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Obligations Contractuelles (Jutras) i

OUTLINEObligation Contractuelles

Prof. Daniel JutrasWinter 2006

Law of Contracts..........................................................................................................................................1Recurrent Horizontal Themes....................................................................................................................3V. Reasons for setting aside agreements (cont.).......................................................................................5

Role of the State in Contractual Activity..............................................................................................5A.T. Kronman, ”Contract Law and Distributive Justice,” 1980.........................................................5W.A. Wiegers, “Economic Analysis of Law and ‘Private Ordering’: a Feminist Critique,” 1992... .5

Overview: Reasons for Setting Aside Agreements...............................................................................6C1. Fraud and Misrepresentation : misapprehensions induced by the other party.........................6

ELEMENTS of induced misapprehensions........................................................................................6Distinctions: Spontaneous and Induced Misapprehensions................................................................6

Policy & Conduct Considerations.........................................................................................................6Policy Considerations: sanctioning fault, K-ual stability obligation of GF, protecting assent...........7Actors : Def’s conduct, Plf’s conduct, gravity of mistake, sanction...................................................7

FRAUD (cvl)........................................................................................................................................8ELEMENTS of cvl fraud (1401)........................................................................................................8Remedy: based on Kual (vitiated consent) + Extra-Kual (negligence) elements...............................8Historic Distinction : Dol Principal/Incident......................................................................................8Relative Nullity : only the victim may bring the action......................................................................9

Tremblay v. Les Pétroles Inc. [cvl] [exaggerated profits; fraud requires bad faith]..................9Silence and the Duty to Inform.........................................................................................................10

Creighton v. Grynspan [cvl] [failure to draw att’n may constitute fraud]................................10MISREPRESENTATION (cml)......................................................................................................12

ELEMENTS of cml misrepresentation (Restmt 2d §159-164).........................................................12Remedies : extra-Kual (place in original position); Kual (place if promise executed)....................13cml Tension : Imply Collateral Warranty (K) or Negligent Misrepresentation (Extra-Kual)..........13

Esso Petroleum Co. Ltd. v. Mardon [cml] [negligent misrep: special relationship so duty]. . .14V.K. Mason v. Bank of Nova Scotia [cml] [no K so no warranty; negligent misrep.]...........15

C2. Error and Mistake: innocent misapprehensions........................................................................17ELEMENTS of innocent misapprehensions.....................................................................................17Types.................................................................................................................................................17

ERROR (cvl)......................................................................................................................................18ELEMENTS cvl error (1400)...........................................................................................................18Unilateral Error.................................................................................................................................19

W.T. Rawleigh Co. v. Dumoulin [cvl] [unilateral error re: nature of K]................................19Huot v. Ouellette [cvl] [unilateral, subjective error re: essential element].............................19

Economic Error.................................................................................................................................21Yoskovitch v. Tabor [cvl] [economic error as to value of baking business]............................21

MISTAKE (cml)................................................................................................................................24ELEMENTS cml mutual mistake: shared factual assumption by both parties (Restmt 2d § 152)...24ELEMENTS cml unilateral mistake: only known by, or only affect 1 party (Restmt 2d § 153).....24A.T. Kronman, “Mistake, Disclosure, Information and the Law of Contracts”...............................25Mutual Mistake.................................................................................................................................26

Sherwood v. Walker [cml] [mutual mistake re: substance of agreement – barren cow]........26

Obligations Contractuelles (Jutras) ii

Bell v. Lever Brothers Ltd. [cml] [NO mutual mistake, no change in identity of K’s subject]....................................................................................................................................................27Solle v. Butcher [cml] [mutual mistake re: material fact of rent controls]..............................28Alcoa v Essex [cml] [mutual mistake of fact re WPI Index]....................................................30

D. Public Order.....................................................................................................................................31Public Policies : protecting autonomy and reliance..........................................................................31Absolute Nullity (directive public order)..........................................................................................31Relative Nullity (protective public order).........................................................................................32Fundamental Values..........................................................................................................................32Cvl Examples....................................................................................................................................32

Cameron v. Cand’n Factors Corp. [cvl] [restr. covenant’s unreasonable duration/territ ambit]....................................................................................................................................................32Brasserie Labatt v. Villa [cvl] [fundamental rights: discrimination re: civil status].................34

VI. Changed Circumstances : Unforeseen events and Frustration.................................................36Ks & Risk Allocation: Disruption of K-ual equilibrium.....................................................................36Types of Changed (Unforeseen) Circumstances.................................................................................36Mechanisms for Allocating Risk, Anticipating Problems...................................................................36Factors favoring renegotiation............................................................................................................37Judicial Remedies................................................................................................................................37“Hardship” Unidroit Principles of International Commercial Contracts (1994)................................37cml Frustrated Contracts Act, R.S.O. 1990, c. F.34............................................................................38cvl Impossibility to Perform (1693-94)...............................................................................................38

Otis Elevator Co. Ltd. c. A. Viglione & Bros. Inc. [cvl] [clause expressly limited liability for strike]................................................................................................................................................38Alcoa v. Essex Group [cml] [long-term K foresaw risk by escalator clauses]................................39Amalgamated Investment v. J. Walker [cml] [inherent risks of property listed as historical]........39H.R. Sainsbury Ltd. v. Street [cml] [imply presumed intention of reasonable men]......................40

VII. Remedies for Breach of Contract................................................................................................42Anticipatory Repudiation..................................................................................................................42cml Conditions & Warranties...........................................................................................................42cvl Material Stipulations (1604).......................................................................................................43Cehave NV v. Bremer [cml] [test of seriousness of breach]...........................................................43Hong Kong Fir v. Kawasaki Kisen Kaisha [cml] [wrongful repudiation may claim damages]......44

Remedies for Breach of Contract........................................................................................................46DISCHARGE OF CONTRACTS....................................................................................................47SPECIFIC PERFORMANCE..........................................................................................................48

Warner Bros. Pictures v. Nelson [cml] [not enforce specific performance of personal svc]...........48Cité Concordia v. Banque Royale [cvl] [interlocutory injunction where damages inadequate]......49Ruxley Electronics v Forsyth [cml] [no specific perf where great hardship on debtor]..................50

DAMAGES: Expectation Damages ($)...........................................................................................51Scope of Expectation Damages: depends on Risk Allocation & Foreseeability..............................51Hadley v. Baxendale [cml] [only foreseeable expectation damages of type contemplated]...........53Victoria Laundry v. Newman Industries Ltd. [cml] [“serious possibility” of dmgs]......................54Koufos v. C. Czarnikow (The Heron II) [cml] [ordinary risks incl probability].............................55

DAMAGES: Limits of Compensatory Damages............................................................................57Ruxley Electronics v Forsyth [cml] [dmgs limited to diminution in value from breach]................57Peevyhouse v Garland Coal & Mining Co [cml] [dmgs limited to diminution in value from breach]...............................................................................................................................................58

DAMAGES : Moral (Non-Pecuniary) Damages............................................................................60Jarvis v. Swan Tours [cml] [damages for mental distress due to breach holiday K]......................61

Obligations Contractuelles (Jutras) iii

DAMAGES: Punitive Damages......................................................................................................62Vorvis v. Insurance Corp of British Columbia [cml] [independent actionable wrong]..................62Whiten v Pilot Insurance [cml] [$1 mill. punitive damages for BF]..............................................64

DAMAGES: Liquidation Damages and Penalty Clauses..............................................................66DAMAGES: Liquidation Damages and Penalty Clauses..............................................................66

H.F. Clarke Ltd v Thermidaire Corporation Ltd [cml] [excessive liquidation damages = penalty clause]...............................................................................................................................................68

VIII. Privity of Contract and Third Parties...........................................................................................70Beswick v Beswick [C.A.] [cml] [joint claim as K-ual party and 3d party]....................................72Beswick v Beswick [A.C.] [cml] [may ONLY claim as K-ual party, orders specific perf.]..........73New Zealand Shipping Co. Ltd. v A.M. Satterthewaite & Co Ltd [cml] [agency ]........................73London Drugs Inc v Kuehne & Nagel Int’l Ltd [cml] [non-party employees receive K-ual benefit]..............................................................................................................................................74

Legal Warranties: Direct Action regarding Transfer of Goods.......................................................76G.M. v. Kravitz [cvl] [legal warranty against latent defects applies to all consumers]..................76

Contractual and Extra-Contractual Responsibility...........................................................................78Direct Contractual Relationship (A – B).............................................................................................78Legal warranty of products (strict liability) (b/t A & B, K-ual liability)............................................78Transmission of Ks (A – B – C)..........................................................................................................78Houle v. CNB [cvl] [abuse of K-ual rights, extra-Kual remedy]......................................................80Bail c Banque de Montreal [cvl] [3d party may sue extra-Kually]....................................................81

Obligations Contractuelles (Jutras) 1

REVIEW OF THEMES : Le droit des contrats

Law of Contracts

i. FORMATION (CRITERIA accepted by the State)Conditions de reconnaissance du contrat par l’État (le critère du contrat)les modèles:

accord des volontés : look at all the permutations. offer & acceptance. K as manifestation of will. looking at the quality of the manifestation.

confiance légitime : Central London v High Trees, does reliance justify creation of an obligation?

formalité et considération : Thornton v Shoe Lane – clause in the K

ii. CONTENT (judicial determination)la détermination du contenu du contrathow the judge determines the content, and his power to change (ie, fill in the gaps)

explicit oral K, and incorporate written terms (McCutcheon, British Crane) explicit written K, and incorporate oral terms (Dick Bentley) implied obligation GF (Soucisse, Houle, McKinlay, Martel)

o pre-Kual negotiations : obligation of GFo Martel: SCC restricted interpretation of duty to inform (but here also equal

bargaining power?)o post-execution of K: obligation of GFo McKinlay: o restrictive interpretation of GF from formation to execution of K

cvl: restrictive interpretation of GF (?) cml: hesitate to apply grand principle of GF

iii. SOCIAL CONTROLle contrôle social exercé sur le contrat

iv. VALIDITY/NULLITY (FORMATION & OBJECT)Rappel des causes de nullité

Nullité (dite relative, en droit civil) et/ou dommages-intérêts- Crainte (physique, économique)- Influence indue (place en droit civil?)- Contrat inique (unconscionable) – lésion- Fraude

Nullité (dite relative, en droit civil) seulement- Erreur (spontanée)

Dommages-intérêts seulement- Représentations négligentes et confiance légitime (Hedley Byrne)

Nullité (dite absolue, en droit civil)- Le contrat illégal ou contraire aux valeurs fondamentales (Labatt)

state control over the K consumer laws require certain clauses & content judicial intervention: see whether K null or not

le contrôle sur la formation et l’objet du contrat contrat injuste

impaired consento undue influence (Bundy, Barclay’s)o incapacity (Thibodeau)o econ duress (Atlas)


o fear (JJ Joubert) exploitation/unconscionability

o interpretation (Mitchell, Scott v Wawanesa, Tilden)o unconscionability (Toker, Hunter v Syncrude)o lesion (Roynat, Gareau Auto)o abusive clauses (Slush Puppie, Yoskovitch)

erreur et fraude (false premises upon which K-ed)o cvl error (Rawleigh, Huot, Yoskovitch)o cvl fraud (Tremblay, Creighton)o cml misrepresentation (Esso, VK Mason)o cml mistake (Sherwood, Bell v Lever, Solle v Butcher)

ordre publico cause or object contrary to public ordero restrictive covenants (Canadian factors)o fundamental right (ie, not move to Mtl) (Brasserie Labatt)

v. CHANGING CIRCUMSTANCESles conséquences du changement de circonstances

risk allocation clauses (Otis, Alcoa, Amalgamated Investments)o compare cvl & cml responses to changes in the economy

imply presumed intention reasonable men (Sainsbury) cml frustration of Ks int’l conventions

vi. BREACH OF Kla sanction de l’inexécution du contrat

vii. REMEDY FOR BREACHles recours en cas d’inexécution

discharge of contracts o (La résolution du contrat)

specific performance o (L’exécution en nature du contrat)

damageso expectation damageso moral (non-pecuniary) damageso punitive damageso liquidation damages & penalty clauses

viii. PRIVITY OF K & THIRD PARTIESla portée des recours en cas d’inexécution (les parties et l’effet relatif du contrat)

Recurrent Horizontal Themes

find examples of these themes in each of the above categories State Intervention & the liberty of the parties

o Intervention de l’état et liberté des parties: o Quelles valeurs pour le contrat? (autonomie, justice, coopération, protection du faible,

etc) Judicial Intervention & the liberty of the parties

o moyens d’intervention, finalités d’intervention, discrétion, etco efficacy of the mechanism

Institutional Considerationso public policy


o distinctions b/t cml & cvl Effect of the Law & the liberty of the parties

o Le contrat saisi par le droit et le contrat en marge du droit o l’effet du droit sur le contractant

La représentation juridique du contrat et la réalité sociologique du contrat Les obligations contractuelles et les obligations non-contractuelles Bargaining power b/t the parties GF & liberty of the parties

o look at Kennedy w/ fraternal conception put into question, now more liberal protecting the weaker parties Implicit/Explicit

o how parties react to the norms

Exercice formatifNous avons discuté à quelques reprises du lien entre la règle de droit applicable à défaut de stipulation contractuelle et la rédaction du contrat par les parties (les règles sur l’erreur, sur l’effet du changement de circonstances, sur les recours disponibles, etc). Choisissez un exemple de cette interaction et expliquez-le.

- ex : CBC anchorwoman switched to another time slot b/c of age- mutual mistake- changing circumstances- force majeure

Analyse économique de la règle par défautQuelle est la meilleure règle, envisagée quant à son impact sur les partiesAu moment de l’inexécution?Au moment de négocier le contrat?

L’article 1401 CCQ prévoit que l’erreur inexcusable n’est pas un vice du consentement. Est-ce vrai même s’il y a eu fraude de la part de l’autre partie?

L’analyse de Kronman a-t-elle la même portée à l’égard du défaut d’information et à l’égard des représentations fausses et négligentes (negligent misrepresentation)?

Quizz Sommatif : Vrai ou Faux? L’erreur comme cause de nullité est entendue plus largement en droit civil qu’en common law La lésion comme cause de nullité est entendue plus largement en common law qu’en droit civil La fraude commise par un tiers au contrat n’est jamais une cause de nullité Au Québec, lorsque l’erreur est cause de nullité, celui qui commet l’erreur peut devoir des

dommages intérêts à la partie de bonne foi Les dommages-intérêts dans VK Mason sont appréciés sur une base contractuelle, parce qu’ils

incluent la perte de profit Les représentations inexactes sont sanctionnées de la même manière qu’elles soient négligentes ou

innocentes Certains contrats nuls ne peuvent pas être confirmés

Réponses: Quiz Sommatif (26 jan 2006)1. vrai (Huot – surtout re: erreur commune et erreur unilatérale)2. Xfaux (lesion n’est que pour les mineurs, unconscionability plus large en cml) vrai, lésion =

unconscionability3. Xvrai en cvl 1401 connaissance suffit (cml aussi)4. Xvrai erreur n’est pas une faute en soi (erreur inexcusable ne dirige pas à la nullité)5. Xvrai pas de K dans VK Mason, donc recours extra-K6. faux


7. vrai nullité relative; 1421: confirmation re: nullité relative (nullité absolue ne peut pas être confirmé)


V. Reasons for setting aside agreements (cont.)

Role of the State in Contractual Activity

A.T. Kronman, ”Contract Law and Distributive Justice,” 1980. law of contracts serves three legitimate functions:

o specify which agreements are legally binding and which are noto define the rights and duties created by enforceable but otherwise ambiguous agreementso indicate the consequences of an unexcused breach

instrument of distributive justice ? achieve fair division of wealth?o many rules shift wealth from one group to anothero libertarians: deny state ever justified in forcibly redistributing wealth

compulsory transfer of wealth = theft Kronman: considerations of distributive justice must be taken into account if

law of Ks to have even minimum moral acceptability (voluntary agreement cannot be understood except as a distributional concept)

o liberals: at least some compulsory redistribution of wealth morally acceptable oppose contract law as mechanism, prefer tax system for redistribution Kronman: no reason to think that taxation always most neutral and least

intrusive way of redistributing wealth, nor most efficiento both sides: legal rules regulating voluntary exchanges should not be designed w/ an eye

to their distributional consequences Kronman: neither view justifies claim that there is something morally wrong

with using K law for distributing wealth

W.A. Wiegers, “Economic Analysis of Law and ‘Private Ordering’: a Feminist Critique,” 1992. primary goal welfare economics: allocative efficiency (distribution of resources to their most

highly “valued” uses) Pareto efficiency: policy, decision, or transaction Pareto optimal if no one can be made any better

off without making another worse off assumptions of neoclassical economics: individuals have autonomous and stable prefs, motivated

to maximize their self-interest or satisfaction, act rationally in doing so legal economist’s exclusive focus on efficiency and reliance on mkt exchange as indicator of social welfare obscures and validates conditions & effects social inequality Trebilcock: predilection for private ordering based on premise that parties who voluntarily trade

do so b/c perceive themselves as being better off White: economic approach to social welfare destroys possibility of making meaningful ethical

distinctions (ie, no basis upon which to exclude or discounty any prefs, even those parasitic on past/present structures of domination)

seeing marriage as “bargain” falsely implies women got what they bargained for, and that women were free and equal parties

consent to male dominance through physical force, socialization, lack of education and econ. alternatives, stigma and physical danger facing non-conforming women

market methodology obscures choice Anderson & West: perspectives of agents making the choice, and the complex psychological

motivations/desires women’s consent influenced by morality of self-sacrifice on account of their gender,

disadvantaged b/c power imbalances and binding impact of separation agreements (agmts reflect failure to take women’s own need sseriously as predictable outcome of entrenched patterns of socialization & pervasive ideology of male supremacy)

context of inequality


Overview: Reasons for Setting Aside Agreements

3 types of problems & their Remedies Exploitation : consent under duress

Remedy : nullity of K False Premises :

fraud, error, missing information (duty to inform) l’erreur spontanée, l’erreur provoquée at least one party not have a complete understanding of the K Remedy : nullity of K

Illegality : contrary to public order, fundamental values Remedy: nullity of K

C1. Fraud and Misrepresentation : misapprehensions induced by the other party “l’erreur provoqué” misapprehensions INDUCED BY THE OTHER PARTY (either deliberately or negligently)

ELEMENTS of induced misapprehensions

1. A LIE, OVERT POSITIVE STATEMENT (CCQ 1401(1), cml) overt lies, inaccurate stmts

2. SILENCE/RETICENCE (CCQ 1401(2), cml) overt lies & inaccurate stmts (Tremblay) King party omits to correct what is clearly a misapprehension of the other party (ie,

silence when party says “I could make $25K with this garage, right?) King party omits to correct what he knows is a misapprehension of the other party.

He knows b/c it has somehow been revealed to him (Creighton: he knew the buyers wanted the plot b/c they included it in the offer).

did the party ratify the fraud? (Tremblay)3. ABSTAIN FROM SHARING INFO. WHICH IS LIKELY TO ALTER THE OTHER PARTY’S

POSITION (CCQ 1375, cml negligent misrep.) party deprived of info which other party knows they could not get but should have.

but how determine when a party has a duty to share information?

Distinctions: Spontaneous and Induced Misapprehensions- Induced Misapprehension:

- fraud (cvl + cml) and misrepresentation (cml)- fraud requires bad faith, but negligent misrep does NOT require bad faith. - imputability requirement in fraud, ie committed by def or known to him (CCQ 1401)- silence and failure to inform considered fraud (this is relatively new)

- POLICY: move from caveat emptor towards contractual collaboration. fraud & misrep have grown to respond to modern values. moved from conflictual to collaborative approach to K law. think of the long-term relationship Ks.

- remedy: torts & K intersect. i) maintenance + damages, or, ii) quanti minoris (ie, reduction in obligations equivalent to extra-Kual damages) (CCQ 1407)- Dol Principal: w/o fraud, would not have entered into the K at all (remedy: relative nullity)- Dol Incident: w/o fraud, would not have entered into the K on these terms (remedy: quanti

minoris)- Spontaneous Misapprehension:

- error (cvl) and mistake (cml)- notion of innocence.- NO imputability requirement- remedy: ONLY nullity.

Policy & Conduct Considerations


Policy Considerations: sanctioning fault, K-ual stability obligation of GF, protecting assent sanction faute

o la faute doit être sanctionné, en paiement dommages-intérêtso erreur inexcusable is NOT a defect of consent (CCQ 1400)o comportement de la partie qui demande l’annulation (gens qui se comportent d’une

manière négligente)o may maintain K + damages

encourager comportement de bonne foi o négociations du contrat (ie, full disclosure, obligation d’informer et de s’informer)

stabilité contractuelle o avant de défaire un contrat – est-ce qu’il y a des intérêts des parties à protéger ? protéger

l’intérêt de bonne foio note : inexcusable error is NOT a defect of consent (CCQ 1400)o compare to Huot: subjective standard could be seen to undermine stability of Ks

protéger le consentement o la qualité du consentement

Actors : Def’s conduct, Plf’s conduct, gravity of mistake, sanction Def’s Conduct : lying, hiding info, silence, le « bon dol » (white lies). gravity of conduct

affects sanction. (cvl see CCQ 1407 allowing the victim the choice of remedy when consent vitiated)

Plf’s Conduct : interactions w/ def’s conduct, ie, if Plf makes a mistake on his own, more difficult to annull the K. the more the def is “mean,” the greater the attempt at sanctioning the K.

Gravity of the Mistake : materiality. essential elements (CCQ 1400); would not have contracted, or contracted on diff. terms (CCQ 1401)

Sanction : Recission of K (nullity + restitution); Expectation Damages ($$); Specific Performance

Les enjeux liLes enjeux liéés s àà ll’’erreur provoquerreur provoquéée e ou spontanou spontanééee

Protéger le consentement

Assurer la

stabilité du contrat

Sanctionner la faute


FRAUD (cvl)l’erreur provoqué

ELEMENTS of cvl fraud (1401) NEGLIGENCE + VITIATED CONSENT Fraud, subset of error (1401 CCQ), vitiates consent.

“Error on the part of one party”

i) FAULT: “induced by fraud”

ii) INTENTIONAL BAD FAITH (Tremblay: ie, mere exaggeration or bonus dolus insufficient)

iii) **IMPUTABILITY:** “committed by the other party OR with his knowledge vitiates consent whenever,”

iv) DETERMINANT to consent: “but for that error, the party would not have contracted, (Creighton: material term; Tremblay: material term) or would have contracted on different terms” (Tremblay)

v) SILENCE: “Fraud may result from silence or concealment.” may include failure to inform, but failure to inform not always have requisite

element of bad faith, it may simply be negligence (see Huggins below)

POSSIBLE DEFENSE: look at Plf’s conduct for possible ratification (Tremblay, Creighton), but if def

have fraud’s requisite intentional bad faith, then plf’s imprudence probably not a very good defense.

Vitiated consent: (1399 CCQ) Consent may be given only in a free and enlightened manner. It may be vitiated by error, fear or lesion.

Ratification: party may not be able to apply for remedy for fraud if ratify (Tremblay)

Remedy: based on Kual (vitiated consent) + Extra-Kual (negligence) elements vitiated consent gives rise to nullity of K + putting in prior position (K-ual remedy) (CCQ 1407)AND/OR possible to confirm the K (ie, maintain) + damages (extra-Kual, b/c fault gives rise to damages)

(CCQ 1407: nullité, quanti minoris)THUS may always ask for damages

Who can ask for a remedy? Private Parties : (recours privé) victim must initiate the procedure. Thus, parties w/o sufficient

knowledge or means to present themselves in front of the court cannot benefit from the protections from fraud.

Administrative Bodies : legislation prohibiting fraudulent practices. ex: Consumer Protection Act (ss. 215-253). Administrative organism, such as office of consumer protection, initiates the procedure, and NOT the private party. usu. impose penal sanctions to prevent the conduct.

Historic Distinction : Dol Principal/Incident Dol Principal: w/o fraud, would not have entered into the K at all

remedy of relative nullity OR can choose to affirm the K and ask for dommages-intérêts Dol Incident: w/o fraud, would not have entered into the K on these terms

remedy of quanti minoris (dommages-intérêts)


used to only have dol incident, but today CCQ 1407 allows victim to choose remedy of nullity, or affirm/maintain + QM

distinction goes to elements of negligence & vitiated consent. ie, negligence allows for extra-Kual remedy, and vitiated consent allows for K-ual remedy.

Relative Nullity : only the victim may bring the actiono Absolute Nullity may be invoked by any person having an interest in the K. K may NOT be

affirmed. (CCQ 1417, 1418)o Relative Nullity (where necessary for protection of an individual interest) may be invoked ONLY

by person in whose interest K established. K may be affirmed. (CCQ 1419, 1420) (ie, fraudulent party cannot ask for nullity of K on basis of fraud he committed)

o Affirmation (confirmation): results from express or tacit will to renounce invocation of K’s nulity (CCQ 1423)

Tremblay v. Les Pétroles Inc. [cvl] [exaggerated profits; fraud requires bad faith][1961] B.R. 856 (C.A.)Facts - Tremblay leased public garage from Les Petroles on basis of fraudulent stmts

asserting gross earnings of $350K/yr for six or seven yrs, and that lessee could earn $20-$25K per year. Truth: garage had shown loss in each of these six or seven years. Tremblay was told fin’l stmts destroyed by fire.

Issue i) Was there fraud that entitled Plf to demand annulment of the K? ii) Did Tremblay renounce his right of action by delaying to institute it? (ie,

did he ratify it by his delay?)Held i) Yes.

ii) No. K of lease annulled.Reasoning Justice Hyde (Fraud, not ratified)

- PLF’S CONDUCT: Plf naïve b/c did not check the accuracy of the stmts. these appear to have had considerable influence on his decision to lease.

- PLF INDUCED : def’s stmts not just exaggerations, but representations that induced plf to enter into the K.

MATERIALITY of the fraud? - fraudulent stmts were determinant. Plf would never have entered into the lease

if he had known that the dft operated the garage at a loss for six or seven years. RATIFICATION b/c delay in bringing action? - Tremblay only became aware of the fraud in degrees, and instituted action very

soon after finding out that garage had operated at a loss. True that he was unable to operate at a profit for several months before instituting action, but he likely attributed this to other factors (price war btwn oil companies, fact that businesses take time to settle down after mgmt change). It was only natural that he would try to improve his operations before seeking release from his obligations.

- Lease should thus be annulled and some of ptf's losses should be repaid (impossible to determine how much of loss was due to inexperience or bad mgmt). just looking at the losses suffered, putting him back at zero (sort of)

M. le juge Bissonnette (dissent): (Fraud, but ratified)- yes, fraud b/c case meets the two elements of fraud: i) reprehensible (and not

mere exaggeration or dolus bonus) (HERE, totally false representations); and ii) determinant (ie, party would not have entered into K if had known the truth) (HERE, impossible to believe Plf would have K-ed if had known the truth)

- BUT, Plf tacitly ratified the K by continuing to take advantage of it when aware that the representations made to him were false.

M. le juge Badeaux (dissent): (no fraud, just inexperience)- Plf could have gotten real revenues, and if prudent and experienced, would have

realized that it was not possible to attain the amount mentioned ($350,000)- Behaviour of dft did not seem to be that of someone who wanted to mislead in

order to obtain consent.Rule Fraud requires element of bad faith. Bonus dolus (exaggeration or inexact


statement is insufficient. A party may not be able to get remedy for fraud if he ratified the fraud (ie, if

he became aware of it and didn’t take steps to remedy it immediately) Court suggests that there is scope for inexcusability of inducement by fraud.

Comments

Silence and the Duty to Inform advantages and inconveniences of a positive duty to inform another party conditions for imposition of positive duty: reliance (equity b/t the parties), dependence on

information, expertise, contractualizing representations how is info acquired ? casually or deliberately? (look at Kronman)

Creighton v. Grynspan [cvl] [failure to draw att’n may constitute fraud][1987] R.J.Q. 527 (C.A.)Facts sale of land, inexact content includes the strip of Blvd Gouin Ouest or

not? Grynspan made offer to buy land owned by Creighton - offer described land

as including a strip of land "Blvd Gouin Ouest". Offer was not accepted. Creighton subsequently made an offer to sell - included the description of the

land as it appeared in offer to buy BUT omitted specific inclusion of Blvd. and qualified total area with "more or less". He did nothing to draw attn of Grynspan to this omission. Offer was not accepted.

Grynspan made another offer to buy - it was accepted. Grynspan then realized that Blvd Gouin Ouest was owned by city, not

Creighton, and refused to execute the deed of purchase. He sought to have the offer to purchase annulled for fraud.

Issue Should offer to buy be annulled for fraud?Held Yes. Offer annulled. Damages awarded.Reasoning McCarthy J.

Art. 933 CCLC: fraud is a cause of nullity when a party practices artifices that are determinative of consent.

Reticence, without a positive act, may constitute fraud. Creighton ought to have drawn Grynspan's attention to the omissions made in the offer to sell; his failure to do so constituted an "artifice".

DETERMINANT: Grynspan would not have offered to purchase if he had known the truth - they made it very clear that they wanted the strip to be part of the deal.

REMEDY: K annuled, award damages that resulted from Creighton's delict (i.e. his fraud) per CCLC 1053.

M. le juge LeBel (concur) fraudulent maneuvers PLF’S CONDUCT: Inexcusability: Yes, Grynspan imprudent and

inattentive in examining the title docs. experienced and should have perceived reality of ownership situation. cvl concernd w/ protecting the diligent/prudent contractor. BUT, still fraud.

Rule Silence or reticence (failure to draw information to party’s attention when you KNOW that it will be determinative of their consent to the K or the terms of the K) is an artifice and constitutes FRAUD

Comments Silence as fraud now codified in CCQ 1401(2): Fraud may result from silence or concealment.

Compare to Huot: if seller in that case had known of the buyer's phobia and failed to disclose the existence of the gas lines, he would have been guilty of FRAUD.

Compare to Tremblay: defense of examination of Plf’s conduct – ie, his diligence, his experience, his possible ratification of the K.


Civil Law Issue Is [3] (the failure to inform) "FRAUD" under 1401(2) [silence/concealment]? Some argue YES Beaudoin & Jobin:- The foundation of the pre-contractual duty to inform is FRAUD (by silence)- This is just an example of the increasing ambit of fraud. Art. 1375 bas brought a new K-ual morality

into QC law which results in certain concepts being reformulated and redefined - one such concept is fraud in Art. 1401.

- Thus, remedy for failure to inform (when Bail rule required you to) nullity, damages or QM pursuant to Art. 1407.

Some argue NO Karim (also Jukier & Lefebvre):- Breach of pre-Kual duty to inform is not always a "dol". WHY? B/c a "dol" requires a voluntary act

and BAD FAITH. Not all abstentions from sharing involve bad faith. May merely be negligent (e.g. of case in QC - when woman renews her hypothec, Bank fails to inform her that she should also renew insurance). Court held that bank breached its duty to inform, even though it was not in BAD faith. Test of GF is reasonableness.

- If breach of duty is not fraud need another remedy Karim: Art. 1416 (see notes above).

Civil Law Issue Does Inexcusability apply to FRAUD? Under CCLC, fraud and error used to be separate defects of consent. Now, fraud is a subset of error. SO…is inducement by fraud sometimes inexcusable pursuant to art. 1400(2)? Some argue YES:- Inexcusability of fraud should stop an action in nullity. In new code, fraud is a subset of error thus

everything that applies to error should apply to fraud unless there is a specific derogation. Some argue NO:- Fraud is different than error b/c it involves intentional bad faith. You should not be able to get off the

hook after intentionally misleading a person…even if that person was imprudent or negligent.The cases:- All the judges address the conduct of the duped party (e.g. Creighton: the buyers could have gone to

the title office; Tremblay - the dude could have been more vigilant about the statements) but courts find fraud anyway.

Suggests that INEXCUSABILITY COULD APPLY TO FRAUD…BUT WOULD HAVE TO BE VERY INEXCUSABLE!

Why wasn't Yaskovitch considered fraud?- Bonus dolus - mere puffery or exaggerations. If exaggeration = fraud, all TV commercials would be

fraudulent. - If there was no fraud (and no error), perhaps it was a violation of the pre-contractual obligation of GF.


MISREPRESENTATION (cml)

Defined: an assertion not in accord with the facts (Restmt 2d § 159)

Policy Considerations: court steps in when cross line from hard bargaining to unacceptable exploitation

ELEMENTS of cml misrepresentation (Restmt 2d §159-164)FRAUD (FRAUDULENT MISREPRESENTATION) : dishonest state of mind (bad faith) + deliberate lie OR concealment OR non-disclosure/silence)

ELEMENTS: (Restmt 2d § 162) party makes a false representation of fact: must prove representation dishonest (whether

of fact, opinion, prediction or promise) TYPES of representations: affirmative false statement (deliberate lie) - active concealment (hiding the truth) - active non-disclosure (silence) – passive; determined by standards of “fair dealing”

guilty state of mind : bad faith (with knowledge of its falsity + intent to induce other party to enter into K)

victim must have relied on it to his injury (significance/materiality of the representation + victim’s justifiable reliance)

REMEDY: o victim may disaffirm by rescinding K and claiming restitution of all benefits (K-ual

remedy)o victim may affirm, and if suffer econ. loss, may sue perpetrator for damages to

compensate for difference b/t actual value of performance and value as represented (extra-K-ual remedy)

negligent and innocent misrepresentation do NOT have deliberate intent to mislead

NEGLIGENT MISREPRESENTATION : honest but careless; breach of duty to ascertain facts ELEMENTS: (Esso v Mardon, VK Mason) i) untrue stmt ii) stmt made negligently (ie, careless, but not intentionally) iii) special relationship (duty of care)

o concealment as misrepresentation when have special relationship, Restmt 2d §161

iv) justifiable reliance o materiality to the victim seen from the reasonable perspective of the other (strike

balance b/t fault of misrepresenting party and reasonable expectations of the victim (Restmt 2d §162, 163, 164)

o if the negligent misrepresentation is NOT material, then little remedy available (Restmt 2d § 164)

o representation is material if would be likely to induce reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so (Restmt 2d §162(2))

REMEDY: extra-Kual: damages to restore the Plf, maybe nullity (Esso v Mardon, VK Mason) Esso v Mardon: conduct not in accord with that of a reasonable cie, negligent

representation where special relationship existed. (compare Esso in cvl: erreur tout nu, source of the error is immaterial)

Hedley Byrne limits recovery for neg misrep to non-Kual situations, OR to pre-contractual situations (Denning in Esso). case allows for recovery of pure economic loss for neg. misrep.

problems: pure economic loss (Norsk, Hedley Byrne) VK Mason: no K, negligent misrep. of bank by ltr of credit.


INNOCENT MISREPRESENTATION: incorrect but blameless; no duty to ascertain factsELEMENTS: (Restmt 2d § 162, 163, 164) again, materiality: where misrepresenter less culpable, expect a stronger showing of the

importance of the misrepresentation and victim’s reasonable reliance (ie, victim here have the greatest duty to question/check the representation)

pas de faute, CCQ 1400, erreur spontanée (vice du consentement)REMEDY : only recission, NO damages. no damages b/c no fault.

Remedies : extra-Kual (place in original position); Kual (place if promise executed) remedy depends on the PROOF adduced by the Plf (ie, can the judge properly

evaluate where the Plf would be today if the K had been executed?) extra-Kual : placing the victim where he was before she incurred the prejudice

Terrasse: just returning what he lost, ie, the value of the services he rendered

Esso: restore party by compensating for loss suffered: actual capital, and loss of earnings.

difference in value: if plf keeps the guitar, then def pay the difference b/t the actual value ($50 ordinary guitar) and the price plf paid ($5000 for Mick Jagger’s guitar).

extra-Kual: placing the victim where he would be today if the promise had NOT been executed foregone opportunity: make projections into the future. plf would have

entered into another K and made a profit – looking at the loss of earnings he would have received through another K.

VK Mason: restore party by recovering the expenses AND the lost profit. theoretically, extra-Kual remedy of reliance damages, but these reliance damages include Kual damages of foregone opportunity.

is this confusing Kual and extra-Kual remedies? not really – b/c ultimately relying on conceptual difference of an executed promise, and a return to the original state.

helpful to contractualize representations K-ual: placing the victim where he would be if Kual representations has been

correct, and promise had been executed make calculations based on the promise, not a mere hypothesis as above.

based on assumption that K valid, and promise not respected. this remedy rarely adopted.

“Choose” your remedy?cml: yes, may choose:o cml (deliberate OR negligent) party can choose between two alternative routes :

(1) Misrepresentation (extra-Kual); (2) Imply Collateral warranty (K-ual) (see Dick Bentley; All-state grain)

cvl: bound by Kual remedy if there is a K. "victim" cannot choose (1458): Every party has a duty to honour his contractual

undertakings. Where he fails in his duty he is liable…; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them.

cml Tension : Imply Collateral Warranty (K) or Negligent Misrepresentation (Extra-Kual)

Imply Collateral Warranty, then Kual action- If court makes the misrep an implied term, and if breached, then plf can take action IN CONTRACT

for BREACH OF CONTRACT. - limitation: parole evidence rule: cannot imply a term if it contradicts another term in the K. - REMEDY: Expectation damages (often higher than mere reliance damages) [SH: could you get

rescission or specific performance?]- See: Dick Bentley; All State Grain


- Esso v. Mardon (better articulation of rule from Dick Bentley): Where a party makes a misrepresentation based on the experience and expertise that it has as its disposal and intends that the other party should act on it and he DOES act on it, it can be interpreted as a warranty. (DB this is an inference which can be reubtted by the maker of the misrep - he can show that it was innocent)

Negligent Misrepresentation, then extra-Kual action- REMEDY : recission and RELIANCE damages (restore to original position) (no damages if

misrepresentation is innocent). - Esso v. Mardon : If a man with special knowledge or skill, makes a representation (advice,

information, opinion) by virtue of that knowledge or skill with the intention of inducing him to enter into a K with him, he is under a duty to use reasonable care to see that the rep is correct or reliable. If he negligently gives unsound advice or expresses an erroneous opinion and thereby induces the other side into a K with him, he is liable in damages. [Special skill or knowledge, a misrepresentation with intention to induce, misrep is determinative of consent].

Esso Petroleum Co. Ltd. v. Mardon [cml] [negligent misrep: special relationship so duty][1976] QB 80 (C.A.)Facts - Mardon entered into tenancy with Esso on basis of incorrect throughput

calculation (200,000). this calculation induced him to enter into tenancy agreement and was impt factor in assessing rent charge.

- Mardon excellent tenant, but throughput only =ed 78,000 after 15 months.- Esso modified agreement - reduced rent and charged surcharge per gallon.

Mardon failed and gave up the site.- Mardon sued Esso on basis that (1) the rep of 200,000 gallons was a collateral

warranty; (2) Rep was a negligent misrepresentation.Issue i) Esso guilty of breach of warranty?

ii) Esso liable for negligent misrepresentation?Held i) No.

ii) Yes. Esso liable in damages.Reasoning Lord Denning

Collateral Warranty (Kual action)- An innocent misrep gives no right to damages unless it is a collateral

warranty. - here, party w/ experience & expertise makes a representation and intends that

the other party should act on it, other party DOES act on it, so it can be interpreted as a warranty that the representation was made with reasonable care and skill. It does not matter that the language was not in the nature of a "guarantee".

- If the forecast turns out to be unsound (i.e. that a person of such experience and skill shouldn't have made it), there is a breach of warranty.

- Situation is different if neither party has special knowledge or skill or both have =ally specialized knowledge.

- In this case, Esso made a warranty which was breached…but trial judge didn't find one.

Negligent misrepresentation (extra-Kual action)- Hedley Byrne limited recovery for neg misrep to non K-ual situations. Esso

contends that since parties in K are regulated by law of K and not tort, HB is not applicable.

- Denning rejects this: Hedley Byrne, properly understood, applies to situations of pre-contractual representations.

- If a man with special knowledge or skill, makes a representation (advice, information, opinion) by virtue of that knowledge or skill with the intention of inducing him to enter into a K with him, he is under a duty to use reasonable care to see that the representation is correct or reliable.

- If he negligently gives unsound advice or misleading information or expresses an


erroneous opinion and thereby induces the other side into a K with him, he is liable in damages.

- Here Esso (1) professed to have special knowledge or skill; (2) made a rep that induced Mardon to enter into K [SH: need it be determinative?]; (3) made the rep negligently AND Mardon suffered damages. Thus, Esso is liable in damages for this misrep.

Damages (only what he lost, not incl expected profit)- Mardon is not to be compensated for 'loss of a bargain' (expectation?). There

was no guarantee that throughput would = 200,000.- Whether the misrep was a breach of warranty or a negligent misrep - he can only

recover damages in the amount of the loss he suffered. - Actual loss which he suffered and should be compensated for: capital loss ($ put

into business); overdraft incurred in running business; loss of earnings (that he would have made in some other employment/business).

Rule Negligent Misrepresentation : If a man with special knowledge or skill, makes a representation (advice, information, opinion) by virtue of that knowledge or skill with the intention of inducing him to enter into a K with him, he is under a duty to use reasonable care to see that the representation is correct or reliable.

If he negligently gives unsound advice or misleading information or expresses an erroneous opinion and thereby induces the other side into a K with him, he is liable in damages.

Comments - Issue - Mardon relied on statement made on ESSO; relied to his detriment [SH: promissory estoppel?]

- Court found that it was not intentional - merely a "fatal error" - not taking the care that should be taken in the circumstances - thus negligent as opposed to intentional

- comparer en droit cvl : erreur tout nu

V.K. Mason v. Bank of Nova Scotia [cml] [no K so no warranty; negligent misrep.][1985] 1 S.C.R. 271Facts - Courtot was owner and developer of Courtot Centre shopping complex. Mason

was general K-or for the project and the Bank provided bridge financing. - Courtot sought loan from bank, but was rejected. Courtot reapplied, and the bank

approved loan with letter. - Mason would only sign K if given evidence of ability of Courtot to meet

payments- Loan approval letter was not sufficient to convince Mason of this ability - the

bank KNEW OR OUGHT TO HAVE KNOWN this.- Sept 12 1972 - bank delivered a different letter to Mason that contained

assurances. On this basis, Mason signed the K. It wouldn't have signed K if not for such assurances.

- By 1974, it was apparent that Courtot had insufficient funds to cover construction; Bank would not lend more or extend due date. Bank did not inform Mason that Courtot had insuff funds.

- Courtot defaulted on loan payments; Bank sold the project; sale provided insufficient funds to pay Mason in full.

- Mason sued bank in K and tort (negligent misrepresentation)Issue i) Bank liable to Mason in K?

ii) Bank liable to Mason in tort (negligent misrepresentation)?Held i) No.

ii) Yes. Bank liable. Appeal dismissed.Reasoning Wilson J.

Contract?- Bank was a 3d party to the K between Mason and Courtot. Can Mason sue the


bank in K? No.- But, it may be possible to imply K in this case: Unilateral; Offer (bank's letter):

if Mason would sign fixed price K with Courtot, bank would supply sufficient interim financing. Acceptance - Mason signed. Consideration - Mason obliged itself to Courtot = assured Bank that project was sound and that money could be lent.

- Here, no K should be implied b/c there was not requisite intention. Reasonable business people would not have construed the Bank's letter as an absolute and unqualified guarantee. Implying a K in this case would undermine certainty, a principle virtue of K.

Negligent Misrepresentation- Four requirements for liability for neg misrep: (1) untrue statement; (2)

statement must have been made negligently; (3) special relationship = duty of care; (4) reliance which is foreseeable.

- All the requirements are met in this case: - [1] Falsity - Mason sought assurance over and above terms of loan; Bank gave

assurance relying solely on terms of loan. - [2] Negligence - b/c Bank made statement of assurance w/o revealing that it was

based on loan arrangement which Mason had already said was not sufficient assurance.

- [3] Special Relationship - Bank was inducing Mason to sign K with Courtot (distinguish this from Bank merely making representations to third party about one of its clients)

- [4] Reliance - Mason relied on it and such reliance was foreseeable. Damages (extra-Kual)- Must restore Mason to situation he would have been in if no neg misrep made.- theoretically extra-Kual damages, but these extra-Kual damages approximate

Kual damages of foregone opportunity (ie, profits)- HERE, commercial context suggests that Mason's loss should be calculated the

same way in tort as in K. Mason would have found work elsewhere, and evidence provides reasonable estimate of profits (ie, profits would have made on the Courtot project)

Rule Four elements in liability for negligent misrepresentation: (1) untrue statement; (2) statement must have been made negligently; (3) special relationship = duty of care; (4) reliance which is foreseeable.

Also, case presents possibility for awarding lost profits as part of reliance damages (b/c would have got it had he entered into another K).

Comments Bargaining Power: compare: Kleinwort Benson: comfort ltr as denial of intent to enter into legal

relations. Question of equal bargaining power: were in a position to demand a ltr of guarantee.

here, same question of equal bargaining power: reasonable ppl not construe bank’s ltr as absolute & unqualified guarantee.

Why would a ptf choose misrepresentation (given that expectation damages often > reliance damages)?[1] Reliance damages = expectation damages in some cases- E.g. Mason case - court includes profit as part of reliance damages what he lost by not entering into

another K. (Thus expectation damages = reliance damages)[2] Misrepresentation K gets rescinded. - Party may not want to maintain the K. E.g. Mardon case.[3] There is no K; the party to the action is a third party. (NOTE always try to imply a K first; try a unilateral K)- E.g. Mason case Party that made negligent misstatement (the bank) was a third party to the K btwn

Mason and Courtot.


[4] Impossible to imply a collateral warranty b/c of parole evidence ruleSee All State Grain


C2. Error and Mistake: innocent misapprehensions“l’erreur spontanée” INNOCENT misapprehensions (mistaken beliefs): error, mistake

ELEMENTS of innocent misapprehensions

Should the aggrieved party be bound by a bargain that they were induced to enter into on the basis of some mistaken assumption as to a quality of the bargain.GENERALLY:CVL ERROR effect error had on consent of the parties. (thus, subjective)

did the error cause one or both of the parties to consent to the K when they otherwise would not have?

subjective unilateral mistake enough.

CML MISTAKE objective quality of the mistake and what it does to the K, not to the consent does the mistake make the K sthg fundamentally different from what it would have

been if not for the error?

REMEDY: no damages, but may apply for nullity of K.

Types conditional Ks : contractualizing representations

o cow is sold for $500 on the condition that she is barren, if she is not, then …)o une partie qui veut garder, l’autre la rescission

no agreement of the wills : L’erreur-obstacle ou l’absence d’accord des volontéso concept un peu vieux en droit civil, parle toujours de ça en cmlo Sherwood c. Walker : imaginez qu’on ne s’est pas entendu sur la vacheo Raffles

error on material consideration : L’errreur commune sur une considération principaleo Raffles

error on one part : L’erreur unilatérale sur une considération principaleo erreur d’une seule partieo Huot c. Ouellette (servitude de gaz)o très difficile en cml (Jutras ne connaît pas d’affaires en cml comme ça)o autre option : erreur inexcusable (si c’est si important pour vous, vous aurez dû vous

informer) Unilateral and inexcusable error

o seems like a good option for Huot c. Ouellette Economic Error : L’erreur unilatérale sur la valeur économique

o Yoskovitch c. Tabor : bringing in lesion through the back door

L’erreur spontanée La contractualisation des prémisses de fait: contrats conditionnels L’erreur-obstacle ou l’absence d’accord des volontés L’errreur commune sur une considération principale L’erreur unilatérale sur une considération principale L’erreur unilatérale et inexcusable L’erreur unilatérale sur la valeur économique


ERROR (cvl)

ELEMENTS cvl error (1400)

CCQ 1400: “Error vitiates consent of the parties or of one of them where it relates to o (1) the nature of the K,

may be unilateral re: nature (Rawleigh)o (2) the object of the prestation or;”

rarely usedo (3) “anything that was essential in determining consent.”

interpreted subjectively (Huot v. Ouelette) must relate to substance of the K ie, essential to this particular party in this particular situation

o (4) must be determinative (Baudouin) "but for the error, I would not have entered into the K" not matter if would have entered on diff. terms, b/c QM not allowed in error

(1407)

- Only one party needs to be in error and other party doesn't need to know about it. Compare to common law - unilateral mistake is insufficient; must be mutual.

- Error is a defect of consent . It includes innocent error and fraud. (CCQ 1399) cvl focus on CONSENT. Sanctity of autonomy of will = K can only be undone or touched by the

courts when the consent is defective. be careful to distinguish error from IMPREVISION - error arises at the time of formation and is a

defect of consent. Imprevision - a mistake arises in the life of the K (e.g. you were mistaken about what would happen to the peanut crop after you Ked at a certain price)

PRESCRIPTION PERIOD (CCQ 2927): runs from day the person becomes aware of the cause of nullity (ie, error)

REMEDY: only annullment (relative nullity, 1419) (no damages b/c co-contractant innocent) +

restitution (Huot) CCQ 1407: if consent vitiated by error, then may apply for annulment. ONLY if

error occasioned by fraud, of fear, or of lesion, THEN may apply for damages or QM in addition to annulment.

LIMITATIONS/DEFENSES (error = broad remedy, with limited limitations)Inexcusability

o “inexcusable error does not constitute a defect of consent.” (1400(1))o Plf’s Conduct evaluated by in concreto subjective test: ask if the party himself, given

education, language abilities, age, intelligence, was imprudent or negligent wrt his error.o rarely invoked b/c usu Plf in weak bargaining position (ie, not speak the language,

Tabor; Huot)o Huot: court could have said that if Plf knew she had a fear of gas, then should have

looked into it before buying. Economic Error

o error as to the value of a thing does not vitiate consent b/c = lesion through the back door.o Yoskovitch: using error to bring in lesion through the back door?o Cannot go to court and say "I paid too much for the painting - I was in error as to the

price" BUT…can go to court and say that you were mistaken as to an essential quality of the painting which thus determined how much you sold it for. This indirectly creates economic error.


Unilateral Error

W.T. Rawleigh Co. v. Dumoulin [cvl] [unilateral error re: nature of K][1926] SCR 551Facts Aplt co, before selling goods to peddlars required a K of guarantee to be

signed by two people who bound themselves to pay all moneys that peddlar owed.

Rspdts signed such a contract for the benefit of Charland. Charland had represented this K to them as merely a “letter of reference”. The rspdts didn’t read or understand English and signed the K w/o reading it.

Charland went bankrupt and aplts sued rspdts for the money he owed them. Rspdts claimed that Charland fraudulently induced them to sign K and that

they had signed it in error as to the nature of the K. fraud b/t man asking to sign the ltr of guarantee, and man signing the ltr of

guarantee, NOT actually between the recipient of the ltr of guarantee and the signer of the ltr of guarantee (thus, at initiative of 3d party)

“par l’autre partie (ie, défendeur, co-contracteur) ou à sa connaissance” here, défendeur wasn’t the one committing the fraud, but the 3d party

committed the fraudIssue Is the K of guarantee signed by Resps null b/c was signed in error?Held Yes. K null. No fin de non-recevoir.Reasoning Mignault J.

two defenses presented : fraud, errordefense of fraud : not a valid defense b/c third party committed the fraud, and not the

appellants. CCLC 993 (now CCQ 1401) requires that fraud be committed by or known by the other party, here, the appellants. appellants not commit or know of the fraud, thus not a valid defense and cannot recover damages.

BUT, as a result of this fraudulent representation, respondents believed they were signing a letter of reference. thus, signed K by error with respect to its nature.

defense of error : only remedy possible of annulment. believed they were signing a letter of

reference, not a guarantee. Defs not speak English and not understand the contract.

error as cause of nullity of K per CCLC 992, which envisages error subjectively, the cause of the error being immaterial. Error of only one of the parties (ie, unilateral error) is sufficient.

no fin de non-recevoir against the Resps b/c they did not read the K (ie, their error was not inexcusable ?)

Rule K annulled on basis of unilateral error as to the nature of the K. Shows how innocent co-contractant is truly screwed over.

Comments NOT FRAUD b/c Charland Def guilty of fraud, but he was not a co-contractant. CCQ 1401 requires that fraud be committed by a K-ing party, or w/ his knowledge.

example of an erreur obstacle: total absence of consent (Raffles). Significance: remedy is absolute nullity (vs. relative nullity).

Case outlines basis of error: remedy is nullity; consequences of remedy can be against a totally innocent co-contractant. Court admits that innocent co-contractant is going to suffer.

Huot v. Ouellette [cvl] [unilateral, subjective error re: essential element][1981] C.S. 872Facts - Plf + wife sign “offer of purchase” (promise to K), which mentions the Hydro

and Bell servitudes, both of which were apparent and visible. Offer did NOT


mention the gas line that ran under the property. - Notary did title search and informed ptf of the gas line. Ptf refused to sign deed

of sale b/c his wife had an uncontrollable fear of gas (psychologist confirmed) and he would not have signed the “offer to buy” if he had known of the line.

- No fraud b/c neither party aware of the gas line until the notary informed them of it. [therefore lacking requisite deliberate intent]

- Ptf is seeking annulment of the “offer of purchase” and reimbursement of his deposit. Dft is seeking damages.

Issue i) Existence of a gas servitude essential element to justify the ptf’s refusal to sign the deed of sale?

ii) Could the ptf have given a valid consent to “offer of purchase” given lack of knowledge of the gas servitudes?

Held i) Yes.ii) No.

Reasoning - CCLC 922 provides that error is only a cause of nullity when it falls on the very nature of the K, on the substance of the prestation, or on something which is a principal consideration which induced the party to make the K.

- The unexpected discovery by the ptf of the existence of a gas line on the property of the dft, in the circumstances of this case, is connected to an essential and important error which vitiated the consent of the ptf with respect to the purchase of the property.

- SUBJECTIVE, CIRCUMSTANCES OF THIS PLF : for the Plf, the presence of a gas line on the property constituted an important element in the transaction, thus could not give valid consent. The fear or phobia of the wife was not a simple caprice or fantasy – the proof showed that if he had known of the existence of the gas line, he wouldn’t have offered to buy the property.

- The error was absolute (?) - No contract and no meeting of the wills occurred - therefore the K will be null. Remedy is restitutio in integrum (put parties back in position they were in prior to signing the K). Thus, K is annulled and ptf gets deposit returned. No damages awarded to dft.

- EVALUATE PLF’S CONDUCT: Should the ptf have been on guard (inexcusable error)? There was no negligence or imprudence on the part of the ptf wrt obtaining info on the servitudes b/c the three servitudes mentioned in the “offer of purchase” were visible and apparent. [SH: might have been inexcusable error if gas lines were obvious or were part of the written servitudes]

Rule Unilateral, subjective errorComments - Unilateral subjective mistake of one party - enough to get out of a K in civil law.

- Stability of K: Such a broad notion of error this could do much more to undermine stability of Ks than a properly drafted lesion provision (and yet we don’t have one).

- Note Article 2927 wrt remedy, prescription period starts running only when the party become aware of the truth

- Q SH: Does error always have to be determinative (i.e. But-for the error, I wouldn't have entered into the K?) (or must it only be determinative when in third category of error - i.e. error as to essential element that induced).

- Note there is very fine line between saying nothing (as seller did in this case) and saying nothing when you know you should say something (compare to Grynspan case)

- SH: If the seller was aware of the gas line and of the phobia and failed to inform - fraud.

- SH: Would it be mistake in the KL? mistake was mutual (both parties were mistaken about existence of gas line) BUT definitely does not change the K altogether - a house is still a house w/ a gas line running under it. Also, use test from Smith v. Hughes - would a reasonable party think that she was consenting? YES. It doesn't matter what the true intention of the parties is.


Economic Error

Yoskovitch v. Tabor [cvl] [economic error as to value of baking business][1995] C.S. civil lawFacts Plf had at-home baking business (small stove, some trays, mixer, two

recipes, 12 customers). Def was Plf’s cleaning lady, and helped w/ baking business

Plf and Def signed K : sold business to Def for $50,000. after signature, Def’s son picked up equipment + copy of K, delivered to Def’s house. Plf said K not represent her intentions and was her first knowledge of the K. Called Plf, said she would not accept business b/c was supposed to have 3 mo. trial period.

Def want K annulled on basis i) no consideration for sale (assets worthless); ii) agreement erroneously signed b/c consent obtained by fraud + artifice.

Issue annull agreement for want of consideration? annull agreement b/c entered into under fraud/error? can obligation of Def to pay $50K be considered an abusive clause under

CCQ 1437?Held NO

Yes, error. So annull agreement. No.

Reasoning Bishop J.C.S.Consent vitiated by error? Yes: 1399: Tabor’s consent vitiated by error. Plfs take undue advantage

given circumstances above.Can Price be an Abusive Clause? No: abusive clauses (1437): in consumer or adhesion K, abusive clause null, or

obligation arising therefrom may be reduced. 1379 defines adhesion. HERE, due to circumstances of Def as effectively

unable to negotiate the terms of the K (entirely prepared by Plf, no changes made to draft, Def unable to obtain advice of son, Def’s limited education and business experience, and no english)

court interprets 1437 as intended to permit ONLY annulment of NON-ESSENTIAL clauses, annulment of which would not prevent K from being performed. Price = essential element, which would prevent K from being performed. Price ≠ abusive clause under 1437.

Rule 1437 cannot be used to strike down an essential clause, such as price (and thus cannot use as a back-door lesion)

consent vitiated by error when undue advantage takenComments 1437: application not explicitly limited to non-essential clauses

1438: clause which is null not render K invalid in other respects rationalization for judge’s reasoning: if had allowed 1437 to apply to price,

then would have annulled a K for lesion (in violation of 1405) THUS, est. distinction b/t lesion & abusive clausesother methods: resolve through CCQ 1375 (good faith), but what remedy? compare common law: unconscionability

o procedural: unequal bargaining power, hurried, clauses not brought to att’n

o substantive: severe disproportion of prestations compare lesion in CCQ 1405: NO, b/c Def not a protected major or a minorcompare cml: solution would be UNCONSCIONABILITY Procedural: very unequal

bargaining power; elements of Bundy, O'Brien, McCutcheon and


Clendenning (hurried, clauses not brought to attn, etc.). Substantive: serious disproportion of prestations ($50,000 for a few baking pans)

Baudouin & Jobin - Some additional points on ERROR, page 200

- Def'n of erreur: "a belief which doesn't conform to the truth"; "a lack of concordance btwn the internal will and manifested will which tarnishes the perfect integrity of the consent to the juridical act"

- Used to be distinction btwn erreur obstacle and erreur that vitiates consent; new Civil Code recognizes only the latter and remedies it with relative nullity.

- Civil law sanctions error b/c of the importance of consent…BUT doesn't sanction all types of error Why? Injustice (to innocent co-contractant) and instability of K.

Cases in which error = Nullity- [1] Error as to nature of K party signs K of lease but thinks it is a K of sale- [2] Error as to object of prestation party signs K of sale for lot A but thinks it is K of sale for lot B- [3] Error as to an element that was essential to determining consent note that language of code is

misleading - suggests that error need only be determinant in this third case. In fact, it always needs to be determinant. (?)

- Error as to the person - just a particular application of [3] - error as to the identity of the person being K-ed with is a cause of nullity when such identity was an essential element in determining consent (e.g. for a K of employment, services or marriage)

Cases where error ≠ nullity- [1] Inexcusable Error - see 1400(2) - expresses ideas of stability of K and that each must inform

himself before signing a K. What is the std. For inexcusability? - adopt an "in concreto" test - take into consideration age, mental state, intelligence and bargaining power. Also must look at behaviour of the unmistaken party - error that would normally be inexcusable may not be if the other party was not acting in good faith.

- [2] Economic Error - b/c K cannot be annulled or revised for lesion - cannot be a remedy for economic error or error as to the value of the object of the prestation. (Lesion is effectively economic error) Nuances: (1) Error as to the substantial quality of the thing may translate into error as to value (i.e. .have econ repercussions) - such error CAN be remedied though it looks like econ error. (2) Economic error induced by fraud of co-contractant or with his knowledge (Tremblay)

Can the error relate to the "reason" (motive)?- Can error as to the motive of the person misled justify the annulment of the K?- Distinguish 3 situations- [1] When motive relates to a characteristic of the object of the obligation (i.e. internal) if it is error

as to something that is objectively substantial or determinant (reasonable person standard) = nullity for error.

- [2] When motive relates to a characteristic of the object of the obligation BUT the characteristic is only determinant in the mind of the victim of the error (subjectively substantial or determinant) error can only result in nullity when the co-contractant knows that this characteristic is determinant for the other party (H v. O???)

- [3] Error relating to a motive foreign to the characteristics of the object of the obligation - (e.g. I buy house in QC b/c I am in error that I have a job there). Can only lead to nullity when the victim of error makes the motive a condition of the K.

Error in form (e.g. error in a calculation or in the writing) - does not lead to annulment b/c doesn't relate to parties' consent.

Must it be known by the co-contractant?


- In order to obtain nullity must it be demonstrated that the co-contractant knew at the moment of signing the determinant element which induced the victim of error to give his agreement? In other words, can the error be a cause of nullity if it is only unilateral or subjective?

- Error which exists only in the mind of the misled party gives rise to nullity if it is determinant.- SUBJECTIVE AND UNILATERAL ERROR ARE ENOUGH!

Error of law: Can get nullity for errors of fact AND errors of law (that are determinant to consent) - there are a couple of exceptions to this

Proof of Error- Party who invokes error has burden of proving that (1) there is error that entails nullity; (2) that the

error was determinant. - In order to avoid fraud - court usually requires that a claim of unilateral error be corroborated with

something written or some other witnesses.

Sanction for error: - Can only be nullity, not reduction of obligations (see Art. 1407 CCQ)- 1419 CCQ specifies that it is relative nullity (all defects of consent lead to relative nullity) - thus only

victim of error can invoke it. - Action in nullity for error - prescribes in 3 years (but prescription period only starts running when error

is discovered) - see Art. 2927.


MISTAKE (cml)

Mistake: belief that is not in accord with the facts (Restmt 2d § 151) doctrine applies when contract is based on an erroneous belief at the time of contracting that

certain facts are true. the error causes one or both parties to manifest assent that would not have been given had the true facts been known.

errors of fact; errors about some thing or event that actually occurred or existed and can be ascertained by objective evidence

o NOT errors in judgment; NOT incorrect prediction of future events; NOT mistaken understanding b/t the parties;

o law is a facto may sometimes address problem under warranty or misrepresentation

defect in assent : similar to that resulting from fraud, duress, or unconscionability (ie, apparent assent is not

genuine) defect caused by misinformation, NOT by deception, improper pressure, or other bargaining

misbehavior

keep in mind: first, mistake re : material aspect, or secondary aspect ? (ie, gas servitude) second, unilateral or mutual mistake? (Huot, Bell) single remedy: nullité looking at consent, and protecting good faith reliance

MUTUAL MISTAKE

ELEMENTS cml mutual mistake: shared factual assumption by both parties (Restmt 2d § 152) shared an erroneous belief:

o at time of contracting, parties must have shared an erroneous belief concerning a facto ex: barren cow (Sherwood)

basic assumption: o erroneous fact was a basic assumption on which the contract was made (ie, mistaken

fact so fundamental to the shared intent and purpose of both parties that reasonable to conclude that would not have made the contract at all, or on the present terms, had they known the truth)

o ex: Sherwood v Walker, Bell v Lever, Solle v Butcher material effect:

o mistake must have a material effect on the agreed exchange of performances (NB: test of basic assumption examines aggrieved party’s motivation, but materiality calls for assessment of mistake’s impact on the balance of the exchange)

risk allocation: o adversely affected party must not have borne the risk of the mistake, thus allocate the risk

of error to one party or the other

UNILATERAL MISTAKEUnilateral Mistake: only known by one party, or only affect one party

where one party knows the true facts and the other does not; OR, where both parties may be unaware of the truth, yet the fact in issue ffects the decision of only one of the parties and is of no interest or relevance to the other

erroneous fact is a basic assumption of only one of the parties b/c the other is netural on it

ELEMENTS cml unilateral mistake: only known by, or only affect 1 party (Restmt 2d § 153) erroneous fact

o error concerns a fact basic assumption

o the fact is a basic assumption on which the mistaken party made the contract


material effecto mistake has a material effect on the exchange, adverse to the mistaken partyo usu. some degree of negligence involved in a one-sided error (ie, carelessness of the

mistaken party could have an impact on the balance of the equities) equities favor relief

o equities must favor relief for the mistakeo i) would enforcement of K result in such severe hardship on the mistaken party that

would be unconscionable to uphold it?o ii) would avoidance impose an unfair hardship on the non-mistaken party? thus looking at protection of good faith reliance

REMEDY for mistake: derives from equity, thus: avoidance: at the instance of the mistaken party, bring the contract to an end; and restitution: both parties restore any benefit resulting from performance that was rendered prior to

termination reliance expenses: avoidance on grounds of unilateral mistake could be ordered subject to

payment of reliance expenses designed to restore non-mistaken party to the status quo maintain contract with adjustments (rare): keep K in force with an adjustment to its terms to

counter the effect of the mistake reformation: usu. reserved for mistakes in transcription (ie, the way the agreement is expressed in

writing)

NOTE: KL has no problem remedying obvious mistake (mistaken identity of the K-ing parties or mistake as to the existence of the subject matter at the date of K). The difficulty arises in delicate situations of mistake - i.e. mistake as to some underlying assumption that induced the party to enter into the K. (It is in these cases were the strict requirements that the mistake be mutual and destroy the subject matter arise)

5 reasons why common law "mistake" is confusing: - [1] Case law is not clear - e.g. Bell and Solle cannot be squared - [2] Some commentators feel that there is no independent doctrine of mistake - it's really a Q of

formation (O and A) - cases: Smith v. Hughes, Raffles v. Wichelhaus, - [3] Artificial distinctions in case law (Bell - mistake in common law; Solle - mistake in equity); - [4] Remedy only for MUTUAL and not UNILATERAL mistake (Bell - was mistake really mutual?).

[note that KL doesn't have patience for unilateral mistake UNLESS the other party knew about it -fraud?]

- [5] Authors (Swan and Ritter) that lump together mistake (formation Q) with frustration (execution, post-formation). - [note that this is not a dominant strain]- Why do they lump these together? B/c they argue that the policy and underlying Q behind both is

the same Can the parties get out of a K b/c of an exterior event? Sometimes very difficult to say what that event was - depending on which "event" you choose, may have occurred at formation or during execution - assumption under which K was made either was wrong when made or has fallen apart after K was made)

- Example: Krell v. Henry - King's appendicitis frustrated the execution OR parties mistaken about a basic assumption that induced them to enter into the K (the King's good health)

The BIG IRONY- Civil law - error is broad remedy and imprevision is narrow remedy VS Common law - mistake is

narrow remedy and frustration is rather broad remedy. - If Swan and Ritter are right (i.e. policy considerations are the same), would expect to see same pattern

of outcomes in case law. - BUT…vastly different results in civil law and common law when all remedies are considered together.


A.T. Kronman, “Mistake, Disclosure, Information and the Law of Contracts” distinguer comment l’information a été acquis: casually or deliberately mistake and the allocation of risk

o contracts predicated on shared factual assumptions of the worldo value of information allocating risk depending on which party is the better (cheaper)

information-gatherero promisor whose mistake is not shared by the other party is less likely to be relieved of his

duty to perform than a promisor whose mistake happens to be mutualo exception: protection for unilaterally mistaken promisor whose error is known or

reasonably should be known to the other partyo problems of fraud and disclosure: if one party to a K knows that the other is mistaken as

to some material fact, is it fraud for the party with knowledge to fail to disclose the error and may the mistaken party avoid the K on the theory that he was owed a duty of disclosure?

somes do find duty of disclosure, sometimes not. where NOT find duty of disclosure, then one party is mistaken and the other party knows or has reason to know it.

production of information and the duty to discloseo method of acquisition of info: casually v. deliberately acquired information

casually acquired info: accidentally overhearing (ie, not put in any cost or effort)

deliberately acquired info: info whose acquisition entails cost which would not hae been incurred but for the likelihood, however great, that the info in question would actually be produced

point de départ: PAS d’obligation de renseigner l’autre partie dépendance informationelle : criterion to determine the duty to inform Bail c. Montreal : Hydro Qc provides the info to the sub-contractors, and the

sub-contractors are not in a position to go out and obtain information themselves, THUS, here have subcontractor’s dependence on the information provided (here, royally incomplete info provided by Hydro Qc)

o property rights in information to ensure individual benefits from that info duty to disclose re: deliberately acquired info deprives party of benefit of a

private advantage duty to disclose re: casually acquired info not likely to reduce amount of

socially useful info generated if use alternative (to case-by-case analysis) of a blanket rule (of disclosure/nondisclosure) across each class of cases involving same sort of info, then must identify whether info, on the whole, more likely to be generated by chance or by deliberate searching

Mutual Mistake

Sherwood v. Walker [cml] [mutual mistake re: substance of agreement – barren cow]33 NW 919 (1887)Facts - Plf banker want to buy cow from Def importers. Plf told cows were probably

barren and would not breed. Cows sold to def for $80. When Plf come to retrieve, Def refuse to deliver b/c cow NOT barren, and worth $750.

- Plf sued, and Def claim that at time of sale, both parties believed that cow was barren and that the price was set based on that belief.

Issue Defs have right to rescind the K?Held Yes.Reasoning Morse J.

- mistake/misapprehension of the parties went to the whole substance of the agreement., thus no K for sale of the non-barren cow. the thg bought and sold did not exist.


- No mistake as to cow’s identity or mere quality, but the “very nature of the thg:” barren cow is substantially a different creature than a breeding one. Was not the animal defs intended to sell nor the animal Plfs intended to buy.

- DETERMINANT: parties wouldn’t have made the K except upon the understanding and belief that she was incapable of breeding, and of no use as a cow.

- Defs have right to rescind & refuse to deliver.Sherwood J. (dissent)- No mistake re: material fact. No conditions attached to terms of sale. - CONDUCT: neither party knew actual quality and condition of cow at time of

sale. - Both parties ignorant as to the quality of the animal, and as to this each party took

his chances.Rule Mutual mistake as to substance of the agreement, thus may be rescinded.Comments no longer good law after Bell

dissent: notice reference to risk allocation

Bell v. Lever Brothers Ltd. [cml] [NO mutual mistake, no change in identity of K’s subject][1932] A.C. 161 (H.L.)Facts - Lever Bros. controlled Niger Co.. Lever Bros. hired Bell and Snelling as

employees; had Ks of employment under which would be in service of Levers for 5 years

- During term of service, Bell and Snelling had “sold cocoa short” and profited – this was misconduct and a grave breach of duty to Levers and Niger Co.

- Amalgamation of Niger with another co. left no room for Bell and Snelling and thus Levers wanted to dispose of agreements. Levers entered into severance agreements with both employees under which they were given substantial compensation. At the time these agreements were made, neither Bell nor Snelling mentioned the misconduct.

- Levers claimed repayment of money on the grounds that it was paid under mistake of fact.

Issue - Was the severance agreement void by reason of a mutual mistake of Bell and Levers?

- Could the severance agreement be avoided by reason of the failure of Bell to disclose his misconduct?

Held - No. Appeal allowed.Reasoning Lord Atkin

- Procedural : had only pleaded unilateral mistake, not mutual mistake. Mutual mistake (l’erreur obstacle) permits rescission. Unilateral mistake, no rescission unless meet other conditions (like fraud).

- no failure of Bell to disclose his misconduct b/c “to imply such a duty would be … to create obligations entirely outisde the normal contemplation of the parties concerned.”

- if mistake operates, it nullifies consent- MUTUAL MISTAKE: re: quality of the subject matter of the thing

contracted for. mistake ONLY affect assent when mistake of both parties, and “is as to the existence of some quality which makes the thing essentially different from the thing as it was believed to be. (i.e. a difference in substance btwn the thing bargained for and the thing obtained)

- compared to Fraud and Innocent Misrepresentations:- fraud: enough to show inducement by fraud for rescission- innocent misrep/misapprehension: ONLY authorize rescission where relate

to complete difference in substance b/t what was supposed to be and what was taken (ie, failure in consideration) unless there was a warranty.

- SILENCE: mere silence as to anything which the other party might by proper


diligence have discovered, and which is open to his examination, is not fraudulent, UNLESS a special trust or confidence exist between the parties, or be implied from the circumstances of the case. - Smith v Hughes: thought he was buying old oats, age not a condition of the

K, buyer could have only recovered if there had been a warranty.- WARRANTY: purchaser must take article as he bought it, UNLESS there was a

warranty that it possess a particular quality (that it now does not). Even if the vendor was aware that the purchaser thought that the article possessed that quality, and would not have entered into the K unless he had so thought, still the purchaser is so bound. no legal obligation on the vendor to inform the purchaser that he is under a mistake, not induced by the act of the vendor.

- if K expressly/impliedly contains a term that a particular assumption is a condition of the K, the K is avoided if the assumption is not true- condition would not be implied unless the new state of facts makes the K

sthg diff in kind from the K in the original state of facts. - Krell v Henry: subject of K = rooms to view the procession, and

postponement of procession made the rooms not rooms to view the procession.

- does the state of the new facts destroy the identity of the subject matter as it was in the original state of facts? HERE, no, the identity of subject-matter not destroyed by mutual mistake

- In this case, jury acquitted Bell and Snelling of fraudulent misrep or concealment in procuring the agreements.

- With respect to mistake, an agreement to terminate a definite specified K is not void if it turns out that the agreement had already been broken and could have been terminated otherwise. The contract is the identical K in both cases, and the party paying for release gets exactly what he bargains for. It seems immaterial that he could have got the same result in another way, or that if he had known the true facts, he wouldn’t have entered into the bargain [here…provides examples of situations which are NOT mistake].

- Though this involves unjust hardship, it can be supported on the ground that it is of paramount importance that Ks should be observed.

- thus, servants unfaithful in their work retain large compensation which some will think they do not deserve. Nevertheless it is of greater importance that well established principles of K should be maintained than that a particular hardship should be redressed.

Rule - Mistake will only get a party out of a K when the truth actually destroys the identity of the subject matter as it was in the original state of facts.

- mistake as to the quality of the subject matter of the thing K-ed for will not affect assent unless it is MUTUAL and is as to the existence of some quality which makes the thing essentially different from the thing as it was believed to be.

- ASK did the mistaken parties get what they bargained for (more or less) or something fundamentally different?

Comments - compare to Huot c. Ouellette: subjective, unilateral mistake allows the K to be set aside ( depends on circumstances, woman of good faith?)

- Huot c. Ouellette: contract would NEVER have been put aside in cml (usu. the same thing in cvl)

Solle v. Butcher [cml] [mutual mistake re: material fact of rent controls][1950] 1 KB 671 (C.A.)Facts - A flat had been let at a standard rent of £140 in 1939. Landlord reconstructed it,

still subject to rent controls. But tenants believed it was NOT rent controlled. Lease now at rent-ctrl rate of £250, but no notice given to tenants. Tenant sought a declaration that the rent was £140 and that the rent in excess of that should be refunded. Butcher counter-claimed for rescission on common mistake.


Issue - Is there common mistake?Held - Yes.Reasoning Lord Denning

- interprets Bell v Lever: once a K made (once parties have to all outward appearances agreed w/ sufficient certainty in same terms on same subject-matter), then K good UNLESS and until set aside for breach of express/implied condition, for fraud, or other equitable ground

- HERE: have K b/c parties agreed in same terms on same subject-matter.- landlord’s fundamental mistake: believed could raise the rent to £250.- even if was his own mistake, this not sufficient to set K aside for nullitySETS OUT THE LAW: Mistakes rendering K voidable on equitable grounds- [1] K may be set aside if mistake of one party induced by mat’l

misrepresentation of the other (even though not fraudulent or fundamental, OR if one party, knowing the other is mistaken about an offer’s terms, or a person’s identity making the K, lets him remain under his delusion & conclude under mistaken terms)

- [2] K may be set aside if parties under a common misapprehension (either as to facts, or relative & respective rights) provided misapprehension was fundamental and party seeking to set it aside was not himself at fault.

APPLIES THE LAW:- here, lease induced by tenant’s innocent material misrepresentation (tenant

made unambiguous stmt re: private rights, and misrep re: private rights = misrep of fact). thus, mutual mistake & lease should be set aside. (still have this relief even though lease executed)

- BUT, if set lease aside, tenant may be unjustly evicted. SO, imply terms:- court must put the parties into the position in which they would have been in

if the mistake had not happened. if mistake had not happened, notice of incr would have been served, and lease would have been executed at full permitted rent.

- court should impose terms which will enable the tenant to choose either to stay in the apartment or leave. THUS, lease should ONLY be set aside if the landlord is prepared to give an undertaking that he will permit the tenant to be a licensee of the premises pending the grant of a new lease – here, the landlord will in law be in possession …

Rule - Mistake in equity allows court to set aside a K that would not be set aside on the basis of mistake in law. in equity, K liable to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.

Comments - Could landlord get out of K under Bell test? No. Truth would have to substantially change the subject matter. The fact that the flat is subject to rent controls does not change the subject matter of the K - it is still a lease. It is just a lease subject to rent controls (not a substantial change).

- Why does Denning come to this decision? He draws on equity b/c the KL rule on mistake is harsh and inequitable. The court of equity could set aside a K for mistake (even though the KL wouldn't) when it saw that it would be UNCONSCIENTIOUS to let the other party avail himself of the advantage he would obtain under mistake. (i.e. in this case, the return of the overpaid rents).

- Solle was overturned in 2002 Great Peace Shipping v. Tsavliris (English case):- Court held that it was impossible to reconcile Solle v. Butcher and Bell v.

Lever Bros. Impossible to distinguish between a "fundamental misapprehension" and "a mistake as to quality which makes the subject matter substantially different".


- Court understood why Denning didn't like Bell decision and why he wanted to expand the ambit of mistake but concluded that this issue was one to be dealt with by the LEGISLATOR.

- [note that not all of Solle was overturned the rule that unilateral mistake will be remedied if the other party knew about the mistake is still good law (and very well developed law - see misrepresentation)]

Alcoa v Essex [cml] [mutual mistake of fact re WPI Index] 499 F. Supp. 53 (1980)Teitelbaum J. parties assumed WPI Index adequate to fulfill purpose of objective pricing formula &

covering out-of-pocket expenses capacity of WPI Index to work as parties intended was a matter of fact at time of K-ing parties consciously undertook a closely calculated risk, and mistake concerning its

calculation is fundamental


D. Public Order

Is there a K to enforce? What is the obligational content of that K? NOW: If this content offends public order, court will NOT enforce the K.

Public Policies : protecting autonomy and reliance AUTONOMY OF THE WILL

o assent policy inherent in freedom of contract: right to enter into K, and right not to be bound in K in absence of meaningful voluntary assent, and courts will enforce agreement

RELIANCE: o protecting reliance and ensuring the security of transactions

EXCEPTION: o public order/public policy : parties cannot agree to do something that is

illegal or contrary to the interests of society

CIVIL LAWGeneral Restrictions CCQ 8: not renounce exercise of civil rights except to extent consistent w/ public order CCQ 9: in exercise of civil rights…may not derogate from rules of public order CCQ 1411: K whos cause [subjective cause] is prohibited by law or contrary to public order is

null.Specific Restrictions: Restrictive Covenants

o Cameron v Can’dn Factors: unreasonable duration or territorial ambit. determine reasonableness by balancing the employer’s interest in protecting his business with the employee’s interest for the protection of economic mobility/employment opportunity. here, stringent test of reasonableness b/c parties of equal bargaining power.

o CCQ 2089: non-competition clauses must be limited in time, place & type of employment to protect employer’s legitimate interests

o CCQ 2095: non-competition clauses NOT come into force when employer resiliate the K w/o serious reason, or has given employee such a reason to resiliate the K.

Fundamental Valueso Brasserie Labatt v Villa: resiliated K on basis of civil status discrimination

Surrogate Motherhood:o CCQ 541: cannot enter into a K of surrogate motherhood

COMMON LAW no statutory basis of public order in common law part of judicial role.

Absolute Nullity (directive public order)- illegal Ks, or Ks contrary to fundamental values - K invalid in the eyes of the state, courts will NOT enforce - also considered directive public order, where protect the general interests of society as a whole- null CLAUSE (Can Factors v Cameron)

The clause is null, but what happens to the rest of the K? The clause was part of the element, and the judge is not permitted to re-write the K.

So, judge usually resorts to divisibility of the clause: he has discretion to separate the clause, or a portion of the clause.

clauses en escalier (cvl) monde, 10 ans; canada, 5 ans; province, 2 ans. assurer qu’il reste toujours quelque chose auto-restriction (restriction à l’autonomie) avantage d’une clause pénale (payer $10 000)


- null CONTRACT: remise en état des parties? refus de toucher le K

Qui décide? Législatif ou judiciaire?o Legislatif : ex : CCQ 541 porter un enfant pour qqn d’autre nullité absoluo Judiciaire : cvl + cml séries de K identifiés comme contraire à l’ordre public

ex : contrats de gestation, vente d’organes nullité absolue ordre public et « bonnes mœurs »

o REMEDY : only extra-Kual. (if the K is null, then there is NO k-ual remedy)

Relative Nullity (protective public order)o error, fear, duress o protective public order, where protect the individual interests of K-ing

partieso K valid until one party (the one whose interests need protecting) pleads ito nullité absolue (touche le K même, à la demande des 2 parties, ne peut PAS être confirmé, object

mis de côté parce que contraire aux valeurs fondamentales)o

Fundamental Values- Public Policy/Public Order

valeurs politiques/institutionelles (prohibitions visent à soutenir certains institutions fondamentales)

clauses d’arbitrage : ex : contrats de consommation (Dell Computers) include K where arbitration required

donne effet aux clauses d’arbitrage (thus both parties, upon signing contract, renounce their right to go to court)

choix de forum et de loi applicable Notion that seeks to uphold the common good, maintain social order and organization.

Fundamental values of society must be respected by K-ing parties. Fluid in terms of time follows the changing morays of society Fluid in terms of place Fundamental values (public policy) not consistent from one

jurisdiction to the next. - Ordre public économique

liberté du marché, violations du libre marché (compétition illégal)- Ordre moral et Valeurs fondamentales (et problème de la renonciation)

questions les plus difficiles ** tension entre la liberté contractuelle et les garanties fondamentales types de K : « l’ordre public et les bonnes mœurs » santé public : années 60 contracter avec un médecin Amselem : renoncer à la liberté de déménager où il veut comme Labatt c. Villa il renonce à sa liberté de déménager renoncer à son droit à se marier ? (celibacy pledge for airline employees)

Cvl Examples

Cameron v. Cand’n Factors Corp. [cvl] [restr. covenant’s unreasonable duration/territ ambit][1971] S.C.R. 148Facts - Cameron, upon taking job at Canadian Factors signed non-competition clause

(restrictive covenant).- K said that (1) he would not induce client to take their business elsewhere; (2) he

would not take employment in Canada, for any other factoring concern or finance company or business with similar purposes for 5 years; and (3) if he did, he’d pay a $10,000 fine.

- Cameron resigned and signed with another financial company before the


termination of the K.- Canadian Factors alleged breach of (1) [Cameron induced former Canadian

Factors clients into his new place of work] and (2), and sued to recover $10,000 fine. Cameron denied the breach of (1) and admitted the breach of (2) but claimed that it was invalid.

Issue Was the contract void (in whole) due to the invalidity of paragraph (2)?Held Contract invalid, contrary to public order (Dissent)Reasoning Laskin J.

- Employee restraint covenants may be held invalid because of their unreasonable duration or unreasonable territorial ambit. (this principle doesn’t derive from the CCQ but is recognized in the courts of Quebec and France.)

- Both the duration and territorial ambit of the restraint covenants in the K are unreasonable and therefore contrary to public order.

- 5- year duration: You must balance the interest of the employer for the protection of his business with the interest of the employee for the protection of economic mobility (i.e. right to run a business vs. right to earn a living) in light of a policy that discourages limitations on personal freedom, and specifically, on freedom of economic or employment opportunity. The 5 year prohibition is unreasonable, and is therefore contrary to public order.

- Canada-wide scope: Paragraph (b) alone is also offensive to public order because it exceeds, in its Canada-wide ambit, any reasonable requirement of the plaintiff for the protection of its business interests, interests which are centred in Quebec.

Pigeon J. (dissent)- Feels that it is possible to read down the scope of the contract, making it valid.- Does not think that Cameron could use the excessive portion of the contract as an

excuse to rid himself of what is not excessive.- Judge believes that Cameron’s undertaking not to take employment with a

competitor, a “finance company” or a similar business must be regarded as divisible, that the first part of this undertaking (“finance company”) is clearly valid, and that Cameron has admitted a breach of it.

- Cameron was also in breach of paragraph (1) by inducing business from Canadian factors and cannot plead the excessive duration of this agreement as a defence to the charge of having broken it very shortly after leaving his employment.

- [The K may be invalid, but is not invalid in respect of Cameron’s activities]- He thinks that it is crazy that the validity of the K is dependent on the validity of

the paragraphs.- divisibilité de la clause- s’intéresse juste à la comportement de la partie, pas à la clause elle-même

Rule Employee restraint covenants may be held invalid b/c of their unreasonable duration or territorial ambit. Reasonableness is determined by balancing the employer’s interest in protecting his business with the employee’s interest for the protection of economic mobility/employment opportunity.

Comments Today, CCQ 2089: restrictive covenants must be limited in time and place, burden on employer to show it is reasonable.CCQ 1095: additional protection for employee: restraint doesn’t apply if employer resiliates K.

Jukier on Canadian Factors:- In order to avoid paying penalty Cameron had to plead that entire clause was invalid b/c at time

could not challenge the reasonableness of penalty clause- Today Cameron could attempt to have penalty reduced Article 1623 CCQ: amount of stipulated

penalty may be reduced if clause is abusive.


Re. restraint covenants in business context. - Such covenants will also be against public order if unreasonable in duration and/or territorial ambit - Rationale: protect society from monopoly/lack of competition- Test is stricter b/c business parties are assumed to be of = bargaining power- Jukier Wrong to draw line between business sale context and employment context; line should be

drawn based on bargaining power (businesses may be of unequal bargaining power OR an employer/employee may be of equal barg power)

Re. severability or reading down- Dissenting judge in Cameron case wasn’t severing – he was trying to rewrite the clause to make it

reasonable – it could then apply to Cameron (b/c even if clause was unreasonable Cameron’s actions violated the reasonable part of it)

- Ontario law reform proposed this possibility courts should have the scope to go back in time to determine what a reasonable clause would have been…then give effect to the clause as modified.

- Advantage It would catch employees who violated the reasonable part of a clause that is unreasonable as a whole

- Disadvantage It would provide no incentive for employers to make clauses as reasonable as possible

Brasserie Labatt v. Villa [cvl] [fundamental rights: discrimination re: civil status][1995] R.J.Q. 73 (C.A.)Facts - Villa offered promotion, accepts, but condition of promotion that must move w/

family to Mtl. Villa aware of condition when accepts. His wife has teaching job in Quebec City and cannot move. He doesn’t move his family, violates K, gets fired.

Issue Is the clause requiring Villa’s family to move to Montreal valid? Is the firing valid?Held No, the condition in the K is null. Firing not valid b/c based on breach of a null K.

Damages awarded to Villa. Reasoning Beaudouin J.

- The condition (a contractual obligation) posed is contrary to public order (CCQ 1373), and contradicts the requirements in the Charter art. 10 (p. 1352 CCQ) which prohibits any discrimination based on (a person’s civil status). Marital status is one element of a person’s civil status.

- The dismissal was based on marital status and the act was discriminatory since other employees with a different marital status would not be held to the same requirements.

[Gendreau J.]:- Agrees with holding but for different reasons:- Does not feel that the dismissal was based on marital status or that the condition

in the contract discriminates against the married employee.- He feels that the obligations imposed by the K are against the law and contrary to

public order (1373) because the employer cannot impose on his employee a way of leading his own private life.

- Moreover, the clause is a violation of the Quebec Charter of rights and freedom, article 5 – protection of privacy.

- And therefore holds the K null.[Note: He uses this argument to make it more broad because say for example the K said that if you have a girlfriend she is required to move, this would kill Beaudouin’s argument].

Rule Cannot discriminate in Ks. Cannot use K to impose on a person’s private life (i.e. dictate how it must be

led). Judgment suggests that courts will intervene not only in Ks that violate charter, but also in Ks that violate some general notion of public order.

Comments think about the outcome in the judgment: is there something inherently unacceptable in this K? is this truly a K of adhesion?he ACCEPTED the


clause and was in a position to negotiate textes statutaires re: contrats de gestation liberté en jeu moins intense que d’autres valeurs (moins scandaleux)

Jukier on Labatt v. Villa:- It is possible to validly use a K to abrogate a right, but must be adequate compensation. E.G. Hamer

v. Sidway and White v. Bluett. Perhaps clause would have been valid if Villa was given compensation besides salary.

- Severance: Court might have severed the null clause in order to make the K of employment valid.


VI. Changed Circumstances : Unforeseen events and Frustration

THE SPECTRUMImpossibility Futility Impracticability Catastrophic Price Changes

As you move along the spectrum, increasingly difficult to justify intervention. NOTE that frustration is a defence to a breach allegation and an excuse for non-performance.

Ks & Risk Allocation: Disruption of K-ual equilibrium inherent risks in forming a K : who assumes the risks ? considered a breach? consider the nature of

the risk, and the possibility of execution. K as a mechanism to control uncertainty K validly formed, but circumstances change & affect the K-ual equilibrium. how does the law

react?

Types of Changed (Unforeseen) CircumstancesExecution impossible for Debtor

caractère illégal de l’obligation sanction normal = écarter les deux obligations

Execution more costly for debtor (changes K-ual equilibrium) K normalement rarement impossible si plus onéreuse, débat en fonction de contrat comme prévision de l’avenir ie, unanticipated price hike perspective différente pour chacune des parties Alcoa : forecast loss of $60,000,000, thus not part of our assumptions ex: Pakistani village construction K post-conflict requires soldiers

Execution loses value for creditor (frustration of Ks) Krell v Henry : rent balcony to watch parade, no parade b/c King sick frustration of contracts: K loses its raison-d’être

Mechanisms for Allocating Risk, Anticipating Problems Implied Conditions/Inherent Risks

o Amalgamated Investments: owner/buyer assumes inherent risks of property listed as historical

o HR Sainsbury: imply condition b/c inherent risks of agro. give effect to presumed intentions of reasonable men.

Parties anticipate the problems in the Ko Otis : extends definition of force majeure beyond the legislative definition to incl strike

Price adjustment clauses o Alcoa : escalator clauses for prices tied to indices, excellent mechanism to gauge priceo notice of price change

Circumstances allowing exemption from execution of obligationo force majeure (Otis)o CCQ 1470 : free yourself from liability if prove cause was a superior force o CCQ 1393 : acceptance not conform to the offer may constitute a new offer.o impossibility

Intensity of the duty clauses o Crépeau : duty of means, duty of result

Hardship: renegotiation in case of rupture of K-ual equilibrium o arbitration clauseso Williams v Roffey : plf in financial difficulties post-formation, def modified K to pay

more for a pre-existing duty. court upholds negotiation of the changed circumstances.o Doughboy: arbitration clause as a material term.o duty to take all reasonable efforts in the face of changed circumstances (ie, find another

supplier if yours goes out of business)


Unilateral rescission clauses by means of noticeo conditions re : existence of K

label as ”condition”o Cehave : since labelled as ”condition” in K, and not mere warranty, gives warning to

parties where may be held liable in breach.

Factors favoring renegotiation long-term K, parties want to maintain litigation expensive contrats relationnels economic sanction protect business reputation/efficacy legal duty to negotiate (good faith) (Germany)

Legal Obstacles to Adjustments cml: fresh consideration for each adjustment

o solutions: practical benefit (Williams v Roffey), put the first K aside, fictitious consideration (payment)

duress/crainte in the formation of the new K cvl: sufficient offer & acceptance that new K even exist? (CCQ 1393)

Judicial RemediesBased on :

implied intention of the parties (Amalgamated Investments’s inherent risks) equitable Ks (want to preserve this in the face of changing circumstances)

Options :- Resiliate K + damages

CCQ 1439: K may not be resolved, resiliated, modified or revoked EXCEPT on i) grounds recognized by law; or ii) agreement of the parties.

- Compel re-negotiation- Re-write the K (rare)

Alcoa: modifies the K- Non-Intervention- Clauses :

Interpretation of the clause (Otis) : force majeure extended to incl strikes Intended Effet of the clause

o Alcoa: parties took a calculated risk w/ escalator clause, preserve long-term Kso Sainsbury: imply condition to give effect to presumed intention of reasonable men

- Where there is no clause : plead under formation : mutual mistake (Amalgamated, Alcoa) plead under execution

o impossibilité d’exécution (cvl + cml) libération des parties (mettre fin + restitution des parties)

o frustration (cml, mais rare) libération des parties (Krell v Henry) plus d’intérêt pour le créancier

o imprévision/hardship libération ou renégociation ou correction … ex : principes UNIDROIT, int’l commercial law (s.2, art. 6.2 – LOOK UP)

very different from dr cvl quebecois, or from cml principles (here, allow for intervention of the judge more easily than in the other two classic traditions)

execution became significantly more costly (Alcoa)

“Hardship” Unidroit Principles of International Commercial Contracts (1994)SECTION 2: HARDSHIPARTICLE 6.2.1


(Contract to be observed)Where the performance of a contract becomes more onerous for one of the parties,that party is nevertheless bound to perform its obligations subject to the followingprovisions on hardship.ARTICLE 6.2.2(Definition of hardship)There is hardship where the occurrence of events fundamentally alters theequilibrium of the contract either because the cost of a party’s performance hasincreased or because the value of the performance a party receives has diminished, and(a) the events occur or become known to the disadvantaged party after the conclusionof the contract;(b) the events could not reasonably have been taken into account by the disadvantagedparty at the time of the conclusion of the contract;(c) the events are beyond the control of the disadvantaged party; and(d) the risk of the events was not assumed by the disadvantaged party.ARTICLE 6.2.3(Effects of hardship)(1) In case of hardship the disadvantaged party is entitled to requestrenegotiations. The request shall be made without undue delay and shall indicate thegrounds on which it is based.(2) The request for renegotiation does not in itself entitle the disadvantaged partyto withhold performance.(3) Upon failure to reach agreement within a reasonable time either party mayresort to the court.(4) If the court finds hardship it may, if reasonable,(a) terminate the contract at a date and on terms to be fixed, or(b) adapt the contract with a view to restoring its equilibrium.

cml Frustrated Contracts Act, R.S.O. 1990, c. F.34 Act applies to K “that has become impossible of performance or been otherwise frustrated”

and the “parties to which for that reason have been discharged” discharged: relieved of further performance of the K may recover monies paid & benefits gained before K discharged

cvl Impossibility to Perform (1693-94) CCQ 1693: debtor released where cannot perform b/c superior force (and not in default), OR,

debtor released where creditor could not benefit b/c superior force UNLESS, in either case, debtor has expressly assumed risk of superior force.

CCQ 1694: debtor released by impossibility of performance may not exact performance of the correlative obligation of the creditor; if performance already rendered, restitution is owed.

cvl Risks w/ Seller until Delivery (1453, 1456) CCQ 1453: transfer of a real right in property vests acquirer w/ real right upon formation of

K, even though property not delivered immediately & price to be determined. CCQ 1456: debtor of the obligation to deliver the property continues to bear risks of the

property until it is delivered.

Otis Elevator Co. Ltd. c. A. Viglione & Bros. Inc. [cvl] [clause expressly limited liability for strike]Mtl., 500-09-000316-786 (C.A.)Facts Otis Elevators entered into K to construct elevator in bldg within 8 months

after acceptance of proposal. Defs were to have the hoistway ready 4 months after acceptance of proposal.

K included the following clause 10: “neither you nor we shall be liable to the other party … for any loss, damage or delay due to any cause beyond your or our reasonable control, including, but not limited to, strikes,


lockouts, fire, explosion, theft, floods, riot, civil commotion, ware, malicious mischief or act of God.” strike occurred, and Otis employees “indefinitely suspended”

Issue Otis liable for costs of delay due to striking workers?Held No.Reasoning juge Turgeon

“c’est dû à une mauvaise situation syndicale au-delà du contrôle raisonnable de l’appelante qu’elle a été empêchée d’exécuter son contrat” (ie, invoke clauses 5 & 10 limiting Otis’ liability)

normalement, la grève n’est pas un cas de force majeur « ici, les deux parties au contrat P-1 ont pris la peine de convenir que la

grève serait un cas de force majeure ; je crois qu’il faut respecter leur volonté. »

Rule where K expressly limits liability due to certain events (here, a strike), parties cannot be held liable for consequences flowing from those events (here, delayed and ultimate non-performance due to the strike)

Comments strike usu. not considered as force majeure, but here, contract explicitly included a strike as force majeure

Alcoa v. Essex Group [cml] [long-term K foresaw risk by escalator clauses](1980) 499 F. Supp. 53 (W.D. Penn)Facts complicated escalator clause based on Wholesale Price Index – Industrial

Commodities (WPI-IC). OPEC oil embargo of 1973 caused cost of electricity to rise at rate far in excess of rate of increase in WPI. if K run its course, then Alcoa lose $60,000,000.

Issue Complicated escalator clause, based on WPI-IC Index still valid after OPEC oil embargo?

Mutual Mistake? Frustration?Held No.

Yes, yes.Reasoning Teitelbaum J.

each party assumed the index was adequate to fulfil its purpose. mistaken presumption = present actuarial error

WPI’s capacity to work as the parties expected it to work was a matter of fact, existing at the time that they made the contract

not a mutual mistake of fact (refers to Raffles and Sherwood v Walker) mutual mistake of fact: both parties consciously undertook a closely

calculated risk rather than a limiless one. mistake concerning calculation is fundamental. believed uncertainty was effectively limited w/in a designated range so that they would deem outcomes beyond that range to be highly unlikely

long-term contract: “if the law refused an appropriate remedy when a prudently drafted long-term contract goes badly awry, the risks attending such contracts would increase.”

problem of risk limitation: “courts should be alert to indications that the parties to a commercial contract sought to limit their risks, and should interpret the contrats and frame remedies to protect that purpose.”

Rule parties planned risk within certain limits, unforeseen events (ie, OPEC oil embargo) do not mean that parties still bound by contract when those events make the contract go awry

Comments


Amalgamated Investment v. J. Walker [cml] [inherent risks of property listed as historical][1976] 3 All E.R. 509 (C.A.)Facts bldg purchased for developed, one day after purchase bldg placed on

historically protected list, and may not be able to be deveoped as planned Issue i) Mutual mistake? ii) Frustration?Held i) No. ii) No.Reasoning Buckley LJ

no mutual mistake b/c historical list was signed AFTER the contract for purchase was concluded. mutual mistake must occur AT THE TIME the K was entered into.

no frustration : “frustration occurs whenever the law recognizes that, without default of either party, a contractual obligation has become incapable of being performed because the circumstance in which performance is called for would render it a thing radically different from that which was undertaken by the contract.”

o no stipulation in K relating to anything of that kind, o “risk of property being listed as property of architectural or

historical interest is a risk which inheres in all ownership of buildings.”

o purchaser must carry the risk. Plfs, when entering K, must taken to have known that they would need to get

planning permission may well turn out that “listed building permission” obtainable

Rule where conditions of K not meet elements of mutual mistake or frustration, K cannot be voided where relate to inherent risks all persons entering into Ks must face

Comments

H.R. Sainsbury Ltd. v. Street [cml] [imply presumed intention of reasonable men][1970] 3 All E.R. 1126Facts - Def farmer and Plf grain dealer had K under which Def would sell entire crop to

plf. estimated yield was 275 tons thus dft agreed to sell "about 275 tons" at the price of 20 pounds/ton.

- That year, the weather in US and England was bad and barley harvest was poor.- Dft's total crop came to only 140 tons. Def did not sell crop to ptf. He sold 100

tons to another dealer at 27.5 pounds/ton and kept 40 pounds for himself.- Ptf bought barley from another dealer at 30 pounds/ton and sued the dft for

breach of K. Issue Plf obligated to deliver 275 tons as agreed? Could Plf be relieved of all obligations

under the K?Held No. No.Reasoning MacKenna J.

- implied condition if def, through no fault of his, failed to produce the stipulated tonnage of his growing crop, he should not be required to pay damages.

- reasonable to imply b/c (1) inherent risks of agriculture; (2) the fact that crop was still growing when K was signed.

- NO implied condition that if def failed to produce the whole, he would not have to deliver any. if parties had actually intended this, they would have estimated the output more carefully (and less optimistically). (CRÉPEAU)

- In past cases similar to this one, the court excused the seller from the obligation to deliver more than what the land had produced.

- It makes no difference (in this case at least) if the condition which excuses the dft is cast in terms of a precedent or subsequent condition (Under obligation to deliver if produces VS. Under obligation to deliver which is discharged if he


doesn't produce). - How to determine what condition should be implied: It should be a condition

which will give effect to the presumed intention of reasonable men. (For example, may be unreasonable to compel buyer to accept the partial volume…condition should thus allow buyer to discharge K or accept part delivery).

Rule In order to relieve party from overly onerous or difficult obligation that is result of supervening event which is not his fault, court can imply a condition which will give effect to the presumed intention of reasonable men. (E.g., if dft failed to produce stipulated tonnage, buyer will accept partial delivery OR buyer can discharge K). [Jukier: the supervening event would have to be an exceptional one]

Comments COMPARE: Sainsbury in QC crop failure = force majeure? No, b/c not render execution impossible

(could buy grain from another dealer). Also, crop failure was foreseeable. PLUS, no force majeure clause. Thus, dft would have to deliver. (If force majeure clause, this event would likely be one outside the reasonable control of the dft).

What if farmer in Sainsbury had multiple customers? Would he have to allocate? SH: sure, allocation of produced crop may give effect to the "presumed intention of reasonable men"On what basis do we imply the condition? the intent of the particular parties? looking at parties subjectively? objectively?


VII. Remedies for Breach of Contract

Breach of Contract (inexécution) Defined: failure to honor a promise of perf when that perf falls due

Nature of Breach existence & content of K date perf fell due, if there is a condition precedent if perf complied w/ the promise severity of the breach & promisee’s rights in reacting to the breach

Significance of a Breach Cehave: test of seriousness of breach total + material breach promisee may withhold perf, terminate K, claim full damages material, but not total promisee may suspend perf, await cure, claim compensation

for any loss suffered not material (substantial perf) promisee may claim compensation for any loss

suffered, must still perform his side of bargain Ruxley: pool depth off by 9 inches

Anticipatory Repudiation Hong Kong Firs manifests intent by words or actions in advance that will breach when performance due clear, unequivocal, and voluntary repudiation by one of the parties recognized as equivalent of a

mat’l & total breach response to repudiation: i) accept repudiation by treating as an immediate breach; ii) delay

responding to the repudiation to see if the repudiating party repents ELEMENTS:

o promisor’s action/inaction must be serious enough to qualify as total & mat’l breacho promisor’s stmt/conduct must clearly indicate to reasonable promisee that intends to

breach materiallyo promisor’s stmt/conduct must be voluntary (deliberate & purposeful)

Purposes of Breach of Contract discourage opportunistic conduct of créancier déçu

o Cehave, Hong Kong Firs : taking advantage of remedies b/c of market price changeso compare to inexecution of person missing one visit out of the 1500 weekly visits she makes

over the course of 5 yrs (ie, relatively insignificant breach of an obligation) limit uncertainty for créancier déçu

o the written condition permits the créancier déçu to be justified, in advance in withdrawing from the contract quickly, withOUT having to resort to litigation

o and if do resort to litigation, have confidence that did the right thing this did NOT happen in Hong Kong Firs, where they made the wrong decision, and judge say had no right to end contract and only entitled to damages

cml Conditions & Warranties breach of condition may render K null Cehave : quality of the goods “shipped in good condition” = intermediate stipulation,

where look at consequences of seriousness of breach to assess whether condition or warranty.

condition: “…an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract…” (goes to the root of the K) (Hong Kong Firs)

NOTE : cml will take into account breach of minor importance where this is a written Kual stipulation. (unlike CCQ 1604)

”magic word”


if label sthg as a condition, permits the parties to know IN ADVANCE what the conditions are where non-performance may leave them in breach of K.

warranty : breach of warranty may give rise to damages compare cases where warranty NOT included: Dick Bentley, Smith v Hughes (old v new oats) legislation: such as UN Convention for Int’l Sale of Goods

material terms, among other things, the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes.

cvl Material Stipulations (1604) must be material stipulation: (CCQ 1604) notwithstanding any stipulation to the

contrary, he is not entitled to resolution or resiliation of the K if the default of the debtor is of minor importance. (ie, same test of seriousness of breach)

if one party breach, then other party may breach to same degree, unless bound to perform first (CCQ 1591) where one of the parties fails to perform his obligation to a substantial degree or does not offer to perform it, other party may refuse to perform correlative obligation to a corresponding degree, unless bound by law, will of the parties, or usage to perform first.

Cehave NV v. Bremer [cml] [test of seriousness of breach]Cehave NV v Bremer Handelgesellschaft Gmbh[1975] 3 All E.R. 739Facts - Sellers agreed to sell buyers 12,000 tons of citrus pulp pellets for approx

$74/ton. clause of K: "Shipment to be made in good condition" at time of shipment, mkt price had fallen greatly, and some cargo damaged. Buyers rejected the WHOLE shipment and demanded repayment. Middleman bought the damaged cargo and sold it to the buyer at 33% of K price.

- Buyer used the entire cargo to manufacture cattle food, despite it being damaged.- buyer assumed the risks of transport, and refused delivery. - comportement stratégique: Mr. Baas as intermediary, buys at lower price, gives

goods to original buyerIssue Did the sellers' breach entitle the buyer to set aside the whole K? [or just entitle him

to dmgs?] [In what circumstances can a party, who is in breach of a K-ual stipulation, call on the other side to perform his part or sue him for non-performance?]

Held No. Buyer entitled to damages only.Reasoning Lord Denning

- You have obligations or K-ual terms of two types - (1) CONDITION - serious enough that it goes to the root of the K . Breach

of condition allows K to be set aside. - (2) WARRANTY - not so serious that it goes to root of K. Breach of

warranty will not allow K to be set aside. - (3) INTERMEDIATE STIPULATIONS (see below)

- How do we determine if breach is so serious that it "goes to the root of the K" such that can get rid of K altogether? [We saw "the root of the K" in the context of fundamental breach and exclusion clauses - fundamental breach has since been rejected].

Two ways to look at this:- [1] Make an AB INITIO determination (ie, K’s construction & parties’

intentions) that these terms are warranties and these are conditions. presupposes issue of formation.

- [2] Make an EX POST FACTO determination of the seriousness of consequences of breach, and then determine if clause is condition or warranty. (Denning does this)

- Intermediate stipulations: depending on the breach, it can take on


characteristics of condition OR warranty. THUS, [1] looks at the clause itself; [2] looks at the consequence of breach. [This allows the courts to apply a more logical test based on what ACTUALLY HAPPENED. More realistic.]

- “shipped in good condition” = INTERMEDIATE condition- NOT a condition strictly so called. - look at seriousness of the consequences: no right to reject goods unless

goes to the “root of the K” (requires serious & substantial breach, such as all rotten goods). HERE, still able to use seeds precisely for the purpose Ked for, thus no substantial breach.

- buyer entitled to damages, but not rejection.- “merchantable quality” = IMPLIED condition (not a warranty)

- entitled to reject goods, or accept goods and apply for remedy in damages- here, entitled to allowance off the price for breach of clause , but not entitled

to reject the whole lot- ask whether in circumstances of this particular breach, K should be set aside or

maintained. See paragraph [11] and [10] of the Hong Kong Case. Not entitled to set K aside b/c How could it be a serious breach if he was able to use the seeds for the very purpose that he K-ed for? Wouldn't allow party to use breach as a technicality or excuse where it not ought to.Buyers entitled to damages for difference in value b/t damaged goods and sound good on arrival in Rotterdam

Rule Breach of one party will only excuse performance of the other party when a CONDITION (and not a warranty) is breached. Some clauses are obviously conditions or warranties (breach is always serious or always minor). Some clauses - breach may be minor or serious - these are "intermediate stipulations". Breach of an intermediate stipulation will only excuse performance when the breach goes to the root of the K (i.e. breach is very serious). [Breach cannot be serious if party is able to meet needs that he K-ed for.]

Comments Changing Market Conditions typical case of changing market conditions. compare Raffles same problem of circumstances of changing pricesWarranty compare Dick Bentley: if party makes a representation that induces you to

enter, it can be treated as a misrep or a warranty (term of K for which you can sue for breach and recover expectation damages).

compare cvl: highest intensity of obligations (“warranty”) Test for whether or not K can be ended based on seriousness of breach.

Benchmark in cvl also seriousness of breach (CCQ 1604)

Hong Kong Fir v. Kawasaki Kisen Kaisha [cml] [wrongful repudiation may claim damages][1962] 2 Q.B. 26Facts Plfs bought ship and chartered to Defs. terms of K: vessel “in every way

fitted for ordinary cargo service” and would be maintained “in a a thoroughly efficient state in hull and machinery during service.”

on voyage, engine broke down repeatedly, and ship had incompetent crew Defs wrote repudiating K and claiming damages for breach of K between time K made and time of repudiation, very steep fall in rate for

sea freight, and Defs could charter another ship for less than half the rate they were paying the Plf

Plfs claim damages for wrongful repudiation of charterparty Charterers allege breaches by Plf (vessel unseaworthy, failure to exercise

due diligence) and, alternatively, charterparty frustrated by reason of breakdown

Issue Plfs entitled to damages for breach of K (wrongful repudiation)?Held Yes.


Reasoning Diplock L.J. in what event will a party be relieved of his undertaking to do that which he

has agreed to do but has not yet done? does the occurrence of the event (where unclear if discharges one of the

parties from further perf) deprive the party who still has to perform of substantially the whole benefit which it was the expressed Kual intention of the parties that he should obtain as the consideration for performing those undertakings ?

some breaches will, and other will not, give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the K

o cannot simply classify into conditions & warrantieso legal consequence of such a breach depends on nature of the event

to which the breach gives riseo looks like Denning’s “intermediate stipulations”o Plfs undertaking to “tender a seaworthy ship” = such a breach

did occurrence of events (ie, events occurred as result of breach at time at which charterers purported to rescind the charterparty) deprive the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charterparty that the charterers should obtain from the further perf of their own Kual undertakings? No.

def charterers could ONLY have been deprived of substantial benefit if prove want of shipowner’s due diligence. due diligence clause 13 of K: “due diligence”: exempts shipowners from resp for delay/loss/damage due to want of due diligence on part of shipowners in making vessel seaworthy

charterer undertakes to continue to perform obligations notwithstanding ocurrence of such events if they fall short of frustration of the K, and even deprives himself of remedy in damages UNLESS such events are due to want of shipowner’s due diligence.

thus, b/c Plf’s mistakes did not deprive charterer of substantial benefit, the charterer’s wrongful repudiation of the K constitutes breach, and Plfs entitled to damages for breach of K

Rule entitled to damages for wrongful repudiation of K breach examined by events which deprive parties of substantially the whole

benefit which it was the expressed Kual intention of the partiesComments raison fondamental du créancier à sortir du K: price change, et peut louer un

autre bateau à un prix beaucoup plus bas choix entre dommages-intérêts et résiliation du K


Remedies for Breach of Contract

Non-Judicial Enforcement being in default self-help mechanisms: negotiation, mediation, arbitration economic feasibility of litigation (amount at stake too small to justify expensive

litigation) difficulty of proving economic injury problem of actually collecting on the judgment (clear that breaching party has no funds)

Other Remedies Avoidance (for duress, fraud, mistake)

GENERALLY assumption : valid and enforceable K, one of the parties has materially breached i) take into account nature & extent of compensable loss (ie, enforcement of expectation interest) ii) if more than one remedy available, decide which most efficiently and comprehensively

compensates for the loss (discharge of Ks, specific performance, expectation damages) iii) take into acct policies/principles that may limit def’s liability for the loss

Goal of Remedy contracts: compensate for sthg NOT gained what the Plf should have had

o expectation interest: cure disappointment by giving victim of breach exactly what was promised & justifiably expected under K

o compare tort: compensate for sthg lost restore victim to pre-injury position protect plf’s expectation interest (giving Plf benefit of her bargain) place victim of breach in position she would have been if no breach had occurred

Les recours en cas dLes recours en cas d’’inexinexéécutioncution(voir par exemple 1590 C.C.Q.)(voir par exemple 1590 C.C.Q.)

Inexécution(breach of contract)

Sortir du contrat- Résolution - Résiliation

- Discharge ofcontracts

Obtenir l’exécutionen nature

Obtenir l’exécutionpar équivalent ($)

CIVIL LAW

CCQ 1590 : An obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay.


Where the debtor fails to perform his obligation without justification on his part and he is in default, the creditor may, without prejudice to his right to the performance of the obligation in whole or in party by equivalence,

Note: justification : possible by force majeure. in default: must be specified condition in K for date of performance, or debtor must be notified in writing that he is in defaultw/o prejudice to performance by equivalence: Kual damages

(1) force specific performance of the obligation;Note: may still demand Kual damages

(2) obtain, in the case of a Kual obligation, the resolution or resiliation of the contract or the reduction ofhis own correlative obligation;Note: may still demand Kual damages

(3) take any other measure provided by law to enforce his right to the performance of the obligation.Note: may still demand Kual damages

opens to punitive damagesdroit de rétention: hold the item against payment for work performedwho executes first? pay first at McD’s, pay after food at nice restaurant

COMMON LAW primacy of monetary compensation over specific relief

specific perf may take on character of involuntary servitude (Warner Bros.) place the victim of breach in the position that she would have been in had NO breach occurred protect the plf’s expectation interest, give the plf the benefit of her bargain interpreted objectively: what a reasonable person in her position would have expected as the

benefit of the transaction NOT compensating for sthg lost (as in torts), but instead compensating for sthg that was not

gained

DISCHARGE OF CONTRACTS (la résolution)


SPECIFIC PERFORMANCE(l’exécution en nature)

CIVIL LAW specific perf as the norm (CCQ 1590) certain exceptions : personal performance, and limits from interlocutory character (La Cité)

COMMON LAW exceptional remedy, reserved for unusual cases (norm is monetary compensation) remedy in equity, b/c provides relief that cannot obtain at law (monetary compensation). thus,

specific performance only granted where performance is the only means of achieving adequate relief

also consider factors of practicality, forced labor (Warner Bros.) and efficiency not award specific performance where great hardship on debtor (Ruxley)

Factors to Consider Moral issues : liberty and duress on the person (Warner Bros., CBC anchorwoman example), promise

of indemnity, can money compensate for everything; efficient breach Historically: in cml, specific performance as remedy in equity

o exceptional corrective mechanism (where cml could only award damages) Procedurally: need supervision, interlocutory nature of specific perf (Cité Concordia: need immediate

relief)

Efficient Breach (Holmes): debtor should be permitted to exit if he pays the price if the def’s cost to perform would exceed the benefit that performance would give to both parties.

ie, def better off without making the plf worse off rational contracting party with full information will choose to breach where circumstances make

the breach efficient THUS, rule that plf entitled only to damages for econ. loss (here, in efficient breach, plf would not be entitled to damages b/c not suffer econ loss)

Warner Bros. Pictures v. Nelson [cml] [not enforce specific performance of personal svc][1937] 1 K.B. 209Facts - K btwn ptf film producer and dft film actress.

- K has negative covenant: dft agrees that during term of K she will not engage in any other work w/o the written consent of the producer. [OBLIGATION NOT TO DO?]

- If dft fails, refuses or neglects to perform services, ptf can extend K to account for period equivalent to period of failure, refusal or neglect.

- Dft breached the K by entering into a K w/ a third party in Britain- Ptf claimed declaration that K valid and binding, injunction to restrain dft from

acting in breach of it and damages.Issue Can court order injunction to restrain Def from acting in breach of the negative

covenant?Held Yes. Restricted injunction granted.Reasoning - Court rejected restraint of trade argument. It found that the K was not

altogether unreasonable b/c the restrictive covenant was confined to her period of service (not her whole life)

- In general, courts will not enforce specific performance of a positive covenant of personal service. A court will enforce specific performance of a negative covenant (i.e. that a thing shall not be done).

- The court will attend to SUBSTANCE, not form. Thus, it will not enforce a negative covenant which it would not enforce if expressed in positive terms. Nor will a court enforce a negative covenant if doing so would be to drive the dft either to starvation or idleness. (Idleness = basically forces the specific performance of the positive covenants)


- An injunction is a discretionary remedy and the Court in granting it may limit it to what the Court considers reasonable in all the circumstances of the case.

- Court cannot sever or read down a K which is void due to restraint of trade. BUT…it can exercise a discretion as to how far it will enforce a valid covenant by injunction.

- Here, it would be proper to grant an injunction unless to do so would be tantamount to ordering the dft to perform her K or remain idle or unless dmgs would be a more appropriate remedy.

- The ptfs are asking for a restricted injunction (not covering ALL the negative covenants) which would prevent the dft from rendering services for other motion picture or production companies. Such an injunction would not force the dft to perform her K (although it might tempt her to b/c she could not get as much $ in another occupation) [Jukier is critical of this - could she really start her own company or wait tables?]

- Damages are not a more appropriate remedy. The parties explicitly recognized (in the K) the appropriateness of an injunction over damages. Also, damages would be very hard to evaluate (b/c of the nature of her occupation - she is valuable b/c of who she is) [she is a "unique good" - damages cannot replace her]

Rule Courts will not enforce specific performance of a positive covenant of personal service (or a positive covenant framed in negative terms.)

Should not grant an injunction if to do so would be tantamount to ordering the Def to perform her K or remain idle, or unless damages would be a more appropriate remedy.

**secondary nature of specific performance as a remedy**Comments - KL won't enforce obligations to do. WHY? nemo praecise cogi potest ad

factum no one can be forced to do something against their will if the only way to do that is by physical violence or constraint

- Very critical of KL distinction btwn obligations to do and not to do. It results in S.P. being a very limited remedy

- But it is a problematic dichotomy WHY?- [1] Most obligations can be phrased in both ways (ob not to block lane vs.

ob to remove impediments)- [2] Can be same degree of physical compulsion involved in forcing not to

do as in forcing to do.- [3] Is not appropriate to apply to corporations - same level of compulsion

not involved- Jukier: Rather than just blindly characterizing obligations as "to do" or "not to

do" - INTUITU PERSONAE: Determine whether S.P. should be granted by asking

whether or not the services of THIS debtor are absolutely necessary. Award S.P. where K depends on the individual characteristics of the debtor (e.g. K with opera singer)

- Also look at the particular facts and determine whether the nemo praecise rule would be violated by ordering the injunction.

Cité Concordia v. Banque Royale [cvl] [interlocutory injunction where damages inadequate][1981] C.S. 812Facts RBC signed two leases w/ La Cité. RBC has since reduced its customer svc

hours, and brought an action declaring the leases null Cité Concordia claim mandatory interlocutory injunction to stop RBC from

closing its branch in La Cité to preserve the status quo pending judgment on the merits.

Issue La Cité get injunction against RBC’s move?Held Yes.Reasoning Receivability of Request for Interlocutory Injunction? Yes.


751 Code Civil Procedure defining injunction as enjoining party to stop, or not do a certain act or operation “dans les cas qui permettent.” thus must examine substantive law in CCLC 1065 & 1066, which seems to allow an interlocutory injunction in the present case.

Mandatory Interlocutory Injunction La Cité is a mixed-use development w/ 3 or more significant revenue-

producing uses, significant functional & physical integration of project components, and in conformance with a coherent plan shows synergy b/t various parts of La Cité

i) Does La Cité have a “droit apparent”? Yes b/c leases still in effect, RBC would be violating lease, and:

RBC claim that La Cité not have clean hands & made false representations prior to signing, but this arg invalid since leases contain s. 23 “Prior Agreements”: lease constitutes conclusive presumption that all previous agreements/representations shall solely be those in this lease

“balance d’inconvénients” in favor of La Cité: value of loss to RBC is minimal (just closing one branch of approx 1500) whereas value of loss to La Cité would reduce the value of the complex

La Cité’s loss: short-term (reduced property value, loss of revenue, doubts as to finding another tenant) and long-term (domino effect, difficult to evaluate in $$, RBC as key tenant, RBC as one of Canada’s most prestigious banks and thus serve as pole of attraction)

ii) Would La Cité suffer irreparable harm such that the final judgment would have no effect? Yes.

“balance d’inconvénients” has shown that La Cité would suffer serious harm, and remedy in damages would be inadequate.

Rule where remedy in damages inadequate to remedy harm (here, harm to mixed-development difficult to value, loss of prestige, domino effect) may order interlocutory injunction (approximating specific performance)

Comments

Ruxley Electronics v Forsyth [cml] [no specific perf where great hardship on debtor]- see full summary under Punitive Damages- What if Forsyth had asked for S.P.? court will generally not award S.P. where to do so would put

great hardship on debtor (as in this case - work required would be significant)- Civil Law Is this a case "that admits of" specific performance (pursuant to Art. 1601)?

- Yes. Judges in CL reject defense of hardship. But dft might be able to claim ptf's abuse of right. Note that KL courts care about hardship wrt S.P, but not wrt damages (will award COC if reasonable, even if there is hardship). This seems inconsistent. (Jukier: should not consider hardship wrt S.P.).


DAMAGES: Expectation Damages ($)(l’exécution par équivalent)

Expectation Damages: Defined cvl + cml: place the creditor where he would be if the Kual obligation had been executed in

conformity with the K cml: protecting expectation interest (compensating victim for sthg not gained) and reliance

interest (reimbursement of futile expenses) (L. Fuller) compare Ks & torts damages:

o Ks = compensating victim for sthg NOT gained (expectancy principle) o Torts = compensating victim for sthg LOST (restitutio in integrum)

Scope of Expectation Damages: depends on Risk Allocation & Foreseeability compensation depends on how the judge interprets the parties risk allocation the parties’ risk allocation depends on (Hadley v Baxendale):

o the knowledge of the parties (imputed knowledge of ordinary risks, denunciation of special risks)

Hadley (1) : ordinary risks, look at bargaining power (Victoria Laundry) Hadley (2) : special risks, communicated

o foreseeability of the injury (cml: important; cvl: evaluated on balance of probabilities) cml : foreseeabilityo Hadley : reasonably foreseeableo Victoria : serious possibility (also incl bargaining power)o Koufos : sufficiently likelycvl : foreseeability at time of K-ing on balance of probabilities (1613)o stdrd of balance of probabilities

foreseeability in torts v Ks: o in Ks, voluntarily made b/t parties have an opportunity to allocate risko in Ks, parties deliberately undertake mutual duties, and can define where they shall, and

shall not be liable (Lord Pearce, Koufos) “within the reasonable contemplation of the parties” compte tenu des circonstances

BUT, no opportunity in adhesion/consumer Ks (ie, Purolator, could only write sthg on envelope, but this is not part of the K)

and, same fault could give rise to a Kual OR a tort action (note in cvl no choice) thus limiting the scope of liability to Kual liability. ex: bijoutier parking his mercedes in parking lot with $1 mill worth of jewels; car stolen;

garage resp for $1 mill? would communication of the risk allow allocation of the risk? (ie, is the employee capable of assuming the risk?)

Boutin c Perrin: sick cow infects 15 other cows, cows still good for eating, but lose weight and no longer produce milk. owner receive dmgs for 1 cow? 16 cows?

Material Injury Le dommage aux biens de la victime en raison d’une exécution défectueuse Les dépenses faites en vain par la victime (le créancier) La perte causée à la victime par le retard dans l’exécution Le coût additionnel de l’obtention du bien sur le marché – ou le coût additionnel de l’exécution

par un tiers La perte de profits anticipés sur l’exécution du contrat La perte de profits résultant de l’occasion manquée (lost profits, lost opportunity) (VK Mason)

CIVIL LAWELEMENTS of breach of K (1458)

Every person has a duty to honour his contractual undertakings.Where he

i) fails in this duty, he is


ii) liable for any bodily, moral or material injury heiii) causes to the other contracting party and is liable to reparation for the injury;

[Note parallel with civil liability under 1457: negligence, injury, causation]iv) neither he nor the other party may in such a case avoid the rules governing

contractual liability by opting for rules that would be more favourable to them. Houle: Kual action b/t A and B, but 3d party only have extra-Kual remedy

against B. distinction: deux auteurs fautifs: solidaire en resp extra-K-uel, mais si un des

parties a un K avec le victime, on ne parle plus de solidarité mais de in solidum

Calculating Damages (1613, 1607): distinction re: gross/intentional fault K-ual damages : failure to perf does NOT proceed from intentional/gross fault

o debtor ONLY liable for foreseeable damages at time obligation K-ed, where failure to perform does not proceed from his intentional/gross fault (1613). damages ONLY include what is immediate/direct consequence of the nonperformance (1613), decided on cvl stdrd of balance of probabilities.

o loss sustained, gain deprived, future injury which is certain and able to be assessed (CCQ 1611)

Tort damages : failure to perf DOES proceed from intentional/gross faulto where failure to perform due to intentional/gross fault, then damages for bodily, moral or

material injury which is an immediate & direct consequence of debtor’s default (CCQ 1607)

COMMON LAW Kual and Extra-Kual remedies are autonomous (ie, can choose, can combine)

o Esso v Mardon: (cml) Kual action re: collateral warranty, and extra-Kual remedy re: negligent misrepresentation

Calculating Damages foreseeability (Hadley v Baxendale): damages foreseeable when, at the time of making the K, the

party who ultimately breached reasonably should have realized that those damages (ie, that type) would be a likely consequence of the breach

“ …such as may fairly and reasonably be considered either i) arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as ii) may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it…[including] injury which would ordinarily follow from a breach of contract so known and communicated.”

o general damages: arise naturally, in the ordinary course of thgso special damages: may reasonably be supposed to have been contemplated by the parties

at the time of K as a reasonable consequence of breach (a loss of that nature and approximate extent could be conceived of as a probability)

looking at risk allocation probable result (Hadley) not unlikely to occur (Reid dans Koufos) very substantial degree of probability (Reid dans Koufos) reasonably foreseeable as liable to result, serious possibility, real

danger, “on the cards” (Asquith dans Victoria) reasonably foreseeable as liable to happen even in the most unusual

case, unless the risk is so small that it can be ignored (Reid, Torts) presupposes exchange of info, and revealing the risk to the other party intensity of obligation (Crépeau)o prix augmenté (pour le service de messagier) reflète une connaissance de la responsabilité?

mitigation: losses not recoverable if plf could have avoided them w/o undue risk, burden or humiliation, but plf should not be precluded from recovery to extent that made reasonable but unsuccessful efforts to avoid harm (Restmt 2d §350)


causation: a link b/t the breach and the loss injury proven w/ reasonable certainty: whether plf has proved injury. if unable to show on the

preponderance of the evidence the fact and extent of her loss, she will not be able to recover damages.

unfair forfeiture: where expectation damages, calculated in accordance with the relevant principles, would have the absurd and unfair result of placing a great burden of liability on the def far in excess of the real loss suffered by the Plf, the court has the discretion to confine damages so as to reflect the plf’s true econ loss

o material: Peevyhouse: failure of mining cie to perf remedial work. loss of diminution of value.

o non-material: Ruxley : pool depth differ by 18 inches. pool installer substantially performed.

bargaining power : both commercial parties, knowledge of industry, could foresee loss (Victoria Laundry)

Hadley v. Baxendale [cml] [only foreseeable expectation damages of type contemplated](1854) 9 Exch. 341Facts Ptfs, owners of a flour mill, sent a broken shaft to the office of the dft

Dfts were common carriers. They were to deliver the shaft to be repaired. The delivery was unreasonably delayed. This delay led to delay of the ptf's work and consequently loss of profits.

Issue What should Plfs receive as remedy for breach? Lost profits?Held No lost profits.Reasoning - Where two parties have made a K which one of them has broken, the damages

which the other party ought to receive in respect of such a breach should be such as may fairly and reasonably be considered either:

- [1] Arising naturally (i.e. according to the usual course of things, from such breach itself) or;

- [2] Such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the K, as the probable result of the breach of it

- [including] injury which would ordinarily follow from a breach of contract so known and communicated

- within reasonable contemplation of the parties- If some special circumstances in which K was made were communicated to the

dft by the ptf, damages resulting from breach would be the amt of injury that would ordinarily follow from a breach in those circumstances.

- If special circumstances were NOT made known to the breaching party, he, at the most, could only be supposed to have had in his contemplation the amount of injury would arise generally from such a breach of K. HERE, special circumstances not communicated by Plfs, thus Plf should not be awarded dmgs for lost profits b/c defs didn't know that delay of delivery would stop the mill's operation altogether.

Rule Victim of breach will be able to recover for losses that are FORESEEABLE (the probable result of the breach) and FORESEEN (losses that were in the reasonable contemplation of the parties given their knowledge).

Do not look at the parties themselves. Look at the reasonable man (w/ special knowledge and w/o). [Note - it is the TYPE of damage (not the extent) which must be foreseeable]

Comments **compare to CCQ** 1607: “suite directe et immédiat” 1611: “perte qu’il subit et gain dont il est privé” 1613: “en matière Kuel … prévus ou qu’on a pu prévoir au moment où

l’obligation a été contractée” Pothier also relied on this case in his writings


- Economic justification for the rule: ptf is in best position to prevent the loss insure OR stipulate clearly the importance of the shaft. Hadley put the loss on the person in the best position to guard against it, though some unfairness b/c person who breached gets off with paying nothing. Outcome would have changed if dft was TOLD that the shaft was the only

one; but here, it was reasonable to think that there might be backup shaft etc.

Victoria Laundry v. Newman Industries Ltd. [cml] [“serious possibility” of dmgs][1949] 2 K.B. 528Facts - Dfts (engineers) and ptfs (laundrymen and dyers) had a sales K for boiler. Plf had

conveyed to the dfts that they required the boiler immediately (“in the shortest possible space of time”). Dft knew the nature of the ptfs business but did not know exactly what role the boiler played in it (e.g. whether it was a “stand-by”)

- Dft breached the contract – delivery delay of 20 days. Had delay not occurred, ptf would have been able to accept some highly lucrative contracts.

- Ptf claimed (in part) as damages the loss of profits that they would have earned but for the late delivery.

Issue Plfs entitled to damages for loss of profits due to breach?Held Yes.Reasoning Lord Asquith

Principles that emerge from the authorities:(1) The purpose of damages is to put the party whose rights have been violated

in the same position as if rights had been observed.(2) Aggrieved party only entitled to recover the part of the resulting loss that

was at the time of the contract reasonably foreseeable as liable to result from the breach.

(3) What was reasonably foreseeable at the time depends on the knowledge then possessed by the parties

(4) “Knowledge possessed” is of two types – imputed and actual. Everyone is a reasonable person and thus taken to know the “ordinary course of things” and consequently what loss is liable to result from a breach in that ordinary course (Hadley branch 1). A party may ALSO have knowledge of some special circumstances outside of the “ordinary course of things” such that a breach in such circumstances would be liable to cause more loss. This makes additional loss recoverable (Hadley branch 2)

(5) Breacher need not have actually considered what loss would be liable to result. It is enough that, if he had considered the Q, he would as a reasonable person have concluded that the loss in question was liable to result.

(6) Def need not reasonably foresee that a breach must necessarily result in the loss. It is enough that he foresees that it was “likely to result”, “a serious possibility”, “a real danger”, or “on the cards”.

Application of principles to the case: Def is an engineer (not an ordinary layperson) and thus clearly knows to

what uses a boiler would be put in a laundry and dying business. Given this use, a reasonable party in the position of dft could reasonably

foresee that loss of business would be liable to result from delay in delivery.

[This suggests that loss of profits CAN be recovered under the Hadley “first rule” to the extent that the dfts were in a commercial position to foresee such losses]

With respect to profits that would have been earned as a result of the very lucrative contracts, the dfts would have to have known at the time of the contract of the prospect of such contracts (these contracts were “special circumstances”….the regular carrying on of the business was


not a “special circumstance”) Distinguish from Hadley there had been nothing to convey to the dfts

that stoppage of business would be the result of the breach….and the dfts were not in such a position that they would foresee such a stoppage as being part of the ordinary course of things (they were couriers…NOT shaft makers!)

Rule Victim of breach entitled to recover loss that was at time of the K REASONABLY FORESEEABLE AS LIABLE TO RESULT FROM BREACH. Parties need not actually have foreseen. Ask what reasonable party in position of breacher would have foreseen. [SH: Case shows that commercial profits CAN be recovered under Hadley branch 1 - must consider knowledge of industry (engineer vs. courier)]

Comments **même norme comme droit cvl (directe et immédiate, prévisibilité)** NOT necessarily probable (as in Hadley, where include probability) lucrative Ks as a different TYPE of dmgs not reasonably foreseeable, thus

not a question of extent Appears to propose a looser test than Hadley - losses need only be

reasonably foreseeable and not necessarily PROBABLE Lord Reid's in Koufos: Victoria Laundry contemplate causation & type,

not odds.

Koufos v. C. Czarnikow (The Heron II) [cml] [ordinary risks incl probability][1969] 1 A.C. 350Facts - Respts chartered the aplt’s boat to transport sugar to Basrah. Vessel had, in

breach of K, made deviations which resulted in 9-day delay. Aplt ship-owner knew there was a mkt for suger at Basrah but did not know that the rspdts planned to sell the sugar “promptly after arrival.” During delay, the mkt price of sugar fell considerably. Rspdts claimed that they were entitled to recover the difference (btwn the mkt prices on day 1 and day 9) as damage for breach of contract.

Issue Can Respt get damage for “market loss” that resulted from breach (delay)?Held Yes.Reasoning Lord Reid

- Knowledge of Def: knew there was mkt for sugar in Basrah. If he had thought about it, he must have realised that it was not unlikely that the sugar would be sold in the mkt at mkt price on arrival. Must also be held to have known that market prices are apt to fluctuate from day to day.

- Probability: It is not enough that the result is a reasonably foreseeable result of the breach. The result must be likely (i.e. would happen in a great majority of cases, “not unlikely,” one which should fairly and reasonably be regarded as having been in the contemplation of the parties. (looking at PROBABILITY)

- Ordinary Risks incl probability: 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 things or be supposed to have been in the reasonable contemplation of the parties.

- THE TEST: whether, on the information available to the dft when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been w/in his contemplation. [when considering likelihood of result, must consider the likelihood of the activity that the ptfs are going to pursue- e.g. probability of resale]

- What is “sufficiently likely”?: if the chance of the occurrence of the event which caused the damage was regarded as “not unlikely” or “to have a very substantial degree of probability” (about “even chance”). [compare this to “a serious possibility”, “a real danger” or “on the cards” – these are wrong]


- On the basis of the test in Victoria Laundry, Hadley would have been differently decided.

- In this case, the loss of profit claimed was not too remote to be recoverable as damages.

- The loss of market arose naturally according the usual course of things from the ship-owners deviation. (damage that occurred was foreseeable as likely result b/c changes in market are foreseeable)

Rule It is not enough that the event which caused the damage was, on the information available to the dft at time of formation, "REASONABLY FORESEEABLE". The losses must be reasonably foreseeable as a "likely result" (not unlikely, substantially probable, about even chance, foreseeable in a "great majority of cases"). [SH: consider likelihood of activity that ptfs are going to pursue, e.g. resale].

Comments - Lord Reid doesn't like the test in Victoria Laundry - he doesn't think that the K and torts standard should be the same (his reason - b/c parties to a K have the opportunity to account for breaches before they happen).

- SH: Reasonable knowledge of dft must relate to all elements of the loss here,the fact that ptf was going to sell immediately and that market prices are apt to fluctuate from day to day. If prices had gone up, would there be damages award? NO. Goal of

damages is to compensate. There must be a LOSS.


DAMAGES: Limits of Compensatory Damages

La détermination des dommages-intérêts et le problème de l’équivalence Notion de coût d’exécution Notion de diminution de valeur

o reduction in the capital of a good Si le coût d’exécution est inférieur à la diminution de valeur? Si la diminution de valeur est inférieure au coût d’exécution?

est-ce que les demandeurs ont droit à ce qu’ils étaient promis dans le K regardless of the cost of execution?

L’exemple de Ruxley Electronicso 18 pouces de différence dans la piscine. diminution de valuer = 0. coût

d’exécution = 21 livres. L’exemple de Garland c. Peevyhouse :

o mine excavation. in K, prévu que le terrain serait remis en état aux frais de la cie, ne remet pas le terrain. $29K pour le remettre. différence de valeur économique = $300.

Solutions possibles Accorder le coût d’exécution peu importe la différence (entre le cout d’exécution et le bénéfice)

Le droit à l’exécution en nature ou à sa valeur Le risque de sur-compensation **Faut-il que l’exécution corrective soit raisonnable? (compte tenu des bénéfices)

o Faut-il que le créancier ait vraiment l’intention de dépenser l’indemnité pour corriger le défaut?

o facteur qui aide à déterminer le caractère raisonnableo Ruxley : Forsyth promised to take the money to re-do the pool

Accorder seulement la diminution de valeur Le risque de sous-compensation. Quelle diminution de valeur: le marché ou la perspective du

créancier de l’obligation? Tenir compte de la volonté des parties? Favorise l’inexécution partielle

Accorder autre chose Indemniser la diminution de valeur sous forme de dommage moral (ou punitif?)

o Ruxley : loss of amenities from insufficient depth of pool Priver le débiteur de l’enrichissement?

o Garland : save money by not re-doing the land?o lien immédiat avec la nature de la promesse?

(Injunction)

Ruxley Electronics v Forsyth [cml] [dmgs limited to diminution in value from breach][1995] 3 All. E.R. 268Facts - Ruxley and Forsyth had a contract for construction of pool – to be 7 feet 6 inches.

- Completed pool was only 6 feet 9 inches (still safe for diving; value of pool not less as a result of lesser depth)

- Forsyth sued for damages for breach of contract. Trial judge awarded 2500 for loss of amenity. C.A. awarded 21,000 for reinstatement (cost of building new pool).

Issue Forsyth entitled to damages amounting to cost of reinstatement?Held No, only entitled to loss of amenities.Reasoning Lords Keith, Bridge, Jauncey, Mustill

- General principle: use $ to put ptf in situation he would have been in if contract was performed. Doesn’t mean that ptf will always be able to obtain $ equiv of S.P.


- Fundamental goal is compensation, thus where there is no loss, there are no damages to be awarded

- Building cases: pecuniary loss measured in 1 of 2 ways difference in value of the work done or cost of reinstatement. Cost of reinstatement is the ordinary measure.

- REASONABILITY OF THE CURE: Cost of reinstatement must only be awarded if it is reasonable.

- Reasonableness #2 : whether Plf actually suffered a loss, as examined by whether Plf intends to use damages to carry out reinstatement.

- If not reasonable, award is for diminution of value (if no diminuition, no loss = no compensation). Reinstatement is unreasonable if such an expenditure would be out of all proportion to the benefit obtained from reinstatement (as in this case). The fact that the diminution in value of the works is nil (as in this case) does NOT make reinstatement any more reasonable.

- Intention : Court doesn’t care about what the dft does with his award of damages BUT intention is relevant to the reasonableness of the particular damage award – the reasonableness of awarding reinstatement depends on the genuineness of the intention to actually carry out the reinstatement work. In this case, judge found as a fact that ptf had no intention to rebuild the pool.

- Loss of amenity: when the contract is for the provision of a pleasurable amenity, the ptf is entitled to damages for loss of pleasure/amenity (for disappointed expectations).

Lord Lloyd (concurs)- Reasonableness #1 : if expenditure would be out of proportion to benefit

obtained- “eccentric landowner is entitled to his whim, provided the cost of reinstatement is

not unreasonable” Here, trial judge took personal preferences into account, but nevertheless found as a fact that the cost of reinstatement was unreasonable in the circumstances. Court of appeal should not have disturbed the finding.

Rule Cost of cure (here, reinstatement) will only be awarded where it is reasonable.

Reasonableness depends on (1) if expenditure would be out of proportion to benefit obtained (Lloyd); and (2) whether ptf intends to use damages to carry out reinstatement (and thus whether he actually has suffered a loss) (Jauncey). The fact that diminution in value of the works is nil doesn't make reinstatement any more reasonable.

Comments REASONABLENESS- Court decided that to award cost of cure would be UNREASONABLE but

two meanings of unreasonable. meanings (1) and (2) above.- BUT these notions of reasonableness may not always be synonymous. May

be that cost is out of proportion to advantage and difference in value is nil (or negative) BUT ptf still values performance E.G. folly built in backyard

- Jukier: courts appear to be using Lloyd's objective test. INTENTION- Should the intention of the party be relevant? intention relevant as

evidence to show existence of a loss, and there must be a loss in order to claim compensation.

- Court gave L2,500. Why couldn’t it just give something in btwn COC and difference in value (nil)? B/c courts cannot rewrite the K.

Peevyhouse v Garland Coal & Mining Co [cml] [dmgs limited to diminution in value from breach]382 P.2d 109 (Okla. 1962)Facts Peevyhouses own 120 acres of land, in 1954 they leased 60 acres to Garland

for stripmining on condition that Garland do remedial work. Garland quit premises w/o doing remedial work, Peevyhouses sued for $25K, estimated


cost of perf. Garland conceded breach of K, no excuse for nonperf.Issue What damages Peevyhouses entitled to?Held expectation damages limited to diminution in valueReasoning Plfs claim $25K in damages as estimated cost of nonperformance.

Defs contend damages limited to diminished value of land resulting from breach.

Oklahoma Supreme Court: (5:4) “where a breached K provision is ‘merely incidental’ to the main purpose’ and the economic benefit to the lessor from full performance is grossly disproportionate to the cost of performance, damages are limited to the diminution in value of the land caused by the breach.”

relational scholars: look at factual context in which K negotiated, partially performed, and breached. here, record omitted evidence re: consideration for remediation, course of performance and breach.

Rule where economic benefit to plf from full performance is grossly disproportionate to cost of performance, damages limited to diminution in value caused by the breach.

Comments Alternative measures of expectation interest: diminution in value (Peevyhouse, Ruxley) and cost to repair defective performance.


DAMAGES : Moral (Non-Pecuniary) Damages

RE-READ CRÉPEAU ARTICLE

aller plus loin et admettre la réparation du préjudice non-pécuniaire dans tous les cas?o Vorvis c ICBC

95% of claims ask for damages for annoyances, inconvenience, mental distress, loss of enjoyment, ex: if buy a defective car, can you also claim moral damages for loss of enjoyment? EXCEPTION: Whiten: $0 in compensatory damages for moral damages, and instead receive $1

mill punitive damages (Jutras: flottement de critère)

how far can you go in claiming damages where one of the objects of the K is to generate a non-monetary benefit?

We have seen that ptfs can sue for breach and get damages as remedy have also seen that quantum of damages can be limited for a number of reasons (remoteness, mitigation, reasonableness). May also be limits to the TYPE of damage that can be recovered.

Can a ptf be compensated for moral, non-pecuniary damages arising from breach? (ie, incl compensation for annoyance, inconvenience, mental distress, loss of enjoyment, etc.)

CIVIL LAW

“Any bodily, moral or material injury”: where person fails in duty to honor K-ual undertakings, liable for “any bodily, moral or material injury” and liable to reparation (1458). place the creditor in the position he would be in had the K been executed. moral damages recoverable where immediate & direct consequence, and certain: moral damages

recoverable where an immediate and direct consequence of the debtor’s default (1607) and certain (1611)

PLUS foreseeability at time obligation K-ed (1613)

COMMON LAW

Historically, opposition to awarding moral damages for breach of K- Kual relation is an economic bargain, as such, it can only deal with economic injury. Tort

law compensates mental suffering and humiliation. - Confusion with punitive: fear that moral damages would be punitive, not compensatory,

because focused on def’s behavior (prime example: Whiten)- Mental distress and defamation: Many claims for mental distress in K context were based on

injury to reputation (defamation). Defamation is particular type of tort for which there are well-developed rules and defences. Should be pursued this way.

Today, some exceptions:Ks for Peace of Mind (Jarvis, Whiten)

Jarvis: in a "proper case", damages for mental distress can be recovered in K. Here, not pursue under torts b/c unclear if it was negligent misrepresentation, and the wrong was directly connected to a Kual promise. (compare to cvl service Ks under CCQ 2100)

compare Ruxley: loss of amenity, but does construction K give pleasure? Whiten: no compensatory damages, only punitive le problème de l’inspection immobilière négligente

proximity of house to Gatwick airport (Fairley c Skinner) not exactly like Jarvis, but one of the primary objects is to generate

bonheurAdditional “actionable wrong” (McIntyre J. in Vorvis)


compensation of moral (intangible) injury where damages flow from a separate actionable wrong (in K or in tort) based on an implied Kual obligation

so, still NOT placing indemnification of moral damages in the K-ual domain compare Jarvis: breach of implied obligation of enjoyment compare Ruxley: implied obligation to build you a pool to a depth that doesn’t

annoy you (???)Remoteness (Wilson J. in Vorvis)

dmgs for mental distress can be recovered for breach of K when it can be said to have been in the reasonable contemplation of the parties when the K was made that its breach would cause such distress. (Hadley standard applies)

compare Jarvis: mental suffering was in reasonable contemplation of parties at time of K.

compare Ruxley: loss of amenity in reasonable contemplation of parties b/c pool is for enjoyment, foreseeable that not making it deep enough will result in annoyance or distress in great majority of cases.

Jarvis v. Swan Tours [cml] [damages for mental distress due to breach holiday K] [1973] Q.B. 233Facts - Jarvis was laywer who only got 2 weeks vacation per year. Wanted to go on ski

holiday in Switzerland- Made K with Swan Tours. Promised him a "wonderful little resort" with

beautiful ski runs, warm welcome, owner who speaks English, house party, afternoon tea and cake, yodeller, etc.

- Jarvis had horrible time. Promises made were untrue. The holiday was largely inferior to the one expected.

- He sued for damages. Issue Can Jarvis get damages for mental suffering resulting from breach of travel holiday

K?Held YES.Reasoning Lord Denning

- Statements in the brochure were representations or warranties. Breaches of them gave Jarvis right to damages.

- Must assess damages. Often said that on a breach of contract damages cannot be given for mental distress resulting from breach.

- Such a limitation is out of date. "In a proper case, damages for mental distress can be recovered in K… One such case is a K for a holiday, or any other K to provide entertainment and enjoyment. If the K-ing party breaks his K, damages can be given for the disappointment, the distress, the upset and the frustration caused by the breach."

- He paid L63. Damages should be L125. Rule in a “proper case,” possible to recover damages for mental distress in a KComments - Rule is easy to state but hard to apply. Courts have struggled - what is a "proper

case"?- Award of damages is high - looks like punishment.

Jukier: Proposition in Addis didn't create rule of law barring moral damages altogether - it was just a matter of evidence.


DAMAGES: Punitive Damages

CIVIL LAW: preventive, provided for by law

CCQ 1621: Where the awarding of punitive damages is provided for by law, the amount of such damages may not exceed what is sufficient to fulfill their preventive purpose. Must be provided for by law:

s. 49 of the QC Charter; CPA s. 272: consumer can claim such damages in addition to (?) other civil recourses -

damages, S.P, annulment, etc. Goal = PREVENTION, DETERRENCE. Goal ≠ punishment. cvl fixated upon COMPENSATION. thus, will not award damages that exceed LOSS. This is likely why punitive damages can only be awarded when provided for by law.

COMMON LAW: independent actionable wrong

Historic Reluctance of cml in awarding punitive damages: Creates problem of overcompensation that goes beyond need for prevention Is punishment w/in the goals of the civil law? Punishment is in the domain of the criminal

law….and in the criminal law, there are protections (proof BRD) which don't exist in the civil law. Can we punish w/o such protections?

Today: punitive damages where compensatory damages insufficient to dissuade/punish actor (Whiten) need an “independent actionable wrong” : ie, an additional wrong, such as a tort, for which

punitive damages are recoverable (Vorvis, Whiten) conduct must be offensive, reprehensible (Vorvis, Whiten) **long list of restrictions** (Binnie J. in Whiten) rare that punitive damages awarded, though no rule barring recovery of punitive damages flowing

from Kual breach. Goal = RETRIBUTION, DETTERENCE, DENUNCIATION, PUNISHMENT (Vorvis,

Whiten)

Vorvis v. Insurance Corp of British Columbia [cml] [independent actionable wrong][1989] 1 S.C.R. 1085Facts Ptf was dismissed b/c he took too long with his work. He was too

conscientious and the new manager didn't appreciate it. He claimed damages for mental distress as the result of the termination of his

K, alleging that the offensive and unjusitifiable conduct of his superior was such that it caused great mental distress, anxiety, vexation, and frustration. [i.e. not distressed merely b/c fired but b/c of manner in which dismissed].

Also claimed for punitive damages. Issue Should Plf be entitled to NP damages? Punitive damages?Held No. No.Reasoning McIntyre J.

- General rule in assessing damages for WRONGFUL DISMISSAL, the principal consideration employee’s entitlement, under the KL to reasonable notice. Where such is not given, damages are limited to the earnings lost during the period of notice to which employee was entitled. Addis: cannot include damages for manner of dismissal, for injured feelings, etc.

Distinction: Aggravated NP Damages and Punitive Damages: - Moral damages and punitive damages are different - the moral damages will

frequently cover conduct which would also be the subject of punitive damages, but the role remains COMPENSATORY. Aims at compensation of intangible injuries


AGGRAVATED (NP) DAMAGES: may be awarded in actions for breach of K in appropriate cases. - compensatory role: compensation of intangible injuries.- To be recoverable, such damages must flow from a separate actionable wrong.

It is not sufficient that a course of conduct, not in itself actionable, be somehow related to an actionable course of conduct (the dismissal)

- must FIND an implied Kual obligation to be a separate Kual breach. - Here, NO implied K-ual obligation which the manager breached prior to the

dismissal. Vorvis was not promised a pleasant working environment. PUNITIVE DAMAGES: Goal is punishment and deterrence, NOT compensation. - also called exemplary.- Punitive damages are not recoverable for a breach of K UNLESS have an

actionable wrong where the conduct constituting the breach is also a tort for which punitive damages are recoverable. RARE to find a k-ual breach which would be appropriate for award of punitive damages.

- May only be awarded in respect of conduct which is harsh, vindictive, reprehensible and malicious. It must offend the ordinary standards of decency and morality.

- Nature of superior's conduct was NOT considered sufficiently offensive, standing alone, to constitute actionable wrong.

Wilson (dissent)Minority: Conduct need not constitute an actionable wrong. It is sufficient that the conduct constituting the breach is of a shockingly harsh, vindictive, reprehensible or malicious nature. Need these damages to penalize people who flout K law in an outrageous fashion (and to deter).

MENTAL SUFFERING- She agrees that damages for mental suffering can be awarded in appropriate cases

and that they are pecuniary. She doesn't agree with McIntyre's test wrt determining whether or not to award them.

- Proper approach is to apply the basic principles of K law relating to remoteness of damage (ie, Hadley v Baxendale).

- Damages for mental distress can be recovered for breach of K when it can be said to have been in the reasonable contemplation of the parties when the K was made that its breach would cause such distress. [Note that she doesn't make it clear if she thinks the standard should be something more stringent than the tort test of "reasonable foreseeability"].

- Wilson reject the notion that awards for mental suffering should be restricted to breach of Ks which have freedom from distress as their object

- In this case, the mental suffering would not have been in the reasonable contemplation of the parties at the time the K was entered into as flowing from the unjust dismissal - he was not promised security of tenure or promised a promotion to keep him from moving; nor did the employment relationship have special elements of trust and reliance.

PUNITIVE DAMAGES: - Long standing bar against recovery of punitive damages in K-ual setting. - The general rule that punitive damages are forbidden in K claims should be

reversed. In the vast majority of situations of K breach, there would be no possibility of such damages being recovered.

- In the reasonable contemplation of the parties- It is peculiar that the law requires a higher standard of conduct from the

tortfeasor, a stranger, than it does from the parties, to an established relationship under K. Torts and Ks are moving closer together and this is good and should be encouraged. "It is not beyond the power of the Court to award punitive damages in those rare situations where a K has been breached in a high-handed, shocking and arrogant fashion so as to demand condemnation by the Court as a deterrent". Just look at the nature of the conduct - it does not in itself have to be an


actionable wrong. (unlike McIntyre) - In this case, the superior's conduct was sufficiently reprehensible to support an

award of punitive damages.Rule Punitive damages may be awarded in Ks, but need a separate actionable wrong.Comments Judges agree that damages for mental suffering and other NP losses are

COMPENSATORY and not punitive, and that they can be awarded in appropriate cases. They just disagree on the test.

Employment Contract K of indeterminate length, thus know you could be fired at any given

moment with reasonable notice. No fault when given reasonable notice and paid during that period of reasonable notice.

wrongful dismissal : general rule that ONLY dealing with payment during reasonable notice

today, statutes protect employees and provide them with extra benefits (but those were not applicable here)

Whiten v Pilot Insurance [cml] [$1 mill. punitive damages for BF][2002] 1 S.C.R. 595Facts Fire destroyed App Whiten’s house. Resp Insurance company only cover

rent for substitute cottage for a few months, then pursued confrontational policy where insurance co. allege family had torched its own home. Conduct continued over two years, forced to trial.

No evidence whatsoever of arson, most likely malfunctioning kerosene heater. Jury at trial awarded $1 mill in punitive damages. Resp claims award of punitive damages itself outrageous.

Issue Whiten entitled to punitive damages?Held Yes.Reasoning Binnie J.

insurer’s conduct exceptionally reprehensible: planned and deliberate for two years

denial of insurance claim designed to force Whiten into unfair settlement insurance contracts sold by cie and bought by members of public for “peace

of mind” the more devastating the loss, the more the insured may be at the financial

mercy of the insurer, and the more difficult it may be to challenge a wrongful refusal to pay the claim

obligation of GF means appellant’s peace of mind should have been the insurance cie’s objective, and vulnerability ought not to have been aggravated

jury awarded $1 mill b/c “people who sell peace of mind should not try to exploit a family in crisis.”

PUNITIVE DAMAGES long list of restrictions rare, but obtainable by “independent actionable wrong” in addition to

breach sued upono K-ual breach = failure to pay claimo indep. actionable wrong = violation of obligation to deal w/

policyholders in GF OBJECTIVE: retribution, deterrence and denunciation, NOT

compensatory (indeed, punitive damages awarded where compensatory damages insufficient to achieve the above objectives.)

$1 mill high, but still w/in range open to juryLeBel J. (dissent)

$1 mill excessive b/c 3 times compensation for loss of property goes beyond rational and appropriate use of remedy


yes, bad faith on the part of the insurance cie, but no evidence that such conduct regular incident of running business, nor that widespread in Canadian insurance industry

Rule punitive damages are the exception, not the rule awarded for objectives of RETRIBUTION, DETERRENCE and

DENUNCIATION, and thus not compensatoryComments Binnie J. enumerates long list of restrictions to awarding punitive damages

$0 in compensatory damages for moral damages l’enjeu: the reprehensibility/despicability of the conduct


DAMAGES: Liquidation Damages and Penalty Clauses

Types of Penalty Clauses : les clauses prévoyant le paiement d’une somme d’argent en cas de défaut

o la somme forfaitaireo la formule de calcul (ex : Thermidaire)o tant par jour (pour le retard)

la clause de déchéance (forfeiture)o ex : clauses de dation en paiement (v. 1801)o not used anymore

la clause de bonus en cas d’exécution accélérée la clause de limitation de responsabilité

La clause valide paiement de la somme stipulée pas de preuve du préjudice à faire choix entre montant prévu et exécution en nature (surtout dr cvl) mais pas entre montant prévu et

préjudice effectivement subi possiblité de recevoir indemnisation compensatoire et montant prévu (lorsque stipulé pour le

retard)

Advantages/Disadvantages of Penalty ClausesADVANTAGES foresee the risk at the time of drafting allocate the risk among the parties insurance : debtor knows in advance the amount he will be resp for in case of

breach difficulty in determining the damages (Clarke v Thermidaire)

see in terms of sales, gross profits long-term effects of losing long-time clients, loss of goodwill thus, foresee costs that cover not just the bare damages, but also the

loss of clients, goodwill, etc

CIVIL LAW accepts penalty, as long as reasonable and not abusive (1623) defined (1622): penal clause is one by which the parties

o assess the anticipated damages o by stipulating that the debtor will suffer a penalty if he fails to perform his obligation. o creditor may avail himself of penal clause instead of enforcing, in cases which permit of

it, specific perf of obligation. may never exact both specific perf and penalty, unless penalty only cover delay.

abusive penalty may be reduced by judge (1623): creditor who avails himself of penal clause entitled to amt of stipulated penalty without having to prove the injury he suffered. amt of stipulated penalty may be reduced if creditor benefited from partial perf of obligation, or if clause is abusive.

Abusive Clause Defined:o not the standard of 1437 “excessively and unreasonably detrimental to consumer” per

case law.o here, abusive clause close to idea of “exploitation,” “serious disproportion between

prestations” (cvl lesion,1406), and cml unconscionability.

COMMON LAW penalty clauses unenforceable

o La clause stipulant une pénalité n’est pas exécutoire (solution classique Common Law)o not in GF for parties to stipulate penalties prior to execution


o parties can determine damages, but not penaltieso ex: Thermidaire: amount far in excess of actual prejudice suffered constitutes a penalty,

foreseeable that amount would be far in excess of actual prejudice, thus unenforceable. penalty clause may be annulled or reduced if unconscionable

o La clause peut être annulée ou réduite si elle est inéquitable (unconscionable) (application des principes ordinaires…)

What criteria does the judge use to evaluate the penalty clause? does not matter that parties foresaw the risk, judge still retains authority to decide the extent of the damage1. (cml) égalité entre le préjudice et la clause2. (cml) good faith in the evaluation of the penalty clause : did they make a good faith effort to

evaluate the prejudice? (most judges accept this arg) Thermidaire: damages from formula far in excess, and thus not a GF evaluation BUT, in Thermidaire, had equal bargaining power qualifying the penalty clause as BF is an ex ante evaluation Jutras: cml slowly approaching the position of cvl ex: forfeiture: if not unconscionable, then it’s valid.

3. classic cml: penalty clause unenforceable. (Thermidaire). not an effort to evaluate the prejudice, and was foreseeable that formula would generate

damages far in excess to the prejudice suffered.4. cvl en qc: accept the idea of a penalty, subject to its reasonability, and consent. penalty clause

serves as incentive to execute. (strategic interest) “menace” thus, can have penalty clause, but only if reasonable, and have consentement what is a reasonable penalty clause? (flottement) (le fonds) consentement: can be thrown out if have fraud, abus de droit, etc (procédure)

Quelques difficultés….1. Peut-on distinguer la pénalité de la véritable évaluation anticipée des dommages? Devrait-on se

placer au moment du contrat, ou au moment du défaut?2. En l’absence d’exploitation, devrait-on laisser les parties stipuler une somme possiblement

supérieure aux véritables dommages subis? Quels sont les avantages de ces clauses pour les parties?

3. Si on accepte l’idée de pénalité, peut-on distinguer la pénalité abusive de la pénalité raisonnable?o CCQ 1622

4. Quelles sont les différences entre les articles 1437 CCQ (clause abusive) et 1623 CCQ (clause pénale abusive)? Quel est leur domaine respectif?

5. Quelle est la meilleure règle: une interdiction des pénalités? Un pouvoir de réduction judiciaire? L’application des principes généraux? (tenir compte de la stabilité/prévisibilité recherchée par les parties)

o look at Goetz, compare to classic cml rendering penalty clauses unenforceable

Goetz and Scott, ”Liquidated Damages, Penalties and the Just Compensation Principle,” (1977) hypothesis: absent evidence of process unfairness in bargaining, efficiency will be enhanced by

the enforcement of an agreed allocation of risks embodied in a liquidated damage clause. existence of an overcompensation [or penalty] provision is never per se evidence of an efficiency

impediment “just compensation” formula gives all of the gains to the breacher solutions indistinguishable, and differ only in terms of wealth transfers, the manner in which the

gains from non-performance are distributed b/t the parties in assessing damages, two limiting assumptions (valuation and foreseeability) may operate to

prevent the recovery of idiosyncratic valueo value of a promised performance generally limited to the amount of money that can be

obtained in exchange for it in some market


o where exchange value conceded to be inadequate, and value to the owner substituted, any fanciful or sentimental value will be excluded on the grounds that such losses are too speculative and uncertain

H.F. Clarke Ltd v Thermidaire Corporation Ltd [cml] [excessive liquidation damages = penalty clause][1976] 1 S.C.R. 319Facts - PRINCIPAL OBLIGATION - exclusive distributorship clause. "I will only sell

Thermidaire products and I will not sell competitive products during the K and for three years after termination".

- SECONDARY OBLIGATION - was a formula. If Clarke breached, would have to pay Thermidaire gross profits realized from sale of competitive products.

- Clarke breached - it sold competitive products. Value of the compensatory damages - $92,000. Applying the fixed formula from the K would have given Thermidaire $200,000 (more than twice as much).

- The lower courts held the clause to be enforceable. Lower Court.: this was a covenant which the parties entered into with their eyes open. There was a reason they based the formula on gross trading profits - net profits wouldn't have compensated Thermidaire for stuff like reputation, goodwill, advertising, etc. May be more than damages actually suffered…but parties bargained for this. [Jukier: decision consistent w/ Dunlop Tire].

Issue Was the provision for liquidated damages actually a penalty clause, and thus unenforceable?

Held Yes.Reasoning Laskin CJ

- This clause is a PC and not enforceable. Court has power to intervene and strike down penalty clauses on the basis of its equitable jurisdiction.

- When is a clause a penalty clause? You have to look beyond the intention of the parties. Mutual consent of the parties is not enough to support such a clause. [Jukier: We saw this wrt public order - doesn't matter what the parties actually intended…we aren't going to let them].

- The primary concern in breach of K cases is compensation and judicial interference with what the court regards as a PC just reflects concern of courts with reasonableness and fairness [we saw this in Syncrude!]

- He moves away from notion in Dunlop Tire case that genuine attempts to estimate damages in advance would be LD clause - he says that this would not catch very many Penalty clauses [cannot privilege form over sub]

- Parties may provide for LD clauses, but it is always up to the courts to determine their reasonableness in the circumstances. In order to be enforced, the clause must represent a reasonable approach to recoverable or actual loss.

- In this case, the formula is a penalty clause b/c it is a "grossly excessive and punitive response to the problem to which it was addressed." The sum will be a penalty if it is extravagant and unconscionable in amount in comparison to the greatest loss that could conceivably be proved to have flowed from the breach.

Rule Court may intervene, on the basis equity, to strike down a penalty clause. Parties may provide for LD clauses (formula to fix damages), but court may interpret such a clause as a PC if it is unreasonable in the circumstances. Unreasonable = grossly excessive and punitive response to the actual damage incurred.

Comments

Commentary: - Jukier: is it proper to assess reasonableness by weighing the prestations of the parties? This smells like

unconscionability. BUT…it isn't! The parties are at least of equal bargaining power. Clarke is of stronger bargaining power (This reminds us of Cameron). Laskin doesn't incorporate bargaining


power into his reasonableness analysis AT ALL. Shouldn't other elements come into play in the analysis of reasonableness?

- If court was consistent, would have to do the same thing with exoneration clauses - but we saw in Syncrude that bargaining power was considered to be important!

- THE SAME TWO CONCERNS WITH PENALTY CLAUSES (FAIRNESS AND THE OVERRIDING OF COURT'S ROLE WRT COMPENSATION) EXIST WRT EXONERATION CLAUSES! - SH: Exoneration clauses = insufficient comp. Penalty clause = too much comp.

- What if the opposite is true? What if the formula gives the victim "too little" (i.e. less than what his loss actually was)? (i.e. the result would be excessively low). Would this be an unreasonable clause?

- Note that it is true in civil law that you can ignore the penalty clause and sue for SP (don't have to rely on PC). But in KL, SP is not always available.


VIII. Privity of Contract and Third Parties(l’effet relatif)

Questions à se poser: Who are the parties ? Is there an agent ? An heir ? 3d party unrelated ? What is the K?

Bigger Issues Testing reformative power of judges (Iacobucci J in London Drugs) Une question qui met en lumière la difficulté de tracer la frontière entre le contrat et le délit

CIVIL & COMMON LAW

A. Privity of K: K only has effect between K-ing parties A contract has effect only between the contracting parties; it does not affect third persons,

except where provided by law. (1440) But who is a party?

o Heirs: Upon the death of one of the parties, the rights and obligations arising from a contract pass to his heirs, if the nature of the contract permits it. (1441)

o Agents: Power of attorney (notion de mandat) – 2130 et 2160 (procuration = proxy)o mandataire = principal; mandant = agent

o Assignment : Notion de cession de créance (1637) Le créancier peut céder (assign) à un tiers, tout ou partie d'une créance ou d'un droit d'action qu'il a contre son débiteur. Cette cession ne peut, cependant, porter atteinte aux droits du débiteur, ni rendre son obligation plus onéreuse. (ie, factoring companies)

B. Promise for Another : cannot impose obligations on 3d party No person may bind anyone but himself and his heirs by a contract made in his own

name, but he may promise in his own name that a third person will undertake to perform an obligation, and in that case he is liable to reparation for injury to the other contracting party if the third person does not undertake to perform the obligation as promised. (1443)

CIVIL LAW

C. 3d party have a right of action against K-ing party (stipulation of benefit for another) A person may make a stipulation in a contract for the benefit of a third person. The stipulation

gives the third person beneficiary the right to exact performance of the promised obligation directly from the promisor. (1444)

The stipulation may be revoked as long as the third person beneficiary has not advised the stipulator or the promisor of his will to accept it. (1446)

***n’existe PAS en cml*** : except in certain instances, where by specific statute, ie, insurance cies paying benefit to spouse, etc

Chain of Transfer : Les droits et recours de l’ayant cause à titre particulier sont contractuels (chaîne de transferts de propriété – 1442 CCQ)

Party to K as one with Particular Title : Ayant cause à titre particulier (1442) (Kravitz)o Cela pose quelques problèmes conceptuels (Voir l’exemple de Kravitz)o ayant cause à titre particulier : means you are one of the ppl in the chaino in Kravitz, examining the FIRST CONTRACT b/t GM and Plamondono putting Kravitz in the same position as Plamondon, and GM cannot limit its liability b/c

presumption of knowing the latent defects of the productExample: Alliance v Dominion Electric ex : sprinklers – owner – tenant : tenant only has an extra-Kual recourse against the sprinkler

company. economy of K (b/t sprinkler & owner), tenant has extra-Kual remedy that is better than the co-

contractants recourse??


possible solutions: i) conceive of owner as agent of the tenants; ii) no recourse of tenants against sprinkler cie b/c duty to supervise not extend to all persons.

Example: Hercules Mgmt to hold accountant resp for negligent preparation of financial reports relied on by a 3d party,

need to est. foreseeability & proximity.

COMMON LAW

C. 3d party does NOT have a right of action against a K-ing party PROBLEM: no consideration given by 3d party receiving the benefit. Beswick v. Beswick : K for benefit of 3d party widow, but widow gave no consideration.

o in order to benefit from a promise, must have given sthg in exchangeo most cml authors don’t exactly agree with this, promise should be executable, and

“calls for a remedy” EXCEPTIONS to privity of K:

o promisor and promisee exchanged consideration, and made a K for benefit of a 3d party intended beneficiary. no consideration from 3d party. BUT, when the 3d party brings suit to enforce promise, she brings suit to enforce promise b/t promisor and promisee, where there was consideration.

o London Drugs: employees benefit from limitation of liability in clause in K between their employer and the Plf

cml looks to economy of K (ie, the bargain) and thus restricts the scope of Kual resp

Privity of K: How to get around the problem: Exceptions to Privity of K :

Agency (New Zealand) Collateral contracts Trusts Torts

o privity fallacy : that manufacturer only has duty of care towards his supplier.o no privity of K between manufacturer and consumer: Donoghue v Stevenson:

manufacturer liable in tort to the final consumer of the product Assignments (cessions de créance)

Judicial Incremental Change : Les solutions judiciaires ponctuelles Beswick et le recours par le stipulant (administratrix of estate) London Drugs et l’exception étroite (employees receive benefit of limitation of liability)

Les solutions statutaires less common today


Le principe de l’effet relatif

Le contrat ne peut créérd’obligations pour le tiers

Le contrat peut créérdes droits pour les tiers

En droit civil, le contrat peut créér un bénéfice positif

pour le tiers

Le contrat peut créérun bénéfice négatif

(une protection) pour le tiers

Beswick v Beswick [C.A.] [cml] [joint claim as K-ual party and 3d party][1966] 3 All. E.R. 1 (C.A.)Facts coal merchant, Peter Beswick, leaves business to his son, John Joseph

Beswick. K stipulates that Peter remains consultant until his death and receive L 6 10s

per week after Peter’s death, his widow was to receive an annuity of L 5 per week,

which was to come out of the business son only paid one installment to the widow. widow sues for specific

performance in dual capacity: administratrix of Peter’s estate, and personal capacity as 3d party beneficiary

Issue i) administratrix of estate entitled to sue for specific performance? ii) 3d party beneficiary entitled to sue for specific performance?

Held i) Yes. ii) YES (!)

Reasoning Lord DenningCommon Law 3d party can sue? K for benefit of a 3d person is binding Dutton v Poole: i) father’s executrix could have sued for the benefit of the

daughter; ii) “in the special circumstances of that case (when a party could not give evidence), the daughter herself could sue on the contract although she was not a party to it.”

Ks for benefit of 3d person: “although the 3d person cannot as a rule sue alone in his own name, nevertheless there is no difficulty whatever in the one K-ing party suing the other party for breach of the promise.”

“far better for the K-ing party and the third person to join as co-plaintiffs.” general rule that “no 3d person can sue, or be sued, on a K to which he is not

a party” is “only a rule of procedure” third person has a right arising by way of KEquity remedy of specific performance K-ing party entitled, alone or jointly w/ 3d person, to have K performed


according to terms and Court will decree specific performanceStatute s. 56 of Law of Property Act, 1925 “(1) A person may take an immediate or other interest in land or other

property or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property although he may not be named as a party to the conveyance or other instrument.”

Thus, here: widow make valid joint claim as executrix of husband’s estate, and in her

personal capacity (as 3d person). orders specific performance

Rule 3d party beneficiaries may validly sue for specific performance Comments overturned in the House of Lords

Beswick v Beswick [A.C.] [cml] [may ONLY claim as K-ual party, orders specific perf.][1968] A.C. 58 (H.L.)Facts coal merchant, Peter Beswick, leaves business to his son, John Joseph

Beswick. K stipulates that Peter remains consultant until his death and receive L 6 10s

per week after Peter’s death, his widow was to receive an annuity of L 5 per week,

which was to come out of the business son only paid one installment to the widow. widow sues for specific

performance in dual capacity: administratrix of Peter’s estate, and personal capacity as 3d party beneficiary

Issue i) administratrix of estate entitled to sue for specific performance? ii) 3d party beneficiary entitled to sue for specific performance?

Held i) Yes. ii) NO.

Reasoning Lord Reid commonly accepted view, contrary to Lord Denning, K for benefit of a 3d

party confers no right on the 3d party, and the 3d party cannot sue for the monies promised

resp widow in her personal capacity has no right to sue, but she has a right as administratrix of her husband’s estate to require the appellant to perform his obligation under the agreement

Law of Property Act s. 56 invalid, b/c as consolidation Act, was not to make substantial change in the law. earlier Acts from which consolidated contained no provision like s. 56

specific performance should be ordered.Rule only parties to the K have a right to sue. third party beneficiaries have no

right to sue.Comments

New Zealand Shipping Co. Ltd. v A.M. Satterthewaite & Co Ltd [cml] [agency ][1975] A.C. 154Facts New Zealand Shipping (stevedore) carry out stevedoring work (manages

operation of loading/unloading a ship). stevedore act as agent, received bill of lading. Satterthewaite (consignor: person sending a shipment to be delivered) send expensive drilling machine. Stevedore negligent in unloading drill.

Bill of Lading, clause 1: no servant/agent of Carrier under any liability to Shipper, Consignee or Owner; every exemption, limitation, condition and liberty shall also be available and shall extend to protect every such servant/agent of Carrier.


Issue Stevedore covered by exclusion clause in Bill of Lading?Held Yes.Reasoning Lord Wilberforce

Doctrine of Privity of K: K between two parties cannot be sued on by a 3d person even though the K is expressed to be for his benefit.

Agency Exception: (Strattons c Midland Silicones) Lord Reid, in obiter, sets out 4 conditions:

o i) bill of lading marks clearly that stevedore is intended to be protected by provisions in it which limit liability

o ii) bill of lading makes it clear that the carrier, in addition to King for these provisions on his own behalf, is also K-ing as agent for the stevedore that these provisions should apply to the stevedore;

o iii) carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice,

o iv) any difficulties about consideration moving from the stevedore were overcome.

Applied to the Facts: context of commercial reality: to describe one set of promises, in this

context, as gratuitous (nudum pactum) seems paradoxical and is prima facie implausible.

GIVING EFFECT TO THE INTENTION: exemption designed to cover the whole carriage from loading to discharge,

by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be

two types of unilateral Ks: whether one describes the shipper’s promise to exempt as an offer to be accepted by performance (Carlill v Carbolic) or as a promise in exchange for an act seems in the present context to be a matter of semantics.

consideration : an agreement to do an act which the promisor is under an existing obligation to a 3d party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce.

thus, give stevedore benefit of exemptions/limitations to give effect to “the clear intentions of a commercial document”

Rule Comments

London Drugs Inc v Kuehne & Nagel Int’l Ltd [cml] [non-party employees receive K-ual benefit][1992] 3 S.C.R. 299Facts Appellant delivered a transformer to a warehouse company for storage pursuant

to the terms and conditions of standard form K, incl limitation of liability clause limiting the warehouseman's liability on any one package to $40.

Respondent employees moved transformer using two forklifts contrary to safe practice, toppled, extensive damage

Appellant sued the warehouse company and the employees for damages for breach of contract and negligence.

Issue Employees owe a duty of care to employer’s customers? Can employees benefit from their employer’s K-ual limitation of liability

clause?Held Yes, and they breached it, so they’re negligent.

Yes (relaxation of privity of K)Reasoning Iacobucci J.

Duty of Care? yes, employees owe duty of care to employer’s customer.


manufacturerers’ liability, apply Donoghue test: reasonably foreseeable to employee’s that their negligence would result in damage to appellant’s property

close relationship b/t parties that employees had duty to exercise reasonable care

Here, they dropped the transformer, thus they breached the duty of care.Non-party employees benefit from limitation of liability? Yes, 3d party beneficiaries benefit from limitation of liability clause.Judicial Legal Reform: limits on the power of the judiciary to change the law: major revisions of the

law are best left to the legislature. yet, in appropriate circumstances, courts not only have the power but the duty to make incremental changes to the common law to see that it reflects emerging needs & values of society.

Doctrine of privity of K should be relaxed distinction: right for third party beneficiary to rely on limitation of liability

clause, is DISTINCT FROM recognition of 3d party’s right to sue on a K. doctrine of privity fails to appreciate “special circumstances” of employer-

employee relationship POLICY REASONS to relax the doctrine:

o commercial sense in a comm’l K for storage: allow parties to allocate risk of damage to the goods & procure insurance accordingly

o identity of interest : not make comm’l sense to hold that term “warehouseman” not intended to cover Resp employees

o serious injustice : financial position of affected employees could vary

o creates uncertainty : result would require excessive expenditures and defeat the allocations of risk specifically made by the parties

GIVING EFFECT TO INTENTION: if uphold strict doctrine privity of K, then allow appellant to circumvent or

escape limitation of liability clause to which it explicitly consented. would be “absurd” in circumstances to let appellant go around the

limitation of liability clause by suing the Resps in tort. identity of interest: employer & customer enter into K, and limit liability of

employer “for damages arising from what will normally be conduct contemplated by the K-ing parties to be performed by the employer’s employees,” then no reason to deny employees the benefit of the clause

THUS, INCREMENTAL CHANGE by creating exception to doctrine of privity of K: Employees may obtain benefit of limitation of liability clause b/t their

employer and Plf when:o i) limitation of liability clause expressly/impliedly extends its

benefit to the employees seeking to rely on it (this implied or express stipulation is determined by the parties’ intention as stipulated in the K)

o ii) employees seeking benefit of limitation of liability clause were acting in course of employment and performing the very services provided for in K when loss occurred

“doctrine of privity should not stand in the way of commercial reality and justice”

McLachlin J employees owe no duty of care to owner of the machine (relational view,

would this be the same in cml?)La Forest J. (dissent)


Rule relaxation of doctrine of privity of K where employees may benefit from limitation of liability clause

Comments compare to Donoghue v Stevenson: overcame the problem of privity of K by establishing a duty of care of the manufacturer to the woman who drank the ginger beer. Thus, no privity of K between manufacturer and consumer.

case made “small hole,” enlarged in subsequent decisions

Legal Warranties: Direct Action regarding Transfer of Goods

Manufactuer’s Liability la resp extra-K-uel fondée sur la faute

o no direct K-ual link, so extra-K-ualo ex: secondary smoke where consumer sues manufacturer

la resp extra-K-uel fondée sur une faute présuméeo res ipsa

l’application de la garantie K-uelle de qualité au bien dangereux (en présence d’un K)o d’origine italienneo K au 19e siècle visait l’usage du bieno transition : passé du bien défectueux au bien dangereuxo la garantie couvert le défaut ET le danger

pourquoi ? vendeur présumé connaître la nature de la chose on n’a pas reçu le bien qu’on voulait donc, arriver à un resp stricte par le billet du K

KRAVITZ : l’extension de la garantie de qualité aux sous-acquéreurs (défaut et danger)o 1457: usually, 3d parties only have a right of action under 1457o BUT, Kravitz widened the scope of the warranty to apply to successorso now codified in 1442: The rights of the parties to a contract pass to their successors by

particular title if they are accessory to property which passes to them or are directly related to it.

Statuteloi de protection du consommateur (1978) art. 53

art. 54

Manufacturer’s Liability for safety defects 1468: liable for reparation for safety defect. 1469: safety defect = not afford safety person normally entitled to expect b/c defect in design,

poor preservation, or lack of sufficient safety precautions 1473: manufacturer not liable where victim knew of defect, could have known, or could have

foreseen the injury sui generis regime: not entirely fault, not entirely risk. 1730: The manufacturer, any person who distributes the property under his name or as his

own, and any supplier of the property, in particular the wholesaler and the importer, are also bound to warrant the buyer in the same manner as the seller.

G.M. v. Kravitz [cvl] [legal warranty against latent defects applies to all consumers][1979] 1 R.C.S. 790Facts in Nov 1967, Kravitz purchased Oldsmobile from Plamondon. complained

of defects. had repairs done w/ GM’s knowledge and at their expense. still unhappy, returned car in Oct 1968, and brough action to i) have tender of


automobile be declared valid; ii) that sale of automobile to him by Plamondon be cancelled, and iii) that Plamondon and GM be jointly and severally liable to pay him purch price of auto ($3K) and damages ($2.5K)

Issue Extent to which auto manufacturer (GM) liable to the buyer (Kravitz) for the latent defects in such vehicle?

Held GM liable in K because legal warranties attached to the thing, and thus benefit subsequent purchasers.

Reasoning Pratte J. Three problems: (1) no-warranty stipulation, (2) effect of GM’s conventional

warranty, and (3) Kravitz relying on a right flowing from a K to which he was not a party.

(1) No-warranty clause in K between Plamondon and Kravitz seeks to repudiate legal warranty of dealer and manufacturer against defects. This is not valid: both the professional seller and the manufacturer must notify the purchaser of the latent defects in the thg sold. The no-warranty stipulation cannot be a bar to Kravitz’ remedy against GM.

(2) Conventional warranty. Plamondon, acting as GM’s agent, gave Kravitz two booklets containing GM’s conventional warranty. Any provisions in this conventional warranty the effect of which would be to relieve GM from its liability under the legal warranty must be held to be null & void.

(3) Direct remedy by Kravitz against GM? o whether the legal warranty against latent defects from sale b/t GM

and Plamondon has effect only b/t immediate parties, or whether it can also benefit a subsequent purchaser of the thg sold

o privity of K (1023 CCLC) is not absolute.o exceptions in 1028 to 1031 CCLC: some rights so closely related to

a thg that they can benefit only its ownero transfer of rights that are identified with the thing or accessories

thereto, it must be said that the warranty against latent defects is owed not only to the immediate purchaser, but also to any subsequent purchaser of the thing.

o sub-purchaser may proceed directly against the first seller for cancellation (of first sale to Plamondon, which includes the warranty Kravitz wants to avail himself of) and damages.

o price first seller must reimburse is that of the first sale, the price it received.

o difference between the price of the first sale (GM to Plamondon) and the second sale (Plamondon to Kravitz) is included in the damages under 1527 CCLC.

o GM must pay Kravitz the amount of the selling price which Kravitz paid Plamondon, and the damages from the latent defects

o GM jointly and severally liable with Plamondon for payment in full of the sum owed to Kravitz, since this was a commercial transaction for GM and Plamondon

Rule cannot contract out of legal warranty against latent defects legal warranty attached to the thing, and thus benefits subsequent purchasers

of the thing. Comments


Contractual and Extra-Contractual Responsibility

Distinction Chain of Ks: from A to B to C transmission Purs tiers: Complete outlier (D): secondary smoke, no transmission of Ks, just has extra-Kual

Direct Contractual Relationship (A – B) just b/c you have a K-ual relationship does NOT mean that you have a K-ual action (ie, what if

your landlord punches you – this is extra-Kual, b/c the content of the tenancy agreement says nothing re: assault)

look at Crépeau 94 (?): security concerns REMOVED from domain of K-ual relations can B choose b/t the K-ual or extra-Kual?

o cvl: per CCQ 1458, NO, must choose Kual action if there is one present.o cml: can choose your method, Kual, extra-Kual, or both (ex: Esso v Marden)

Legal warranty of products (strict liability) (b/t A & B, K-ual liability) seller has obligation that product does not have a defect, and functions according to its purpose object of a K of sale: that the object functions goes to use can you use this for corporal damages? presumption of seller’s knowledge of defects almost uniform, strict liability action b/t A & B, based on K-ual liability and the legal warranty

Transmission of Ks (A – B – C) look at the end of the chain of Ks: can you limit the rights of C, at the end of the chain, with regard to A, at the top of the chain? ***C may bring an action against A***

Exception to Privity of K: manufacturer-consumero historically, cml not recognize this: would have told C to bring an action against B.o only came about w/ Donoghue v Stevenson, where privity fallacy allowed C to bring an extra-

Kual action against A, particularly re: corporal/material prejudices suffered.

Kual action?o may conceive as an (implied) stipulation for the benefit of a 3d partyo Kravitz: chain of GM manufacturer (A); dealer Plamondon (B); and consumer Kravitz (C)


legal guarantee as an “accessory” on the car (no matter who acquires the car) C wants to bring action in legal warranty against A b/c then benefits from certain

presumptions C brings action on basis of legal warranty A provided to B (!), now has three options i)

wants to return the item; ii) keep the item & reduce price; iii) damages for defect known to seller

GM wants to refund the price: which price? price Plamondon purchased car for, or price Kravitz purchased car for? first sale is cancelled, so the price of the first sale will be refunded.

“back flips”: cancel the first sale, and recover the price paid. beyond that, have damages. legal fiction: **professional sellers** (here, A) presumed to know latent defects

(accepted today that this may be a rebuttable presumption) is B also presumed to know the latent defects? CCQ 1442: codification of Kravitz HUGE EXCEPTION to rule of privity of Ks The rights of the parties to a contract pass to their successors by particular title if they are

accessory to property which passes to them or are directly related to it. (1442) have a right to everything: resolution of K, damages + ____.

can the sous-acquéreur (C) also benefit from 1468? yes?cannot benefit from exoneration clause

pure economic loss cml: cannot recover (if plumber & electrician working on house, and plumber causes delays to the

electrician, electrician canNOT recover)

When does inexecution of a K-ual obligation allow a 3d party to invoke an extra-K-ual action? cvl: usu no problem to bring extra-Kual action cml: problem look at Bail c Banque de Montreal

Contractualizing the Recours of the Third Parties (C – B) determine whether K-ual or extra-Kual, and under what conditions CONTRACTUAL RECOURSE = legal + contractual. legal relates to public policy.

Strategic Transformation : why contractualize the rights of 3d parties? Pour favoriser le recours d’une victime

o Kravitz – recours contractuel sans preuve de faute (legal warranty = Kual recourse)o remember, 3d party always have extra-Kual action available when hurt by dangerous

product Pour étendre l’effet d’une clause exonératoire ou limitative de responsabilité

o London Drugs – maintenir l’économie du contrato risk allocation very importanto economy of K : paid a price, exchanged, allocated risk. have the 3d party, here, the

employees, benefit from the Kual relationship b/t the two partieso compare to Beswick where trying to reap the benefits of a promise

3d Parties against K-ing Parties Tout défaut d’exécuter un contrat peut-il être invoqué par un tiers comme faute extra-

contractuelle? Les réticences de la common law: le préjudice purement économique

o exceptions where 3d parties DO have actions : comportement frauduleuse, material/bodily/tangible injury

o “indeterminate liability for an indeterminate loss” Les incertitudes du droit civil: faute contractuelle et faute extra-contractuelle

o CB p. 464, juge Gonthier : inexecution of K does NOT automatically open recourse to 3d parties, need sthg else, use stdrd of reasonable person


o “the parties to a K are therefore delictually liable for the damage which they may cause to third parties in the context of their contractual relationship, by their failure to meet the standard of reasonable conduct in the circumstances of that relationship” (Gonthier J. in Bail)

Houle v. CNB [cvl] [abuse of K-ual rights, extra-Kual remedy][1990] 3 R.C.S. 122 civil lawFaits Resp Houle Bros. shareholders in family pork slaughter company.

company have credit line w/ Appel. bank. loan was demand loan: bank have K-ual right to recall w/o notice

20 days after signing trust deed, Appel recall loan. aware of pending sale of company.

Bank inform company of recall & take possession of assets 3 hrs later. Resp close sale of company but only receive $300,000, as opposed to

actual value of $1,000,000. Resp brought action to recover the $700,000.

Question en litige bank abuse its K-ual right? can Resp, as 3rd parties to K, ground an action in K-ual liability?

Dispositif yes, bank abuse. App bank liable for extra-K-ual damages to RespAnalyse L’Heureux-Dubé J.

Recall of loan without a reasonable delay amounted to an abuse of bank’s contractual right to recall loan with no notice.

Respondents must ground action in extra-contractual liability (b/c 3rd parties to K, and thus cannot bring action under K-ual liability). There is fault, damage and causality therefore bank must compensate $700,000 plus interest

The doctrine of abuse of contractual rights is part of Quebec civil law. The criteria for the abuse of contractual rights is not malice or bad

faith. A contractual party has an implicit obligation to undertake the “reasonable exercise” of a contractual right. The support for this is 1053 (the standard for extra-contractual liability is “reasonableness”) and 1024 CCLC (an implicit obligation of contractual parties to exercise rights in accordance with rules of equity and fair play)

The abuse of a contractual right gives rise to contractual liability; but, third parties to the contract have no right of action in contractual liability.

The bank did not abuse its contractual right to recall the loan (it had reasonable explanation for doing so) however it abused its contractual right to realize securities after the demand for payment was not met. The contractual right was abused because the right was exercised unreasonably (without sufficient delay) when the bank knew of the impending sale of the company.

Rule doctrine of abuse of K-ual rights part of Qc civil law, w/ criterion of reasonableness. implied obligation to exercise K-ual right in a reasonable manner (now in CCQ 7)

Comments - [1] Entrenches doctrine of abuse of rights in CONTRACT Even if there is an explicit right in the K, cannot be exercised in an abusive way if it is, is a breach of the CONTRACT. (can sue contractually, third parties can sue delictually).

- [2] Establishes that test of abusive exercise of a right is not malice but reasonableness.

- [3] Acknowledges that this clashes with autonomy of the will. [Note difference btwn Houle and Soucisse

Soucisse: court ADDS an obligation (not interfere w/ autonomy)Houle: court CHANGES contract affects a right that a party has


under its K (touches autonomy) o critère du comportement raisonnableo CCQ 6 et 7 (nuire à autrui : subjective)o l’abus de droit dans la propriété passe au contrat

Bail c Banque de Montreal [cvl] [3d party may sue extra-Kually][1992] 2 R.C.S. 554Facts - Hydro QC contracted with Bail to build James Bay substation. Bail contracted

with a sub-contractor - Laprise. Laprise went bankrupt and bank stepped into Laprise's shoes.

- Hydro QC had access to some geotechnical report (1977 report) and failed to inform Bail of the soil conditions therein outlined. Knowledge of the soil conditions would have resulted in Laprise renegotiating the K or changing the course of work.

- As result of the work it had to do on the difficult soil conditions, Laprise went bankrupt.

- Bank of Montreal administrated Laprise's bankruptcy and sued Hydro Quebec for its failure to disclose the information about the soil conditions.

- The breach is in K btwn Bail and Hydro QC…so Bank must sue extra-contractually.

Issue - Can the bank (a third party) sue extra-contractually?- On what basis?

Held Yes. Failure in K-ual obligation to inform.

Reasoning Gonthier J.Can Bank, as 3d party, sue extra-Kually? Yes. no direct K-ual relationship b/t Laprise, subcontractor, and Hydro Qc, the

owner.Legal Relationship b/t Laprise and Hydro Qc? although K-ual and delictual liability may coexist even in context of a K,

delictual liability must arise independently of Kual obligations and all elements required to give rise to such liability must be found (Houle)

“the parties to a K are therefore delictually liable for the damage which they may cause to third parties in the context of their contractual relationship, by their failure to meet the standard of reasonable conduct in the circumstances of that relationship”

K-ual context: 1053 CCLC imposes duty to act reasonably toward third parties, thus have delictual action where 3d party sues in delict for K-ing party’s failure in its general duty to act reasonably.

contracting party’s duty of acting reasonably and in good faith is informed by content of the K, and party’s conduct in terms of its K-ual obligations

when obligations set out in the K entail definite express or implied benefits for 3d parties, the K-ing party must avoid causing damage to those 3d parties

some K-ual obligations are stipulated for the exclusive benefit of the other K-ing party, and it is then more difficult but not impossible to imagine how the conduct of the K-ing parties makes them liable to 3d parties.

failure to perform a K-ual obligation, as a juridical fact, may for the basis for an action in delictual liability by a third party against the K-ing party who is at fault

Substance of the Relationship? Obligation to inform.- Bank is invoking HQ's obligation to inform as set out in the K between HQ and

Bail as a basis for the action in delict.- The obligation to inform is now well established in Quebec law. It is possible to

outline a general theory of the obligation to inform based on the duty of GF in the realm of Ks. [Jukier: the obligation to inform is part of the obligation of good


faith - now codified in Art. 1375 C.C.Q.] - Ghestin has stated the nature and parameters of the obligation to inform: Where

one party has knowledge which it knows is of decisive imptce to the other party and the other party cannot inform itself or legitimately relies on the informed party for that info, there is an obligation to inform.

- Advent of the obligation to inform in is related to a shift taking place in the civil law - it is becoming more attentive to inequalities/vulnerabilities in terms of information.

- The obligation to inform MUST not be defined so broadly as to obviate the fundamental obligation which rests on everyone to obtain information and to take care in conducting his/her affairs.

- Note that the obligation to inform may be different depending on whether it arises in a pre-contractual or contractual relationship - (1) criteria used to determine whether information is a deciding factor in the pre-contractual phase differs from criteria used in contractual phase; (2) violation of pre-contractual obligation to inform gives rise to delictual, not contractual liability.

- Obligation to inform applies to a contract of enterprise. There are 3 factors unique to Ks of enterprise that have a bearing on the obligation to inform: (1) allocation of risk; (2) relative expertise of the parties; (3) continuing formation of the K. An onerous obligation to inform was imposed on HQ b/c it had assumed liability wrt accuracy of data; it had greater expertise than Bail and Laprise; the K was in continuing formation (there were a whole bunch of change orders issued).

- HQ's obligation to inform was owed contractually to Bail and extra-contractually to Laprise - duty to act reasonably toward the subcontractors.

- HQ did not fulfill its obligation to inform. By leaving Bail and Laprise completely in the dark about the quality of the information it had provided to them, by constantly shifting the blame onto the subcontractor's shoulders and by arguing urgency and its goodwill in agreeing to the changes to the work, HQ was literally able to induce Bail and Laprise to carry out a design for which they had not executed.

Rule K-ing parties under duty to act reasonably toward 3d parties. There is a K-ual and pre K-ual obligation to inform which is part of the

obligation of good faith in Art. 1375 CCQ. Where one party has knowledge which it knows is of decisive imptce to the other party and the other party cannot inform itself or legitimately relies on the informed party for that info, there is an obligation to inform.

Comments - SH: is this case about a contractual or pre-contractual obligation to inform? Court says that the data that should have been disclosed would have formed the basis for the parties' negotiations on the execution and revision of the K and that HQ was required to disclose them to Bail and Laprise….so are modifications pre-contractual?

- Remedy for breach of pre-Kual obligation to inform see discussion above. Some commentators think it is the same as remedy for fraud. Others think must be an independent remedy for breach of good faith.

8 sep 2005 - lsa mcgilllsa.mcgill.ca/pubdocs/files/contractualobligations/373-jutras... · web...

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