of apportioning burden of inevitable hardships (ex. Cannot split the $100

difference owed) o Offeror is master of the offer – they have the ability to stipulate actual receipt of

acceptance (stipulation may be implied from circumstances) o Desirability of providing offeree with certainty of position (offeree may be required to

act on belief of contract or no contract) In non-instantaneous, offeree has no means of knowing whether acceptance

was received or not The offeror is in the same position – not able to know if acceptance occurred or

not but they are able to change the postal rule if they want o Prevention of fraud by offeror (but there is still possibility of offeree fraud) – PROF:

NOT A GOOD REASON o Post office treated as agent of both parties so acceptance when mailed (also not a good

reason) Bramwell LJ (dissent)

• no contract if offeree sends message by hand and message fails o but (unlike post situation) offeree would know of failure

• postal rule works to hardship of offeror if acceptance not received o but offeror able to stipulate actual receipt of communication

• posting as acceptance only if offeror agreed (not here) o dissent concerns scope of rule allowing post as acceptance

Postal rule should not be used as the presumptive rule but should only be used if the parties agree to use it

As time has gone on, this opinion doesn’t much matter with technology now o rule applied if offeror expressly or impliedly allowed

Holding: Contract. Postal rule applies so acceptance occurred when and where sent b/c a letter is a non-instantaneous mode of communication

HOLWELL SECURITIES V HUGHES [1974] CA Important case for distinguishing b/w offeror as master of the offer allowing acceptance by post vs using postal rule. D, as master of the offer, stipulated that they had to receive the acceptance. Never received the acceptance. Postal rule is a rebuttable presumption Facts: D seller sent offer as an option to P buyer. Part of offer was that offeror stipulated that acceptance had to be in writing and the D seller had to receive the acceptance. P sent letter accepting offer to purchase property. P called after to say that it was mailed. D never received the letter and D sold property to 3rd party Analysis: Offeror may permit offeree’s communication by post but postal rule applicable only if reasonable in situation. “Notice in writing” means that something has to be known by writing (objective definition based on trade practice).

• In circumstances, actual receipt of writing was required

• “Notice in writing” means two things: (1) Writing by post is acceptable, (2) Postal rule does not apply. Offeror implying no contract until they have received written copy of acceptance

Holding: No contract. Said “notice in writing”, shows necessary to receive acceptance.

ELECTRONIC TRANSACTIONS ACT, SA 2001 Scheme applies by default, parties can stipulate other rules. No case law. Traditional rules of contract created when and where communicated acceptance is effective. Instantaneous vs non-instantaneous is irrelevant.

Using Different Systems

Same System

When is message deemed SENT?

Enters system beyond senders control

Retrievable by recipient

Recipient Using Special System for receiving such messages

Recipient NOT using special receiving system/email address

When is message RECEIVED? Entered system and retrievable (knowledge irrelevant)

Recipient aware of entry and retrievable

General Rules Either party – More

than 1 place of business Either party – no place of business

Place Sent and Received

Sent from sender’s place of business. Received at recipients place of business

Place most closely connected to contract

Use habitual residence

Sent: Deemed sent when message enters system beyond the send’s control. If parties use the same system, sent when retrievable by recipient.

Received: If special system – received when enters system (knowledge irrelevant), if no special system, deem received when recipient aware of entry and it’s accessible.

TERMINATION OF OFFER

Ways of terminating an offer: (1) Offeree rejects offer outright (2) Counter offer by offeree (3) Revocation by offeror (4) Lapse of time (5) Occurrence of contemplated terminating condition (6) Death

COUNTER-OFFER

ERROR! REFERENCE SOURCE NOT FOUND. – SEE ABOVE Counter-Offer: kills offer, counter-offeree cannot unilaterally revive offer but offeror may restate offer (Livingstone “cannot reduce price”) “counter-offer” as mere inquiry (“will you take $500?”).

REVOCATION

BYRNE V VAN TIENHOVEN [1880] CPD?? Postal rule of acceptance does not apply to revocations. Acceptances via postal rue occur when/where they are sent but offers and revocations are only valid when/where they are received. If offeree is unaware of the revocation, they can still accept (revocation has to be communicated to them) Facts

• Oct 1, defendant seller mailed offer to sell tin plates to P

• Oct 8 – D mailed revocation letter of offer

• Oct 11, P received 1st offer and immediately accepted by telegram on same day

• Oct 15 – P buyer sent letter confirming acceptance

• Oct 20 – P receives revocation letter Analysis:

• Offeror can withdraw offer at any time before it is accepted

• Consensus ad idem – there has to be a meeting of the minds so an uncommunicated revocation is (practically) no revocation at all

o If offeror revokes (mind closed) before acceptance (mind open) then there is no meeting of the minds BUT subjective intentions of the parties is not determinative (Felthouse)

• Offeree may accept offer and assume accepted if they don’t know about revocation

• POLICY: if offeree could not act on acceptance until they were very sure that no revocation was coming, this would be impractical

o As master of offeror, vendor could have dictated how it wanted acceptance OR if they wanted revocation to be effective, they could’ve revoked in more timely manner (telegram)

Holding: D withdrawal of offer on Oct 8 was inoperative and contract formed on Oct 11 when P accepted

DICKINSON V DODDS [1876] CA PROF: Good decision. Mere sale of an item does not constitute revocation (can still be liable for expectation damages). Revocation occurs when offeree has been reliably informed that that item is sold to 3rd party Facts:

• Wed June 10 – D seller Dodds provided offer to sell his property to P Dickinson and that offer would be open until Friday at 9 (“firm offer” meaning I promise I will leave offer open for certain time and not discuss with other people)

• Thurs June 11 – P found out that Dodds made an offer to someone else and delivered acceptance in writing to the place where Dodds was living

o Acceptance never made it to him

• Friday at 7 – P found Dodds and gave him a copy of written acceptance but Dodds said it was too late and he accepted offer of someone else

• Law: Person cannot accept contract if there is no meeting of the minds, which occurs when the offeror was made the same deal but with someone else and the original offeree knows about it

o Offer to sell property can be withdrawn before acceptance w/o formal notice to person to whom offer is made – sufficient if that person has actual knowledge that the person who made the offer has done some act inconsistent with continuance of offer

Analysis:

• First determined that letter from Jun 10 was an offer

• Although offer said that it would be open until 9, that did not bind Dodds b/c there was no contract and before there is a contract there is no obligations (this doesn’t apply if its an option – this is different)

• There has to be a consensus ad idem between offeror and offeree o Can’t be a meeting of the minds if the offeree knows that the offer no longer exists o Knowledge of sale to third part constitutes revocation

Holding: No binding contract b/w Dodds and Dickinson b/c there was no meeting of the minds b/c the offeree was reliably informed that offer was revoked due to sale with 3rd party COMMENTS FOR FUTURE:

• From whom must offeree learn of sale to third party?

• Is communication to offeree’s agent sufficient?

• To what extent must offeree’s knowledge be reliable?

• All depends on circumstances

• Mixed blessings of options: offeror may receive substantial benefit without substantial cist but there is a danger of irrevocable terms in a volatile market

*Different if have paid for option to keep offer open. Smaller contract. Can’t rely on firm offers – promises. Offer is not automatically revoked when sold to a third party - reasonable expectation of offeree to have a contract [unless heard otherwise].

REVOCATIONOF UNILATERAL OFFER

• Offer generally revocable by same means of communication as offer (ex. Advertised offer revocable by advertisement)

• Offed impliedly revoked after lapse of reasonable time

ERRINGTON V ERRINGTON AND WOOD [1959] Bilateral presumption (from Dawson) is rebutted – unilateral contract instead. Similar to Ron Engineering and tendering – two contracts with first payment serving dual purpose: part performance of big unilateral contract and full performance of unilateral collateral contract. Issue of putting obligations before contract completed Facts:

• 1930 dad bought got a mortgage for a house of his son and daughter in law

• He told them the house would be theirs when the mortgage was paid

• House ownership to be transferred after payments made, but terms were never discussed

• Husband dies, wife takes over and wants to revoke offer

Analysis

• Father’s promise was a unilateral contract – if they were able to make all the payments in full then the house would be theirs but no contract unless they fully performed

• Offeror (successor) unable to revoke while performance continues – offeror must allow offeree opportunity to fully perform

• Two contracts: First payment serves two functions: see diagram o Collateral contract serves as “buying an option” in order to ensure that the unilateral

contract is not revoked while they are in the midst of performance for the big contract Holding: Appeal dismissed, offeror (successor) unable to revoke while performance continues, allowed opportunity to fully perform. COMMENTS: Other cases where Court just makes up stuff that wasn’t what parties actually intended: Harvela Instruments and Bank of Montreal

LAPSE OF TIME

Natural time limit to every offer. If not stipulated expressly or impliedly by offeror, objective test to the reasonable person and expectation. This is dependent on the nature of the goods, volatility of the market, other interested parties, trade practices and any time limits mentioned during negotiations

BARRICK V CLARKE [1951] SCC Reasonable lapse of time is very fact sensitive, depends on the circumstances of the case and the factors above. Lapse occurs based on offeror’s presumed intention to revoke, NOT based on offeree’s implied rejection (England)

Facts: Talking about buying/selling land in Saskatchewan

• Oct 30 – P interested in buying and makes OFFER – possession in Jan/Mar, wants response by

telegram (quick means of communication)

• Nov 15 – D seller makes COUNTER-OFFER, says we could close immediately, says wants answer ASAP. Other hand, vendor says we cant close until Jan 1 and you cant do anything until Mar b/c there is a lease on the property until then

• Nov 20 – letter reaches buyers house and wife says don’t do anything but my husband is away on hunting trip and wont be back for 10 days

• Dec 3 – seller sells to 3rd party

• Dec 10 – P buyer accepts offer but D seller says too late

• Fact that property was sold is irrelevant b/c this was not communicated to D buyer so technical revocation had not happened

Analysis:

• “Reasonable time” for offer to stay open is a matter of interpretation: Trial said lapse – CA said no lapse – SCC said lapse

• Factors suggesting extended duration (hadn’t lapsed): o General non-volatility of farm land o Possession prior to March or farming before spring impossible o Land on market for over one year (trying to sell for a long time)

• Factors suggesting limited duration (had lapsed): o Land subject of interest by several purchasers o Parties communication indicated desire to move quickly – most important

• Lapse occurs by offeror’s presumed intention – Canadian rule

• Compare: Lapse occurs by offeree’s implied rejection (Manchester) – England o If lapse based on implied rejection then letter to P’s wife would rebut this presumption

Holding: Offer expired based on implied reasonable lapse of time presumed by offeror’s intention

OCCURANCE OF CONTEMPLATED EVENT Condition precedent, no offer unless and until something happens. Condition may be implied by circumstances: eg. Perishable goods remain in merchantable state. Condition subsequent, offer until something happens. Condition may be stipulated by offeror: eg. Sell you my car for X as long as you’re in school.

DEATH

Traditionally when offeror or offeree dies – terminated because no meeting of minds. Now: death doesn’t necessarily bring offer to end, depends on circumstances. Terminated if personalities involved important

• Ex. If I am buying land then the specific person doesn’t matter and the offer can still go through, but if I am making a contract for a specific person to play a role in a movie then offer dies b/c that specific person is important

CERTAINTY OF TERMS

• Traditionally: no contract formed unless terms sufficiently clear and courts don’t create terms for parties

• More flexible now, Courts try to make seemingly uncertain bargains enforceable as contracts but the problem is that there is uncertainty regarding when Courts will exercise this flexibility.

• Courts decide based on (1) whether parties have executed the contract (2) detrimental reliance – bend to find solution (3) bad faith – weasel, avoid agreement, (4) Reasonable expectation of concluded contract (most important)

Harder to find common ground as move through these situations.

VAGUENESS (MOST LIKELY TO FIND A CONTRACT)

• No contract if important terms are intolerably vague BUT Courts seldom refuse enforcement due to vagueness alone.

• Look for effective meaning of parties’ words. Reasonable person test – objective, defined from entire context.

• Disputed words may be severed if (a) what remains makes sense (b) all essential elements exist after severance (c) parties don’t contemplate further negotiations regarding the disputed phrase.

• Can be implied: Wiebe v Bobsien. Implied term to make “best efforts” to sell his property thus be able to complete other contract.

R V CAE INDUSTRIES LTD [1986] FCA Rebuttable presumption that commercial contexts intend to create legal relations not rebutted just b/c one party is the gov’t. Vague terms can be interpreted based on the context or severed if a contract with all essential elements is still possible

Facts: Negotiations b/w CAE and federal gov’t to take over aircraft facility. Gov’t gave them “guarantee” of man-hours and they would use “best efforts” to come up with rest of man hours for them, this would allow CAE to make profit. CAE lost money on deal, sued government for breach Arguments: (1) No contract intended b/c politics and politicians make promises they have no intention of keeping. (2) Contract is too vague and uncertain Analysis: (1) Rebuttable presumption not rebutted – if acting like a commercial actor (buy & sell) doesn’t matter if gov’t, still a commercial arrangement. (2) Not too vague – meaning can be interpreted from the terms there. “Guarantee” means unequivocal obligation to provide stipulated man hours. “Best efforts” means to “leave no stone unturned” but gov’t doesn’t have to act contrary to public interest or breach existing contracts Holding: Parties did intend to create legal relations and the terms were not so vague that a reasonable meaning could not be applied to them

NICOLENE LTD V SIMMONS [1953] QBCA Vague and meaningless terms can be severed from contract if (1) what remains makes sense, (2) all the essential elements of a valid contract exist after severance, and (3) parties did not contemplate further negotiations regarding the disputed phrase

MISSING TERMS (SECOND MOST LIKELY TO FIND A CONTRACT)

No contract if important term is missing. If vague term: question of give meaning to existing words (meeting of minds but intention not clearly expressed, less likely fatal). If missing: question of supplying new words. No meeting of minds and intention non-existent. More likely fatal, but not always Cure: find term by implication in the circumstances, incomplete part of agreement may be severable.

HILLAS LTD V ARCOS LTD [1932] Missing terms may be implied by circumstances. Good example of option contract to exercise new contract in the future. Shows examples of detrimental reliance, bad faith, and fundamental changes Facts: Contract: Hillas to buy 22 000 units of timber from Arcos at fair specification in 1930. 1931 agreement – Hillas to get 5% off price of 100 000 units of timber from Arcos in 1931 (no mention of fair specification – specific types of wood at certain prices, at certain ports). Arcos sells their entire supply to a 3rd party in 1931 and none for Hillas. Arcos said contract in 1930 but not 1931 b/c there was no mention of fair specification – important term was missing Analysis: Decision informed by maxims:

• “words are interpreted so as to give force to the subject” – option construed to give effect to apparent contract (if you can make sense of the thing, then you should)

• “that is certain can be made certain” – specifications are certain if they can be so construed (even if there is uncertainty at the outset, we can still have the contract as long as there is a process/mechanism in order to overcome the problem

• 1930 Option: Part of Arco’s consideration under 1930 contract, rendered Arco’s 1931 offer irrevocable and gave rise to the 1931 deal exercised by Hillas

• No contract if content of essential terms left to further agreement – no consensus ad idem

• There are missing terms but they can be filled in b/c: (1) contracts were inextricably linked so presence of fair specification from 1930 can be implied into 1931 and (2) default based on business standard is an implied term that it is always fair specification

SOFT FACTORS PRESENT: Detrimental reliance – Hillas relied on fact that they were going to have 1931 agreement, Bad faith - Arcos probably knew they were never going to give timber to Hillas, fundamentally changes 1930 agreement - Hillas thought that option to exercise 1931 contract was part of consideration they received in 1930 contract SUMMARY: Specifications can be made certain on basis of context of contract: sufficient certainty achieved through objective assessment, option clause construed in context of 1930 document, no question of further agreement between parties, option was not agreement to agree, parties immediately agreed to use same terms as 1930 contract, “fair specification” construed applicable to option, parties generally agree upon fair specification, specifications otherwise construed by court Holding: Enforceable contract. Missing terms can be implied by circumstances COMMENTS: *Not an agreement to agree – only arises if expressly recognize all pieces are not in place and anticipate talking more about it later. Here they haven’t left anything to the future.

AGREEMENTS TO AGREE (THIRD MOST LIKELY TO FIND A CONTRACT)

• General rule: A2A not a contract. No consensus ad idem if further agreement contemplated. Practical difficulty of determining content of obligations and determining damages if no agreement.

• Potential exception: if reference to market value or third parties – decided everything necessary and willing to abide by neutral decision (use market value or have third party decide, the parties provided some mechanism to overcome impasse)

• Potential exception: if parties silent on terms – objective reasonable price and no need for further agreement

MAY & BUTCHER V R [1934] HL Arbitration clause and SGA can be used if the contract is already valid but they cannot be used to make a contract. Parties had agreement to agree – not a contract. $1000 from P was deposit, but not consideration for option for future contracts. No bad faith, no detrimental reliance

Facts: May & Butcher pay $1000 and with respect to tentage, we will agree to agree from “time to time” on price and specifics of types of tents/dates later. Includes arbitration clause. New management of tents wanted certainty Analysis:

• Agreement to agree is unenforceable. P argued that price was “reasonable price” to be set under the Sales and Goods Act (SGA).

o SGA may imply price if parties are silent and have agreed to an objectively reasonable price

o BUT SGA applicable only if valid contract o SGA provisions inapplicable if agreement to agree o PROF DISAGREES: Court says that SGA only applies once you have a contract but that it

can’t be used to create a contract. HL says that they don’t have a contract so SGA doesn’t apply

• P alternative argument: price could be set by arbitration o Court: arbitration clause forms part of valid contract BUT cannot be used to assist in

creation of contract o PROF DISAGREES that: parties only had agreement to agree and that arbitration clause

couldn’t bind anyone

• P alternative argument: D breached by refusing to enter future contracts o But no obligation to enter future contracts o Apparently P’s $1000 deposit was a deposit but not consideration for an option

Holding: No contract. HL unable to recognize arbitration clause or SGA as mechanisms to overcome missing terms

FOLEY V CLASSIQUE COACHES LTD, [1934] Agreement to agree given effect on the basis of “soft factors” – detrimental reliance, bad faith. Contained arbitration clause – that was enough to imply “reasonable price” Facts: Structurally identical to May & Butcher – agreement to agree with arbitration. Foley owns one gas station and ability to sell gas from other stations. Negotiation with D with terms: Foley doesn’t want to sell the station unless they have separate contract from them to buy gas. Figured out details of the gas station but not able to figure out gas details. Second contract – figure out details from “time to time” and contained arbitration clause Analysis: Parties here, and in Hillas, believed there was a contract. Arbitration clause allows “reasonable price” to be implied. D didn’t want to return the station – can’t take half the contract. Holding: Enforceable contract. A2G was given effect on basis of soft factors.

RECONCILLING – ARCOS, MAY & BUTCHER, FOLEY

(1) Hillas v Arcos: silent on specifications but references to earlier contract, no agreement to agree and no arbitration clause, contract recognized and enforced. Two contracts closely linked due to option. Detrimental reliance. Bad Faith. Option from 2 contracts (2) May & Butcher v R: agreement to agree and arbitration clause, contract not recognized and not enforced. Tent contracts not linked so deposit was not option. No detrimental reliance. No bad faith. No option (3) Foley v Classique Coaches: agreement to agree and arbitration clause, contract recognized and enforced. Contracts closely linked due to option. Detrimental reliance. Bad faith. Option from 2 contracts

GOOD FAITH NEGOTIATIONS (FOURTH MOST LIKELY TO FIND A CONTRACT)

(1) Presumption that parties are unfettered regarding negotiations. It is an adversarial process, no obligation to negotiate (at all or in good faith), unrestricted right to terminate negotiations at any time. (2) Presumption that agreement to create a contract is unenforceable. No judicial basis for determination of terms, difficulty is ascertaining content of agreement, expectation damages show the danger of binding party to unaccepted risk. Different than A2A. A2A – both parties operating under assumption that we will find a mutually agreed upon solution, not the case in A2N. (3) Presumption that agreement to negotiate contract formation is unenforceable. No basis for determining outcomes (negotiations don’t determine success) – A2N no presumption that we will come to an agreement – we might not agree and then walk away

• BUT obligations of good faith enforceable. Contract validity undoubtedly affected by bad faith (ex. Agreement induced by fraud or unconscionable conduct)

o Ex. Good faith satisfaction of condition precedent (Dynamic) o Ex. Good faith assessment of insurable loss (Whiten – not covered) o Ex. Good faith termination of employment (Wallace – not covered) o

“Institution of bargaining in good faith is one that is worth of legal protections in those circumstances where that protection accords with the expectations of the parties.” Bad Faith Negotiation examples: (1) Withholding information which could disabuse negotiating party of a mistake, (2) Bargaining with no intention of reaching an agreement, (3) Reneging on promise through course of negotiation, (4) Breach of negotiation to more attractive 3rd party.

EMPRESS TOWERS V BANK OF NS [1991] BCCA PROF: Good decision on the facts but not transposable to other cases – anomaly case where agreement to negotiate is enforceable Duty of good faith negotiations and obligation not to withhold negotiations imposed in the circumstances – key phrase: “rent will be market value as agreed b/w the parties”. Obligations imposed b/c of (1) option, (2) implied term from previous contract, (3) detrimental reliance and bad faith (imposing $15 000 penalty from getting robbed) Facts: Parties have lease for 17 years. New lease agreement is the exact same as all the previous ones except that the price might change with the phrase “rent will be market value as agreed b/w the parties”. NS sends renewal notice in advance and ET didn’t respond until last minute. Send increased rent and eviction clause Analysis: Objective market value with option clause (contemplated unsuccessful negotiations b/c clause said that both parties had to agree on the market value.)

• ET cannot be compelled to enter lease unless rent agreed BUT subject to restrictions to negotiate in good faith and cannot reasonably withhold agreement

• Source of Obligation? o (1) Desirable to give effect of option clause o (2) implied tem from prior contract (based on officious bystander and business efficacy) o (3) more likely reflects D’s detrimental reliance and P’s bad faith.

D entered prior contract on basis of value of option and P’s actions reflect vindictiveness (imposed $15 000 penalty b/c they were at the bank and got robbed of $30 000 and insurance only paid $15 000)

• If P refused to negotiate in good faith – damages but possibility of unsuccessful. %.

Often cited – seldom used to impose obligation.

MOLSON CANADA V MILLER BREWING [2013] ONSC

• (1) Agreement to agree/negotiate is unenforceable b/c of lack of certainty with respect to specific obligation. They can be enforceable depending on the content

• (2) Content of any contractual obligation to negotiate in good faith is of critical importance o Purpose of parties agreeing to negotiate: (1) commitment to use reasonable efforts, (2)

obligation to commit to act reasonably in prospective agreements o Both of these are impossible to enforce without objective standard for reasonableness

• (3) Feasibility of a remedy – court unable to award damages for breach o There are some circumstances where this shouldn’t matter – like when an injunctive or

other equitable relief remedy is appropriate

• (4) Upheld where there was sufficient certainty regarding the issue to be negotiated to provide an objective standard to the court regarding an alleged breach

o Arbitration clause presence is relevant but not necessary • (5) Agreement to negotiate in good faith can sometimes be upheld b/c the parties have reached

sufficient agreement on the principal issues

MANNPAR ENTERPRISES V CANADA [1999] BCCA Prof: represents the usual way things are dealt with: agreements to negotiate are unenforceable Generally no duty to negotiate in bad faith. Right of renewal does not always imply duty to negotiate in good faith. No common law obligation to negotiate in good faith – must be in contract (expressly or implied) based on objective standard to measure duty Facts: Agreement with Crown to extract sand on Native reserve. 5 years with an option to renew for 5 more years. Both parties expected 10 years. Crown did not renew. Mannpar said Crown had repudiated its obligation to renew Ratio: Generally, no duty to negotiate in good faith. (Right of renewal goes not always imply duty to negotiate in good faith.) Analysis: Distinguish Empress as there is no objective standards (Empress said “market value mutually agreed upon” – no such standard here)

• No existing contract – first term was terminated and subject to renewal – not frustrating any mechanism within existing contract

• Fiduciary duty to Skyway Band. Duty of good faith MIGHT intolerably conflict with fiduciary duty.

Holding: Clause was void for uncertainty

ANTICIPATION OF FORMALIZATION (LEAST LIKELY TO FIND A CONTRACT)

Letter of intent or memorandum of agreement or memorandum of understanding or “subject to formalization” Contemplation of formalized agreement in future. No immediate contract unless parties so intended. No immediate contract unless existing terms sufficiently certain. If you can overcome the mischief that animate the rule you can enforce. (1) Anticipated document may formalize existing contract. ENFORCEABLE regardless of document

a. Have all the terms in place (certainty of terms) and they have intention b. Already have a contract and formalization just means it becomes one written document

(2) Anticipated document may complete otherwise existing contract. NO ENFORCEABLE CONTRACT WITHOUT DOCUMENT.

a. Could have a contract – all the elements are there (offer, acceptance, certainty of terms) but there is no intention

b. This means “I will go and think about it. I don’t yet know if I want to do this”. Can still change my mind and walk away

(3) Anticipated document may entail further negotiations incomplete contract. NO ENFORCEABLE CONTRACT WITHOUT DOCUMENT.

a. We still have lots of work to do; some pieces are in place but there are other negotiations that need to occur

b. Still uncertainty of terms and no meeting of the minds, I can still walk away Classification: question of intent AND contractual requirements

• No immediate contract unless parties so intended

• No immediate contract unless existing terms sufficiently certain Practical problems: performance in anticipation of contract (difficulties when one person has started performing). Court might still try to find contract, if not UE

BAWITKO INVESTMENTS V KERNELS [1991] ONCA An oral agreement in contemplation of a formal written agreement, when lacking essential terms, is not enforceable due to lack of certainty. No intention to create oral agreement – future document not mere formality Facts: Looking to acquire franchise. At meeting, made oral arrangement to modify Kernels standard form contract. Bawitko began making payments. Kernels sent formalized agreement but contained no modifications. Analysis: Relevance of anticipated document turns upon parties ‘intentions. If document is merely to formalize – contract may now exist. Depends on if other essentials are satisfied (certainty). If document is to create agreement contact cannot yet exist – no objective consensus ad idem. Parties anticipated further negotiations on other essential terms. (1) Formalization, intent for legal relation, lawyer to make pretty. (2) Not sure yet, lawyer to check over, no intent. (3) Intent, but hopeless mess. Vague and uncertain. Holding: No contract. Meeting resolved some outstanding issues but both parties anticipated further negotiations on other essential terms (no certainty of terms).

CONTINGENT AGREEMENTS : THE PARTIE’S OBLIGATIONS

CONTRACT OR NO CONTRACT?

EXAM: Trying to draw a distinction between condition precedent (details present but no contract b/c no

intention) and true condition precedent (immediate contract with suspended primary obligations until

subsidiary obligations are satisfied)

General rule of bilateral executory contracts: parties make binding contract and immediately have binding obligations but the performance of those obligations may be postponed depending on contract time frame Contingent agreements are the exception: Ex. Conditional sale of house (conditional on financing)

• Parties desire sale of land if financing is available

• In most situations, this is an immediately binding contract

• Performance of PRIMARY obligations suspended pending condition o Primary performance due IF conditions met (financing arranged) o In this case, the obligations exist but are suspended and they might NEVER have to be

performed if the condition (financing) is not satisfied Seller MIGHT transfer title and buyer MIGHT pay price

• Performance of SUBSIDIARY obligations (if any) immediately required o Successful performance of subsidiary obligations activates primary obligations o At minimum, both parties have passive subsidiary obligations that neither can do

anything to frustrate satisfaction of contract (ex. Seller can’t sell to 3rd party) o But BUYER also has active subsidiary obligation to use best efforts to get financing

Condition Precedent: State of affairs that must exist before one or more of promises become enforceable. Enforcement of the obligation is suspended. No contract. Outstanding point of agreement therefore no consensus ad idem, condition premised upon subjective decision, either party free to withdraw from purported agreement. Condition Subsequent: State of affair that will bring an already enforceable and binding contract to an end. True Condition Precedent: Hybrid, presumption in land agreements. Immediately binding contract with performance of the primary obligations is suspended. Subsidiary obligations to try and satisfy the condition immediately required. Consensus ad idem on all substantive matters, neither party free to withdraw from contract. These are subsidiary obligations and where a condition precedent is not accompanied by a requirement that either of the parties take steps to procure its fulfilment, their reciprocal subsidiary obligation may be defined as the simple obligation to refrain from withdrawing from the contract. Passive: Prohibition on frustration of contract, invariably imposed upon both parties to contract, relief available on basis of breach. Active: Requirement to fulfill condition. Often (impliedly) imposed upon one party, relief available on basis of breach. The courts often inclined to the view that one of the parties has an implied subsidiary obligation to take steps to bring about the state of affairs constituting the fulfillment of the condition.

WIEBE V BOBSEIN [1985] (BCSC) (BCCA) If there is a contract to buy and sell land and there is a condition in play, then you almost certainly have TCP, not condition precedent. Real estate transactions presumed to be TCP and effect of TCP is dependent upon parties’ objective intentions

Facts: Selling & Purchasing of property contingent on true condition precedent that buyer can sell his house. Vender withdrew prior to fulfillment and sold to 3rd party. Buyer sold house and is in position to satisfy condition – wants to execute contract. Holding: True condition precedent, enforceable. Imply terms of good faith and reasonable efforts to sell house.

• Just b/c you have contract to buy and sell land and simply b/c it has conditions attached doesn’t NECESSARILY mean that parites have created TCP (but that is the likely outcome)

Dissent: Condition was too subjective. At what price must he sell? Implied condition of reasonable efforts intolerably uncertain.

RECIPROCAL SUBSIDIARY OBLIGATIONS

• TCP: primary obligations suspended pending fulfillment of condition o Neither part required to perform UNLESS conditions met o No relief available on basis of non-fulfillment of condition

• TCP: subsidiary obligations are immediately operative o Passive: prohibition on frustration of contract

Imposed on both parties Relief available on basis of breach

o Active: requirement to fulfill condition (best efforts to make condition happen) Often impliedly imposed on one party Relief available on basis of breach

DYNAMIC TRANSPORT V OK DEALING [1978] SCC Anything you can do expressly you can also do impliedly. Courts may imply subsidiary obligations on parties if they’re necessary to effect the completion of the primary obligations in the contract. TCP implied based on officious bystander and business efficacy test. PROF: Damages error. Damages – court does it wrong by giving full expectation damages. Should’ve given percentage of full expectation damages based on percent likelihood that zoning would’ve been approved if D used best efforts. Takes into account the possibility that even if D used best efforts for zoning, might not be approved- COURT DIDN’T DO THIS BUT SHOULD’VE Facts: D owns piece of land, P wants to buy for $50000. Have an agreement on price and closing day (neither party mentions that contract cannot go through unless land has been subdivided- silent on this condition). Legislation puts onus on D vendor to apply for subdivision. Before closing date value increases 4-fold to $200 000. D does nothing about get subdivision approval, P wants to continue, D does not. Analysis: Anything parties can do explicitly, they can do by implication.

• Implied TCP by officious bystander test. o Objective intention to suspend primary obligations and subsidiary obligations implied

b/c of business efficacy test

• Implied subsidiary obligation placed on D vendor – burden determined by objective intention in circumstances (statute made it D’s obligation)

• P entitled to specific performance of D’s subsidiary obligation

o D required to seek approval with “due diligence” o Full market value damages in the event of breach by D but no relief if approval refused

despite due diligence If D doesn’t use best efforts – liable for full expectation damages ($150 000) If D uses best efforts and there is no approval – doesn’t have to pay

Damages: PROF: Goes “off the rails” – shouldn’t have awarded full expectation damages

• If dealing with past losses (things that did or didn’t happen) than you are dealing with all or nothing losses based on BOP

o Ex. I sue for $1M for defective widget. Evidence analyzed to determine whether losses were or were not caused by widget based on BOP. If 51% = $1M. If 49% = $0

• If dealing with future fact or past hypotheticals, we don’t use BOP and all or nothing damages

o Damages awarded in proportion to the likelihood that your breach was connected to my loss

o Situation in Dynamic is a past hypothetical – even if D did use best efforts to get zoning approval, no guarantee this would’ve been successful so P can’t get full expectation damages

o Wrong to give P full $150 000 b/c that was not what breach caused – P didn’t have right to get the land. P had right to have D use best efforts to satisfy conditions to try to get land

o Hypothetical 33% is subdivision approval rate based on evidence from other similar subdivisions

Holding: Implied TCP. Court gave full expectation damages of the land but this was WRONG

REMEDIES FOR BREACH OF SUBSIDIARY OBLIGATIONS

1) Orthodox contractual relief: expectation damages. See Dynamic Transport above 2) Specific performance of PRIMARY obligation: exercising judicial waiver

a. Exacerbating existing difficulties with waiver generally (below) b. Expectations based on contingent fulfillment of condition c. Waiver theoretically unavailable to parties

3) Specific performance of SUBSIDIARY obligations: dodging the issue a. Question of timing: artificiality of delayed performance

i. Ex. Seeking approval in changed market (1973-1978 – different outcomes) ii. This mistake is forgivable – not perfect but it’s the best the Court can do

b. Addressing the real question: damages in the event of breach 4) Compensation for breach of specific performance of subsidiary burden

a. Dynamic error: presuming successful subsidiary performance 5) Discounting for probability: a controversial middle ground

a. Chaplin v Hicks and the loss of chance doctrine (below) i. Ascertaining past facts on BOP

1. Damages granted on all-or-nothing basis ii. Estimating past hypotheticals and future facts

1. Damages granted proportionately beyond de minimis

CONTINGENT AGREEMENTS: UNILATERAL WAIVER

In private law, people have rights but it is their decision whether they wish to enforce them or waive them. Same principle should apply to contingent agreements

• Ex. I want to buy a house with TCP to secure financing

• If bank turns me down but I can still come up with money (through other methods) I should be able to waive that condition

• The condition exists purely for my benefit so I should be able to enforce it (if I don’t get financing then I don’t have to buy the house) or waive it (I should be able to say that it wasn’t satisfied but I still want to go through). To the seller, this makes no difference – they still get the money

This situation however, does not exist in Canada A party may unilateral waive a condition if the agreement expressly allows them to do so.

• If there is no express right to waver: o Condition cannot be waived if it is a TCP o If it’s not a TCP it may be waived if it’s for sole benefit of party waiving and is severable

from rest of contract.

TURNEY V ZHILKA [1959] SCC Prof: BAD DECISION. DON’T USE. You can waive TCP if (1) It was entirely for your benefit and not the other party at all, and (2) the condition was “internal condition”. Cannot waive TCP if (1) it was there for the benefit of the other party or (2) it was an “external condition” Facts: D has land to sell and P wants to buy it, subject to planning approval (rezoning TCP). Contract created but neither party makes much effort to satisfy condition. P decides that they don’t really care whether condition is satisfied – they can use land for different reason. P wants to go through and waive condition. D wants to back out and sell higher to 3rd party. Analysis: PROF: “should be allowed to waive, justified if consistent with objective intentions, Free to expressly or impliedly permit waiver”.

• Unilateral waiver permitted if for your benefit and internal (can forgo own right and dispense other’s performance)

• Cannot waive if condition is external – condition forms essential part of agreement and performance truly condition on satisfaction of event

• External: Future external uncertain event that relies entirely on third party.

• Holding: SCC said he couldn’t waive condition b/c it was external (involved getting approval from authorities). No contract COMMENTS:

• What is the difference b/w internal and external? o By definition TCP is external (condition that has to be satisfied outside the will of the

parties) o Therefore, you can NEVER waive TCP condition

• Availability of unilateral waiver: matter of construction o Waiver justified IF consistent with objective intentions

Parties freed to expressly or impliedly permit waiver Intention not logically confined to internal condition

• Decision improperly permitted D to escape bad bargain

o Factual finding: condition for P’s exclusive benefit

BEAUCHAMP B BEAUCHAMP [1973] ONCA PROF: NOT GOOD DECISION. Right result but no explanation for how they got around Turney and Zhilka Facts: P agrees to buy D land for $15, 500 and they agree that they will have TCP of mortgages (two mortgages - one mortgage of $10 000 and second mortgage of $2500 and come up with other $3000 in cash. P purchaser finds bank that is willing to give him one loan for $12 000 and the P comes up with $3500 on their own. In either situation, the D vendor is getting exactly the same amount of money but D vendor realized they undervalued the property and wants to sell it to someone else for higher price. D says condition wasn’t satisfied b/c condition was two mortgages, and P only got 1 Analysis: Trial judge applied Turney and Zhilka (even though ridiculous based on facts) – since this is external TCP, can’t be waived, and since P didn’t actually comply with TCP, condition not satisfied and primary obligations don’t have to be performed.

• CA distinguishes Turney. Says it’s a different case but don’t say how. Get the right result but can’t explain how they got around Turney

• Conditions in a contract that are not subject to waiver are “conditions precedent” that delay the creation of obligations to perform on both sides until they are met (Beauchamp)

• A waiver is valid when one party forgoes a promised advantage or dispenses with part of the promised performance of the other party which is simply and solely for the benefit of the other party and is severable from the rest of the contract (Beauchamp).

Holding: SCC upheld the decision without argument from P

BARNETT V HARRISON [1976] SCC PROF: RIDICULOUS DECISION. Upholds Turney Facts: Similar situation as Turney – contract for sale of land conditional on planning approval. Condition could not be satisfied so purchaser purported to waive it. Trial and appellate said condition couldn’t be waived b/c it was external (relying on Turney). Analysis (Dickson: affirmed Turney. Rejected possibility of waiver b/c it would create uncertainty and b/c it would require courts to determine intended beneficiary of each condition. Even said Turney should be followed b/c it fosters certainty and predictability.

• Certainty: SCC doesn’t want to create a rule that is going to lead to uncertainty and they don’t want decisions decided differently than in the past

o Ridiculous b/c that is what is already happening Judges ignore this case or they mention and differentiate it but don’t say how its

different or they apply it and get the completely wrong result

• Contrary rule: you can waive TCP if its for your benefit o SCC doesn’t want this b/c that would put judges in undesirable position of having to

determine whether or not a condition exists for one party or the other or both

Dissent (Laskin): distinction b/w external and internal is meaningless and said unilateral waiver should be possible as long as condition is exclusively for benefit of waiving party.

CONSIDERATION

Basic principle that promises will only be enforceable if form a part of bargain. Something the law considers of value on both sides. Definition: something of positive or negative value

• Positive: interest, right, benefit or profit provided by promisor o Ex. Enforceable rights, goods, land, choses in action

• Negative: forbearance, detriment, or responsibility by promisor o Ex. Curtailment of own freedom, promise not to drink or gamble for a year

PROPOSITIONS

(1) Moves from promisor; but doesn’t have to move to promisee (2) Performance can be delayed; it is the promise and the right to enforce that promise that

provides consideration (3) Adequacy: Equivalence of reciprocal consideration. Generally irrelevant.

a. Historically: Individualistic parties free to enter unequal bargain. Peppercorn theory. b. Modern: trend towards substantive fairness. Gross inadequacy insufficient as grounds

of impeachment but gross inadequacy motivates judicial search for impropriety (fraud, duress, unconscionability).

(4) Sufficiency: Consideration defined as “something of value”. Generally relevant a. Exchange of value required under bargain theory of contract b. Economic value is consideration. Non-economic value MAY be consideration but moral

entitlements (empty charitable promises), love, and affection ARE NOT sufficient c. Forgoing vices of youth (like giving up gambling) and spousal promises to behave ARE

SUFFICIENT (5) Mutuality: Mere concurrent exchange of consideration is insufficient. Commercial bargain

paradigm requires mutuality of consideration – must be exchanged FOR EACH OTHER a. Motive: Courts generally unconcerned with reason underlying promise as long as

mutuality is present (6) Certainty: Cannot be vague or imprecise (eg. Promise of a good price)

Firm Offers: Not enforceable in absence of consideration from owner. Offeror entitled to revoke offer. Same for prices from supplier. However, must honour if exclusive supplier (consideration through the buyers limited freedom of action) Illusionary Consideration: An agreement that reserves the right of one party to proceed with the transaction only if he/she wishes to do so would fail for want of mutuality. One party has made no commitment.

THOMAS V THOMAS [1982] UK Consideration must have value in the ‘eyes of the law”. Motive, pious wishes, and moral duties not proper consideration.

Facts: Husband had given his house to his brother in his will. Few days before his death, he orally (in

front of witnesses) changed his will to give his house to his wife as long as she remained unmarried.

Plaintiff wife had the house for some time but now defendant brother is suing to have her removed

from the house

Reasons: No valuable consideration in deceased’s pious wish to benefit P. No valuable consideration through promise to not remarry (interpreted as a terminating condition). Promise to keep in good repair not likely consideration as under lease would have same obligation. Motive is not consideration

BRANTFORD GENERAL HOSPITAL FOUNDATION V MARQUIS ESTATE [2003] ONT SC Promise of a gift is not enforceable in the absence of consideration. Presence of value on both sides is not enough without mutuality/causal connection b/w the two Facts: Ms. Marquis asked by the hospital to pledge $1 million in $200 000 installments over 5 years to the new hospital. She made the first installment of $200 000 before she died. Hospital claims they had a binding contract and that her estate should pay the remaining $800 000. Naming rights to cardiac unit not finalized in contract Analysis: Case turns on whether the naming of the unit was consideration. If it was = binding contract. If not consideration = unenforceable to have estate pay remaining $800 000.

• Mutual consideration must be established in fact Holding: No contract because naming of the unit was not consideration because it was irrelevant to parties’ intentions and was not part of formalized contract when the bargain was created

EXECUTORY CONSIDERATION

• GOOD CONSIDERATION: elements of exchange share mutuality. Promise given in exchange for promise or an act

• Can apply if parties are under a bilateral contract or offeror under a unilateral contract

• Bilateral: exchange of promises and contract formed immediately. Performance is later, thus promises are executory

• Unilateral: at outset offeror consideration is executory b/c they have promised to give money upon performance but haven’t delivered money yet

PAST CONSIDERATION

• NOT CONSIDERAITON: Act preceding a promise with the view TO GET the contract – no reasonable expectation of receiving payment for that performance

• Elements lack exchange of mutuality – act was performed PRIOR to issuance of promise

EASTWOOD V KENYON [1840] UK (1) Gratuitous promises are not sufficient to found a contract. (2) Consideration made in the past is no consideration at all. (3) Moral obligation does not constitute consideration Facts: Rich orphan’s guardian (P) borrowed money to pay for her education. She did not ask for it.* When she grew up she promise to repay him. She got married to D and he also promised to pay him. He failed to do so and P sued. Issue: Is a promise to pay for services performed prior to the promise enforceable? Analysis: Nothing more than a benefit voluntarily conferred by P and an express promise made by D to repay the money

• Deliberately made promises should be enforced, but if they were this would have the effects of (1) annihilating the necessity for consideration (and it is not the role of contract law to enforce morality), and (2) floodgates would open with everyone looking to enforce contracts

• D’s promise to repay was not exchanged FOR P’s performance – P performed prior to D’s promise and there was no reasonable expectation for that promise to be made

• Purported consideration not in relationship of mutuality Holding: No contract found to have existed, promise can’t be binding

COMMENTS: *If she had asked then (i) Presumption of contract BUT (ii) was a child therefore contract suspended. (iii) Can enforce as an adult if promise is reiterated. This is will like past consideration but it reviving obligation and removing obstacle that policy reasons added.

• Infant contracts: Necessities of life (enforceable), beneficial employment (enforceable), lasting assets (ex. land, partnership – voidable. Enforceable unless child repudiates within reasonable time of turning 18), all other (unenforceable unless reaffirmed within a reasonable time after infant turns 18)

• Fresh promise can revive a suspended obligation but fresh promise cannot create an enforceable obligation

EXECUTED CONSIDERATION

• GOOD CONSIDERATION: elements of exchange share mutuality. Act performed in exchange for promise

• Act exchanged for promise: this is true of the offeree of a unilateral contract

• Only good consideration if performance was done FOR THAT PURPOSE of the promise

LAMPEIGH V BRAITHWAIT [1614] UK Naked promises unenforceable. But prior request implied expectation of payment, thus made past performance similar to executed consideration instead of past consideration. Commercial: asking for action leads to an implied promise to pay Facts: D killed a person and asked the P to ask the King for a pardon. P took his own horse, on his own time and rode to a different city to ask the King. The P secured the pardon and returned to the D. After securing the pardon, the D then promised P that he would pay him $100. Analysis: Mere voluntary promise is not sufficient consideration, but here, there was a prior request and then the promise to pay

• Naked promise = not legally enforceable b/c there is no consideration

• Agreement here is not a naked promise

• Coupled with prior request, the subsequent promise to pay formed a binding contract

• D’s subsequent promise was not distinct from prior contract – merely fixed quantum meruit Holding: Binding contract, judgement for plaintiff COMMENTS: Alternative argument in unjust enrichment if no initial contract

• P entitled to restitution for UE if no contract

• Restitutionary relief consists of reasonable price

• D’s promise provides evidence of reasonable price

FOREBEARANCE TO SUE

B (DC) V ARKIN [1996] MAN QB Forbearance to sue is good consideration if (1) claimant honestly believes claim is (or may be) valid AND (2) claimant seriously intends to commence formal proceedings

Facts: Plaintiff’s two sons shoplifted from Zellers and were caught. Zellers, thinking they could not get the money back from the young (<18) boys, sued the mother. Used a demand letter saying that they would not sue if she paid $225. She paid the money, and later learned of her mistake where parents cannot be held liable for their children’s torts, and thus wants her money back.

Analysis: General rule that parents cannot be held liable for the tortious acts of their children, unless the parents are negligent (not in this case)

• Zellers didn’t provide valid consideration: had no honest belief in validity of claim AND had no serious intention of formal proceedings

o Promise not binding if the sole consideration is forbearance to enforce an invalid claim

• If validity of the claim is doubtful, forbearance to enforce can be good consideration

• Forbearance can be good consideration if claim is invalid but it is a “reasonable claim” which was in good faith believed by the party forbearing to have had a good chance of success

o Party forbearing cannot deliberately conceal facts that would enable the other party to defeat the claim

o Party forbearing must show that they seriously intended to pursue the claim Holding: There was no contract, and P entitled her money back because claim was invalid, not just doubtful, and Zeller’s lawyers should’ve known that COMMENTS: Parental Responsibility Act: merely shifts burden of proof – little practical effect

PRE-EXISTING OBLIGATIONS: PUBLIC DUTY

Mischief Enforceable? Reason

Public duty Illegitimate financial pressure

NO No fresh consideration, but really public policy

Private to 3rd party N/A YES Creates new ability to sue

Private to Same Party Illegitimate financial pressure

NO No fresh consideration if varying contracts

Pre-Existing Obligations: action promised prior to disputed deal. Consideration recognized in some circumstances. Situation where I already have an obligation to act but in an effort to obtain your consideration, I re-iterate my obligation – consideration in some circumstances. Compare this to Past Consideration: action performed prior to reciprocal promise. No consideration for lack of mutuality. Mischief: Bargain: question of whether there has been an exchange of value addressed through consideration Mischief: illegitimate pressure (financial): bargain of economic duress didn’t used to exist. Historically, this mischief was dealt with through consideration but this led to bad decisions

EXAMPLE Performance or promise of pre-existing public duty is not consideration. Consideration is possible beyond scope of pre-existing public duty Scenario: As a citizen of Edmonton, Pam is entitled to free fire-fighting services. Her house caught fire one night. David, the city’s fire marshal, arrived at the scene and agreed to extinguish the blaze, but only on promise of payment of $3000. Desperate, Pam agreed to the charge. David quickly put out the fire and sued for payment. Did the parties form a contract? Did the fire department, acting through David, provide consideration? Must Pam pay $3000 as promised? Holding: No fresh consideration for contract. Holmes Bad Man Theory: people have option of performance or taking consequence of no performance. In this case, performance is clearly more beneficial to Pam.

• Promise to perform instead of being sued is fresh consideration but public policy dictates that extortion by public officials shouldn’t be recognized as consideration

• Undesirable to permit contract under duress

PRE-EXISTING OBLIGATION TO THIRD PARTY

EXAMPLE Pre-existing contractual duty to third party is consideration Scenario: Xavier owned a purple house. Dave entered into a contract with Xavier. Dave promised to paint Xavier’s house white and Xavier promised to pay Dave $3000. Pam, who lives next door to Xavier, was also very anxious to see the colour change from purple to white. She therefore similarly promised to pay Dave $3000 if he honored his earlier obligation by painting Xavier’s house. Dave failed to paint the house. Did he have a contract with Xavier? Did he have a contract with Pam? To whom is he liable and in what amount? Holding: Promise to perform a pre-existing duty to Xavier constitutes benefit to Pam b/c she can now sue for non-performance. Dave suffers detriment of being exposed to new liability. Public policy considerations attenuated in circumstances. Relatively less concern with abuse of power and bad faith. Duress not presumed as in cases of public duty, BUT contract invalid if duress actually established. Danger of using pre-existing duty to third party as consideration is multiple liability in event of a breach.

PAO ON V LAU YIU LONG [1980] PC In absence of economic duress, agreements can be enforced on basis that a promise to perform or performance of pre-existing contractual obligation to a third party can be valid consideration. P bought 4,200,000 shares from a company called Fu Chip. Under the terms of that agreement, the plaintiff promised Fu Chip that it would not resell more than 60% of those shares within one year. Resale of a larger number of the shares would hurt Fu Chip’s financial situation. After recognizing possible folly – approached D who were the majority shareholders in Fu Chip, and persuaded them to enter into a separate, indemnification contract. Under that new agreement, the plaintiff promised to honour its earlier sale contract with Fu Chip, and the defendants promised to compensate the plaintiff for any loss that it suffered as a result. The plaintiff consequently used the same consideration twice. It separately promised both the defendants and Fu Chip (which, as a stranger to the indemnification contract, was classified as a third party to that agreement) that it would not resell 60% of the shares within one year. Value of the shares dropped, and the plaintiff claimed indemnification under its contract with the defendants. The defendants argued that the plaintiff had merely promised to fulfill the first (sale) contract and had not provided good consideration for the second (indemnification) contract.

Held: Plaintiff’s promise to perform the contractual obligation that it already owed to Fu Chip (the third party) was good consideration for its later contract with the defendants. New COA – separate ability to sue people behind.

PRE-EXISTING CONTRACTUAL OBLIGATION TO SAME PARTY

Pre-existing contractual duty to third party = consideration. Pre-existing contractual duty to promisee = no consideration. Pre-existing duty to same party generally cannot serve as consideration.

• (Purportedly) no fresh consideration for promise. But performance differs from action for non-performance.

• Public policy concern to prevent exercise of duress or fraud. But concerns can be sensitively managed (Williams, Gilbert).

EXAMPLE Reiteration of a promise to the same person is not consideration (despite bad man theory). CDN courts have not recognized a difference b/w performance and suit for non performance.

Scenario: Xavier owned a purple house. Pam entered into a contract with him. She promised to paint his house white and he promised to pay her $3000. However, before she began work, Pam informed Xavier that she was terribly unreliable and that if he really wanted to have his house painted, he would have to promise to pay her an additional $2000. Xavier promised the additional sum and Pam completed the job. Did the parties enter into a contract? If so, to what amount is Pam entitled by way of payment for her services? Holding: Performance of pre-existing duty to Xavier is not fresh consideration. Policy consideration enhances in circumstances, relatively greater concern with abuse of power and bad faith. Undesirable to allow Pam to benefit from threat or breach. Overriding question: how to deal with risk of extortionate demand? Reject reiteration as fresh consideration even if good faith on facts? Accept reiteration as fresh consideration unless bad faith on facts? McInnes: Ideal solution: recall bad man theory and courts should recognize good faith renegotiations and only come to the contrary conclusion if there is duress on the facts. Pam’s new promise is promise of performance instead of suit – which is fresh consideration technically. Canadian courts don’t do this

GILBERT STEEL V UNIVERSITY CONSTRUCTION [1976] ONT CA BAD DECISION BUT THIS IS THE RULE IN CANADA – USE THIS IN EXAM! Reiteration of the same promise does not serve as consideration where parties are varying the same contract. (Where one party makes the same promise in exchange for more money, and the terms are just varied within the same contract instead of making new contract – not good consideration)

Facts: D building on campus and gets steel from P at a fixed price. P’s costs go up and can’t continue at that price. P reiterates promise to provide steel and D initially agrees to pay more money but then reneges. Analysis: Arguments for consideration that were rejected:

I. Alleged consideration consisted of abandonment of initial contract but circumstances indicate variation of contract. Abandonment of contract good consideration in theory

II. Alleged consideration consisted of credit on increased amount (for more money, P was giving promise to agree that D could pay later).

III. Alleged consideration consisted of promise of future good terms. P had not sufficiently committed to such promise. Good consideration in theory but not true on the facts

Criticized for striking insensitive compromise: Gilbert rule properly prevents threats of non-performance. Gilbert rule improperly inhibits effective modifications: business recognizes “going transaction adjustments” and the law arguably should recognize such modification. Means to circumvent the rule:

a) peppercorn theory – or provide something slightly different than previously promised, b) abandon contract and create new, c) seal is substitute for consideration (seal is not considered consideration)– person making the

promise has to provide seal, d) follow business and ignore the law. Generally, business would not bring to court – short term

litigation vs long-term service to client. e) amelioration of the rigid rules of consideration (follow English approach in Williams v Roffey)

WILLIAMS V ROFFERY BROS & NICHOLLS LTD [1990] UK Reiterating the same promise for more money can be consideration if it confers a practical benefit onto the party paying more money. Practical benefit recognized as consideration in varying an existing contract

Facts: D contract with property owner for renovations with a penalty if work is completed late. D subcontracts with P. P is taking too long, D promises to pay him more to hurry up. Analysis: Fresh consideration given, can simply be a practical benefit. The practical benefit of timely completion, even though a pre-existing duty is performed, constitutes good consideration. D received the practical benefit of (a) prevention of P’s good faith breach sub-contract, (b) avoidance of delay penalty to property owner under prime contract and (c) avoidance of need to hire alternative sub-contractor. The test for understanding whether a contract could legitimately be varied was set out as follows:

i. A has a contract with B for work ii. Before it is done, A has reason to believe B may not be able to complete

iii. A promises B more to finish on time iv. A "obtains in practice a benefit, or obviates a disbenefit" from giving the promise v. There must be no economic duress or fraud.

GREATER FREDRICTON AIRPORT V NAV CANADA [2008] NBCA BAD DECISION. Completely ignore old rules that say that re-iterating terms to vary promise is not good consideration. New rules: contract variations can be enforced as long as they are reached in good faith (without economic duress) – NO NEW CONSIDERATION IS NEEDED. Facts: NAV Canada is govt agency that makes sure airports run smoothly. Under contract they are supposed to bear financial burden of all expenditures. Airport needs new piece of expensive and very important equipment. NAV is the only one who can place the equipment where it needs to go. NAV says

they won’t place equipment unless airport pays for it. Airport has not choice b/c they need this equipment and NAV is the only one who can place it Analysis: Airport had no practical alternatives. Nav Canada had exerted pressure to obtain what amounted to a contractual modification of the contracr.

• Airport did not consent to the variation irrespective of the circumstances. In that regard, the Court noted both the "under protest" language and the absence of any evidence that GFAA otherwise acquiesced.

• Post-contractual modification, unsupported by consideration, may be enforceable as long as it is established that the variation was not procured by economic duress.

• Duress: 2 conditions must be met: o the promise must be extracted as a result of the exercise of pressure (a demand or a

threat); o the pressure must be such that the coerced party had no practical alternative but to

agree.

• If those conditions are present, it must then be determined if the coerced party legitimately consented to the item in the contract. Three factors must be analyzed:

o whether the promise was supported by consideration; o whether the coerced party made the promise "under protest" or "without prejudice"; o whether the coerced party took reasonable steps to disaffirm the promise as soon as

possible.

• “incremental” development of Williams v Roffey Bros. o variation enforced—without consideration—if no economic duress. o reasonable expectations respected—good faith reliance protected

Holding: Contract not enforced b/c it was made under economic duress but Court completely changed rules

ROSAS V TOCA [2018] BCCA When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable. Certainty of terms and proof of mutual intention to be bound still have to be proved by party seeking to rely on agreement variation

Facts: Longtime friends. P wins the lottery and lends $600,000 to D. Every year D says, “I’ll pay you next year”. P finally annoyed, brings to court but past limitation period year of 6 years. Analysis: Agreement enforceable – every time accept another year P was varying the terms of the contracts. Thus, still within the limitation period. Ratio: No consideration required for variation of contract but need other element + no improper conduct. Reasons:

i. Consideration is not an end in itself. a. Purported bargain theory is undermined by seals and peppercorns. b. Consideration valuable as evidence of intention to be bound.

ii. Inconsistent trend toward reform of consideration and variations. a. No serious suggestion of abandoning consideration entirely.

i. Issue limited to variations of ongoing transactions. ii. Existing contract establishes willingness to be bound.

iii. No risk of “unwary signor or casual promisor”

b. Practical benefit. River Wind (BC SC 2009), Roffey Bros—cf Selectmove. c. No consideration: NAV Canada, Tead v Willcocks

iii. Traditional rule unsatisfactory. a. Legitimate expectations often frustrated. b. Judicial search for solutions engenders inconsistency

iv. Reasons for a principled and incremental change. a. Difficult to anticipate needs in long-term contracts – variation is desires. b. Business people often assume good faith variations are enforceable. c. Non-enforcement is apt to create injustice.

If already shown that they have intention: say no consideration needed to vary the contract. Pre-existing contract, shown by other means committed to vary just need to make sufficiently clear to the court that there is a new K. *Different from England: Still need consideration (practical benefit ok) **Not binding in Alberta.

QUACH V MITRUX SERVICES [2020] BCCA Fresh consideration is required to vary an employment contract Facts: Person hires employee but even if he quits, still gets paid for 5 years. Employer wants to vary contract so that they are only entitled to 1 year pay if they leave. Is variation enforceable without consideration? Analysis:

• Rosas distinguished b/c of “nuanced world” of employment (employment is special category)

• Rosas distinguished by “something more” in variation o Original contract ended and second contract contained agreement that was more

favorable to D

• Purported consideration: D payment of $1000 for P’s legal expenses o But this fails b/c of lack of mutuality – no evidence that $1000 reimbursement was

actually consideration for the second contract Holding: Second contract has no grounds, first contract prevails

PARTIAL PAYMENT OF A PRE -EXISTING DEBT

Partial payment of pre-exiting debt generally cannot serve as consideration. (Purportedly) no fresh consideration for promise. Public policy concern to prevent exercise of duress or fraud.

• This is the picture in England: practical benefit can SOMETIMES be good consideration in exchange for lesser sum of monetary debt

• Canada: left side of the table is narrow but right side is VERY flexible and liberal

FOAKES V BEER [1884] UKHL Promise is unenforceable without fresh consideration. No fresh consideration in mere renewed promise to pay. HL won’t overrule previous precedent.

Facts: P owed D $2000 pounds – agreement for regular installments. In return for Beer not using right to sue to enforce judgement. D brought action for interest. Analysis: Action allowed due to absence of P’s consideration. No new enforceable promise. Desirable to hold parties agreement enforceable b/c it benefits both of them but Pinnel’s case established precedent

• Need for fresh consideration and no consideration part payment of $500, no consideration in payment of remaining principle

• Beer’s forbearance to sue was consideration but Foakes installments weren’t b/c he owed the money anyway

RE SELECTMOVE [1995] UKCA Created distinction: practical benefit as consideration for goods & services, but practical benefit is not consideration in accepting a lesser sum in exchange for discharge of debt Facts: Company owed money to Crown, in financial difficulty. The company proposed it would pay debt in installments. Crown later demanded payment of full amount Analysis: Crown enjoyed practical benefit under the arrangement (received more money than if it demanded full payment and company went into bankruptcy) but Court didn’t follow Roffey.

• Distinguished on facts: here, agreement to revise terms of repayment of an existing debt – followed Foakes

MWB BUSINESS EXCHANGE CENTRES V ROCK ADVERTISING [2016] UK Recognition of practical benefit as consideration in exchange for monetary debt

Facts: Tenant fallen behind in rent $12,000. Landlord agrees to $3500 upfront and installment payments but then changes their mind

• Traditional rule is not satisfactory or acceptable. Unrealistic, unfair and contrary to commercial practice.

o Instead of overruling attempts to distinguish from Foakes v Beer and Re Selectmove. Narrowly interpreted. Debtor merely promised to pay existing debt and no practical benefit on those occasions.

• There was a practical benefit – might get less overall but $3500 immediately and don’t need to hassle Rock.

SIMANTOB V SHAVLEYAN [2018] UK Back to traditional rule where practical benefit is not consideration in exchange for monetary debt Facts: Debtor gave 8 cheques and continued to do business with creditor in exchange for full monetary debt Analysis: Neither cheques nor continued business dealings constituted a practical benefit

• Judge also preferred Selectmove over MWB and said that Roffey only applied to goods & services

• Practical benefit doesn’t apply with respect to payment of existing debt

FOOT V RAWLINGS [1983] SCC Lesser payment by different mode is sufficient consideration. Each cheque entails its own set of rights; different rights than promissory notes

Facts: Current arrangement where debtor pays promissory notes monthly of $400 + 8% interest. Change terms to monthly cheques of $300 + 5% interest. Is this sufficient consideration? Analysis: New contract was formed upon exchange of sufficient consideration. Got around Gilbert by saying that this was a new contract instead of just varying terms . D promised to provide post-dated cheques. P promised to forbear from action on promissory notes. Original debt suspended but not extinguished. Action on original debt possible if breach of terms by D.

• Payment of lesser amount in same mode: not sufficient; payment of lesser amount in different mode: sufficient

EXCEPTIONS TO GENERAL RULE

• Agreement enforceable if under seal o Seal signifies solemnity and acts as proxy for consideration. o Creditor accepting less money in exchange for larger debt is enforceable under seal

• Agreement enforceable if early payment accepted in satisfaction. o Early payment acts as sufficient (perhaps inadequate) consideration. o $5 paid on day early accepted in satisfaction of $1000 debt. Creditor effectively values

on day at 995. o Time value of money

• Agreement enforceable if something different accepted in satisfactions. o New thing acts as sufficient (perhaps inadequate) consideration.

Peppercorn theory.

• Agreement enforceable if within Judicature Act RSA 2000, c J-2, s13(1) o Part performance of an obligation either before or after breach thereof shall be held to

extinguish the obligation when expressly accepted by a creditor in satisfaction, or when rendered pursuant to an agreement for that purpose though without any

new consideration. Key here: act only applies IF the lesser sum has actually been received. Act

doesn’t apply if you simply promise that you will accept the lower sum and discharge larger debt

o Vulnerable to interpretation. No complete forgiveness of a debt allowed (without past performance) Been suggested creditor may be able to revive existing debt while arrangement

remains executory. Provision is silent on whether creditor rely on economic duress, undue influence

or unconscionability. Meaning of act: Payment of an existing debt, or promise to pay part of an existing debt, can be

considered valid consideration for the other party's promise not to enforce the entire amount of the

debt. Applies only once some of the money changes hands (doesn’t apply to promises to accept)

PROMISSORY ESTOPPEL

Equitable (not legal) doctrine that is another way to enforce agreements, if there is no consideration. Promise is enforced by estoppel rather than bargain. If rely on promise to detriment, promisor cannot retract. Can only work if have existing legal relationship and is not a cause of action in and of itself.

Traditionally PE seen as a narrow exception to consideration requirement. Progressive view: PE as general means of creating enforceable gratuitous promises. Party precluded from asserting legal rights (usually under contract) Representor (party making promise) Representee (party receiving the promise)

• representor enjoys particular right with representee

• representor promises to not assert strict legal rights

• representor intends representation to be relied upon

• representee (detrimentally) relies on representor’

• Would be inequitable to retract promise.

CENTRAL LONDON PROPERTY V HIGH TREES , [1947] UK Shows criteria for PE. (1) Intention to create legal relations, (2) promised intended to be relied on, (3) promise actually relied on. Here, used as a shield as a defence against claim by promisor Facts: P Landlord and D tenant agreed on reduction of rent during the war. After war, landlord wants full amount Analysis:

• Traditional contractual analysis: landlord entitled to full rent (Foakes – no consideration for contract variation)

• Traditional estoppel analysis: landlord entitled to full rent (representation must be to existing fact and landlords representation pertained to future conduct)

• Modern PE: landlord not entitled to full rent o Criteria: (1) promise intended to create legal relations, (2) promise expected to be relied

on, (3) promise actually relied upon to other party’s detriment o If all three true, Courts don’t allow party to go back on promise

Holding: Limited enforcement of promise. Question of intention, promise intended to apply only under war conditions. Full rent recoverable when war conditions pass.

NATURE OF PROMISE

Promise must be clear and unequivocal representation indicating intention.

JOHN BURROWS V SUBSURFACE SURVEYS [1968] SCC Representation must be clear and unequivocal. Representation must reflect intention to vary strict rights. Case officially accepts PE into Canada but it is a limited doctrine. Can only be used to vary existing rights.

Facts: Promissory note (IOU), pay in instalments, have acceleration clause that if there is a breach can demand full amount immediately. D habitually pays late, P doesn’t enforce, P gets tired eventually and demand’s right to full amount. Analysis: D claims that P, by not taking action in past, effectively promised not to utilize acceleration clause. Holding: PE cannot create new contract, but pertains to variation of existing rights. Need clear representation, unequivocal change or promise.

• Here: D was trying to vary rights, but P never gave clear and unequivocal representation that they wouldn’t require full payment. P merely granted friendly indulgences

EQUITY

PE is an equitable doctrine. Legal doctrines: P makes out cause of action and then is entitled to remedies in full. But equitable doctrine: Judge has discretion over remedies

D&C BUILDERS V REES [1966] QBCA PE cannot operate if representee acted inequitably. PE doctrine made out on the facts (elements – promise, intention, reliance present) but unenforceable by party acting in bad faith

Facts: Agreed to renovate house for $750. D paid $250, knew P in financial need and going out of business. Promise to pay $300 (instead of remaining $500) if D promises not to sue, otherwise will pay nothing and D will have to sue for full amount. P agrees, but later sues D who argues promissory estoppel. Analysis: reluctant affirmation of Foakes (variation w/o consideration is unenforceable) and there was no new consideration (Foot – can’t enforce promise of lesser sum in discharge or larger debt)

• Improved on Foakes rule – promise to forgo partial debt is still not enforceable under consideration but can be enforceable under PE

• D unable to invoke PE on basis of P’s promise b/c D was not acting equitably (taking advantage of financial situation)

NOTICE

• PE generally terminated upon reassertion of strict rights.

• Notice protects the representee’s reliance. Notice is effective only after lapse of reasonable time

• Notice is ineffective if representee’s reliance is irreversible. Recall Central London Properties: PE doesn’t work in perpetuity. There must be reasonable notice to go back to original agreement Ex. If landlord accepts lesser payment during hard times, they are not required to always take lesser payment or abide by the subsequent agreement o notice intended to protect promisee’s reliance.

RELIANCE

Promissory Estoppel premised upon some reliance by promise. Nature of requisite reliance is unsettled.

• Detrimental Reliance: generally required under generic estoppel. Reliance on promise detrimental if promise revoked.

• Reliance creating inequity if promise revoked. Broad discretion exercised by court on totality of evidence. Detrimental reliance neither necessary nor sufficient. B/c of circumstances it would be in equitable or unfair if the other person went back on their promises.

o No causal nexus b/w the promise made and the situation that you were in

• Simple reliance – promisee merely acted on basis of promise. Not sufficient for PE. Generally suggested that promisee must positively prove reliance.

SWORD V SHIELD

Proprietary estoppel: independent cause of action. Ex. Neighbors share property line. Strip b/w our properties: you think it’s yours, I know it’s mine. Knowing it’s mine, I let you build on it and then tell you it’s mine. And from property we know that fixtures are subsumed into the realty.

• Elements of claim: o (1) P mistakenly believed he had (or would acquire) interest in land’ o (2) D (true owner) knew of her own rights o (3) D knew of P’s mistaken belief o (4) D (actively or passively) encouraged and induced P to act o (5) P acted in reliance upon that belief by improving land

Promissory estoppel: not a cause of action, only used as a defence. Unsettled role of promissory estoppel. PE effective defence to a claim by promisor attempting to enforce original contractual arrangement. No basis for positive cause of action by promise. Central London.

i. a shield: a defence to an action in contract a. (1) Pre-existing relationships to vary them – true in Canadian law b. AND (2) only used as a defence and can’t be used on behalf of claimant – not true in

Canada ii. a blunt sword: a basis of action within an existing contract

a. This is Canadian version. Can be used as a defence or can be used by P to vary existing rights

iii. a sharp sword: a basis of action outside an existing contract

COMBE V COMBE [1951] UK PE works only within existing contract. Facts: Divorced couple – husband promised to pay $100 a year. Court held arrangement failed as wife had no consideration (forbearance to sue lacked mutuality). Wife seek to enforce with PE. Held: Dismissed. Promissory estoppel cannot found an independent COA. Reasons:

i. Retreat from breadth suggested in High Trees. PE merely enforces gratuitous promise to suspend rights.

ii. PE as a blunt sword. Cannot create new COA but can affect existing rights under contract. Available to D resisting action on contract, available to P pursuing action on contract.

iii. PE inapplicable on facts – D’s promise did not purport to vary existing contractual rights. No pre-existing contractual rights between party.

iv. Detrimental reliance insufficient for consideration. P’s reliance would have sufficed for PE. P refrained for years from applying to court for support.

v. P’s reliance could not suffice for creation of contract. Absence of relationship of mutuality. P’s reliance not exchanged for D’s promise.

WALTONS STORES V MAHER [1988] AUST PE can be used as a sharp sword: new cause of action even though there was no existing relationship

Facts: D planned to lease land from P; D said it’ll make a K if P tears down old buildings & builds new ones; P starts demolition, thinking D was making K; D had 2nd thoughts & backed out; P left w/ 1 less building Analysis: PE can be used as a sharp sword (new COA) when:

1) both parties believed that a K would come into existence,2) the D induced the P to act in reliance

upon that belief, and3) the D subsequently attempted to prevent the creation of the K (1) Injurious reliance in the US, can vary existing or create completely new relationships. (2) EXAM: If there is a question centered around promissory estoppel on the exam, and the court is

either the Queen’s Bench or Court of Appeal, cannot use promissory estoppel as a cause of action. If the exam is positioned at the SCC, at least think about whether promissory estoppel can be used as an independent cause of action (Walton’s route) rather than just to vary existing term.

PRIVITY

Privity of contract pertains to status as a contractual party. Tradition relevance – contractual rights and liabilities affect only parties to a contract. Party lacking privity cannot sue or be sued.

• In diagram, Ann has privity so she can sue but she can’t show any losses b/c the benefit of car was going to Claire.

• Claire can’t sue b/c although she has losses, she has no privity

• Effectively, Bruno can breach and no one can do anything about it

Problems with Privity Consideration & Privity

• Synonymous? Privity is defined by reference to provision of consideration therefore the concepts are inseparable.

• Distinct? Jointly necessary by same party. P must prove privity and provide consideration.

• Distinct? Individually necessary. P merely requires privity if consideration given by some party.

TRADITIONAL APPROACH

TWEDDLE V ATKINSON [1861] UK QB Ratio: Person seeking enforcement must have provided consideration. (P’s father’s consideration does not accrue to P’s benefit. O’s love and affection for father is insufficient consideration). Groom didn’t have privity of contract so can’t enforce, even if for his benefit Facts: Father of bride exchanged promises with the father of the groom that they each would pay monies to the groom before a certain date. Neither paid. Groom sued father of the bride Held: Unsuccessful on the ground that the husband was a “stranger to the consideration” and was not a “party” to the contract.

DUNLOP PNEUMATIC TYRE V SELFRIDGE [1915] UK HOL Privity and consideration are two separate things and both must be present for a person to sue. Dunlop may have had privity (with Dew acting as agent) but the consideration came out of Dew. Dunlop didn’t provide any consideration to contract with Self so can’t sue Facts: P, tire manufacturer - Dunlop, wished to ensure that retailers who sold its tires would not do so at prices below the manufacturer’s list price. In contract with wholesaler, Dew, provided inceptive for Dew to obtain in its contracts with the retailers an undertaking that the retailers would observe the manufacturer’s list price when dealing with their own customers. Dew sold tires to Self with the same stipulations (abide by list price). Self sold under list price. Dunlop now suing Self Held: Claim defeated by 3rd party beneficiary rule. Undertaking had been given by D to Dew. P was 3rd party to promise. Haldane: Need privity and consideration – have neither. Only a person who is a party to the contract can sue on it. If a person is to be able to enforce a contract consideration must have been given by him to the promisor. Dundin: Privity and consideration separately necessary. P was party to the contract (agency) but did not give consideration.

AMELIORATING “EXCEPTIONS” (WAYS TO GET AROUND PRIVITY – FAKE EXCEPTIONS)

Simple solution – abolish the privity rule, or change insofar as to allow 3rd party beneficiaries to have status to sue. Assignment, trust and agency are not true exceptions but rather a reinterpretation of the facts.

i. abolition: the Anglo-American approach i. America has ignored privity and allowed 3rd parties to sue, Canada hasn’t done

this ii. specific performance: Beswick v Beswick

iii. assignment of contractual rights iv. trusts: Vandepitte v Preferred Accident Insurance v. statutory exemptions: third party insurance beneficiaries

vi. agency: McCannell v Mabee McLaren Motors vii. employment: London Drugs v Kuehne & Nagle

i. Important but limited exception to privity viii. subrogation: Fraser River v Can-Dive

SPECIFIC PERFORMANCE: BESWICK V BESWICK [1966] UK DON’T USE THIS DECISION IN EXAM. Product of sympathetic judges and unique facts. Allowed 3rd party to sue Facts: Deceased person had, while living, sold his business to a nephew who promised in return that after the uncle’s death the nephew would pay his widow an annuity of 5 pounds a week. The uncle died refused to pay. COA held in favor of the widow. Denning: Doing his sweet thang.

• Action in capacity as administrator of estate. Widow is entitled to sue as deceased’s representative. Entitled to full damage (confusing as did the deceased truly suffer a loss after death?). Representative holds damages for beneficiary.

• Action in personal capacity as third party beneficiary of contract. Right directly enforceable by beneficiary. Speciously distinguish from precedent.

Dankerts & Salmon: Specific performance available to P qua administrator. Justified the decision on the basis that she had also sue the nephew in her capacity as admininstatrix of the husband’s estate. WRONG. House of Lords affirmed COA decision Reid: Rebuked Denning – 3rd party cannot directly enforce contractual right. Variations on the administrator’s action – ineffectual claim for damages, administrator entitled to be place as if contract is performed. No loss to the deceased estate by non-performance thus damages limited to nominal damages. Effectual claim for specific performance – extraordinary application. Pearce: Administrator entitled to substantial damages (no apparently loss to deceased), administrator entitled to specific performance – equity acts on D’s conscience, damages inadequate in circumstances. SP avoids multiplicity of actions (can only sue to what has been lost. Widow would have to come to court each week), reflects stipulated performance. *Never applied again, anomaly Requirements for specific performance include mutuality (later in course)

• no specific performance for P unless same remedy available against P

• no specific performance for promise of personal services

• concerns regarding involuntary servitude

• concerns regarding judicial supervision of compliance

ASSIGNMENT

• Contractual right is a form of property (chose in action), generally assignable. Ways to transfer property depends on law, land registrations office. Entire process.

• Choses in possession transferred through intent and delivery

• Choses in action transferred through assignment o Equitable assignment: doesn’t require writing. “I assign this contract to you” o Statutory assignment: same thing but requires writing (usually preferred)

Not a true solution to privity. Privity problem is that we are trying to allow 3rd party beneficiary to sue In assignment, you might not be there in person but your interests are being represented legally so it’s like you were there – not really getting around privity problem

TRUSTS Clear intention must be present to create trust. If created, trust directly enforceable by 3rd party against trustee

• Trust arises in circumstances where property is being held by a person, the trustee, subject to an obligation to deal with the property for the benefit of 3rd persons, the beneficiaries of the trust.

• Trust analysis will apply ONLY in circumstances where it is clear that the parties actually intended to create a trust relationship. To create a trust express words are unnecessary but clear intention is required.

• If 3rd party of a contract can successfully claim that the promisee held the right to enforce the promise as a trustee for the beneficiary, B could enforce the promise on the bases of the principles of law of trust.

o X enters contract with D for benefit of P. No legal link between D’s promise and P. BUT. o D (settlor) gives promise to X (trustee) for benefit of P (beneficiary).

Consideration: D’s promise supported by exchange with X Privity: P holds beneficial title to promise acquired by X from D. P entitled to

enforce beneficial interest in promise.

• X (if amenable) sues on behalf of P.

• X (if not amenable) sued as co-defendant by P.

VANDEPITTE V PREFERRED ACCIDENT INSURANCE CO , 1933 PC Clear intention is needed to create trust at the outset – can’t just be used as an argument after the fact Facts: P was hurt in car accident with JB who had borrowed the car from her father F. F had an insurance contract. Argued that a provision in a father’s car insurance policy that extended indemnity protection to persons driving the car with permission was held by the father in trust for the benefit of the daughter. Privity Issue One: P is stranger to insurance contract. If assume daughter is covered under insurance – Insurance Act s24 provides for a privity exemption. Victim may enforce contract between insured and insurer. Privity Issue Two: Daughter, JB, is stranger to insurance contract.

• JB privity purportedly established through agency. However, no evidence of agency intention, no authority or ratification to insured from JM, no consideration from JB as purported principle and JB not named as insured as required by Insurance Act.

• JB privity purportedly established through trust. No express evidence of trust intention by insured. No implication of trust intention by insured (Motor Vehicle Amendment Act made

father liable, no necessary reason for insured to protect JB), Insurance Act required legal (not equitable) interest

COMMENTS:

• Difference b/w assignment (which doesn’t work) and trust (which does) is allocation of risk. Parties know at the beginning whether trust is created but don’t know until later whether assignment has occurred

STATUTE A number of exceptions to 3rd party rule found in insurance context. Ex. Motor vehicle insurance – an accident victim has a statutory right to claim directly against the insurer of the person who caused the accident. Ex. Beneficiary under a life insurance policy has a statutory right to enforce. Ex. Right of a mortgagee to sue the assignee of the mortgagor who has promised the mortgagor that it will make mortgage payments to the mortgagee.

AGENCY

• One person (agent) acts on behalf of another (principal). Agency generally voluntarily arises from contract.

• Agent invariably subject to fiduciary duty toward principal.

• Relationship generally used for purposes of entering contracts. Agent is not liable on contract. Excluded (not party) when completed.

Agency is where a principal authorizes an agent to enter into contracts on the principal behalf with 3rd party. The result is that the principal has a direct contractual relationship with 3rd party. A receives X’s promise on behalf of P. X’s promise legally belongs to P. cf promise on trust equitably belongs to beneficiary. P may directly enforce X’s promise.

MACCANNELL V MABEE MCLAREN MOTORS LTD, 1926 Agency argument successful b/c clear intentions at the outset (in the contract) that Studebaker was the agent for each of the representatives in each province AND each P and D gave consideration, it wasn’t the agent that gave consideration Facts: Studebaker has cars but doesn’t want to sell them. Tells each provinc representative that they are the only ones allowed to sell car to residents in province but they have to promise not to sell cars to residents outside their province. Also says that Studebaker is not a party to the contract and the only parties of the contract are the representatives from each province Held: Manufacturer was an agent, each deal had entered into a contract with ever other dealer concerning the matter. Privity exists. Application of agency principles rest on a finding of genuine intention to create a relationship of agency. Even if agency works, consideration is needed.

• Tweddle v Atkinson different: here P was contracting party and not third party beneficiary

• Dunlop different: agency was intended and established. Consideration was given by the principles but not the agent

EMPLOYMENT

True exception.

LONGON DRUGS V KUEHNE & NAGAL , 1992 SCC Carves out true exception to privity: employment. Privity exception if 3 criteria met: (1) employees must show that contract was for their benefit (they were expressly or impliedly included in exemption) AND (2) they were performing very act contemplated by contract AND (3) Within spirit of policy considerations (vulnerable employees). Narrowly applied Facts: LD storing transformer with KN. Two contract options: (1) cheaper but can only sue for $40, (2) more expensive but you can sue. Second option is basically 3rd party insurance. LD takes first option and buys 1st party insurance. KN employees damage transformer, LD is indemnified. Insurance company is subrogated and sues KN employees Test: Criteria for exception to privity:

• (1) D must expressly or impliedly be included in the exemption (employees must show contract was extended for their benefit)

• (2) D must perform the very actions contemplated under the contract

• (3) Act must be within the spirit of the rule/policy consideration (employees vulnerable

Reasons:

• Reasonable expectations and commercial reality. Parties expected D to fall within scope of exemption.

• Sound policy consideration. Exception accords with parties’ allocation of risk. P is better to arrange insurance for own goods. P did not disclose value of goods to K&N.

o Given two pricing possibilities only difference is who should get insurance. Owner knows the characteristics of transformer.

o LD got their insurance. Not out any money. Unfair to give them the right to sue for full amount, as were given choice.

o High class businesses have legal counsel and etc. Only party with damage is the source without any protection (employees) – vulnerable.

• Incremental change. General rule retained – subject to legislative reform only. Very specific and very limited exception. Exception merely gives effect to exemption, creates no right to sue under contract. Exemption dependent upon parties’ intention and thus can be displaced by evidence of contrary intention. Only shield 0 not a sword. Defense to being sued but no positive rights.

EDGEWORTH CONSTRUCTION V ND LEA & ASSOCIATES , 1993 SCC Facts don’t support architect firm falling under exclusion clause –they weren’t vulnerable like London Drugs employees. Could’ve added disclaimer to design or purchased liability insurance. Exclusion clause not extended for their benefit

Facts: Province of BC wants to make highway. Architecture firm to come up with plan. BC prints call for tender – contract with exclusion clause to winner that if anything goes wrong, can’t sue us. Plans horribly inept. No profit. P sues the firm and the architects for negligence (carless statements). Sues in “Hedley Byrne” cause of action (negligent misrepresentation) Analysis:

• D prima facie liable to P for negligent misrepresentation (only possible defence is for firm to try to fit themselves within BC’s exclusion clause)

• D claimed protection of exemption clause in provinces contract with P o London Drugs distinguished as parties (1) knew work would be done by employees, (2)

employees were powerless to protect themselves,(3) parties implied in fact intention to protect employees.

• No similar consideration on the facts

• Criteria 1: exclusion clause was not created for the benefit of the architects

• Criteria 3: Not within spirit of London Drugs – architects are not powerless and vulnerable

SUBROGATION – FIRST PARTY (PROPERTY) INSURANCE

• Subrogation is the assumption of rights by operation of the law. Analogous to assignment but without the need for agreement. Not another exception?

• When one party stands in the shoes of another.

• In first party: I claim insurance, then insurance company is subrogated to my right of action. They can sue the tortfeasor on my behalf and collect compensation

• Third party: I am worried that I will be negligent to someone. I buy insurance, when I get sued for negligence, insurance will pay the victim (Vandepitte)

Where a contact of insurance provides that the insurer shall have no recourse against 3rd parties or where the insurer waives the right to subrogate itself to the position of the insured for purposes of bringing a claim against a 3rd party it is now clearly established that such provisions are binding against the insurer.

FRASER RIVER V CAN-DIVE SERVICES, 1999 SCC The right to protection under an exclusion clause is a crystallized right that materializes immediately and is not removed just because two primary parties vary contract terms. Spirit of London Drugs expanded to include protection for reasonably relying on protection in insurance policy Facts: A marine insurance policy contained a waiver of subrogation by the insurer against “any charterer” (CD). The boat covered by the policy was sunk as a result of negligence of a charterer. Subsequently, the owner of the boat (FR) and the insurer agreed to suspend the waiver of subrogation clause and the insurer brought a subrogated claim against the charterer. Held: London Drugs exception premised on two criteria:

i. Contractual partied intended to extend protection to 3rd party. Insurance coverage here expressly applied to charterers Stronger than implied in fact extension in London.

ii. 3rd party performed activities contemplated by contractual parties. Damage here arose by reason of charterer’s normal activity.

• Privity exception is not dependent upon insured’s cooperation.

• Fraser and insurer unable to divest Can-Dive of crystallized right – from London Drugs, once the party is aware there is no subrogation clause, this becomes a crystallized right. Parties can vary terms but can’t take away this crystallized right

• Privity exception supported by policy – Can-Dive reasonably relied on protection in insurance policy. Vandepitte denial of 3rd party benefit contrary to commercial reality.

• Decision routinely circumvented by courts and legislatures. London Drugs applied outside of employment context. LD employees could not feasibly protect themselves which CD could protect self – insurance but reasonably thought unnecessary.

BROWN V BELLEVILLE (CITY), 2013 ONTCA Bad decision. London Drugs supposed to be used as a defence to protect people but the Court here has now expanded it to compel people to take positive action, which it was never intended to do. Facts: Under an agreement entered into in 1953 between a municipality and Sills, the municipality agreed to perpetually maintain and repair part of a storm sewer drainage system on and near Sills’ lands. Sills died in 1966. The affected lands were sold to the Pleiziers. When the Pleiziers sought in 1980 to hold the municipality to its obligations under the agreement, the municipality unilaterally repudiated the agreement. As a result of a corporate amalgamation, the Corporation of the City of Belleville stepped into the shoes of the original municipality under the agreement. The Browns purchased the lands in 2003. They requested the City to honour its maintenance and repair obligations under the agreement. The City refused and, in December 2004, again unilaterally repudiated the agreement. The Browns sued the City for specific performance of the agreement or damages for its breach. Enurement Clause: Original parties expressly intended agreement to bind successors. P is not stranger—“steps into original owner’s shoes”. D is not stranger—“in effect original covenantor”. Enforcement fulfills reasonable expectations.

Analysis: LD two-part test satisfied on the facts. Original partied intended to extend benefit. Claimant acting within expected scope of contract. P and predecessors have honoured obligations – no evidence D denied access to system. P enjoys standing to sue to enforce agreement (irrelevant that standing sought for positive purpose. LD and Fraser were defence only).

MISREPRESENTATION

Puffs: no legal effect if untrue, not terms so no contractual relief, not misrepresentations – no extra contractual relief. Normal reasonable person would not put weight into statement. No legal consequences. Misrepresentations (mere representations): Things said that induce into contract, but not part of contract itself. Possible legal effect if untrue. Not terms so no contractual relief, misrepresentations can result in rescission and/or tort relief possible.

• Various grounds of rescission: duress, undue influence or unconscionability.

Terms: Important to contract that not just an inducement but term itself. Legal effect if untrue.

i. Condition: discharge and damages if breach. ii. Warranty: damages only if breach.

iii. Innominate: uncertain consequences if breach. Can’t tell at outset if a term is a condition or a warranty.

DISTINGUISHING BETWEEN PUFFS, REPRESENTATIONS AND TERMS Distinguishing between P & M & T is a question of objective intention. Broad judicial discretion.

• Express classification may be determinative. However, parties frequently misapply terminology. o Ex. Lay people use these terms interchangeably and incorrectly o Ex. If lawyer making contract, more likely that what terms they use are what they mean

but nothing is determinative

• Objective nature of statement purportedly is determinative. o Mere sales talk = puff. o Inducement to formation of contract = misrepresentation. o Essential term of bargain = term. o Based on what the RP would think

• Nature of judicially desired result often is determinative. o No relief = puff o Rescission and/or tort restoration = misrepresentation

Backwards looking relief. o Fulfillment of expectations = terms

Forward looking relief.

TYPES OF MISREPRESENTATION

Innocent Misrepresentation

Negligent Misrepresentation

Fraudulent Misrepresentation

Law Remedy NONE Hedley Byrne Rescind OR sue under deceit/fraud

Equity Remedy Rescind Rescind Rescind

• Innocent: didn’t mean it to be untrue; exercised due diligence

• Negligent: should’ve known better and didn’t exercise due diligence. • Fraudulent: purposefully and knowingly lied to you

ELEMENTS OF MISREPRESENTATION

i. Representation: Representation generally requires a positive misstatement. If sit back and let mistake occur, no liability.

• Silence exceptionally may constitute a representation (Wren) o Statement of half-truth. “The company earned 1 M (but lost 1.5M)

Second part is a deliberate misrepresentation o Failure to correct previously true statement. “It was worth 2M (but now 1M)

Especially true if contract over prolonged period o Positive duty of disclosure.

Relationship of uberrimae fidei –insurance contract must disclose all information.

Possibly exclusive knowledge- vendor of unfit land. If defect pertains to safety must disclose (Wang)

ii. Representation of Fact

• Existing or past fact – not future fact. o Future fact may turn on present fact (intention). o “I’ll do all I can to help (but I won’t be here) o A representation of something that will occur in the future is simply not a statement

of fact. Promises are thus distinguished, if meant to be binding must meet the requirements for the enforceability of undertakings.

However, may be characterized as an implicit statement of fact concerning one’s intention.

Ex above. If I already had a one-way ticket to Tahiti when I made the representation

• Representation of fact – not opinion.

o Opinion may turn on present fact (knowledge) (Smith) o “I think he’s a good tenant (though he’s an arsonist). o Where an opinion is offered by someone who has no particular expertise in the

matter that statement would be considered to be one of opinion rather than fact. A reasonable person would not rely on such an opinion.

However, when somebody possesses superior knowledge opinion offered may be held to have made an implicit statement concerning the nature of the information upon which the opinion is based.

• Representation of fact – not law. o Consequences of law may be fact. o “You must pay key money (though the law prohibits).

iii. Fraudulent Representation

• Stringent requirements for extreme results. Fraud is a high threshold.

• Intentionally dishonest or reckless misrepresentation. Honest carelessness is NOT fraud (Hedley Bryne)

iv. Representation Intended to Induce Contract

• Must be intended to be relied upon (difference from puff).

• Representation ineffective if irrelevant to contract formation. o Representation of identity presumed irrelevant.

• Representation must be made by D to P.

• The requirement that the misstatement be material means that must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter the agreement in questions.

o Redgrave v Hurd: Prospective purchaser of lawyers practice that the income yielded annually was a certain amount was obviously material to the decision of the purchaser to acquire the practice.

v. Representation Actually Induced Contract

• Representation must be causally related to contract formation. o Presumption of inducement (Redgrave). Once established that a misrepresentation

is of such a nature that it is liable to induce a misreprensentee to enter a contract, it would be presumed against the misrepresentor that such inducement did occur. Presumption of causal nexus.

• Must have constituted an inducement to enter the agreement upon which the misrepresentee relied.

o If undertake separate investigation of facts there would be no reliance. o Respresentee has no obligation to engage in due diligence and make such an

independent investigation, even where the means of the doing so are made available by the misrepresentor.

o Representation need not be the exclusive or even a predominant inducement for entering the agreement.

Innocent Misrepresentation has same elements minus fraud. Non-deceitful misrepresentation can be innocent or negligent.

REMEDIES FOR FRAUDULENT MISREPRESENTATION

EQUITY

• Equity allows rescission to wipe out contract ab initio – entails process of resoration

• Restoration in specie

• Will award money (just not called damages). [Kupchak] Courts of equity were able to achieve practical justice by coupling a decree of rescission with orders for an accounting of profits or an indemnity.

o Account – give up profits which are made. o Indemnity – If incurred expenses while performing the contract. o Compensation – sometimes cannot physically give back object.

DEFENCES: i. Impossibility of restoration. Rescission generally presumes restoration in specie but

monetary restoration increasingly available. Especially if fraudulent. (Kupchak) ii. Third party rights. Another impossibility of restoration (Redican) D may pass property to

GFPV prior to rescission. Passing of property precludes restoration in specie. Once election to rescind has been taken equity avoid the title of the transferor.

iii. Unexcused Delay (Laches). Unreasonable delay in bringing a claim of rescission also constitutes an equitable defense. No statute of limitations – “reasonable time”.

i. Reckoned from discovery of fraud. (Kupchak) ii. Availability rests on weighing the appropriateness of the relief from

misrepresentee’s perspective against the length of delay and any resulting prejudice to the misrepresentor.

iv. Affirmation (adoption). [Kupchak] Act affirming validity of contract despite fraud. Irrevocable.

i. Arise only after becomes aware of the nature of the misrepresentation. Requires knowledge that falsehood gives the right to terminate the transaction.

ii. Affirmation may be communicated by words or inferred by conduct. Delay may indicate affirmation of contract.

iii. Judicial reluctance to impose if fraudulent. iv. Conduct that leads the misrepresentator to reasonably believe that affirmation

has occurred, however, will communicated affirmation and may give rise to application of estoppel doctrine.

v. Negligence of P is NOT a defense: Redgrave.

LAW

• Contract is voidable at P’s option, not void.

• Difference than rescission at equity: Avoidance available as self-help or on court order. Self-help effected by notice to relevant parties.

• Avoidance retroactively eliminates contract ab initio. Rescission only if fraud, no relief if innocent.

• D liable for damages in tort of deceit. Damages restor status quo ante no restoration in specie, no fulfilment of contractual expectation. Cannot be a breach in contract because it is not a breach of term.

• Combined action for relief in Equity and Law (Judicature Act).

REMEDIES FOR INNOCENT MISREPRESENTATION

EQUITY Generally same defences as for fraudulent. Bars have slightly different standards.

• less willingness to allow monetary restoration

• delay reckoned from date of misrepresentation

• greater willingness to recognize affirmation Special defence for executed contract for land sale (Redican)

• unless total failure of consideration

• unless error in substantialibus Execution of Contract: Redican. Likely the courts will permit rescission for innocent until there has occurred “the passage of a reasonable period of time for the purchaser to determine whether representations are true”. Not important for fraudulent

LAW

• No relief for non-negligent innocent. Relief only if misrepresentation constitutes term of contract.

• Tort relief for negligent innocent (Hedley Byrne). Tort of careless statement.

SMITH V LAND & HOUSE PROPERTY CORP , 1884 UK

Nature of representation: Fact or Opinion. If an opinion is made by party with inside knowledge it may be interpreted as fact, especially if there is underlying implication of fact *Didn’t matter if fraudulent or innocent because simply looking for rescission Facts: D sells hotel. Says desirable tenant – but actually insolvent. Uber debt. Held: Opinion is irrelevant if parties equally knowledgeable. Opinion may be relevant if parties not equally knowledgeable – representation of fact may be implicit in opinion. “Most desirable tenant” wrongly suggested no past problems – implicit he can pay his rent.

BANK OF BC V WREN DEVELOPMENT LTD , 197 BCSC

Nature of Representation: Silence as Representation: Innocence. If a statement was true, and became untrue one must say something. Obligation to correct statement. Failures or omissions can qualify as a misrepresentation. Facts: Wren has president S and director A. Wants loan from the bank, bank lends to W but takes security over certain shares and A puts up a personal guarantee. S, exchanges old shares for new shares, doesn’t tell anyone. Later, wants to renew, A asks if shares are still there – Bank doesn’t tell A that shares have been exchanged. W doesn’t repay, security over shitty shares and bank sues on guarantee against A. A claim shouldn’t have to pay as there is a positive obligation to update the information. Bank didn’t look into it and correct, no intention to lie but irrelevant. Analysis:

Negligent misrepresentation permits rescission. Silence constitutes representation in the circumstances

• previous truth had become untruth

• silence implicitly represented security had not changed

• onus on D to correct mistake engendered by silence D’s innocence irrelevant in circumstances. Allan merely sought equitable rescission — no need to prove fraud.

REDGRAVE V HURD , 1882 UK

Representee’s Negligence – Presumption of Inducement – Innocent. Threshold to deceit is high. Presumption: if intended to induce then presumption of inducement. P’s negligence not a bar to rescission Facts: Prospective purchaser of law practice given price 1600 for house and business. Claimed income of 300-400 pounds a year. Diaries 200/year and “other paperwork” 200. Bought and delivered much less. Trial: Purchaser to blame because could have found error easily. Didn’t look at paperwork. COA: Rescission granted.

• No proof of fraud or recklessness in representation therefor a claim for damages in tort is precluded. Claim is limited to rescission for innocent misrepresentation.

• TJ erred in barring rescission based on D’s negligence. o Factual grounds – no records existed for inspection. o Legal grounds – carelessness is no bar to rescission. No obligation to dig into

information.

• Inducement presumed if representation intended to induce. o Representor must prove no reliance or accurate knowledge.

• Rescission available and restoration effected. o Contract eliminated ab initio, no specific performance for P. o P required to return deposit of 100.

*No defence to say other party should have through due diligence discovered the misrepresentation (no positive duty on the representee to check the validity of the representation.

REDICAN V NESBITT , 1924 SCC

EXAM: either apply ratio and end up with unsatisfactory judgement or find way around by finding fraud. Execution of the contract would not constitute a bar to rescission in the case of fraudulent misrepresentation. Fraudulent = deliberate lies, wilfull blindness, recklessness. Judges have tendency to expand in substantialibus to get around this rule Facts: Purchase of a leasehold property. The transaction closed with the exchange of an assignment of the lease and a cheque for the purchase money. After learning the place was misdescribed (allege first opportunity to discover) purchaser stopped payment and sought rescission. Trial: Rescission precluded by execution of contract for sale of land. Jury instructed that fraud required dishonestly and none was found. SCC: New trial ordered on issue of fraudulent misrepresentation. Jury not instructed to consider effects of recklessness. Held: Failure of cheque to clear would give rise to right of action on part of vendor, the parties had intended the transaction to close and the contract was therefore executed. Rescission was therefore no longer available.

• Rescission could be precluded by impossibility of restoration. Restoration would require landlord’s consent to retransfer and the court cannot compel 3rd party actions.

o P failed to plead jus tertii (3rd party rights) or impossibility of restitutio. If P had D could point to evidence of willingness of 3rd party.

• Rescission for innocent precluded by executed contract for land. o Execution of contract not postponed by cheque payment. o Rule displaces in certain situations.

If total failure of consideration (receipt substantially differed from expectation). If fraudulent misrepresentation.

*Executed contract prohibition widely criticized. Apparently limited to contracts for sale of land but no principled reason for limitation. Unpredictable scope of error in substantilibus. Sufficient protection in discretionary nature of rescission. Technically still binding but judges tend to ignore or find ways around.

KUPCHAK V DAYSON HOLDINGS CO LTD. , 1965 BCCA – GOOD CASE FOR REMEDIES

Shows examples of remedies and defences for fraudulent misrepresentation. Remedies: restoration in specie as much as possible, compensation for the rest (indemnification, account for disgorgement, compensation. Defences not applicable: laches, affirmation Facts: P purchased shares of motel company from D in return for 2 properties. Took possession, operated and discovered representations regarding profitability of motel was fraudulent. Led to an exchange of lawyers. D sold part of land and build apartment building. After learning of MR P remained in possession of and operated the business for more than a year. 1 year later P sought rescission. In defending the claim D relied on inability to restore P as jointly held premises. Held: Extent possible give back what you can, otherwise monetary relief (not damages).

• Equity has no inherent jurisdiction to award damages but broad powers to achieve rescission, especially if fraud.

o Fraudulent party cannot raise own dealings as bar to relief. o Monetary restoration available if fair and possible. o D cannot resist rescission on the bases of its own dealing with property it had acquired

by fraud. Granted. In lieu of restoration of effected property order D to compensate for the value of property at time of initial transfer. Court held it had the jurisdiction to order a compensation that was designed to effect substantial restitution under a degree of rescission.

• Forms of relief available in Equity (aside from damages at Law) o Restoration in specie: return of actual exchanged property. o Indemnification: reparation of necessary liabilities incurred. o Account: disgorgement of gains earned from property. o Compensation: money in lieu of in specie restoration.

• No laches (unexcused delay creating prejudice to D). P reacted promptly to discovery no prejudice.

o Conduct of P did not amount to affirmation. Lawyers communicated to D shortly after learning about MR – was a signal an intention to repudiate.

• No Affirmation (unequivocal adherence to contract after discovery). o P had no practical alternative to operating motel. Immediate restoration required D’s

cooperation.

o Reasonable to keep operating in the circumstances.

TERMS

Classifying terms brings in the conflicting values of commercial certainty and judicial flexibility. Classification determines the basis of action:

• Representation – rescission and tort damages

• Term – contract damages and perhaps discharge. 95% of time want specific performance.

Classification determines how contract is concluded:

• Representation – rescission ab initio (discretionary)

• Term- prospective discharge (condition only) Classification determines measures of relief:

• Representation – restoration of status quo (backward looking)

• Term – fulfillment of expectations (forward looking).

Conditions: Undertakings of which every conceivable breach would deprive the party not in default of substantially the whole benefit of the contract.

• Discharge and damages. Contract still exists but obligations are discharged.

• Contract still exists after discharge – parties move down to secondary obligations

Warranties: Terms of lessor importance that no conceivable breach could have such an effect. Damages only continue with the contract.

• The condition/warranty dichotomy appears to preclude the possibility that an undertaking could be of such a nature that some breaches should give rise to the right to disaffirm whereas others, being less severe in their impact, should not have that effect.

• P and D must still carry on with contract

Innominate (wait and see): Terms that cannot be classified as either true conditions or true warranties. Must be examined with respect to the actual circumstances of the breach and the impact on the party not at fault. This will determine whether that party should be accorded a right to disaffirm the contract in addition to the right to pursue a claim in damages. Traditional Approach: emphasis on certainty. Post writ perceived need for structure and predictability. All terms classified as either warranty or condition at formation of contract.

• Question of parties’ objective intentions. A term that went to the root of a contract was a condition while one that did not was a warranty.

Modern Approach: emphasis on greater flexibility. Rigid classification at formation of contract is unsatisfactory. Discharge for trivial breach of condition while no discharge for serious breach of warranty. Rigidity ameliorated through innominate terms where the classification is postponed pending nature of breach.

HONG KONG FIR SHIPPING CO LTD. V KAWASKAI KISEN KAISHA LTD, 1962 QBCA

Great judgment. EXAM: Look to see what “stuff” you are dealing with. If goods Sales of Goods Act. If in doubt THIS CASE.

To repudiate a contract, the breach must lead the party to not being able to obtain all or a substantial portion of the benefits they intended to receive by entering into the contract. Classifying terms as innominate takes context into account and allows real life situation to play out and determine whether term was condition or warranty. Facts: Claim by owners of a vessel for hire payable by D charters under a charter party of 24 months duration. The charter party contained an undertaking by the owner to, in effect, maintain the vessel in a state of seaworthiness. The charter party further provided that no hire would be paid for time lose for repairs in excess of 24 hrs and that such periods of time could be added to the length of the charter. D charterers refused payment on the grounds that in addition to initial period of 5 weeks required for repair of the engines, going to be another 15 weeks of repairs. Held: P’s breach did not support D’s non-performance. Treated as a warranty – D walking away was a breach of contract.

• Right of discharge only occurs if the benefit of the contract is substantially denied

• Right of non-performance arises from: o Express stipulation: parties themselves decide regardless of consequences. o Statute: Sale of Goods Act. o Judicial recognition: judges decide based on circumstances.

• Inadequacy of dichotomy of condition and warranties. o Operative issue pertains to deprivation of substantial benefit. o Term may be classifiable at outset as condition or warranty

Substantial deprivation may be inevitable or impossible. o Term often not susceptible to immediate classification

Substantial deprivation is neither inevitable nor impossible Effect of breach is dependent upon circumstances Necessity of innominate category of terms.

• Disputed terms constituted innominate terms o Seaworthiness terms are capable of breaches of varied effect.

Breach did not deprive substantial benefit of contract. Clause 13 contemplated damages only in circumstances

(First City v Triple Five)

• Innominate terms are not a species of classification but rather a mode of classification. All terms are either conditions or warranties but the innominate term postpones determination of class.

KRAWCHUK V ULRYCHOVE , 1996 ABSC

Innominate terms are vague and can be classified either way depending on the circumstances. Discharge only if substantial breach Facts: Pay $3000 to buy horse for daughter, term in contract the horse would be “sound”. Horse bucks and cribs. Bucking does not mean unsound. But cribbing does mean unsound.

Held: A bucking horse is not a defective horse, and cribbing is easily solved. Term was a warranty not a condition so lady had no right of discharge.

• No express term allowing discharge in circumstances.

• Innominate term that should be treated as warranty only o Assessed against total circumstances. Discharge

only if substantial deprivation of essence of contract.

o Propensity to buck not subject of term and not known to vender. Caveat emptor (principle that the buyer alone is responsible for checking the quality and suitability of goods before the purchase is made) and no relief for bucking.

o Cribbing renders the horse “unsounds” but not unfit for riding. Easily solved through cribbing collar and horse otherwise healthy and generally fit for riding.

Damages assed at 1500 which M HATES. She should not have gotten any $, or at most the cost of the cribbing collar $50.

IMPLIED TERMS

Preliminary Observations: Fact sensitivity and judicial flexibility.

• Parol Evidence Rule: Parties generally cannot add to written contract but implied terms sometimes permissible.

• Implied terms cannot create a contract because no consensus, generally recognize unstated intentions.

Previous Dealings: St John Tug Boat

• Parties previous dealings may reveal presumed present intentions. Not all terms of prior dealings are implied into new contract. Terms must be necessary, definable and consistent with intentions parties presumed to have intended term.

Business Efficacy Rule: Dynamic v OK Detailing approval onus.

• Term implied to give effect to parties’ agreement.

• Parties would have adopted if asked by officious bystander.

• Necessary (not merely reasonable) for business efficacy. Applied narrowly.

• Term must be precisely definable and consistent with intentions.

• Parties presumed to have intended term. Usage and Custom: Hillas v Arcos

• Scope – certain, notorious, universal and consistent with intentions.

• Parties presumed to have intended term. Statute: Statutory terms implied regardless of parties’ intentions. Inherent: Bhasin v Hrynew: duty of honest performance is inherent in every contract and can’t be contracted out of

SALE OF GOODS ACT 1893

The following are terms that are implied by default, subject to parties’ modifications i. Application

a. Sale: only sales, not leases i. Only goods in exchange for money. Doesn’t apply if you barter goods for goods

b. Goods: only goods (property) with corporeal existence i. Doesn’t apply to land, services or intangible personal property

ii. Doesn’t apply to trademarks or intellectual property c. New or used: applies to new or used goods

i. Applies to both natural and manufactured goods (ex. Applies to both cars and milk)

ii. Title to Sell. a. Condition that seller has title to sell. b. Warranty that buyer will receive clear title (if lien or mortgage upon it).

iii. Nature of Goods. a. Condition that good will match description: If I buy peas and I get nuts I can get

discharge. b. Condition that goods will correspond to sample.

i. Unless the defect reasonably discoverable by purchaser. ii. No duty to inspect but purchaser entitled to reasonable inspection.

iii. Goods must be free of un-merchantable defects. c. Condition that goods are of merchantable quality (MOST IMPORTANT) (free of defects

that a reasonable person would act for a discount). i. If vender deals normally in such goods. Applies to natural and manufactured

goods. ii. Unless purchaser inspected and should have discovered defect. BUT not a duty

to inspect. d. Condition that goods are fit for intended purpose.

i. If vender normally deals in such goods. ii. If purchaser openly relies upon vender’s skill and judgement.

iii. Unless purchaser bought on sole basis of trade name. iv. Delivery and Payment.

a. Warranty that purchaser will pay on time. b. Condition that vender will deliver on time. c. Condition that goods conform to contract.

BHASIN V HRYNEW , 2014 SCC Two new elements in contract law introduced: A general organizing principle of good faith and a duty of honest performance of contractual obligations. Good faith: appropriate regard to other person’s contractual interests by not undermining them in bad faith. Duty of honest performance: No duty to disclose all of the facts, no fiduciary duty, and does not apply pre-contractually, can’t contract out of Facts: D (Can-Am) sold educational savings plans. P successful but difficult relationship with D. They were joined by a three-year contract that was subject to automatic renewal unless either party provided six months notice to terminate. Hrynew also worked for D, wanted his client’s which D supported. It therefore encouraged P to accept Hrynew’s proposal for a merger. When the plaintiff rejected that idea, the D appointed Hrynew to act as its “provincial trading officer” (PTO) for the purpose of auditing all of its enrolment directors. Because Hrynew would thereby gain access to the plaintiff’s files and records, the plaintiff understandably refused to cooperate. In an attempt to gain the plaintiff’s compliance, the defendant assured him that the audit would be absolutely confidential. It also led the plaintiff to believe that his position within the business

was secure. When the plaintiff continued to deny Hrynew access to his files, the defendant abruptly gave notice of its intention to terminate their relationship. The evidence revealed that it had intended to do so — one way or another — all along. Once the plaintiff was eliminated, the defendant gave his business to Hrynew. P sued sued and alleged, inter alia, that the defendant had breached a duty of good faith (novel claim). Trial: Upheld claim – finding of fact that D acting dishonestly in concealing its intentions and in manipulating the situation so as to allow Hrynew to replace the claimant. COA: Allowed appeal on basis contract did not contain obligation of good faith. SCC: Cromwell J recognized two new elements in Canadian contract law. A general organizing principle of good faith and a duty of honest performance of contractual obligations. No duty to disclose all of the facts, no fiduciary duty, and does not apply pre-contractually. General Organizing Principle of Good Faith

• not a free-standing rule — not an independent cause of action

• general principle manifested in various doctrines

• good faith disclosure in insurance

• fairness in tendering contexts

• doctrine of unconscionability

• promissory estoppel

• duty of honest performance Duty of Honest Performance • general obligation underlying in all contracts

• cannot contract out of but can tailor duty to circumstances as long as core idea respected • duty limited to matters of performance of primary obligations

• no generalized duty to disclose material information • no generalized duty of loyalty or fiduciary faith • no generalized duty to sacrifice self-interest • no generalized duty to forego benefits under agreement • inapplicable to pre-contractual negotiations (cf rules of misrepresentation)

“[The duty of honest performance] means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. … Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step”: Bhasin v Hrynew 2014 SCC 71 at [73] Held: D breached duty of dishonest performance. Deceitful acts regarding renewal and notice provisions in contract. D liable for P expectations damages – loss limited by possibility of D’s good faith non-renewal. Value of P’s business in context = $87,000. *Invitation to litigation? Unrecognized manifestations of general principle of good faith. Applications of duty of honest performance (when will an omission be a lie? When is a lie directly linked to performance? What further “modest incremental steps” await the future?) *Behavioural modifications. Breach consists of manner – not existence – of non-performance. Manner normally requires evidence of motivation. This provides incentive for parties to minimize communications, or to avoid written internal communications.

BHASIN APPLIED: CHURCHILL FALLS (LABRADOR) CORP V HYDRO -QUEBEC [2018] SCC Mere fact that agreement benefitted one party over another was no reason for court to recognize duty to compel parties to renegotiate terms. Facts: In 1969, Newfoundland was anxious to develop a large hydro-electricity facility, but had difficulty securing finances. The defendant agreed to inject funds into the project, but only under a hard bargain — ie until 2041, the plaintiff was required to sell most of the electricity that it produced to the defendant at a fixed price. Predictably, as the market value of electricity rose, the bargain increasingly favoured the defendant. Up to 2018, the defendant’s profit stood at $28 billion whereas the plaintiff’s was only $2 billion. The plaintiff repeatedly called for a re-negotiation of the contract price, but the defendant adamantly refused. The plaintiff therefore sued on an allegation that (1) the agreement contained an implied obligation to renegotiate the price in good faith, and (2) the defendant had breached its duty. Analysis: Mere fact that agreement benefitted one party over another was no reason for court to recognize duty to compel parties to renegotiate terms. • Limitation period also lapsed Dissent: “Relational contract” – one that contemplates close cooperation over an extended period of time and consequently requires parties to negotiate in good faith from time to time on specific obligations • Majority rejected characterization b/c parties had sufficiently settled all terms in advance

BHASIN APPLIED: CM CALLOW INC V ZOLLINGER [2020] SCC Duty of honest performance restrains manner in which contractual rights are exercised. What constitutes dishonesty can include half-truths, lies, omissions, or silence depending on context Facts: In 2012, Baycrest Condominiums entered into two separate contracts with CM Callow Inc: one for winter maintenance services and the other for summer maintenance services. The winter contract had a two year term. It also contained Clause 9, which allowed Baycrest to terminate: (1) if Callow’s services were unsatisfactory, or (2) regardless of satisfactory performance, on ten days’ notice. Early in 2013, Baycrest decided to terminate the winter contract for the winter of 2013-2014. It chose, however, to keep that fact to itself. It remained silent on point even as Callow, during the Spring and Summer of 2013, initiated discussions regarding a two-year extension to the winter contract. Believing that Baycrest was content with its services, Callow went above and beyond its summer obligations in an attempt to encourage Baycrest to sign the contractual extension. Finally, in September 2013, Baycrest revealed its intentions and gave notice that it was terminating the winter contract. Callow sued for breach of contract on the basis that Baycrest had acted in bad faith. Trial: Upheld claim b/c Baycrest had withheld its intention to terminate despite knowledge of Callow’s extra efforts. Silence constituted bad faith CA: Overturned. Extension of honest performance went too far. Deception pertains to possible future contract, not sufficiently connected to existing winter contract Analysis (SCC): Restored trial result • Breached duty of honest performance by knowingly deceiving Callow into believing that winter

contract wouldn’t be terminated • Lack of positive obligation of disclosure still means that there is an obligation to correct false

impression created through its own actions

• Duty of honest performance restrains the manner in which contractual rights are exercised (fine that Clause 9 was exercised but the way that it was done was dishonest)

• Breach of duty can include lies, half-truths, omissions and even silence depending on circumstances Holding: Baycrest liable for profits that Callow would’ve earned on a contract with 3rd party if it had known that Baycrest was going to terminate

BHASIN APPLIED: WASTECH SERVICES LTD V GREATER VANCOUVER SEWAGE AND DRAINAGE DISTRICT [2021] SCC Bhasin doesn’t mean you come out of the contract happy, just means that you come out of contract not being lied to Duty to exercise contractual discretion in good faith exists and is only breached if exercised unreasonably. As long as party exercising contractual right is not doing it dishonestly or for the purpose of hurting the other party, doesn’t matter if other party loses some/all benefit of the contract. Facts: 1996 Vancouver entered into 20-year contract with Wastech for waste disposal. Contained three important terms: (1) Wastech required to transport waste to one of three facilities and Vancouver enjoyed absolute and unfettered interest in choosing facilities; (2) price for Wastech’s services depended on facility – farther facility = more money, (3) contract didn’t guarantee Wastech any level of profit. • 2011 Vancouver changed facility and chose closer one (less money) and Wastech’s profits fell.

Wastech sued for breach of good faith Analysis: Duty to exercise contractual discretion reached only when exercised unreasonably (in this case means in a manner unconnected to the purposes underlying discretion • Discretion exercised in good faith (accordance with its purpose) irrelevant that other party loses

anticipated benefit Holding: Vancouver acted reasonably and in good faith. Exercised discretion with view to manage capacity of facilities and cost-effectiveness – was not acting to deliberately hurt Wastech

CLASSIFICATION OF TERMS

Effect of breach almost always function of parties’ intention. Intention is reckoned objectively through reasonable person test. Easily resolved if parties’ intention is express but clouded if intention is unstated and unconsidered. Recurring tension: adhere to actual intentions vs instrumentally reason. Commercial certainty and predictability vs flexibility and fairness. Ascertaining Classification of Term in Event of a Breach

I. Is a right of discharge provided by the operation of some rule of law?

• Eg. Statutory condition provided by Sale of Goods Act.

• Eg. Judicial precedent interpreting specific category of term as condition.

II. Does the contract expressly provide the right of discharge?

• Parties free to allow discharge for any breach. o Right not limited to objectively serious breaches. o Discharge for any breach regardless of actual effect.

III. Does the contract impliedly provide the right of discharge?

• Implication gleaned from total circumstances.

• Eg. Terms, reason for contract, market, subject matter, parties’ positions.

• Judge placed in parties’ mental state at time of contracting.

• Would parties say any breach supports right of discharge?

IV. Has the innocent party been deprive substantially of expected benefit?

• Innominate term – new test rather than new rule.

• Right of discharge depends upon effect of breach on innocent party.

• Best explained as parties’ presumed intention. Did not intend to commit themselves to a pre-factual conclusion. Intended rights to be dependent upon actual consequences.

• Would parties say this breach supports right of discharge?

EXCLUSION CLAUSES

• Contractual provision that affects liability in the event of a breach. Often exists in standard form contracts. It’s the allocation of risk that allows parties to know who must buy insurance.

• Historical view: Leave it to the parties. If you sign away all rights you should probably be driven out of business. As long as words say what they appear to say, parties are bound.

• Fundamental Breach – Denning: If there is a fundamental breach of contract – exclusion clause won’t apply at all.

• Increasing trend toward non-enforcement of exclusion clauses. Specific judicial response may vary with circumstances. EC less acceptable if there’s an inequality in bargaining power. Or if lability is totally excluded rather than limited.

1. Complete exemption clause: exempts all liability (doesn’t apply to fraud) 2. Exclusion clause: Liability excluded with respect to certain acts – no damages available. 3. Limitation clause: Can exclude liability in part (limit the damages that can be recovered).

• BENEFITS (mischief dealt with): Exclusions – allocation of risk and acquisition of insurance.

• Facilitate the distribution of risks while dictating the acquisition of appropriate insurance.

• Standardized exclusions – facilitation of efficient commercial transaction.

• Standardized terms are susceptible to fixed judicial interpretation, allow for simple comparison of offers, obviate need for protracted negotiations.

• Disadvantages (potential mischief): temptation for big companies to give customers standard form contracts that are outrageously bad for them

• Potential for unreasonable or unconscionable terms

NOTICE OF WRITTEN CONDITIONS: PARKER V SOUTH EASTERN RAILWAY , 1877 ENG CA

Exam: These aren’t the only rules, just a starting point. (1) If signed = bound (even if had no actual knowledge), (2) If aware and assent = bound (even if had no knowledge), (3) If not aware bound only if RP would know and only to extent that RP would be bound Facts: Parker and Gabell checked their luggage on a train. They were given tickets with a number on one side, and small print on the other side. The small print stated that the railway would not be responsible for bags lost worth more than £10. Both respondents had received the tickets before but had never read the small print. They both lost their bags, and brought actions against South Eastern for the value of the bags and their contents – both were greater than £10.

• Bound if written contract signed. Regardless of actual knowledge of terms.

• Bound if aware of existence of terms and if assent. Regardless of actual knowledge of terms.

• Otherwise generally bound if reasonable person would expect terms. Regardless of actual knowledge of terms.

o Bound only to extent that reasonable person would expect terms. Offeror is entitled to assume that offeree is reasonable person.

PARTICULARIZED NOTICE AND SUBSTANTIVE FAIRNESS: INTERFOTO PICTURE V STILETTO VISUAL , 1989 ENG CA

Able to have outrageous clauses in document but the more outrageous they are the more that needs to be done to bring them to the other parties attention. All about managing the expectations of the RP – you are only bound to the extent that the RP is bound. Ratio: Proportionality is applicable to all clauses (not just exemption clauses) the more onerous, the more notice required. Facts: Interfoto, at the request of Stiletto, delivered 47 photographic transparencies to Stiletto in a jiffy bag. Stiletto telephoned Interfoto saying there were one or two which they were planning to use in a presentation, but in the event they did not. Stiletto never read Interfoto’s standard terms and conditions, which were on a delivery note inside the bag. Condition 2 of the terms said there was a holding fee of £5 for each day over fourteen days. After approximately a month, Interfoto sent a bill for £3,783.50 and after the invoice was refused brought an action against Stiletto. Dillon LJ:

• Contract formed when D notified P bag had been opened.

• Notice of existence of general conditions or terms may be insufficient. o Particularly onerous terms must be drown to the offeree’s attention.

• Exorbitant fee inapplicable as contractual term. o P taken to be aware of general conditions in delivery note but fee condition was too

unusual to be imputed to P;s knowledge. Bingham LJ:

• Common law contains no generalized principle of “good faith”.

• Fair dealing achieved through particularized rules. o Doctrine of sufficiency of notice.

Contractual construction and substantive fairness. Is binding condition fair in the circumstances?

• General conditions fairly binding in circumstances.

• Exceptional fee not fairly binding in circumstances. Due to the onerous nature of condition 2, it had to be brought to the attention of Stiletto which it was not. As a result, it does not form part of the contract formed and so he reduces the award based on quantum meruit to the industry standard £3.50/week.

TILDEN RENT-A-CAR V CLENDENNING , 1978 ONT CA

EXAM: Possible line of argument but not binding. In the consumer sphere, sufficiency of notice and proportionality trump the Parker notion that a signature alone is binding. If a term of the contract is particularly onerous, the party looking to enforce that term must prove the other party was aware of the term through either their reading of the specific term or through direct notification of the specific term. Facts: Clendenning rented a car from Tilden Rent-A-Car. He signed the rental agreement which contained an exclusion clause denying coverage for accidents that occur if the driver had consumed any alcohol, although he testified that he had inquired what the $2/day fee covered and was told "full non-deductible coverage". While in Vancouver, Clendenning hit a pole after having consumed alcohol. He pleaded guilty to impaired driving and tried to collect from the insurance policy to pay for the damages of his accident. Majority (Dubin)

• Exclusion clause conflicts with the total coverage clause.

• Clause is onerous as it is overbroad - a driver would not be covered if they had a single glass of wine or if they were driving 1km/h over the speed limit.

• Tilden argues that under Parker as Clendenning signed the contract he was bound. This is rejected as the clerk was aware he had not read the contract and the purpose of signing is to manifest consent (consensus ad idem).

o Distinction between the consumer and commercial spheres: a signature in the commercial sphere creates the presumption of an agreement whereas the reality in the consumer sphere is not that of consensus; generally the signing of a contract is hurried and informal.

Situation here required D to reasonably draw P’s attention to terms. o Signature is strong evidence of consensus ad idem but not always true. Non-conclusive

indica of assent to terms. Sufficient if supportive of reasonable expectation of assent. Circumstances determine generation of reasonable expectation.

• Sufficiency of notice and proportionality trump the notion that the signature is binding.

• Contra proferentem – interpreted against the one who drafted the document.

*More or less accepted but no SCC decision. Lacourciere JA (dissent): Reverse terms sufficiently drawn to P’s attention. Strict but substantively fair. Reasonable basis for allocation of insurance risks, for determination of competitive rental price.

STRICT CONSTRUCTION

Operable exclusion clauses narrowly construed against D. Contra proferentem, Strict construction of nature of injury or loss

• Eg “no warranty express or implied” o Liability not excluded for breach of condition o Wallis Son & Wells v Pratt & Haynes (1911 HL)

• Eg “all cars parked at owner’s risk” o exclusion for property damage but not personal injury. o Thornton v Shoe Lane Parking (1971 Eng CA)

Strict construction of nature of breach

• Negligence not under general exclusion if other head of liability o Canada Steamship v R (1952 PC)

• But modern trend is towards holistic construction of intentions o ITO v Miida Electronics (1986 SCC)

Strict construction of protected parties

• Servant may not fall under employer’s exclusion clause o London Drugs v Kuehne (1992 SCC) per McLachlin J

TERCON CONTRACTORS LTD V BC , 2010 SCC MOST IMPORTANT CASE. Creates new test to deal with exclusion clauses: (1) interpretation (does it apply to facts), (2) unconscionability (unfair to enforce), (3) Public policy reason not to enforce Facts: BC sought to design and construct a highway. Issued a call for tenders but only 6 parties allowed to join.

• Contained an exclusion of liability clause which precluded proponents from lodging claims for compensation "of any kind whatsoever" as a result of participating.

• This clause had the effect of preventing proponents from suing the Province for damages in the event that it breached the terms of the RFP.

• P submit bit that should’ve won if BC played fairly but BC breached by awarding contract to one of the parties that wasn’t one of the 6 (breached contract A)

• BC says they aren’t liable for damages “from participating in tender” NEW TEST: Evaluate enforceability of exclusion clause based on:

1. Interpretation: Does the clause apply as a matter of interpretation? a. Does clause actually apply to the current situation

2. Unconscionability: Was the clause a serious departure from accepted behavior at the time of contract formation?

a. Even when parties signed it, is it so outrageous that we would consider it unconscionable in the broader sense (really unfair or significant difference in bargaining power)

3. Public Policy: Even if clause otherwise applicable and valid is there an overriding public policy that outweighs the very strong public interests in the enforcement of contracts.

Application: Majority: Test failed at first stage. Exclusion only if participating within the RFP. Ineligable bidder not participating in RFP. Minority: First stage: clause clearly applied to breach, second stage: no unconscionability between sophisticated partied, third stage: BC not so abhorrent to forfeit exclusion protection. COMMENTS: Fundamental breach doctrine “laid to rest” but judicial power to disallow on overriding policy grounds inevitable. Is the change from fundamental breach to overriding public policy a semantic or a substantive shift? Held: The exclusion clause contained within the RFP cannot bar Tercon from bringing an action in damages against the Province for breach of the terms of contract of tender.

CONTRACTUAL DEFECTS

PRIORTITY RULES

Non-contractual Case:

• Here, thief steals the bike. “Contract” is VOID

• If non-money: nemo dat is superior and original owner title is superior. It was not extinguished by thief and buyer purchase constitutes conversion

• If money: BFPV superior and original owner title extinguished. Buyer can’t be sued. Ensures money flows throughout market place

Contractual Case:

• Here, the owner “sells” the property – it is not stolen. Contract is VOIDABLE

• Owner vs Rogue: Owner did pass superior title to the rogue

o Can rescind before rogue sells to buyer

o If rogue already sold property, no restoration in specie (may have alternatives under Kupchak or other cause of action – like UE)

• Owner vs Buyer: depends on when owner rescinded o If owner rescinded prior to sale: then rogue didn’t pass superior title, owner’s rights are

superior and buyer committed conversion o If owner rescinded after sale: rogue DID pass superior title, buyer’s rights are superior

and owner’s rights are extinguished

IMPROPERLY INDUCED CONTRACTS

Misrepresentation (previously discussed)

DURESS Earliest forms recognized were actual or threatened violence to the person. Now, economic duress is also recognized. Generally accepted that a finding of duress makes agreement in question voidable not void. Elements: P need not prove the transaction was disadvantageous.

1. D’s improper pressure (physical or economic) 2. Causation – just has to be A cause (LOW threshold) 3. Disposition: any disposition of any property;

doesn’t have to be disadvantageous

DURESS TO THE PERSON: BARTON V ARMSTRONG, 1976 PC Threat of violence or detention against plaintiff or person close to plaintiff. Threat must be believable and believed. Sufficient if violence or threat constituted a reason for entering the agreement. Onus on threatener to prove did not contribute. The parties became embroiled in a bitter dispute regarding control of a corporation. The defendant used the threat of murder to coerce the plaintiff into signing an agreement. The plaintiff subsequently sought a declaration that the contract was void. The Privy Council agreed on the ground that the defendant’s threat was a reason that the plaintiff executed the agreement.

DURESS OF GOODS: ASTLEY V REYNOLDS, 1731 UK Acceptance extracted through improper seizure or retention of P’s personal property. Contract induced through (threat of) wrongful detention of property. Inductive action must not be justified by law (eg distress for rent). Purported requirement of “urgent and pressing necessity” (easily satisfied). The plaintiff pawned a £20 plate to the defendant. When he attempted to redeem it two years later, the defendant insisted that he would not return the item unless he was paid an additional £10 in interest. That amount was far in excess of the interest legally allowed. The plaintiff complied with the demand, but later sought recovery of the £10. The court allowed the claim on the grounds that

i. the plaintiff had not exercised his free will in making the payment, ii. it was not reasonably practical for the plaintiff to litigate, rather than comply with, the demand,

and iii. the plaintiff had paid the money relying on his legal right to later recover it.

ABUSE OF PROCESS: FULLER V STOLZE, 1938 SCC Permissible to threaten proceedings in good faith (settlement of claim). Impermissible to threaten proceeding in bad faith. Impermissible to stifle criminal prosecution in exchange for benefit.

The plaintiff and the defendant were officers of the same company. The defendant and two accomplices locked the plaintiff in an office and threatened to expose him to criminal proceedings unless he agreed to transfer his shares in the company to them. He complied but later sought to recover the shares. The claim was allowed on the ground that the enrichment was acquired by means of illegal extortion.

ECONOMIC DURESS

Economic Duress: Pao On PC affirmed that economic duress could serve to vitiate or negate consent to a contractual arrangement. Balance: Illegitimate pressure vs hard-bargaining in commercial world. Economic pressure is prima facie lawful (as opposed to other species of duress). Doctrine applied cautiously and less readily. Test: Improper threat + lack of feasible alternative. Relief no longer premised upon high threshold of “overborne will”. Factors indicating illegitimacy of pressure:

• Pressure applied in bad faith.

• Plaintiff could not reasonably resist. Most important – is there a reasonable alternative?

• Plaintiff commenced proceedings promptly after pressure relieved.

• Plaintiff protested at the time of pressure (if feasible).

• Plaintiff succumbed to pressure without legal advice.

SCOTT V METIT INVESTMENTS INC , 1988 ONT CA Test places emphasis on illegitimacy of the threat and the lack of practical alternatives (no realistic alternative). Also significantly here, they didn’t want him to seek legal advice Facts: Stockbroker for a company, following procedures that he remembered reading in the company’s official policy, purchased $100 000 worth of shares on instructions from a client. Client refused to pay for those shares. Worse yet, during that time, the value of the shares dropped by 60 percent. Eventually, the company took control of the account, sold the shares for $40 000, and threatened to sue Stott for $60 000. He was unable to find the policy document that he had relied on, and the company insisted he resolve the matter without consulting a lawyer. Consequently, he agreed to pay $50 000 in exchange for the company’s promise to drop the matter. The parties’ agreement subsequently was avoided on the grounds of economic duress.

REMEDY Not an independently actionable wrong but merely renders a transaction voidable. Incapable of supporting compensation or disgorgement. Permits the plaintiff to rescind (not void ab initio, valid until option exercised by P).

UNDUE INFLUENCE

• Duress in law is external while UI in equity is psychological.

• Equitable doctrine provides basis for setting aside a gift or transaction where the transfer of value has to be induced by an “unconscientious use by one person of power possessed by him over another”.

• Doctrine enables equitable rescission.

• Original instance of equitable intervention – analogue of duress at Law. Relief available despite absence of (threat of) violence to person or goods.

Elements: Proof by either evidence or presumption. Always an option to prove UI by evidence but occasionally possible to prove one or two elements by presumption.

(1) Psychological influence: Evidence indicating relationship of significant influence. Not necessarily dominance and control – behavioral influence is sufficient.

a. If special relationship the irrebutably presume that one party has influence.

i. Included = IRREBUTABLE presumption: Solicitor-client or physician-patient or parent-infant child.

ii. Not included: husband-wife or employer-employee or bank-customer.

(2) Transaction – evidence (3) Causal Nexus: Transaction must be

caused or induced by psychological influence (just has to be a contributing cause)

a. If suspicious transaction, then rebuttably presume influence exercised.

b. Transaction is suspicious if no apparent reason.

c. *Generally, can only rebut if have seen a lawyer.

Doesn’t need to be wrongful: Allcard v Skinner – young woman who joined the convent and gave away all worldly goods to Nun. Yes, UI. Too much influence, effectively drove the woman’s decisions because she idolized her. Don’t need to prove that D knew they were exerting influence wrongly

EXAMPLE ONE All elements established. (1) Irrebutable presumption b/c of special relationship, (2) transaction, (3) Causation – suspicious b/c ½ market value. Facts: Dave acted as Pam’s lawyer during her divorce. As a result of several discussions, Pam agreed to sell her house to Dave for about half of its market value. She now wants to recover the property. Undue influence is easily established on the facts. Because of the solicitor-client relationship, Dave’s influence is irrebuttably presumed. Because the sale is suspicious on its face, the transaction is rebuttably presumed to have been induced by that influence. Elements not required:

• Substantive unfairness need not be established. Transaction ought not to have occurred regardless of consequences.

• (Threat of) violence or adverse consequences need not be established.

• Special relationship not always required.

EXAMPLE TWO Rescission potentially barred by 3rd party intervention. Pam rescinded AFTER sale to 3rd party so her title was extinguished and BFPV title superior (public policy: bad for economy to have transactions always subject to rescission) Facts: Pam sold a painting to Dave as result of his undue influence. A short time later, Dave re-sold the painting to Xavier, who had no reason to suspect any defect in Dave’s title. Having sufficiently recovered her own free will, Pam then sought rescission of the contract. Analysis: The remedy was refused. Undue influence rendered the initial sale voidable in Equity. Dave accordingly held good legal title in the painting until such time as Pam exercised her right of rescission.

He consequently could pass legal title to Xavier by way of sale. And as a bona fide purchaser of the legal interest without notice of Pam’s pre-existing Equitable right, Xavier took clear title in the painting and extinguished Pam’s Equitable power of rescission.

BARCLAYS BANK V O’BRIEN, 1994 HL Plaintiff induced by UI to transact with 3rd party. Transaction subject to relief IF 3rd party had sufficient notice of defect. Constructive notice if circumstances suspicious to RP. Bank can rebut presumption of UI if they took reasonable steps (like telling wife to seek legal advice) Facts: A man wanted to borrow money for business purposes. A bank agreed, but only if the debt was secured by a mortgage over the matrimonial home. The man brought his wife to the bank, where she signed the documents without reading them. The bank staff did not explain to her the risks inherent in the transaction. When the man subsequently defaulted on the loan and the bank attempted to enforce its rights under the mortgage, the wife objected that she had been induced to sign by her husband’s undue influence. The House of Lords agreed. The bank should have realized that the woman was not acting of her own free will and therefore should have directed her to independent legal advice.

REMEDY Traditional Rule:

• UI supports rescission of transaction.

• Restitutionary rescission triggered by strict liability unjust enrichment o Remedy merely restores parties to status quo ante (giving back and taking on both

sides) o Action requires proof of vitiated intention but not proof of wrongdoing.

• Potential development: undue influence supports compensation of P’s loss. o Remedial obligation to repair loss must be triggered by breach of obligation.

Remedy restores plaintiff but adversely affects D. Adverse effect justified only by proof of wrongdoing

• Wrong consists of D’s knowledge of vitiated intent.

• Potential problem: High threshold for minimal relief. Risk that fault will become invariable requirement of undue influence.

UNCONSCIONABILITY Courts of equity set aside agreements where unfair agreements resulted from an inequality in bargaining power. Developed from doctrine of protection of expectant heirs. Gist of claim: Transaction so divergent from societal morality as to warrant rescission.

Elements: (1) Significant inequality of bargaining power.

• Some inequality of bargaining ability is virtually inevitable.

• Plaintiff must suffer from significant disadvantage. o Categories of disadvantage remain open. o Mental disability, distress, senility, drunkenness, illiteracy, lack of education or

experience (2) Substantial unfairness in transaction.

• Some disparity in transaction al outcome virtually inevitable.

• P must suffer significant detriment from transaction. o Categories of substantive unfairness remain open.

Eg. Sale of asset at far less than market value. Eg. Personal guarantee without corresponding benefit. Eg. Improvident settlement of claim.

(3) D (constructive) knowledge of disadvantage SHOULD BE required.

• Operational focus on immorality rather than vitiated consent. Proof of elements raises rebuttable resumption of unconscionable transaction. D must prove procedural fairness OR substantive fairness. Different from others because it is substantive. Independent legal advice only clear possibility

HARRY V KREUTZIGER, 1978 BCCA Prior to Uber, this was the classic unconscionability case. Followed the elements above The plaintiff was partially deaf, easily manipulated, unsophisticated and inexperienced in business. He did, however, own a fishing boat and a licence to fish for salmon. The defendant was virtually the opposite of the plaintiff: aggressive, manipulative, cynical and well versed in sharp business practices. Through persistent pressure, bordering on harassment, the defendant persuaded the plaintiff to sell his boat and licence at a price which, as the defendant knew, was well below market value. The plaintiff came to regret the sale, especially after learning that it was very difficult to obtain another licence. The Court of Appeal held that:

i. There was a marked disparity in terms of the parties’ bargaining positions, ii. The sale was very disadvantageous to the plaintiff, and therefore presumed that the transaction

was unconscionable. The defendant was unable to rebut that presumption.

UBER TECHNOLOGIES V HELLER [2020] SCC Fundamentally altered test for unconscionability. Now requires: (1) mere inequality of bargaining power and (2) unfairness in substance. No more knowledge requirement and differences don’t have to be substantial

Facts: David Heller contracted to drive for Uber. The contract contained an Arbitration Clause that required all disputes to be resolved through arbitration in Amsterdam rather than through Canadian courts. (Simply filing an arbitration claim in Amsterdam costs $14,500). Heller became the representative plaintiff in class action against Uber. The claim alleges that Uber drivers are “employees” and consequently are entitled to employee benefits (eg minimum wage, vacation pay). Uber disagreed. Trial: Upheld arbitration clause by imposing a stay on Canadian proceedings CA: Denied stay on the basis that clause was unconscionable b/c costs of arbitration likely to outweigh value of lawsuit SCC analysis: Upheld unconscionability and fundamentally altered test

• Inequality of bargaining power: satisfied b/c arbitration clause was in “standard form contract” and claimant was “powerless to negotiate”

o New threshold= very low

• Substantive unfairness: satisfied b/c $14 500 filing fee was close to claimants annual income and b/c cost of arbitration was disproportionate to size of foreseeable award

o New threshold = very low. Cost of arbitration MUCH lower than litigation in Canadian Courts

• Knowledge: b/c weaker part is disadvantaged by inadvertent or deliberate exploitation then unconscionability can be established w/o proof that stronger party knowingly too advantage of the weaker

o No more knowledge requirement: knowledge was important b/c it provided a competent explanation for why Courts are getting involved

o Now, no rationale for why Courts are getting involved

NATURE OF UNCONSCIONABILITY (i) Procedural: Doctrine designed to ensure fairness in bargaining process. (ii) Substantive: Doctrine designed to ensure fairness in transactional substance. Orthodox view favors procedural focus. Relief unlikely if substantially unfair bargain results from fair process. But no relief if substantively fair bargain resulting from unfair process.

EXAMPLE Even though he was a stranger, Dave knew that Pam suffered from an intellectual disability and had an irresistible desire to please people. As a result of his persistent efforts, Dave persuaded Pam to sell her assets to him for a price that was less than half of their market value. Should Dave be entitled to maintain that transaction in court? What if Dave bought at full market value? What if he bought below market value but was unaware of Pam’s difficulties? I THINK:

(1) Not entitled. (2) Full market – entitled. No substantive unfairness. (3) Entitled: no unfair process. (*relief unlikely if substantively unfair bargain results from fair

process)

REMEDY

• Traditional remedy of equitable rescission. o Subject to usual equitable bars (3rd party rights, acquiescence). Equitable doctrines

applied flexibly to widen scope of relief.

• Occasional suggestion that unconscionability may excise offending provision only. Standard feature of American law

o Generally rejected in Anglo-Canadian law but allowed in Uber

• Occasional suggestion that unconscionability may trigger compensation. o Doctrine is not independent cause of action or civil wrong o Doctrine merely reverses defective dispositions

STATUTORY UNCONSIONABILITY (1) Unconscionable Transaction Act: Governs unfair terms in Loan Agreements. (2) Fair Trading Act s.6: Governs unfair consumer transactions.

a. Consumer: goods or services purchased primarily for personal or household use. Includes new houses, services includes repairs, club membership, time-share.

b. Illustrations of unfair trading practices. c. Effects of legislation:

i. Rights cannot be waived or modified. ii. Sanctions and Remedies

(a) Broad powers of investigation and compliance. a. Two years imprisonment and/or $100,000 or triple disgorgement.

(b) Statutory action for compensation by victim. iii. Compensation, punitive damages, injunctions, restitutions iv. Class action available to consumer advocacy organizations

• Taking advantage of a consumer’s inability to understand a consumer

transaction. Example: A seller convinces a consumer who can’t speak or read English to sign a

multi-page contract.

• subjecting a consumer to undue pressure or influence to buy. Example: A salesperson

spends four hours in a consumer’s home trying to sell a vacuum cleaner.

• Charging a price that grossly exceeds the price of similar goods that are readily

available without informing the consumer of the difference and the reason for the

difference. Example: A contractor doesn’t tell a homeowner that the repairs to his roof that cost

$7500 could have been be done by a competitor for $2500.

• Charging a price for goods or services that is more than 10 per cent — to a maximum

of $100 — higher than the estimate given for those goods or services unless the consumer has

specifically agreed to the increase. Example: A repair shop says it will cost $150 to fix an item,

but the final bill is $400.

• Representing that goods or services are of a particular standard, quality, grade, style or

model if that representation is untrue. Example: A furniture dealer says a coffee table is solid

wood when it is really particleboard.

• Representing that goods have or have not been used to an extent that is different from

the fact. Example: The seller tells a consumer that a car has 100,000 kilometers on it and the

true mileage is 200 000 kilometers.

• Representing that goods are new when they are used, deteriorated, altered or

reconditioned. Example: A computer is sold as new, but the seller has reconditioned it.

• Making an untrue statement about a good’s prior history or use. Example: The seller

tells the consumer that a car was only driven by the owner of a dealership when it was a lease-

back from a rental company.

• Representing that goods or services are available in accordance with a prior

representation when they are not. Example: The seller says the goods were seized from Canada

Customs when they were actually purchased as regular inventory.

• Representing that a voucher from one supplier can be used for goods or services at

regular or discount price if the first supplier knows (or ought to know) that the second supplier

will not honour the voucher. Example: A company sells a coupon book knowing that some of

the businesses will not honour the coupons.

• Representing that goods are available in a particular quantity if they are not. Example:

A store advertises it has 35 stereos for sale when in fact it has one stereo in stock.

• Representing that goods or services will be supplied within a stated time if the supplier

knows (or ought to know) the goods will not be available. Example: A hot tub company

promises a tub will be installed on Christmas Eve when it knows the installation staff will not

be available.

• Representing that a specific price benefit exists if it does not. Example: A business

advertises that an item is on sale or the price is “20 per cent off” if the item has never been sold

at the regular price.

• Representing that a part, replacement, repair or adjustment is needed or desirable if it is

not. Example: A shop replaces a dryer motor when only the belt needed replacing.

• Representing that the supplier is asking for information, conducting a survey or making

a solicitation when that is not true. Example: A door- to-door salesperson asks a consumer to

fill out a home-environment survey when he or she actually wants to do a product

demonstration.

• Giving an estimated price for goods or services if they cannot be provided for that

price. Example: A renovation company tells a homeowner that it can replace the garage door

for $500 when it knows the price for parts alone is $700.

• Representing the price of goods or services in a manner that a consumer might

reasonably believe the price refers to a larger package of goods or services. Example: A

company advertises it will build a complete fence for a home for $2000 when the fence project

is for the rear of the house only. Adding two more sides would cost $1500 more.

• Representing that a consumer will obtain a benefit for finding other customers if it is

unlikely that the consumer will obtain such a benefit. Example: A multi-level marketer agrees

to give you a reduced price on your next order when you refer a friend to the company, but it

never gives you a reduction.

FRUSTRATION

Frustration = performance rendered impossible or essentially different. Very high threshold

• Not frustrated just b/c it’s harder to perform or less profitable

• Traditional effects: Rights and obligations frozen at moment of frustration. o Release from obligations that have not accrued due o Enforcement of obligations that have accrued due.

CUTTER V POWELL, 1785 UK Entire contract frustrated thus no payment accrued due

Facts: The plaintiff’s husband contractually agreed to serve as a second mate on a voyage from Jamaica to Liverpool. Payment was due on arrival. The contract was frustrated when he died en route. The court held that the agreement was an entire contract and therefore denied the widow’s claim for quantum meruit. *Entire contract: no rights until fully perform the contract.

CHANDLER V WEBSTER, 1904 UK Accrued obligations still enforceable after frustration even if performance hasn’t occurred yet The plaintiff agreed to rent a room from the defendant for the purpose of viewing the coronation of Edward VII. Under the terms of the contract, the plaintiff paid part of the price and had accrued an obligation to pay more. The contract was then frustrated when the procession was cancelled. The plaintiff was not entitled to recover his earlier payment — and the defendant was entitled to receive the outstanding installment.

FIBROSA SPOLKA AKCJNA V FAIRBAIRN LAWSON COMBE & BARBOUR , 1943 HL Court changed it’s tune. If you’ve paid money prior to a frustrated contract, you are entitled to restitution but only if you have a suffered a “total failure of consideration” (if you received NOTHING of what you expected to receive) An English company agreed to sell a flax hackling machine to a Polish company for £4800. After a pre-payment of £1000, the contract was frustrated by the outbreak of war. The plaintiff claimed restitution of its pre-payment. The House of Lords allowed relief on the basis of a total failure of consideration. RULES: Following Fibrosa Spolka

• Accrued obligations remain enforceable (Chandler)

• Restitution for money paid on total failure of consideration (Fibrosa)

• No relief for wasted expenditures (ie resources spent in reliance on contract)

• No relief for services rendered under entire contract (Cutter)

• Consumer Contracts – can’t contract out

• Sale of Goods Act – Can contract out

• Frustrated Contracts Act – can contact out of

ALBERTA’S FRUSTRATED CONTRACTS ACT Default rules, can go outside statute either by directly stating or implicated. Needs to be clear.

• Statutory default rules subject to modification by parties [7]

• Severable portion of contract unaffected by frustration [8] o Party entitled to enforce payment if fully performed severable portion.

• Money paid is recoverable (Fibrosa extended) [3(a)] o Prima facie recoverable. Not premised on a total failure of consideration, but not an

absolute right.

• Accrued monetary obligations are discharged (Chandler abolished) [3(b)]

• Expenditures compensable in court’s discretion if money received or due [4] o Expenditures capped by payments received or accrued. o Incurred expenses reimbursment at courts discretion.

• Beneficial services recoverable in court’s discretion (Cutter abolished) [5] FRUSTRATED CONTRACTS ACT Definitions: 1 In this Act,

a) “contract” includes a contract to which the Crown is a party; b) “court” means the court or arbitrator by or before whom a matter is brought to be determined; c) “discharged” means relieved from further performance of the contract.

Application of Act 2(1) This Act applies to a contract, whenever made, governed by the law of Alberta that, on or after March 29, 1949, has become impossible of performance or been otherwise frustrated and the parties to which for that reason have been discharged. (2) This Act does not apply

(a) to a charterparty or to a contract for the carriage of goods by sea, except a time charterparty or a charterparty by way of demise, (b) to a contract of insurance, or (c) to a contract for the sale of specific goods when the goods,

(i) without the knowledge of the seller, have perished at the time when the contract is made, or (ii) without any fault on the part of the seller or buyer, perish before the risk passes to the buyer.

Sums payable before discharge 3 The sums paid or payable to a party, in pursuance of a contract before the parties were discharged, (a) in the case of sums paid, are recoverable from that party as money received by that party for the use of the party by whom the

sums were paid, and (b) in the case of sums payable, cease to be payable.

Expenses: 4(1) If, before the parties were discharged, the party to whom the sums were paid or payable incurred expenses in connection with the performance of the contract, the court, if it considers it just to do so having regard to all the circumstances, may allow the party to retain or to recover, as the case may be, the whole or a part of the sums paid or payable not exceeding the amount of the expenses. (2) Without restricting the generality of subsection (1), the court, in estimating the amount of the expenses, may include a sum that appears to be reasonable in respect of overhead expenses and in respect of work or services performed personally by the party incurring the expenses. Benefit: 5(1) If, before the parties were discharged, any of them has, by reason of anything done by another party in connection with the performance of the contract, obtained a valuable benefit other than a payment of money, the court, if it considers it just to do so having regard to all the circumstances, may allow the other party to recover from the party benefited the whole or a part of the value of the benefit. (2) When a party has assumed an obligation under the contract in consideration of the conferring of a benefit by another party to the contract on another person, whether a party to the contract or not, the court, if it considers it just to do so having regard to all the circumstances, may for the purposes of subsection (1) treat a benefit so conferred as a benefit obtained by the party who has assumed the obligation. Insurance: 6 In considering whether a sum ought to be recovered or retained under this Act by a party to the contract, the court shall not take intaccount a sum that, by reason of the circumstances giving rise to the frustration of the contract, has become payable to that party under a contract of insurance, unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under an enactment. Frustration contemplated. 7 If the contract contains a provision that, on the true construction of the contract, the contract is intended to have effect

a) in the event of circumstances that operate, or but for that provision would operate, to frustrate the contract, or b) whether those circumstances arise or not,

the court shall give effect to the provision and shall give effect to this Act only to the extent, if any, that appears to the court to be consistent with that provision. Severance. 8 If it appears to the court that a part of the contract can be severed properly from the remainder of the contract, being a part

a) wholly performed before the parties were discharged, or b) wholly performed except for the payment in respect of that part of the contract of sums that are or can be ascertained under the

contract, the court shall treat that part of the contract as if it were a separate contract that had not been frustrated and shall treat this Act as applicable only to the remainder of the contract.

CAN-TRUCK TRANSPORTATION V FENTONS’ AUTO PAINT SHOP , 1993 ONCA Facts: The defendant’s truck was badly damaged in an accident. It was taken to the plaintiff’s garage, where it received $28 000 in repairs. The truck was then destroyed by a fire. The cause of the fire is unknown. The defendant demanded delivery of the remains of the truck, but the plaintiff purportedly exercised a lien. The plaintiff also claimed relief for the value of its work. The court reached three conclusions.

(1) The plaintiff enjoyed a statutory lien over the remains of the truck pending payment. (2) The plaintiff did not enjoy a claim for the value of beneficial services. Since the truck was

destroyed by fire, the plaintiff’s services did not confer a benefit upon the defendant. (3) The plaintiff might, however, be entitled to relief for the wasted expenditures. By the time of

frustration, the plaintiff had provided services and generated an accrued right to payment. The matter was therefore remitted to the trial judge to exercise a discretion under Ontario’s equivalent of section 4 of the Alberta statute.

MISTAKE

• Contract formation requires meeting of the minds on an objective basis. Reasonable person must conclude that parties agree. Mistake may be non-induced (spontaneous) or induced through misrepresentation. Misrepresentation is voidable not void.

• Mistake may vitiate apparent intention and consensus. But relief from mistake subject to substantial policy considerations.

o Balance: relief vs risk allocation o Balance: fairness with orthodoxy o Balance: subjective expectation vs predictability (commercial)

This is tough – very high value in contract law on the idea of predictability and stability b/c it allows people to rely on contract

o Balance: innocent owner vs innocent buyer

• Can’t always please misrepresentation leading to rescission o Mistake may be non-induced (unilateral or shared error) o Circumstances may require void rather than voidable

Big difference b/w misrepresentations that render contract voidable and fundamental mistakes that render contract void

MISTAKE ABOUT SUBJECT MATTER: PREVENTING CREATION OF CONTRACT S

• No consensus ad idem of no objective agreement on terms

• (generally) no relief for unilateral mistake. o Eg. Purchaser unilaterally believes painting is a Picasso. Prima facie contract because

parties agreed on that painting. Different if misrepresentation regarding the identity of the artist.

• Relief is possible if mistake affect identity (not quality) of subject matter. o No agreement on which item is subject to agreement. o Not quality of goods but existence or identity.

RAFFLES V WICHELHAUS, 1864 EXCH D purchased cotton to be shipped from Bombay to Liverpool aboard the Peerless. Unbeknownst to either party, there were two ships called Peerless and both were sailing from Bombay to Liverpool. The purchaser had in mind the one that was sailing in October. The vendor had in mind the one that was sailing in December. By the time that the December Peerless, containing the cotton, arrived in London, the purchaser no longer had any need for it. A dispute arose as to the enforcement of the agreement. The court held that there was no contract. As a result of the mistake, there was no consensus ad idem, neither objectively nor subjectively.

MISTAKE ABOUT IDENTITY: PREVENTING CREATION OF CONTRACT

• Identity of contractual party may be important to contractual process. o Especially if unsecured credit on basis of debtor’s (apparent) reputation. o Especially if identity is crucial to ability to perform.

• Criteria of non-enforcement: o Mistake was induced by misrepresentation (subject of mistaken identity) o Mistake was material to creation of contract.

SHOGUNU FINANCE V HUDSON, 2004 HL

“Mr Patel” came to P wanting to buy car. Credit rating – check check. Sold car to “Mr. Patel”. MP resold to D who was innocent of the fraud. P wants car back from D. Under English legislation, P was entitled to reclaim the car only if the document that it signed with “Mr Patel” was not truly a contract. (3-2 Split) Held: Favor of P. Material mistake of identity: no meeting of minds as (i) MP never intended to enter a contract, (ii) P intended to enter contract with real MP. Emphasized P had taken special precautions to verify MP identity and credit rating. Dissent: Valid contract, transfer to D. Notwithstanding the mistaken identity, the plaintiff had intended to create a contract with the party standing before it (ie the rogue) regardless of his true identity. In the course of judgment, the House of Lords also scotched the long-standing heresy that Equity has a (relatively generous) doctrine of mistake that is distinct from Law.

MISTAKES RENDERING CONTRACT IMPOSSIBLE TO PERFORM Mutual mistake regarding existing fact affecting possibility of performance. Not frustration. Impossible to perform at the outset. EXAMPLE: In December, Pam rents her cottage to Dave for the upcoming summer. As they discover when they go to inspect the property in April, it had been destroyed by fire in November. Prima facie the parties have no contract because they shared a mistake pertaining to an existing fact hat affected the possibility of performing the agreement.

• The conclusion would be different, however, if the contract contained a clause that places the burden of such a loss upon one of the parties.

• If the cottage had been destroyed in January (ie after the contract had been created), the relevant issue would be frustration, rather than mistake.

NON EST FACTUM Only applies to written documents. If you signed a document and later want to get out of it. Very narrow doctrine: policy: we don’t want to reward people for not reading contracts, want to protected 3rd parties and encourage predictability. Successful please = VOID

1. Contract must be FUNDAMENTALLY or RADICALLY different than believed (compare to

misrepresentation where any difference is actionable) 2. Difference must be attributable to a misrepresentation. 3. Doctrine may be barred if party failed to act reasonably

a. Carelessness irrelevant between immediate parties. i. Rescission available on basis of misrepresentation.

b. Carelessness fatal against innocent 3rd party.

*Student get confused with Tilden – avoid application of an exclusion clause because it was unexpected, non-est factum is about radically different contract trying to get out of it entirely. Doctrine may be barred if party failed to act reasonably.

SAUNDERS V ANGLIA BUILDING SOCIETY, 1971 HL

Represents rule that document has to be FUNDAMENTALLY different to use non est factum Facts: P, an elderly widow, held a leasehold interest in a house. When a rogue presented a document for her signature, she said that her glasses were broken and she asked for an explanation. The rogue said that the document assigned her interest to her beloved nephew. In fact, it created an assignment in favour of the rogue, who promptly mortgaged his newly-acquired interest to the defendant as security for a loan. When the rogue failed to repay the loan, the defendant sought possession of the property and the plaintiff, at long last aware of the fraud, sought to avoid the initial contract on the basis that she had not understood its true import. Holding: That plea failed because there was not a radical difference between the actual document and its purported effect: in either event, the plaintiff’s interest was alienated by assignment.

MARVCO COLOR RESEARCH LTD V HARRIS , 1982 SCC Second rule of non est factum: can’t use non est factum if party was careless Facts: Ds, intelligent and experienced individuals, mortgaged their home in order to help their daughter’s boyfriend with a business venture. He subsequently returned with a document that he claimed merely addressed a small administrative matter pertaining to the original security. The defendants signed without reading. It was only later that they learned that the disputed document created a second mortgage in favour of a new lender. Holding: SCC allowed the lender’s action for foreclosure, finding that the defendants’ misfortune was a function of their own carelessness.

RECTIFICATION Contract rectifiable in equity if agreement improperly recorded. Mistake must pertain to written expression not the creation of contract. Can only get if a drafting error not a substantial error. Criteria for relief for common mistake:

• An objective agreement on terms at time.

• Agreement persisted until time of signing.

• Rectification involves clear and certain terms.

Relief available in court’s discretion:

• Equitable bars apply (laches, affirmation)

• Carelessness is not a bar – but is a relevant factor.

• BOP often said to be elevated “Beyond that sort of proof that...scrapes over the low end of the civil ‘more probable than not’ standard.”

Relief traditionally confined to errors in drafting not errors in judgement. Trend toward allowing substantive changes: Canada v Juliar – (ONT CA 2000). Relief traditionally confined to common mistakes, now cautiously extended to unilateral mistakes (Sylvan Lake).

FREDRICK E ROSE (LONDON) LTD. V WILLIAM H PIM JNR & CO LTD, 1953 CA Common mistake: While the parties undoubtedly were mistaken, the error was not a function of inaccurate drafting. The written contract faithfully reflected the parties’ (mistaken) desire to deal certain types of beans Facts: Parties agreed to the sale of “horsebeans,” which the vendor told the purchaser were the same as feveroles. The purchaser required feveroles for the purpose of a transaction with a third party. As later became clear, however, horsebeans are different than feveroles. The third party sued the purchaser for breach of contract. To protect itself, the P claimed that it was entitled to rectify its agreement with the vendor and to receive genuine feveroles from the vendor

CANADA (AG) V FAIRMONT HOTELS , 2016 SCC Rectification is not available to change the parties intentions. Only rectifies mistakes in instruments Facts: Fairmont Hotels wanted to enter into a sophisticated financial arrangement, but only if it could do so without incurring tax. Several options were available, including a share redemption and a loan repayment. It chose to proceed by way of a share redemption. Several years later, a government tax audit revealed that tax neutrality had indeed been possible, but only if Fairmont Hotels had chosen to repay a loan rather redeem shares. On the actual facts, a substantial tax had been incurred. Fairmont Hotels then sought an order to “rectify” the arrangement by retroactively substituting a loan repayment for the share redemption. The lower courts agreed. ONCA: Rectification merely requires “proof of a continuing specific intention to undertake a transaction … on a particular tax basis.” No need for the applicant to further demonstrate that it had “determined the precise … means by which [its] settled intention to achieve a specific tax outcome would be realized.” Accordingly, since Fairmont Hotels had intended from the beginning to proceed in a tax neutral manner, rectification was available to achieve that goal. SCC: Orthodox position. “Rectification is not equity’s version of a mulligan.” Courts of equity do not rectify transactions; they may and do rectify instruments. Thus, rectification unavailable. The documentation prepared in connection with the transaction accurately reflected the parties’ original intention to undertake a share redemption. Rectification was not warranted merely because the applicant recognized, in hindsight, that it had made a poor decision at the outset.

SYLVAN LAKE GOLD & TENNIS CLUB LTD V PERFORMANCE INDUSTRIES LTD, 2004 SCC Historically relief confined common mistake but cautiously extended to unilateral mistake. Adds 4th element for unilateral mistake: proof that D knew or ought to have known of mistake in reducing oral agreement to writing

Facts: The parties orally reached an agreement regarding ownership and development of a golf course. P was to hold an option to construct a double row of houses along the 18th fairway. That project required a strip of land approximately 110 yards wide. Unfortunately, when the agreement was reduced to writing, the document referred instead to a strip of land 110 feet wide. From P perspective, the alteration permitted only a single — rather than a double — row of houses and consequently “turned a viable project into ‘a waste of land.’” D recognized the error immediately, but the P remained oblivious until long after the contract had been signed. SCC: Upheld P claim for rectification.

• an objective agreement on terms at time

• agreement persisted until time of signing

• rectification involves clear and certain term

• *New only for unilateral: D either knew or ought to have known of the mistake in reducing the oral terms to writing.

This case had a unilateral mistake induced by misrepresentation. In knowingly allowing P to sign the inaccurate agreement D acted with “the full intention that he would in the future rely on the terms” of the document “to thwart or reduce” P’s development plans.

ILLEGALITY

Illegality: broad concept that includes crimes, private law wrongs and public policy Grounds of invalidity

(1) Common law illegality: statutory provisions relevant but not determinative. Based on judicial initiative and categories of invalidity are a function of judicial discretion and evolve to reflect prevailing community values

• Acts Pertaining to Legal System o void: contract requiring or facilitating criminal or tortious act o void: contract for lawful act to be performed for unlawful purpose

- eg contract price mis-stated to avoid tax (fraud) o void: contract interfering with administration of justice

- eg maintenance (improper support of litigation by non-interested party) - eg champerty ( receipt of proceeds of litigation by non-litigant)

• Restraint of Trade: covenant restricting person’s ability to carry on trade, profession or business

o eg non-competition clause in employment context employee prohibited from working in same field

o eg non-solicitation clause in employment context employee prohibited from contacting clients of ex-employer

o eg non-competition clause in context of sale of business vendor prohibited from establishing new competition for old business

o These are normally all okay, but at some point they go too far and when they go too far they are against public policy. All up to judicial decision

o covenant valid and enforceable if reasonable in circumstances o Policy: balance: employer’s right to protect their business vs employees’ right to

earn a living and pursue their calling o Policy: balance: employer’s interests in controlling competition vs public’s interest

in access to competitive markets o The clause is more likely to be enforced if it involves non-solicitation rather than

non-competition. It is more reasonable to prevent Pam from contacting old clients, than to prevent her from working in the same field.

o A non-competition clause is more likely to be valid if it is confined to a small area (eg a neighbourhood or city, rather than a region or province), or a limited time (eg a year rather than ten years).

o A non-competition clause is more likely to be enforced if it pertains to a specific market, rather than an entire trade or profession.

(2) Statutory illegality: no scope for judicial discretion. Transaction struck down for violation of

statue

• Traditional rules o statute traditionally confined to serious matters — agreements invariably void o modern regulated society — automatic invalidity no longer apposite

modern society extensively governed by statutes and regulation (Parl no longer just deals with serious matters – Parl now deals with all walks of life)

• legislated requirements for innumerable and disparate reasons

• sanction ought to reflect circumstances of legislation and breach

• determination of effect of legislative violation o legislation may expressly indicate appropriate sanction o Effect of breach determined based on whether statute contained both prohibition

and sanction or not o legislation typically silent — sanction requires judicial interpretation o statutory purpose + protected class + effect of breach + deterrence

(3) Hall v Hebert: stultification

a. Allowed to get compensation even if you are doing something illegal as long as compensation doesn’t allow you to profit off your illegality OR allow you to evade a criminal sanction or penalty

Effect of violation

• Category and fact-dependent – sanction tailored to nature of wrong and circumstances

• Ex. Void and unenforceable transaction

• Ex. Offending provision excised from otherwise valid agreement (“Blue pencil” approach)

• Ex. Offending provision re-drafted within otherwise valid agreement

• Ex. Preclusion of claim and forfeiture of property interest

KINGSHOTT V BUNSKILL [1953] UK Non-sensical approach. Courts didn’t get involved b/c of illegality. Statute was silent on remedy for breach so up to the Judge. Illegality was not enforced. Facts: A statute prohibited the sale of un-graded apples, but was silent on the effect of a prohibited sale. The plaintiff and the defendant were both apples farmers. The plaintiff sold un-graded apples to the defendant. The defendant graded the apples before re-selling to the public. When the plaintiff sued for

the price of the apples, the defendant resisted the action on the basis of the legislation.

Analysis: Purpose of legislation was to protect consumers from risks of un-graded apples

• Strict reading of legislation broken but not in spirit – consumers still protected b/c D graded apples after acquiring them from P

Holding: Court still took narrow view – b/c he was in breach of statute, P was barred from suing on initial sale contract

REWRITING AND SEVERANCE Strategies for dealing with illegal provisions within otherwise legal contracts Notional severance: offending provisions re-written to avoid illegality Blue pencil: offending provision completely excised – contract otherwise enforced

NEW SOLUTIONS FINANCIAL V TRANSPORT NORTH AMERICA [2004] SCC 4 step process to determine whether notional severance or blue-pencil should be used to correct illegality Facts: The defendant borrowed $500 000 from the plaintiff. The loan agreement required payment of various sums, in addition to repayment of the principal. As a matter of law, those various additional sums constituted interest. On the facts of the case, that interest exceeded 60% per annum and therefore constituted a “criminal rate of interest” under section 347 of the Criminal Code. Analysis: In determining whether contract can be enforced despite offending provision:

• (1) Whether severance would subvert purpose of CC s.347 Parl purpose was to protect from loan sharks – this wasn’t the mischief Parl was trying

to avoid

• (2) Whether parties created their contract with an illegal or evil intention No illegal intention – 60% was by accident

• (3) Parties’ relative strength of bargaining power Roughly equal – both sophisticated parties

• (4) Possibility that D would enjoy a windfall under non-enforcement Adopt blue pencil or notional severance approach – whichever is closest to parties

intentions Here: adopting blue pencil and getting rid of the 70% would drop interest to 30% (way

below intention of 60%)

• Notional severance is the correct approach to comply with CC and to respect parties intentions as much as possible

TERMINATION

Ways in which contract can be terminated. 1. Rescission: Other party is entitled to rescind, by reason of the other parties’ misrepresentation,

undue influence or duress. a. Rescission restores the parties as though the agreement was never written. b.

Termination recognizes existence of agreement and does not release parties from liability. 2. Breach: One party is in breach, entitling other party to terminate.

a. Releases from any/all present or future liability. 3. Void: Where a contract is void by reason of mistake, non est factum or statue. 4. Discharge by Agreement: Agree to bring to end – mutual. 5. Force Mejeure: When contract provides for termination in event, “act of god”. Has to be in

contract. 6. Frustration: Where unforeseen event prevents party from continuing contract.

DISCHARGE BY PERFORMANCE

(1) Time of Performance: Time of performance prima facie is not of the essence. Late performance supports damage – Warranty.

• Time of performance may be made out of the essence. Parties’ agreement at the time of contract creation. Inherent nature of agreement (quickly perishable goods), intended recipient gives reasonable notice following breach.

(2) Tender of Payment:

• Debtor bears obligation to tender reasonable payment once. Reasonableness of tender depends on the circumstances. Need not tender if response of rejection is obvious. If creditor improperly refuses tender: debtor remains liable but need not

seek out creditor, creditor may be punished by awards of cost.

• If doesn’t say otherwise, obligation to pay in case to the exact amount. There is no obligation to make change.

• Debtor prima facie must provide legal tender (Currency Act section 8). There is a limit on the amount of coins they have to take.

$40 twonies + $25 loonies +$10 quarters or dimes + 5$ for nickles

(3) Tender of performance

• Contractual obligations prima facie subject to strict liability

Must be performed precisely as promised. Reasonable care is no excuse Obligation may be varied by exclusion clause.

• Contract not discharged simply by being ignored by parties

• Postponed payment vs entire contract

Postponed: “No payment until performance comes to an end”

Entire contract: “No payment unless performance comes to an end”

• Substantial Performance (For practicality sake) Virtually entire performance but minor

defect or incompletion. Performing party entitled to discharge

agreement and payment. Recipient party entitled to damages for loss or

repair.

DISCHARGE BY AGREEMENT

(1) Option to terminate.

• Inserted into contract at outset.

• Usually exercisable only on notice. (2) Condition Subsequent

• Inserted into contract at outset

• Automatically termination upon certain occurrence (3) Release: Promise to terminate contract under seal (no need for

consideration) (4) Rescission: Agreement to terminate executory agreement

• Neither party has performed in full.

• Each provides consideration by giving up the right to performance.

• CF rescission as remedy for wrongfully induced contract. (5) Variation

• Generally: any alteration of contractual terms

• Specifically: agreement to retain contract but on slightly new terms

Fresh consideration required if either side of contract fully executed (6) Accord & Satisfaction.

• Agreement to terminate contract fully executed on one side only.

Recipient of full performance.

• New agreement (accord) supported by fresh consideration (satisfaction)

Ex. Student pays $500 in exchange for tutorials. Tutorials performed immediately

Student can’t pay, so prof agrees to forgive $200 but this is gratuitous and unenforceable b/c prof has already performed

Agree to forgive $200 in exchange for $300 + car wash 1. New agreement = accord 2. Car wash = satisfaction

DISCHARGE BY OPERATION OF LAW

(1) Frustration:

• Situation rendering performance impossible or substantially different. Ineffective if one party at fault for frustration Ineffective if one party contractually responsible for event.

(2) Lapse of Limitation Period:

• Action must commence within two years discoverability of essential facts. Concern regarding the reliability of old evidence. Concern regarding fairness of lingering threat of liability.

• Period may be prolonged by debtor’s acknowledgement of debt. (3) Bankruptcy:

• Bankrupt individual generally discharged from debts. Judicial discretion turns of debtor’s misfortune vs misconduct.

• Discharge only after exhaustion of asset. Trustee collects debtor’s assets – debt paid Pro rata. Remaining debts discharged upon release from bankruptcy.

DISCHARGE FOR BREACH OF CONDITION

(1) Optional Discharge: Breach of condition doesn’t automatically discharge the contract.

• Party in breach cannot unilaterally discharge contract.

• Innocent party (generally) enjoys the option to discharge contract. This is a one time choice and election cannot be altered

(2) Bars to Affirmation of Contract

• Discharge required if performance requires close cooperation.

• Discharge perhaps required if no legitimate reason for performance. (3) Bars to Discharge of a Contract

• Unreasonable delay (deemed acceptance) Election must occur within a reasonable time

• Affirmation: Unequivocal act indicating adherence to contract.

• Promissory Estoppel: Inequitable reliance upon promise to waive breach. (4) Discharge and Rescission:

• Rescission: contract retroactively void ab initio No basis for secondary (remedial) consequences

• Discharge: contract prospectively terminated. Performance of executory primary obligations unnecessary Secondary (remedial) aspects of contract remain.

Discharge for Anticipatory Breach (Repudiation) (1) Breach and Anticipatory Breach

• Breach: unsatisfactory performance of accrued obligation

• Anticipatory breach: indication that future condition will not be satisfied.

(2) Mechanics of Discharge for Anticipatory Breach

• Innocent party may accept repudiation and discharge contract. Contract is not automatically discharged upon repudiation.

Almost always prudent to discharge immediately and get damages. Especially, if it is obvious that it is a condition.

If it is a warranty – risk P would be breaching though the discharge. (3) Danger of discharge for Repudiation

• If no true repudiation then discharging party liable for breach. Repudiation not lightly inferred by courts.

(4) Difficult Remedial Issue: Can innocent party accumulate loses? Must she mitigate? (White & Carter)

DAMAGES

The Nature of Consequential Damages in Contract

I. expectation damages: “Give me what I expected to get.” P placed in position she expected to enjoy after D performed. Forward looking.

II. reliance damages: “Give me back what I lost.” P compensated for losses incurred in reliance upon contract. Backward looking.

III. restitutionary (disgorgement) damages: “Give me what you gained.” D required to give up enrichments received at P’s expense. Called restitution BUT no, giving up not giving back,

IV. Restitution (P’s loss and D’s gain). This is reversing the transfer. Limited – no bigger than compensation or disgorgement. Since have to show both losses or gains better to go with disgorgement.

Quantem of consequential damages reflects the consequences. Non-consequential damages are not tied to consequences.

• Nominal: Damages in name – qualified arbitrarily in small amount.

• Punative: Behaved outrageously – regardless of loss or gain have to punish D to deter.

EXPECTATION DAMAGES

Contract: fulfilment of expectation. Necessarily forward looking, P improved to anticipated position. When entering contract agree to a certain allocation of risk. Stuck with that. Rationale:

• Inherent morality of contract law (cf Holmes bad man theory: performance of damages).

• Integrity of commercial institutions. o Promise of performance valuable if promise is enforceable.

• The measure of expectation damages – expected benefits minus the expected costs. o Availability of benefit premised upon incurrence of cost.

No additional recovery of expenses incurred. Deduction for expenses pre-empted by breach.

EXAMPLE: Dave agrees to sell a widget to Pam for $500. Although she delivers a pre-payment of $400, he refuses to deliver the widget when he realizes that it is worth $750 and $500. What relief can she get?

(price-paid) + X = expectation. (500-400) + X = 750

100 + X = 750 650

CHAPLIN V HICKS , 1911 UK

Just b/c damages are hard to calculate doesn’t mean they shouldn’t be done. If past fact: prove on BOP then damages are all or nothing. If dealing with future fact or past hypotheticals P awarded total loss discounted for likelihood Facts: Beauty contest. 12 winners out of 50 contestants. P’s invitation got lost or something so she doesn’t know how she would’ve actually placed.

• Statistics: P was one of 50 contestants and had 24% change of winning an average of $624, meaning that her expectation was $150

Held: Recieved 100 in damages. Reasons: P entitled to expectation damages discounted by probability. Loss of a change of winning such a lucrative prize was a breach that afforded her the right to substantial and not merely nominal damages. Was the jury’s calculation appropriate?

• Difficulty of assessment does not preclude damage award.

o But no damages for non-assessable loss (McRae)

• General rules regarding damages and probability. o If issue pertains to past fact

Proof required on a balance of probabilities. Loss treated as certain and P awarded total damages.

o If issue pertains to past hypothetical or future fact Proof not required on balance of probabilities. P awarded totaly loss discounted for likelihood. Probablistic causation – trying to prove facts in alternative universe. “Educated

guess”. Don’t need to be exactly correct.

• Operation of rule subject to de minimis. If the chance of winning was so small, regard as a trifling matter. Must have a significant possibility.

GROVES V JOHN WUNDER , 1939 MINNCA Expectation damages calculated AS IF contract performed. Cost of cure awarded to: (1) protect rights for uneconomical folly, (2) prevent unfair gain to D, (3) reflects balance of consideration under bargain Facts: Defendant John Wunder Co., entered into a contract with Plaintiff S.J. Groves & Sons Company, to remove sand and gravel from Plaintiff’s premises and leave the property “at a uniform grade, substantially the same as the grade now existing at the roadway. Defendant paid Plaintiff $105,000 but willfully failed to leave the property at a uniform grade. The cost of bringing the land into compliance with the contract would be upwards of $60,000. However, if Defendant had fully performed by leaving the land at a uniform grade, it would have only been worth $12,160. Issue: Are expectation damages calculated by value of what I will have if you actually perform OR assessed by the value of your actual performance? Held: P is entitled to expectation: places as if contract performed by D.

• P entitled to relief that would facilitate actual performance. o Measured in terms of cost of actual performance. o Not measured in terms of loss by non-performance.

• Cost of cure protects the landowner’s right to uneconomical folly o Market value would preclude damages for D’s breach.

• Cost of cure prevents unfair gain to D. o Market value would allow D windfall from cynical breach.

• Cost of cure reflects balance of consideration under bargain. D’s total consideration based on price and performance.

Dissent: P entitled to expectation: entitled to loss occasioned through D’s breach.

• Measured in terms of loss by non-performance

• NOT measured in terms of cost of actual performance.

P entitled to cost of cure IF special interest in performance. *Old American case, Canadian courts tend to be more lenient. Also, once get damages can do whatever you want with the money – no expectation of using money to bring land into same condition.

RUXLEY V FORSYTH , 1996 HOL Courts won’t award cost of cure if too exorbitant. Loss of amenity: if P wants something unusual, even if there is no economic value, this type of damages symbolically vindicates the fact that they lost their right to choose that thing Facts: D agreed to build a pool for P in exchange for a price of £70 000. Although the pool was to be built to a depth of 7’ 6,” D mistakenly breached the contract by building to a depth of 6’ instead. The difference in depth did not affect the safety of the pool and did not diminish the value of the pool. P sued in contract and claimed the cost of cure: £22 000. The cost of cure was high because the defect could be remedied only by entirely removing the existing pool. P frankly admitted that he would not replace the existing pool even if he was awarded the full cost of cure. The House of Lords

i. rejected cost of cure as wasteful and unreasonable, but also ii. believed that it would be unjust to confine the claimant to nominal relief and thereby allow the

defendant to breach with impunity, and iii. recognized that loss of value damages would have the same effect.

The court therefore held that the remedial alternatives were not confined to cost of cure, nominal damages, and loss of value. It instead awarded £2500 under the novel head of “loss of amenity.” Loss of amenity is the loss of ability to have it the way you want. Essentially pick a number out of a hat. There is a breach of contract that deserves more than nominal damages but not cost of cure. *Unsure status in Canada Cost of Cure and Other Measures of Relief: Striking a Balance

• P prima facie entitled to cost of cure,

• Courts presume cost of cure is not wasteful o cost of cure disallowed if intolerably wasteful o courts strongly presume actual cure by P was appropriate

• Extending the remedial possibilities—Ruxley v Forsyth (1996 HL) o Cost of cure and loss of value: all or nothing?

Prohibitive cost of cure: negligible expectation loss. Alternative base of compensatory relief?

Difference in Value of Cost of Cure? 1. Cost of cure (courts apply presumptively). How much it would cost to fulfill the original

expectation. 2. Difference in value. May award this if the cost of cure is unreasonable. 3. Loss on amenity. Not yet applied in Canada but is a good balance.

EXPECTATION: REMOTENESS OF DAMAGE

• Parties get together and allocate risks that are reasonably foreseeable.

• Damages for breach of contract are recoverable only to the extent the type of loss that has occurred was reasonably foreseeable by the parties at the time of entering the agreement.

• Practical necessity of limiting expectation damages on policy. (If breach causes physical injury of bodily integrity more likely to find reasonably foreseeable).

Purported Basis: Reasonable contemplation of damage. Terms of bargain reflect contemplated consequences. Different, (or no), bargain if greater liability contemplated. Role of Remoteness Rule:

• Inherent uncertainty in objective contemplation test o Retrospective assessment of future changes. o Assessment by fictional reasonable person.

• Intuition and rationalization: reasoning backwards o Silent significant of soft factors.

Relative value of damage and contract price Relative ease and practicality of insurance Nature of damage: economic or physical injury

• A statement of conclusion: not a guide to analysis o Impossibility of exhaustively definitive test o A broad policy question: is liability reasonable on the facts?

ExAM: Clear factual connection between Pink’s breach and Barrett’s loss—loss also reasonably foreseeable because Barrett expressly told Pink at outset of need for timely arrival—Hadley v Baxendale purportedly satisfied. True test of remoteness however pertains to allocation and acceptance of risks (Achilleas)—arguably unreasonable and inaccurate to hold that Pink accepted risk of enormous loss in exchange for payment of modest fare—no cab driver would accept such risk for small fare.

HADLEY V BAXENDALE , 1854 D liable for expectation damages if reasonably contemplated. Two factors: (1) contemplated as likely to arise in usual course of things (objective test); (2) contemplated as likely to arise in special circumstances (subjectified based on D’s actual knowledge) Facts: P was operator of a mill. Crank shaft broke – mill was stopped. Send to engineering firm to fix. Delayed and didn’t get for several days. As a result, the mill was closed for a greater period then necessary. P brought action to recover profits lost as a result of the delay.

Held: D liable for expectation damages if reasonably contemplated.

• Contemplated as likely to arise in the usual course of things o Objective test: based on D’s imputed knowledge

D’s actual knowledge irrelevant D need not actually contemplate loss.

• Contemplated as likely to arise in special circumstance o Subjective test: based on D’s actual knowledge.

D’s actual knowledge is required Would a RP in D’s position foresee the potential

for these types of damages. Rationale: Terms always reflect losses likely to occur in usual course. Terms reflect exceptional losses IF D had special knowledge. Held: Loss of profits too remote on the facts. Lost profits not likely to result in the usual course of things (P may have an alternative shaft, Mill may be been incapacitated for other reasons). No knowledge by D of P’s special circumstances. D not informed of P’s economic dependence on shaft.

VICTORIA LAUNDRY (WINDSOR ) V NEWMAN INDUSTRIES , 1949 CA Case is good to show application of Hadley v Baxendale. Reasonably foreseeable losses turns on knowledge at the time of the contract – imputed knowledge (RP) and actual special knowledge AT THE TIME OF CONTRACT FORMATION. Subsequently acquired knowledge is irrelevant Facts: P running a laundry mat. P orders a boiler from D; D delivers 20 weeks late. Sues for 2 types of loss (1) loss of profits from normal weekly business, and (2) loss of a special huge government contract. Held: Rules governing recovery of expectation damages 1. P’s expectation monetarily fulfilled within reason 2. recovery of losses reasonably foreseeable as liable to occur 3. reasonable foreseeability turns on knowledge at time of contract 4. requisite knowledge takes two forms

imputed: arising in ordinary course of things actual: special circumstances conveyed by P to D

5. test of foreseeability — not foresight objective reasonable person standard

6. no requirement of foreseeability of necessity of loss real danger, serious possibility, liable or on the cards

APPLIED:

• D liable for ordinary but not exceptional lost profits

• D imputed with knowledge of ordinary course o coupled with special knowledge of P’s business o coupling suggests unitary test of remoteness

recovery of £16 pw on ordinary contract Weekly profits.

o D had no actual knowledge of special circumstances no recovery of £262 pw on government contract

SCYRUP V ECONOMY TRACTOR PARTS , 1963 MBCA Majority says that D is liable as long as type of loss was foreseeable even if the extent of loss wasn’t foreseeable. Policy: Problem with this is that in contracts people allocate risk and hard to allocate risk if you don’t even have a ballpark figure of what you could be liable for Facts: P had K with concrete supercrete (C). P needs hydraulic party. D sells to P and says it’ll work, it doesn’t. P loses K with C. Held: H v B contains one test of remoteness.

• Single test of reasonable foreseeability o Based on imputed knowledge of ordinary matter o Based on actual knowledge of special matters

• D liable on both branches of unitary test o Imputed knowledge: lost profits in ordinary

course o Actual knowledge: lost profits in special

circumstances

• Implicit acceptance of orthodox rule o Remoteness inquiry pertains to type – not extent – of loss.

But type of loss can be defined narrowly (Victoria) D knew of P’s contract and therefore could foresee the loss. Doesn’t matter that D didn’t know how much would be liable for, look at the type of loss not the extent. If the type of loss is foreseeable then it doesn’t matter if the extend of the loss is reasonable foreseeable. Problem: TO be liable for the contract, you should at least know the ballpark figure that you may be liable for in order to allocate the risks by buying insurance. DISSENT: Remoteness inquiry requires foreseeability of extent of loss. (MCINNES LIKES)

• Rule intended to allow D to assess risk exposure

• Risk assessment possible only if D has adequate information

Holding: No recovery for loss of profits on the facts. Loss not sufficiently foreseeable in the ordinary course of events. Lost profits did not flow naturally from breach. Loss not sufficiently foreseeable as exceptional result. D was unaware of specifics of Supercrete contract (nature, value, and duration of contract).

TRANSFIELD SHIPPING V MERCATORY SHIPPING (THE ACHILLEAS), 2008 HOL Normal cases: the risk allocated to D are the reasonably foreseeable risks. Really the question is what risks were allocated to the D. D is only liable for risks that were allocated to them – either through parties intentions or by industry standard

Facts: D chartered a ship from P. As the end of that charter drew near, P created a new six-month charter with a third party to take effect at the end of the D’s charter. D, however, returned the ship nine days late. As a result, P was required to re-negotiate the new charter with the third party. Because the market had dropped, the new charter rate was $31,500 per day instead of $39,500 per day. P claimed that D was liable for the total loss suffered as a result of the breach—a reduction in charter rate of $8000 per day over the entire term of the new contract: $1,364,584. D admitted the breach, but

argued that damages should be restricted to the difference between the amount that the defendant paid to the plaintiff under the existing contract and the amount that the plaintiff would have received from the third party if the defendant had re-delivered the vessel on time. In accordance with a special industry practice, however, the defendant further argued that damages should be limited to the overholding period only—not the entire period of the re-negotiated third party contract. That calculation came to $158,301. (Minority): Lord Rodger & Baroness Hale applied the Hadley v Baxendale test of reasonable foreseeability and denied recovery. [I]t is important not to lose sight of the basic point that, in the absence of special knowledge, a party entering into a contract can only be supposed to contemplate the losses which are likely to result from the breach in question—in other words, those losses which will generally happen in the ordinary course of things if the breach occurs. Those are the losses for which the party in breach is held responsible—the stated rationale being that, other losses not having been in contemplation, the parties had no opportunity to provide for them. **Contrary to that reasoning, however, it seems that the type of loss very much was reasonably foreseeable. (Majority): Lords Hoffmann, Lord Hope & Lord Walker reconceived the test of remoteness to ask whether the parties had allocated the relevant risk to the defendant. The case … raises a fundamental point of principle in the law of contractual damages: is the rule that a party may recover losses which were foreseeable (“not unlikely”) an external rule of law, imposed upon the parties to every contract in default of express provision to the contrary, or is it a prima facie assumption about what the parties may be taken to have intended, no doubt applicable in the great majority of cases but capable of rebuttal in cases in which the context, surrounding circumstances or general understanding in the relevant market shows that a party would not reasonably have been regarded as assuming responsibility for such losses? The new test focuses not on reasonable foreseeability, but rather on the parties’ objective allocation of risk. On the facts, the industry practice revealed that the contract imposed upon D the risk of damages during the overholding period only.

EXPECTATION DAMAGES: INTANGEBLE INJURIES

Traditional view: Impossible to qualify, difficult to know if actually suffered. Invitation to fraud. Loss not easily remedies through substitute performance. Economic loss and physical damage but not intangible interests. Modern View: Sometimes can get compensation, if contract was created for peace of mind (insurance, vacation).

• Limited by inconsistent compensation for intangible losses o Must fall within Hadley v Baxendale o Generally not in purely commercial contract o Occasionally in social contracts o Most likely if contract for peace of mind.

• It must be true that the upset was one of allocated risks – not just a test of reasonable foreseeability.

Recovery • Sokolsky v Canada 3000 (2003 Ont SCJ) (articling students’ ruined holiday)

• Students book travel – no peace of mind just rowdy kids. • Farley v Skinner (2001 HL) (property under flight path)

• Bought cottage for nice quiet enjoyment on weekend. Compensate for disappointment. • Ruxley v Forsyth (1996 HL) (shallow pool) • Newell v Canadian Pacific (1976 Ont Co Ct) (dead dogs)

• Dogs in storage area of plane, frozen solid. • Jarvis v Swan’s Tours (1973 CA) (disappointing holiday)

illustrations of non-recovery

• Turczinski v Dupont Heating (2004 Ont CA) (frail owner of renovated house) • Renovate kitchen, cost more, dirty, noisy. • No compensation – expect to get noise.

• McBeth v Dalhousie (1986 NSCA) (supplemental exam refused) • Turner v Jatko (1978 BC Co Ct) (sabbaticant’s house trashed)

FIDLER V SUN LIFE OF CANADA , 2006 SCC Law’s task is to provide benefits contracted for, whatever they may be (even if intangible). Narrowed scope of reasonable foreseeability – liability if D accepted risk and P purchased peace of mind Facts: P on long term disability, denied, jerked around for 5 years. P claimed aggravated damages for the mental distress of 5 years of waiting. Analysis: “The law’s task is … to provide the benefits contracted for, whatever their nature, if they were in the reasonable contemplation of the parties. … The basic principles of contract damages do not cease to operate merely because what is promised is an intangible, like mental security.”

• Purpose of the contract to provide “prospect of continued financial security” • Insurance purchased for benefits and peace of mind

• Compensation for all reasonably foreseeable mental distress • Many contracts aimed in part at peace of mind

• Insurance, employment, residential, consumer goods • Narrowed scope: reasonable foreseeability within the allocation of risk. **Seems to be only if

expressly or impliedly mentioned at the outset. • Liability if d accepted relevant risk of loss • Compensation of P purchased peace of mind

• Still considerable scope of uncertainty

• Trial award of $20,000 confirmed. But not explained. • A conventional sum (Ruxley) or a function of actual loss? • Artificially capped (eg pain and suffering) or potentially unlimited?

MITIGATION OF DAMAGES

Limitation on the recovery of expectation damages that the victim of the breach cannot recover losses that the victim could have avoided by taking reasonable steps subsequent to the breach. The principle against avoidable law is applicable in all contractual setting. One cannot sit back and allow the losses to pile up. D is on the hook for loss of profits only up to the day where P could have reasonably mitigated. P can get compensation if P had to pay higher price to 3rd party. P can get compensation for the cost of going out and getting a 3rd party.

• Compensation is prima facie available for losses resulting from a breach.

• Exception: no relief if loss too remote (Hadley v Baxendale)

• Possible exception: No damages to extend that damages not mitigated

• Duty to mitigate

• No duty per se – P need not do anything.

• Damages denied for losses that could be reasonably avoided

• The scope of the duty to mitigate • Claimant need not use unreasonable effort or accept unreasonable risks.

• Expenses incurred in reasonable mitigation recoverable from D

• Not every act following breach constitutes mitigation

• Thin Wallet Rule rejected: Comes down to remoteness. If it was reasonably foreseeable at the K outset that a breach by D might be unmitigatable (due to alack of $ of P) then D will be on the hook for the whole amount.

• As long as it reasonably foreseeable will get losses in the interm, will be recoverable. *Onus of proof: Heavy burden upon defendant to establish reasonable course of avoidance. Mitigation will depend on the circumstances.

• Pay attention on the exam – not true that anything P does after the breach is done for mitigation.

• Ask if the 2nd transaction was a substitute for the 1st one or in addition to the 1st one.

• Ex: P only has one widget and there’s a breach - if P finds a customer for the same prce that day damages will be small.

• Ex. P has multiple widgits available and theres a breach – the new customer could have rented one of her other ones. Therefore, finding the new customer will not be viewed as mitigation and damages will accumulate until P can rent it out. (idea of an additional K vs mitigation)

ASAMERA V SEA OIL , 1979 SCC D was supposed to return shares in 1969. P gets injunction so D can’t sell and waits till 69 until case is settled. In 67 P found out that D had illegally sold in 65. P didn’t think he needed to mitigate. Before court in 71, prices fluctuated widely between 60-71. P asked for specific damages (wants shares back) and expectation damages in lieu of specific performance. Issue: What is the appropriate value of the shares? Held: Reasonable for P not to do anything between 60-70. However, when P knew D had sold shares, then duty to mitigate arose. *If you can legitimately show that you are after the specific thing and not the damages, no duty to mitigate. There must be something special about the widget though to get specific performance. Ratio: Damages should be calculated on the day you should have mitigated.

• P prima facie subject to mitigate at date of breach

• P argues circumstances removed or postponed duty argument #1: no duty as no asset created by breach

• early cases held duty if breach creates asset in P’s hands

• creation of asset facilitates mitigative expenditure

• duty nevertheless may arise on facts

• availability of asset merely a factor supporting duty argument #2: no duty as market drop created unreasonable risk

• need only incur reasonable risks and expenditures

• duty nevertheless possible on facts

• shares rose substantially in time argument #3: no duty as specific performance sought

• need not acquire substitute and disputed performance

• duty nevertheless possible on facts

• specific performance if substantial and legitimate reason

• no such reason established on facts argument #4: no duty as injunction obtained upon breach

• duty nevertheless possible on facts

• plaintiff learned of defendant’s sale of actual shares (1967)

• plaintiff not entitled to unreasonably prolong litigation Duty to mitigate arose on the facts:

• plaintiff required to acquire substitutes or litigate expeditiously

• given complexity — plaintiff should have mitigated by 1967

• damages calculated by share value in mid 1967: $6.50

REPUDICIATORY BREACH AND MITIGATION OF LOSSES In the case of an anticipatory breach (notice of a breach of future obligation, the innocent party generally has a right to either reject the repudiation and insist on performance OR discharge the contract and get damages. Is it ever reasonable for a P to reject the repudiation when they knowingly will be allowing losses to accumulate because the contract won’t be performed? (ie. Failing to mitigate)

• The innocent party can elect to carry on despite accumulating expenses only in cases where there are other intangible benefits involved.

• Ex. Need to work certain number of hours to maintain professional designation OR publicity of performance.

• If there are no intangible benefits there would be a duty to mitigate (lest not be compensated)

WHITE & CARTER (COUNCILS) V MCGREGOR , 1962 HOL P in business of creating ads and putting on garbage cans. D hired P for 3 years of ads. D calls and cancels entire K. D says pay P profits for while P says not discharging K – carrying on. Issue: Whether O was entitled to insist on performance or if they had an obligation to mitigate. Held: P can continue – had a legitimate and substantial reason for doing so (publicity and exposure) Ratio: You don’t have a duty to mitigate and you can continue on with performance if you have a substantial and legitimate reason for doing so (otherwise, it was reasonable to mitigate.

• Defendant argued discharge necessary if entirely executory obligations

• plaintiff usually cannot perform without ‘s cooperation

• ability to perform independently only fortuitous

• therefore should not be permitted to perform and recover

• argument rejected as devoid of principle

• defendant argued useless expenses cannot be incurred through performance • economic waste is contrary to public policy

• plaintiff’s expectation protected by damages of profit alone

• no rationale for allowing damages of fresh expenses

• argument accepted as a principle of limited scope

• rule applies if no substantial and legitimate reason

• onus on defendant to prove absence of such reason

• no such proof by defendant in evidence

• full damages here because substantial and legitimate reason *On exam: Find any reason to support a legitimate and substantial reason (or not)

RELIANCE DAMAGES

• P prima facie has option to choose expectation (forwards) or reliance (backward) damages

• Usually sue for expectation damages, but occasionally facts are such that only reliance works.

• Compensation for losses incurred and opportunities foregone. (Exceptional backward oriented relief).

• (General) incompatibility of expectation and reliance damages. o Expectation damages presume reliance expenses o P’s power of election in some circumstances

Circumstances may preclude expectation damages (McRae) Circumstances may preclude reliance damages (Bowlay)

MCRAE V COMMONWEALTH DISPOSALS LTD , 1951 HCA P prima facie has option to choose b/w expectation or reliance damages but only reliance available if expectation impossible to calculate. P entitled to compensation for all losses incurred in reliance of the contract Facts: Won a tender to retrieve an oil tanker. D claimed didn’t know how much oil or how valuable it would be. Merely giving the opportunity. Bought new boat and equipment, hired new crew. There was no tanker. Held: Expectation damages not available – no longer just speculative but impossible to calculate

• Impossible because nothing was specified, no starting point.

• D did not stipulate tanker of any specific size or value

• D did not stipulate cargo of any specific nature or value

• D did not promise that anything was actually salvageable

• P confined to reliance damages to the extent contract not unprofitable. o Onus on D to prove that contract was unprofitable. o D unable to discharge burden in circumstances

• Reliance damages allowed under some heads of claim. o No relief for refitting and reconditioning Gippsland

Expense no wasted in reliance upon contract (inevitable and unexpanded) o Relief for expenses consumed in performance of contract

Travel, crew, expert assisted; wasted in reliance upon the contract. o Relief for lost revenue under trading contract with X

Revenue forgone in reliance upon contract. o Relief for contract price

Expense wasted in reliance upon contract.

BOWLAY LOGGING V DOMTAR , 1982 BCCA Cannot get reliance damages to avoid consequences of bad bargain. Only available for losses attributable to D’s breach Facts: P made bad bargain to cut/load wood. D responsible for driving it out but broke contract. P already spent more than would have made. Held: No damages. Damages are an exercise in judgement and not an exercise in accounting.

• No expectation damages because no expected profits. (In fact, P is lucky D breached as P is loosing $$)

• Reliance damages unavailable to extent contract was unprofitable. o D must prove that this was a losing K for P (unprofitable) o All wasted dollars were P’s own fault as entered into a bad bargain and can’t escape by

claiming damages.

• An award of damages should not put P into a better position than would’ve been if K was performed.

• Loss of future contract irrecoverable as speculative.

• Capital costs offset by depreciation. RELIANCE DAMAGES AND RESTITUTION: THE BOWLAY OVERSIGHT

• Election upon breach of condition: to continue or discharge the contract. o If continuation: damages and executory performance o If discharge: possible election of cause of action.

Action in contract for expectation or reliance damages.

• Expectation: fulfillment of promise

• Reliance: compensation of losses. Action in UE for restitution

• Restitution = reversal of transfer.

• Suing outside of the contract so not bound by the allocation of risk – go to the actual value, market value of services.

• Should not work – as there is an absence of juristic reason. Here, the reason is the contract. But, this has not been accepted in Canadian courts.

o Courts used to think if discharged contract for breach of condition it was eliminated. However, discharge does not eliminate the primary obligation just doesn’t need to be performed.

• Cause of action in Unjust Enrichment o Elements of triggering event

Enrichment to D (D receive P’s services) Corresponding deprivation to D (P provided services) No juristic reason (basis of transfer no longer enforceable)

o Nature of legal response Giving back UE. Measured as lessor of D’s gain and P’s loss.

The unjust enrichment principles applies, through operation of law, by default. It governs if a transfer is not governed by some other area of law. Contract is one such area. Accordingly, contract trumps unjust enrichment. The restitutionary action is available in a contractual context only if the contract somehow can be "eliminated" (to use a deliberately ambiguous term). That is true if, for instance, a contract is rescinded for improper inducement or void for illegality or discharged for breach. Discharge involves the negation of primary obligations — each party is relieved of the need to perform as promised. That is possible, however, only as long as the primary obligations remain operable.

Since the city's contract with Dave was to run for one year, and since the term of the contract has ended, it no longer is possible for the city to discharge. And since it cannot discharge, it cannot elect to sue for unjust enrichment. The same point can be expressed in in terms of policy. Unjust enrichment normally is available if the transferor cannot otherwise obtain relief from an unwarranted transfer. Since the city enjoys a right to relief under the contract, it is barred from restitutionary recovery. (The Bowlay claim is unprincipled precisely because it operates in violation of that analysis.)

EXCEPTIONAL MEASURES OF RELIEF

General response = compensation – expectation damages and reliance damages. (1) Nominal Damages: Damages that serve to acknowledge the wrongdoing of another party.

Generally, very small (symbolic). Occur because a breach of contract is actionable per se (without damage)

(2) Restitutionary (disgorgement) Damages: D required to give up enrichments received at P’s expense. Stripping away all the wrongful gain from the breach. P gets windfall, but justified in the most extreme cases.

(3) Punitive Damages: If malicious breach and independent actionable wrong. (4) Liquidated Damages: I pre-established by partied + not penalty (can decide at the outset what

the remedy may be). (5) Specific Enforcement: If legitimate interest in performance per se. Specific performance –

fulfillment of positive obligations. Injunction: Usually fulfillment of negative obligations.

P’s loss Transfer between Parties D’s Gain Compensation Restitution Disgorgement

• Judges get confused with the word restitution. Assume on an exam that it is the giving back between the parties (left had side of the diagram)

Mistake give back with give up.

• “Some species of wrongdoing (all equitable wrongs, some torts, breach of contract)

• Until 2001 – Breach of contract would not allow disgorgement UNJUST ENRICHMENT

RATIONALE Reverse Unwarranted Transfer Strip Wrongful Gains ACTION Unjust Enrichment Some Species of Civil Wrongdoing MEASURE Restitution (Give-Back) “restitution”, disgorgement – give up OR Others

DISGORGEMENT

Restitution for Unjust Enrichment • Rationale: Reverse unjustified transfer

• Liability anomalously is strict • Liability triggered by mere fact of unjustified transfer

• Liability not premised upon breach of obligation. • Cause of action = always unjust enrichment

• Enrichment to the defendant • Corresponding deprivation to the plaintiff • Absense of juristic reasons for transfer.

• Remedy = always restitution • Defendant must give back benefit to P

• Usually personal but occasionally proprietary • Remedy limited to reversing transfer between the parties

• P cannot get back more than she lost to D • D cannot give back more than he got from P

Disgorgement for Wrongdoing • Rationale=stripping wrongful gains

• Liability is fault based • D unable to profit from wrongdoing

• Cause of action = something other than UE • Some species of civil wrongdoing • Not all civil wrongs support gain-based relief

• Precedent for: trespass, nuisance, conversion • No precedent for: negligence, battery, defamation • Precedent against: breach of contract (until recently)

• Remedy = exceptionally disgorgement (often called restitution) • Presumptive response to civil wrong = compensation

• D must onetarily repair P’s loss • D almost always detrimentally affected by remedy

• Extraordinary response to civil wrong = disgorgement • D must give up all wrongful benefit

• Remedy not limited to transfer between parties • Transfer captures wrongful gains from 3rd party • P usually enjoys windfall gain from remedy.

BUSH V CANFIELD Shows calculations for reliance and expectation damages and unjust enrichment. Type of claim changes what types of damages are available to you Facts: P agrees to pay D $14 000 for flour, pre prays $5 000. D breaches by not delivering flour. This was bad bargain. Flour only worth $11 000. Bad bargain to the extent of $3000 Analysis: If P sues for breach of contract, can’t get out of that bad bargain (expectation or reliance damages – doesn’t matter).

• If P sues for expectation damages, even though paid $5000, will only get $2000 back. Loss of $3000

• If P sues for reliance: P wants to recover $5000 but from McRae, even though you can prima facie claim, you are bound by bad bargain. Only expected to pay $14 000, get $11 000. You can’t get back $3000. Can only get back $2000

• Unjust enrichment: discharge so no longer juristic reason (apparently). Here, easy to calculate. The transfer from P to D was not services, it was simply $5 000. Restitution here is $5 000.

- Suing for UE is better than contract damage

ATTORNEY GENERAL V BLAKE , 2001 HOL Creates new type of relief: disgorgement. Strips D of their gains Facts: D was a MI6 spy, signed contact that never divulge information, D published book.

Held: Gain-based relief (disgorgement) can only be granted in the most exceptional of cases. If P has legit interest in preventing D from profiting in the wrong, they may get disgorgement.

• Limited to exceptional circumstances, no risk of intolerable commercial uncertainty • Impossible to precisely define scope of availability. • “Useful general guide, although no exhaustive”. Did P have a legitimate interest to prevent

profit-making activity? REJECTED TESTS (where you can’t use disgorgement):

• skimped performance (resolved through compensation)

• did what promised not to do (too broad)

• cynical and deliberate breach (too vague)

• breach facilitated more profitable venture (inefficient) *For exam: if you can classify case as exceptional, then P has the option of disgorgement or compensation.

• You should use disgorgement when you can’t really quantify P’s loss • Make sure it doesn’t fall into one of the exceptions above.

Developments Since Attorney General v Blake England: purely gain-based relief extended to non-exceptional circumstances

• Experience Hendrix v PPX Enterprises (2003 CA) • Esso Petroleum v Niad (2001 Ch) • BUT discouraging dicta: One Step (Support) Ltd v Morris-Garner (2018 UKSC) – says it needs to

be narrow

Canada: Bank of America v Mutual Trust Co (2002 SCC) • two types of contractual damages: expectation and restitutionary

• What about reliance, punitive and nominal damages? • disgorgement apparently accepted but no mention of Blake

NUNAVUT TUNNAGAVIK INC V CANADA (AG) , 2012 HUN CJ Disgorgement requires special circumstances. Can accrue even when D not making a profit (when they are avoiding their obligations by not paying) Facts: Nunavut Land Claims Agreement (NLCA) was created in 1993 between Canada and the Inuit of Nunavut. Alleged that Canada breached an obligation under the NLCA to establish an environmental and economic monitoring plan and thereby saved itself $14,800,000. The plaintiff sought that sum as disgorgement.

• Expectation damages incalculable

• Reliance not possible as no expenses occurred.

• Nominal not helpful Held: Legitimate case for disgorgement of the gain. McInnes likes, as it is a truly exceptional case. With respect to form, the court explained that “the term restitutionary damages” ought to be avoided “to prevent the confusion that the phrase may cause with restitution as a cause of action quite distinct from breach of contract. The remedy is better referred to as ‘disgorgement’” ([308]). With respect to substance, the court explained that disgorgement requires proof of “exceptional circumstances” ([322]). That threshold was met. While Canada’s breach “was not as egregious as” some, and while “there was no profit-making activity,” the “Crown was indifferent to its obligations over many years” and its breach “undermined the confidence of … the Inuit … in the important public value behind Canadian land claims agreements. … It would be manifestly unjust to allow the Crown to benefit from its failure to fulfil its obligations.” Disgorgement accordingly was awarded to “ensure that the Crown properly respects and fulfils its obligations under land claims agreements, including obligations to provide benefits that are not capable of being quantified in financial terms” ([333]).

ATLANTIC LOTTERY CORP V BABSTOCK [2020] SCC To get disgorgement, must show exceptional circumstance and some interest that inherently defied monetary compensation (impossible to calculate compensatory damages) Facts: Atlantic Lottery Corp (ALC) operates video lottery terminals (VLTs) in the Maritime provinces. Douglas Babstock was the representative plaintiff in a class action against ALC. The class consisted of everyone who paid to play a VLT. The gist of the case was that ALC knowingly operated VLTs that were deceptive and capable of inflicting psychological injuries—eg addiction and suicide ideation. Given the difficulty in showing that all of the class members suffered such injuries, plaintiffs’ counsel strategically disavowed harm-based theories of liability and sought gain-based remedies instead. The causes of action consequently included (1) unjust enrichment leading to restitution, and (2) breach of contract leading to disgorgement.

Analysis: UE measured as transfer from P to D. Failed in this case b/c while the money in the machines constituted enrichment and corresponding deprivation in P, the games were played under contract so there was a reason for the transfer

• Disgorgement claim also failed: disgorgement available in exceptional circumstances. Court must be satisfied the contract pertained to some interest that inherently defied monetary expression

PUNITIVE DAMAGES & AGGRAVATED DAMAGES

Tends to be a conflation but they are different. Punitive Damage: Damages to punish and deter specifically and generally (not for compensation)

• Rule: P must prove that breach of contract was something outrageous and independently actionable.

• That wrong can be a tort or another breach of contract (Whiten v Pilot Insurance) • The outrageous act must be so outrageous that you want to punish D and deter similar

conduct. • Rejected in England, Australia, New Zealand • Deterrence – seems like a criminal law sanction in civil without protections.

Aggravated Damages: Damages to compensate for aggravation of a loss – awarded for compensation. Not for punishment.

• A normal injury is aggravated due to D’s conduct (provides monetary reparations for the psych loss

• Monetary reparation for emotional or psychological injury • You’re eligible for aggravated damages if you meet the test of Fidler v Sun Life (same thing as

the intangible damages) • TEST: Aggravated damages can only be awarded if it was one of the allocated risks of the

contract. • Reasonable foreseeability and a contract dealing with peace of mind.

Traditional rule against non-pecuniary recovery. Breach of contract – can only sue for pecuniary losses. Can’t sue for aggravated or punitive damages. No punitive b/c punishment is for criminal lawyers and no aggravated b/c there is no crying in business.

• Addis v Gramophone (1909 HOL) • Harsh and humiliating dismissal from long-held job.

• Recovery limited to pecuniary losses flowing from lack of notice • No recovery for humiliation, distress, embarrassment

• Exceptions to general rule: recovery for embarrassment and shame • Beach of promise of marriage • Bankers breach of promise to honour customers cheque

Justifications for Traditional Rule • Addis conflation of punitive and aggravated damages

• No distinct reason for rejecting aggravated damages • Traditional commercial law paradigm: intangible losses lie outside orthodox contractual

concerns • Broad right to terminate employment contract

• Damages must flow from breach of duty to provide notice • Distress usually flows from manner of dismissal – not dismissal itself

• Uncertainty of calculation and floodgates of litigation

• No market for hurt feelings • Claims of mental distress easily fabricated

• Intangible losses lie outside employment expectations • Employment contract not created for peace of mind.

VORVIS V INSUANCE CORPORATION OF BRITISH COLUMBIA , 1989 SCC Three step test for aggravated damages: must show (1) bad conduct from D, (2) conduct contemporaneous with breach, (3) independently actionable wrong. Punitive: (1) Breach must be harsh, vindictive, malicious AND (2) D’s conduct was independently actionable wrong Facts: P worked for D. P was a nuisance. D tried to get P to leave by humiliating him, nothing works so D fired P. Held: Recovery denied for both punative and aggravated damages. (D already entitled to $ he ought to have gotten.

• Aggravated Damages: Only in exceptional cases. • Must show that there is a breach and an actionable wrong. • Also have to show that the humiliation was contemporaneous with the breach.

• This wasn’t true in this situation because the humiliation came first. • Punitive Damages: Must show two things:

• There was some outrageous or vindictive breach of contract. • That there was some independently actionable wrong.

• This isn’t true in this case because there was no independently actionable wrong.

Dissent: Recovery.

WHITEN V PILOT INSURANCE , 2002 SCC Terrible case. Independently actionable wrong required for punitive damages can just be second contractual breach Facts: P has insurance on home, it burnt down. D tried to squeeze them says P started the fire himself. Thought P was unsophisticated so could litigate to the ground. P sues D. Held: Confirmed Voris prerequisites: 1st contract breach: failure to pay benefits, 2nd contract breach: failure to act in good faith.

• Requirement satisfied by tort OR another breach of contract. • Punitive damages are not necessarily precluded by criminal sanction (no double jeopardy

issues). • The principle of rationality requires the lease punitive element to be used to meet the court

objective/goals. • No mechanical formula or artificial cap for punitive damage (amount must flexibly reflect

misconduct). • Must be a rational connection for the amount and precedent should be followed (not a random

amount) • Governing principle of proportionality – punative damages if but only if other sanction

inadequate to satisfy goals, and only add as much as you need to fulfill the goal. *Bad decision should have overrule Vorvis – because any good lawyer can find another breach in K. Whiten v Pilot Insurance Co — Ten Observations on Punitive Damages

1. relief not confined to established categories of wrongs

a. cf AB v South West Water — Kuddus v Chief Constable of Leicestershire b. McInnes says makes sense.

2. goals: punishment + deterrence + denunciation a. McInnes says True

3. punishment confined to criminal law unless exceptional circumstances a. punitive not necessarily precluded by criminal sanction

4. traditional pejorative epithets provide insufficient guidance a. McInnes says true, but doesn’t provide anything better.

5. rationality requires least punitive element required to meet objectives 6. rational to use punitive damages to compel disgorgement

a. McInnes says doesn’t make sense. 7. no mechanical formula or artificial cap

a. amount must flexibly reflect misconduct (rather than injury) b. McInnes says depends on the circumstances.

8. governing principle of proportionality a. total sanctions (compensation, punitive, criminal) must reflect goals and facts b. punitive damages if but only if other sanctions inadequate to satisfy goals c. McInnes says repetitive.

9. greater guidance for juries than traditionally given a. information regarding nature, purpose and assessment of punitive damages

10. measure of relief is not at large but rather is bound by rationality and precedent a. McInnes says repetitive. Don’t pluck numbers out of the air.

OTHER EXCEPTIONAL MEASURES

Liquidated Damages and Penalties

• liquidated damages = genuine pre-estimate of consequences of breach

• penalty = in terrorem provision intended to coerce performance

• advantages of liquidated damages specify and clarify risks inherent in particular contract obviate need for complex and costly calculation of damages minimize risk of judicial error in calculation of damages facilitate freedom of contract

• disadvantages of liquidated damages danger of unconscionability or exploitation of vulnerability

• judicial enforcement of liquidated damages but not penalty test for determining nature of clause (Dunlop v Selfridge)

penal if extravagant amount relative to actual risk of loss liquidated if precise pre-estimate impossible and genuine pre-estimate penal (presumed) if same sum payable on various breaches penal if greater sum payable upon failure to pay smaller sum

classification determined as of time of contract creation (not time of breach)

• effect of valid liquidated damages clause liquidated sum payable regardless of actual consequences of breach

• effect of penalty clause clause excised and ignored — damages calculated in normal manner

Part Payments, Deposits, Penalties and Relief From Forfeiture If true deposit – store can keep the money. IT is a payment to the opportunity to come up with the rest of the price.

1. Part payment = early payment toward final satisfaction of price.

• If in breach, can get PP back as long as it restores both parties to original position.

• But if one party has incurred an expense then the PP is not recoverable If denying restitution would be too unfair then there is judicial discretion to come up

with a fair solution. May award additional time for performance, or allow recovery without performance to

avoid unconscionable result.

2. Deposit = early payment + inducement to perform. Payment in exchange for holding contract open – buying time).

• Can’t get deposit back because there is an exchange of consideration. ($ for time)

• Can only get deposit back if its considered a penalty (same test as liquidated damages)

3. Part payments and deposits unpaid at time of breach.

• payment required unless payment would entail circularity of actions Circularity: Still need to pay deposit unless you can get recovery because part of

payment and you could get it back? A deposit serves a dual function. It satisfies part of the price and it entitles the purchaser to pay the remainder of the price at a later time. As a result, if the purchaser breaches the agreement by failing to pay the remaining price, the deposit is irrecoverable. By giving the buyer time, the vendor has effectively earned the right to retain the money. That may be true of the initial payment of $50,000. A resolution of the issue requires a determination as to whether a reasonable person, at the time that the contract was created, would interpret the initial payment as a deposit. A prepayment serves a single purpose: it satisfies par to the price. As a result, a prepayment prima facie is recoverable in the event of breach as long as restitution would restore both parties to their original positions. That presumably is true if the vendor’s only obligation is to deliver the property as promised. If the property is not delivered (because of breach), then there is no basis upon which the payment may be retained. In contrast, restitution presumptively is not available if the vendor was required to both deliver and build the asset being purchased. In that event, even if delivery never occurs (because the contract has been breached by the purchaser), the vendor is entitled to retain the money that it effectively earned by building. It is irrelevant that the buyer, because of its breach, ultimately does not benefit from the vendor’s actions.

SPECIAL ENFORMCEMENT

As soon as money is not enough, have to go outside the Law. Law can only give money. People are usually not indifferent to getting performance or damages – SP is more appealing.

SPECIFIC PERFORMANCE

Court order compelling performance of contractual obligation. Non-compliance (technically) punishable by imprisonment, non-compliance alternatively sanctioned by damaged. Aim of Contract: The general goal of contractual relief is the fulfilment of expectations. Monetary proxy of performance usually sufficient for business. Damages facilitate acquisition of adequate substitute for performance.

Supplementary nature of Equity: Equity able to act in personam to compel compliance with obligations. BUT equity historically arose as an ameliorating gloss on Law. Equity acted only when law inadequately addressed an issue. Specific enforcement only available if damages at Law are inadequate. Specific Enforcement and Breach: Primary obligation = duty to honour contractual undertakings, Secondary obligations = duty to make amends for breach of primary duty. Order for specific enforcement demands compliance with primary duty. Specific enforcement is not remedy for breach of contract though breach most often occasions desire for order. Specific performance is not a remedy for breach of contract. If presented with breach of condition, then carry on OR discharge contract and proceed with secondary obligations. If asking for specific performance, CAN’T discharge contract

REMEDIAL ADVANTAGES

• Direct fulfilment of expectation Expectation damages provide

monetary proxy of performance. Relief inevitable imperfect.

Specific performance provides actual performance. Shortfall from delay remediable through damages.

• Avoidance of evidentiary difficulties associated with proof of damages.

• Avoidance of mitigation issues if specific enforcement properly sought.

P need not mitigate by acquiring double performance (Asamera)

Post-breach act clearly not mitigative of loss.

• Election of date of assessment in even of refusal of specific performance.

Damages generally assessed at date of breach P enjoys election of damages awarded in lieu of specific performance.

Damages assessed at trial if value increases to trail Damages assessed at date of breach if value decreases to trial

• Possible enforcement of contract for benefit of 3rd party (Beswick) Can get through privity of contract

• Avoidance of effects of D’s insolvency Judgement creditor generally shares pro rata with other creditors But specific performance of sale immediately creates constructive trust.

Equity deems as done which ought to be done Vender out to transfer property to purchaser Vender treated as if property transferred to purchaser. Vender holds legal title for the purchaser under constructive trust

• Purchaser can protect interest with registration

• Venders debts cannot be satisfied with purchaser’s assets.

• Sale to 3rd parties constitutes breach of fiduciary duty

o Additional remedies compared to simple breach of contract. LORD CAIRNES ACT: 1858

• Compensatory damages previously unavailable in Equity. Available under Act in lieu of order. Calculation on same principle in Law and Equity (Agnew v Johnson – 1980)

• Prospective compensatory damages previously unavailable in Law or Equity Traditionally necessary to sue in Law after each successive breach. Compensation under act for future wrongs if order refused.

**DON’T FUSS ABOUT LCA OR CONSTRUCTIVE TRUST. Fiduciary duty: disgorgement nevertheless available for fiduciary breach Sale amenable to specific performance triggers specific performance—“equity deems as done that

which ought to be done”—doctrine of conversion immediately triggers imposition of constructive trust

Constructive trust entails imposition of fiduciary obligation on vendor—breach of fiduciary duty invariably supports disgorgement of wrongful gain.

SCOPE OF AVAILABILITY Requirement:

• Substantial and legitimate reason + inadequacy of damages. Generally available if monetary award insufficient. (Eg. Heirloom, private shares, land [cf Semelhago v Paramadevan])

• Circumstances of Mutuality. No duty to perform unless right to counter-performance. Modern view: order if plaintiff amenable to order OR fully performed.

Grounds for Denial:

• Personal Circumstances: Order would raise undesirable notion of slavery, order would invite personal conflict, order would difficult to monitor for compliance. BUT personal services exceptionally subject to injunction (below)

• Impossibility: eg. Land transferred to b=bone fide purchaser for value without notice

• Induced by Misrepresentation: Equity will not assist (even innocent) wrongdoer.

• Subject to Equity’s principle discretion: “Must come with clean hands (P’s past conduct), he who seeks equity must do equity(P’s future conduct), hardship to D or 3rd party, ongoing judicial supervision, acquiescence and laches.

INJUNCTIONS

Court order to act in compliance with pre-existing obligations. Available in contract, tort or other.

• Timing of Order: Quia timet: prevent the occurrence of breach Interim or interlocutory: protect rights pending final resolution Final or permanent: conclusive resolution of rights

• Nature of Order: Prohibitory: refrain from stipulated act Mandatory: perform stipulated act. Injunction as specific performance

Injunction may constitute specific performance in effect. Rule: specific performance principles applicable if specific performance in effect.

• eg mandatory injunction to perform positive undertaking

• eg prohibitory injunction to honour negative undertaking may effectively compel performance of positive undertaking (below)

Injunction generally more readily available then specific performance. Same discretionary factors (clean hands, inadequacy of damages) but generally more flexible approach to injunctions.

• Courts much more willing to prohibit than to require acts. Distinction drawn on basis of substance rather than form Various orders may create requirements depending upon circumstances.

Specific performance, mandatory injunction, prohibitory injunction.

• Freedom of Choice and personal servitude Prohibited act permits D to do anything else Required act precludes D from doing anything else.

• Judicial supervision: required act more likely to entail ongoing judicial supervision. • Calculation of compensation in lieu, generally easier to calculate loss from act rather than

omission.

WARNER BROS PICTURES INC V NELSON (QB 1937) WB didn’t seek positive performance, wouldn’t have been granted. Injunction for negative promise. If want to act – must work for studio. Free to earn living in other ways. Facts: Bette Davis signed a contract with Warner Bros movie studio. Contained positive and negative undertakings. Positively, Davis promised to act in the studio’s films. Negatively, she promised not to act for anyone else. When successful she wanted to work elsewhere.

PAGE ONE RECORDS LTD V BRITTON (CH D 1968) Court refused. Effectively prevent from earning a living, no skills outside music. Unfair to make them choose between unemployment and working with P. Facts: D, musicians, contract with P. D gave a positive promise to employ the plaintiff as their manager and a negative promise to not employ anyone else in that capacity. Deteriorated relationship, P sought injunction to prevent hiring another manager.