CONTRACTS CAN - Aloni 2017/2018 FULL CAN

CONSIDERATION

Hamer v Sidway [1891 NY] F: Uncle promises nephew would pay $5000 if nephew didn’t drink, smoke, swear, or gamble until age 21 | nephew consented and refrained, but uncle died to now someone who has the interest (Hamer) suing executory of uncle’s estate (Sidway) I: Is there valid consideration in forbearance of a legal right | is this a unilateral or bilateral contract A: not drinking/smoking/gambling is a giving up of a legal right which is enough of a detriment to the nephew to constitute valid consideration (uncle doesn’t need to benefit) | unilateral because uncle had no way to do anything if nephew ‘breached’; legal obligation only happened once nephew has completed his side R: act of giving up lawful freedom is valid consideration in a promise | ex of unilateral contract

Shadwell v Shadwell [within Hamer] F: uncle pay 150 pounds a year to assist with marriageA: valid consideration and thus binding because is quid pro quo: will pay 150 pounds a year in return for you getting married/continuing with the marriage

Lakota v Newton [within Hamer] F: promise to pay $100 if stop drinking for a yearA: valid consideration as a forbearance of a legal right

The Governors of Dalhousie College at Halifax v. the Estate of Arthur Boutilier, Deceased [1934 SCC] F: Bout pledged $5000 to College in a signed subscription which noted money would be used generally for ‘improvements of College’ | Bout never paid but said he intended to eventually | college made improvements counting on the money| Bout died without paying A: too broadly worded to be considered a request by Bout for improvements donation not made for a specific purpose, not a clear exchange, no inducement | facts here do not support consideration on grounds of inducing others to donate (uni using promise to induce others is not consideration, if he had said ‘if you donate I will too then maybe’) | College shouldn’t have relied on this gratuitous promise reliance by itself not valid consideration R: promise of money for various improvements does not have valid consideration because there is a lack of inducement and the donation is not made for a specific purpose

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PAST CONSIDERATION

Mills v Wyman [1825 Massachusetts] F: Wyman was 25 and not part of father’s family when got sick | Mills took care and gave board and nursing but Wyman died | Wyman’s father informed after death of all expenses and at that time wrote that he would pay Mills back | now doesn’t want to payI: is the promise to pay expenses supported by consideration? A: no mutual inducement at the time benefit given to son | no request for care made, father only offered after all benefit was given thus is a case of past consideration |past consideration here is not valid consideration

Eastwood v Kenyon [1840 QB] F: Infant Sarah had P as guardian and P spent money on her for education and improving assets etc | P borrowed money to do so | Sarah when came of age promised P would pay debt (paid some of the interest only) | Sarah married D who also promised would pay debt but didn’tI: is there valid consideration in the promise made by D to pay PA: consideration for promise was past and executed long ago | no request by D to spend the money on P (impossible with timing) | policy fear of people to start conferring benefits and then demanding they are obligated to repay | no valid contract

Lampleigh v Brathwait [1615 KB] F: D had killed someone, asked P to go get him a pardon for it | P rode around country trying to get a pardon, worked very hard and succeeded | afterwards, D was grateful and promised to give P 100 pounds, but did not A: normally would fall under rule of past consideration being invalid but this is another exception | riding around was done at the explicit request of D and thus valid consideration even though happened in past | implied agreement when service asked for that would get paid for itR: past consideration completed at direct request of other party is valid

EXCEPTIONS TO THE PAST CONSIDERATION DOCTRINE 1. If adult re-promises to pay debt that he/she incurred as a child this is valid

(Discussed in Mills v Wyman / Eastwood v Kenyon)2. If someone re-promises to pay a debt that was previously enforceable after

limitation date (Discussed in Mills v Wyman)3. If someone re-promises to pay a debt after it was previously discharged from

bankruptcy (Discussed in Mills v Wyman)4. Past promise given at promisor’s request with implied agreement that there

would be eventual exchange (used in Lampleigh v Brathwait)

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Three aspects necessary for this exception outlined in Pao On v Lau Yiu Long Original act done at promisor’s request Parties must have understood act was going to be remunerated somehow Payment/benefit must have been legally enforceable if had been promised in

advance

What Functions of Form does Consideration Serve (Lon Fuller Article) 1. Evidentiary f’n: provides evidence of the terms of agreement if there is

controversy2. Cautionary f’n: cautions parties they are entering into an agreement that is

legally binding3. Channeling f’n: gives instrument that tells parties what to do to make a legally

binding contract Note: that the seal (which replaces consideration) also fulfills these three functions

CONSIDERATION MUST HAVE VALUE BUT COURTS DO NOT INQUIRE INTO ADEQUACY

Thomas v Thomas [1842 QB] F: D was brother of P’s late husband, drew up agreement that P (widow) could keep husband’s house until she died or got remarried (following wishes of late husband on his death bed) | in return she would pay 1 pound a year for rent and keep premises in good repair | D ejected her after a little bit A: motive (requesting wishes of husband) is not valid consideration courts do not care about motive just care about if they have objectively bargained for something | consideration is something that has value in the eyes of the law | even though consideration nominal (peppercorn) is still valid b/c courts do not inquire into adequacy | evidentiary and cautionary functions fulfilled R: consideration must have value in the eyes of the law, courts don’t inquire into the adequacy of consideration FORBEARANCE FROM SUING AS CONSIDERATION

B. (D.C.) v Arkin [1996 Man QB] F: P’s son was 14 and stole from Zellers | Zellers lawyer said were going to claim from mother because was legally responsible and had right to claim against her in civil court | offered to accept $225 to settle out of court which P accepted and paid them | P then sought legal advice and realized Zellers never had a valid claim A: a forbearance to sue is generally good consideration but for this to be so forbearer must act in good faith, must have seriously intended to pursue the claim (even if claim was invalid but they didn’t know that), and cannot have deliberately concealed facts from the promisor | here claim was completely invalid and Zellers lawyers competent thus would have known that so didn’t intend to pursue, misleading letter = not good

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faith, concealed info so here this forbearance is not valid consideration | got her money back R: forbearance to sue is good consideration under three conditions: 1 forbearer acting in good faith; 2 forbearer must have seriously intended to pursue the claim; 3 forbearer cannot deliberately concealed facts from promisor | money in exchange for (valid) forbearance to sue (settlement) is okay

ILLUSORY PROMISES (INVALID CONSIDERATION)

Strong v Sheffield [1895 NY CA] F: P sold business to D’s husband on credit | embodied in promissory note which D endorsed because P promised he wouldn’t sell the note to someone else or collect until ‘he wanted his money’ | ended up demanding payment over 2 years later A: Generally forbearance to collect in exchange for endorsement is valid consideration but in this case the period of forbearance was completely at discretion of P (‘when I want my money’) and thus no valid consideration | doesn’t matter that did actually wait two years because the time period was not bargained for R: PROMISE IS ILLUSORY (purely at one party’s discretion) = NO CONSIDERATION

Wood v Lucy, Lady Duff-Gordon [1917 NY] F: P and D entered into contract that P had exclusive right to place D’s endorsement on other people’s designs (then more valuable) and exclusive right to put her own designs on sales or license others to market them and in return D got 50% profits from contracts that P made | D placed endorsements on others designs without P’s knowledge and kept profits only for herselfA: this promise is not illusory because there is an implied promise that P must use reasonable efforts to bring profits and revenues into existence (in exchange for exclusive agency given to him) and thus contract is binding b/c has valid consideration | D’s actions were thus breach of the exclusive agency contract

PRE-EXISTING DUTY

PUBLIC DUTY Traditional view is that promise to perform/performance of a public duty is not

valid consideration (but if there is something beyond requirements of duty given then is valid)

Ward v Byham [UK CA 1956] F: father promised to pay mother of illegitimate child so mother would make sure child well looked after and happy (also had to prove this) and let child have choice to live with mom or not | mother statutorily obligated to maintain illegitimate childA: goes against traditional view that there is no consideration because mother already statutorily obligated | is consideration because went over and above duty child

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happy and well looked after/ proof/ choice where to live (Lord Morris) OR is consideration because still benefits the father knowing child happy and well looked after (Lord Denning)

PRE-EXISTING CONTRACTUAL LEGAL DUTY Traditional principle is that there is no fresh (valid) consideration in promising

to do something you are already contractually/legally obligated to do However is necessary to balance policy of protecting against economic duress vs

allowing parties to alter terms of contracts for economic improvements

PROMISES TO ACCEPT MORE

Stilk v Myrick [1809 KB]F: D was sailor and had agreement to be paid 5 pounds a month for the voyage | 2 men deserted and when at a port captain attempted to find more people but couldn’t so promised rest of sailors to divide two wages between all of them | voyage completed but captain didn’t pay the extra A: sailors had already agreed to do whatever they could to ensure safe voyage and thus gave no fresh consideration for the extra pay | D only gets 5 pounds as per original contractR: an agreement to pay more in exchange for other party completing same duties as before is not valid because there is no fresh consideration NOTE: this case was dependent on specific mutiny-related scenarios when one side has unfair negotiating powers (similar to duress idea)

Gilbert Steel Ltd v University Construction Ltd [1976 UK CA] F: P and D had agreement for P to deliver steel for 3 sites, fixed prices | before third site delivery done, P announced increases in steel prices and new (written) contract entered into for building 1 on site 3 w/ higher prices | first building still not completed P announced second price increase and oral contract entered into for higher prices | D doesn’t want to pay higher pricesI: Is the oral agreement (and prices) legally binding?L: Morris v Baron & Co held that a subsequent agreement where parties mutually agreed to eliminate/tear up the former one and replace it with a new (modified) agreement is a way to get around pre-existing duty rule A: no evidence that either party wanted to get rid of old contract and replace with new one as in Morris (in NOCC said was amended; D never signed new contract only oral) | oral agreement was agreement to vary previous conditions only thus not valid consideration R: a promise to pay more for a good without additional consideration from the seller will not be enforceable if there is no evidence that the parties intended to rescind the original contract and replace it with a new (modified) one

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Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] F: P was hired by D to do carpentry on 27 flats but had money problems b/c price too low | D approached P and said would pay extra for completion A: refining and limiting application of Stilk v Myrick (still good law but less persuasive) | practical benefit given to D thus valid consideration from a modification (here, was penalty to D from the people who hired them if carpentry not completed) | no economic duress b/c D is the one who approached P with higher payment amountR: In the absence of duress, the presence of a practical benefit to the promisee can be considered valid consideration when a contract is modified (doctrine of practical benefit)

Greater Fredericton Airport Authority Inc v NAV Canada [2008 NB CA]F: gov’t had agreement with D where D had responsibility for air navigation services | P was given gov’t duties and rights over airport | D was supposed to move some equipment as part of contract but refused to do so unless P helped pay for upgrades (not part of contract) | P agreed to pay for improvements under protest but now do not want to payA: refined/ modernized consideration doctrine from Stilk | economic duress present here and thus modification not supported by valid consideration R: fresh consideration can exist in a modification that has some kind of practical benefit attached to it as long as there is no economic duress (focus on duress not consideration)NOTE: this is the current Canadian doctrine for the pre-existing legal duty rule

Techform Products Ltd v Wolda [2001 Ont] F: employment contract, employee asked to do more (adding a patent clause) A: consideration held to be an implied clause of employer not firing employee for ‘a reasonable time’ NOTE: this principle usually applies for adding a non-compete clause

PROMISES TO ACCEPT LESS Presents same issue as promises to give more Courts have tended to stick more rigidly to traditional position of no valid

considerationo Exception: can be valid if parties intended to rescind original promise and

substitute the new one Duty to perform may in some cases be discharged by accord and satisfaction

o Accord = agreement; Satisfaction = consideration o Accord is a contract under which oblige promises to accept substituted

performance in future satisfaction of obligor’s duty

Foakes v Beer [??]

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F: P owed money to D | signed agreement to pay in intervals instead of lump sum | paid all intervals but D suing for lost interestA: doctrine of accord and satisfaction doesn’t create exception to normal doctrine of consideration and here promising to give less is not valid consideration | ignores fact that creditor gets money (likely none if lump sum) and saves on enforcing payment R: a promise to accept less than was already promised in same form of payment is invalid for lack of consideration | creditor promising to waive residue of liquidated debt in exchange for party payment by accord and satisfaction is void for lack of consideration

Foot v Rawlings [??]F: parties made agreement for payment of D’s debt at lower i rate than previously decided | would give post-dated cheques to be cashed on 16th of month, if didn’t bounce wouldn’t sue | didn’t bounce but P sued anyway before completion of paymentsA: giving of a financial instrument (post-dated cheque) is valid consideration in exchange for forbearance to sue | distinguished from Foakes b/c of different form of payment R: a valid accord and satisfaction may be constituted by partial payment of a debt, so long as the mode of payment is changed to be by cheque or another negotiable instrument (anything that is worth money is okay but money itself is not)

Statutory Rules BC Law and Equity Act s. 43: Part performance of an obligation either before

or after a breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation.

PRE-EXISTING DUTY OWED TO A THIRD PARTY Traditionally viewed as good consideration

Pao On v Lau Yiu Long [1980 PC] F: P owned all shares in company called Shing On and had agreement with company Fu Chip (D were majority shareholders) for a share exchange | FC would buy shares from SO and SO would buy shares from FC | SO had to keep 60% of shares for 1 year to not depress the market, had subsidiary agreement that FC would buy back shares at $2.50 each | P decided wouldn’t complete deal unless replaced subsidiary deal with guarantee that FC shares would retain value | P/SO signed agreement with D (majority shareholders) to indemnify values of shares| swap proceeded but FC shares dropped in value over the year they were held and D refused to indemnify them I: was there valid consideration for the guarantee signed by D? A: parties both understood the restriction on selling was to be compensated in some way not a gift or gratuitous promise | past consideration argument fails b/c FC and

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D are different legal entities | consideration for protection against losses was promise between P and D to perform the contract with FC valid consideration because reinforces obligation by now owing it to D and FC R: a promise to perform/ performance of a pre-existing contractual obligation to a third party can be valid consideration | note can still consider duress and thus decide differently

MUTUAL ASSENT: OFFER

GENERAL PRINCIPLES To have contractual liability parties must have reached an agreement: must have

voluntarily assumed obligations, know contract is serious, and know what obligations they must perform

Consensus ad idem = moment when the minds of the parties are in exact convergence = meeting of the minds

Objective approach to mutual assent: rely on the outward manifestation of parties’ intent and thus obligations are based on what a reasonable person observing would have thought

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OFFERS AND INVITATIONS TO TREAT US Restatement def’n: an offer is “an act that leads the offeree reasonably to

believe that power to create a contract is conferred upon him" o Does the offeree have the power to ‘close the deal’ by accepting? o Factors are: specificity of language; offeror’s intention to be bound; location

of statement in sequence of correspondence; surrounding circumstances; whether statement made to one person or multiple

Generally price quotations are considered as invitations to treat (ITT) NOT offers o Johnstone v Rogers: “we quote you…” = ITTo Harty v Gooderham: a quote with “shall be happy to have an order from you,

to which we will give prompt attention” = OFFER

Canadian Dyers Association Ltd v Burton [1920 Ont High Court] F: P wrote to D in May asking what lowest price would be that D would accept for his property | D replied in June saying lowest $1650 | P wrote next October asking again for lowest price and that hoped to get closer together | D replied saying $1650 still lowest price prepared to accept and that from any other party would ask for more | P sent cheque and D sent draft deed to close on Nov 1 | Nov 5 D said no contract and returned chequeA: Oct letter more than quotation of price instead was statement of readiness to sell | mentioning that offer specific to P, having previous negotiations, prepared to accept all language that points towards being an offer | action of having deed drawn and not objecting to cheque immediately indicates intent to have binding contract (outward manifestation showing meant to be an offer) R: whether a statement is an offer or a quotation of price depends on the language used and circumstances/actions of the potential offeror

Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953 Eng CA] F: Society has rule that all sales of ‘poisons’ must be supervised by pharmacist | D had pharmacy where customers could select poisons from shelf and go to cashier to purchase them | pharmacist could stop transaction of drugs at cashier I: At what point does the sale of the medicines occur – when customers put in basket or when proceed through the checkout? A: in an ordinary shop like a bookstore contract not completed until cashier accepts customer’s offer to purchase and this case is no different | would be absurd if transaction occurred when puts item in basket b/c then couldn’t change mind | when someone comes to the cash register to pay this is the offer and then the store accepts this offer and thus follows rules of Society R: a display of goods on a shop window or shelf at a self-service store is an invitation to treat and not an offer

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ADVERTISEMENTS Generally, advertisements are invitations to treat rather than offers However, advertisements for unilateral contracts are generally held to be offers

(Carlill v Carbolic Smoke Ball)

Carlill v Carbolic Smoke Ball Co [1893 Eng CA] F: D had advertisement to pay £100 if anyone used ball as directed and got flu | said put £1000 in bank to show sincerity and that during last flu season nobody had gotten flu while using ball | P bought ball and used properly but still got the fluA: advertisement is an offer to the public which is definite enough under a reasonable construction for the time limit (while using ball) | not a mere puff because of the £1000 put away which outwardly manifests seriousness of offer | only a contract with those who buy ball and use properly not everyone in the world | in unilateral contracts offeree can waive their need for notification of acceptance which was done here | was valid consideration b/c benefited D to have people use ball and inconvenienced P to use it | must be unilateral b/c P could not have breached thus only binding upon full performance | getting sick is a condition upon which contract is executed on rather than part of acceptance R: advertisements that seek performance are valid unilateral offers not invitations to treat | an offeror in a unilateral contract can waive notification of acceptance | must objectively see whether there is intention for something to be an offer as opposed to puffery

Goldthorpe v Logan [1943 Ont CA] F: D advertised electrolysis treatments with guaranteed results | P went to get facial hair removed and was again assured results were guaranteed | treatments done but hair kept growing backA: advertisement was communication by D to all members of the public with intention to have people get treatment | advertisement was an offer to anyone who was willing to accept terms to come get treatments and pay in exchange for D to undertake removal and promise satisfactory result | extravagant offer must be binding nonetheless | P accepted offer by getting treatment and paying | valid consideration | thus binding contract R: an advertisement guaranteeing results from a product is an offer to the public and those who complete its terms and conditions accept the offer, creating a binding contract

REWARDS Most typical type of unilateral contracts arise from awards postings These can only be accepted by doing the performance specified: providing

information Rewards presumed to be offers of unilateral contracts and anyone who is aware

of the offer can receive the award through performance (which is acceptance)

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Williams v Carwardine [1833 KB] F: brother of D killed, D published handbill all around town saying if anyone gave info leading to finding murderer and murderer convicted gets £20 | P knew who was murderer and was beaten by the murderer | to ease her conscience (thought would die), P made statement to police of who was murderer A: P clearly knew of handbill b/c was posted all around town | P completed conditions of offer and intended to receive award even though motive was not to receive award R: motives are irrelevant for acceptance of a unilateral offer made to the public as long as the person completing the performance is aware of the offer

R v Clarke [1927 Australia HC] F: Clarke took plea deal against other men | there was an offer out for info leading to arrest of men getting an award | Clarke aware of offer but specifically stated when giving plea testimony that he didn’t intend at that time to claim for offer, that he only thought it if afterwards A: distinguish from Williams because here there is evidence that never intended to accept offer when gave info | there can be no assent if the offer is unknown or ignored/fully forgotten | Clarke never gave assent thus no meeting of the minds | normal presumption that completion of conditions means induced by offer but here presumption rebutted by his own admissionR: there is a presumption if the conditions of a unilateral contract are completed that there is acceptance (+ inducement = consideration) but this presumption can be rebutted by evidence to the contrary

MUTUAL ASSENT: ACCEPTANCE

BASIC PRINCIPLES Offeror is free to revoke at any point before acceptance but once an offeree has

accepted the deal is done Offeror is the master of the offer: can control the method of acceptance within

the offer o Generally rules for acceptance are default rules that can be changed by

offeror Motives for acceptance usually irrelevant but must be intention to accept offer Acceptance = final and unqualified expression of assent to the terms of the offer ANY VARIATION KILLS ORIGINAL OFFER (rejection or counter offer)

o any variation in terms is a counter offer which kills original offer Ordinarily, offeree cannot revive offer and accept it after rejecting it

(unless an explicit statement in the offer says otherwise)

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o However, if a reply is an inquiry or an indulgence (ex asking if takes credit instead of cash) this is not a counter offer as long as it is objectively clear that despite the inquiry offeree still willing to accept original offer

Livingstone v Evans [1925 AB SC] F: D wrote offering his land to P for $1800 | P replied asking for lowest cash price saying would pay $1600 cash | D replied saying cannot reduce price | P replied saying accepted at $1800A: response by P was a counter offer for $1600 and thus killed original offer | however D saying cannot reduce price was renewal of original offer (communication showed willingness to still sell at original price) and thus validly accepted by P R: if the initial offeror signals an interest in continuing negotiations and indicates the original offer is still on table can be said that original offer is revived after a counter offer

COMMUNICATION OF ACCEPTANCE In bilateral promises the offeree must generally exercise reasonable diligence in

communicating acceptance o Unless the offeror manifests intention that communication not necessaryo Acceptance can occur via conduct (hand shake) but notification of

acceptance is important and offeree must inform offeror of acceptance within a reasonable time

o An offeror cannot make acceptance as silence to protect people from entering into contracts they do not want to be in (Felthouse v Bindley)

In unilateral offers it is the opposite: presumed do not have to notify of acceptance unless something in the offer says you must or if there is no way for offeror to otherwise know of acceptance/performance

o Generally waste of time to notify of performance b/c usually will logically know of it already

Felthouse v Bindley [1862 England] F: P and nephew had discussed buying nephew’s horse | misunderstanding on the actual purchase price of horse | uncle wrote to nephew saying “If I hear no more about him, I consider the horse mine at 30 pounds and 15 shillings” | nephew did not reply | horse was auctioned off by Bindley the auctioneer accidentally | uncle suing auctioneer for conversionA: nephew may have wanted to accept but never communicated this acceptance of counteroffer | inaction/silence cannot lead to a contract and is not acceptance | offeror cannot request silence as acceptance because that is inequitable and against public policy R: an offer cannot be accepted by silence or inaction

Dawson v Helicopter Exploration Co [1955 SCC]

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F: P had info about a location of mineral deposit | P communicated with D several times wrt exploitation of minerals saying that D would pay him for time and give him interest if P showed the location | P was sent overseas but said would get leave to show property when D found a helicopter pilot | eventually D said they found someone else and wouldn’t need him or pay him I: is this a unilateral (acceptance by performance only) or bilateral offer (accepted the offer and thus binding contract to use P to show the location)? A: in order to avoid possible inequality and support business efficacy, should interpret as a bilateral contract | acceptance was implied when said would get a leave if found pilot (finding pilot is condition but doesn’t contradict formation of contract) | there was implied reasonable effort to find transportation so not illusory R: whenever a contract can be construed as bilateral or unilateral, courts will generally construe it as bilateral in order to promote business efficacy/ avoid injustice

THE POSTAL ACCEPTANCE RULE Exception to the general rule that a contract is not formed before acceptance is

received by the offeror Postal Rule = Offer accepted when an offeree puts notice of acceptance in the

mail Note that parties can contract around it (default rule) by stipulating that

acceptance is only valid upon receipt/notification Mailbox rule only applies to acceptance

Household Fire & Carriage Accident Insurance Co v Grant [1879 Eng] F: D wanted to purchase shares in P and offered to do so | letter was mailed accepting his offer but it never arrived | company went bankrupt and asked for outstanding payment A: this falls under the mailbox rule exception to the communication of acceptance rule and the acceptance has occurred upon dispatch of the letter | valid contract

Holwell Securities v Hughes [1974 Eng] F: D gave P the right to purchase his property anytime within 6 months but had to give notice in writing | P mailed letter accepting the offer but it never arrivedA: because the terms of the offer specified that must give notice in writing this can be interpreted to mean notification so offeror contracted out of the mailbox rule | noted that even without alteration, mailbox rule should not be applicable if the circumstances would produce ‘manifest inconvenience and absurdity’ (people who sell property need notification!)R: an offeror can contract out of the mailbox rule by requiring notification of acceptance

INSTANTANEOUS COMMUNICATION OF ACCEPTANCE

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Mailbox rule only applies where communication is not instantaneous

Brinkibon Ltd v Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH [1983 HofL] F: P bought steel from D, sent acceptance to an offer by fax | D company in Austria, P in England | to sue D, contract must have been made in England A: telex of May 3 from Vienna is counter offer which accepted by telex in London May 4 = acceptance occurs in location where notified like a telephone call, which is Vienna | if acceptance was by opening letter of credit this also is acceptance when bank in Vienna notified so still in Vienna R: in cases where means of communication of acceptance are virtually instantaneous acceptance must be communicated to the offeror | but there is no universal rule, rule for acceptance must be resolved by looking at intention of parties and sound business practices

Rudder v Microsoft Corp [1999 Ont SC] F: P wants to sue D in Ontario for breach of membership agreement | membership agreement has forum selection clause for Washington | P admits to not looking through the whole agreement which was online, needed to scroll to find forum selection clause and then click you agree twiceA: scrolling is the same as turning the page of a document | nothing about the provision like text size makes it fine print | specifically agreed to be bound even if didn’t read whole agreement (duty to read) | place where clicked ‘I agree’ is not the location of acceptance because the offer goes against the default rule with a forum selection clause R: offeror can stipulate the jurisdiction where acceptance occurs and override the default rule

MUTUAL ASSENT: TERMINATION OF OFFER

TERMINATION OF OFFER As long as offer has not been accepted it can be revoked by the offeror Once offer is made it generally remains open for a reasonable time so offeree can

respond Offer-terminators

o Lapse of time (either time stipulated or default rule = reasonable time depending on circumstances)

o Revocation o Death or incapacity of an offeror (but an estate can still be bound to a

contract which has already been made) Note estate also has to honor valid option contract

o The offeree’s rejection (incl. counter offer)

Dickinson v Dodds [1876 Chancery CA] 14

F: D gave offer to P stating would sell house for £800 and offer expires June 12 at 9am | On June 11 P informed D had agreed to sell house to Allan instead | June 12 7a, agent of P gave D an acceptance but D said too late, P himself also tried with same result A: two ways to read initial offer: either revocable at all times and lapses 12th at 9am or irrevocable until 12th at 9am (option contract) | because there was no consideration given to create an option contract and make it irrevocable it was allowed to be revoked | never a meeting of the minds because P knew that D had agreed to sell to Allan indirect revocation in that D took steps inconsistent with selling land to P which is valid revocation (when P learns about it from reliable source which he did here) | no binding contract between P and DR: indirect revocation coming from a reliable source is valid revocation | in order for an option contract (irrevocable for a specific time) to be valid it must be supported by consideration

Byrne v Van Tienhoven [1880 England] F: D mailed offer to sell some tin at a fixed price to P in NYC | offer received Oct 11 and P accepted via telegram on Oct 11 and confirmed by mail Oct 15 | On Oct 8 D mailed revocation of offer and this was received Oct 20 | P assumed had purchased tin and had already sold them to a third party before Oct 20 A: uncommunicated revocation is not valid revocation (doesn’t make reasonable sense) | while acceptance is subject to postal rule revocation is not (protecting reliance of offeree) | letter of Oct 8 communicated when received on Oct 20 and revocation invalid | binding contractR: a revocation is considered valid when accepted and is not subject to the postal rule

Errington v Errington and Woods [1952 KB] F: father bought house for son and DIL to live in | gift of down payment but had to pay weekly instalments themselves | said house would be their property once mortgage paid off | DIL has paid all instalments but father died and now estate trying to get DIL out of house A: couple never bound themselves to pay the instalments (if they didn’t pay cannot sue for breach) and thus this is not a bilateral contract | unilateral promise that if paid instalments father would give house | promise not allowed to be revoked by father once started to perform the act but ceased to bind if left unperformed (but they did perform it) | as long as instalments continue to be paid couple gets the house once mortgage paid because the couple acted on the father’s promise R: If offeror of a unilateral contract with an ongoing performance dies, the contract can still bind the estate |a unilateral contract that requires performance creates an option contract when performance is began and thus cannot be revoked by the offeror once performance has beganNOTE: this principle has been accepted in some cases in Ontario and thus is reasonable to assume will apply in Canada

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NOTE 2: preparation for performance does not count as beginning performance

Barrick v Clark [1951 SCC]F: D was interested in buying P’s farmland and offered to purchase for $14,500 asked for a reply by telegram | P replied by letter on Nov 15 said would sell for $15000 if could close immediately title would start on Jan 1 | P’s letter arrived Nov 20 when D on hunting trip | D’s wife said would be back in 10 days | On Dec 3 P made agreement to sell to someone else | D returned on Dec 10 and said would accept | P said he had waited 10 days but then had accepted offer from someone else A: communication of Nov 15 was the offer and this offer lapses after a reasonable time because no time specified | here reasonable time had lapsed because parties knew deal was to be closed quickly, land was in high demand, reason for nor replying was a hunting trip (also considered non-perishable good expanding the length of reasonable time) R: an offer expires after a reasonable period of time, the period to be determined with regard to the circumstances, the communications between the parties, the nature of the good involved in the contract, and normal course of business involved in the contract

MUTUAL ASSENT: CERTAINTY OF TERMS

BASIC CONCEPTS One of the requirements of contract formation is that the terms of the contract

define the parties’ obligations with certainty and ensure mutual acceptance of the obligations

Some contracts are so uncertain the courts will say it is not a contract at all, others the courts can fill gaps and have a valid contract

There must be enough certainty of terms so that a court can resolve a breach Courts will not enforce an agreement that has gaps or is missing an essential

term because this can impose an unintended obligation on parties Categories of uncertainty

o Uncertain commitment to the deal (no intention to be bound)o Vague terms (what does ‘good’ mean)o Missing key terms (must cover at minimum parties, subject, and price)o Terms left for future resolution (usually a mechanism given but what

happens if it fails?)

May & Butcher Ltd v R [1934 HofL] F: P wanted to buy extra tents from D after WWI |agreement entered into to sell all tents which were available, with prices to be paid and dates to pay to be agreed upon as became available | D later decided didn’t want to sell tents to P anymoreL: Sales of Goods Act

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Section 8 says price in a contract of sale may be fixed by contract, left to be fixed in manner agreed, or determined by course of dealings; if not determined by any of those then buyer must pay a reasonable price

Section 9 says that if agreement is to sell goods on terms that third party will set price and third party cannot/does not do so, then there is no agreement (void)

A: never a valid contract because price is a critical point and was left undetermined | Sales of goods Act s. 8 only imposes a reasonable price if there is silence in the contract on a mechanism for setting it and here there was a mechanism | here more analogous to s. 9 situation of two parties not being able to agree on a price thus contract void R: a contract that has a critical point such as price undetermined is void | courts will not fill in gaps when it appears the parties have not reached a basic level of meeting of minds | if two parties agree to set a price in the future but cannot agree there is no valid contract

Hillas & Co v Arcos Ltd [1932 Hof L] F: P had agreement to purchase timber and this agreement had an option clause 9 which gave option of entering into 1931 contract for purchase of 100,000 standards and that buyer should obtain goods on conditions and prices 5% reduction on official price list value | D sold all remaining wood to a different company and couldn’t honor optionA: the option clause is one of the reasons why P agreed to the first contract and is therefore a binding offer which P was entitled to accept as per the terms | courts can import reasonableness to fill gap of shipping details | price as determined by 5% off will be certain | description of goods can be implied by original goods in contract (using ‘course of performance’ interpretation) R: if the fair meaning of parties and fact that they intended to be bound can be extracted from the words and context then a contract should be held as binding | wherever possible the courts try to find a contract and if gaps are small can fill them to follow intentions of parties

Distinguishing Hillas from May In May there has been no previous legal relations and the executory contract is

not part of a previous contract o In Hillas parties had already performed for a year, clearly saw as binding

contract (as well, option contract was part of consideration for original contract)

In May there was no ‘industry’ of buying war supplies so there is no reasonableness for an industry standard

o In Hillas there are industry and customs you can rely on for reasonableness

In Hillas there was a way to determine price and other factors could be implied by the courts, in May too big of gaps to be filled by the courts

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Foley v Classique Coaches Ltd [1934 KB CA] F: D agreed to buy land from P | one of provisions was a supplemental agreement that D would buy all petrol they needed from P at price to be agreed by parties from time to time and that any disputes subject to arbitration | for three years after land purchase bought petrol from P but then thought could do better elsewhereA: parties obviously believed they had a contract b/c acted on for three years thus clause is valid | contract effective and enforceable even though no price agreed on for petrol because implied term to be sold at reasonable price and reasonable quality (which can be determined by arbitration if necessary) | would be unfair to P if D could get out of this agreement because of the slight incompletenessR: partial completion of an agreement or acting as if legally binding contract for some time will make it more likely that a contract will be enforced even if there is uncertainty in terms | courts cannot void every contract for slight incompleteness because that will be inequitable

Sudbrook Training Estate Ltd v Eggleton (1982 HofL)R: when a mechanism to setting a price fails the contract can still be valid because the real object of the agreement is to reach a reasonable price not to reach a price through a mechanism so such a reasonable price can be implied

AGREEMENTS TO NEGOTIATE General rule is that in common law there is no duty to negotiate in good faith

prior to the formation of a contract (default rule) An agreement to agree is generally not a valid contract Agreements to negotiate are also not contracts for two reasons

o Impossible to determine obligations to negotiateo No basis upon which to determine damages if there is a breach (maybe

negotiations wouldn’t have been successful anyway!) Generally when negotiations fail the traditional English approach is that

agreements to negotiate are not recognizable in courts (as per Courtney & Fairbairn v Tolaini Brothers)

o But Canada has somewhat gone away from this approach in Empress Towers

Empress Towers Ltd v Bank of Nova Scotia [1991 BCCA] F: P landlord of D, had rental agreement which had a renewal clause which said all terms and conditions would remain same except rental price change to market price at time, to be mutually agreed upon by P and D and that if no agreement within 2 months of exercising renewal either party could terminate | D tried to exercise option with market rate offered but P ignored and then asked unreasonable amount | P wants a writ of possession to evict D from building

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A: courts cannot imply a mechanism to get to market price because contract specifies that parties must both agree | mutual agreement also implies term that landlord must negotiate in good faith | duty to negotiate in good faith is not duty to reach an agreement (more best effort standard) | court need not decide remedy because just issue of writ of possession | writ not granted b/c D did not negotiate in good faith R: when there is an objective standard combined with a subjective standard in an agreement to agree, a court may imply a term to negotiate in good faith NOTE: this applies to a specific writ of possession case not a breach of contract case

Mannpar Enterprises Ltd v Canada [1999 BCCA] F: P had permit with D to remove and sell gravel on reserve | oermit had clause saying could renew and both parties expected renewal to happen| renewal subject to renegotiation of royalty rate and surface rental (couldn’t be less | P tried to renew but D wouldn’t negotiateA: distinguishable from Empress b/c no objective assessment like market rental rate mentioned | negotiation duty concept unworkable without such objective standard | term can only be implied if both parties likely to agree and without an objective benchmark harder to say would agree to an implied one | likely D wanted ability to not renew because of situation with band |no duty to negotiate in good faith R: a duty to negotiate in good faith is not implied in a renewal clause where there is no objective benchmark to measure this duty against | a court will imply terms into a contract only if both parties would be likely to agree (officious bystander test)

Wellington City Council v Body Corporate 51702 (Wellington) [2002 NZ CA] F: P lessor of location and D was lessee | P wrote to D saying that officers will negotiate in good faith sale of current leasehold interest to existing lessees at not less than market value | D entered into negotiations to buy location but no agreement reached | P didn’t act in good faithA: good faith too subjective for court to intervene and determine a breach | agreement to negotiate in good faith unenforceable | note that there are some circumstances where such a contract might be enforceable: if specific procedure for negotiations specified so can determine obligations or if money changed hands in consideration for the good faith R: an agreement to negotiate in good faith is not enforceable because a court cannot determine when a breach occurs | there may be cases where breach can occur if a process contract specifies procedure of negotiations or if money exchanged for good faith negotiationNote: This case is good summary of general Canadian law on this matter: generally court will NOT imply a term to negotiate in good faith or enforce such a term (Empress outlier because had objective standard and not about breach of contract claim)

INTENTION TO CREATE LEGAL RELATIONS 19

BASIC PRINCIPLES Contractual obligations viewed as voluntary, draws support from requirement of

intention to create legal relations (ICLR) Can view as a fourth criteria of enforceability ICLR presumptively satisfied in business relations but presumption in social or

domestic arrangements is that there is not ICLR The law implies an objective test of intention

Balfour v Balfour [1919 KB CA] F: husband promised £30 monthly allowance to wife while she remained in England | she thought he would come back but eventually broke up A: not an issue of consideration because wife forbearing from her right to be supported by husband | there are agreements that have consideration that are not legal contracts (want to go on a walk?) |courts not appropriate for discerning what bargained for here | if binding a woman could get sued for not performing household work properly! | such contracts would overwhelm the courts | promise not intended to have legal consequences and thus not bindingR: domestic commitments when a family is intact are presumed not to have ICLR and thus not legally binding contracts

Rose and Frank Co v J.R. Crompton and Bros Ltd [1923 KB CA] F: there were pre-existing legally binding agreements between the two parties | in 1913 entered agreement that had clause stating arrangement was not a formal or legal agreement only expression of purpose and intention of parties and honourable pledge | D refused to fill some orders from P and terminated agreement | trial held honorable pledge clause repugnant to whole agreement and against public policy so held agreement legally binding A: it is possible for parties to have an agreement that is not legally binding if do not have ICLR | if clearly express intention that do not have ICLR no public policy reason why have to be legally bound | not binding contract R: although in business relationships it is presumed that parties had ICLR, if it is explicitly expressed that they do not have this intention, the agreement will not be legally binding

PROMISSORY ESTOPPEL AND WAIVER

Canadian version of promissory estoppel is very narrow and uncertain, should be the last option to look at after consideration, seal, and exceptions to consideration

Hughes v Metropolitan Railway Company [1877 HofL]

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F: D leased property from P | On Oct 22 D served P notice that had to repair property within 6 months | on Nov 28 D suggested to sell lease back and wouldn’t start on repairs until had hear back | negotiations began but broke down end of Dec | On Apr 19 D said now would begin repairs | on Apr 28 P tried to eject | repairs completed in June | P wants to ejectA: principles of equity say that 6 months started when negotiations stopped so cannot eject | D relied on a presentation/assertion of suspending the 6 months and this reliance was to D’s detriment (changed position for the worse based on reliance) | there was implied promise by D which is shows by course of negotiations R: an (implied) promise not supported by consideration can be found to be binding because one party relied on it to their detriment

Central London Property Trust Ltd v High Trees House Ltd [1947 KB] F: lease made for D to have tenancy of flats for 99 years at £2500/year | was during WWII so flats not fully occupied, D and P decided to reduce ground rent to £1250/year which was paid from 1941 to 1944 | by beginning of Sept 1945 all flats rented | P suing for lost rent I: Is P precluded in waiver from asking for the full rent retroactively?A: law needs to be reconsidered in light of equity | promise understood by both parties only to apply while conditions prevailed (flats not fully rented) | argument based on waiver that D relied on a statement by P about the reduced rent to P is estopped from insisting on original price R: a promise intended to be binding, to be acted on and in fact acted on is binding so far as its terms apply Note: this case represents the most expansive version of promissory estoppel where any kind of reliance on a promise that induced detriment is enforceable to prevent injustice

DIFFERENT VERSIONS OF PROMISSORY ESTOPPEL Narrowest form of PE: need existing relationship AND an agreement to accept less

(agreement to pay more is no good) Gilbert Steel Middle ground of PE: you need a pre-existing legal relationship but does not have to

be an agreement to accept less more accepted version in Canada Broadest form of PE: only need reliance on a promise no pre-existing relationship

High Trees/ Walton StoresNote: a modification to pay more has generally been dealt with using consideration and idea of practical benefit (NAV Canada; Roffey Bros) so doctrine of PE is less important in this area

Dunn v Vicars [2009 BCCA]

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F: D and V had agreement to build a house and sell it 50-50 | Plan A was to sell house and split profits | Plan B if house didn’t sell was for D to pay out V, announce in writing doing Plan B, and become sole owner of house | house didn’t sell, V orally encouraged D to move into house and D sold existing house and moved in, but never announced Plan B in writing I: Was V estopped from asserting D couldn’t proceed under Plan B? | Did V waive his rights arising from Plan BA: waiver by election occurs when there is a contract with multiple options and one party acts in a way/says they are acting in a way to proceed under one part of contract and thus clearly waives the options to the other rights of the contract | when waiving an option must have full knowledge of rights and unequivocal and conscious intention to abandon them (Saskatchewan River Bungalows) (here V did not make it explicitly clear was proceeding under plan B) criteria for waiver not met | but PE criteria met: V is estopped from asserting D couldn’t proceed under plan B because D relied on statements to move in and changed her position based on this R: established difference between waiver and estoppel | strict reading of contract to determine if rights have been waived | PE more flexible P only must show that relied on D’s representation that wasn’t going to insist on strict enforcement of agreement NOTE: This case is good representation of the current PE doctrine in Canada: promise/representation clear and unequivocal (okay that it is implied); existing legal relationship; used as shield not sword; reliance on promise and inducement; inequitable to go back on promise; would have been suspensory if contract had continued

5 ASPECTS OF THE CURRENT DOCTRINE OF PROMISSORY ESTOPPEL IN CANADA1. Promise/representation must be clear or unequivocal (but can be implied);2. There must be an existing legal relationship and doctrine can only be used as

shield not sword;a. Generally safe to use PE for agreements to accept less but questionable

whether courts will apply it to agreements to pay more3. There must have been reliance on the promise = inducement (controversy about

whether also need detriment) with connection between promise made and change in position of promise;

4. It must be inequitable for the promisor to go back on the promise (note promise must have clean hands); and

5. The doctrine is suspensory in its effect (promisor can move back to previous position by giving reasonable notice)

Waltons Stores (Interstate) Pty Ltd v Maher [1988 Australian HC] F: P wanted to lease land owned by D | P wanted to demolish and replace a building on the land | was urgency because wanted to occupy soon and D told P needed to demolish immediately to meet the occupation date | D sent draft lease on Nov 7 and P

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said approval forthcoming would send notice otherwise but sent no notice | On Nov 11 D sent release wanting signature but P never signs | demolition occurred and D began to build, which P knew about | weeks later P said didn’t want to proceedA: problem because is no signed contract and thus no existing legal relationship | however there was still reliance on D’s representation | unconscionable because P knew that D was proceeding thinking had agreement and thus induced D to follow through to their detriment | unconscionability allows courts to overcome lack of legal relationship | three things needed to apply doctrine as done here: promisor expected promise to induce action/forbearance of other party; other party relied on the representation to their detriment; unconscionability/ unjust not to apply PER: promissory estoppel doctrine expanded to when the five elements not met (esp there is no pre-existing legal relationship) but one party allows the other to proceed thinking there is an agreement which allows recovery due to unconscionability | if unconscionable can use PE as sword to enforce an agreement NOTE: has not been explicitly accepted in Canada but noted that maybe could be if ‘the right case arrives’

M.(N.) v A. (A. T.) [2003 BCCA]F: P promised D would pay her mortgage in England if she came to Canada to live with him, were going to maybe get married | D quit job and moved to Van | P loaned D $100,000 on promissory note which was used for mortgage | 1 week later P evicted D from his home and D has not been able to find permanent employment sinceA: no existing legal relationship and thus PE not met (necessary element of PE is promise expecting/having a legal relationship) | no unconscionability unlike Waltons | no big movement in Canada towards more generous approach to PE | no evidence that either party thought promise would be binding rather just risk taking in a relationship (no intention to be bound b/c familial promise) R: Canada has not yet adopted Waltons because PE in Canada still requires a pre-existing legal relationship (may be reconsidered in the future)

FORMALITY: THE REQUIREMENT OF WRITING

NOTE that first you argue that there is no contract (void) then move to defences like no writing requirement which make a valid contract unenforceable

BASIC PRINCIPLES Oral contracts are just as enforceable as written ones, but some kinds of

agreements must follow certain formalities to be enforceable Generally on a written contract the signature is only required by the party

against whom enforcement is sought The Statute of Frauds is a source of formal contractual requirements, either this

or legislation deriving from it in force in most provinces

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o BC has repealed it and now has Law and Equity Act RSBC 1996 which imposes modified writing requirement for contracts of guarantee and contracts about land (excluding leases of <1 year)

Often the Sales of Goods Act for a province will require writing for purchases over a certain dollar amount

Three questions must ask when analyzing a statute of frauds contract: Is the contract subject to the statute of frauds? If yes, does the contract satisfy the writing requirements of the statute of frauds? Notwithstanding a failure to comply with the writing requirement, are there any

exceptions that apply (equity sometimes used)?

FIVE CATEGORIES UNDER THE STATUTE OF FRAUDS (DIFFERENT FOR EACH PROV)

1. Contracts to charge an executor or administrator on a special promise to answer damages out of his own estate (RARE TODAY)

2. Contracts made upon consideration of marriage (ONLY IN NFLD, NS, NB, AB)3. Contracts to answer for the debt, default, or miscarriage of another person (BC

imposes writing for BOTH guarantees = undertaking conditional on default of another person; and promises of indemnity = undertaking to be liable regardless of whether another person in default) but generally interpreted as only guarantees

4. Contracts not to be performed within a year (ONLY NFLD, NS, NB, SK, AB)5. Contracts for the sale or an interest in land (BC has this)

Advantages of Writing Requirement Evidentiary function: easier to understand, better certainty of terms, solves

issues of memory Cautionary function: list contains contracts where law thinks not wise to assume

agreement without writing so wants you to think twice about them Channeling function: after negotiations writing shows final point of agreement

and gives a path for people to follow to understand have created legally binding contract

Disadvantages of Writing Requirement Costly, makes difficult to contract, less efficient, overly formalistic Easy to get out of contract because of arbitrary and formalistic ways

How to Satisfy SOF Basic rule: writing must identify subject of contract, be sufficient to

indicate contract has been made, and include the essential terms

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INTRODUCTION TO CONTRACT LAW

Hawkins v McGhee (1929 New Hampshire)F: P had burned hand | D guaranteed to graft and make hand 100% perfect/good hand

| surgery resulted in hand being worse and hairy afterI : was the statement of making 100% good hand a legally binding contractual term?A: clear words meant to be taken at face value (language = binding promise) and

statement used as inducement to make father agree therefore thanks to both factors is binding

FUNCTIONS OF CONTRACT LAW1. Identifying criteria for determining the enforceability of promises (determining

which promises are legally binding)2. Serves a gap-filling function with default/background rules 3. Defining which rules should be treated as default rules and which should be

mandatory (a question of policy) Default rules: exist unless parties have specifically modified them Mandatory rules: parties cannot contract around them (ex employment law

rules) 4. Providing rules for determining the meaning of the promises the parties have made

to each other (interpretation of vagueness/ambiguousness)

SOURCES OF CONTRACT LAW Main source = common law Sale of Goods Act = main statute, very important and influential

o Trumps the common law, but the common law can supplement if Act lacking

Consumer protection legislation = government intervention in contracts Treaties and law review articles (only persuasive, not binding) International sources (again not binding)

REMEDIES Punitive damages (including monetary): very rare in contracts Agreed damages: when parties had agreed within a contract what the damages for

breach were Compensatory

o Injunctive: can be specific performance, which compels a party to complete their promise; or an injunction which tells party they cannot do a bargain elsewhere

o Substitutional: much more common, generally monetary damages Expectation damages give party the ‘benefit of the bargain’ **GOLDEN

STANDARD FOR CONTRACTS**

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Reliance damages put in position before the contract (more common in tort) Restitution damages comes often from cases of unjust enrichment and takes

away what was gained unfairly by breaching party from the breach

PROMISES ENFORCED AS DEEDS Do not need consideration when a contract is made under seal Often used when there is uncertainty about the value of consideration The formalities/ritual meant to ensure the parties know what they are entering

into Must have a physical seal and must have statement “signed sealed and delivered”

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CONTRACTS CAN 2 – Aloni Winter 2018PRIVITY

THE TRADITIONAL DOCTRINE Traditional rules of common law say that only persons who have privity of contract (direct

parties to contract) can sue for a breach Horizontal privity doctrine someone who uses or consumes a good but is not the buyer of

that good: general rule is that the user CANNOT sue seller Vertical privity doctrine relationship of the buyer and those (like manufacturers) who the

buyer doesn’t have a direct relationship with, the buyer cannot sue the manufacturer Every jurisdiction except Canada has gone away from this rule, and Canada has a number of

exceptions because the rule can give rise to unfair results

Tweedle v Atkinson [1861 Eng] F: two fathers (T and G) promise to pay their children $ upon marriage (K between two fathers | neither father pays | P (Tweedle Jr) sues estate of father-in-law (D) A: P is a stranger to the contract (no consideration flowing from him) and thus cannot sue for enforcement | since the son could not be sued for failure of his father’s promise he cannot sue wife’s father R: Someone who is not a party to a contract cannot sue (even if benefit from contract)

AVOIDING THE PRIVITY DOCTRINE Assignment putting a provision in contract that allows the contract to be assigned to

someone else, once assigned to third party that person can sue Trust a transfer of property to one person to be held for benefit of third party

o The beneficiary under trust can sue to enforce or require trustee to sue Agency when a principal authorizes an agent to negotiate transaction with A on his behalf,

the contract is between principal and Ao Can have principal only with standing or both agent and principalo Court can find relationship of agency or can be expressly created

Statutes can also create exceptions or abolish privity all together (in NB a third party can sue if she is expressly mentioned in contract)

Insurance Act [RSBC 1996] c. 226 allows life insurance to be a thing o Right to sue--> beneficiary may enforce in own name and trustee may enforce as

trustee, payment of insurance money made payable to trustee in contract, but insurer may set up any defence as could have set up against the insured

Also have statues allowing named beneficiaries to sue for recovery from insurance company (ex. pension plans where spouses appear as beneficiary)

JUDICIALLY MADE EXCEPTIONSBeswick v Beswick [1966 UK CA/HofL]F: D is nephew of Peter, P is the wife of Peter | Peter and Dhad agreement where Peter gave D business and D would pay Peter $ as consultant and then pay the wife after Peter died | D paid Peter and paid P once after Peter died but then stopped | P trying to sue in her own right to get her money and suing as administrator of husband’s estate (but the estate didn’t suffer harm so if that alone, would only get nominal damages)

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A (Lord Denning): if the contract is made for benefit of third party can be enforced by that person jointly or in name of contracting party | privity only rule of procedure A (Other Lords): P can enforce specific performance as administrator of estate A (House of Lords): agree with the other Lords | specific performance awarded here because money damages would be inadequate due to money damages only being nominal and that would be unjust to P R: a third party who can claim as the administrator of the estate of the contracting party may be awarded specific performance so the third party gets the benefit

London Drugs Ltd. v Keuhn & Nagel International Ltd [1992 SCC] F: P contracted with D to store a transformer at D’s warehouse | contract limited the workers to $40 liability | P didn’t get more insurance | workers broke the transformer causing $34,000 damages | P decided to sue workers directly |workers wanting to use the limited liability provision, but they are not privy to contract A: would be absurd to let P get around limitation clause | inclusion of workers in contract implicitly covers them as well | exception to the rule of privity to cover employees in this case where they were performing the contracted-for serviceR: exception to the rule of privity for employees when a limited liability clause in a contract signed by employer expressly or impliedly mentions employees AND employees were performing services that were contracted for by the customer

SUBROGATION Def’n a principle, under which an insurer that has paid out a loss under an insurance policy

is entitled to all the rights and remedies belonging to the insured against a third party wrt any loss covered by the policy

Essentially means an insurer can step into the shoes of the insured and assert the insured’s right to sue the defendant

A waiver of subrogation is a contract provision where one party waives rights to subrogation against another party

o In return for a waiver, the insured will pay far more o Common where B will insure a good that a number of people “C” will use (like a

chartering operation)

Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd [1999 SCC] F: P owned a barge and it sank while under charter to D | P and insurer had a waiver of subrogation clause, waived right against “any charterer” | insurer paid P amount in policy but then P made a further agreement with insurer to waive the right to the waiver | insurer sued D, who tried to rely on the waiver clause | at trial D was held liable b/c couldn’t enforce waiver b/c was third party | D won the appeal A: the London Drugs exception is NOT limited only to employer-employee situation | two critical and cumulative factors to consider| 1 - did the parties in contract intend to extend a benefit to a third party who wants to rely on a provision | 2 – are the activities performed by the third party the very activities contemplated within the scope of the contract, as determined by the intention of the parties? | the express mention of “any charterer” points to intention of including D | the plain meaning of provision doesn’t say can only be enforced by P on D’s behalf (if they wanted that, would have had to explicitly said so) | once the right of D had crystallized into an actual benefit, not allowed to unilaterally revoke D’s rights | policy reason for this exception - more accurate to commercial reality | incremental change by court okR: If parties in contract intended to extend a benefit to third party and activities performed by third party are those contemplated in the contract or provision that they are relying on, the third party can use the provision to rely on a benefit to defend against an action

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A SWORD NOT A SHIELD The above exception cannot be used as a sword (third party cannot create an action) but only

as a shield (third party can defend against an action brought by a contracting party) Exception could not have worked in Beswick or in Tweedle (both swords trying to enforce a

contract)

(MIS)REPRESENTATIONS AND TERMS

MISREPRESENTATION AND RESCISSION Misrepresentation is a defence a successful claim allows the victim to either avoid

enforcement of the contract or rescind a contract that has already been partially or completely executed (avoid and rescind mean the same thing)

Rescission asking the court to set aside the contract ab initio (as if the contract had never existed) return parties to the position they were in before (ex ante positions) by each party returning to the other any benefits receivedo Equitable remedy clean hands needed, court has more discretion on it o Rescission relates to voidable (not void) contracts

Voidable contracts until a court declares rescission, the parties still need to perform their obligations (voidable means subject to being set aside by courts) contract with misrepresentation is voidable not void

Void contracts court finds defect in process of formation of contract, the contract never existed even before a court declaration

o NOTE: as time passes and someone continues with a contract without fighting it, that is affirming the contract and after a certain point can no longer be rescinded (can only affirm a voidable contract not a void one)

The Elements of Misrepresentation 1. There must be a statement of fact that was communicated to the representee that was false

o Silence does not qualifyo Statement must be distinguished from mere sales talk/puffery

Reasonable purchasers understand sellers try to sell things using pufferyo Statements of fact must be distinguished from statements of opinion

However, if an opinion is offered by someone who has particular expertise, it may be taken to have included underlying facts and thus be seen as a statement of fact (Vokes v Arthur Murray: dancing case)

o Statements of fact must be distinguished from statements of future intentions This goes into the area of warranty NOT misrepresentation Ex ‘this computer will work this way in the future’= warranty vs ‘this computer has

never had water spilled on it’ = misrepresentation 2. An actionable misrepresentation must be material

o Material = substantial = at the core of the contract o Standard is that the representation must either be likely to induce a reasonable person to

make contract or person making misrepresentation knows it is likely to make the particular person enter contract

3. Misrepresentation must have induced the other party into the contract o Often referred to as reliance did the party rely on the representation when deciding to

enter into the contract? o Do not need to show that the misrepresentation was the only reason or even main reason

to enter contract: only needs to be one reason

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Redgrave v Hurd [1881 ENG CA] F: P was a lawyer who wanted to sell his home and part of his firm to D | P said revenues of firm from $300-$400 a year | in actuality had papers showing only $200, P said some other papers made up the difference | D didn’t look at the additional papers but signed contract anyway | additional papers only $5-$6 | D learned firm worth less after he paid deposit and refused to complete contract, wants rescission on his counterclaim | P suing for specific performance A: the revenue statement is more than mere puffery, given by someone who has knowledge and looks like a fact to begin with | you can successfully show misrepresentation even without proving the person knew their statement was false at the time (enough to have been made recklessly) | due diligence is not a defence to misrepresentation, just because D could have done more diligence doesn’t mean P is off the hook | only situation would be if due diligence relates to statutory lim dates b/c the lim period starts when opportunity for due diligence begins | When someone makes a material representation calculated to induce entering into contract, there is an inference of law that the person was induced by the representation to enter contract (can be rebutted by clear evidence only, do not have to inquire into subjective mind of D to see whether was actually induced) | contract rescinded, deposit returned R: you can be successful in misrep claim even if the representor didn’t know statement was false at the time | due diligence is not a defence to misrepresentation | there is a (rebuttable) inference of inducement if a material representation calculated to induce is made and the person enters into contract

Smith v Land and House Property Corp [1884 ENG CA] F: P had a hotel for sale and said the current tenant was “most desirable” | in fact the tenant wouldn’t pay rent without being forced to | the buyer continued with the transaction | tenant went bankrupt | buyer refusing to complete transaction and defending P’s suit for specific performance with misrepresentation defence A: because the seller had particular knowledge of the tenant’s undesirability, their statement was a statement of fact not just opinion | the facts of the situation were not equally known to both parties which makes it statement of fact not opinion R: a statement of opinion can become a statement of fact when person making the statement has knowledge that the other party does not have

REPRESENTATIONS AND TERMS

Elements in a Contract Terms promises as to the duty/obligations of the parties: two types

1. Warranties even if breached, other party must still perform2. Conditions if breached, other party has the right to stop performing

Representationso Statement or assertion made by one party to the other, before or at time of contract, of

a matter relating to contract but didn’t make it into contracto Typically do not have legal consequences b/c not part of contracto HOWEVER, can have contractual effects in two circumstances

1. If classified as a collateral (side) contract courts may be prepared to treat the representation as a warranty collateral to main contract Courts in Canada take a fairly restrictive approach and do not often find

collateral warranties 2. If it becomes a term of the main contract

Puffery Distinguishing between terms and non-terms depends on the facts and circumstances

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Heilbut, Symons & Co v Buckleton [1913 HofL] F: P were rubber merchants in London who underwrote some shares in the Filisola Rubber company | P instructed Johnston, the manager, to get some shares | D phoned Johnston and asked if the rubber company was all right and J said “ we are bringing it out” | P had a reputation for bringing out good companies | D bought a large number of shares but eventually shares fell in value b/c Filisola had way fewer rubber trees than initially thought | D brought action against P for fraudulent misrepresentation and breach of warranty that the company was rubber company A: no rescission is available here b/c both parties have fully affirmed contract | allowed to make a contract where the consideration is the making of a collateral contract (if you enter into contract I promise my representation is true) but these are viewed with suspicion and must be proved strictly | to determine whether a collateral warranty exists must look at the intention of parties (animus contrahedi) | here there is no evidence that J’s statement was anything more than a statement of fact wrt the character of company (being a rubber company) | not enough to be a collateral warranty – would open floodgates | judgement for D R: to determine whether a collateral warranty has been made you must look at the intention of the parties NOTE: Aloni has provided some factors to look at to determine intention of parties

o Was the representee entitled reasonably to assume statement was being warranted (guaranteed to be contractually binding)

o Did the representeee make claim that the matter was crucial to himo Was it obvious from the circumstances that matter was crucial to representeeo What was the relative skill, knowledge, and expertise of the partieso Did the representor ask the representee to verify the matter for himselfo Did the representor assure such verification was unnecessary

Leaf v International Galleries [1950 KB CA] F: P bought a painting from D | D said it was made by an artist called The Constable | P bought it and like 5 years later went to sell it at the auction | P told at the action that it was not a Constable painting and now P is arguing misrepresentation | NOT ARGUING BREACH OF WARRANTY even though they should have: claim for breach of collateral warranty that the painting was a Constable) A: question of the artist was a fundamental term of contract | but at the time P picked up goods, had ability to inspect them and still | once the obligations had formed and some ‘reasonable’ time had passed, rescission is no longer available | no remedy available (would have been one for breach of warranty claim b/c those don’t expire like rescission does damages could have gotten difference between price of painting and a real Constable painting) R: once a reasonable time passes after completion of a contract the remedy of rescission is no longer available

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CLASSIFICATION OF TERMS A term is the part of the contract that states an obligation of one of the parties Not all terms are the same differ in the ability to suspend or withhold performance when the

other party has breached term (but every breach entitles the other party to a damage remedy) Terms can be divided into three categories: warranties and conditions and intermediate (last one

as per Hong Kong Fir) 1. Warranties

Doesn’t go to the root of agreement but still expresses an obligation Non-performance results in a breach which gives rise to claim for damages Does NOT give a power to treat the contract as repudiated (stop performing) Example selling a car that is a different color than promised

2. Conditions Term that goes to the root of the contract Breach gives rise to the power to repudiate (stop performing) the contract AND

damages Example say will sell you a BMW and instead sell you a Ford Promissory vs Contingent Conditions

Promissory are as described above Contingent = upon the happening of some uncertain event (ex re-zoning), an

obligation will come into force (until the condition occurs, the obligation of parties are suspended)o If the event never occurs there is no breach of contract, both parties

discharged from obligations o Good faith imposed to take necessary steps to fulfill condition

3. Intermediate (AKA innominate) terms Terms that are neither clearly conditions or warranties and need to determine

whether the breach deprived the injured party of substantially the whole benefit of contract (Hong Kong Fir)

If did deprive of substantially whole benefit, give the repudiation power

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962 ENG CA]F: D bought a charter from P for 24 months | agreement included term that the ship needed to be seaworthy with competent staff | vessel in rough shape and needed numerous repairs for 20 weeks | D stopped performing contract b/c P had breached seaworthiness clause | P suing for breach b/c D stopped performance | D wants repudiation b/ c have a cheaper charter option available now A: no question that terms were breached by P | condition and warranty dichotomy depending on what parties imagined when entering contract makes no sense | should decide about consequences of a breach at the time of the breach | are some things that are clearly conditions and some that are clearly warranties | but for the rest of terms that are unclear should evaluate them at time of breach b/c then know how serious the harm is | these are called intermediate/innominate terms | test to determine whether a breach of innominate term gives rise to right of repudiation: does the breach deprive the injured party of substantially the whole benefit of the contract? | parties can also still contract around by designating something as condition or warranty | application of test here = seaworthiness term is intermediate, the need for 20 weeks or repairs not sufficiently serious to give D right to terminate entire 24 months | doesn’t deprive D of substantially the whole benefit, D had no repudiation right R: Terms that are not clear conditions or warranties are intermediate terms | upon breach of an intermediate term, the injured party is entitled to repudiate if the breach deprives the injured party of substantially the whole benefit of the contract

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Factors to consider when determining whether breach is substantial (968703 Ontario Ltd v Vernon [2002 ONT CA])

1. The ration of the party’s obligation not performed to the obligation as a whole2. The seriousness of the breach to the innocent party3. The likelihood of repetition of the breach4. The seriousness of the consequences of the breach5. The relationship of the part of the obligation performed to the whole obligation

Wickman Machine Tool Sales Ltd v L. Schuler A.G [1973 HofL] F: D granted P sole right to sell product | agreement said that a “condition” of contract was that P would visit 6 clients each week for the 4 year contract, sending the same person every time or same replacement | P missed a number of weeks | D terminated the contract P is suing them for that A: under rule from Hong Kong, parties can contract around default rule and declare everything a condition A (Denning): three possible meanings for word ‘condition’ = proper meaning, common meaning, term of art | here being used in common meaning and thus breach doesn’t give power to repudiate contract A (Reid): look at entire contract to determine what is meant by word condition | clause 11 says if there is material breach have 60 days to cure it doesn’t make sense to have separate aspect of condition giving ability to repudiate | however fact that used word still gives strong indication of intent to make it a legal condition | but having this as a condition leads to an unreasonable result and thus is held not to be condition R: If finding that a term is a condition in the technical legal sense will lead to an unreasonable result the courts will regard it as unlikely that the parties intended such

When is a term a condition?1. Stipulation of a term as a condition (unless would lead to an unreasonable result) (Wickman)2. Where not expressly so stipulated but the construction of the contract would lead to it being

interpreted as a condition ('goes without saying' that is a condition) (Hong Kong Fir)3. Based on Hong Kong Fir test is it a term of such nature that a breach deprives the innocent

party of the substantial benefit of the contract Use the 5 factors from Ontario Ltd v Vernon

4. When there is legislation that imposes statutory conditions (didn’t discuss in cases) Ex Sale of Goods Act

DISCHARGE: PERFORMANCE, BREACH, AND AGREEMENT

THE BASIC RULE FOR INCOMPLETE PERFORMANCE The basic rule in common law is that complete performance is necessary before the party could

require payment of the contracted price that was promised o Cutter v Powell [1795] seaman on voyage and completed most of the work but died a

few days short of arrival | court rejects the spouse’s claim for the money for all the work that was done b/c only entitled to the benefit after there has been entire performance

Doctrines about incomplete performance are meant to mitigate the harshness of this doctrine and of repudiation due to a breach of a single contractual condition

ENTIRE AND DIVISIBLE OBLIGATIONS 34

Where the obligations are a single transaction that cannot be brokeN down, it is called an entire contract and the party must complete the full performance before getting payment o However, this is a default rule that parties can get around by breaking the contract up

into multiple contracts o A court can also to the same thing using the doctrine of divisibility (AKA severable

doctrine) the court divides the contract up into separate parts so the performance of one part is exchanged for a corresponding partial performance/payment

In the absence of an explicit statement that the contract is divisible, look to:o whether consideration is divided up in the contracto whether parties intended contract to be divisibleo whether the terms, nature, and purpose are susceptible to apportionment can you

determine the ‘price’ for a particular part of the contract o can the injured party make full use of partial performance does the division harm the

value of each partial performance expected by the parties)

SUBSTANTIAL PERFORMANCE If the breaching party has substantially performed their obligations, they might be entitled to

consideration for the part of the contract they have completed Substantial performance doctrine allows the breaching party to get payment for the work done

so far, minus damages owed for the breach of not completing

Fairbanks Soap Co v Sheppard [1953 SCC] F: D contracted to build a soap chip machine for P for price of $9800 | P paid $1000 in advance | when machine nearly done D stopped working unless paid further $3000 | P suing to recover $1,000 and D countersuing for the full $9800LAW: The general rule (Appleby v Myers) is that P gets nothing from an agreement to do entire performance until the performance is complete with the one exception of if the other party is at fault for work being incomplete (theory of prevention) | Dakin v Lee says ‘completed’ in this rule is equivalent to ‘substantially completed’ in some circumstances A: What ‘substantially performed’ means depends on the quantity of work to be done and the type of work (here requires engineering skills) | the essential question though is about unjust enrichment: how much the non-breaching party will enjoy the work of the breaching party | here the machine was still not capable of producing soap chips so the performance was not ‘substantial’ | contract cancelled and $1000 returned to D R: In a lump sum contract payment is not due until the performance is completed | completed is equivalent to substantially completed which depends on the quantity of work remaining, the type of work, and unjust enrichment NOTE: Generally, the substantial performance doctrine is used in cases of defective performance, not abandoned (ex a contract says paint 3 coats on house and only do 2)

Sumpter v Hedges [1898 ENG CA]F: P contracted to erect some buildings for D on D’s land | P did part of the work and then abandoned it | D completed the work | P is suing for his contribution (quantum meruit), saying D was enriched because of the materials P paid for on land A: P did not substantially perform | P does not have a claim for unjust enrichment because D had no choice but to take the materials b/c they were on his land and not easily removable – circumstances must be so that D had the option to take benefit or not to support a new contract and partial payment | can only recover on quantum meruit if there is evidence of a new contract | there is no such evidence of a new contract, the non-breaching party still enjoying the good is NOT ENOUGH to show, you need a ritual or both parties proceeding as if they have a contract

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R: To recover on quantum meruit for partial work on a contract, the non-breaching party must have the option of taking the benefit or not which can infer a new contract | or if you can show that a new contract has been formed to pay partially

Jacob & Youngs v Kent [1921 NY] F: D built a house for P | didn’t use the specified pipe that P wanted | used a pipe of exact same quality A: Substantial performance D must be paid for work done minus damages for wrong pipe usage

DISCHARGE BY AGREEMENT

Jedfro Investments (USA) Ltd v Jacyk [2007 SCC] F: three friends (J,I,M) entered into a joint venture to buy a property | each person paid part of purchase price, with interests of 60, 30, and 10% | lender demanded repayment of proportionate share of what was owed | J was the only one who could pay off and he offered to purchase assignment of the loan with his business and assignment would have foreclosure happen if debt not paid within 90 days | nobody really agreed on what to do and nobody did anything else, terms not met so the company foreclosed | I (and company Jedfro) suing J and M for breach of joint venture and J and M counterclaiming A: a contract can be discharged by agreement, frustration, repudiatory breach | discharging by agreement requires actually showing a new contract saying it is discharged | even if parties show they don’t want to do the contract anymore doesn’t mean it is discharged by agreement | need to show two things: the parties have reached an new valid agreement to discharge (offer and acceptance) + agreement to discharge is supported by consideration (explicit termination of original contract and formation of new one) | inaction is NOT equivalent to entering into a new agreement | new agreement must be evident by some sort of formality R: Inaction does not discharge a contract | discharge by agreement requires evidence of the termination of the original contract and formation of a new, valid contract

CONTRACT INTERPRETATION: IMPLIED TERMS + CANONS

IMPLIED TERMS Express term: one which has been specifically mentioned and agreed upon by the parties

expressed in the oral or written exchanges when contract formed Implied terms those not expressly included in contract

1. Terms Implied in Fact (aka terms implied by necessity) Terms that are necessary to give business efficacy to contract Must pass the ‘officious bystander’ test would a bystander say that of course the

parties would have the term implied in contract Implied term must be reasonable, capable of clear expression, lawful, and not

contrary to public policy Example: the implied good effort clause in Lucy Lady Duff Gordon

2. Terms Implied from Custom/Usage In manners where a contract is silent you can imply established custom

However, this is a default rule: express terms govern over custom and usage Customs must be obvious such that every person in the industry where the contract

occurred would know of them Implied under presumption that parties didn’t mean to express in writing the whole of

contract but instead to exist with reference to known usages 3. Terms Implied by Law

Does NOT depend on presumed intention of the parties

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The court can imply a term as a matter of policy even when clear parties didn’t intend it

Do not need a statute to imply a term but a statute can be a valid reason for implying one

You can expressly contract around a regular term implied by law but you CANNOT contract around a term implied by statute

The test for implying terms by law is found in Machtinger v HOJ Express terms > terms implied by law (excluding statute) > terms implied by fact

Machtinger v HOJ Industries Ltd [1992 SCC] F: P (employee) was fired from (D) without notice | in his employment contract P had expressly waived his right to notice | in the statutory provincial requirement there is a mandatory minimum notice period | trying to determine what notice was required A: you cannot contract around the statutory mandatory term the court knocks it out so the contract is not silent wrt notice period | now the court can imply a term for reasonable notice: implied by law b/c clearly goes against parties’ intentions | Test for applying terms in law: must be necessary for fair contractual relations between the parties | here, an obligation to give reasonable notice is a necessary condition of relationship between employer and employee | reasonable notice term implied R: to imply a term as a matter of law, the term must be necessary in a practical sense for the fair functioning of the agreement, given the relationship between parties

Bhasin v Hrynew [2014 SCC] F: P was a dealer who worked for Can-Am, success of dealers depends on building a client base | they had a continuing relationship agreement which was a commercial dealership agreement, not a franchise agreement | P owed fiduciary duty could exclusively sell Can-Am products | entered contract in 1998 for three years which had auto-renewal unless given 6 mo notice | D was another dealer and competitor of P who pressured Can-Am not to renew agreement with P | D tried a hostile takeover but P disagreed | the securities commission required Can-Am to appoint a provincial trading officer to renew all dealers and they told P it had to be an inside one (lies) | Can-Am appointed D | P refused to let D look at this stuff and Can-Am didn’t renew the contract, P lost his value in the business and workforceI: Is there a common law duty for parties to perform contractual obligations honestly? A: good faith contractual performance (honesty, reasonableness) is a general organizing principle of the common law of contract (a norm but not yet a rule) | good faith is not to the same level as fiduciary duty b/c your interests can still be more important | this situation requires a new common law duty of honest performance of contractual obligations: general duty that parties must not lie or knowingly mislead each other wrt matters directly linked the contract performance | note there is NOT an affirmative duty to disclose reasons for ending contract though | this doctrine is analogous to unconscionability, estoppel, and misrepresentation | no good faith requirement to negotiate, only begins with performance | duty cannot be opted out of but can be modified to higher standard (for relational contracts, ex) | Can-Am acted dishonestly in exercising non-renewal clause (didn’t tell about settled intention and lied about the PTO thing) so breached duty of honesty | liable for damages based on what P’s position would have been if had fulfilled duty = value of business at time of non-renewal b/c could have sold itR: there is a general organizing principle of good faith that underlies contract law | there is a duty of honest performance of contractual obligations in Canada which is a mandatory rule that parties must not lie or knowingly mislead each other

CANONS OF CONSTRUCTION (INTERPRETING CONTRACTS)

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Court can look to extrinsic evidence of what the parties intended to fix any ambiguities in the contract (facts, commercial context, surr. circumstances)

o BUT when there is no ambiguity in a written contract must be given literal meaning All writing is interpreted as a whole read in context with other provisions Specific and exact terms given greater weight than general language When a word is used in different parts of contract, presumed to mean same thing Construction Contra Proferentum if a provision has two reasonable meanings, the court

should prefer the meaning less favorable to the party drafting the contract language, unless the parties have equal bargaining power or contract is otherwise the product of negotiations (applied often in standardized contracts)

Parol Evidence Rule when parties reduce agreement to writing, they intend the written contract to be the final expression of agreement bars use of evidence from prior negotiations that contradict express term/supplements another term

o DOESN’T ban admission of evidence wrt formation of contract or defences

Sattva Capital Corp v Creston Moly Corp [2014 SCC] F: P introduced D to a property for D to buy | D agreed to pay a finders’ fee to P to be paid in shares ($1.5M worth) | section 2 of agreement says market price of shares calculated on close of business day before press release | D formally announced the completion of agreement to the public | after announcement the shares worth more | D didn’t actually buy the property until after that | arbitrator found in favor of P to give them 1.5M worth of shares before the announcement (a greater # of shares) A: In order for court to revisit, interpretation of the contract needs to be a question of law | court decides that in Canada interpretation should (almost always) be a matter of both fact and law surrounding circumstances are facts to which defer to arbitrator | the arbitrator had correctly looked at commercial context, sophistication of parties, fluctuation of share price and fact that P had purposely taken the fee in shares and accepted risk of fluctuation to determine the intention of the parties | surrounding circumstances cannot overwhelm the words of agreement and words pretty clearly say that you determine the value before the public announcement | therefore should get the shares at the low price R: Interpretation of a contract is a matter of both law and fact | when interpreting a contract, the overriding concern is to give effect to the intent of the parties

STANDARD FORM CONTRACTS + EXCLUSION CLAUSES

THE BASICS Standard form contracts and exclusion clauses often go hand in hand Standard form contracts are the most common type of contract Advantages of SFC

o Lower transaction costs: do not need to draft a new contract every time and less negotiation time needed

o Security and certainty for customer b/c if contract was problematic it would have been challenged and checked within the court for unfair terms

Disadvantages of SFCo One party has more power favorable to the party which drafted it o Nearly impossible to read all of it o Take it or leave it impossible to negotiate terms, even if there are competing

businesses they would likely have same terms UNSIGNED STANDARD FORM CONTRACTS

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Unsigned SFC (often tickets) – rules from Parker v South Eastern Railwayo If the person receiving document didn’t know there was writing or printing on it, he is

not bound o Where the offeree knows that the paper contains conditions that ticket-issuer

intends to be terms, assent established regardless of reading: boundo OR Doctrine of reasonable notice says that a person who has no knowledge of

conditions existing (but knows there is writing or printing) is still bound by the conditions if there was reasonable notice given that the ticket contained conditions - ex prominent sign or writing on ticket

Thorton v Shoe Lane Parking Ltd [1971 QB CA] F: P parked in a multi-storey car park which had a notice at the entrance saying “all cars parked at owner’s risk” | he drove in, got ticket, then drove into garage where mechanism took car up to park | paid, then when he came back the mechanism brought it down and there was an accident he was injured (half his fault, half Shoe Lane) | the ticket said “ticket issued subject to conditions as displayed on premises” in small printing on the back | the conditions were visible only if had gotten out of car while in garage and walked to see them (or see when you were paying) | many conditions to read | one of conditions say not liable for injury to customer while car in lot A: P would have had to driven his car into garage and walked around to see the conditions | previous ticket cases had a legal fiction saying the ticket was an offer that could be refused | this is different when the ticket comes from a machine: contract is done when the money is put in machine so the only condition that is actual part of the contract was sign at entrance other conditions were requests for modification only | the notice he could see thus only limited liability for damage to car not personal injury | even if the automatic machine is same as ticket taker, the rules from Parker say the customer was not given sufficient notice R: A customer is only bound by terms that were sufficiently brought to notice beforehand | the more onerous/excluding/unusual the condition, the greater effort that must be made in terms of notice

The course of dealings can imply a term if the parties have a common understanding that the term is included

When it is an exclusion clause being implied, there is a high threshold to show a consistent course of dealings/performance between the particular parties

McCutcheon v David MacBrayne Ltd [1964 HofL] F: D’s bro agreed to ship P’s car to the mainland using D’s company | usually, D’s company has customers sign a note indemnifying D but that didn’t happen | P had signed the risk note on 4 previous occasions | nobody ever read the note b/c v. long and no alternative shipper | the ship carrying car sank due to D’s negligence | both P and D’s bro agreed they knew the notes contained conditions but not what they were A (Reid – widely accepted): If the two parties had made a series of similar contracts w/ similar conditions and then make another without stating them, conditions may be implied | if officious bystander has asked them whether they intended to leave them out, would say ‘of course not’ | facts here don’t support that no consistent course of dealings (sometimes signed, sometimes not) A (Devlin – not widely accepted): the party would have to actually know what the conditions were from previous dealings to be able to imply them in course of dealings

SIGNED STANDARD FORM CONTRACTS 39

Signed SFC there is a duty to read, presumption that if you have signed you have read and assented (L’Estrange)

Tilden Rent-A-Car Co. v Clendenning [1978 ON CA] F: D rented a car from P, had used the company many times before | clerk asked if he wanted additional coverage, he said yes | he didn’t read before signing and the clerk knew it | the clause on the front said he got no liability for damaged caused to car by paying the premium | clause on the back that is small and hard to read says the customer agrees if he drives after having even one drink will be liable for damage | also says if breaks the law at all no coverage (even 1 mile over speed limit) | D got into accident supposedly while drunk and P says liable A: there is nothing inherently unfair about offering this insurance, it is just unfair b/c the person wouldn’t have agreed if knew details | both substance and form are problematic | form = buried in pages, written in legalese, no time to read, unsophisticated party | substance = very harsh and onerous, unusual, inconsistent with entire purpose of contract (contradicts paying extra money for coverage) | P couldn’t have assumed D was aware of them or had assented | P cannot rely on it R: a party seeking to rely on terms of a contract that the other party is not aware of and would not have assented to must take reasonable measures to draw attention of other party to them

Karroll v Silver Star Mountain Resorts Ltd [1988 BCSC] F: P injured in an accident with another skier on Silver Star during her 5th time competing | P signed doc releasing SS from liability for any injuries sustained in race | she didn’t read entire contract even though would only take 2 min | P mentioned to a friend that she had to sign if she wanted to race | the release was all one page, easy to read, at the top said “RELEASE AND INDEMNITY PLEASE READ CAREFULLY” A: the release was much easier to read and shorter (form) than Tilden | a reasonable person would not have known that P was not assenting | knew signed a release of some kind | skiing is inherently risky: no contradictory purpose | no fine print | has signed before | Tilden principle limited only applies when issuing party knew or had reason to know about the other party’s mistake about the terms | no general requirement for party to take steps to apprise other of onerous terms | release is validR: to show that a party is not bound by a signed contract, two things must be shown| 1 – in circumstances a reasonable person would have known person did not intend to agree to what was signed | 2 – D didn’t take reasonable steps to bring content of release to party’s attention

Kanitz v Rogers Cable Inc [2002 ON SC] F: people are bringing a class action against D for interruptions in service | the original contract had a clause that said D could amend/modify agreement when they want, as long as provided notice by email or website posting and then the customers could leave if they so desired | D added a clause for arbitration (waiving right to class action) and their website had notifications of new terms added with links to the updated contractA: the contract said there will be modifications so this imposes an obligation on P to go on website periodically and check for changes | company changed agreement as per contract | wasn’t that hard to find the announcement (up front) | chose to enter into electronic contract so have to live with the format | three-part test for unconscionability of an exclusion clause: inequality of bargaining power, weaker party taken advantage of, resulting unfair agreement | there was inequality of bargaining but there was no taking advantage b/c was an arbitration clause NOT an exclusion clause | the arbitration clause is binding on the parties R: If a contract can be changed by one party there is an obligation for other party to periodically check for changes | three-part test for unconscionability of an exclusion clause: inequality of bargaining power, weaker party taken advantage of, resulting unfair agreement

UNENFORCEABILITY OF EXCLUSION CLAUSES

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Once it has been established that an exclusion clause has been properly incorporated into a contract (adequate notice), there are still approaches used to stop enforcement of the clause

Sometimes called Doctrine of Fundamental Breach (Karsales v Wallis) – has now fallen in England (Suisse Atlantique + statute 1987) and in Canada (Tercon v BC) o DFB: an otherwise enforceable exclusion clause does not protect a party from liability from

a fundamental breach =breach that goes to root of contract such that contract makes no sense without the breached term (Karsales)

o Suisse Atlantique rejected fundamental breach, but said that a clause can still be unenforceable by examining the agreement to see what parties intended

Before Tercon, the SCC had a split decision case where they debated whether fundamental breach was still a thing Wilson said FB might still exist and said you need to look at fairness and reasonableness of exclusion clause at time of breach; Dickson said no more FB and that you have to look at unconscionability at the time of formation of contract (Hunter Engineering)

Tercon Contractors Ltd v BC (Ministry of Transportation and Highways) [2010 SCC] F: province of BC put in a request for some proposals | they accepted a bid from a bidder who was not eligible to participate and then didn’t disclose it | they had an exclusion clause saying no claim for damages from proposals and now want to rely on it so there is no liability for their conduct A (both maj and dis): Fundamental breach as described in Karsales is LAID TO REST | there is a new three part test to determine validity of an exclusion clause | 1 – as a matter of interpretation, does the exclusion clause apply to the circumstances at hand (consider intention of parties) | 2 – if the exclusion clause applies, was it unconscionable at the time the contract was formed | 3 – if the exclusion clauses applies and is not unconscionable, does the exclusion clause intervene or contradict public policy? Application (Maj): exclusion clause says no claim as result of participating and submitting proposal | plain reading says that it does NOT exclude liability for ppl not eligible to participate | at the very least there is ambiguity and this is resolved against BC b/c they drafted doc (contra proferetum) | exclusion clause doesn’t apply Application (Dis): unambiguous: of course participation includes the preliminary rounds | no question that exclusion clause applies to the circumstances | for unconscionability you need unequal bargaining power which doesn’t exist b/c P is a major contractor | for public policy there is nothing so important to our understanding of the legal system as to make unenforceable | no common law principles or statutory rules to stop BC from deciding on own tendering process R: the test for whether an exclusion clause is unenforceable as above

Neidermeyer v Charlton [2014 BCCA] F: P signed up for a zip line run by Ziptrek (a D) | D was bus driver, employed by Ziptrek | P was Australian and came to visit BC with her students | didn’t know about ICBC | she signed a group contract for zip line before arriving saying if cancelled with 72 hours charged full price | when arrived at Ziptrek she signed copies of Release for herself and students | the release said she waived all claims for use of or presence on the facilities due to any cause whatsoever | she also initialed a box at the top that stated signing agreement meant waiving certain legal rights | bus left the road leading to and returning from zip line area and P injured and now is suing D A (adequate notice): release was consistent with purpose of contract (dangerous activity) and casual review would have revealed it impacted legal right, no questions asked | nothing in circumstances that would lead D (or a reasonable person) to thinking P didn’t intend to agree to what signing and so was under no obligation to reasonably bring terms to attention | full impact of release visible on front page A (enforceability):1 - the Release applies to the situation b/c specifically said that it applied to travel to and from the tour areas and involved negligence and damages wasn’t a discharge of coverage | 2 –

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the resulting agreement was not unfair: a party who offers a risky activity is allowed to shield themselves from liability (thus not unconscionable) | 3 (Maj) – exclusion clause is not prohibited by statutes, but if the legislature had intended the insurance policy in BC could be contracted out of, they would have expressly stated it in the Insurance (Vehicle) Act against public policy 3 (Dis) – the release still allows P to get no-fault ICBC benefits and so it is not against public policy R: application of the adequate notice two-part test from Karroll and the three-part test for unconscionability from Tercon (which includes the Kanitz unconscionability test) | exclusion of liability for car accidents violates public policy NOTE: would likely find another public policy argument in employment context saying that employers cannot absolve from all liability owed to workers

DURESS, UNDUE INFLUENCE, AND UNCONSCIONABILITY

DURESS Applies when someone enters into a contract non-voluntarily because of coercive pressure When a threat deprives of free will to enter contract, contract is void or voidable

o The traditional doctrine focuses on the voluntariness of consent duress is a coercion of will so as to vitiate consent (Pao On) leads to void contract

o The modern approach is to find the contract voidable at the option of the party who was subjected to the duress

Categories of Duress 1. Duress to person threats to person or family non-controversial 2. Duress to goods/property threat to damage to take other’s property; extortion payment

required to release good non-controversial 3. Economic duress a threat not to fulfill a contractual obligation to compel victim to

agree to pay something additional to secure performance or make a modification to contract Simple economic pressure is not enough Previously seen as ‘part of the game’ of business and not recognized Now recognized (Pao On) but still somewhat uncertain when applies hard to

distinguish honest request to bargain vs threat to breach

Universe Tankships v International Transport Workers’ Federation [1981 HofL] R: two elements have to be shown to establish economic duress: 1 – pressure amounting to compulsion of the will of the victim; 2 – illegitimacy of the pressure exerted (illegitimate threat)NOTE: Use this test when you have a situation of economic duress that DOES NOT involve modification but does involve threat of breach of contract

Simply threatening to make them pay more for the same thing would be an example I think?

NOTE: there is little guidance on how to find illegitimacy | but can look to illegality, tort, or any statutory obligations | maybe look to nature of pressure, what was being amended, the nature of demand

Greater Fredericton Airport Authority Inc v NAV Canada [2008 NB CA]

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F: P was given gov’t duties and rights over airport | P requested that D relocate an instrument landing system (ILS) to the runway being extended | D decided made better sense to just replace part of the existing ILS with new equipment (DME) rather than do the relocation | D but refused to do relocation unless P helped pay for new equipment sent a letter saying they couldn’t afford to purchase it on their own, said if P wanted P had to pay | P agreed to pay for the acquisition of equipment, by way of a letter signed under protest, in order to make the runway operational | D acquired and installed the equipment, P refused to make the promised paymentThe test for economic duress: need two initial requirements 1: the promise (contractual variation) must be extracted as a result of the exercise of pressure; 2: exercise of that pressure must have been such that the coerced party had no practical alternative but to agree to the coercer’s demand to vary terms of the underlying contract || once these two are met must determine whether the coerced party ‘consented’ to the variation by looking at 3 factors: whether the promise was supported by consideration; whether coerced party made the promise ‘under protest’ or ‘without prejudice’ if not, whether the coerced party took reasonable steps to disaffirm the promise as soon as

practicable Application: threat to breach the contract from D arose by implication from their letter described above pressure applied | NAV has a monopoly on aviation services so P had no alternative but to submit to NAV’s demand | promise here was not supported by fresh consideration; letter from P specified that they forced us to make funds available under protest; P refused to pay from the start and hasn’t deviated coerced party DID NOT consent to the variation | there was economic duress Defences: the fact that P had legal advice and the fact that D acted in good faith (maybe) has NO BEARING on the result | neither is a defence to economic duressR: test for economic duress as above NOTE: Although this test has not been accepted by the rest of Canada yet, it is likely to be applied here in situations involving duress and MODIFICATION

UNDUE INFLUENCE comes from the court of equity wider jurisdiction than common law duress the unconscientious use by one person of power over another in order to induce the other to

enter into a contracto pressure falling short of duress requirements may still be undue influence

undue influence is focused on the relationship between the parties the effect of a successful undue influence claim is rescission of the contract There are two types of undue influence

1. Actual Undue Influence not able to be rebutted, but hard to prove Actual exercise of influence: coercive conduct that is unfair/deceitful Exercise of undue influence often involves fraudulent misrepresentation Actual undue influence caused the transaction to be executed Resulting transaction is manifestly disadvantageous to party influenced

- **probably no longer a required element but used to be** Classic case: William v Bayley father pressured by bank to give a mortgage to

cover son’s death, told if he didn’t son would be criminal and sent to Australia 2. Presumptive Undue Influence D can rebut

De facto presumption is established when there is a relationship of trust and confidence already determined by the courts

- Trustee and beneficiary, solicitor and client, doctor and patient, parent and child, guardian and ward, future husband and fiancée

- Once one of these relationships is established is up to D to bring evidence that there was not UI (rebut the presumption)

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Or for new relationships need to show a confidential relationship existed one person is on a position to DOMINATE THE WILL OF ANOTHER whether through manipulation, coercion, or subtle abuse of power

- Once this is established the burden to rebut shifts to D Unless Justice Wilson in Geffen is followed: says in the commercial

context must show additional of manifest disadvantage to influenced party before presumption raised

Geffen v Goodman Estate [1991 SCC] F: D is executor of Tzina (mother)’s estate | T’s siblings are Sam, Ted, Jack | their mother is Annie (A) | In 1968 with Jack’s help, A executd will for life estate to T and remainder to be distributed to A’s grandchildren | but when A died children learned was new will leaving all property outright to T | T had psych issues so siblings worried T might not act responsibly owning the home outright | siblings retained services of lawyer Mr. Pearce who suggested T transfer house to brother’s children, she wanted to think about it and meeting disbanded brothers went home | T kept getting advice from Pearce and eventually she put the residence in trust for her life with brothers as trustees but she could make a sale if was determined by trustees to be in her best interest | upon T’s death the trust property supposed to be divided equally among A’s grandchildren | after deed executed T apparently unsure what had done, tried to sell property multiple times but stopped by Pearce | T died in 1984 leaving entire estate to her children in her will A (Wilson): nothing pointing towards actual undue influence so need to see if the presumption is met | nature of relationship to have a presumption must mean that one person has the ability to dominate the will of another | for commercial relationships P must show in addition that the contract worked unfairness | for gifts and bequests do not need to show unfairness, just the dominant relationship | once presumption shown the onus on D to rebut it by showing no actual influence, independent advice, connection at the relevant time, motivation of influencers, magnitude of disadvantage or benefit is relevant | here the relationship between T and brothers has potential to have domination of will especially after A died and brothers had real potential to influence her | presumption is triggered b/c not commercial but it is also rebutted | little contact between T and brothers at relevant time, T got independent advice from Pearce not brothers, prime motivation of bros was to advance T’s welfareA (La Forest): agree with Wilson that presumption only arises in situation where one party is in position to dominate the will of another | requirement of manifest disadvantage doesn’t make sense in case of gift | because this is not commercial transaction shouldn’t have to decide on disadvantage for those here | agree w/ resultR: the presumption of undue influences arises in relationship where one party has the ability to dominate the will of another | the manifest disadvantage component does NOT apply to gifts, commercial is unclear

Royal Bank of Scotland PLC v Etridge (No 2) [2001 HofL] F: 8 cases on appeal where wife charged an interest in her home in favor of a bank as security for husband’s debt | wives later assert did so under undue influence of husband as a defence when bank claims possession of home A (Burden of proof and Presumptions): proof that complainant places trust in other party in relation to management of financial affairs AND a transaction that calls for explanation should raise rebuttable presumption | requires the aspect of ‘a transaction that calls for an explanation’ | but in already established relationships that is not required influence is already assumed | husband and wife is NOT one of the already established categories but it is a relationship where there is influence so just requires a transaction that calls for explanation

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A (Independent Advice): proof that P received advice from third party is a factor to consider, the weight attached depends on circumstances | is a strong indication that the party is acting of free will but not conclusive A (Manifest disadvantage): should DISREGARD this label | better approach is to look at whether transaction is readily explicable without undue influence A (Wider principle): sexual relationships are not in their own category, they are just one type where an individual might have influence over another | the O’Brien decision is not confined to these relationships | a third party should be put on inquiry and take reasonable steps to make sure the agreement is property obtained whenever the bank knows of the relationship is non-commercial R: a presumption of undue influence is raised when there is 1 – a relationship of influence and 2 - the transaction calls for an explanation | there is no requirement of manifest disadvantage to create the presumption NOTE: this case has not yet been applied in Canada but Aloni believes it will have influence so as not to follow Wilson in Geffen

UNCONSCIONABILITY The traditional doctrine was quite narrow (adopted from Slator v Nolan) The excuse was available in situations where the following was met:

o Improvident bargain o Inequality in the positions of the two parties

Different from undue influence in two wayso Don’t need to show a confidential relationship (can be a one-off)o Has stronger requirement of substantive unfairness of bargain clear that courts will

look at substance of the contract

Morrison v Coast Finance Ltd [1965 BCCA] F: P is a 79 year old woman of meagre means | she was persuaded by two men to borrow $4200 from D on mortgage to lend money to men so they could pay back D and a car dealer with the same office manager as D | P supposed to get repaid by men so she could repay mortgage | P was uncertain and asked for help but received no independent advice | D prepared the documents, knowing of the situation | docs had reasonable interest rate | manager made sure the proceeds of loan went directly to companies so that they benefitted | Men didn’t pay her so P started action against D to have mortgage set aside for unconscionable bargain A: undue influence different from unconscionability b/c UI focuses on the particular relationship between parties and sufficiency of consent | unconscionability is concerned with an unfair advantage gained by an unconscientious use of power | two elements to unconscionability: 1 inequality in power of parties arising out of ignorance, need, or distress of weaker; 2 substantial unfairness of the bargain obtained by the stronger | once two elements proven, the stronger party can rebut presumption by showing bargain was fair or no advantage was taken | here there is no doubt about inequality of position with P vs two men and companies b/c company prepared docs, P no legal advice (often strong evidence against unconsc), wasn’t sure if should sign but convinced to anyway | scope of whether transaction is unfair has to go beyond just the mortgage contract which had fair terms | the loan was to advance interests of men and companies with no expectation of reward and no real security for P besides a promissory note from these strange men | D companies knew about her ignorance and inexperience and took advantage of it to benefit | unconscionable Remedy: normal remedy is rescission to set transaction aside but men not parties to case and cars sold to them are not recoverable | set mortgage aside so P doesn’t have to repay, sale of car stands and finance company can have the promissory note from men R: The test for unconscionability is 1 inequality in position of parties2 substantial unfairness of the bargain, considering all the circumstances

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Lloyds Bank v Bundy [1975 ENG CA] F: D owned a home, was extent of his estate | his son operated a business that was failing and asked father to give collateral for a loan from P | father signed a collateral for a smaller amount of money after his lawyer told him that was all he could afford | later son needed more and D could only use house | lawyer from the bank came over with his son and explained this was the only thing could do to help son | D signed without talking to a lawyer | 5 months later bank foreclosed on son and seized house | D refused to leave house and bank suing to have him evictedA: court finds undue influence here (banker and client is one of the relationships that can create presumption of UI) | Denning tried to combine all the principles into one resting on inequality of bargaining power | Aloni says this case would be better under unconscionability in the Canadian context: inequality of bargaining and unfair bargain (no legal advice, happened in home so vulnerable + man is old and confused, no time to think about the deal, no reason to presume influence b/c no previous relationship with the particular manager) NOTE: the unifying doctrine has been explicitly rejected in England but in Canada maybe still a thing… Aloni says don’t use it on the exam though you should split them

Harry v Kreutziger [1978 BC CA]F: P has a fishing boat with a valuable license attached to it | P has grade 5 education and not experienced in business | D wants to buy the boat and they bargain, eventually agree to $4500 even though D knows worth $16,000 | D unilaterally lowers the price even more at the time of the bargain | D told P he could get another license but that was not accurateA (McIntrye): narrower doctrine of unconscionability | inequality in position of parties and substantive unfairness of bargain (from Morrison) | P was clearly not equal of D b/c of education, physical infirmity and economic circumstances | evidence supports that P wanted to continue fishing and D said he could but was wrong | P delayed the transaction while D was aggressive even though knew how much was actually worth | P was dominated and overborne by D | contract rescinded A (Lambert): the principle above is good but may be too narrow | unconscionability occurs whenever the transaction as a whole is sufficiently divergent from community standards of commercial morality that it should be rescindedR: the doctrine of unconscionability is the two-part test from Morrison with some influence of a general overriding principle as described by Lambert here

Duress protects the voluntary aspect of the process Undue influence about relationship with someone else Unconscionability is about the fairness of the bargain itself

ILLEGALITY (PUBLIC POLICY)

ILLEGALITY Generally, autonomy of contract is encouraged but there are some reasons why contracts are

not enforced despite autonomy and efficiency If a contract creates negative externalities that hurt individuals or society, if these costs

outweigh benefits contracts are cancelled on public policy grounds ‘Illegal’ is used as a shorthand expression for contracts that courts will not enforce b/c they

infringe public policy or a statute Types of Illegality

o Statutory illegality: if the contract is expressly or impliedly prohibited by statute, entered with object of committing an act prohibited by state, requires performance contrary to statute, or confers benefits in violation of statute

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Modern approach looks at the purpose/context of the statute to decide whether contract contradicts the purpose

o Common law illegality: when a contract violates public policy synthesized by a judge from common law cases

Contracts injurious to good government (sale of public office, bribes) Contracts injurious to administration of justice (don’t go to court) Contracts involving immorality (sexual misconduct even if not criminal) Contracts affecting marriage (restricting right to marry someone) Contracts to benefit from crime or commit an illegal act Restraint of trade most common one

CONTRACTS ON RESTRAINT OF TRADE Agreements limiting competition are enforceable if they are connected to a contract with an

otherwise legit purpose but only if impose reasonable restrains that are narrowly tailored to serve the legit purpose of underlying agreement

The issue is not that the parties dealt wrongly or had deficient assent: the contract does more damage to the public than it does good

o Court will not enforce an illegal contract or term even if clearly voluntary A restraint on trade is commonly called a restrictive covenant

KRG Insurance Brokers Inc v Shafron [2009 SCC]F: D worked for P and his employment contract said that after leaving he wouldn’t for three years be employed in an insurance brokerage carried on within the “Metropolitan City of Vancouver” | he left his job and then started work in RichmondLAW: The test for whether a restrictive covenant is enforceable is: 1 must be connected to contract with otherwise legit purpose; 2 reasonable in light of the interests of the parties: 3 reasonable in light of the public, particularly wrt access to a competitive marketplace | reasonableness requires a case by case approach, considering the extent of activity prohibited and extent of the temporal and spatial scope of prohibition (example an employment contract less likely to be enforced than a contract when business is sold for more $ in exchange for the non-compete)| however if covenant is ambiguous and cannot be rectified (no mistake made), there is no way to assess reasonableness and thus automatically unenforceable | there are three options to fix an unenforceable covenant: 1 remove it entirely; 2 blue pencil severance: remove part of a provision, only to be used when part removed is trivial and not part of the main purpose of covenant; 3 notional severance the court reads down the clause to a more reasonable scope as to be legal and enforceable NOT APPLICABLE to restrictive covenants wrt employment context b/c no objective ‘bright line’ to be applied so there will be uncertainty and basically just changing contract by the court Application: “the Metropolitan City of Vancouver” is ambiguous and cannot be rectified b/c no evidence it was a mistake | notional severance doesn’t allow the court to rewrite a restrictive covenant to reflect own view of intentions or reasonableness | the CA rewrote it to say “Vancouver, UBC, Richmond and Burnaby” but this is no good b/c just reading into what court thinks is reasonable not parties’ intentions notional severance not allowed | blue pencil severance also no good b/c just eliminating “Metropolitan” would clearly go against intention of parties to extend further than that | the term is ambiguous with no explanation as to what area is covers, restrictive covenant unreasonable and cannot just change scope to be reasonable R: a restrictive covenant must be reasonable and unambiguous to be enforced| a court cannot rewrite a restrictive covenant in employment context to make it reasonable using notional severance

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FRUSTRATION

THE BASICS Frustration is an umbrella term for several doctrines

o Impossibility o Impracticability o Economic impracticability o Frustration

Frustration is concerned with an unforeseeable change of circumstances that the parties did not negotiate or think about in advance of contract formation

Concerned with events that make contract fulfillment impossible or severely impracticable to one or both parties results in a discharge of obligations

Frustration first arose with the death/capacity of a promisor where the contract was for personal services (person’s ability to perform indispensable for contract)

o Now has been expanded to include destruction of subject mattero And includes frustration of purpose: when it is still possible to perform the contract but

the purpose is frustrated so no longer makes sense to perform

THE TRADITIONAL STANCE: ABSOLUTE CONTRACT Paradine v Jane [1647 KB] F: P leased lands to D and D didn’t pay rent because Prince Rupert (enemy of the King during the civil war) had invaded his land and expelled him such that couldn’t enjoy lands A: when a party creates a contractual duty he is bound to fulfill it | could have contracted around by adding a clause to make clear what happened in such a situation | a lease has the advantage of casual products and thus also runs risk of casual losses this risk allocation shown by the fact that didn’t contract around it | interferences or accidents even out of control of parties are irrelevant | D has to pay the rent R: unexpected changes in contract, even if they result in frustration of purpose, result in the contract being enforceable as long as nothing mentioned in contract THIS IS NOT THE APPROACH USED TODAY

FURTHER DEVELOPMENTS Taylor v Caldwell [1863 QB] F: D had a contract to let P use Music hall on four days for concerts | P would pay 100l per day | existence of Music Hall in state for concert essential for fulfillment of contract b/c of the details of entertainments in contract | after the agreement but before the firt concert, the Hall destroyed in fire not fault of either party | contract silent on what happens if hall destroyed | P doesn’t have to pay rent b/c the Hall existing was fundamental condition of contract | P suing for lost profits and ad expensesA: performance of contract is impossible here | need four things to apply frustration doctrine: 1 intervening event not at the fault of the party that asks for discharge; 2 fundamental assumption of the contract that the item exists; 3 unforeseen event; 4 parties have not contracted around (default rule) the contract has an implied term as per officious bystander test: clear that the basic assumption of contract was that theatre exists and if it doesn’t, owner is discharged | allocation of risk and intention aligns with this implied term | no fault to either party so both excused from contract (so P does suffer losses of expenses) R: where parties contracted on the basis of a continued existence of something, parties should be excused from their obligations if that thing no longer exists because the contract shows an “implied condition” to excuse the parties in the case that performance becomes impossible (w/out fault)

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NOTE: the aim of trying to fulfill the intent of the parties is NO LONGER USED and impossibility is no longer the only way to use frustrationKrell v Henry [1903 KB] F: P had a room for rent in London at time of coronation of King | D rented it for the afternoon of coronation for a high price b/c had good view of coronation (ad mentioned that) | coronation was postponed | D had already paid 25-pound deposit out of 75 | P wants the remaining 50 and D defending using impossibility A: while it is not impossible to complete the contract (apartment still rentable), the contract’s purpose has been frustrated | remedy is to keep the parties as they are: 25 pounds remains with P but D doesn’t have to pay extra 50 pounds NOTE: this represents a still somewhat subjective foreseeability test: what was the intention of the parties and what they foresaw (didn’t foresee the cancellation)

Davis Contractors Ltd v Fareham UDC [1956 HofL]here the court departs from attempting to discern the intentions of parties in the contract | moves to what the reasonable person would have agreed upon | frustration occurs when, without fault of either party, a contractual obligation becomes incapable of being performed because the circumstances have rendered the performance ‘radically different’ from what was understood to be undertaken in the contract (as determined by the reasonable person standard)

Folia v Trelinski [1997 BCSC] Neatly states the criteria required for frustration of contract:

1. The event must have occurred after the formation of contract and cannot be self-induced2. The contract must be, as a result, totally different from what parties had intended

o Mere inconvenience not enough3. The disruption must be permanent, not temporary or transient 4. The change must totally affect the nature, meaning, purpose, effect and consequences of the

contract wrt one or both parties 5. The act or event that brought about such a radical change must not have been foreseeable

o Did the parties contract around it?o What would reasonable parties have done (industry norms, purpose of contract)?

ALWAYS remember that frustration is a default rule: if the parties contract around it by specifying what happens when a particular event occurs you must follow contract

KBK No. 138 Ventures Ltd v Canada Safeway Ltd [2000 BCCA] F: D had some property and put out an ad to sell it | ad described property zoning and floor space ratio of 3.22 | P interested in buying to make mixed commercial and condos | P and D entered into contract for sale, said contract price greater of 8.5M or $8 FSR as permitted by city on closing date | contract included stuff about being condos and not competing with D | P paid $150,000 instalment but then the City Planner rezoned it and decreased FSR to 0.3, a random move neither party expected | D ultimately entered into another agreement with someone else to sell for 5.4M, reflecting zoning restrictions | P wants the $150,000 backA: facts demonstrate that Safeway had more than mere knowledge of what KBK wanted to do with the property (different from just a typical sale and purchase of some ordinary property) | Safeway didn’t make a warranty about the zoning but didn’t expressly allocate risk of re-zoning to KBK | change in zoning was an unforeseen intervening event that struck at root of contract entirely beyond what was contemplated when contract entered into | meets all elements of Folia test: after formation, not self-induced, totally affected purpose and effect of contract for P, more than mere inconvenience b/c changed value dramatically, permanent change, not foreseeable | contract frustrated and Safeway pays back $150,000

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R: if an unforeseen intervening event strikes at root of contract entirely beyond what was initially contemplated and radically alters the agreement the agreement will be frustrated

FORCE MAJEURE CLAUSES Such clauses try to anticipate these types of events and use these clauses to allocate risks in

advance (opting out of default frustration rules) Issues often arise within contract interpretation: if an event is left out, was that purposeful or

is it caught by the last ‘catch all’ term o If ambiguous, interpreted strictly against drafter (contra proferentum)

REMEDIES FOR FRUSTRATION Typically the remedy is a discharge (leave parties as they are) but sometimes this leads to

unfair consequences so the court will try to offset these In BC the Frustrated Contracts Act allows courts to use maximum flexibility (s. 5) to apportion

loss equally for reliance-based expenses o If contracted to make a cake for party and gets cancelled, each party pays half

ingredients cost o However, if it is possible for one party to mitigate losses courts considers that (if you

can use the ingredients for another cake) o Court will not allow double recovery (if get insurance payout for example)

The common law doctrine of restitution can be used too ex. giving the $150,000 back in KBK

REMEDIES

THE BASICS There are four key general concepts for Canadian law on remedies in contract

1. No compulsion to perform not usually specific performance This is because of the theory of efficient breach: allows people to breach when a

breach makes everybody better off breach gives profits that exceed expected profits to other party: Pareto superior (Posner)

Economic efficiency waste of resources to compel completion (Posner) 2. Compensation for loss suffered is provided in the form of money so that the non-

breaching party can obtain a substitute with it Problem: this represents thinking that everything can be reduced to money terms

3. No distinction is made on awarding damages based on the manner of breach Breach is morally neutral: duty to keep a contract is nothing more than a prediction

that you will pay damages if you don’t (Holmes) 4. Goal for contractual remedies is compensation not punishment

TYPES OF DAMAGES 1. Expectation Damages put the injured party in as good of a position as she would have been

in if the contract had been fulfilled Make the injured party ‘whole’: put in ex-post position Injured party gets the ‘benefit of the bargain’

2. Reliance Damages put the injured party in the position she would have been in had she never entered the contract Typically think about this from cases of reliance/promissory estoppel but can also be used

in a regular claim for breach Interest in being reimbursed for loss caused by reliance on the contract Put in the ex-ante position

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3. Restitution Damages give back what the injured party transferred to the breaching party Interest in having restored to her any benefit that she has conferred on the other party Often used for unjust enrichment/ disgorgement but also used in regular breach claims

RELIANCE DAMAGES Tend to surface when P hasn’t suffered or proven loss measurable by expectation interest (or

the reliance amount more lucrative than expectation)

McRae v Commonwealth Disposals Comm [1951 Australian HC] F: D entered into a contract to sell P “one oil tanker including contents wrecked on Jourmand Reef approximately 100 miles north of Samarai-Price 285” | knew nothing about value of tanker, nothing promised about condition or cost to fix or values of things onboard | P went on an expensive salvage expedition and found no tanker at the place specified, in fact there was no such place as Jourmand Reef | at first instance the court found no tanker means no contract so damages in deceit but not contractA: D is in breach of a promise that there was a tanker in that specific location | expectation damages are unavailable because they are too speculative to calculate b/c knew absolutely nothing about tanker and the contract was only for a chance to find the ship not actually using it | even though it was possible that P would spend money on the expedition and the tanker would be worthless, the breach ensured that there would be costs incurred without chance of finding ship | acted in reliance on the promise that there would be a tanker and this prima facie case makes burden on D to show that expenses would have been wasted regardless and they cannot A (Damages Awarded): 1 equipment and reconditioning of boat (capital expenditure): CANNOT get these as damages because would have invested in anyway for other expeditions, called ‘unrecoverable investment in capital assets’ | 2 loss of revenue (opportunity loss): CAN get those damages as the amount boat could have brought in if had been used for different tasks at that time because here they can show another possible contract could happen | 3 out of pocket expenditures (wages, travel expenses, office expenses: CAN recover these are the regular type of reliance damages R: Reliance damages may be awarded when expectation damages are too speculative to calculate but a breach ensures that there would be wasted expenses and the breaching party cannot prove that these expenses would have been lost regardless of the breach | capital expenditure is typically not awarded as reliance damages but opportunity loss and out of pocket expenditures are

Sunshine Vacation Villas Ltd v Governor and Company of Adventurers of England Trading into Hudson’s Bay [1984 BCCA] F: P granted a license from D to operate travel agencies in 6 small stores | also contracted to operate in 4 large stores once their existing licensee agreement terminated | but later P discovered D had renewed licenses with other companies for 4 stores | during next 2 months negotiated, in hope of success P opened new outlet in Cranbrook | negotiations fell apart and P informed D of intention to close 7 outlets | closed all offices | at trial damages awarded for D’s breach = loss of capital (reliance) AND loss of profit (expectation) A: cannot be awarded both loss of capital and loss of profit, they are alternatives | D is claiming that P would have incurred loss anyway so should only get nominal damages as per Bowlay Logging | however D didn’t show that reliance interest > expectation interest so doesn’t apply | because of the nature of the enterprise and that the breach took place before any operation of offices, the assessment for loss of profit is too speculative so reliance damages awarded instead | amount of loss capital is appropriate amount of damages b/c represents expenses incurred but not recovered by P R: loss of capital (reliance) and loss of profit (expectation) are alternative awards | loss of capital will be awarded when the loss of profit amount is more than normally speculative | nominal

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damages may be awarded if D can show that the reliance interest > expectation interest at time of the breach (because that would mean was expected to fail)

RESTITUTION DAMAGES Claimed when D has been enriched at the expense of P and justice demands a return to the

previous state of equilibrium In some cases (AG v Blake) courts are willing to award even when the benefit is not at the

expense of the innocent party Stronger ‘in justice’ than other damage types b/c one party has been enriched at the expense

of another and justice demands fixing it by returning to previous state Restitution can be use in two distinct senses that are NOT the same: example if the buyer pays

seller $1000 for a car and the seller gets a better deal so sells to someone else for $1500o Restitution puts the breaching party in position he was before the contract by

restoring to the injured party the benefit conferred onto breaching party (breaching party pays $1000 back to injured party)

o Disgorgement put seller in the situation as though had performed the contract (breaching party pays $1500 to injured party)

This is unusual b/c it punishes the seller from reaching a more efficient transaction through breach

Restitution is often awarded when a contract is unenforceable (contrary to statute of frauds) or when contract is frustrated, but one party has already paid can arise not from a breach

What follows below is when a breach of contract entitles the injured party to restitution 1. A ‘losing’ contract with a down payment/already conferred benefit **MAJOR ONE**

Market price for book is $90 and contract $100 if down payment of $20 and seller breaches, then expectation damages are only $10 (to buy book in market)

But this means that seller gets free $10 to avoid this, instead the injured party gets restitution ($20) not expectation

The full down payment is recoverable, there is no limit on the amount of restitution payable

2. Where the original contract has been replaced impliedly by another one, and the action is being brought on the substituted, not original contract

3. Where no precise sum has been fixed by the parties for the remuneration of P cannot calculate expectation damages so restitution just makes more sense

Attorney-General v Blake [2001 UK HofL] F: D was UK intelligence officer who signed a declaration saying he undertook not to divulge official info while applied or afterwards | became a soviet spy and told secrets so went to prison | escaped prison and wrote an autobiography, details of book no longer confidential or damaging | publisher contract to publish book in UK for high price b/c of infamy | book published in 1990, had no authorization to disclose | publisher paid 60,000 already (non-recoverable) but there is 90,000 left to pay | AG is saying shouldn’t enjoy further financial fruits of treachery from breach of contract A: undertaking was contractually binding so submitting manuscript was breach of contract | D earned a profit from doing the very thing he promised not to do which law recognizes restitutionary claim for b/c of unfairness | expectation loss to AG is really nominal b/c no tangible harm b/c no longer secrets, injunction not available anymore | Crown has legit interest in preventing Blake from his profits | grant account of profits which is the 90,000 to Crown R: Disgorgement damages are available when the following conditions are met | 1 Other remedies are not available ('exceptional cases'): breach attracts inadequate other damages | 2 Breach

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should represent either 'skimped performance' (full payment made for defective performance) or doing the very thing that was contractually prohibited | 3 Breach must have generated gains to which the claim can be attached

EXPECTATION DAMAGES Goal of remedies is to promote market activity and to further this goal need to protect

interests of parties by awarding expectation damages This is normal entitlement but can be limited using remoteness and mitigation doctrines Sally Wertheim v Chicoutimi Pulp Co [1910 PC] ruling principle for damages is to place P in

same position would have occupied if contract had been performed

The Gold Standard Expectation damages = cost of performance = cost to put in place would have occupied Where seller fails to supply goods, expectation damages = (current market price estimate +

incidental costs) – contract price o This is called the difference in price rule o If the buyer can purchase a substitute good on the market at she same price or less,

damages will amount to only transaction costs paying for TCs incentivizes finding alternatives keeping the market going

Where there has been faulty performance, expectation damages are measured by comparing the difference in value between what was contracted for and what was received

o Expectation = Pay value of expected book – value of faulty book o Note that this only happens in situations where you must keep the faulty good because

the fault is a breach of warranty not a condition

Cost of Performance vs Difference in Value Two ways to reach expectation damages: generally, use cost of performance Often arise in construction contracts: when the contractor is in breach the usual remedy is

damages equal to cost of completing work by hiring substitute o But sometimes the cost of completing a project is far higher than the value of the

completed work: when this happens courts reluctant to award cost of completion to avoid overcompensation

o Ex: Jacob & Youngs awarded nominal damages b/c breach not wilful and the pipes were of equal quality so would be economic waste to rebuild house w/ correct pipes

Groves v John Wunder Co [1939 Minn CA] F: P said would lease his processing plant and premises (including use of gravel there) to D for 7 years | D would pay P $105,000 and level P’s land over the 7 years | D took the plant but deliberately didn’t level the land – was a condition of the contract | P had to spend $60,000 to level the land himself (cost of completed performance) | final value of levelled land was only $12,000 (w/out uniform grade the land is worth $0, so difference in value is $12,000)A (MAJ): there are two aspects to consider in deciding between diminished value and cost of completion| 1 whether D’s breach of contract was willful (if yes, goes towards cost of completion) | 2 whether completing qualifies as economic waste (if no, goes towards cost of completion) | also consider that plaintiff has the property rights to improve property even if not cost effective (goes to cost of completion) | doesn’t matter if $60,000 was in contract as price or something else, should get benefit of the bargain because a cheaper rent was granted for the levelling work and D shouldn’t benefit from breach | breach was willful | not economically wasteful (technically a little bit but nothing compared to tearing down the house in Jacob) | remedy is cost of completion

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A (DIS): no reason to give amount to complete the process | bargained for levelled land so should get the value of that levelled land | award is difference in valueR: court will consider whether breach was willful and whether completion is economic waste in cost-of completion cases The Boundaries of Recovery

Loss of a chance of profito The general rule is that the burden is on P to establish loss of profit o But sometimes court will place $ value on a chance of profit, not just profit

Chaplin v Hicks [1911 KB CA] F: C did not get a chance to take part in a contest to be the next best actress | she got past the first round but wasn’t a sure thing, had a 1 in 4 chance | she lost the chance b/c she didn’t receive the letter telling her she had a chance | trial awarded 100 poundsA: reliance damages would be very small (out of pocket expenses), wouldn’t have spent much so wants expectation damages | just because not easy to quantify damages doesn’t mean cannot do it | there is no clear outcome for what would have happened if no breach | no objective measure to see how much she would get b/c no market for trading in opportunities | does deserve damage award: had a ¼ chance of winning so gets ¼ of the expectation amount of the winner (100 pounds)R: the courts will award expectation damages for loss of a chance to profit in a situation where there was a proportionate chance of winning: awards the % chance full expectation amountNOTE: This case can be distinguished from McRae: in this case there was a 100% chance someone would win while in McRae no guarantee | paying for a tanker with unknown value is different than paying for a chance to get a tanker | here no risk on P while in McRae there was | in McRae reliance damages actually substantial, not here

Remoteness (Foreseeability) o Plays a similar role to causation in torts: limits liability o D is relieved from liability for losses that are too remote

Hadley v Baxendale [1854 Exch] F: P owned a flour mill and the crankshaft broke down, had to shut down mill until got it fixed | contracted with D, shipping company, to have the broken part sent to Greenwich to be fixed, told them it had to be sent immediately | was some neglect in sending the part and the mill was shut down for a few extra days | P seeking lost profits A: lost profits here are consequential damages: they are indirect damages suffered from the breach but not direct damages that occur in the normal course of things | the rule is divided into two categories: direct damages are those that may reasonably be considered as arising naturally from the breach always awarded | consequential damages are those which may reasonably be supposed to have been in the contemplation of both parties at the time of contract, as the probable result of the breach when loss is foreseeable as probable, damages awarded for it | foreseeability protects voluntariness of contracts b/c allows D to protect against breach by special terms/exclusion clause or buying insurance | here, it was not foreseeable as probable to D that the mill would be shut down while crankshaft was gone, P could have had a backup; P didn’t tell D enough to make that foreseeable R: the test for consequential damages is whether it was in the contemplation of both parties at the time of the contract as a probable result of the breach | damages can only be awarded if of the kind contemplated when contract entered (ie., arising naturally from breach or communicated at time of contract to breaching party)

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Victoria Laundry (Windsor) Ltd v Newman Indust. Ltd [1949 KB; 1949 ENG CA] F: P wanted to expand their laundry business so agreed to purchase D’s boiler | D knew that P required the boiler for use in their business | D delivered boiler after a very long delay | P suing for loss of business profits during the delay | P also suing because there was a lucrative contract they could have entered into if they had the extra capacity but didn’t b/c didn’t have the boiler Law: the authorities include the following propositions | 1 governing principle of damages is to put injured party in position would have been in, but this alone is too harsh on D | 2 injured party is only entitled to recover loss that was reasonably foreseeable as liable to result from breach at time of contract | 3 what was at the time reasonably foreseeable depends on knowledge of parties | 4 knowledge is of two kinds: actual (which is required for losses outside the ordinary course of things) and imputed (relating to losses in the ordinary course of things) | 5 breaching party doesn’t have to have considered what loss is liable to result from breach, suffices that if had thought about it, would reasonably have concluded loss was liable to result | 6 loss doesn’t have to be reasonably certain to result, just foreseeable as likely to result (AKA liable to result AKA a serious possibility AKA a real danger)Application: P can recover the damages for general loss of business b/c D had knowledge that the boiler was going to give them more business so this is considered in the usual course of things | however cannot get damages for possible big contract b/c D wouldn’t have had this possible contracts in their contemplation at time P and D contract entered into R: D is only liable for losses that were reasonably foreseeable as liable to result at time that contract formed NOTE: although the ‘liable to result’ is a lower threshold than Hadley’s ‘probable’, this difference has not affected any cases so this is likely not very consequential NOTE 2: an important factor to consider for whether a loss is foreseeable is the occupation of the breaching party and presumed knowledge that they have in the particular line of work: expect more from engineering company in Victoria Laundry than a carrier in Hadley

Mitigation / Avoidability o The injured party cannot recover damages for any part of her loss that she could have

avoided without undue risk, burden, or humiliation o The ‘duty’ to mitigate is not technically a duty b/c you can still recover without doing it, but

if you do not mitigate the recoverable losses will be smallero The burden to establish that the injured party has failed to take reasonable steps to mitigate

falls on the breaching party o Rationale is that no reason for injured party to unnecessarily increase damage award, that

is economically inefficient o Employment context a wrongfully terminated employee must seek new employment

within a reasonable time; what counts as a reasonable substitute depends on wage, control over job, hours, benefits

o Sale of Goods context need to search for a reasonable substitute, needs to be same quality of good

o Whether a party should have mitigated losses is very context-specific

Asamera Oil Corp v Sea Oil & General Corp [1979 SCC] F: Baud had agreement with Brook, president of P to lend 125,000 shares to Brook in 1957 and then would be returned by Dec 1960 | Brook actually sold the shares in 1958 and didn’t return them on

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time | Baud went to court and got injunction on Brook that he must keep 125,000 shares | in 1960 Baud also tried to commence lawsuit to get shares back but rejected as premature | from 1960-66 Brook kept saying would return shares and asked not to litigate | eventually Baud litigated | during the relevant time period value of shares had fluctuated greatly, from 29 cents to $46.50 to $22A: possible mitigation here would be Baud buying 125,000 shares (of substitute shares) on the open market these particular shares are not unique | would still get damages for brokerage and commission fees any amount spent finding alternative transaction | P saying unreasonable to buy those shares and take the risk not present in initial contract market fluctuates and the president is the one they are fighting with | creation of an “asset” (money) from breach is a factor to consider whether mitigation required: did Baud even have the money to mitigate and was this foreseeable? | determined that injured party has obligation to purchase like shares in the market on the date of breach or within a reasonable time frame afterwards | here a reasonable time to have proceeded with court case is also at issue: this would have mitigated losses | because Brook kept telling Baud shares would get delivered, reasonable time to litigate is 6-7 years | damage award reflecting value of shares around 1966/67 R: If shares are not unique, P must mitigate within a reasonable time of breach | reasonableness to be determined by facts including risk, conduct of D and whether breach creates an asset

LIQUIDATED DAMAGES A pre-agreed upon clause in the contract that says how much the injured party will be entitled

to in the case of breach pre-empts the court’s authority but sometimes courts are okay witho Save time on litigation and agrees with freedom of contracto Courts are more likely enforce liquidated damages clause when it is difficult to calculate

damages more willing to let parties avoid uncertainty by pre-determining damages However, sometimes liquidated damage provisions are held to be penalty clauses and

unenforceable whenever the liquidated damage amount is not reasonable related to the likely amount of calculated damages

o If a liquidated damages clause is unenforceable, damages become the standard amount as calculated by a court

A liquidated damage clause that limits damage award = exclusion clause

EQUITABLE REMEDIES

SPECIFIC PERFORMANCE Available only if damages don’t sufficiently protect P’s interest in contract: test of inadequacy Courts have a high degree of discretion as to whether they award SP will not award if

SP produces an unfair or unjust result SP will not typically be awarded when it would cause severe and unnecessary hardship to D or

third parties, if the circumstances giving rise to hardship existed at time of contract formation or P’s conduct has caused a change resulting in the hardship

Historically SP always available in contracts involving land interests b/c regarded each property as unique

o But approach has changed: now must show proof of uniqueness of property to be granted SP (especially relevant for investment property or mass-produced properties)

Sale of Goods need to prove inadequacy to get SP, show the goods are unique or rare or have sentimental value

o Modern trend to grant SP in cases of long-term output contracts with no set quantity (all apples I grow) b/c too difficult to determine an accurate number for damage award

Sale of Shares where shares are publicly traded no SP awards, but if privately traded maybe

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Contracts of Personal Service courts will NOT decree SP b/c very difficult to measure quality of work, supervision is difficult, courts don’t like compelling servitude

John E Dodge Holdings Ltd v 805062 Ontario Ltd [2003 ON CA] F: P and D had a contract for purchase and sale of 4.12 acres of undeveloped land near Canada’s Wonderland | P wanted to build a hotel on the land | D breached the sale | initial court held that remedy was SP but D appealed saying there are comparable properties so damages appropriate A: the time to make determination re: uniqueness of property is the date where wronged party must decide whether to seek SP or damages | the particular piece of real estate here was unique b/c it offered superior access, visibility, traffic patterns, and zoning than all other proposed sites | was close to Canada’s Wonderland and a proposed mall | SP ordered R: In order to award SP for a breached contract regarding land, the court must determine that the land is unique

FURTHER DETAILS For all equitable remedies, remember that the clean hands doctrine applies: the injured

party cannot have been dishonest Injunctions an order of court forbidding D from doing something (prohibitory injunction) or

requiring D to do a certain act (mandatory injunction) o For personal service courts may award a prohibitory injunction to prevent the

breaching party from performing the service elsewhere

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CONCURRENT LIABILITY BETWEEN CONTRACT AND TORT

DIFFERENCE BETWEEN TORT AND CONTRACT Both historically evolved out of the writ of 'trespass on the case': both ways you could hurt

someone by doing something wrongful Can say contracts are obligations voluntarily assumed and tort is obligations imposed by law

o Except really, contract obligations are also imposed by law (because you made a promise)o And some types of negligence involve voluntarily assumed liability

Most useful distinction: think about the cause of actiono If you must prove there was a contract to prove claim = contract claim NOT torto Tort claims = everything else

Cannot get damages in contract for pre-contractual misrepresentation but if there is fraud, you can get damages in tort (tort of civil fraud) o Elements of this tort: you intentionally lied (knew it was false and intended it to be relied

upon), I relied on your lie (usually by making a contract) and I lost money Is a tort b/c not claiming relief in relation to the contract, but rather claiming relief for

wrongful act connected to a contract Another tort related to contract: inducing breach of contract when a third party gets one or

other of the contractual parties to breach o Not a breach of contract b/c the third party is not privy to the contract

CONCURRENT LIABILITY IN CONTRACT AND TORT

Controversy between the remedies in tort and contract for misrepresentation Triggered by HofL decision in Hedley Byrne could be liability in tort for negligent

misrepresentation causing pecuniary loss when there is a special relationship between partieso Theoretically possible for one misrep to give rise to liability in both tort & contract

Hedley Byrne & Co v Heller & Partners [1964 HofL]F: D was advertising agency and someone approached saying want to advertise with them but need a loan | bank of person was HB, D called HB asking if the person was 'okay' and HB said they were okay but they wouldn’t take any responsibility for them | customer was not okay and D lost money A: No contract between bank and advertising company (no consideration) | there was a duty of care that existed between P and D (in the end not liable b/c of the 'we are not responsible') | BIG DEAL because this means there is a duty of care in respect to pure economic loss and purely for words R: If you are asked for your opinion and you give it without qualification so other person relies on it, you are liable if you have been negligent  Central & Eastern Trust Co v Rafuse [1986 SCC] adoption of a general principle favouring the possibility of concurrent liability could arise

when "relationship of sufficient proximity to create a duty of care is established by the contract and where the resulting tort duty is co-extensive with an obligation also imposed by the contract itself" o P can choose whichever cause of action is most advantageous

 

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Deloitte v Livent [2017 SCC]F: Deloitte audited Livent, who was a theatre company | owners of Livent 'cooked the books' to conceal that they were losing money | they were caught and the two owners actually went to jail| creditors of Livent very unhappy trustee in bankruptcy tried to get what he can for the creditors so he sues Deloitte | Negligence alleged: Deloitte should have conveyed concerns about the books if they had done so, creditors would have shut down business | so Deloitte should compensate for all losses that occurred after Deloitte should have conveyed concerns | trial judge found two occasions (two reports) on which Deloitte came out with info/advice that said Livent was fine when they should have said there were problems A: no duty of care in the first report (was report to induce people to invest) loss was not within the purpose for which info/advice was given thus loss not based on reliance on opinion within scope for which opinion given | there was a duty of care for the regular audit report purpose of that report was allow shareholders to monitor management and Deloitte's failure to indicate problems didn’t let this happen and loss suffered by company entirely attributable to the purpose of the audit report | audit report supposed to check whether company is okay, and it was notNOTE: This could also be a contract claim would be exact same result (claim for reliance loss)NOTE 2: Can see the duty of care expands/contracts on the basis of a number of contract-like factors   Sodd Corp v N. Tessis [1977 Ont CA] F: D is a bankruptcy trustee who advertised for sale by tender the stock of Riteway Furniture carried on by the bankrupt | P submitted a tender after principal officer did a cursory examination of the stock in the warehouse | Officer testified D represented that the method of calculating retail value of goods was doubling the wholesale cost | Officer relied on that representation in deciding to submit P's tender | Trial found goods were actually overvalued by 100% | Trial found D was negligence in misrepresenting quantity and value of the items and couldn’t rely on an exemption clause which said no warranty or condition is implied as to designation, classification, quality or condition or in any manner whatsoever | Trial judge said D failed in his duty to P and applied Hedley Byrne principle saying that D is liable in tort even though representation not fraudulent A: D was professional accounting and bankruptcy trustee so had special relationship creating duty of care to P - had special skill and competence | D was negligent in his representation about retail value of stock | Just because there was contractual relationship doesn’t mean Hedley Byrne doesn’t apply because here the negligent misrepresentation was pre-contractual and induced P to submit tender | Liability in tort (negligent misrepresentation) AND contract (collateral warranty)R: A pre-contractual negligent misrepresentation where there is a special relationship between the parties (ex if the representee has special skills) can lead to tortious liability  BG Checo International Ltd v British Columbia Hydro & Power Authority [1993 SCC] F: D is BC Crown Corporation, P is large corporation who constructs electrical transmission lines and distributions systems | D put out a call for tenders for a bid on a project, the call included the terms of a contract | one of the terms was that the right of way was cleared already | P won the project | But right of way wasn’t cleared after all and P had to spend more money to do it  A: clear breach b/c the right of way wasn’t cleared | however there is no fraud here because D was not deliberately dishonest | there was a negligent misstatement: "the right of way has been cleared" (framed as a statement, not a promise) | but negligent misstatement must have caused the loss and here it did not, they would still have bid and won just at the higher price Contract: we promise you will not have to clear right of way = absolute duty, breach if have to clear

Damages are the actual costs incurred to clear the right of way (position if contract performed)Tort: DOC to not negligently to mislead bidder into thinking right of way will not need to be cleared

Damages would be what would have happened if the statement had not been made = the extra bid amount = cost of the work + a profit margin MORE THAN CONTRACT AMOUNT

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INDIGENIZING THE CONTRACT LAW PROCESS

Interpretation of contracts --> eternal question as to whether they should ONLY be read within the words of the actual contract (four corners) or plain meaning ruleo This is a very limited approach and interpretation that is contextual is better to discern the

meaning of the parties o But uncertainty can arise from too open contextual interpretation --> need to find a balance

Doctrines that allow exit from contracts with minimum/no liability (we have learned them all) o Shows that the approach where you have entered into contract thus liable is a little more

complex --> law allows protection of vulnerable parties in some situations, in changes of circumstances, where bargain unfair

o Talk showed there are different understandings of justice and different ways to approach this

Public policy -- there are a set of places where law doesn’t enforce contracts because they contradict value of the public --> this has always been dependent on the time and the values/culture of the community at that time o Can always try to rethink and challenge things we want to enforce or not o Huge debate in Canada as to whether people should be able to sell organs and serve as

surrogates o These things are often influenced by what the particular judge(s) feel and their opinions

and values The role of altruism --> our system doesn’t recognize this as being 'wise' in contracts --> always

requires additional signature/checks, not a valid contract without consideration o Interesting to compare to other systems that view altruism as creating binding social

obligations Think about comparing systems, the concepts and the tensions underlying every system of

contracts

MARGARET RADIN: BOILERPLATE

If ‘contracts’ with boilerplate are widely enforced by contract law and not justified by freedom of contract and consent that is a problem legal system suffering from widespread normative degradation

Consent is not o Coercion why we have duress, undue influence, unconscionabilityo Fraud misrepresentation, deception, bad faith o Sheer ignorance don’t know anything is happening at all

Heuristic Biases companies are taking advantage of themo Example ‘framing peoples choices relating to an anchor point’ when anchor changes

preferences change (ex tip machine giving options as higher now) When companies present a boilerplate they say that theirs is better than alternative

Strategies of firms to turn boilerplate into consent o Calling something an agreement even if haven’t agreed to it decaying voluntarinesso Consent being degraded to assent or fictional assent to fictional notice (if you could

have found out the terms existed that is enough to be held to be consented) (Kanitiz)o Blanket is fine if it is what would be expected if terms would be what expected that is

considered consent This expectation of the terms always being there is conflicting with your moral

views about what is fair 60

Firm argument a rational consumer would choose to give up rights in exchange for lower prices (b/c allocating risk this way saves money which pass to consumers) this is faulty b/c gets rid of the point of contracts which is choice and assumes rational consumer

o Assumes that giving up rights is equivalent to money o This is like nobody buying insurance the one person who needs to use the clause is

taking the brunt of everything o Everybody has a different number for giving up their rights

Democratic degradation o Not all SFC but rather when one firm uses a standard form and then other lawyers see it

works and put in into every contract in that industry o Undermining rights granted by legislatures

Arbitration clause: giving up the right to have your day in court (both personal and class action)

Arb is well known to be pro-company, not public documents, you have to pay for it

If many people have a small claim have to bring individually (no class action)

Forum selection clause circumventing the legislature in prov or country and going somewhere more favorable

Exclusion clauses circumventing rights not so much in Canada maybe though o All degrading democracy: replacing law of your state with the law of the firm

Why don’t we read SFCs o Don’t understand them o Nobody else has better clauseso Not even being aware there is something to reado Trust company wouldn’t include something harmful, or that it would be unenforceable

(ignorance thinking is just)o Company has power over uso Don’t believe we would ever be the person who needs to exercise those legal rights

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