EXEMPTION CLAUSES............................................................................................................................ 33 Types of Exculpatory Clauses.............................................................................................................................................................. 3Controlling Exemption Clauses............................................................................................................................................................... 3Judicial Control – Incorporation of Clause........................................................................................................................................ 3Judicial Control – Construction.............................................................................................................................................................. 3Judicial Control – Doctrine of Fundamental Breach..................................................................................................................... 3Statutory Control.......................................................................................................................................................................................... 3

Cases........................................................................................................................................................... 4Chapelton v Barry UDC [1940].................................................................................................................................................................................................... 4Thornton v. Shoe Lane Parking Ltd [1971] 2 Q.B. 163, [1971] 1 All E.R. 686 (C.A.)...........................................................................................4McCutcheon v. David MacBrayene Ltd. [1964] 1 W.L.R. 125, [1964] 1 All E.R. 430 (H.L.)...............................................................................4Tilden Rent-A-Car CO. v. Clendenning (1978) 18 O.R. (2n) 601, 4 BLR 50.............................................................................................................5Karroll v. Silver Star Mountain Resorts Ltd. (1988), 33 B.C.L.R. (2d) 160...............................................................................................................5Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. [1989] Q.B. 433 (C.A.)................................................................................5Canadian Steamship Line Limited v. R [1952] A.C. 192...................................................................................................................................................6Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4............................................................................6Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827 (H.L.).............................................................................................................6Hunter Engineering Company v. Syncrude Canada Ltd. [1989] S.C.R. 426 (S.C.C.)............................................................................................7MiidaElectronics Inc. v. Mitsui O.S.K. Lines Ltd. 1986 CarswellNat 14 at [50-54]...............................................................................................7London Drugs Ltd. v. Kuehne & Nagel International Ltd. [1992] 3 S.C.R. 299.......................................................................................................7

MISREPRESENTATION.......................................................................................................................... 71. Fraudulent Misrepresentation........................................................................................................................................................... 72. Negligent Misstatements...................................................................................................................................................................... 73. Innocent....................................................................................................................................................................................................... 8Remedies.......................................................................................................................................................................................................... 8

Cases........................................................................................................................................................... 9Redgrave v. Hurd (1881).............................................................................................................................................................................................................. 9Smith v. Land & House Property Corporation (1884).......................................................................................................................................................9Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965]..........................................................................................................................9Esso Petroleum v. Mardon [1976] Q.B. 801 (C.A.).......................................................................................................................................................... 10Kupchak v. Dayson Holdings (1965) 53 W.W.R. 65 (B.C.C.A.)....................................................................................................................................10Redican v. Nesbitt [1924] S.C.R. 135..................................................................................................................................................................................... 10S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994), 93 B.C.L.R. (2d) 34.........................................................................................11Car and Universal Finance Co. Ltd. v Caldwell [1965] 1 Q.B 525, [1964] 1 All ER 290....................................................................................11Sodd Corp. v. N. Tessis (1977) 17 O.R. (2d) 158..............................................................................................................................................................11B.G. Checo Int’l Ltd. v. B.C. Hydro [1993] 1 S.C.R. 12......................................................................................................................................................12V.K. Mason Construction Ltd. v. The Bank of Nova Scotia [1985] 1 S.C.R. 271...................................................................................................12Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423 at [39]-[47]............................................................................12

PERFORMANCE..................................................................................................................................... 13

Cases......................................................................................................................................................... 14Sumpter v. Hedges [1898] 1 Q.B. 673 (C.A.).......................................................................................................................................................................14Fairbanks v. Sheppard [1953] 1 S.C.R. 314, [1953] 2 D.L.R. 193...............................................................................................................................14Bolton v. Mahadeva [1972] 2 All E.R. 1322........................................................................................................................................................................ 14Stevenson v. Colonial Homes Ltd. [1961] O.R. 407 (C.A.)............................................................................................................................................14

MISTAKE................................................................................................................................................. 151. COMMON Mistake................................................................................................................................................................................. 152. MUTUAL Mistake................................................................................................................................................................................... 163. UNILATERAL Mistake......................................................................................................................................................................... 163. Rectification............................................................................................................................................................................................ 164. Doctrine of non est factum................................................................................................................................................................ 16

Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976)................................................................................................................................17Smith v. Hughes (1871) L.R. 6 Q.B. 597 (Div. Ct.)............................................................................................................................................................ 17Hartog v Colin & Shields, [1939] 3 All E.R. 566 (K.B.)....................................................................................................................................................17Shogun Finance Ltd. v. Hudson [2003] UKHL 62.............................................................................................................................................................17Solle v. Butcher (1949) 1 K.B. 671 (Eng. C.A.)...................................................................................................................................................................18Great Peace Shipping v Tsavlisris Salvage [2002] 4 All E.R. 689 (C.A)..................................................................................................................18Miller Paving Ltd. v B. Gottardo Construction Ltd. (2007), 86 O.R. (3(d) 161 (Ont. C.A.)...............................................................................18R. v. Ron Engineering & Construction (Eastern) Ltd. [1981].......................................................................................................................................19Marvco Colour Research Ltd. v. Harris [1982] 2 S.C.R. 774.........................................................................................................................................19Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. [2002] 1 S.C.R. 678..............................................................................190707448 BC Ltd v Cascades Recovery Inc (2011)...........................................................................................................................................................19

FRUSTRATION....................................................................................................................................... 20Interpreting the contract:...................................................................................................................................................................... 203 elements required for Frustration:................................................................................................................................................. 20

Cases......................................................................................................................................................... 20Paradine v. Jane 82 E.R. 519...................................................................................................................................................................................................... 21Taylor v. Caldwell 122 E.R. 308................................................................................................................................................................................................21Krell v. Henry [1903] 2 K.B. 740.............................................................................................................................................................................................. 21Herne Bay Steamboat Co v. Hutton [1903] 2 K.B. 683...................................................................................................................................................21Maritime National Fish Ltd. v. Ocean Trawlers Ltd. [1935] 3 D.L.R. 12.................................................................................................................21Davis Contractors Ltd. v. Fareham UDC [1956] A.C. 696..............................................................................................................................................21Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975)................................................................................................................................22Edwinton Commercial Corporation v. Tsavliris Russ (The Sea Angel) [2007]....................................................................................................22

DURESS.................................................................................................................................................... 23

Cases......................................................................................................................................................... 23Stott v. Merit Investment Corp. (1988) 48 DRL 4TH 288.............................................................................................................................................23Greater Fredericton Airport Authority Inc. v. Nav Canada (N.B.C.A. 2008).........................................................................................................24Gordon v. Roebuck 1989 64 DLR (4th) 568; 92 D.L.R. (4th) 670 (C.A.).................................................................................................................24

UNDUE INFLUENCE.............................................................................................................................. 25

Cases......................................................................................................................................................... 25Allcard v. Skinner. (1887) 36 Ch.D. 145...............................................................................................................................................................................25Geffen v. Goodman Estate [1991] 2 S.C.R. 353, 81 D.L.R (4th) 211..........................................................................................................................26Royal Bank of Scotland Plc. v. Etridge (No. 2) [2001] 3 W.L.R. 1021......................................................................................................................26

UNCONSCIONABILILTY.......................................................................................................................26

Cases......................................................................................................................................................... 27Morrison v Coast Finance Ltd (1965)...................................................................................................................................................................................27Masrhall v Can Permanent Trust Co (1968)......................................................................................................................................................................27Harry v Kreutziger (1978)......................................................................................................................................................................................................... 27

ILLEGALITY............................................................................................................................................ 27

Cases......................................................................................................................................................... 28KRG Insurance Brokers (Western) Inc v Shafron (2009).............................................................................................................................................28Still v Minister of national Revenue....................................................................................................................................................................................... 28

DAMAGES................................................................................................................................................ 29Categorizing Loss/Interest.................................................................................................................................................................... 29Remoteness of Damages......................................................................................................................................................................... 29Measure (assessment) of Damages.................................................................................................................................................... 30Mitigation of Damages............................................................................................................................................................................ 30

Cases......................................................................................................................................................... 30McRea v Commonwealth Disposals Commission [1951].............................................................................................................................................30Bowlay Logging Ltd v Domtar Ltd..........................................................................................................................................................................................31Sunshine Vacation Villas Ltd v Hudson Bay.......................................................................................................................................................................31Attorney General v Blake [2001]............................................................................................................................................................................................ 31Chaplin v Hicks (1911)................................................................................................................................................................................................................ 32Nu-West Homes Ltd v Thunderbird Petroleums Ltd.....................................................................................................................................................32Groves v John Wunder Co.......................................................................................................................................................................................................... 32Jarvis v Swans Tours [1972]..................................................................................................................................................................................................... 33Hadley v Baxendale (1854)....................................................................................................................................................................................................... 33Victoria Laundry v Newman [1949]...................................................................................................................................................................................... 33Koufos v Czarnikow (The Heron II) [1969]........................................................................................................................................................................34Whiten v Pilot Insurance Co...................................................................................................................................................................................................... 34Honda Canada Inc v Keays......................................................................................................................................................................................................... 34Fidler v Sun Life Assurance....................................................................................................................................................................................................... 34Asamara Oil Corp v Sea Oil [1979]......................................................................................................................................................................................... 35Semelhago v Paramadevan........................................................................................................................................................................................................ 35

LIQUIDATED DAMAGES..................................................................................................................... 36

SPECIFIC PERFORMANCE.................................................................................................................. 36

EXEMPTION CLAUSES3 Types of Exculpatory Clauses

- Terms limiting or restricting substantive obligations Chapelton v Barry UDC

- Terms excluding or limiting liability that would otherwise attach to a breach of contract - Indemnity

o Restrict or exclude a party from fully indemnifying the other partyo I can be held liable but ultimately you have to pay

Controlling Exemption Clauses1. Is the clause part of the contract, i.e. whether the clause was effectively incorporated?2. Is it worded so as to cover the breach which has occurred (construction)?3. Is the clause affected by legislation?4. Can the clause be relied on by the party claiming protection from it? London Drugs

Judicial Control – Incorporation of ClauseOnly terms incorporated into a contract are binding on the parties

Notice: An exemption clause will not bind a party if it can be show that he did not have notice of the clause at the time the contract was made

- Notice is a question of fact – depends on circumstance of the case- Notice must be sufficient, fair and reasonable- Notice must exist before or at the time contract is concluded

Thornton v Shoe Lane Parking; Interfoto, Canadian Steamship

Signature as notice? General rule: party signing the contract is bound McCutcheon, Tilden Rent-a-Car, Karroll v Silver Star,

Judicial Control – Construction

An exemption clause must clearly cover what has occurred if it is to be effective- Burden on party seeking to rely on it - Courts will use strict construction – give the benefit of the doubt to the plaintiff (the party arguing

that the exemption clause does NOT cover what has happened) Canada Steamship

- Contra Proferentem rule – in case of ambiguity, the meaning of the clause should be interpreted in favour of “the proferens” (party who introduced the provision in to the contract)

Who can rely on the clause?- Parties to the contract – clause is binding on them - Third parties – must be an exemption to the privity rule

Judicial Control – Doctrine of Fundamental Breach‘where a breach of contract constituted a radical or fundamental departure from the obligations set out in the contract, an exculpatory clause that would otherwise have insulated the party in breach from liability would not have that effect’ John McCamus, Law of Contract (2012) at 802

- Party who breaches contract cannot rely on exemption clause (but must first demonstrate there was a fundamental breach – breach that goes to the root of the contract)

Current status? “Death” of the doctrine in Tercon Contractors:The SCC has provided a three stage test in determining the reasonableness of an exemption clause. If you find that the clause applies to the violation (is valid), you then look at the whether the clause was unconscionable. If you conclude that the clause was conscionable, then you look at any policy reasons for not enforcing the clause.

1. Validity of term // 2. Conscionablility of term // 3. Policy reasons to exclude

Statutory ControlSale of Goods Act 1996 s. 20 // Business Practices and Consumer Protection Act 2004 s. 3, s. 7-10, 99 // Homeowner Protection Act 1998 s. 23(1)(2)

Exemption Clauses

CCHAPELTON V BARRY UDC [1940]

Chapelton hired deck-chairs for the beach as per posted sign advertising service, asked to obtain receipt from attendant, no other info on sign. Took chair from pile, got receipt from attendant. Receipt had terms on back of no liability for injury; P did not look at or know of this. Sat on chair, collapsed and was injured. Claimed damages against the legal entity Barry UDC

Ticket is a receipt, not part of the contract itself; contract was concluded before exclusion clause was brought to his attention - Chairs with sign was the offer, taking the chair was acceptance - P did not have sufficient notice of terms

o Nothing on ticket to draw attention to terms of the back or make aware of liability clauses on the backHeld: On appeal it was decided there was no restriction on the notice because the ticket (which might not be obtained at the same time as the hiring of the chair), could not modify the terms of the contract

THORNTON V. SHOE LANE PARKING LTD [1971] 2 Q.B. 163, [1971] 1 ALL E.R. 686 (C.A.)

Notice requirement: unsigned documents

In cases with automatic ticket dispensers, the contract is formed when the plaintiff inserts money into the machine and receives the ticket; conditions that are not seen until after this time are not binding as the contract has already been agreed upon without the conditions.

When is a customer bound by the terms? When the person knows there is writing on the ticket; they know the writing contains terms/conditions to be bound by; and that they were given reasonable notice that the writing contains conditions (BEFORE agreeing to the contract).

Received ticket from machine which indicated time and car was subject to conditions posted in parking lot. Conditions were posted in payment office (on departure) and across from ticket machine (not prominently) – Thornton was not aware of conditions exempting from liability

Court distinguished case from other ticket cases - previous cases had person you got the ticket from; in this case contract formed when you take the ticket Cannot reject the “offer” from an automatic ticket machine; should know what you are agreeing to before agreeing to the contract Notice was posted not in clear, easily accessible area, and was not prior to obtaining ticket – no way to find out these terms before entering in to contract. Company trying to rely on exclusion clauses has burden of proof to show that reasonable notice was given – no reasonable steps to bring to attention before entering contract (purchasing ticket); due to harshness of exemption need more notice

MCCUTCHEON V. DAVID MACBRAYENE LTD. [1964] 1 W.L.R. 125, [1964] 1 ALL E.R. 430 (H.L.)

Notice Requirement: Unsigned documents

A party is bound to a contract if signed.Knowledge of terms is tested subjectively, thus prior relations are therefore not enough unless there was actual subjective knowledge of the condition.

David MacBrayne Ltd’s ferry sank, losing Mr McCutcheon’s car en route between Islay and the mainland. Usually, David MacBrayne Ltd would have got its customers to sign a risk note. The claimant’s brother in law (Mr McSporran) had made the shipping arrangements, and he did not sign it. Mr McCutcheon had signed a risk note on four occasions and Mr McSporran had done so sometimes before too. Both said they knew notes contained conditions but not what the conditions were. David MacBrayne Ltd argued that even though it was not signed, the term letting Mr McCutcheon assume the risk of an accident had been incorporated into their contract through a course of dealing.

No contract was signed- receipt for payment was not a document of contract

D’s typically have ppl sign risk statements before accepting goods, but this did not happen in this caseNo constant course of dealing between partiesOral contract had no conditions

TILDEN RENT-A-CAR CO. V. CLENDENNING (1978) 18 O.R. (2N) 601, 4 BLR 50

Notice Requirement: Signed document

In the consumer sphere, sufficiency of notice and proportionality trump the notion that a signature alone is binding.

D rented a car, signed rental agreement; P’s saw that he did not read the contract. Contract had exclusion clause denying coverage for accidents if consumed alcohol, even though told “full non-deductible coverage.”

Typically: if document is signed, you are bound (in absence of fraud or misrepresentation) by the terms contained in the document, regardless of whether it was read or not

The contract signed by the defendant was not explained to him, and he had understood that by getting the extra coverage he would be covered. (Also very small writing – hard to read) The clause was particularly onerous, because it implied that any drink of alcohol would be enough to eliminate coverage. That clause should have been made known to the customer.

Generally, a signed contract binds the P unless fraud was involved (ex: they didn’t sign) or if the other party knew that they didn’t understand the terms. Signature is only one way of ascertaining, the other party must believe that the signing party has read and understood the terms – which didn’t happen here. The signature was not enough; the party seeking to rely on misleading terms must inform the other party fully before signing.

KARROLL V. SILVER STAR MOUNTAIN RESORTS LTD. (1988), 33 B.C.L.R. (2D) 160

Notice Requirement: Signed document

It is not a general principle of contract law that a party must draw attention to an exclusion of liability clause.To find if there is a duty to draw attention, one must look at:

- the effect of the clause in relation to the nature of the contract;- the length and format of the contract; and- the time available for reading the contract.

P broke leg while participating in downhill ski competention at Silver StarP said D’s were negligent in failing to ensure race course was clearP signed document before race releasing them of liability for injuries P had been in a race before and signed multiple times, form had big title saying PLEASE READP said she didn’t remember/have time to read the waiver Obligation to inform the other party only exists when the reasonable person would deem that the party seeking to rely on the term knew that the other party did not understand it. This depends on the content of the exclusion and the length and format of the contract. Contract here was easy to read, short, and had a clear purpose. D also took reasonable steps by using the large font.

INTERFOTO PICTURE LIBRARY LTD. V. STILETTO VISUAL PROGRAMMES LTD. [1989] Q.B. 433 (C.A.)

Notice Requirement: Onerous clauses; Unsigned documents

Proportionality is applicable to all clauses (not just exemption clauses) - the more onerous, the more notice required.

Interfoto delivered 47 photographic transparencies to Stiletto in a jiffy bag. Stiletto was planning to use them for a presentation, but in the event it did not. It never opened the transparency bag or read Interfoto's standard terms and conditions, which were inside the bag. Condition 2 said there was a holding fee of £5 for each day over fourteen days. After around a month, Interfoto sent a bill for £3,783.50.

The Conditions of penalties were unusually high, and the plaintiff should have made the defendant aware of the term because it was unusual. There did exist a contract between the parties, but without reasonable notice of this condition, the condition becomes unenforceable.

CANADIAN STEAMSHIP LINE LIMITED V. R [1952] A.C. 192

If you want to exclude liability for negligence, you have to do so EXPRESSLY (use the word negligence, or use words that satisfy the requirement)

Canadian Steamship Line entered in to Crown lease. Lease had clauses excluding liability for damage. Employee of Crown accidentally started a fire and burned down shed. Crown said CSL cannot sue because of exclusion of liability.

Liability clauses did not exclude liability in clear enough terms, and other clause was ambiguousCrown was strictly liable for damages

Where there is conflict with an exclusion clause and a term indicating liability in the event of a breach, then usually the courts favour the clause for breach. If an exclusion clause is meant to exclude liability for negligence as well as breaches of a contract, then the clause has to be carefully drawn to ensure this effect. In this case the court had to determine if a term that does not expressly cover negligence was constructed wide enough to cover negligence.

Liability Exclusion Test:1. If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called “the

proferens”) from the consequence of the negligence of his own servants, effect must be given to that provision. 2. If there is no express reference to negligence, the court must consider whether the words used are wide enough, in

their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens.

3. If the words used are wide enough for the above purpose, the court must then consider whether “the head of damage may be based on some ground other than that of negligence.”

TERCON CONTRACTORS LTD. V. BRITISH COLUMBIA (TRANSPORTATION AND HIGHWAYS), 2010 SCC 4

Fundamental Breach – Exclusion clause

When assessing enforceability of exclusion clauses, the courts must apply a three-part test:1. As a matter of interpretation, does the clause apply to the circumstances established?2. Was it unconscionable at the time the contract was made?3. Should the court refuse enforcement based on public policy (the onus of proof lying with the party

seeking to avoid enforcement)?

BC accepts bid from contractor who was not eligible to participate in the tender and tried to cover it up – tender K had a clause excluding all damages from participating – P sues as the other final bidder. Promise to accept a bid – does it have to just be valid bids?

Have to interpret provision, apply it to facts, and come to conclusion - Read the contract as a whole, not just the provision

The situation applies to what the parties agreed to, but if the exclusion clause applies, was it unconscionable at the time the contract was made? (no)Should also consider public policy

- Balance against contract policy in favour of enforcing contracts/maintaining sanctity of contract

PHOTO PRODUCTION LTD. V. SECURICOR TRANSPORT LTD., [1980] A.C. 827 (H.L.)

Fundamental Breach – Exemption clause

Fundamental breach is a rule of construction, NOT a rule of lawFreedom of contract trumps any other considerations

D provided security to PP’s warehouse burns down due to an intentional fire started by D’s employee (unsure if he meant to burn down the building or just start a fire)Contract had limitation and exclusion clauses for employee’s actions.

Duty of D’s was to provide a service, should have used due care when selecting employeesD’s would have no knowledge of value of P’s company, fire protection, etcBUT: D would normally be responsible except for the exclusion clause

- Drafted in strong terms; intent is clearJudgment is reversed, D did not commit fundamental breach.

HUNTER ENGINEERING COMPANY V. SYNCRUDE CANADA LTD. [1989] S.C.R. 426 (S.C.C.)

Plf. purchases conveyer belt from Allis and Hunter Engineering. Exclusion clause limits warranty to one year parts replacement. Belt broke down after just over a year. Dickson: In commercial context, should use doctrine of unconscionability instead of fundamental breach. Wilson: should retain the rule of construction approach to fundamental breach in cases where clause becomes unreasonable after time of formation

MIIDAELECTRONICS INC. V. MITSUI O.S.K. LINES LTD. 1986 CARSWELLNAT 14 AT [50-54]

“Contractual provisions extending limitations of liability to third parties, known as Himalaya clauses, are recognized as a permissible feature of Canadian maritime law.  Both Mitsui and ITO are entitled to the protection of the exclusion clauses in the bill of lading [page755] because the requirements for establishing the necessary link between the stevedore and the consignee to give the element of privity were met here.Even though the exempting provision relieving ITO and Mitsui of liability in any capacity did not specifically mention negligence, the exemption clause, considered in the context of the whole contract, was wide enough to include the warehouseman's negligence as being within the reasonable contemplation of the parties.”

LONDON DRUGS LTD. V. KUEHNE & NAGEL INTERNATIONAL LTD. [1992] 3 S.C.R. 299

A third party to a contract that was created to benefit them can use a defence from that contract that was intended to benefit the third party. In this case the context was confined to employees acting for their employer. So more specifically, privity is voided and employees are allowed to claim benefits that were intended for them in contracts between their employers and 3 rd parties. D wins

MISREPRESENTATIONREPRESENTATION: a statement of fact which induces the representee to enter into a contract but

which does not form part of the contract (i.e. it is not a term of the contract); a representation which is UNTRUE

Representations that sit OUTSIDE of the contract – parties said something in the process of negotiation that did not find its way in to the contract, but has become so important to one party that he or she wants to rely on it

- NOT terms of the contract

1. must be representation/statement of fact [that was false] Smith v Land & House;

2. induced to enter into contract (reliance) Esso Petroleum

3. statement must be material

1. Fraudulent Misrepresentation - A false statement of fact ‘made knowingly, or without belief in its truth, or recklessly, careless

as to whether it be true or false’. - Remedies: rescission and damages in tort for deceit

2. Negligent Misstatements Esso Petroleum; VK Mason; Sodd Corp, BG Checo

- Meaning: a false statement made by a person who had no reasonable grounds for believing it to be true or founded on a failure by the representor to take reasonable care to ensure that the representation made are true and reliable

- Remedies: rescission and damages in tort for negligent misrepresentation

Misrepresentation

What must be established before finding negligent misrepresentations or negligent misstatement? [Test from VK Mason]

1. Must be untrue statement 2. Must have been made negligently (carelessly – breach of standard of care)

o In Esso, standard of care for special knowledge/skill [vs. not in S-244]3. Must be special relationship between parties (gives rise to duties) (BG Checo for duty)

Sodd special relationship: Party seeking advice was trusting the other to exercise degree of care as required by

circumstances Was reasonable to assume this Person gave advice knowing (or ought to have known) that the enquirer was relying on them

4. Reliance must be foreseeable

3. Innocent Redgrave v Hurd; S-244 Holdings;

- A false statement which the representor honestly believed to be true- Remedy: rescission (setting aside the contract) + indemnity. No damages* (difficult to get

damages, are not guaranteed a money award; unless representation regarded as a term of the contract)

o NOTE: No rescission for LAND if an innocent misrepresentation Redican v Nesbit

Remedies Effect of misrepresentation? Makes the contract VOIDABLE [not void]

1. Recession

Terminates the contract, puts the parties in status quo ante and restores things, as between them, to the position in which they stood before the contract was entered into

- Available for all three types of misrepresentation (note: not for innocent misrepresentation of LAND – Redican)

- Give notice of intention to rescind; communicate decision to rescind to representor (not if impossible) Car and Universal

Effects??- Nullifies completely the contract at issue- You are able to give back what you have taken and what you gave.

o If you can’t, then restitution is NOT Possible. Kupchak v Dayson

Limitations (you cannot rescind if…)- Affirm full and complete knowledge of misrepresentation and declare intention to proceed

anyway, or does something where it may be reasonably inferred to be doing this- Lapse of time – must act with speed; consider circumstances of case- If restitution is impossible (cannot give back what you took, or take back what you gave)- Involvement of a third party – can no longer rescind (restitution impossible, and consequences

of allowing to rescind on third party who was not aware of any fraud who is a BFPFVWN)

2. Damages

Can get it if the courts are treating it as a TERM of the contract is a BREACH of the contract - Common law = damages if representation is a term of the contract- Equity = rescission + indemnity (covers obligations created that are necessary for the

contract)

CasesREDGRAVE V. HURD (1881)

Material representation are assumed to be relied on, and must be proven otherwise. The ability to discover misrepresentation does not dismiss the fact of its existence, and misrepresentation need not be known by the misleading party at the time of the representation.

Redgrave invites to treat in the sale of his home and place in his law firm as partner. Hurd shows interest and inquires about the earnings of the firm. Redgrave states the earning at 3-400 per year. Redgrave provides records indicting that the firm earn 200 per year but claims that other papers and letters relate to additional business. Hurd had the opportunity to review these but did not. Hurd takes possession of the house (for 1600) and moves his family. Hurd realizes the firm is worthless. Hurd walks away from contract. Redgrave brings an action for specific performance, Hurd counter claims for contract to be rescinded because of misrepresentation.

This case is INNOCENT MISREPRESENTTION – an honest belief that it is true - Did not know at time statement was made that it was false

It is not necessary to prove that the party who alleged misrepresentation knew at the time when the representation was made that it was false. The statements must have been made recklessly and without care whether it was true or false, and not with the belief that it was true. (Statement from P was incorrect and the D relied on it.)

If a man is induced to enter into a contract by a false representation it is not a sufficient answer to say to him that he should have used his due diligence and found this before he contracted. His ability to have discovered the misrepresentation does not mitigate its existence. Likewise the person making the misrepresentation may not claim that his statements had no value. A person is not allowed to gain benefit from a statement that is now admitted to be false. (Cannot say that D should have looked at documents, and shown due diligence)

When a material misrepresentation has been made it is assumed that the party relied on this. To prove otherwise it must be shown that there was knowledge of the facts contrary to the representation or that the party stated in terms, or made clear by conduct that he did not rely on the representation. The court will limit you to indemnity in the case of innocent misrepresentation. They will not give damages such as in negligent misrepresentation.

NOTE: Court is doing nothing more than rescinding the contract – giving back business and returning deposit. Nothing more is being done

SMITH V. LAND & HOUSE PROPERTY CORPORATION (1884)

A statement made by a more knowledgeable party of opinion is a statement of fact to the less knowledgeable party.

P’s were selling hotel to D – said current lease-ee Fleck was “most desirable tenant” D’s agree to buy, Fleck went in to bankruptcy; D’s refused to complete the transaction; P filed suit for specific performanceD’s counter – deception of Fleck’s situation, misrepresentation P’s say was opinion and not statement of fact

Statement of fact: statement about an existing or past eventStatement of opinion: belief, not based on facts or subject to verification (cannot prove it true or false)

Most situations, an opinion is not fact. However, situation where one party has knowledge advantage – can be taken as a representation (implied facts behind the opinion formed).

- In this case, landlord would know more about the tenant

No general duty to disclose what you know, in certain circumstances the law does place expectations – don’t actively conceal things the other party should know, statements that become false should be made aware, fiduciary relationships you disclose what you know, etc.

DICK BENTLEY PRODUCTIONS LTD. V. HAROLD SMITH (MOTORS) LTD. [1965]

Statements which are relied upon as statements of fact can be viewed as warranty, even when they are not verified.

Bentley bought a car from Smith who told him that the car had a new engine which only had 20000 miles on the engine. The car turned out to have many problems, and Bentley brought an action against Smith for breach of warranty. The trial judge found that the statement that there was only 20000 miles on the engine was a warranty, and not an innocent misrepresentation.

The buyer relied on the statement about the engine when he purchased the car. The statement represented a warranty because the dealer was in a position where he should have known the history of the engine. He had not taken steps to verify the history of the engine, and simply made a representation that was false. He was not intending to fraudulently make statements, however, he made representations that were relied upon. They were accepted as fact by the buyer, and therefore constitute a warranty.

Breach of warranty (term of contract) gives rise to damages; whereas false representation gives action in misrepresentation (not a term)

- in this case, the statement was said outside of contract, but the court is willing to treat it as a term

Determine if innocent bystander would reasonably infer warranty was intended - representation made in course of dealings for contract with purpose of inducing other party to act on it is prima

facie ground for inferring representation intended as warranty - maker of representation must rebut by showing was innocent misrepresentation

D was in position to know (or ought to know) history of car, what he said was wrong once history was found - statements were made without any foundation; there was warranty

D gave warranty and warranty was broken - What D said was understood by P to be legally binding promise

ESSO PETROLEUM V. MARDON [1976] Q.B. 801 (C.A.)

If a party claims to have special skill or knowledge and makes a representation with the intention of inducing another party to enter into a contract, the original party is under a duty to use reasonable care to see that the representation is correct.

P’s owned gas station, were selling to DLocal authorities refused to let pumps in front, must be in back, limited sales P’s sold to D, trusted experience estimates of PD wasn’t making money, couldn’t make paymentsP issued writ for premises and money owned, D counterclaimed with negligent misrepresentation – induced to enter contract

In this case, court said this was a negligent misrepresentation (can get damages in tort for this)

P has knowledge advantage over D- statements were made to D about matters only they would have knowledge about, with intention of inducing

contract - because of knowledge, had to duty to ensure what they said was correct - any losses of D was due to original misstatements of P

KUPCHAK V. DAYSON HOLDINGS (1965) 53 W.W.R. 65 (B.C.C.A.)

Ps bought shares of motel company from D’s in return for other propertiesP’s found representations of motel earnings were false, stopped paying mortgageD’s had already sold part of properties

Rescission is a DISCRETIONAL remedy – you are not entitled to it as a right- Limitations: restitution (ESSENTIAL) and lapse of time

In addition to rescission, there can be other remedies- compensation (not damages – not assessed the same way) – provide some monetary award to make up for if

restitution is not possible)- indemnity – give enough money to cover obligations necessarily created by contract - order D to account – disclose any profits he has made as result of misrepresentation

Fraud existed, there was misrepresentations – but how to give relief? - Condition of rescission is to restore to pre-contract state, need to be able to restore without inequities

o P’s can restore shares to D, but D cannot give properties back – Would be unfair to order return monetary compensation (plus interest)

REDICAN V. NESBITT [1924] S.C.R. 135

P offered to buy property from D, never inspected until after lease assigned. After first payment, P found out misrepresentations: no electricity, not 5 bedrooms. Stopped payments

Cannot have rescission due to innocent misrepresentation if contract has been executed - Contract is for sale of interest in land, don’t want to unsettle these transactions land is special

Rescission applies only to LIMITED situations- Does not apply to negligent innocent misrepresentation on sale of house (or land) – if contract executed and

innocent misrepresentation cannot use unless can demonstrate substantial error (materially effects transaction)o Innocent misrepresentation does not care about the effect, but just what the representor thought about

what he was saying- not fraudulent misrepresentation- not if a substantial error- not if fiduciary relationship

S-244 HOLDINGS LTD. V. SEYMOUR BUILDING SYSTEMS LTD. (1994), 93 B.C.L.R. (2D) 34

P was contractors for development of townhouse, subcontracted D to do stucco finishing. D only bid on phase 1, but P thought it was for the entire project. No evidence that P knew D only intended to tender part of project, Misunderstanding discovered after work partially competed (22 done). D quit and P had to hire new person. P brought action for difference of cost

Representation made to P was that they were only dealing with phase 1. D was induced to enter contract under innocent misrepresentation by P – rescission of contract with award to D for work done

How to compare to Esso, where courts found it was negligent misrepresentation?- knowledge advantage of the parties – in Esso they were dealing with specific trade, here the contractors were not

experts (not the same advantage)- in Esso were given damages

How to reconcile with Redican – contract was executed so how come they could rescind it?- different types of contracts – this case is contracting contract, not a sale of interest for transfer of land .:.

rescission can apply

Example of remedial flexibility (rescission, indemnity, account, compensation, money award on basis of quantum merit), which the courts have moved towards in actions seeking relief for misrepresentation.

- Note: principle that cannot get damages for misrepresentation

CAR AND UNIVERSAL FINANCE CO. LTD. V CALDWELL [1965] 1 Q.B 525, [1964] 1 ALL ER 290

Must take all reasonable steps to make it unequivocally known intention to rescind When impossible to communicate one’s intention to rescind a contract to other contracting party, it is enough to for purposes of rescission if he does all he can in to unequivocally make known his intention to rescind.

D sold car to person N, but the cheque bounced. D went to police and automobile association. N sold car to dealership M, who had knowledge of defective title, then sold to G&C

Case decides that in circumstances where it is impossible to communicate ones intention to rescind a contract to the other contracting party, it is enough for the purposes of the law on rescission if he does all that he can in the circumstances to unequivocally make known his intention to rescind

- Misrepresentation renders a contract voidable (not void), so until a voidable contract is set aside it is a valid transaction - Contract is voided at time of expressing intent to void, but is effect itself dates back to beginning of transaction –

so good to give intent ASAP

When seller became aware of fraud, took all reasonable steps to regain goods - was unable to communicate intention of rescission but actions were sufficient in circumstances

Because of knowledge of defective title, G&C do not acquire good title

SODD CORP. V. N. TESSIS (1977) 17 O.R. (2D) 158

Special relationship between parties1. Party seeking advice was trusting the other to exercise degree of care as required by circumstances 2. Was reasonable to assume this3. Person gave advice knowing (or ought to have known) that the enquirer was relying on them

D (accountant) advertised sale of furniture business by bankruptcy. P sent officer as representative, was told by D that retail value was $35,000. P relied on representation to submit tender. Found out that value was only half. P said D was negligent in misrepresenting value, were induced to bid

Trial judge found no special relationship between parties to give duty of care this was wrong. D had knowledge advantage: was accountant and trustee – had duty of care to P to not misrepresent. Misrepresentation induced contract

Can there be liability in tort for negligence founded on pre-contractual statements even when the relationship between the parties is governed by contract? [yes]

- Can sue in torts even though parties have contract You can include in contract that in event of misrepresentation will not be liable, but whether courts will give effect to it is another matter

B.G. CHECO INT’L LTD. V. B.C. HYDRO [1993] 1 S.C.R. 12

Where parties entered into a contract, right to sue in tort NOT taken away [i.e. party may sue in both). BUT contract may affect liability in tort (i.e. exemption clause). Actions in tort and contract may be concurrently pursued UNLESS parties by a valid contractual provision indicate they intend otherwise.

D’s called for tenders to erect transmission towers and lines. P inspected area by helicopter before submitting tender – noted evidence of clearing activity, assumed this would be finished before work. P submit tender to D, D accepted.P was unable to work because clearing never finished – seeking damages for negligent misrepresentation. Ds hired company to clear, was not done adequately – evidence that company as not given same standards as contract with P; D’s were aware of problems. When parties enter in to a contract an assessment of their rights and obligations must commence with the contract

When parties have entered in to a contract the right to sue in tort is NOT taken away - However, contract may affect liability rising in tort (e.g. through an exemption clause)

Actions in tort and contract may be concurrently pursued unless the parties by a valid contractual provision indicate that they intend otherwise

V.K. MASON CONSTRUCTION LTD. V. THE BANK OF NOVA SCOTIA [1985] 1 S.C.R. 271

What must be established before finding negligent misrepresentations or negligent misstatement?- Must be untrue statement - Must have been made negligently (carelessly – breach of standard of care)- Must be special relationship between parties (gives rise to duties)- Reliance must be foreseeable

Client of D was hired by P to carry out construction of building project. P sought info from D (bank) to ensure financing, was assured in a letter from the bank. Costs exceed amount of loans, D (bank) did not inform P of this. P brought action of negligent misrepresentation

Courts said there was no special relationship between the bank and the construction company that requested the letter from the bank

- But there was some proximity of relationship between the parties o Not contractual relationship, but enough to give rise to a duty situation

- It was foreseeable that they were going to rely on this information to enter in to a contract with the other party – this was part of the request itself!

NOTE: test in torts is different than the test in contracts (In torts, can recover for all losses that were reasonably foreseeable)

GUARANTEE CO. OF NORTH AMERICA V. GORDON CAPITAL CORP., [1999] 3 S.C.R. 423 AT [39]-[47]

Investment dealer (D) entered into insurance contract with insurer (P), covered dishonest and fraudulent acts committed by dealer’s employeesDishonest borrowing of employee led to loss of ~$90,000Insurer (P) said dealer (D) had made a material misrepresentation in application for insurance contract Dealer had indicated accounts would be reviewed monthly, docs of loss showed that these accounts were only responsibility of employee and not subject to review D denied recession of contract, brought action. P dismissed as brought after limitation periodD said P not entitled to limitation period after repudiating contract

Misrepresentation (even one that was incorporated into the contract) gives innocent party option of rescinding the contract, i.e. to have it declared void ab initio.

- must be "material," "substantial" or "go to the root of" the contract Repudiation occurs when one party indicates intention not to fulfill any future obligations under the contract.

- If the other party accepts the repudiation, the contract is terminated, not rescinded. Doubt as to whether repudiation or rescission is intended?

- Courts should look to such factors as the context of the contract, particularly the intent of the parties- Sophisticated parties will take strong evidence to displace the meaning suggested choice of language in the

contract itself. In this case, because both parties agreed to the word "rescission," and Guarantee acted in accordance with that intention, the consequence of a valid rescission based on Gordon's misrepresentation is the avoidance of the contract, and Guarantee's release from any liability thereunder

PERFORMANCEExcuses for non performance:

1. Agreement: Make agreement that allows one party to not perform, or to perform in another way Partial execution? Have to demonstrate that you provided consideration for that promise to release you from the obligation

2. Waiver: One party to a contract takes steps that involve forgoing reliance on a right (waive the obligation)

3. Frustration: Events that take place after the contract has been made which renders performance of contract impossible [see more below]

4. Impossibility falling short of frustration: Usually regulated by the contract (ex: don’t come to work when sick)

5. Contractual excuse for non-performance: Parties put in; if it happens, don’t have to perform (ex: don’t build a house in a thunderstorm)

Imperfect Performance – Common Law: Party who does not perform perfectly is not entitled to obtain the contract price Sumpter v Hedge, Bolton v Stone

- Only allows for trivial deviations (consider defect, nature of performance, subject matter, etc)- Terms may qualify need for strict performance - Divisible contracts are possible (failing on one term doesn’t mean whole contract falls)

Doctrine of Substantial Performance: Where there has been substantial (though not exact and literal) performance by one party, the other party cannot treat himself as discharged. A party who has substantially performed is permitted to sue on the contract, subject to the other party’s claim for damages for his partial non-performance Fairbanks v Sheppard

o Consider: % of work completed, impact of work left, quality of work, ease of completion, cost of perfecting breaches

Doctrine of quantum meruit: Where a person has partially fulfilled his obligations under the contract and it is possible to infer from the circumstances a fresh agreement by the parties that payment shall be made for the work already done, that person can sue on a quantum meruit to recover remuneration proportionate to the benefit conferred upon the other party Fairbanks v Sheppard

o Must have PROOF of implicit promise of payment by the D o NOTE: You are NOT suing on the contract – this is not suing for breach of contract

Part-Payments vs. Deposits:

Performance of Contractual Obligations Unenviable

- Deposit is treated as a guarantee of performance (a separate contract); lose if non-performance

- Part Payment of the purchase price only is recoverable (if not deposit) Stevenson v Colonial Homes

Every failure to perform under a contract is a breach = right to DAMAGES, but not automatic termination

- Can be discharged in 2 situations:1. Repudiation: Party indicates by words of conduct they do not intend to honour the

terms of contract in the future 2. Fundamental breach [see frustration for fundamental definition ]

Contract with no termination provision may still come to an end due to the nature of the contract

- If no specific grounds, courts may imply in a term stipulating grounds for termination

Have to perform within a reasonable amount of time (if not stipulated)1. Contract expressly stipulates that time is of an essence – have to perform on time 2. One party is in default and is informed by the other party that unless performance is

completed within a defined time, the contract will be regarded as coming to an end 3. Nature of the contract – subject matter – may make it imperative

Sale of Goods Act: Section 14 – Unless you have an express stipulation, stipulations of time of payment are not of essence (you can pay whenever)

CasesSUMPTER V. HEDGES [1898] 1 Q.B. 673 (C.A.)

Sumpter was builder, contracted to build house for Hedges on lump-sum payment (was partially paid). Stopped halfway because ran out of money. Hedges finished building using materials left behind. Sumpter sued for outstanding money.

Sumpter had abandoned contract, left Hedges no choice but to finish work himself. Can get money for value of materials only. Quantum meriut can only be awarded where there is true choice of whether to complete or not. A partially completed house is not fungible and therefore a person left with a partially completed piece of property should not be required to pay

FAIRBANKS V. SHEPPARD [1953] 1 S.C.R. 314, [1953] 2 D.L.R. 193

Fairbanks (P) hired Sheppard (D) to build a machine for $9800, paid $1k up front. Machine nearly completed, D stopped work and demanded $3k more. P sued to recover $1k and losses.

P, having a contract to do work for $X, can’t recover unless the work is substantially done or its D’s fault that it wasn’t done. D had not substantially completed the contract (should be +50%), knew that the machine wouldn’t be able to do what as needed. Still needed a lot of skilled work to be completed ruling for P Fairbanks

No substantial completion = NO quantum meriut (can only take when party has an option to take partial benefit)If a party abandons the work, then he is not entitled to substantial performance and has no right to enforce a contract

BOLTON V. MAHADEVA [1972] 2 ALL E.R. 1322

Bolton installed central heating for £560 in Mahadeva’s house. It was too cold, the heat came unevenly and it all gave off fumes. Bolton refused to correct it, which would cost £174. Mahadeva refused to pay any money at all. Bolton sued.

Held that the contract price needed to be paid, minus a sum for the cost of putting the heating system right (a total of £446, including labour). Bolton was entitled to nothing because there had been no substantial performance at all. At 1015 he said, ‘It is not merely that so very much of the work was shoddy, but it is the general ineffectiveness of it for its primary purpose that leads me to that conclusion.

STEVENSON V. COLONIAL HOMES LTD. [1961] O.R. 407 (C.A.)

P made down payment for contract of cottage. P refused delivery. D rescinded contract and said was entitled to retain the payment as forfeited deposit. Court: P made partial payment so can recover.

Partial payment can be recovered, but deposits cannot. If money is paid as a deposit it is not recoverable; it is forfeited because a deposit considers the possibility that it will not be finished.Consider the words, circumstances, and evidence to determine whether it is a deposit or partial payment.

MISTAKEHow & when to apply = Miller Paving Ltd v B Gotard Construction (2007)

- prior to determining whether a contract was vitiated by common mistake – either in equity or at common law – one should look at the contract itself to see if the parties have provided for who bears the risk of the relevant mistake. Great Peace Shipping

NOTE: Mistake must exist at the time of contract being made [after = frustration]

Mistake at common law vs. mistake in equity- Common law – makes contract VOID, no remedy - Equity – makes contract VOIDABLE

Possibility that remedy exists elsewhere (i.e. mistake and misrepresentation often argued together).

1. COMMON Mistake

Both parties make the same mistake - each knows intention of other party and accepts it, but each is mistaken about underlying fact Solle v Butcher

In Common Law use the test from GREAT PEACEIn Equity, use the test from SOLLE V BUTCHER

COMMON LAW:- If void in common law, will be void in equity - Agreement void BOTH at common law and equity: Res extincta (unknown to both parties, specific

subject matter of contract is non-existent).o Mistake must empty the agreement of ALL of it’s content, must be something very serious or

significant EQUITY:

- Agreements voidable in equity: Res sua (A agrees to buy from B a property which unknown to both parties belongs to A).

o Not automatically void at common law o May be used to deny specific performance of parties (flexibility in some cases)o Test: both parties must be under a (1) common apprehension about fundamental part of

contract, and (2) party seeking to escape consequences of mistake is NOT at fault

In approaching common mistake cases, you need to first decide if the contract is void at common law- If it is, then equity follow the law and will declare as void- If you apply the common law test and find the contract is valid (not void), then you have to turn to

equity to see if equity will intervene to set aside the contract

Mistake

2. MUTUAL Mistake

Parties misunderstand each other, but they are at cross purposes. Very existence of an agreement is denied. Staiman Steel

COMMON LAW:- Court decides what a reasonable third party would infer from the parties’ words or conduct

o Objective test: the reasonable person’s ‘sense of the promise’ will bind the parties (if cannot be determined, NO binding contract)

EQUITY: Follows the common law – mutual mistake does NOT as a matter of law nullify a contract.- Equity may refuse specific performance in appropriate cases.

3. UNILATERAL Mistake

One party is mistaken (the other knows, or ought to) Smith v Hughes; Hartog v Collins; Shogun Finance, Sylvan Lake

NOTE: may often look like fraud

COMMON LAW:- A person is taken to have known what would have been obvious to a reasonable person in light of the

surrounding circumstances. In appropriate cases there will be NO binding contract (Ex: mistaken identity). Shogun Finance

EQUITY:- Equity follows the law – if one party to knowledge of other is mistaken as to fundamental character of

offer (if he did NOT intend, as other well knew, to make apparent contract) apparent contract is a nullity. Equity will set it aside or refuse to decree its specific performance. Sylvan Lake

3. Rectification

Rectification = Both parties must have a prior agreement, and there was an error when reducing that agreement in to writing; Court orders a change in a written document to reflect what it ought to have said in the first place Sylvan Lake

- Burden of proof on party seeking rectification - Must demonstrate (1) a prior common agreement between the parties and (2) a mistake in the

document

Defences? Affirmation, Lapse of time, or 3rd party rights

4. Doctrine of non est factum

NOTE: used only in rare occasions

Allows a party who has been named as a party to a written document or who has signed the document to escape the obligations imposed by the document.

- For the principle to operate, the document must be fundamentally different, either as to content, character or otherwise from the document that the signor intended to execute.

- Must use reasonable care, cannot rely if you don’t Marvco Color Research

From **EXTRA CASE** Farrell Estates v Win-Up Restaurant (2010):1. The burden of proving non est factum rests with the party seeking to disown their signature. For a person of full

capacity the application of the doctrine must be kept within narrowly prescribed limits.2. The person who seeks to invoke the remedy must show that the document signed is fundamentally different from

what the person believed he or she was signing.3. Even if the person shows such a fundamental difference, the court must examine whether the signer was careless in

failing to take reasonable precautions in the execution of the document. The court must also consider the conduct of the party relying on the document and whether they qualify as an innocent party, in order to determine which party, by application of reasonable care, was in the better position to avoid the loss.

STAIMAN STEEL LTD. V. COMMERCIAL & HOME BUILDERS LTD. (1976)

Staiman (P) put bid in for lot, thought included building AND used steel. Seller (D) thought just the used steel. D argued if P intended to buy building steel and D intended to sell used steel then NO meeting of minds and NO contract. P argued NOT party’s actual intention but intention manifested by words and actions of parties.

Parties misunderstood each other – cross purposes = mutual mistake type of mistake will narrow down to specific principles to use

Reasonable person would infer that the auctioneer was manifesting an intention to offer for sale the bulk lot without the building steel

- Only where circumstances ambiguous would an reasonable bystander NOT infer a common intention & hold no K - Use objective determinations about everything that is going on in the transaction

SMITH V. HUGHES (1871) L.R. 6 Q.B. 597 (DIV. CT.)

A unilateral mistake does not prevent the acceptance of an offer unless1. The mistake is as to the terms of the contract (as opposed to motivation)

- and -2. The mistake is known to the offeree at the time of purported acceptance.

P was selling oats to a horse trainer, D. D agreed to buy oats based on sample sent (they were old oats). D received new oats, said contract was for old oats based on sample. P denied any reference to old or new oats and having knowledge D could NOT use new oats.

Assumptions outside the contract are irrelevant; it does NOT matter what the parties thought, it is a matter of what the contract was.

- Law treats belief (does not matter) different than a term agreed to in the contract Mistake is always about TERMS not motives

- Solution: make everything that could be unclear a term of the contract and make sure it’s specific

Unless the seller is responsible for inducing mistaken belief in the buyer which leads to enter the contract, he is NOT responsible.- No legal duty on the seller to dissuade you from something - In common law there is NO general duty of good faith

HARTOG V COLIN & SHIELDS, [1939] 3 ALL E.R. 566 (K.B.)

In case of UNILATERAL MISTAKE, where mistake of X is known to Y – Y is taken to have known what would have been obvious to a reasonable person in the light of surrounding circumstances (i.e. objective test).

Parties negotiation for sale of Argentinian hare skins and discussed possible sale per piece. By mistake, D offered price per pound. Court found P must have realized mistake before taking offer and his claim for breach of contract was denied.

SHOGUN FINANCE LTD. V. HUDSON [2003] UKHL 62

1. Focus on transaction of A and B, is there contract between A and B and is contract vitiated by mistake? -- If yes --

2. If yes, Did mistake render contract void or voidable? o If void, analysis over and third-party CANNOT receive from void transaction [B would not have title to the

item bc contract was void]. o If voidable; have to consider contract between third-party and fraudster

Assess the impact: did they have notice of fraud or not (took for value? Likely to keep item).

Thief with stolen DL (“Patel”) purchased a car: entered “hire-purchase” contract where dealer sold car to finance company, Shogun (P), and company “hired” car to purchaser who makes payments. Thief took possession of car and sold to Hudson (D). Thief vanished and Shogun claimed car or value from Hudson. P argued since mistaken on identity of person contract never concluded and Hudson had no title to car.

Shogun intended to contract with “Patel” Thief took NO title therefore has nothing to convey to Hudson

SOLLE V. BUTCHER (1949) 1 K.B. 671 (ENG. C.A.)

Use to find a common mistake in EQUITY

EQUITABLE RULE: Cases of mistaken assumptions should be subject to a two-stage analysis:1. Whether a mistake had occurred which rendered the contract void at common law2. If contract is valid at common law, necessary to ask whether it is voidable on the grounds of equitable

mistake.a. Need fundamental common misapprehension b. Party seeking to set aside contract are not at fault as to the consequences of the mistake

Butcher owned a house with 5 apts and renovated it with Solle. Butcher thought it was NOT subject to rent control.Solle rented for $250/mo, found out it was rent controlled at $140/mo. Sued for overpayments; Butcher counterclaimed mistake.

Two kinds of mistake:1. Mistake which renders contract VOID – nullity from beginning, dealt with by common law2. Mistake which renders the contract VOIDABLE – set aside on terms of court of equity

There WAS a contract bc the parties agreed on the same subject mater, but landlord was under fundamental mistake. Court of equity can set aside contract to relieve consequences of own mistake

GREAT PEACE SHIPPING V TSAVLISRIS SALVAGE [2002] 4 ALL E.R. 689 (C.A)

Use to find a common mistake under COMMON LAW

D was retained to provide assistance to damaged boat, D sought assistance from 3rd party. P was closest to wreck of D commenced negotiations with P of suitable arrangements – allowed cancellation of agreement on payment of min 5-day fee. D found out that P was actually too far away, so cancelled, unwilling to pay for cancellation. D said entered in to agreement under impression that P was in “close proximity” – this was not true.

Court can determine that unforeseen circumstances have resulted in impossibility of performing the contract In this case, mistake was not sufficiently fundamental to avoid the contract – it was still able to perform, just not in the manner of time.

Test for declaring a contract void at common law:1. Must be common assumption as to the existence of state of affairs2. Must be no warranty by either party that the state of affairs exists3. The nonexistence of the state of affairs must not be attributable to the fault of either party 4. The non-existence of the state of affairs must render performance of the contract impossible5. The state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circu-

mstances which must subsist if performance of the contractual adventure is to be possible this is pretty rigid as it is common law; the Solle v Butcher approach is more flexible in equity

MILLER PAVING LTD. V B. GOTTARDO CONSTRUCTION LTD. (2007), 86 O.R. (3(D) 161 (ONT. C.A.)

Canadian law will look at both the common law and equitable doctrine of mistake, only after the contract is looked at to see who bears the risk. Process of analysis for cases of common mistake: (TEST)

1) identify the mistake; 2) identify if either party assumed the risk; 3) determine if the contract is void at common law (Great Peace); 4) determine if the contract is voidable in equity (Solle). (Use this analysis for common mistake)

Miller (P) contracted to supply materials do D, D used materials for highway. P&D Signed agreement acknowledging had been paid in full, P then sent another invoice after discovering deliveries not yet billed. D relied on agreement, P saying unjust enrichment. Did the trial judge err in not applying doctrine of mistake??

Agreement clearly provides supplier acknowledged payment received in full. Responsibility on supplier determine what was owing and for invoice. Miller has to bear consequence.

Miller (P) must show that as result of mistake, subject matter of contract has become essentially different from what it was believed to be (cannot)

- To pass Great Peace test, have to show non-existence of presumed state of affair was not its fault (cannot)- To engage equitable doctrine from Solle, must show it was not at fault – mistake was due to unexplained errors in

Miller’s own procedure Agreement precludes from using doctrine of mistake, and either common law nor equitable doctrine allow contract to be set aside

R. V. RON ENGINEERING & CONSTRUCTION (EASTERN) LTD. [1981]

Tender, regardless of existence of calculation error, WILL be binding on parties where deposit provided and intention to enter a tender existed.

Contractor (Ron) submitted tender; employee learned tender was $632,000 lower than next lowest. Ron stated it made mistake and withdrawing tender because it incapable of being accepted. Ron sought $150,000 tender deposit returned. Argued other party knew of miscalculation and could NOT accept mistaken tender.

Tenderer takes risk of possible error in first unilateral contract (submission of tender).NO mistake as Ron did NOT intend to submit the tender

MARVCO COLOUR RESEARCH LTD. V. HARRIS [1982] 2 S.C.R. 774

If a person carelessly fails to read a document before signing it, and the document permits a fraud to be perpetrated on an innocent third party, the doctrine of non est factum does not apply.

- Careless party is bound by the document signed (deliberate and intended to sign document and make it legally binding)

Harris executed a mortgage and guarantee in favour of the lender Marvco.Harris did so based entirely upon the assurances of his son-in-law that the document being signed was merely to correct a minor discrepancy in a prior mortgage he had signed.Harris did not read the document before he signed it.He later sought to avoid liability on the basis that he did not understand the nature of what he had signed due to the fraudulent misrepresentation of his son-in-law.

The defence of non est factum was not available to respondents. Any person who fails to exercise reasonable care in signing a document is precluded from relying on non est factum as against a person who relies upon that document in good faith and for value.

- party able to prevent the loss through the exercise of reasonable care should bear that loss when the only other alternative would be for the innocent appellant to bear it.

SYLVAN LAKE GOLF & TENNIS CLUB LTD. V. PERFORMANCE INDUSTRIES LTD. [2002] 1 S.C.R. 678

Sylvan and Perform made oral agreement for 2 rows of houses to be built on golf course. When document made, only left room for 1 row of houses. Perform signed without reading, now want to have rectification. Sylvan wants to stick to written agreement, and that lack of due diligence should not allow for rectification. Perform asking for specific performance.

Rectification can be used where a contract is orally agreed but then changed by one party when written – this amounts to fraud. It is an equitable doctrine that aims to restore the parties to their original position. Due diligence is not a defence to fraud.

0707448 BC LTD V CASCADES RECOVERY INC (2011)

P says that D repudiated on a lesae for building, claims damages for breach of lease.D says lease frustrated by city’s anticipated change to zoning

FRUSTRATION

Frustration occurs whenever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different form that which was undertaken by the contract - Davis Contractors

Interpreting the contract:1. Risk Assessment: when you approach construction cases you should do a risk analysis

o Ask whether from the terms of the contract and the circumstances of the case, have the parties allocated the risk of the event to one of the parties

If it is allocated, this is the end of the story; don’t need doctrine of frustration If no risk allocation, then you need to turn to the doctrine

2. Doctrine of Frustration o Identify the obligations, and identify the frustrating evento Assess the impact of the event on the obligationso Decide whether it renders performance radically different

3 elements required for Frustration:1. There must be a frustrating event – impossible to name all situations, so pay attention

to the circumstances of each case; 3 broad categories where they may fit:o Impossibility of performance – Event renders performance of contract impossible, may

be frustrating (ex: unavailability of subject matter) Davis Contractors, Edwinton/Sea Angel

o Supervening illegality – Contract was legal when it was formed, but is now subsequently illegal due to government regulation Capital Quality Homes

o Frustration of purpose – certain object in mind when you entered in to the contract and is no longer possible to fulfill the object

Ask the following (from Krell)- What was the foundation of the contract?

o Look at the terms, then consider the surrounding circumstances, facts and knowledge of the parties

o May not be expressly stated, may have to infer o Must be SHARED – cannot be one-sided, both should agree on/share the foundation

- Was the performance prevented?- Was the event which prevented performance of such character that it cannot reasonably

been contemplated? Krell v Henry; Taylor v Caldwell; Herne Bay Steamboat

Time is an important factor Davis Contractors; Edwinton/Sea Angel

2. Occurrence of the event must not be due to the fault of either party (not self-induced) Maritime National; Edwinton/Sea Angel

3. Parties did not foresee the frustrating event, and did not provide for it in the contract Capital Quality Homes; Edwinton/Sea Angel

NOTE: - CONTRACT IS VOID = NO DAMAGES AS NOT THE SAME AS BREACH- ONLY EVENTS THAT OCCUR AFTER THE CONTRACT [vs prior to is MISTAKE] – IS A

DISCHARGE OF FUTURE DUTIES- STATUTORY INTERVENTION ONLY AFTER FRUSTRATION IS ESTABLISHED

CasesPARADINE V. JANE 82 E.R. 519

(NOTE: not actually the rule for now)When a party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity.

Paradine leased lands to Jane, now bringing action in debt as D failed to pay rent. It was the English civil war, D said land was invaded and he was driven out

TAYLOR V. CALDWELL 122 E.R. 308

Affirmation of IMPLIED TERMS approach

Where there is a positive contract to do a thing, NOT in itself unlawful, contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract may become unexpectedly burthensome or even impossible he may be excused.

P & D entered into a contract, D’s let P use music hall for concerts on certain dates. P’s paid $100 for each day. After contract but before first concert, fire and hall burned down, concert cancelled.

KRELL V. HENRY [1903] 2 K.B. 740

If impossible to perform the contract due to events which cannot reasonable be foreseen during making of contract, parties are discharged from performance

P agreed to let D have possession of window room for payment during coronation Coronation postponed, no procession to view

HERNE BAY STEAMBOAT CO V. HUTTON [1903] 2 K.B. 683

Defendant hired to contract a steamship, Cynthia, on June 28th/29th, the same day a Royal Naval Review was to take place. The purpose was to “view the naval review AND have a day’s cruise around the fleet”. The naval review was cancelled, and the defendants refused payment, stating the contract was frustrated in purpose

Naval review was not the FOUNDATION of the contract; therefore contract was not frustrated

MARITIME NATIONAL FISH LTD. V. OCEAN TRAWLERS LTD. [1935] 3 D.L.R. 12

Essence of “frustration” is that it should not be due to the act or election of the party (no excuse for “self-induced frustration”)

Appellants (Ocean) chartered a trawler St Cuthbert from respondents (Maritime) for period of one year. Parties entered in to agreement, A was aware of legislation upcoming amendment to fisheries act requiring licenses; Were only allowed to licence 3 boats, did not pick St Cuthbert to be licenced. A gave notice returning ship, because illegal, want to end contract early. Maritime now suing for damages

Could have selected St Cuthbert as boat to have a licence, but chose not to. Cannot rely on own default to excuse from liability under the contract

DAVIS CONTRACTORS LTD. V. FAREHAM UDC [1956] A.C. 696

Cannot invoke frustration because of hardship, inconvenience, or material loss - must be an actual change in the significance of the obligation that the thing undertaken would, if

performed, be different than what was contracted for

Contractors (P) entered in building contract with D. Contract price was fixed, to be built over 8 month period. Unexpected circumstances, work took longer to complete. Contractors claimed contract was frustrated, entitled to additional money on quantum meriut basis in addition to contract price

In this case, labour shortage or cost change was entirely foreseeable The time frame was done for a purpose, and the contractor accepted this term

CAPITAL QUALITY HOMES LTD. V. COLWYN CONSTRUCTION LTD. (1975)

There can be NO frustration if the supervening event results from voluntary act of one of parties or possibility of such event is contemplated by parties and provided for within the agreement.

P agreed to purchase lots from D with plan for subdivision. Designated land was not within area of subdivision, not subject to restriction. After signing contract, amendments to legislation placed restrictions

Contract was frustrated, both parties discharged from performance Legislation was not contemplated or planned for, and had such a nature that the fundamental character of the agreement had changed

- legislation destroyed the very foundation of the agreement - purchaser was buying for purpose of building houses, lack of ability to do so was not contemplated when

agreement was entered

EDWINTON COMMERCIAL CORPORATION V. TSAVLIRIS RUSS (THE SEA ANGEL) [2007]

Boat carrying oil ran aground and broke in half; Salvage company (D) hired, had to charter small storage tanker from P’s. Charter was for up to 20 days, were unable to deliver because port wouldn’t let the tanker leave, caused delay of 108 daysP claiming costs of hire, D says contract frustrated by port’s actions

AFFIRMS PRINCIPLES OF DOCTRINE OF FRUSTRATION:1. Doctrine exists to do justice by mitigating rigours of common law – should not be lightly invoked

2. Mere fact that contract is more onerous will not give rise to frustration - Need change of circumstances so that nature of contract has fundamentally altered or has become radically different- If contract was enforced, it would involve a radical or fundamental change from the obligation originally undertaken

3. Delay may be capable to give rise to frustration of contract, will not be automatic, must consider circumstances. - not if delay is within commercial risks or normal circumstances

4. Frustration is concerned with incidence of unforeseen risks - clause intending to deal with the event will preclude the application of the doctrine - if event is foreseeable, will not be able to apply

5. Cannot rely if event was self-induced

DURESSFor relief to be granted two conditions must be present: [Stott v Merit]

1. Coercion of Will - Did the illegitimate pressure induce the victim to enter into the contract?

o Threat that leaves the victim with no practical alterative other than to submit to the threat or pressure

o Threat has to apply to the coercion the will of the victim Victim was induced by virtue of threat; pressure was significant cause

- How to determine if there was coercion? [note: factors are not cumulative]o Protest – whether or not the victim protested when the pressure was put on himo Presence or lack of reasonable alternative courses of action open to the victimo Independent advice – did the victim seek independent adviceo Subsequent steps to avoid the contract

2. Illegitimacy of Pressure- Factors to consider:

1. Nature of the pressure: legitimate or illegitimate o Forms of illegitimate pressure: Threat to person (duress of person); Threat to

goods (duress of goods); Threat to economic interest (economic duress) Stott v Merit Investment; Nav Canada; Gordon v Roebuck

2. Nature of the demand to which the pressure is applied to support- Intention of the wrongdoer doesn’t really matter. Law on duress is concerned with the

EFFECT/IMPACT of the threat on the victim’s mind

Remedies? Modern and preferred position: VOIDABLE contract RECISSION - Can only get damages for breach of contract! Anything else you have to look somewhere else

Possibly from Nav Canada?Typical rule for Economic duress = Have to show that conduct coerced did not amount to a voluntary act. Two elements:

1. pressure amounting to compulsion of the will of the victim 2. the illegitimacy of the pressure exerted

a. look at the nature of the pressure (threat to breach contract; threating to withhold performance until victim capitulates to coercer’s demands)

b. and the nature of the demand – is it legitimate (commercial) or illegitimate (tortious or criminal conduct)?

i. Legitimacy of pressure not ultimate decider of whether economic duress exists; rather – is impact on the victim

CasesSTOTT V. MERIT INVESTMENT CORP. (1988) 48 DRL 4TH 288

2 elements necessary to prove economic duress:1. Pressure amounting to compulsion of the will of the victim [coercion of will]2. Illegitimacy of the pressure exerted

Stott (P) was salesman for Merit (D) Stott signed agreement holding responsible for own customer’s debt Left company; brought an action to recover the amount that had been deducted from his commissions.

Judge accepted evidence at meeting of contract to pay off – evidence of economic duress and intimidation - Stott was pressured to sign the contract, pressure could not be recognized as legitimate - BUT: Had plenty of time to reconsider, obtain legal counsel, or repudiate agreement

Stott was content with arrangement even after reflection, subsequent conduct was affirmation

Duress

GREATER FREDERICTON AIRPORT AUTHORITY INC. V. NAV CANADA (N.B.C.A. 2008)

A post-contractual modification, unsupported by consideration, may be enforceable as long as it is established that the variation was not procured by economic duress.

Under existing contract, Nav Canada had obligation to pay.Refused to do so unless the airport paid for itAirport agreed to do it under protestSubsequently refused to pay

Proposes a new rule for economic duress NOTE: Oppong doesn’t think this is the better test, and no other cases have adopted it.

2 Conditions must be met:1. Promise (contractual variation) must be extracted as a result of the exercise of “pressure,” whether characterized

as demand or threata. Can be express or implied threatb. Typically is threat to withhold performance of contract

2. Exercise of that pressure must be such that the coerced party had no practical alternative but to agree to the coercer’s demand to vary the terms of the underlying contract

a. Could the promisor resist the pressure and refuse to agree to modification? Is there evidence of practical alternatives?

Once two threshold requirements met, must ask final question:3. Did the coerced party “consent” to the variation? Consider 3 factors:

a. Whether the promise was supported by consideration i. If not supported, court may be more supportive of economic duress plea

b. Whether the coerced party made the promise “under protest” or “without prejudice”i. Failure to object does not prevent claim, but may factor

c. If not, whether the coerced party took reasonable steps to disaffirm the promise as soon as practicablei. Should act in timely manner, not sit back and wait

Courts also considered role of independent legal advice – said that it is not an integral component of the duress doctrine Good faith not a defense for economic duress

GORDON V. ROEBUCK 1989 64 DLR (4TH) 568; 92 D.L.R. (4TH) 670 (C.A.)

2 Stage test for determining cases of ECONOMIC DURRESS1. Coercion of will (consider: protest, alternatives, independent advisement, steps to avoid?)2. Whether the pressure exerted was illegitimate (consider: legitimacy and nature of demand)

P & D were partners in property developmentD refused to give discharge of mortgage before deadline unless was repaid back for a loan Sale would have been lost without D’ participation Negotiated a settlement and executed it under seal P brought forward action to recover, said economic duress

Trial judge analyzed 4 Factors to determine if party has been coerced1. Did he protest? no evidence that P protested at time of coercion 2. Was there an alternative course open to him? had alternative course, adequate legal remedy3. Was he independently advised? yes 4. After entering the contract did he take steps to avoid it? no, over a year later

Economic duress was exerted

Was the coercion exerted on the appellant legitimate? P agreed to do anything necessary to get D to agree coercion amounted to economic duress HOWEVER – D was entitled to the funds demanded, so agreement cannot be set aside as unjustifiable economic duress Cannot justify duress with motivation

UNDUE INFLUENCE[NERD NOTE: Duress vs. Undue Influence - Royal Bank of Scotland]

Duress = Common law o Narrow in scope; typically restricted to physical coercion and violence.

Undue Influence = Equityo Supplemented the Common law (as Equity is bound to do) o Extended the reach of the law to other forms of persuasion.

Some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating and generally, though not always, some personal advantage obtained by the wrongdoer

1. Actual Undue Influence - Use of influence by A on B to bring about a contract is clear and deliberate - Must show four things:

1. Other party had capacity to influence him or her 2. The influence was exercised 3. The exercise was undue or inappropriate 4. The exercise brought about the transaction (cause him to enter in to the transaction)

- No need for pre-existing relationship between the parties - Must be proved affirmatively – person who alleges must prove; no presumption in your favour

o Can do so by demonstrating presence of coerciono Other party exercised degree of control; domination and control to degree you did not act

independently - Don’t have to prove that transaction had anything wrong with it

2. Presumed Undue Influence - Assess AT THE TIME of the transaction whether the influence existed - Presumption in favour of the victim; if can establish 2 elements the burden shifts to wrongdoer to

rebut 1. The complainant reposed trust and confidence in the other party, or the other party

acquired ascendancy over the complainant (influence)2. That the transaction is not readily explained by the relationship of the parties (unfair,

undue).1. Rely on the law – in the eyes of the law there are certain relationships that are deemed

relationships of confidence and trust; give rise to presumption of influence Geffen v Goodman; Royal Bank of Scotland v Etridge

2. By relying on facts – the relationship you have is a confidential relationship Allcard v Skinner

- How to rebut? Most common argument = you sought independent advice

Remedies? VOIDABLE contract, do damages (not breach) Cases

ALLCARD V. SKINNER. (1887) 36 CH.D. 145

Allcard was introduced to Skinner (religious superior). Observed vows of poverty and obedience. After becoming member, Allcard gave railway stock in to Skinner. Left sisterhood, claimed money back

Gift was result of influence of D on P P able to recover only as much gift remained in D’s hand after it had been spent as per her wishes.

Undue Influence

GEFFEN V. GOODMAN ESTATE [1991] 2 S.C.R. 353, 81 D.L.R (4TH) 211

Need to demonstrate confidentiality of relationship AND transaction that is explained by the nature relationship

Annie Sanofsky executed will providing for life estate to daughter Tzina and directed that on death, estate should be distributed to all of Annie’s grandchildren. New will made, left property to Tzina, gave $1000 to children, and residue be held in trust for Tzina and passed on death to Tzina’s childen. Brothers sought legal advice on whether later will valid; concerned Tzina would sell house and they’d be financially responsible for her care. Brothers and Tzina created trust giving Tzina life estate and brothers as trustees. Tzina died and left property to her children only. Children claimed trust invalid, argued uncle’s exuded undue influence on their mother. Trial found trust valid, CA reversed, uncle’s appeal to SCC

Transactions between persons standing in certain relationship with one another will be presumed to be relationship of influence until the contrary is shown

- Special relationship must be shown in order to support presumption Review of circumstances at time show relationship with deceased and brothers had potential for brothers to exercise persuasive influence over her. Presumption triggered, D’s need to be rebutWhile brothers may have influenced, ultimately continued and made changes on own accord

ROYAL BANK OF SCOTLAND PLC. V. ETRIDGE (NO. 2) [2001] 3 W.L.R. 1021

8 appeals – wife charged interest in home in favour of bank security for husband’s debt Wife asserted signed charge under undue influence of husband Trial judge – no presumed undue influence, COA upheld

Consider difference between duress and undue influence- undue influence = some element of the relationship

Objective of undue influence: ensure influence of one person over another is not abused Burden of proof of undue influence is on person claiming it Banks should be on notice where relationship between surety and debtor non-commercial. Bank must ensure spouse has independent advice and a certification that they have formed a truly independent judgment.

UNCONSCIONABILILTY ASSESS AT THE TIME THE CONTRACT IS MADE

Test to invoke the doctrine (Morrison) 1. Inequality in the position of the parties arising out of ignorance, need or distress of the weaker party,

which left him in the power of the stronger party Walsh; Harry v Kruetziger 2. Substantial unfairness of the bargain obtained by the stronger party

Once presumption established, the presumption of FRAUD is raisedStronger party must REBUT the fraud presumption:

- Demonstrate that transaction as fair, just, and reasonable in the circumstance - No advantage was taken of the weaker party - Weaker party had independent advice

Limitations: 1. The bargain must be oppressive to the complainant [the weaker party] in overall terms2. It may only apply when the complainant was suffering from certain types of bargain weakness3. Third the other party must have acted unconscionably in the sense of having knowingly taken

advantage of the complainant

In British Columbia have statutes for unconscionability: - Business Practices and Consumer Protection Act 2004 s. 7-10- BC Law Institute: proposed Contract Fairness Act 2011

Effect? Renders a contract VOIDABLE – victim can take steps to set aside Remedies? RECISSION; Statutes can afford different remedies

Doctrine of Unconscionability

CasesMORRISON V COAST FINANCE LTD (1965)

Test for Unconscionability: (1) Inequality of bargaining power (i.e. proof of inequality between the parties: gender, age, mental illness, ignorance, illiteracy, poverty, etc.);

AND(2) substantially unfair bargain (i.e. what did the parties end up with/agree to?). These two elements give rise to presumption of fraud, which other side may attempt to rebut by showing opposite.

Morrison 79 yr old widow persuaded by 2 men to borrow money (mortgage) from D so they could pay back their own loans. P was not paid back by men, P was unable to keep up with payments to D. P wants mortgage set aside as being procured by undue influence and as unconscionable bargain

There was unequal bargaining power between the old woman and the two men who took advantage of her D’s could have proven bargain was fair (but didn’t) unable to rebut the presumption of fraud

NOTE: Today we have the consumer protection act, but you still have to demonstrate that your case comes within the scope of the legislation.

MASRHALL V CAN PERMANENT TRUST CO (1968)

The courts may rescind a contract on the basis of unconscionability where it is established that the party seeking rescission was (1) incapable of protecting his interest and the transaction was (2) improvident for him.

P offered to buy land from Walsh, man in rest homeLease prepared and Walsh signed, but D’s took over as committee and sought rescission

Walsh was in a rest home, exhibiting signs of brain damage – took in to account the diminished mental health, prob had difficulty rationalizing Amount of money offered for land was less than what it was worth contract rescinded, unconscionable.

- evidence of weakness/incapacity to look after own affairs, land was undervalued

This case focuses only on the victim, asking if he’s capable of understanding – but still considers same factors as Morrison (But more subjective)

HARRY V KREUTZIGER (1978)

P sold fishing boat to D, asking for rescission of contract P is Indian suffering from congenital earing defect (but not deaf), with grade 5 education, not widely experienced in business mattersBuyer (D) offered to buy boat for $2000. Buyers knowledge – boat was worth $16k

D knew that the boat was worth more and deliberately set out to deceive If claim of unconscionability, must show inequality due to ignorance, need or distress of weaker party, subject to stronger power, with substantial unfairness of bargain Inequality due to ignorance of parties, vendor gave misinformation, and inadequate consideration.

NOTE: You could also consider this case under duress

ILLEGALITY1. Common law principles of illegality – certain transactions that are contrary to public policy, and are

therefore illegal and unenforceable o Certain transactions that common law will refuse to enforce due to public policy (restraint of trade;

commit a crime/legal wrong; prejudicial to good administration of justice/good foreign relations; immorality ) KRG Insurance Brokers

Illegality

2. Statutory illegality – may be specific legislation which says that certain transaction should not be entered in to or are not binding

o Focus on the PURPOSE of the statute – why do we have it, what is it trying to achieve Consider consequences of invalidating + class of ppl who are focus of the statutory

prohibition Still v Minister of National RevenueEffects?

- Statute may spell out clearly the effect of illegality.- In common law, will render the contract unenforceable

o ex turpi causa non oritur actio – no action can be founded on a base cause.o Can seek remedies in other areas of law (ex: restitution)

CasesKRG INSURANCE BROKERS (WESTERN) INC V SHAFRON (2009)

It is reasonable from the perspective of the parties - consider the scope, what does it cover – time, subject matter, etc.

-- AND --Is it reasonable from the public interest??

- consider subject matter (unique talent that should be available to the whole world?), special industry with a monopoly that’s should be opened for competition

Shafron sold shares of insurance agency to KRG, continued to be employed by themEntered non-competition clause contract – restricted against “Metropolitan City of Vancouver”Left company, began working for new company as insurance salesman in Richmond

STILL V MINISTER OF NATIONAL REVENUE

P had application to be permanent resident, began working in MayBecame resident September, laid off in October Applied for EI, was rejected because work contract was illegal Note Immigration Act contains NO punishments and applies ONLY to those who intentionally break it and P acted in good faith.

Focus on the purpose of the statute – what is the objective that is being pursued?- Would recognition of the transaction of being illegal advance or undermine that purpose?

Traditional common law approach has so many exceptions If statue makes a contract illegal, the courts can decide the consequences When contract is expressly or impliedly prohibited by statute, court can refuse to grant relief to party if consideration of all circumstances would be contrary to public policyIn this case, P was acting in good faith – thought she was allowed to work. Benefits should be permitted for those “entitled” to them Unemployment Act aims to provide benefits to the needy, Immigration Act is concerned with not denying jobs to citizens so P should be able to recover.

If the illegality affects contract formation, contract will be VOIDIf you are dealing with illegality affecting performance, you definitely have a contract, it’s just the performance is affected by the illegality

DAMAGESBreach of contract is a legal wrong; damage assed by court = unliquidated damages Common law has liquidated damages (stipulated by parties in contract)

Categorizing Loss/Interest

1. Expectation Interest Deals with the kind of loss, (loss of something), that the P would have received if the contract had not been breached [Ex: profit, enjoyment] Jarvis v Swans Tours

2. Reliance LossLoss suffered by P as a result of reliance on the contract [Enter in contract and in anticipation of performance you incur some expenses] McRea v Commonwealth Disposals; Sunshine Vacation

Victim cannot recover wasted expenditures in order to escape a bad bargain Bowlay Logging

NOTE: it is possible to claim for both but courts will be vigilant to ensure that awarding damages for both will not result in overcompensation Groves v John Wunder Co

3. Restitutionary Interest In some cases, it is possible that a party has been unjustly enriched by the breach Party in breach may have to pay the victim a sum of money in respect to a gain made as a result of the breach Only done in 2 situations:

1. Total failure of consideration – victim has conferred a benefit on the D (the contract breaker), but has received nothing in return

2. Enrichment by wrongdoing – party in breach has in some way profited by the breach (example above) Attorney General v Blake

Remoteness of Damages

Damages must be PROVEN: Whatever loss is being complained of must be proven in contract law

Damages may be pecuniary or non-pecuniary - Pecuniary damages = monetary - Non-pecuniary damages = take form of emotional distress, loss of enjoyment, embarrassment, etc.

McRae v Commonwealth Disposals

Rule which governs remoteness Hadley v BaxendaleHave to determine from the list of losses which:

1. Arise naturally from the breach (the objective leg), and 2. Those which would need reasonable contemplation of both parties at the time the contract was made

(the subjective leg)If any loss does NOT fall under one of these two, you CANNOT recover compensation for it in contract law

See: Victoria Laundry v Newman (reasonable foreseeability) but Heron II (reasonable contemplation) – decides that it’s not enough that the P’s loss was directly caused by the D’s breach; crucial q is whether the information available to the D when the contract was made he should (or reasonable person would) have realized that such loss was likely or should be contemplated

Remedies for Breach of Contract

Damages

Measure (assessment) of Damages

Basic rule: try to put the P in the position they would have been in had the contract been performed, without over compensation Groves v John Wunder

Time is an important factor in assessing damages- Starting point: Amount that is due to the P will be assessed at the time that the contract is breached

o If P is claiming damages in lieu of specific performance, then damages will be assessed at the date of trial Semelhago v Paramadevan

Assessment in other currencies: - s. 12 of Currency Act 1985 (federal legislation): Any reference to monetary value in legal proceeding

shall be stated in the currency of Canada - Provision in section 1 of Foreign Money Claims Act 1996 (BC legislation)

o If court concludes that damages should be awarded in other currency, because of provision in Currency Act, cannot do that. BUT you can pay the equivalent amount in Canadian currency

Non-pecuniary losses and assessment of damages – difficult area for the assessment of damages (loss of enjoyment; mental distress), but damages can be recovered. Jarvis v Swan Tours

Some cases when it is difficult to put monetary value on what the P has lost Chaplin v Hinks;

Mitigation of Damages

Law imposes duty on victim to mitigate their losses – 2 aspects of duty 1. You must take all reasonable steps to reduce or contain your loss 2. You must not act unreasonably to increase your losses

Nu West Homes Ltd v Thunderbird Petroleums Ltd

Mitigation in cases of anticipatory breach? If anticipatory breach is not accepted, then there is no breach (law does not compel you to accept an anticipatory breach)

Recovering expenses = Have to demonstrate that the expense was reasonable Cases

MCREA V COMMONWEALTH DISPOSALS COMMISSION [1951]

Difficulty in determining/assessing damages does not mean that you are not entitled to damages.

Commonwealth Disposals Commission advertised for sale of a ship stranded in a reef. McRae bought ship but was unable to locate it. D attempts to void the contract for common mistake – both parties were mistaken as to existence of the ship. P sought damages.

Unable to say that there was assessable loss resulting from non-delivery, more than just breach of contract by non-delivery of goods

Important facts:- Commission promised there was a tanker - Reliance on that promise caused P to spend money- There was no tanker

P’s conduct was not unreasonable

Ds saying that there was possibility of not finding profit at all even if ship was found – this argument fails. - expense was wasted on fact that there was no tanker - burden on D’s to say that if there had been a tanker the expense would have been equally wasted and CANNOT prove

Impossibility of assessing damages on basis of comparison between what was promised and what was delivered arises because it is IMPOSSIBLE to value a non-existent thing. P’s are entitled to recover damages in case of breach of contract, damages measured by expenditures incurred (equipment, work done on ship, travel expenses, etc). Not EVERY expense will be covered, the expenditure must be reasonable.

BOWLAY LOGGING LTD V DOMTAR LTD

Reliance as measure of damages

Damages are awarded ONLY for losses incurred as a consequence of D’s breach of contract. P is NOT allowed to recover as damages losses it has incurred as a result of being a party to a bad bargain.Onus is on P to demonstrate that he has incurred a loss. Onus is on D to demonstrate that losses admittedly incurred did NOT result from the breach (i.e. of initial contract).

Bowlay contracted with D to log timber. The D was to haul the logs, but in breach of its contract failed to provide sufficient trucks. Prior to the breach Bowlay was losing money as a result of the contract. Bowlay did not ask to be put in the same position as if there had been no breach, but instead asked to be put in the position it would have been had it never entered into the contract.Domtar said loss was not due to a breach of contract.

In this case B offered no evidence of a loss that could be attributed to the breach. Instead the loss came from the K itself. Based on this the judge concluded:

- Plaintiff’s should not be compensated for bad business deals, but only for losses incurred by a breach

The facts showed that if the contract was to be fully performed B would have lost more money than if they would have repudiated the contract after the D’s breach

If the amount of his expenditure at the date of breach is less than the expected net loss, he should be given judgement for nominal damages only. If the expenditures exceed this loss, he should be given judgement for the excessThe evidence shows that the excessive costs of the business deal were not brought on by the breach. Therefore the breach did not cause the loss. The deal was abandoned because of the losses B had incurred – losses that would have been greater had there not been a breach that permitted it to close down the projectIn short, no damage was sustained by B as a consequence of D’s breach

SUNSHINE VACATION VILLAS LTD V HUDSON BAY

Reliance – Measure of Damages

Reliance loss, such as loss of capital, is ONLY available as an alternative to loss of profit and that it is wrong in principle to make an award based upon a mixture of reliance loss and loss of profit. Is very rare to claim both. Be aware of overcompensation.

P has contract to operate in 6 stores owned by D, contracts for 4 more. D breaks expansion contract. P had spent a lot of money preparing the stores, were awarded loss of profits and expenses. D now appealing.

Can’t get both loss of profits and expenses. P generally gets to choose, but here profits are too difficult to quantify so must take expenses. If P would’ve made a loss he only gets nominal damages.

- Court cited principle in Bowley v Domtar – that if losses from breach are less than they would have been had breach NOT occurred than there should be NO damages awarded. Court accepted Sunshine’s calculations of projected losses of $348k and rejected Bay’s claim that Appellant would have actually lost over period of lease. Burden was on Bay to prove that Appellants would have lost and they did NOT satisfy this burden.

ATTORNEY GENERAL V BLAKE [2001]

Restitution: Measure of Damages

In appropriate but exceptional cases account of profits may be an appropriate remedy for breach of contract.

Blake was security and intelligence officer for 17 years, because agent for Soviets. Disclosed info. Pled guilty to charges of doing so. Escaped from Prison and fled to Moscow. Wrote autobiography with info on activities as secret intelligence officer. AG commenced action: should not enjoy further financial benefit from treachery.

Blake had signed undertaking not to divulge information gained as result of employment. Crown has restitutionary damages as per breach of undertaking, claim for profits made for breach of contract – note that no profits have actually been made yet can the Crown claim this?? Yes.

2 situations for restitutionary damages where compensatory damages inadequate:1. Cases of “skimped” performance – D fails to provide the full extent of services contracted to provide – should be

liable to pay back amount of expenditure saved b breach 2. D has obtained profit by doing the very thing he contracted NOT to do – BUT something more than mere breach

required before profits will be appropriate remedy When NOT available to order profits?

- Fact that breach was cynical and deliberate- Breach enabled D to enter into a more profitable contract elsewhere- By entering into a new and more profitable contact the D put it out of his power to perform his contract with the

P

Factors to consider in deciding if account of profits appropriate remedy for breach: subject matter of contract, purpose of contractual provision breached, circumstances which breach occurred, consequences of breach, circumstances which relief sought, if P has a legitimate interest in preventing D from profiting from activity.

CHAPLIN V HICKS (1911)

Quantification: Loss of a chance as damages

“The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages for the breach of contract”

P was beauty contestant. D sent out invites but P missed appointment. D then selected 12 others. P sued for loss of chance.

If contract had been performed, P would have had real chance of winning prize, and chance was worth something. - Lost chance of winning was a calculable loss that had value, which equalled 1 in 4. No defence to say that her

losses could NOT be assessed with any certainty. While true there was no market for P’s lost opportunity a price could have been obtained for it, which showed monetary value and that monetary value could be assessed.

NU-WEST HOMES LTD V THUNDERBIRD PETROLEUMS LTD

Duty to Mitigate

Where the cost of rectification is great in comparison to the nature of the defect, the court will not force a slavish following of the precise specifications of a contract. Wrongdoer is entitled to expect victim to act reasonably.

Nu-west contracted to build a house for Thunderbird in accordance with certain plans. Nu-west deviates considerably from the plans, and in the middle of the building process, Nu-west decides there are too many problems to be settled before work can continue. Disputed never resolved, Thunderbird pays a third party to fix the work done by Nu-west.

NOTE: Duty to mitigate is imposed by law, but can be dealt with in the contract. - law expects that you act reasonably after a breach. - Duty to Mitigate: NOT a legal duty for which you will incur any liability if you do NOT discharge it (i.e. D cannot

sue P for failing to mitigate). But duty to mitigate is factor courts take into account for assessing how much in damages should be awarded. If you can demonstrate you acted reasonably you may be compensated for cost you incurred by mitigating your losses.

Nu-west is liable for all damages suffered by Thunderbird, including the cost of repairing their mistake only if Thunderbird acts reasonably. Thunderbirds conduct was reasonable; therefore the D is liable for all damages suffered by P.

- Thunderbird hires other consultants and contractors who review the work, fix the defects that must be fixed and complete the contract.  Basement was not constructed to specification, and needed to be replaced after an examination by an independent contractor. This was deemed to be appropriate. (Acted reasonably in respect to defects/deficiencies which were not trivial)

GROVES V JOHN WUNDER CO

Cost of completion vs. Difference in Value

Use circumstances of case to determine which measure of damage is most appropriate Should put the P in the same position prior to the contract.

Groves (P) owned 24 acres suburban real estate; had plant for excavating and screen gravel, D had similar plant nearby. D entered lease with P and agreed to return leased land at an even grade, but when they returned it at the expiration of the lease it the ground was “broken, rugged, and uneven.” The cost of grading the property to the level demanded by the contract was estimated at $60k, but the land, if graded, would only be worth (marketable) $12k. P brought action for breach, at trial received only $15k, appealed to CA.

In cases where breach takes form of a failure to construct what should be appropriate measure of damages? IN THIS CASE Cost of remedying the defect was most appropriate.

- Could use: value replacement, loss of enjoyment, cost that D saved- Cost to remedy may be outrageous, so may not be appropriate. - Have to make sure you are not overcompensating

JARVIS V SWANS TOURS [1972]

Damages can be given for mental distress, disappointment, upset, and frustration caused by breach

Jarvis, a solicitor, bought two-week holiday in Swiss Alps. Holiday did NOT live up to the brochure and Jarvis sued tour company for damages including failure of holiday to meet expectations generated by brochure and mental distress and aggravation experienced. Won at trial, but only half cost of trip, appealed to CA. Awarded full amount.

HADLEY V BAXENDALE (1854)

TEST for Damages for Breach of Contract

Damages for breach of contract are limited to :(a) those that stem naturally from the breach (reasonably foreseeable) or (b) those that may have been in reasonable contemplation of both parties stemming from special circumstances conveyed at the time of creation.

The P’s were millers. Part of mill broke, mill shut down, needed to send part outside of town. Hired D to bring the broken piece to the engineers. Explained situation and said must be sent immediately. Through the negligence of the D, broken part was not delivered for a few days; mill was shut down for additional days. P sued for breach of K resulting in lost profits. The D objected that theses damages were remote and that they were not liable to the P.

If contract broken, damages party can claim should be fairly and reasonable be considered either: - arising naturally (according to the usual course of things) from such breach of contract itself, or - such as may be reasonably be supposed to have been in the contemplating of both parties, at the time they made

the contract, as the probable result of the breach of it.If special circumstances communicated, damages assessed as knowledge of this. If special circumstances were unknown, damages assessed that would arise generally (bc if had known of circumstances, may have provided for in the K).

In this case, knowledge of mill being closed depending on fixing part was NOT communicated.

VICTORIA LAUNDRY V NEWMAN [1949]

Damages: remoteness

A plaintiff is entitled to recover the loss such that it is reasonably foreseeable at the time of the formation of the contract. Foreseeability goes to what knowledge the defendant has. There is two kind of knowledge: (1) imputed knowledge – knowledge that as a reasonable person should know in usual circumstances, and (2) the special knowledge that this defendant has.

P wanted to expand laundry business, agreed to buy boiler from D. D kenw they were launders and dyers, and boiler was required for use. Boiler was damaged, delivery delayed for 5 months. P claimed losses from a breach of K based on (a) the additional customer they could have taken on, but lost because they did not have the boiler and (b) because of the delay of the boiler they lost (couldn’t accept) lucrative laundry contracts. At the time the K was made the D knew expanding business, but not about the lucrative laundry contracts. P is claiming for the losses of profits. D is claiming losses are too remote.

The P could recover only for general loss of profits (as they are directly connected to the D’s knowledge of ‘expanding the business), but not for the losses from loss of the particular lucrative dying contracts because this was a special circumstance that was not known/communicated to the D, but it could be foreseen of ‘some general’ dying contracts

Time is significant in determining remoteness. Apply test of reasonably contemplation and make assessment at time contract made). Damages: assessment is done at time of breach.

KOUFOS V CZARNIKOW (THE HERON II) [1969]

Damages: Remoteness; Re-affirmation of Hadley

Damages recoverable in contract are what a reasonable person at time they signed contract would have understood to flow naturally from a breach: Inherent things that could arise, or specifically contemplated.

Sugar exporter charted vessel (Heron) to deliver sugar to Basrah; voyage to take 20 days. Vessel had in breach of contract made deviations causing it to arrive 9 days late. Exporter intended to sell sugar on arrival; ship owners did NOT know this but knew there was good market for sugar. In the delay, price of sugar dropped and exporter lost money. Exporter claimed the difference between price received and price they could have got without delay as damages. Trial held for ship owner, COA reversed, owner now appealing.

“I am satisfied that the Court did not intend that every type of damages which was reasonably foreseeable by the parties when the contract was made should either be considered as arising naturally … or supposed to have been in the contemplation for the parties. Indeed the decision makes it clear that a type of damage which was plainly foreseeable as a real possibility but which would only occur in a small minority of cases cannot be regarded as arising in the usual course of tings or be supposed to have been in the contemplation of the parties: the parties are not supposed to contemplate as grounds for the recovery of damage any type of loss or damage which on the knowledge available to the D would appear to him as only likely to occur in a small minority of cases.”

With information available when contract was made, should a reasonable person have realized that losses were likely to result from a breach of contract and therefore make these losses flowing naturally from the breach that should have been within contemplated?? NO.

- not enough for P’s loss to be directly caused by D’s breach - Crucial question is whether information available when contract was made would have led reasonable person to

realize loss sufficiently likely or should be held within contemplation

Does NOT have to be more likely but only real chance – held to be higher than tort. Serious contemplation of event. This clarifies Hadley v Baxendale. If one party wants to protect themselves from unusual risk they can discuss and protect risk with other party before contract made (there is an opportunity in contracts, not torts).

WHITEN V PILOT INSURANCE CO

Whiten’s house burned down, insurance company put them in temporary rental cottage. Cut off and said they arsoned their own house, despite evidence contrary.

This case decides that in an action for damages for breach of contract, punitive damages are recoverable provided the D’s conduct said to give rise to the claim itself is an actionable wrong. The actionable wrong need not be a tort, it can be a breach of a contractual or fiduciary obligation.

HONDA CANADA INC V KEAYS

“Where the court explains aspects of the Fidler decision, including the fact that Hadley v Baxendale represents the sole test for determining whether a loss may be compensated for in damages when there is a breach of contract”

FIDLER V SUN LIFE ASSURANCE

This case decides a number of important things:- Damages for mental distress for breach of contract may, in appropriate cases, be awarded as an application of the

principle in Hadley v. Baxendale. Damages for mental distress may be awarded where such damages were in the reasonable contemplation of the parties at the time the contract was made.

- Not all mental distress associated with a breach of contract is compensable. 

- The plaintiff has to prove his or her loss.  The court must be satisfied: o (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon

breach within the reasonable contemplation of the parties; ando (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant

compensation.  These questions require sensitivity to the particular facts of each case.

- There is only one rule by which compensatory damages for breach of contract should be assessed:   the rule in Hadley v. Baxendale .  The Hadley test unites all forms of contractual damages under a single principle. ...  In all cases, these results are based on what was in the reasonable contemplation of the parties at the time of contract formation.

- A breach of contract will sometimes give rise to censure.  But to attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency — the exceptional case that can be described as malicious, oppressive or high-handed and that offends the court’s sense of decency. The misconduct must be of a nature as to take it beyond the usual opprobrium that surrounds breaking a contract. Punitive damages must be resorted to only in exceptional cases, and with restraint. In addition to the requirement that the conduct constitute a marked departure from ordinary standards of decency, it must be independently actionable. 

ASAMARA OIL CORP V SEA OIL [1979]

Duty to mitigate; Time and measurement of damages

Duty imposed on a party who has suffered from a breach to take all reasonable steps to avoid losses flowing from breach.

P has right to shares from D, D breaks K, P gets value – at date of breach share price was $0.29, rose to $46.50 then fell to $22 over the course of the trial (took a decade) – when should the shares be priced?

Duty is imposed on a party who has suffered from a breach to take all reasonable steps to avoid losses flowing from the breach. A P need not take all possible steps to reduce his posses, nor push money to an unreasonable risk including a risk not present in the initial transaction in endeavouring to mitigate his losses. In contract a P is required to mitigate their damages, by acting reasonably to minimize their losses or but not act unreasonably so as to increase their losses

P is generally responsible for taking all reasonable steps to mitigate his loss. P must either buy replacement goods or commence legislation as fast as possible. For shares, P should buy them in the market as soon as the breach occurs or within a reasonable period of time after. P didn’t move quickly here, could’ve had a trial in 1967 (after all attempts to preserve the K, including equitable remedies) failed. Should use the price then. P also gets brokerage fees, commissions, allowance for buying pressure, etc.

Plaintiff argued there should be something in your hands before you have a duty to mitigateDo what is reasonable, everything depends on the circumstances of the case

- There is no blanket rule that if you don’t have an asset you don’t have a duty to mitigate- In this case they said we don’t have anything when we expected to have something- Court says no, you have to look at the circumstances, there is not blanket rule- But if you have something in hand, it may suggest that you should mitigate- It’s more difficult to mitigate when you don’t have anything

But court says even in those cases you may still have a duty to mitigate depending on the facts

This case decides that the duty to mitigate prevails over a plea for specific performance unless there is a substantial and legitimate interest represented by specific performance.

SEMELHAGO V PARAMADEVAN

Land contracts: Specific performance vs. damages; Time measurement of damages

Loss will be assessed at earliest date P can be expected to mitigate (damages assessed at date of the breach).Party who is entitled to specific performance can elect damages in lieu and courts have jurisdiction to award damages in lieu of specific performance.

P agreed to buy house under construction from D.

Date of trial appropriate date for damages, as damages are being given in lieu of specific performance (as this is day that SP would be ordered).

LIQUIDATED DAMAGESParties can include in their contract a specific provision that in the event of breach, there is an amount you are entitled to (Rather than leaving it for the courts).

Provision can fall in to 2 categories:- Liquidated damages: Genuine pre-estimate of loss – courts will give effect to this - Penalties: Can take the nature of a threat that is held over another party as a means of insuring that

the contract is performed – treated as penalties, court will NOT enforce o Will then assess damages in the normal way

How does the court distinguish between liquidated damages and penalties??

Dunlop Newmatic Tires - will be cited in judgments 1. Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie

be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.

o what the parties say is important, but may not be enough o is a question of interpretation

2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party (used as a threat of performance); the essence of liquidated damages is a genuine covenanted pre-estimate of damage.

3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach.

4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are

a. It will be held to be penalty if, the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

b. It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid.

c. There is a presumption (but no more) that it is penalty when " a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage " On the other hand,

d. It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.

SPECIFIC PERFORMANCEDecree from the court which compels the D to do what he promised to do in the contract

- Normal remedy is damages, but in some cases the courts may order specific performance o Especially in unique circumstances where damages may not be adequate compensation (ex:

contract for a unique painting, buy land in a very specific/special location)

NOTE: is discretionary – you are not entitled to it!- If a decree of specific performance would inflict a hardship on the defendant the court may leave the

plaintiff to his remedy at law (damages)- The plaintiff cannot obtain specific performance if he is in breach of his own obligations or fails to

show that he is willing to perform his outstanding obligations in the future- Mutuality: courts may deny the remedy to the plaintiff if it would not be available to the defendant

o Courts will award specific performance if the courts could have been able to order it against you

Liquidated Damages and Penalties

Specific Performance (Equitable Remedy)

Damages in lieu of specific performance – a party entitled to specific performance may elect to get damages (court must approve); referred to as equitable damages.