CONTRACTS 110 – Professor Mary Childs
CONTRACTS 110 – Professor Mary Childs
2007/08 – (Robert Kiesman)
OFFER AND ACCEPTANCE
What is an offer? Concepts: (a) willingness to be bound; (b) certainty of terms; (c) manifestation of willingness - offer has to be communicated. [Note: “K” = contract]
Dyers v. Burton: Willingness to be bound is objective. You must have the willingness to sell. You interpret offer and accept by language and circumstances.
Issue: was B’s letter restating his price an offer or an ITT?
Burton had land next to his factory. Had he offered to sell the house? It went before the courts because he attempted to retract the offer. The court says merely stating the price is not an offer to sell. If it was just a quote of price it wouldn’t be enough, but they looked also at his actions afterwards. Price quote language indicates willingness to sell.
Ruling: This was an offer and an enforceable contract was created.
**Contracts can be in writing, in words, and in actions**.
Pharmaceutical v. Boots: Putting articles on shelves is an ITT.
Issue: at what point is there a contract?
Fact: these sales had to be under the supervision of the pharmacist who had to be able to execute his authority by stopping the sale. Contracts can be executed or executory (contract involves an agreement to do something in the future).
Carlill v. Carbolic Smokeball: An offer is limited only to those who accept or perform the duties outlined in the offer. You can’t contract with the world, but can offer to the world. Reasonable terms will be implied.
Issue: Was their advertisement a legally binding offer?
Court said advertisement was an offer - Carbolic’s ad said they were putting $$ in a bank account to show their sincerity. They were offering 100 pounds if the smokeball was ineffective. Carbolic tried to say it was only an ad and said it was too vague. An ad can constitute an offer if the terms are such that a reasonable person would construe the offer as the contract.
Decision: this offer was a legally binding contract.
Unilateral Contract: Where only one side makes a promise to be under some obligation if act is performed. In bilateral, both sides are exchanging promises, while in unilateral promises to do something if your offer is accepted and invites you to act without communicating acceptance. You can specify what kind of acceptance you would like in unilateral: acceptance through performance of conditions is OK, ---> then meeting of minds has occured.
Goldthorpe v. Logan: A specific advertisement guaranteeing results can be taken as an offer to anyone who may then accept and form binding contract if consideration is present and actions of parties are consistent with contract being formed.
Issues: (a) Are words of ad enough to constitute offer? (b) Was there acceptance? (c) did Logan breach contract?
Discussion: (a) This ad creates offer from L to anyone willing to accept the terms and conditions of it; (b) G accepted the offer through her conduct; (c) Logan failed to remove hair permanently in breech of the agreement. Court persuaded of negligence, but more sympathetic to the claim there was a contract. Of ad, court said it was reckless and rash; of Ms Goldthorpe, she was gullible, but her acceptance was communicated to the defendant by her conduct. Ads in newspapers are not considered offers, but court looked at language in ad - the surrounding circumstances to determine intention of ad - actions of both parties.
Ruling: the ad was an offer and Logan was in breach.
Auctions: auctioneer acts as agent of the owner: agency. Agent has authority to act for the principal and agent has authority to legally bind the other person. The offer is made by the bidder and the auctioneer accepts the highest bid by the fall of the hammer. NO contract until the hammer falls.
Harvela v. Royal Trust: An offeror in a call for tender is bound by the tendering system. Vendor controls and specifies form of auction which he seeks to combine with confidential bidding.
Fixed bidding sale. Harvela was a sealed tender arrangement for the sale of stock. A referential bid came in ($101k more than highest), and the court found it was unacceptable: what if you got more than one referential bid? Ruling was that the highest offer must be accepted. Vendor said they would accept the “highest” offer and were bound to do so.
Ruling: Highest offer (Harvela) must be accepted.
R v. Ron Engineering: A person who issues call for tender creates an offer to contract. The invitation to tender, if made in appropriate terms (such as that an accompanying deposit would be forfeited if the tender were withdrawn) can be an offer to contract which becomes a binding contract upon submission of a tender in conformity with the invitation to tender. You can withdraw an offer before it is accepted.
Issue: Was contractor entitled to withdraw tender and recover deposit?
Ron’s bid was more than $600k lower and tried to withdraw their offer after the time limit. Contract A: was a unilateral contract, where the offer was made and was irrevocable if filed in conformity with term and conditions. Principle term of Contract A is irrevocability and that both parties enter into Contract B. Bid had to sit for 60 days. The bid was then irrevocable and both parties had to enter into Contract B upon acceptance of the offer.
Ruling: Deposit must not be returned.
MJB v. Defence: Presence of “privilege clause” does not override the owner’s responsibility to only accept compliant bids. Submission of tender is good consideration of owner’s promise.
Issue: Does inclusion of PC in tender documents allow owner to disregard lowest bid in favor of any other, including non-compliants?
The “privilege clause” said the lowest bid not necessarily be accepted. However, owner was under obligation to accept a compliant bid, which Sorochan’s was not - because they qualified their offer on commodity prices. “Implied terms” court can put into K terms that were not expressly put in by the parties --> only compliant bids to be accepted.
Decision: appellant awarded damages.
COMMUNICATION OF OFFER
Blair v. Western Mutual Benefit Assn: There must be a clear communication of an offer to an offeree and not simply a bare intention of it. Offeror must intend to communicate the offer.
Issue: By retiring, did Blair accept offer and bind them to give retirement pay?
Blair found out about board resolution by transcribing it. The liquidator had problems: L’s function is when the company is dealing with insolvency.... liquidator did not want to pay Ms Blair. She was unsuccessful: (a) did not retire right away and did not rely upon the promise; (b) offer not communicated; (c) passing resolution did not constitute making an offer; (d) if they wanted to create legal obligations, the directors would have had to communicate the offer and have it been accepted. **IF she would have spoken to a board member, it would be different. Not only do you have to have offer made - you also must act upon it.
Williams v. Cardwardine: Knowingly performing a condition specified in an offer of reward constitutes acceptance of the offer regardless of motive.
Issue: Must one be motivated by a unilateral offer to form a binding contract?
A case of reward offered for info leading to conviction of murderer. Person trying to claim reward was murderer’s wife who initially did not reveal everything she knew. She then changed her mind because she did not have long to live and wanted to ease her conscience. D didn’t want to pay her because her motives. Perhaps she would have been fearful to release the information. Policy: (a) court may have wanted to encourage people to come forward in future; (b) would cause many cases where people would challenge motives to get out of pay; (c) You shouldn’t be worse off because you had good motives.
Decision: Mary did what poster asked...it is not relevant whether or not she was motivated...she is entitled to reward.
R v. Clarke: There can be no assent to an offer where there is no knowledge of an offer - if you have forgotten an offer existed at time of completion, no contract is made. You must act in reliance of offer.
Issue: Can you accept unilateral offer that you have forgotten about?
Clarke did not get the reward and sued the Crown. He was unsuccessful because (a) he didn’t have the offer in mind, was just trying to keep himself from being convicted; (b) info did not lead to conviction of both murderers; (c) he did not rely on the offer - an offer does not bind the person who makes it until it has been accepted. Consider: he may have been involved. There can be no communication of acceptance if there is no acceptance.
Decision: No meeting of the minds - no moment of acceptance - not binding.
ACCEPTANCE
Offers must be accepted: (a) manifestation/signification (something that you do or say); (b) unequivocal; (c) must be unqualified; (d) in required manner.
The offeror controls many of the terms, and has the power to say what constitutes acceptance.
If you make offer to specific persons, only those persons can accept.
At moment of acceptance need: (a) Certainty of terms; (b) Consideration; (c) Intention to create legal relations.
Livingstone v. Evans: If acceptance does not mirror the offer, then this ought to be constured as counter-offer. If in rejecting a counter-offer you imply original offer is still valid you may be obliged to form contract with those terms if accepted.
Issue: Did a counteroff void the original offer or was there an implied restatement of the original offer?
Competing arguments: D (Evans) the counter offer negated the orginal offer. P: stating that D could not reduce price says he was still standing by it and was open to accept it. Does “cannot lower price” revive original offer? Asking for more info is not a counter offer.
Decision: There was a binding contract. Original offer was open because of the language used in rejecting counter.
Butler Machine v. Ex-Cell-O: There are three ways to deal with “Battle of the forms” situations: (a) Last blow wins - last form sent and received without objection; (b) First blow wins - if offeror says he’ll sell something for certain price and acceptance has new terms hidden, original form may win; (c) Shots from both sides - if you can reconcile...otherwise you may scrap conflicting terms and decide upon reasonable implication. (combination of terms)
Issue: What party’s forms regulate the offer? Which is operative?
Butler quoted price to ECO saying a number of terms would prevail over any in buyer’s order.
One term was price variation clause...allowing them to charge ECO what they wished upon delivery.
ECO placed an order changing/omitting terms (p/v clause)
Attached to ECO’s order was slip saying B was free to accept based on terms attached.
B accepted order and returned slip BUT said original terms applied
B attempted to invoke pv clause at delivery.
Generally, he who gets in form last in the winner. BUT if there is a huge difference, you can’t just sneak it in without drawing it to their attention. Court found the contract was on buyer’s terms and the buyer’s terms did not include a price variation clause.
Decision: Battle resolved in favor of original document as it stipulated its terms would prevail over any terms and conditions in buyer’s order.
Tywood Industries v. St. Anne: Conduct of parties can be relevant in determining if contentious term was agreed to in battle of forms. Contentous terms on back may have to be referred to to be binding.
Issue: Are terms not specifically referred to or previously agreed to that don’t show up on any other documents binding if they show up on last document?
Were forms flying back and forth - not ONE form. One side said they would sue while the defendant said they couldn’t go to court because they agreed not to go to arbitration. Court says it appeared that the parties only cared about what was on the front of document (price). Focused on what the parties agreed on.
Decision: Arbitration agreement not binding as it was not considered by both parties...no evidence to permit court to draw conclusion of inclusion of disputed form.
ACCEPTANCE: has to have clear expression of being bound in the offer.
Ontario Law Reform Commission, Report on Sale of Goods: The Battle of Forms: Forms exchanged must contain no variant terms (mirror image).
ProCD v. Zeidenberg: It may be possible to perform contract by clicking “I agree” on specific terms after money exchanged. Can be bound by terms unknown at time of purchase. Buyer can return goods promptly for refund.
Issue: Can you be bound by terms that were secret at time of purchase?
License agreement stated that software is sold in personal and business versions. He says he can’t be bound because the license was in the box and so he could not have been bound. Judge said the agreement came up on screen so he had access to have read it AND could have returned the product. Judge also said how do you print the agreement on the outside of the box - microscopicly? Detailed terms are often only available after money is exchanged (airline tickets) but you can return the product! When you use the product...you are accepting the terms. You do not have to be notified of every term in advance. Who has the power to determine what constitutes acceptance? The vendor (offeror). The buyer may accept by performing the acts which the vendor cites as acceptance.
Dawson v. Helicopter Exploration: Bilateral contract can be formed by exchange of promises before performance. Part performance can be construed as acceptance.
Nobody here said specifically, “I accept your offer.” Dawson’s earlier claim lapsed...Springer found out about claim...Springer made offer to have him shown the site for compensation...Dawson agreed but was away...Springer went with someone else and tried to get Dawson out. Dawson cites a breach of contract. Helicopter regarding the offer: they formed a unilateral contract (our right to accept how you offer....and that was by Dawson showing us the site** he didn’t), but Dawson said it was bilateral contract and he had accepted by agreeing to those terms before he showed them. Rand acknowledges that when courts interpret contracts that they may be concerned about unfair outcome, and courts should interpret them as bilateral contracts because in bilateral you can see intentions of both parties in a more clear way... an offer of unilateral can be revoked until the last minute...and unfairness can result.
Felthouse v. Bindley: Offeror cannot impose sale on offeree by saying a contract will be formed in absence of rejection of offer. Offeree must communicate assent positively.
Issue: Was property vested in uncle by virtue of offer which required no positive ascension?
Nephew is not being sued...it is the auctioneer. The auctioneer “forgot” and was silent in telling the uncle he would keep the horse. Uncle said if he didn’t hear anything further he assumed the offer had been accepted...to this letter the nephew offered no reply. Policy: doing nothing would (a) set a bad precedent as there would be problem determining WHEN contract was formed - was it the next day? ...month? (b) cannot force a sale upon someone; (c) how do you show offer/acceptance has been communicated; (d) can be taken to absurd level...you can buy my car for $1-million; (e) you could run around imposing contracts on people. Even though the nephew intended his uncle to have the horse at the price, he did not communicate it to his uncle.
Eliason v. Henshaw: Offers must be accepted according to stipulations prescribed by offeror.
Issue: Was letter legal given non-compliance with “place” requirement?
Offerors receive the letter of acceptance, but in an odd location, and so they pulled out. They required an answer by return of the wagon. They wanted acceptance in a particular time and place. On whether location was significant, the court said: it is up to offeror to decide...“they were only judges of its importance.” Wagon not the issue...it had to be sent to Harper’s Ferry...were trying to address the issue of time.
Decision: There was no contract formed.
Business Practices and Consumer Protection Act: When people in BC send you things (labelled pens, etc) you are under no obligation to pay for them. However, you are bound to pay for them if you “expressly acknlowlege in writing your intention to purchase them.” Otherwise, if you use them you don’t have to pay. Exception in S.12: not in effect on a continuing basis (eg: CD of the month). Supplier must prove goods were unsolicited. S. 13: if there is a change in what you get then they are deemed to be unsolicited, but not a change in price. Section 14: if you pay for the goods, you can send in written demand for refund within 2 years if you did not acknowledge your intention to pay(if card billed automatically).
COMMUNICATION OF ACCEPTANCE
Contract comes into existence when the acceptance is effective.
Practical application: When writing a contract, you should put in that the parties agree to a certain jurisdiction to settle disputes.
Acceptance has NO effect until communicated.
Instantaneous Rule: contract formed where offeror hears of acceptance.
Postal Acceptance: applies generally in circumstances when reasonable person thinks it is reasonable or appropriate. Will NOT apply when it leads to absurdity or where the parties specified otherwise. Postal rule can be excluded by the terms of the offer.
Brinkibon v. Stahag Stahl: The place where acceptance of an offer is communicated to the offeree will be considered the place the contract was formed in cases of instantaneous communication.
Issue: was contract formed in Vienna or London?
Brinkibon wanted to sue for breach of an alleged contract for the supply of steel. Issue the House of Lords had to decide: whether the English courts have jurisdiction to deal with this dispute. Brinkibon said English courts: they are relying on what they describe as rules of SC- court will have jurisdiction to settle dispute if contract is made in jurisdiction. They sent it by telex (instantaneous). Where communication is instantaneous the acceptance is effective when and where it is received by person at other end. BUT they noted rule would not apply if there were no problems in communication. In this case, the parties knew where there was acceptance. Acceptor has responsibility his message is received.
Decision: Contract formed in Vienna, where offeror learned of acceptance.
Rudder v. Microsoft: Clicking “I agree” binds you (even if not read).
Proposed class action (a few people litigate on behalf of a larger group). Two law school graduates were trying to sue Microsoft. Practical consideration: were they trying to stir up business for their own firm? They were acting on behalf of 89,000 MSN users who they believed were being improperly charged. They said these guys have agreed that any litigation is to be brought to King County. The litigants: “we didn’t read the clause...it was the equivalent of fine print.” Judge: no difference between having to click new screens and turning a page; clicking “I agree” is same as signing your name; Policy consideration: into realm of commerical adsurdity.
Electronic Transactions Act: If you click, it constitutes acceptance of an offer.
Household Fire v. Grant: Unless otherwise requested by offeror the post is considered agent of both parties. If acceptance is to be delivered by post a binding contract is formed when notice of acceptance is posted. Offeror bound by offer even though acceptance (lost) not received.
Issue: Was Grant under contract to buy shares?
Grant wrote the company saying he wanted to buy shares, they wrote him approving, but never got the letter. He said he was not bound because he never got the letter. He was contractually obliged: he sent his offer by mail so the post office was regarded as mutual agent. Practical: if court went the other way, the door would be open to fraud “I didn’t get it.” Note: it was three years later! Court said open to offeror to specify something different. Offer sent by post and reasonable person would expect acceptance in same manner.
Decision: Mr Grant had to pay as he was contractually obliged.
Holwell Securities v. Hughes: Postal rule does not apply when stipulated otherwise. Also does not apply when the parties cannot have intended that there should be a binding agreement until the party accepting an offer had in fact communicated acceptance or exercise to the other.
Issue: Was binding contract made in accordance w/postal acceptance rule?
Postal acceptance rule does NOT apply in every case when the post is used: it is up to offeror to specify. Also, consider what the “reasonable person” would think. In this case, the letter never arrived...and the option was exercisable by notice in writing within six months. Telephone call saying there was written notice did NOT constitute an acceptance.
Decision: No binding contract.
TERMINATION OF OFFER
(a) Revocation
Byrne v. Van Tienhoven: Revocation of offer must be communicated to offeree before it takes effect. Postal acceptance rule does not operate in revocation of offers. Until offeree receives it, he CAN accept the offer and create binding contract.
Issue: Must notice of revocation of an offer be communicated to offeree to terminate an offer? What of postal acceptance?
When they accepted, the defendants had already changed their mind and put another letter in the post to revoke the offer.
Oct 1 (offer posted)--> 8th(revocation posted)-->11th (acceptance posted)
You need meeting of the minds. Question: does withdrawal have any effect until it is communicated to the person to whom the offer has been sent? What kind of inconvenience would have resulted? By the time they received it they already entered into a contract to sell to someone else.
Decision: There was a binding offer.
Dickenson v. Dodds: When you say an offer will be open for certain amount of time you are under no obligation to refrain from selling to a third party before offer expires. As long as offeree knows of revocation, it is revoked. It does not matter if notice came from offeror.
Issue: Did D have obligation to keep offer till Friday 9 open for P?
Dodds said it was open until Friday at 9 then the offer ends. On Thursday Dodds sold the property to somebody else (Allan), and on Friday, Dickenson heard about it and tried to accept it (at his mother-in-law’s house). Acceptance letter never reached Dodds - it was not acceptance because he had not received it. “The offer is not open to you after the time, but may not even be open to you during time.” NO contract until acceptance communicated and effective. How do you avoid the problem of offers being withdrawn? Two stage contract (A & B). Example of where you can’t withdraw an offer until it has been accepted R. v. Ron Eng.
Errington v. Errington and Woods: When partial performance of unilateral contract has commenced, you may not be able to revoke the offer. Offeror not bound if performance left incomplete.
Issue: Can offer be revoked by executers of father’s estate?
Father bought son and daughter in law a house...downpayment belonged to them as long as they paid mortgage...once house is paid he would transfer house to them. The father died, and widow wanted the house. Judge: the father made a unilateral contract - it could not be revoked by him once the couple entered on performance of the act, but it would cease to bind him if they left it incomplete. This case was unitlateral because the couple were NOT bound to keep making those payments!!! General rule: an offer is ended upon one party dying. Lord Denning engages in creative law-making: they are allowed to continue purchasing the house. Practical: they made several payments...if they only made one...
Decision: Offer cannot be revoked as long as couple kept performing terms.
(Unilateral) Carlill v. Carbolic Smoke Ball: Unilateral offer may be considered to have been revoked after reasonable amount of time given circustances of the offer has passed. In determining when offer is terminated you should consider how reasonable person would construe offer and it may be terminated without begin esxpressly stated.
Issue: Was this offer terminated?
You should consider how ordinary person would construe an advertised offer in deeming how long it was help open (no sense to say person protected forever after using smoke ball). The language of this ad seems to imply you will be protected as long as you use smoke ball.
Decision: Offer was still open when Ms Carlill accepted it.
(b) Lapse
Offer is not open forever when no stated end date. Can be terminated (a) specific revocation; (b) by death of offeror; (c) passage of time - expressly or impliedly - determined by court.
Barrick v. Clark: An offer which does not specify expiry date will expire in a reasonable amount of time depending on nature and character of the offer and the normal course of business.
Issue: Was the offer still open for Clark to accept?
Clark looking for specfic performance “we had a deal...you didn’t withdraw offer...my wife told you to wait...there was no time limit...” Was offer still open? NO: (a) if R satisfied with price, transaction could be immediately closed; (b) R is asked to give answer ASAP (c) Formal agreement to be concluded Jan 1...unreasonable to say he could accept offer as late as December 10. For farmland, the reasonable time should be longer. How do you look at what is reasonable time? Ask what offeror had in mind - circumstances at the time the offer made - what did they say in their letter that would cause reasonable person to look at it and say Dec 10 is (not) reasonable time. Look at the behavior of the offeree after offer made.
Decision: The offer was terminated due to lapse of time.
Manchester Diocesan v. Commercial: If an offeror has prescribed method of acceptance, but no in terms insisting that it be the only mode, an acceptance communicated by any other mode which is no less advantageous to offerer will form contract. Where offer is made in terms which fix no time limit for acceptance, the offer must be accepted within reasonable time to make contract.
Issue: Was contract formed even though P indicated they accepted offer prior to gaining ministerial approval? With no specific time limit for acceptance requested, was letter indicating ministerial approval on 23 Dec sent in reasonable time?
If he was serious about making the deal he should have stayed in town. The wife’s letter here is the equivalent to the Sept 15th letter in the Barrick v. Clark. The reasonable time limit is determined by the offeror.
Decision: P’s letter to D constitutes effective acceptance and P’s letter was effectual to bind D contractually. Order for specific performance.
General Summary on Acceptance:
Generally only effective when communicated to offeror.
Binding if made before revocation is communicated to offeree.
Postal acceptance rule if reasonable (specified or if offer given by post).
Offerer controls terms for acceptance.
May be by conduct - nod your head - if you do things.
Silence NOT constitute acceptance (unless parties agree in advance).
CERTAINTY OF TERMS
You need not just expression of wanted to be legally bound you need AGREEMENT on central terms. The court must be able to figure out what the parties obligations are. The issue is what the parties must reasonably be viewed as having intended given the language used and the circumstances and aim of the transaction. If there are some areas of ambiguity on minor areas of the contract - that is not problematic. Issues of price, what is being bought are unclear, you do not have a contract. Must be able to say with certainty what parties agreed to.
Two major sources of ambiguity: (a) CLARITY: Ambiguity in language: multiple meanings; (b) COMPLETENESS: Missing term (time of delivery; price).
In looking for clarity: (a) Courts prefer plain meaning; (b) Prefer specific clause over general; (c) Courts will look at statutes; (d) Courts can severe meaningless clause.
Looking for completeness: (a) Statutes - Sale Goods Act; (b) Customs or usages between parties; (c) Industry wide practice; (d) Business efficacy - courts can imply a term (type of currency to be used).
“Negotiate in good faith” the parties must honestly try to reach agreement.
R. v. CAE: Court will look at surrounding words, actions and circumstances in determining if there was intention to create legal relations. Reasonable meaning of words considered. The test is objective.
Issue: Was there intention to enter into legal relations? Was it too vague?
Government tried to pull out saying there was no contract. CAE taking over base from Government who was looking for buyers.
Purchaser wanted assurance of enough work if they bought the place, and the minister said they had work and would try to send more work their way.
Contract intended? Is the letter intended to create legal relations? Parties treated it as a contract.
Vagueness argument: Court said they intended to form contract but did they succeed? Gov’t said “best efforts” term was too vague. The court to discover what the parties intended - and said it implied leaving no stone unturned: “broad obligation to secure for the respondent aircraft repair and overhaul work up to the limit it lays down.” Cannot guarantee results BUT in agreeing to use best efforts they were taking intermediate position.
Vague terms do not render contract unenforceable unless court can give meaning to them and look at circumstances to make certain that language is enforceable. “Overall purpose”
Policy: government must operate in the public interest.
Decision: There was intention to create legal relations objectively demonstrated and terms were sufficiently clear to be contract.
May & Butcher v. R: Price is an essential element of a contract. Agreements to agree are not contracts. Sale of Goods Act only applies when parties are silent on price. Arbitration clauses cannot be used to save contract that wasn’t formed.
Issue: Was there a binding contract despite missing vital terms?
Had to do with sale of surplus government tentage after WW1.
Arrangement for sale of tentage: prices to be agreed upon from “time to time” as with delivery. There was also an arbitration clause.
Crown said there was no deal: they never agreed on the price. May & Butcher responded by saying: because of arbitration clause, they said it must be a reasonable price - and the “reasonableness referred to arbitration.” They also said even if they were wrong on these, they agreed the contract would run until 1923.
Court concluded no contract: one of the essential items was missing: PRICE. Arbitration clause was for the binding deal...there was no binding contract. Sale of Goods Act: if nothing is said about price a reasonable price would be assumed. You can leave mechanism... or by conduct... or price to be valued by third party. If NONE of these are clear, there is no deal.
Hillas v. Arcos: If there is a mechanism for making determination with respect to questionable term, the court will work to find the term. If courts decide the parties believed they had a contract - will work to enforce.
Issue: Was there sufficient certainty of terms to enforce this contract?
Hillas contracted to buy 100,000 standards of Russian timber but had not managed to obtain them - Arcos entered into a different contract to sell its entire production elsewhere.
Courts had to deal with whether provision Hillas was relying upon was a binding agreement. Where was this term contained? Clause 9 said buyers had “option of entering into a contract” for the next year where the price was to 5% less of value of official price list.
Both parties intended to make a contract and thought they had.
Court called this drafting “crude and inartistic.” Court said to interpret it broadly and practically and look at actions of the parties: “try wherever possible to give words some meaning.” Courts: this is the way you guys do business. There is enough detail for a business transaction.
Differences between this case and May: (a) ability to compare with other contracts Arcos has written; (b) In tentage, there was no body of info to decipher how tentage is dealt with; (c) There was formula to determine price.
Decision: Between previous year’s agreement, pricelist, Sale of Goods Act - it was possible to determine terms of contract.
Foley v. Classique Coaches: Definite agreements on price may not be necessary for contract to be enforceable if it has been operating successfully without them (parties have been acting under its terms).
Issue: Was there no enforceable contract due to uncertain terms?
D agreed to purchase all petrol required for their business from P at a price “to be agreed by the parties in writing and from time to time.” D did so for three years and then tried to go elsewhere. There was arbitration clause.
Court: they believed they had a contract and acted for 3 years as if they had.
Court of Appeal (on price issue): there is an “implied term” that there would have to be a reasonable price and reasonable quality - if there are disputes there is an arbitration clause.
Another influence: it was not a fuel supply contract in **isolation: they were NOT prepared to give back the land! He hints at lack of honesty of defendants. Maybe thought D got the land cheaper because they were agreeing to buy all of the gas ---> now they wanted out of part of deal that was less advantageous to them. In Hillas - it was too vague, now it is not.
Decision: The contract was enforceable.
ALL THREE of these cases of incomplete terms: look at the details of each individual agreement...what did the parties consider, etc? In May v. Butcher, Scrutton said there was a contract, but got overturned by House of Lords. Then in Hillas, he said there was binding contract based upon that deal itself.
In Foley he sidesteps May, and says even where parties have left price to be agreed in future, that does NOT automatically mean there was not an enforceable contract.
END result: May says an agreement to agree is not a contract, Hillas says you must find meaning, Foley: possible to imply term of reasonable price.
AGREEMENTS TO NEGOTIATE
May have desire to enter into future contract, but are unable to settle all terms of the contract: dependent on unknown factors.
To get around it - develop mechanism for solving problems.
Why agreement to negotiate NOT a contract? (a) How to determine content of duty to negotiate? (b) Where basis for determining damages? (c) No way to determine what terms of agreement reached might have been; (d) If one agrees to negotiate in future and price skyrockets...they can no longer afford --> unfair to force them to buy.
Empress Towers v. Bank of Nova Scotia: Though an agreement to negotiate price is not binding, if agreement has some mechanism for discerning price in it the court may force parties to apply this mechanism. Parties can be forced to negotiate in good faith.
Issue: Was the renewal clause void for lack of certainty?
ET not responding to Bank’s attempts to negotiate and tried to gouge them.
Empress may have been trying to evict them. Bank’s response: the lease required the bank to renegotiate.
ET may not have negotiated because one of their employees lost $15K at one of the branches at the bank.
Courts should try to give proper legal effect to any clause that the parties understood and intended was to have legal effect.
Requirements of mutual agreement: (a) landlord will negotiate in good faith with tenant; (b) agreement on market rental will not be unreasonably withheld. BUT landlord must not enter into agreement where rental rate does not meet market rental.
“Officicious bystander (not party to contract) - courts use hypothetical person to justify the judge saying this should (not) be part of contract.
“Business efficacy principles” - terms can be implied to give business efficacy.
Court: landlord did not negotiate in good faith - bank not entitled to evict simply because there had been a failure to agree.
Decision: Enforceable - supplied mechanisms to reach agreement on price.
Mannpar v. Canada: There may not be an implied duty to negotiate in good faith without benchmark to work with. For a term to be implied both parties must be seen by an officious observer to agree with them - and the court will test business efficacy.
Issue: Is there implied duty to negotiate in good faith, as in Empress?
Whether there was good faith obligation: there was no objective standard to base clause of good faith on.
Fact: fiduciary duty of government to the First Nations band despite their expectation of an extension - Crown can’t enter into agreement.
Terms will NOT be implied simply because the court thinks they are reasonable and should be in the contract.
Language Crown used was deliberately vague due to fiduciary duty.
Decision: There was no duty to negotiate in good faith.
Wellington City Council v. Body Corporate: There is no certain objective criterion where a court can decide whether a party is in a good faith obligation. BUT sometimes a process contract can be enforceable: in such cases a specific procedure is in issue, and the court can reasonably determine what parties are required to do. If a party refuses to negotiate, Court may be able to order repayment.
Council said would negotiate in good faith to existing lesees at nothing less than market rate. BUT they did not sell premises to Alirae Enterprises who sought damages for breach of contract.
Not obliged to settle. Good faith is subjective - not ordinarily susceptible to measurement.
Process contract: obliges you to follow particular process NOT to get to a certain result or to agree on a certain deal. You can satisfy the process obligations but that does not mean you have to or will arrive at agreement.
General Comments on Certainty of Terms
Courts just don’t look at precise words but ALL circumstances.
You may have contractual obligations to enter into negotiation process. Is there enough information for court to figure out if you have fulfilled oblgs?
If you want to draft something that is enforceable - get them to an agree on some kind of process.
The reason you can’t enforce a general obligation to agree in the future is that it is too vague (how does court police it...how do you know when you’ve done everything you can...etc).
INTENTION TO CREATE LEGAL RELATIONS
Balfour v. Balfour: Presumption that spousal agreements not intended to be legally binding. Onus is on plaintiff to show agreement intended to be legally binding. (When couple is to break up this presumption may not hold).
Sometimes courts regard certain areas of life as not appropriate for legal intervention. Consideration (exchange of value) was the wife agreeing to the arrangement. Husband appealed successfully: parties did not intend they should be attended by legal consequences. Practical and policy: floodgates of cases that would result. There was not a separation agreement at the time, and if there had been it may have been different.
Rose and Frank Co v. JR Crompton and Bros Ltd: Parties in a commercial agreement may expressly state they do not have intentions to enter into legal relations and those intentions may be upheld.
While the starting point in social matters is to assume it is not legally enforceable, the opposite is true in business matters. Court: (a) Did not give rise to legal relations because parties did not intend to; (b) it is possible in this case that it may be implied from the subject matter of the agreement; (c) In contract law you are entitled to set terms of your own deal; (d) Arrangements were binding in honor only.
Decision: This was not an enforceable contract. NO intention.
Why did parties want to have this clause? (a) Maybe unsure they were able to fulfill obligations due to contingency on other factors; (b) They may think there is sufficient incentives to keep your promises otherwise; (c) They may want to avoid expensive litigation. House of Lords said: the overall agreement concluding it was not legally binding - however there were separate individual agreements for sale. HELD: although this document was not legally binding, there were others (agency agreement) that are legally binding.
TD Bank v. Leigh Investments (Trustee of): Court is not willing to enforce (comfort letter) something not intending to be legally enforceable.
Letter of Comfort is notification of parent company that they are aware of subsidiary company getting a loan. Shareholders of parent company are not responsible for subsidiary company’s failure to pay loans unless there is additional legal obligation. TD lent money to Leigh and Plessey provided those comfort letters. Court on legal effect of those comfort letters: (a) language of letters was more of a statement that the companies would manage themselves “be managed”; (b) fifth letter - “does not constitute a legally binding committment; (c) Bank knew they would not get guarantee - it would be contrary to what parties knew and/or intended; (d) Language was carefully chosen and was clear - they were capable of figuring out what cost and benefit was. Court could not give them something the arrangement did not provide for.
Letters of Intent: Purposes: understand what has been agreed upon; what needs to be decided. Two parts: one legally binding (preamble stuff); the other not.
FORMAL REQUIREMENTS
Certain types of agreements were not to be enforced unless evidenced in writing. There were different categories covered by Statutues of Fraud (eg: land; goods over a certain amount).
Royal Bank v. Kiska: There are not strict requirements on what can be used as a seal but something must be used that is understood to be a seal by signatories for an agreement to be binding without consideration. A promise under seal need not be supported by consideration.
Issue: Was document still under seal and binding without consideration?
Deals with guarantee - generally made under seal due to consideration. In this case, there was no wafer seal was attached to the document, yet the word “seal” was printed next to the space where D wrote his signature.
Decision: There was consideration and it was binding.
Statute of Frauds: Section 4. When one promises to satisfy obligations of another or contracts to do with sale of land or something to be peformed more than a year later or promises made in consideration of marriage: courts thought that particular types of evidence had to exist before court would enforce contract. Contracts for sale of land: you can go to courts for specific performance - land had to be evidenced in writing. Sale of Goods no longer have to be evidenced in writing.
Law & Equity Act: LAND (s. 59.3-4) - enforeability of contracts in land: contracts of land not enforceable unless one of three things present: (a) Writing indicating that contract has been made and reasonable indication of subject matter. Does not mean contract has to be in writing! All this provision is set out limitations on enforcing a contract. Evidence in writing does not have to be made at time contract was formed. If two people sit down and one says I will buy your land for $1-million before Nov 30: and never do. Maybe they would write letter to person six months later saying I remember when I agreed to buy your land, sorry, can we discuss it? That would be something in writing (signed), and would indicate a contract had been made. Something in writing signed by person against whom the contract is to be enforced - has to be more than just oral evidence. (b) Party to be charged acts or aquiesence in act that indicates disposition allegated has been made - one party allowed other to do tests and surveys on the land. (c) Reliance: has this person relied on it and done something which changed their position?
Certain agreements in land are excluded: contract to grant lease of land for less than three years; testamentary dispositions (formality requirements do not apply - inheritance or trusts); grant of lease of land for 3 years or less; guarantee of indemnity arising by operation of law or imposed by statute.
Compensation/restitution: even if you cannot enforce it and there is little evidence: it is still possible you can get compensation or what you have paid in connection with the unenforceable contract.
(4) When party does act/aquieses that includes giving/receiving of deposit - despite lack of writing.
(6) A guarantee is not enforceable unless it is evidence is writing... or the alleged guarantor has done an act indicating guarantee consistent with that alleged.
Electronic Transactions Act: Section 5: If there is contract for sale of land, requirment in writing could be satisfied by electronic record. S. 11: electronic signatures are satisfactory. *Signature must be in, attached to, or associated with record.*
LEGAL CAPACITY
Two types of incapacity: infancy and mental disability.
Infants Act: unenforceable unless it is (a) specified under Act to be enforceble - statuatory exception - a more specific act overules a more general rule where there is inconsistency. (b) Or if it is confirmed by infant when reaching age of a majority. (c) Or if it was partially/wholly performed/not repudiated within one year of attaining age of majority. The Act is here to protect infants, not to protect adults from sharp-witted infants! If contract is unenforceable s. 20 deals with what a court may do to provide relief: Infant or other party may apply for relief for transfer of property - court may order compensation or restittution of property. **If an infant lies about age - it may affect how court rules.
Does not automatically protect people who allow infants to lie: (a) must have reasonable grounds for believing lie; (b) you can’t claim to have been fooled by infant if you drafted document for him saying, “I am 19” - no standard form!
Children may apply under Act for capacity (full or partial) - but court has to be satisfied that they are not in need of protection. Maybe they are out on their own and need to rent apartment. Generally applies to necessities of life. Common law says you can enforce contracts for necessities (case law describes necessity).
Person who enters into guarantee or indemnity to be responsible for failure of an infant to carry out obligation - even if contract is not enforceable.
Hart v. O’Connor: The validity of a contract entered by a lunatic who is pronounced sane is to be judged by the same standards as a contract by a person of sound mind and is not voidable unless unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the contract even if he had been sane.
Hart bought land from O’Connor, not knowing he had mental disability. When can person having mental incapacity have a contract set aside? Not an automatic rule they are unable to contract: you have to look at question of knowledge and question about fairness. Courts would intervene if: (a) Contractual imbalance not considered here; (b) procedural improprieties - fraud or taking advantage. They are concerned with propriety of party that is of sound mind: unless you can show there is improper behavior - the lunatic does not have any special protection.
CONSIDERATION
Consideration: an exchange in value - the benefit to a side and the detriment to the other. May consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.
Adequacy irrelevant (could be a symbolic dollar);
Generally, given at time promise made;
Executory contract --> contract is formed but not executed --> the promises are consideration;
Consideration has to move from the promisee to the promissor. If A promises to pay $ to B. In consideration of that promise, B promises to transfer ownership. Consideration moves in both directions. There are TWO separate promises. Each party is a promisor and promisee.
PAST CONSIDERATION
Generally, consideration has to be given as part of the promise. Something that has happened in the past is problematic as a basis of consideration.
Fresh consideration must be given because offeror asked for it at the time offeree accepted.
Possible exception: if a reasonable expectation of compensation existed when the service was performed, a later promise to provide that compensation may bind the parties.
Eastwood v. Kenyon: Past consideration is not valid consideration for a promise made today - especially if it was not requested by the promisor. Moral obligation is a voluntary promise without consideration.
Issue: Was husband under obligation to repay benefactor?
Eastwood lent money. She stops paying after a year. Her husband says that he is going to pay yet doesn’t. Mr. Eastwood is forced to go to court to try and get the money he has been promised. Court: there was no consideration in the promise from Kenyon to Eastwood - there was nothing moving from Eastwood to Kenyon - he didn’t give Kenyon any benefit. Because promise to pay was not supported by consideration (it was only a moral obligation) so courts would not step in. It may have been possible for someone to pay where somebody like Mr. Eastwood had previously expended money: if it was Sarah being sued, the case may have been valid. Contracts by infants can be ratified when they become adults. When she became an adult, she promised to pay (affirmed an obligation) so it may have been possible to sue her. Consideration for it was past and executed long before (and not at request of D) and so it is a benefit voluntarily conferred. Policy: there would be a flood of mischieveous creditors going to court.
Lampleigh v. Brathwait: For past consideration to work, the act done before the promise can be consideration if three things are met: (a) Had to be request; (b) Parties must have understanding of remuneration; (c) It is enforceable otherwise.
L suing B, saying B promised to pay him 100 pounds because B had feloniously slain a man and L had got him a pardon. Question: was there consideration for L’s promise to pay 100 pounds. L did get his money: the promise to pay the 100 pounds not something in isolation (naked promise). It had clothed itself with the previous request - it was connected with the fact that B specifically asked L to do it. The past consideration was effective consideration for the promise to pay because it was requested by B. B asked L to help, and presumably L understood that request as one that would result in a benefit. He didn’t promise 100 lbs until after it was already done. Chronological steps: (1) Homicide; (2) B asks L for help; (3) L helps by getting pardon; (4) B promises to pay L. Promise you make has something to do with something that happened in the past. DIFFERENCE between this case and last: L did the things for B in response to his request. He would not have done it if it were not for his request.
Thomas v. Thomas: Courts do not look at value of consideration but it must have moved from the promisee. Consideration may be for the benefit of one party or the detriment of another.
Mr Thomas owned seven houses, and expressed just before he died, that his wife should get either the house he lived in all it contained OR additional sum of 100l. He died before he changed the will, but executors agreed to do this and entered into the agreement. Ground rent is something payable with respect to leasehold (you pay long term rent to person who has freehold) property. She had to pay 1 pound per year and lived there for a length of time. After one co-executor died, she was pushed out by the other. Did this act of the executors in allowing her to live in property has support of adequate consideration? Court said consideration here was: agreement to pay gound rent was not just something incidental because rent was paid to executors rather than just the landlord. *Consideration has to move from promisee to promisor. It was what she agreed to give in exchange for their promise to allow her to stay there. Court rejected as consideration: highest respect for wishes to testator -- it does not move from promisor to promisee. Wishes of testator are not an exchange of value and did not come from the widow. Consideration has to come from party seeking to enforce the promises. They allowed her to stay in consideration of testator’s desire. Consideration turned out to be the 1 pound a year from widow to executors.
FORBEARANCE
Consideration can also be not giving something. M&A non-competition agreement.
B (DC) v. Arkin: Forebearance to sue will not be valid consideration if the party threatening to sue knew or should have known they had no legal right to do so. If consideration for contract is forbearance to sue on a claim known to be invalid the contact may not be binding. Forbearance to sue is good consideration and monies paid in exchange for a promise not to sue is a valid and enforceable legal contract. (even if claim is doubtful or not known to be invalid). However, does not count if party promising to forbear deliberately conceals facts which would have enabled third party to defeat claim.
Issue: can forbearnace to sue be good consideration when the party threatening to sue has no legal right to do so?
Zellers obtained money from P and she went to court to get it back. She paid the money because Zellers agreed not to take civil action if she paid - her son allegedly stole items from Zellers who hired civil claims company: wanted to recover costs. Company wrote her a letter: and P sent cheque. She got legal advice: parents are not responsible for teenager in tort law unless there is some fault of your own. When she realized she didn’t have tort liability (Zellers had no right to sue her) - Zellers promising to do something they could not do anyway. There is no consideration here because she did not get anything in exchange. You have to believe your claim would be successful, but if you are doubtful or not known it is invalid, forbearance can be good consideration. If you still think you have a reasonable chance of success and in good faith enter a contract, it can count. You must show he seriously intended to pursue the claim.
Ruling: Plaintiff entitled to refund on ground of money.
PRE-EXISTING LEGAL DUTY TO THIRD PARTY
PUBLIC DUTY: It is not good consideration if the promise to pay is to promise to pay someone to do a public duty which they are already obliged to do. (In a sense with public people, it is past consideration - they are doing their jobs).
THIRD PARTY: Performance of duty owed to 3rdP can be good consideration.
Pao On v. Lau Yiu Long: A promise of performance of a pre-existing duty already owed to a third party can be good consideration in certain circumstances: (a) p/c given at promisor’s request; (b) parties understood act was going to be remunerated by money/benefit; (c) it could have been enforced. (Duress can vitiate consent, but it must be claimed promptly.)
One company was buying out another in exchange for shares (but insisted they hold on to 2.5 million shares). P has holding company, D was majority in other company. D wanted to buy company because it owned building. P agreed to sell holding company in exchange for shares - but worried that too many on market would lead to decline in price. Further promise: majority shareholders offered to protect value of shares for one year period - would buy for $2.50 per share at end of that period. P realized there was a problem with the deal: the whole reason for share deal was that shares would go up in value - but now even if they did they would not benefit. Share purchase was not in main contract (subsidiary contract) - in order to try and remedy loss of potential profit, they went to blue chip shareholders and complained about deal - cancelled side agreement - now says “we will indemnify you if shares fall.” Shares fell to $0.36. P says we held onto shares for one year and now we have poor shares and agreements says you will protect us so you owe $2.14 per share (over $5-million). D said there was no consideration for that part of the agreement (past consideration). But D saying: we are getting nothing here: they were already obliged. However, they got that Pau On held onto Fu Chip shares.
PRE-EXISTING LEGAL DUTY TO THE PROMISOR
Stilk v. Mryick: to make a new agreement to perform a preexisting legal duty enforceable there must be some new consideration found or the old agreement must be terminated.
Gilbert Steel v. University Construction: Unilateral promise to increase price is uneforceable because there is no clear agreement to rescind existing contract - new provisions were unilaterally imported into document and consideration of oral agreement not found in mutual agreement.
Costs going up during construction project. Sub-contractor may not be able to afford to complete. Contract in 1968 to deliver steel - deliveries for 2 of 3 projects delivered and paid for in line with contract. Price of steel went up - further negotiations - allegation they had orally agreed on price increase - dispute arose whether promise to pay increased price was binding. Trial: no consideration for oral agreement. Consideration on both sides: they were abandoning rights on old contract and agreeing to replace it with this new deal. Could have been consideration if they had not pleaded the opposite.
You cannot vary contract without fresh consideration. It is okay to get rid of Contract A and replace with B. Court of Appeal: even though written agreement had a few other different clauses, they were not discussed/focused on. Oral agreement was merely a higher price deal - was not a comprehensive “getting rid of” the first contract. If there is price increase and the other side agrees to pay more money, you must do more than sending them bills. If you want it legally enforceable, you must negotiate a revised deal and replace the old one OR amend the first contract in a way that was permitted by first contract OR ensure original contract has language to allow price change OR put contract under seal.
People have agreements that allow them to amend terms in certain conditions: trucking contracts have clauses that allow fuel surcharges - so it doesn’t need to be amended. Relational contracts: scope for variation for long term projects.
Williams v. Roffey: Pre-existing legal duty owed to promisor may be valid consideration for subsequent promise if promisor derives practical benefit from agreement and if subsequent promise is not given under economic duress. Where both benefit it is not necessary that each suffer detriment.
Construction project - D is head contractor who hired P as subcontractor. Original prices too low and so P had financial problems. There was an agreement to pay more than 50% over original contract price - but failed to pay amount. Williams stopped work and claimed damages. Court found promise to pay more was enforceable despite lack of consideration: original price was so low there was no expectation it would be completed. Trial judge: contractor who goes too low, won’t have job done. Why was low price too low significant: because it meant the job would not be done in time - contractor needed it done in time. Consideration: Contractor gets benefit of it being performed on time. If they did not agree on higher price, P would have gone broke! D would have had to go out and hire someone else at higher price anyway. D said no consideration because: P was promising to do no more than he was already bound to do (no new legal benefits). Glidewell J: courts can use “economic duress” - more willing to look at fairness of contractual relp’s: We can address concerns about economic blackmail. Referred to Pao On: if we are concerned with lack of new consideration, fears can be dealt with by economic duress: if parties are abusing their position you can deal with it. Here, there was no suggestion of fraud/duress; refines Stilk: promises enforceable where you can find some additional benefit. Russell J: where there is benefit to party promising to pay more - there is no lack of consideration. Advantages to D: retains services of P; need to replace haphazard method of payment; more formalized scheme of payment. Using consideration as tactic to get at issue of blackmail.
Decision: There was consideration.
Foakes v. Beer: Common law: an agreement to accept smaller sum in satisfaction of debt of larger sum is not good consideration. NOTE: s.43 in BC Law and Equity Act overrules this law.
Issue: Was agreement binding or was it lacking consideration?
Foakes owed money to Beer who allowed him to repay over time. After money had been paid, a claim for interest was made. Court: how can you get benefit by taking less sum? You are still required to accept entire sum. No security - no promise by Foakes to pay - only promise of Beer. Beer wasn’t getting anything in return for agreeing to waive interest. What kinds of benefits to creditor might make such promises enforceable: has to be something other than payment on existing debt - new consideration.
Decision: No binding agreement precluding Beer from asking for interest.
Foot v. Rawlings: An agreement which changes form of payment that is to be received may be binding with only the change in form of payment as consideration.
Issue: Was there new consideration for agreement?
There was debt owed and an agreement to take less than was part of original obligation. Series of promissory notes - agreement to take lesser sum and installments by cheque. SCC said agreement was enforceable because if you agree to pay in some different method then that is consideration which can make enforceable the other parties’ agreement to take a lesser amount.
Decision: Agreement was enforceable: cheques were new benefit.
Law & Equity Act (s.43): where creditor takes part payment and you start performing obligations - it will extinguish existing obligation and you are bound by new agreement.
WAIVER AND PROMISSORY ESTOPPEL
Estoppel: you have said or done something which you cannot now go back on. You can be estopped when you made representation about existing fact. Jordan v. Money: you can’t be estopped with respect to statement about something that was going to happen in the future.
Proprietary estoppel: estoppel dealing with property.
Promissory estoppel: “equitable” - a legal right someone is giving up. Arose to get around idea that consideration is necessary for promise to be enforceable.
Central London Property Trust v. High Trees House Ltd: A promise inteded to be binding, intended to be acted on, and in fact acted on, is binding even if there is no consideration. Estoppel used as shield by tenants against landlord who wanted to enforce higher rent.
Issue: Is Central London’s promise to accept less money binding?
A promise had arisen where rent was reduced temporarily as a result of the war - there were not enough people to rent apartments - close relationship between directors of companies. High Trees was a subsidiary of the plaintiff - parent company went into receivership - receiver said they should be getting more rent. D said the rent-reducing letter was a new agreement. But there was no consideration for a new agreement replacing the original - the original could not be varied because it was under seal (formality). You need: (a) a promise; (b) intent legal relations; (c) promisor knew would be acted on; (d) it was acted on; (e) it has to be inequitable to allow party to go back on their promise.
Ruling: CL estopped from enforcing legal right to full rent from
time during war when they promised to accept lower rate.
John Burrows v. Subsurface: Legal rights must be clearly waived to no longer exist. Merely relying on past non-enforcement of full legal rights will not give rise to promissory estoppel. When there is no consideration or deed, any relaxation of terms must be clear and unequivocal.
Issue: Could P enforce legal right to demand entire sum after not
insisting on this right previously?
An acceleration clause allows creditor to demand full amount if default on terms. Instead of cash, gave promissory note to pay in monthly installments. D was late on many payments, yet P did not exercise acceleration clause - until 18 months later. D said: by allowing them to be late for 18 months, P cannot now enforce their rights. Court: you have to have evidence that party making promise intended it to be legally binding - and you cannot conclude that here.
D&C Builders v. Rees: Creditor barred from enforcing legal rights only when it would be inequitable for creditor to insist on them. A promise made under duress should not be estopped. When true accord - creditor voluntarily accepts lesser sum - debtor acts upon it - it would be inequitable for creditor after to insist on balance - BUT must be true accord.
Issue: Is P barred from asking full amount after accepting less?
Nearly 20 years after High Trees. Rees owed 482l to D&C for renovations.
Rees’ wife said her husband would pay 300l, and that was all they would get. They took the money as they were going to go broke otherwise. She forced him to write “in completion of the account” on the receipt. P came back for the rest of the money. Why was Denning able to protect the company: it is not fair - parties did not mutually agree to the lower sum - it was more like blackmail.
Decision: Would not be unfair for P to insist on his full rights.
Combe v. Combe: There must be pre-existing legal duty between the parties for estoppel to be applied. Estoppel will not found a cause of action to have a promise enforced. P/E can only be used as a shield.
Issue: Can one use estoppel to establish legal relations?
Parties were former husband and wife. Wife seeking to enforce promise made by husband who said he would pay her 100l per year alimony. He never made any payment. Trial judge said promise was enforcable: intent to be binding, acted upon, unequivocal. He relied on promissory estoppel - because there was no cosideration. However, here PE was not applicable: (a) can’t be used to create new cause of action where none previously existed; (b) only prevents party from insisting up strict legal rights when it would be unjust to allow him to enforce them. Note: landlord who told tenant he can live in cottage rent-free for life not allowed to go back on it (there is existing legal relationship). Wife can only enforce promise if there was consideration.
Decision: Husband’s appeal granted - there was no contract.
Walton Stores v. Maher: Australian court made exception to general rule that P/E cannot be used in absence of pre-existing legal relationship. Court held the doctrine can be used in absence of pre-exisiting legal relation if there was reliance on promise that was a reasonable expectation and if a departure from promise is unconscionable.
Issue: Can PE be used to enforce promise where no contractual relation or consideration existed betweeen parties?
Walton said there was no contract and no basis to enforce their promise. How did estoppel come in? Maher said: their silence amounted to a representation that there was a binding agreement between the two parties. Found common law estoppel - Australian Court not willing to agree: has to be representation of existing fact, not future. Why did common law estoppel work against Maher? Trial judge and Court of Appeal took view that estoppel was rep that there already was an agreement. High Court concluded that Maher’s understood there was no exchange of contracts, misrep was with respect to whether exchange of contracts was going to happen. Court found common law estoppel could not apply (would have to overturn Jordan v. Money) - so they looked at promissory estoppel. PE isn’t about statement of fact, it is about promise to do (not do) something in future. [USA: PE is seen as equivalent or substitute of consideration]. [England: plaintiffs can’t enforce voluntary promises because it can be expected that to render it binding, must form part of binding contract]. Most often it is not unconscionable for a party to go back on their voluntary promise. Question here: was appellant entitled to stand by in silence when it must have known that R were proceeding on assumption that they had agreement and completion of exchange was a formality? Other important factors: (a) urgency that pervaded negotiation; (b) R executed counterpart deed and forwarded to A’s lawyer. Walton had an obligation to communicate.
Decision: Walton estopped from denying there was an agreement.
M(N) v. A(AT): There is little evidence Canada is moving toward more generous approach to P/E (cf: Walton); You need legal relations or unconscionable conduct for equitable estoppel to operate.
Issue: can E/E prevent A from having to pay back money, or make M enforce promises?
Promise made outside contractual relationship: M promised A to pay mortgage if she moved to Canada with intention to marry. She quit job and moved to Vancouver. M did not pay mortgage - loaned her $100K on promissory note. Trial refused to enforce promise (no legal relations even though she relied/acted upon it and there was detriment). The relationship deteriorated, she was kicked out and could not find job. Can impose PE when no contractual relationship; can apply due to detrimental reliance (US)? Policy: Parliament/Leg provides statutory remedies for losses suffered on breakdown of relationships. What else was missing: no intention to enter legal relationship - failure to keep promise was not unconscionable - she took risk of his not keeping his promise.
Decision: Appeal dismissed.
PRIVITY OF CONTRACT
If you buy washer from Sears - you have contract with store not manufacturer.
Tweddle v. Atkinson: A third party (not engaged in contract) can generally neither sue nor be sued on that contract - even if it was intended to operate for his benefit. Love and affection are not sufficient consideration.
Issue: Can son sue for benefit of contract he provided no consideration for?
Parties are fathers of couple - both said they would pay 300L to younger Tweddle - didn’t pay - young Tweddle cites clause saying he had full power to sue them. BUT there is no consideration and no intention to create legal relations. PROBLEM: he can sue but not be sued - he has no obligations.
Dunlop Pneumatic Tyre v. Selfridge: Only a person who is party to a contract can sue on it. Even if a contract provides 3rdP with enforceable right, there must be consideration. A principal not named in contract, however, may sue upon it if promisee really contracted as his agent.
Issue: Does Dunlop have contractual relations with Selfridge so that they can sue them as per Selfridge’s contract with Dew?
Dunlop made tires ---> sold them to (Dew) wholesalers --> wholesalers sold to Selfridge who ---> sold to customers. Contract required Dew not sell tires below list price except to customers engaged in motor trade - if they sold to them at 10% discount - they had to say they wouldn’t sell for under list price. Dunlop found Selfridge sold under list price to two customers. Dunlop sought injunction and damages - succeeded at trial - CA reversed. Lords’ two essential principles why Dunlop could not succeed: (a) only a party to contract can sue - no general right of third party to recover damages; (b) consideration must move from Dunlop to Selfridge. Note: you can sue on contract even if you aren’t named if party that signs contract does so as your agent. In certain circumstances, one party can do legally binding acts on behalf of another party. Dunlop said Dew were acting as their agents. However, court said Dew obtained title to the tires (owned tires), it was not that tires were still property of Dunlop and Dew was facilitating sale (as if they were agents). Transfer of sale was from Dew to Selfridges (seperate contract). Dunlop did not have direct contractual relationship to Selfridges and did not give consideration. Dew could not act simultaneously as agent and principle. Court said it wouldn’t never be possible to make these kinds of contracts enforceable - if there was tri-partite agreement where Selfridge got some minor benefit from Dunlop. Contract could have made Selfridge pay Dew who would then pay Dunlop.
Decision:
Ways Third Party may Acquire Benefit: (p.302). (a) Statute; (b) Specific perform.
Beswick v. Beswick: Widow can sue in capacity as administratrix of estate. Specific perf may be ordered where it ordinarily would not to benefit 3rdP beneficiary who is in TRUSTEE relationship (administrarix of husband’s estate).
Issue: Could wife sue on own behalf, or only as administratrix? If she sued as adminx, could she received SP or only damages?
Specific performance getting around privity problems. Elder Beswick was 70 year old coal merchant for monthly wage - decides to transfer business to his nephew - the elder to be kept as consultant. The uncle died, leaving widow - nephew paid her 5L once and nothing again. She sues: two capacities - as administrator of estate (not executor) - personal capacity as intended recipient of the promised 5L per week. Underlying right: you can enforce it by acting in name of person in contract. Why is it not in conflict with Dunlop? In Dunlop the issue was price fixing - no legitimate interest (bad) but Ms. Beswick is good and has legit interest.
(e) Employment
London Drugs v. Kuehne & Nagel: Employees protected from clause limiting their liability even though they are not parties to contract. Limited Exception to privity - employees may use as “shields.”
Issue: Were employees privy to contract limiting liability? Were they liable?
Where you fulfill an obligation badly you may be liable for negligence and breach of contract. Regarding storage of transformer - stored by London Drugs in warehouse owned by K&N - lifted incorrectly by two employees at warehouse - fell over and caused $34K damage. Claim for breach and negligence. SCC: you can relax doctrine of privity in this situation --> it was intended to cover them. Expection of parties was not that employees would be liable. Employer-employee relationship suggests privity should be relaxed: company can do nothing without its employees; employees perform contractual obligations; company negotiated the deal - why should they get around it? Trying to get full amount of employees - but should have taken out extra insurance! Employees should be allowed to benefit: rich ones would be targeted. Employees are not privy to discussions about insurance. Employees were implied beneficiaries.
When employees entitled to benefit from lim of liability clause: (a)If clause expressly or impliedy extends its benefit to employees seeking to rely on it; (b) Employees must have been acting in course of employment and must have been performing the very services provided for in contract when loss occurred; (c) used as shield.
Decision: Even though there was breach of duty of care, employees can rely on limitation of liability clause.
[Principle ---> (Agent) ---> Seller The agent is only acting on behalf of someone else. When you insure car: your agreement with ICBC not insurace agent.
(f) Subrogation
Insurers’ Right of Subrogration: can name/defend action in name of insured parties.
Fraser River Pile & Dredge v. Can-Dive: Subrogation may be an exception to the privity doctrine.
Ins company insured barge - had contract with FRP which owned barge: clause said ins co waived ROS and would provide insurance to companies. If you rented barge and something went wrong, would not sue you. Insurance Co paid out. Negligence action against Can-Dive even though contract said they wouldn’t. Two essential elements: (a) Did they intend to protect charterers (Can-Dive)? YES. Can-Dive within class of 3P beneficiaries - Fraser River and insurers cannot revoke unilaterally Can-Dive’s rights once they have developed into an actual benefit. Only applies to defense: if there was something in contract between FR and ins co that Can-Dive wanted enforced, they would not be able to rely on this doctrine to enforce it. (b) Was 3rdP doing what contracting party expected them to do? YES. (c) Policy reasons in favor of exception: No commercial reason for failing to enforce bargain - only making incremental change. Courts willing to create new exceptions to doctrine of privity where two threshold requirements met and there are sound policy reasons. Note: This case involves 3rdP raising a defense.
MISREPRESENTATION AND RESCISSION
• Misrepresentation: statement made before the contract which induces you to enter into contract. Rescind: put aside and parties put back into previous position. In order to be successful you must show there was:
• Statement of Fact
• Statement Untrue
• Material: reason for entering into contract - sufficiently important, significant.
• Relied upon: you have to show statement is reason why you entered into contract. Not dependent on your investigative efforts.
Redgrave v. Hurd: A contract can be rescinded due to a material false representation; there is a presumption that the party who made the false representation knew at the time when it was made that it was false - “ a man is not to be allowed to get a benefit from a statement which he now admits to be false.” Failure to exercise due diligence is not relevant if a person is induced to enter into a contract by a false representation.
Issue: Is there obligation to look at documents - whether it limited his right to claim relief from contract because of misrepresentation.
Elderly solicitor tries to sell off practice and home in package - told Hurd he could make 3-400L per year at practice - showed documents indicating he made half that - Hurd inquired of less income - solicitor said other files showed more income - Hurd didn’t bother checking - refused to buy property when discovered practice worthless - solicitor sued - Hurd sought recisssion. Court: if you relied on statement - doesn’t matter if you chose to do no further investigation. No obligation to look into other documents.
Decision: Hurd gets deposit back and contract rescinded.
Smith v. Land & House Property: In the case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. However, if the facts are not equally known to both sides , then a statement of opinion by the one who knows the facts best very often involves a statement of a material fact.
Issue: Was the statement about Fleck an opinion or a statement of fact?
P bought hotel as D said it has “most desirable tenant” Fleck - who went bankrupt. P said it was not statement of fact - it was opinion. Court: in some circumstances statement of opinion contains implied statement of fact. They knew he was not paying his rent (assertion of fact).
Kupchak v. Dayson Hordings: There is no rescission for misrep if a 3rd party has acquired rights, or when restitutio in integrum is impossible, or if the action to rescind is not taken within a reasonable time, or the contract is executed (except in the case of fraud), or if the injured party affirms the contract. Two step test of resciss for fraud misrep: (a) is rescission practical and restitution possible? (b) Was claim to rescind submitted in timely fashion? When rescission is impossible then the injured party may get monetary compensation.
Issue: Was rescission available to Kupchaks following changes and improvements made by D? If not, could court award money equalling the amount of rescission? Is the right to rescission barred by laches?
Property exchange - hotel was much less business than they were told - stopped payments on mortgage - right from start, expressed dissatisfaction with earnings of business - by the time it gets to BCCA, it if 5 years - TJ found there was fraud that induced K to enter into transaction - TJ said no reccission of contract because they sold 1/2 interest of one building and knocked another down. CA acknowledges no resutio in integrum - but it was deliberately fraudulent - fraudulent party has no grounds to raise bar to recission. Even though they couldn’t give land back as was in 1960, they gave money according to value of property at time - form of recission. Compensation a form of equitable relief.
Bars to Recission:
No restutio in integrum: You have to be able to give back what you got under the conract in the essential same condition and form. Put parties back into position they were in.
Election (affirmation): Party who has been victim of misrep finds out and decides they are going to maintain contract anyway. (Waiting didn’t apply to election in this case because they stopped making the payments).
Laches: “Delay.” You cannot sit by and do nothing for extended period and then claim recission on basis of misrep.
Execution: (Redican).
Redican v. Nesbitt: Rescission is not allowed for innocent misrep if K is executed unless the subject matter is substantially different than what was bargained for. For fraudulent misrep, rescission may be granted even if K is executed. Impossibility of restitution will prevent rescission unless that impossibility has been caused by the guilty party. Fraudulent misrep includes statements made recklessly.
A leasehold property was sold – vendor told purchaser it had electricity, but did not. Purchaser issued cheque, but it was not yet cashed and attempted to argue the K had not yet been executed. It was executed: the parties did everything they thought should have been done. SCC says fraud misrep not just ones made with knowledge of falsity, but also if made recklessly/carelessly ( knowing and not caring about risk/reality of true or false. Unless Wing honestly believed his statement was true, it counts as a fraudulent misrep.
Ruling: K was executed as parties had requisite intent when the keys and cheque were exchanged – fraud misrep not available for remedy.
Sodd Corp v. N. Tessis: A misstatement may constitute both a negligent misrep (tort) and a collateral warranty (K action) where there is a special relationship creating a duty of care – D as a professional and trustee in bankruptcy and party submitting a tender were in such a relationship.
Issue: Could P sue for negligence in tort?
Trustee to bankruptcy placed a value on a warehouse on which P relied. Goods in the warehouse overvalued by 100%. D as professional accountant and trustee was in special relationship here ( there was a duty of care and he was negligent in his representation concerning retail value. His stipulation amounted to a binding promise depriving him of the terms of the exemption clause. For tort action one must consider: (a) Duty of care; (b) Breach of duty; (c) Damages.
BG Checo v. BC Hydro: In context of K misrep, if misrep is either fraudulently or negligently false, the party in breach will be vulnerable to claims in both K and tort. General rule: where facts support tort liability and K claim, the party who is wronged can choose to sue in either K or tort or both unless K indicates parties intended to limit or negative actions in tort.
Issue: Can you sue in K or tort? What is relationship between them?
BC Hydro called for tenders – successful bidder was BGC to build transmission towers and lines - Hydro didn’t finish clearing site – BCG sued. Trial: Hydro acted fraudulently…Appeal said no fraud but negligence. May be liability in tort that causes negligent misrep. SCC said BCG could not sue in tort: clause stated contractor had to view site – clearing right of way not part of K. Where you have inconsistent provisions, the various part of K have to be interpreted by looking at K as whole – try to find interpretation that makes sense for both terms. General provision should be modified by specific one. Hydro didn’t clear right of way and could not override that by a general provision. Private Ordering: parties are allowed to establish their own rules for relationship between them.
Superior right for parties in K to arrange affairs in different way:
(a) where K creates more stringent obligation – contractual resp more onerous than tort resp…may not be able to sue in K if limitation period up, but maybe still in K;
(b) where there is lower duty than tort duty – tort liability excluded or limited: usually not point to tort liability; but there are number of ways courts tried to limit effect of limitation periods;
(c) where duty in K and common law duty in tort are co-extensive and no limitation of liability clause – you can sue in both and even concurrently.
Limitation Periods: is period of time in which you are able to bring an action. In tort law, you must initiate litigation 2 years from when you discovered injury. For breach of K, time period is different.
S-244 Holdings v. Seymour Building: In cases of innocent misrep, rescission may be available despite execution of K – execution or performance is a relevant but not decisive factor when deciding whether rescission should be denied because of P’s undue delay in seeking a remedy, or because rescission might affect 3rd parties, or would otherwise be inequitable.
Sub-contractor hired to do exterior finishing. People who were hired thought it was only for Phase 1, employer thought it was for whole project. K said it was for entire project. Sub-contractor only discovered this term after completing Phase 1. The better approach is to say execution of K is not decisive, but only one factor to take into account when deciding when rescission is available. Allowed rescission of K and K is put aside. Could not undo work done on the units…how to deal with it? Rescinded K and said they didn’t have to do all work on the project (no longer bound by contractual term)…court awarded them compensation on basis of quantum meruit – “the quantity that it is worth.” In certain circum where one party has been unfairly enriched at expense of another, even when no tort/K, courts may require party that received benefit to pay it back.
Summary:
• The misrep must: induce the K – be a material fact (or mixed opinion/fact); must be untrue; must be made by one party to the other.
• Sometimes a statement of opinion invites the other party to infer they are based on facts – can’t DO!
• Statement must be made before you entered into K.
• The fact must be existing: statement must be about past or present.
• If you fail to mention something and other party makes erroneous assumption based on silence – silence does not count unless you have duty to speak of if there is a misleading omission of part of the facts.
• Types: (a) innocent: believed true - rescission; (b) negligent: failed to take reasonable care or no reasonable grounds to believe it was true – rescission and/or tort claim; (c) fraudulent: knowing it false, or reckless or careless – rescission even AFTER K executed. Tort claim possible.
• Bars to Rescission: (a) Impossibility of restoring parties to original positions – has property been altered; (b) Laches – delay, but look at intervening events of P; (c) Execution of K – usually only a bar in innocent misrep; (d) Third Party rights affected – has transaction gone to 3rd party? Sale must be complete; (e) Affirmation of K despite knowing misrep.
• Entire Agreement Clauses: bar claims based on previous oral represent’s; intended to make previous oral agreement no longer binding.
REPRESENTATION AND TERMS
• Representation: a presentation of fact – either by words or conduct – made to induce someone to act, especially to enter a K. Representations NOT part of K obligations; terms are.
• Warranty: A guarantee that representation is true. A warranty gives “full expectation damages” for breach; a representation gives damages measured on tort standard.
• Condition: a breach of a condition ( right to repudiation. Deprives the party of substantially the whole benefit they were supposed to derive from K. Condition cuts to the heart of the K.
• Collateral contracts: the interpretation of a written K may be complicated by the alleged existence of some additional extrinsic agreement between the parties that affects the meaning or scope of the written instrument. CCs can have effect of: (a) evading parole evidence rule; (b) escaping consequences of exemption or similar clause; (c) widening scope of liability for damage caused by a failure to perform K duties.
• Requirements of CC: (a) Must be meeting of minds; (b) evidence of certainty of terms & intention to create legal relations.
Heilbut, Symons v. Buckleton: A person is not liable in damages for an innocent misrep no matter in what way or under what form the attack is made, therefore if rescission is not possible there is no remedy. An affirmation at the time of sale is a warranty, provided it appears on evidence to be so intended, else it is only an innocent misrep. A collateral warranty must be proved strictly, not only the existence of such terms but intention to K must be clearly shown.
Issue: Was statement that shares were shares in rubber company a misrep inducing the K (no relief), or a collateral warranty that created binding K obligation?
Shares in rubber company – there was big demand for rubber. Buckleton wanted to buy shares in the company – had discussions with rep of company who said the company is doing well. Claim of fraudulent misrepresentation – company was not rubber co after all – “breach of warranty.” HOL said nothing in representation that it was rubber co. P had to show a “collateral K.” Collateral Ks are permissible in law (independent K), but they must be rare. The effect is to change the obligations in the main K by adding something else…that this is rubber company. Court said better to modify main terms of K itself. No suggestions that statement about it being rubber company was creating a contractual term. “buyer beware”
In order for this statement to amount to CC:
1. There needs to be written agreement to which oral is collateral
2. There needs to be second oral K
3. It needs to be intention of parties that this be treated like CC
4. There needs to be separate consideration for CC (usually entering into second K).
5. CC needs to amend or modify written K – not contradict.
Decision: It was not intention of parties that there be CC.
Collateral K: K the consideration of which is the making of another K. Even if terms of main K don’t contain any guarantee of aspect of deal, courts will consider side agreement. Court should be reluctant to find there is collateral warranty.
Dick Bentley v. Harold Smith: If a rep is made in course of dealings for a K for the very purpose of inducing the other party to act on it, and it induces him to act on it by entering into K, that is ground for inferring that rep intended as a warranty. The maker of the rep can rebut inference if they can show it really was innocent misrep: they were innocent in making it, and that it would not be reasonable for them to be bound [Relaxing of Heibut].
Issue: Was there collateral warranty (damages) or innocent misrep (rescission)?
Used cars – Bentley was minor celebrity – wanted to buy described quality car – read biography of car – car was disappointment – said misrep (maybe warranty)…said limited amount of mileage since overhaul but that was not the case. How do you determine if intended to be warranty? ( If it induces person to K and must be rep for purpose of inducing person to act on it. How to assess if intended to be acted upon? ( Look at conduct of parties…words/behavior… would intelligent bystander infer warranty intended? He should have known better before making these statements. They were not dishonest – no proper basis for rep – he stated a fact that should be within his own knowledge – jumped to conclusion and stated it as a fact - so it constitutes collateral warranty.
Leaf v. International: Rescission may be available in cases of innocent misrep if no other option is available and the innocent party behaved reasonably. BUT no rescission for innocent misrep when K is executed and a reasonable time for a claim lapses. If identity of painters a condition, no repudiation for breach of condition in sale of goods once it has been accepted (buyer keeps it for reasonable time and does not tell seller he is rejecting it). Distinction drawn between quality of painting (who painted it) and substance of painting (picture). Only allow rescission if differs in substance.
Issue: Is buyer allowed to rescind K?
Oil painting of Salisbury Cathedral – Leaf bought painting – label said it was painted by Constable – judge said it was term of K and part of K itself – 5 years later buyer advised it was not by Constable. Judge found as matter of fact it was not Constable and worth little. What is diff between innocent misrep and breach of condition? If you can find statement is term of K, that is much stronger. Rep can sometimes be treated as term of K (context of negotiations) and entitled you to rescission.
Buyer claims this was innocent misrep and at equity he is allowed to claim rescission even of an executed K of sale
1. It would be easy to put them in original positions
2. This is standard sale of goods situation – both parties made mistake about quality of goods being sold
3. There was no question about subject matter of K
4. If painting being done by C is found to be a condition, then he may reject it before he accepts it; if it is a warranty he only gets damages
5. SGA: if a condition has been breached, once a good has been accepted you may NOT reject it.
6. When you retain a good for amount of time without rejecting, you are deemed to have accepted it
Decision: Rescission is not available – too much time had passed.
PAROL EVIDENCE RULE
Where the parties have put agreement in writing and where they have intended that agreement to be a comprehensive effective statement between them, the courts will not pay attention to evidence to outside negotiations or discussions between the parties that contradict written agreement – Goss v. Nugent.
Ways around PE Rule: Alleging there is one K, partially written, partially orally agreed to – the written K did not contain the whole K – if you can allege this, you do not have to meet the stringent demands of CCs.
Exceptions/Limits to PE Rule: (1) Not to be relied on unfairly; (2) Oral evidence to show undue influence; (3) Fraud; (4) Oral evidence useful for promissory estoppel or misrep; (5) Collateral K; (6) If contradictory, strong but rebuttable presumption; (7) If it adds/varies/subtracts ( rule doesn’t apply; (8) Weaker when in standard form K; (8) If parties go back and forth and revise, more likely courts will only rely on written K; (9) Weaker where K term is general.
Where misrepresentation, PE rule does not apply.
Zell v. American Seating: PE rule is unfair in some circumstances and cannot be applied universally.
There was written evidence – agreement in question was with an individual who tried to get Ks with D company – some discussions of him getting a percentage of Ks he obtained – parties said they would not put into terms of written agreement as it was politically problematic – he got $6-million in Ks – company would not pay him – sued claiming breach – judge said PE rule developed to avoid confusing a jury – not so applicable anymore. Both parties understood what they were getting into in oral agreement – would be unjust to apply PE rule.
Hawrish v. Bank of Montreal: Any agreement collateral or supplementary to written agreement may be established by PE, provided it is one which could be made as an independent agreement w/out writing and that it is not in any way inconsistent to the written agreement.
Issue: Did collateral agreement exist?
Guarantor signed agreement that he would guarantee someone’s debts up to $6K. The oral agreement between him and bank was that they were not going to pursue him for that amount of money and it would only cover existing indebtedness and would be released when bank got release from company. Bank tried to claim full amount against him. Court: Collateral agreement allowing for his discharge cannot stand because it contradicts written agreement. There must be clear evidence of intention to create binding agreement. Clause in written agreement also said “this” was only agreement, there were none other.
Bauer v. Bank of Montreal: Oral evidence which contradicts written K is inadmissible under PE rule.
Guarantee – Bauer guarantee loan BMO made to company – he was principle shareholder – money was not assigned to debt – bank didn’t do everything it should have done to protect its rights to book debts – company went insolvent – more of a debt existed that was guaranteed by Bauer. Normal rule: he could say it was bank’s fault they didn’t get it… “I’m off the hook.” BUT there was clause in guarantee K saying bank may abstain from perfecting securities. Bank said to him earlier that they would give him debts back if loan was paid off. Court: this would contradict terms of written guarantee – inadmissible under PE rule. Problem: he didn’t raise argument at trial; not clear support for existence of collateral or qualifying agreement. Only evidence of some kind of arrangement was statement by bank manager – won’t allow evidence because PE keeps it out and there is not much evidence to begin with.
Gallen v. Butterly: PE rule not absolute bar to admission of evidence of prior undertakings. There are many cases where evidence or an oral statement is relevant and may be admitted: when written agreement is not whole K; in support of interpretation of K; to correct a mistake or an error in written K; to show misrepresentations, etc. Presumption in favor of written K is less strong when contest is between specific oral agreement and general exclusion clause.
Issue: Does PE rule preclude P from relying on this warranty as to the weeds in light of the exclusionary clause in the K?
Court creatively finds that in some circumstances you can interpret extrinsic evidences as not inconsistent with written K. P entered into K on faith of oral assurances that buckwheat as a crop would blanket and smother weeds. P signed agreement when purchasing seed – K said there was no guarantee for seed or crop. Farmers said seed company claimed seed smothered weeds. However, weeds smothered crop. Warranty was in conflict with written agreement. P sued successfully when crop didn’t work – D appealed on basis of PE rule precluding the admissibility of evidence concerning such a warranty. Even though there was conflict – it only means PRESUMPTION in favor of written K. Here, oral warranty does not contradict written K – one is concerned with weeds, the other with the productivity of the crop.
Decision: PE rule creates presumption in favor of written K, but this can be overcome if it was the intention of parties that oral agreement would modify it.
CLASSIFICATION OF TERMS
• Warranty: you cannot reject good when warranty has been breached.
• The moment to focus when classifying terms is moment of acceptance.
• Important to determine whether Sale of Goods Act applies.
• Repudiation v. Rescission: Repudiation comes from breach of a condition (term); rescission comes from representations. To repudiate, you don’t need to show any damages, and you are free from remaining K obligations. Rescission, K set aside, you are returned to pre-K position.
• Condition Precedents: Something that depends upon a future uncertain event, the happening of which depends entirely on will of a 3rd party. If a condition is a true condition precedent, there is no K until it CP is satisfied. There is a difference between a condition that is precedent to existence of a K and a condition that is precedent to performance of a K.
Prior to HK, you could think there was strict dichotomy between warranties and conditions.
Hong Kong v. Kawasaki: There are intermediate terms which are neither conditions nor warranties. The test used to determine if term is a condition or intermediate term is the nature of event and its practical effect and not followed from prior classification of the undertaking. Must examine consequences of particular breach in issue and determine whether the party at fault should be entitled to terminate K or damages claim.
Issue: Was guarantee that ship is seaworthy a condition or guarantee?
With an intermediate term you cannot tell in advance what consequences of the breach are going to be – you have to wait and see how serious. In this case they were not deprived of substantially the whole benefit. Breach was term relating to seaworthiness of vessel – it was treated as intermediate term because “seaworthiness” is ambiguous term – they also had a pretty good idea the ship was unsafe. K looked as though they contemplated possibility of problems with seaworthiness of vessel. The effect of the breach was not to deprive the purchaser of the boat, but to delay when the purchaser would get the boat. [Try to make it clear in K when a breach entitles you to treat K as repudiated!]
Held: This was a breach of warranty.
Sale of Goods Act tells us terms that are conditions, etc – it modifies terms of Ks, and so may add a bunch of terms to K. “Where…is breached, purchaser does not have to pay…” Just because something labeled as condition in K, does not automatically mean that it is!
Krawchuk v. Ulrychova: HK may be applied to Ks made under SGA when not possible to determine parties’ intent to what term should be classified as. Two steps: (a) Look at K and surrounding circumstances and ask “is it a condition or a warranty?” If no answer, (b) look at severity of breach.
Issue: Does Hong Kong apply under the Sale of Goods Act?
Breach of term that horse was supposed to be “sound.” Trial found horse was unsound at time of sale – it was sucking air, etc. Applied HK test and held gravity of consequences of breach did not deprive party to perform of substantially the whole benefit of K ( found breach of warranty. [Note: if horse had been one for competition – it may have been different.] Note: cribbing was correctable by wearing of “collar” and did not prevent its used as riding horse. It was only breach of guarantee as to soundness.
Rules of CL still apply so long as they are not inconsistent with SGA: Test for warranty v. condition as laid out under SGA:
1. Consider intent of parties in light of surrounding circumstances – have they agreed it should be term or condition?
2. Surrounding circumstances test must include commercial setting (the market the parties are operating in).
3. If it cannot be determined what parties intended, consider HK analysis in terms of gravity of the event.
Decision: HK applies: this breach is one of warranty.
Wickman v. Schuler: K should be interpreted as a whole and word “condition” can be given an ordinary meaning not as a term which entitles innocent party to repudiate K in event of breach ( rebuttal presumption only. If parties intend to give condition such an effect they must make that intention clear. SGA wants things interpreted as “construction of the K” so the presumption may be higher that conditions are conditions.
Issue: Was this a condition or something else despite word condition?
Schuler entered into written K with Wickman – gave Wickman sole rights to sell products in UK – as “condition” of agreement Wickman had to visit 6 largest UK car manufacturers at least once a week – visited most weeks, but on a few weeks failed to visit for various reasons – Clause 11 says K could be terminated early on breach of an obligation without it being rectified in 60 days.
Denning comments on 3 possible meanings of “condition”:
1. Proper meaning: “Something demanded or required as prerequisite of granting or performance of something else” “in a K, a provision on which its legal force or effect is made to depend.” Denning asks himself if this clause was a “prerequisite to the very existence of the K” and concludes it was not. If they did not send the person every week, the K would not be void. Was this a condition in that it was a prerequisite to a right to recover such that if Wickman did not meet obligations they could not sue? ( cannot be the case because if W had a commission due, S could not refuse to pay on the grounds that they missed one payment.
2. Common meaning: “a provision, a stipulation.” In this sense conditions means simply the terms of K - may be true conditions or just warranties.
3. Term of art: “a condition as opposed to a warranty.” A term in a K that if broke for any reason absolves party of future obligations and gives right to sue for damages. It is NOT submitted W made fundamental breaches.
Reid: Difficult to construe intentions of parties – it seems more likely and more satisfactory construction they intended this to be a warranty despite use of word condition. Unreasonableness: no provisions for sick days, substitutes, or even death – so unreasonable that must search for other possible meaning.
Decision: This was not a condition that you could get rescission granted to remedy a breach of. Because of other clauses, which include repudiation for material breaches, the effect of breach of sales rep term cannot be rescission.
DISCHARGE BY PERFORMANCE OR BREACH
• Entire K Theory: Some Ks where you are not entitled to anything unless you have completed everything. Courts modified it.
• Quantum Meruit: the amount it is worth. Breaching party may recover value of services to prevent unjust enrichment of non-breaching party.
• Deposit: money paid in advance to guarantee performance of K.
Fairbanks v. Sheppard: A deliberate abandonment of a K before substantially completed will not allow for a claim for payment for work performed. In order to recover for work that is “substantially” completed, the party in default must provide evidence from which any new K to accept and pay for the work done could be inferred. Quantum meruit NOT applied against contractor who withholds performance for strategic reasons.
Issue: Can S recover for work that he has already performed?
Sheppard contracted to build a machine for Fairbanks for $9800 – F paid $1000 on account – when the machine was nearly complete F said he would not finish unless he was paid a further $3000 (coercing). P, having contracted to do an entire work for a specific sum, can recover nothing for partial completion. When S stopped working there was still work to be done that required engineering skill and knowledge. It could not be said D substantially completed his K – the K was to produce machine that would produce soap when he stopped work on it – there is not ground for inference of a new K as in some situations. Inference for a new K: Though P has abandoned the K, it is possible for him to raise the inference of a new K to pay for the work done on a quantum meruit from D’s having taken the benefit of that work. In such a situation, it must be open to D to choose whether to take or not to take benefit of work done. Here D does not want the machine. Important fact: Manufacturer withheld installation of critical pieces of machinery to coerce payment for purchaser of monies to which the supplier was NOT entitled under the agreement.
Decision: K failed: S gets $1000 back; F gets back his machine.
Sumpter v. Hedges: Where there is a K to do work for a lump sum, until the work is completed the price of it cannot be recovered. But there are cases when even if P has abandoned the performance of a K, it is possible for him to raise the inference of a new K to pay for the work done on a quantum meruit basis. BUT in order for that to be done, you must give D option to take or not take the benefit of the work done.
Issue: Can P recover work done on land in this abandoned K?
P contracted to erect certain buildings for a lump sum – when work partially complete, he said he could not go on due to financial problems – judge found he abandoned K – D found his land with unfinished buildings on it and completed the work – no evidence to infer he entered into fresh K. Discussion: in sale of goods, evidence of retention of the goods may demonstrate a new K has been formed – had P merely breached the K he might have recovered some under quantum meruit – there are circumstances where P was allowed to recover after abandoning a K, but these arise only where there is option for D to take or not to take the benefit of the work done. When there is no choice about taking the benefit, such as in cases involving work done on land, there must be other things to ground the inference of a new K. Note: D had not proceeded to finish work himself – if he did, P may have been entitled to sue on quantum meruit ground that D taken benefit of work. BUT unfinished building on his land a nuisance!
QM cases like these have been cited as “quasi-contract.” Courts adopted this approach as a way of getting around these problems where one party, if no QM award, would get a windfall at expense of other party for no good reason. The central notion is unjust enrichment – should not be allowed for no good reason. Now, would treat as new K because they have accepted work that was done – if there is choice – fictional K is recognized.
Markland v. Lohnes: Where work was done badly, and defects have or can be remedied, courts tend to find there has been substantial performance and the builder should have the agreed price less the cost of correcting defects and omissions UNLESS there is breach going to root of K.
B paid part of what was done but not balance due to defects in workmanship. Court says K does require payment of rest with adjustments ( substantial performance taken place – but SOME parts done badly ( BUT defects could be remedied. Note: each case must be determined on own facts. Note: had there not been substantial performance Markland may have been out of luck.
Recovery available unless:
1. Work done is of no benefit to owner;
2. Work done entirely different from work which he has K to do;
3. He has abandoned work and left it unfinished.
Howe v. Smith: When not expressly specified in the K, the deposit becomes part of the purchasing price. If not performed, purchaser loses deposit – becomes down payment only if K performed.
Issue: Can purchaser get his 500 deposit back?
Howe supposed to buy real estate – paid 500 upfront – rest to be paid a month later – he did not pay – no express terms in K for this situation. When K does not tell you if he should get deposit back, it is unclear (Note: most Ks will specify). A deposit shows you are serious! This case turns on notion that it is deposit.
Decision: Purchaser not entitled to specific performance; loses his money.
Stevenson v. Colonial Homes: To determine if payment is deposit or part payment, courts look at intention of parties in the circumstances of each case as indicated by actual words of K and evidence of what was said. If payment is deposit ( no return when K is set aside; if money is paid as part payment on account of the purchase price ( it is recoverable.
$1000 paid as down payment for purchase of cottage – fight over whether $1000 is returnable. Court finds it should be returned: it was not called a deposit – it was called down payment. Court on interpretation of agreement: suggesting that there is ambiguity. Contra proferentum: you interpret something against the interest of the party who proffered it – if one party draws up K and its language is vague – that party who had opportunity should not have benefit of ambiguity – interpret K in favor of other party. Court: language not clear enough to make it deposit that can be forfeited – if you want it to be deposit where other party is going to lose ( you better make it clear and bring to their attention.
STANDARD FORM CLAUSES AND EXCLUSION CLAUSES
• Raises questions of courts role in protecting weaker parties.
• Interpreting Ks: (a) Start at plain meaning; (b) may use extrinsic evidence where parties have given special meaning – ambiguity; (c) Limited use of evidence of negotiations or subsequent conduct; (d) Contextual consideration – what happened in K to gauge parties’ expectations? (e) objective approach to intention; (f) contra proferentum: where one party drafts documents and other party had little input, courts may construe document less favorably to party who drafted it IF something is ambiguous; (g) Industry practice.
Machtinger v. Hoj Industries: The terms of a K may be implied on basis of fact (custom, usage, business efficacy), or legal incidents (necessity).
Types of implied terms: parties did not expressly put in K.
1. Implied in fact: “officious bystander” or business efficacy tests. Parties intended but overlooked.
2. Implied due to custom or usage: presumed intention.
3. Implied by statute: including Sale of Goods Act. Ex: if blank regarding price of goods – implied into K (unless evidence of contrary intention).
4. Implied by law as legal incident ( particular type of K. Did parties intend to enter into this type of K?
UNSIGNED AGREEMENTS
Parker v. Southeastern Railway: In case of unsigned documents, the party imposing a condition (or exclusion clause) has to take reasonable steps to give other party notice of condition. Test to determine what constitutes reasonable steps Objective: not whether party knew of condition, but whether party imposing condition did what was reasonably sufficient to give other party notice. Do more than hand them ticket!
Issue: What is situation where parties have not a signed K and one party set out printed terms and conditions and says you have agreed to these (ticket)? What is effect of wording on back of ticket?
P left bags in railway stations cloakrooms – got ticket with date, number – note on back: company not responsible for package exceeding value of 10L – suitcases lost – company said only liable to pay 10L.
This situation not same as using standard commercial documents where both parties aware of their procedures. Railway company entitled to certain assumptions (they can read English), but company has responsibility to do what is appropriate to bring terms to attention to ordinary luggage person. Note: More onerous term ( more notice required. Would a reasonable person expect to find terms on back of a receipt?
1. Signed K ( bound even if you didn’t read it.
2. Unsigned but assented to (must prove apart from document itself) ( bound. Here, you agreed the rules apply but you didn’t read them. Must be evidence you both agreed that was the case.
3. Ticket w/writing on it (read it and know of conditions) ( bound. If you did not see writing/unknown ( not bound. If you saw some writing but didn’t understand it was the rules ( depends on whether there was sufficient notice.
Decision: Individuals not aware of conditions – not responsible for making themselves aware of conditions – got full value of suitcases.
Thornton v. Shoe Lane: Must make sure you do something reasonable to give person opportunity to find out terms before K formed. You cannot impose terms (exclusion clause) on somebody after K is formed without their consent, notice, or agreement. The more stringent the clause, the more the company must be diligent in giving notice. Automatic ticket cases: ticket arrives at time when customer no longer in position to refuse the transaction.
Issue: Was exclusion clause part of the K?
Drove car in car park – got ticket – parked car and left it there – came back – there were notices outside and inside parking lot of how much it cost/parked at owner’s risk – he paid – there was an accident where he was injured – 50% fault of him and 50% of parking company – ticket had in small print “subject to conditions listed on premises” – Thornton did not read wording of terms – terms referred to on ticket were posted on signs.
Denning: would have taken considerable time to read conditions – If condition is part of K, he is unable to recover any damages caused by negligence of company. Terms of offer placed on notes on machine. The terms of those which are made known to customer before he puts his money in. Does not matter what is on ticket after you have formed K. Ticket only a receipt. Terms known to him said it was his own risk, but it didn’t have anything to do with personal injury. Any wording that came to him afterwards was too late. Shoe Lane admitted they did not give sufficient notice! Exemption was so broad/onerous (took away all rights) that it would have to be written in red with big hand in order to be reasonable. No actual notice of terms before he entered K – company did not do what was reasonably sufficient.
Decision: Exclusion clause not part of K.
McCutcheon v. David MacBrayne: Previous dealings (exclusion clauses) with parties relevant only if they prove: (a) Actual knowledge of terms; (b) assent to terms in previous dealings. If previous dealings show a person knew of and agreed to a term on 99 occasions, it can be imported into 100th K without express statement; but without proving knowledge ( nothing.
Issue: Was transport of car subject to exclusion causes not part of oral K?
P went to transport a car on a ship – ship sank – car a total loss – value of car 480L – P regularly shipped his car on board this ferry – P did not acquire ticket on this ONE occasion – 3-4000 word K in small print – sign name and move forward – exclusion clause in agreement – document was not signed this time.
Had company taken measures to bring it to his attention on previous occasions, they may have had basis for saying the terms applied despite him not signing K.
Decision: P did not have knowledge of exclusion clause.
SIGNED AGREEMENTS
Tilden v. Clendenning: The party seeking to rely on stringent and onerous terms of signed (but unread/not understood) terms of standard Ks should not be able to do so in the absence of having taken reasonable measures to draw such terms to attention of other party. Note: Term was inconsistent with overall purpose of this K!!!!
Issue: Was renter bound by onerous exclusion clause he wasn’t aware of?
Renting car, asked if he wanted to pay additional for insurance coverage – did not read standard K – had car accident – EC said you weren’t covered under circumstances when you consumed any alcohol – entered guilty plea on advice of his counsel of impaired driving – he assumed the clause would be same as for his own insurance (not covered if you were drunk) – Tilden witness gave evidence as to what they would have told him – did not tell customer anything of exclusion clause and if they asked, they would tell them they would be covered unless intoxicated. In K, customer had to agree not to drink anything – also, if you drove 1 mile/hour over speed limit you were not covered. Court: These clauses were onerous and ***inconsistent with overall purpose*** (offering insurance coverage). Parties only bound by terms they agreed to. What would reasonable person have thought he was agreeing to? Tilden had no reason to believe he was agreeing to those terms.
Delaney v. Cascade River: The language of standard liability release must be interpreted and understood having regard to whole purpose of the relationship between the parties or the nature of the venture involved. Support of any new term to K must be accompanied by new consideration.
Issue: Can company benefit from standard liability release?
Delaney went water rafting – he drowned due to inadequate lifejackets – his widow sued – Cascade wanted to rely on liability release – already entered into main K for main holiday and part of it was water rafting – he paid $100 in advance – while loading vehicle (after K formed), signed “standard liability release” – Delaney did not see it, and was told trip was not really that adventurous. Brochure given to everyone but him and said you must sign release, we assume no responsibility for your safety. Even though he signed waiver after K formed, the new consideration received was that he was permitted to enter the van and carry on. The purpose was to engage in what must have been intended to be an exciting and thrilling challenge and such intent was involved in language of release. (Note: there was dissent).
Found: Negligence not proven. Given nature of adventure involved, intent of release reasonably obvious.
Schuster v. Blackcomb: There are circumstances when signing a waiver provides protection – court will look at all circumstances to determine whether person got reasonable notice. Also, the purpose of the relationship and nature of venture involved must be considered.
Skiing accident – P skied there often – signed forms – said she read bold typed waiver form – did not recall smaller type font – did not discuss it with instructor.
Issue: Was this waiver operational to prevent her from suing?
She had full opportunity to examine the document – she was educated – she was familiar with the terms – court distinguishes from Tilden: she had adequate notice. Circumstances: she knew there was a waiver – she knew the way ski hills operate – if she did not examine waiver properly, that is her problem. Document had bold print above signature saying: “waiving all claims.”
Court: She is bound by the document. She was familiar with the contents.
FUNDAMENTAL BREACH
• Mechanism where courts limited effect of exclusion clauses when they thought it would be unfair for a party to rely upon it.
Karsales v. Wallis: Doctrine of fundamental breach: A party cannot rely on exemption clause when they deliver something “different in kind” from that contracted for, or if they broke “fundamental term or fundamental contractual obligation.” A breach which goes to ROOT of K disentitles party from relying on exemption clause. You cannot rely on exclusion clause as exemption from misconduct [overruled in Photo Production].
Issue: Can D recover payments and rely on condition saying car must not be roadworthy?
Purchase Agreement – car in question found to be in deplorable state – tires and radio gone – engine problems – not in same state as originally.
You cannot rely on exclusion clause when abdicating your responsibilities. Cannot use clause as exemption from misconduct – Cannot use clause to get out of their central obligations.
Photo Production v. Securicor: Determining whether (or extent) an exclusion clause is to be applied to a fundamental breach (or fundamental term), or to any breach, is a matter of construction of whole K. Parties are free to determine what primary obligations they will accept. If exclusion clause is clear it may protect party relying on it from liability. Take into account what is just and reasonable via examination of what is contracted for what is consideration.
Securicor provided security services – provided night guard who started fire – large part of factory burned down – exclusion clause limited company’s liability to extent they were not negligent.
Issues: Was fire responsibility of Securicor? Did exclusion clause free them? Which party to pay if risk happens regardless of lack of fault of either?
HL not happy with doctrine of fundamental breach – but was useful for a while - but no longer necessary – Unfair K Terms Act made it obsolete – provides protection (eg: toaster manufacturer’s no liability clause not allowed if consumer gets electrocuted). Doctrine of fundamental breach not totally out, but use another approach. Two types of obligations: (a) [Primary] Provide security guard, ensure visits to factory exercised reasonable skill and care; (b) [Secondary] pay damages if in breach of K terms. Where there is serious breach, primary obligations put aside and secondary substitute for them. Securicor was not negligent for hiring this guard. Which party to pay if risk happens regardless of lack of fault of either party? Exclusion clause that put risk on Photo better ( they are in better position to protect the building and their interests (purchase insurance, check for inflammable items laying around, etc).”…risk that servant of Securicor would damage factory or steal, despite exercise of all reasonable ediligence by Securicor to prevent it = “misfortune risk” ( something which reasonable diligence of either could not prevent. BUT either party can insure against it. Photo paid very little for security!
Held: Securicor not liable.
Hunter v. Syncrude: If on its true construction K excludes liability for kind of breach that occurred, the party in breach will be saved from liability, unless K (or clause) is UNCONSCIONABLE, as might arise from situations of unequal bargaining power. Test for exclusion clause is one of unreasonableness and in light of the nature of the breach.
Issue: Does this exclusion of warranty apply?
Mining gearboxes for tar sands project – Hunter to provide gearboxes built by Syncrude’s specifications – gearboxes failed - Hunter relying on exclusion clause saying they were contracting out of warranty under Ontario Sales of Goods Act.
Breach is not fundamental – but even if it were – must consider reasonableness and fairness. Give clause its natural meaning unless unconscionable. Doctrine could apply to any case where K is not product of free negotiations between parties of relatively equal bargaining strength, provided application of clause would lead to a result considered unconscionable. The Court held that the limitation of liability clause was enforceable even in the case of a fundamental breach so long as it was clear in the language that it was within the intentions of the parties. Furthermore: although gearboxes important, their inferior performance did not deprive Syncrude “substantially of whole benefit of K” … cost of repair only small part of total cost…they did work for a period of time and were repairable.” Defects did not become apparent until AFTER warranty expired. Even if fundamental breach: companies in commercial marketplace, roughly equal bargaining power, both familiar with this type of K.
Held: Companies that sold faulty gear boxes NOT liable.
Solway v. Davis: D not permitted to rely on liability limitation clause if it would be unreasonable in the circumstances.
P hired moving company to move and store their furniture – trailer kept on side of road - goods stolen – Davis admitted liability but had to consider limitation clause won’t go over $7000. P was aware of limitation clause! No good reasons for failing to apply the exclusion clause which was part of K. Policy reasons for not having unlimited liability imposed on moving companies: (a) mover not aware of value; (b) insurance costs would skyrocket.
Held: Liability limitation clause applies.
Plas-Tex v. Dow Chemical: Parties cannot rely on exclusion clause to allow them to engage in unconscionable conduct.
Issue: Despite knowing in advance of their faulty product, is company protected by limitation clause?
Plas-Tex provided pipes for natural gas pipelines in Alberta – Dow supplying them with resin for purposes of making pipes – resin was defective – pipes cracked and leaked and there were explosions – Plas-Tex lost business and went into bankruptcy. Litigation went on for 28 years. Trial and CA found Dow liable despite clause in K that said liability for quality of resin was responsibility of PT, not Dow. Terms court addresses under SGA: Implied merchantability: quality appropriate for sale on market; implied condition: goods are fit for purpose they are purchased. PT argued there was fundamental breach and in circumstances Dow should not be allowed to hide form their obligations behind exclusion clause. Court: Party not allowed to rely on exclusion clause to allow them to engage in unconscionable conduct to do things which are grossly unfair in knowledge that although they are going to create problems – they have EC. KEY: knew in advance that resin defective – did not disclose ( unconscionable.
Held: Inequality of bargaining power + fundamental breach.
Sale of Goods Act s.20: No waiver of warranties or conditions in retail sales.
Must be in ordinary course of seller’s business (NOT me reselling my car) – unless goods are used, any term that purports to diminish or negative conditions or warranties is void. In retail sale Ks, you cannot K out of a number of implied terms (fit for purpose of being sold). If you go to department store, they cannot use K to protect themselves from obligations that implied terms impose on them.
MISTAKE
• There are RARE circumstances when mistake may affect validity of K. Void: K did not exist from start and never had effect; Voidable K: one which is defective and one party can have it set aside.
• Common Mistake: both parties share same mistake and belief. A agrees to buy B’s car, but unknown to both, car destroyed by fire 2 minutes ago. Courts generally assume K formed ( decide who should bear costs.
• Mutual Mistake: two (or more) different interpretations of K. Enter K to do something from 6am-8am; other party thinks it is 6pm-8pm. Issue: Was there a K? Sometimes no K because no agreement on essential terms.
• Unilateral Mistake: one party makes a mistake and other knows of it. One less zero on offer. Was K formed?
• Mistake must go to ROOT of the K.
Miller v. Gottardo: In cases of common mistake, K can be put aside when: mistake makes subject matter of K “essentially different” from what it was believed to be (CL); or when it would be unconscionable to allow one party to take advantage of mistake (equity). It must be done without injustice to innocent 3rd parties, and party seeking to set it aside must not be at fault.
Mistake both parties shared was belief that Miller had been paid in full for supplies they provided to Gottardo – on basis of shared mistake, entered K that acknowledged all of these supplies had been paid for – Miller found out a month later it was not the case and wanted to claim payment for the supplies – Gottardo said no, we both thought they were paid for – too bad. Court: this is case of common mistake. Law in Canada has two possible remedies, one at CL, and one at equity. Applying test: Mistake NOT making K essentially different. TJ found it was Miller’s procedural (accounting) errors that led both parties to believe this mistake – they were not fraudulent, but it was their own error. It is not unjust for Gottardo to avail itself of the legal advantage it obtained.
Held: Unfair to make Gottardo to pay for something they were told they already had.
IDENTITY THEFT AND THIRD PARTIES
Shogun Finance v. Hudson: For Ks in writing, if one party intended to K with another party who was not in fact who he was contracting with, the K may be null if person he intended to K with did not assent.
Issue: Does binding K result when two parties enter into K but one has been masquerading as a third party? Does vehicle stay with fraudulent party, or title remain with car dealer?
Fraudulently purchasing car – pretending to be someone who is reputable – filled in forms – did credit check – takes off with car – dealer found out later he was a crook. Courts said two lines of authority: (1) Cases where parties dealing face-to-face: strong presumption (not absolute) the parties intended to K; (2) Cases where parties dealt at distance: no such presumption. In this case, dealings partly in writing and partly face-to-face. Reasoning: Credit checks, etc ( dealer only intended to deal with Patel ONLY. Important in decision was fact that identity was of vital importance to the finance company. See Boyle, p.633.
Held: Hudson in no position to convey title to Patel who did not assent.
NON EST FACTUM: “That is not my deed”
• If your signature forged and you can show it ( you are not bound by it.
• You signed document, but it was different from what you thought you were signing. Example: thought you were signing thank you cards, but turned out to be promissory notes. Had no idea what document meant.
• Includes: no fault of your own – you are incapable of understanding what document was.
• Courts reluctant when self-induced or your fault (careless). Also, if other parties relied on you and it would be unjust to allow you to get out of agreement, court will not help you.
• Why reluctant? Policy: commerce requires degree of certainty.
• Originally for blind – but if blind man has son read him document, he cannot rely upon it!
Marvco Color v. Harris: Adopts Saunders in Canada: (1) A person making this defense has to have signed documents that are fundamentally different from what he thought they were; (2) He can only be successful if he can show he was not it any way negligent in putting pen to paper. Cases are to be decided on facts with balancing of interests involved in claims of non est factum involving third parties. The most obvious basis for a finding of carelessness arises in situations in which literate parties decline to read documents they are signing.
Issue: Is non est factum available to party who, knowing the document has legal effect, carelessly fails to read it – thereby permitting 3rd party to perpetrate a fraud on another innocent party?
Action for foreclosure on mortgage – Marvco not guilty of fraud and is entitled to executions of the charge but for non est factum – was told it was inconsequential amendment to mortgage, when in fact it was substantial mortgage in its own right – they were literate yet failed to read the document.
Court: party who could have avoided the loss due to reasonable care should bear it, as opposed to innocent 3rd parties. Based on need for security in commerce. The magnitude and extent of carelessness, the circumstances which may have contributed to such carelessness, and all other circumstances must be taken into account in each case. [Saunders: the remedy can be available to man of full capacity only in exceptional circumstances – not when lazy or too busy to read it. Could be available when led to believe document he signed was not one which affected his legal rights.]
RECTIFICATION
• In rare circumstances, court will step in and rectify wording of written K where words do not reflect terms of previous oral agreement.
• A purely equitable doctrine – does not exist at CL. Limitations: if you done something to get yourself in circumstances.
• Purpose: court steps in to prevent person from being defrauded.
Sylvan Lake Golf v. Performance Industries: To prevent someone from being defrauded, courts may rectify wording of K. Requirements: (a) Has to have been prior oral agreement – exception to PE Rule; (b) Other party’s knowledge of error had to have been actual or constructive (known of mistake); (c) Must be able to show what would be needed to correct document – proof of precise correction required; (d) Proof beyond ordinary civil standard of BOP – particularly convincing proof – but not quite BRD.
Parties have joint venture agreement concerning land development – one had option to develop property around 18th hole of golf course – written docs set out specifications for this land at 480 yds X 110ft. Claim: when discussing this land, it was understood to be 110 yds – other side said too bad.
Here, suspicion other party was being crafty. Court rejects any rule the party seeking rectification has to show they exercised due diligence. Court less inclined to disentitle remedy because they were being careless. NOTE: quite different from non est factum standard. Why give this person a break? To prevent people from being “crafty” – don’t want people to sneak in terms that they previously agreed to. All court is ruling here is to hold parties to their agreement – ensuring document accurately reflects this agreement.
FRUSTRATION
• Doctrine that allows parties to be relieved from obligations when dramatic catastrophic event renders performance of K radically different.
• Different from misrep and mistake – those are problems that affect formation of K – in frustration it is something afterwards that has happened. Frustration involves future circumstances.
• Parties cannot take into account everything that could happen and affect the K.
• General Principle: In K law you are stuck with obligations even if it turns out they are more onerous than you anticipated, or even if benefit you thought you would get is not as profitable.
Rickards Estate v. Diebold: Where there is K under which an individual has ongoing obligations (personal services) and he dies, the K is frustrated unless there is stipulation to contrary. Frustration occurs where: (a) There has been something not provided for in K; (b) Must render performance radically different; (c) it is not fault of either party to K.
Issue: Was K frustrated by party’s death?
Settlement K arising out of wrongful dismissal claim – Diebold to pay to Rickards – Rickards was to conduct reasonable search for alterative employment – he died -- Diebold said once he died, the K was frustrated and they should not have to pay to his estate. Court: Must ask: Is it something only that person could perform? Here, Rickards had ongoing obligation to look for work and report to Deibold – his estate cannot do that for him. Note: Obligations are put to end from point of frustration onwards – does NOT affect past.
Held: Settlement agreement frustrated by his death.
FORCE MAJEURE CLAUSES
• Clauses that tell you what events will frustrate the K: “acts of God.”
• Three solutions commonly enforced: (a) Performance suspended for specific period of time – cell phone companies; (b) K is varied so parties have to perform different obligations; (c) K terminated without any damages payable.
Atlantic Paper v. St. Anne: FM operates to discharge party when supervening or supernatural event occurs that is beyond control of parties – something beyond reasonable human foresight or skill. Party cannot rely on it when they brought problem on themselves.
Issue: Could St Anne rely on FM clause in K?
K for sale of huge quantities of waste paper – April 1970 K – June 1971 St Anne said no more fibre – wanted to rely on FM clause: St Anne warranted and represented they would purchase at least 10K tones/year unless (a) act of God; (b) war; (c) labor unrest; (d) destruction of production facilities; (e) non availability of markets. Court: What happened that St. Anne relied on non-availability of market? It was their poor marketing – incorrect feasibility studies – did not accurately estimate how much cardboard they would be able to sell. Nothing happened that was different at this time than when they signed K ( only that they made gross overestimations. St. Anne brought this problem on themselves.
Held: Events not beyond St. Anne’s control. Could not rely on FM clause.
Frustrated Contract Act: Applies when Ks have been frustrated – but not insurance Ks. Does not apply to charter party or K for carriage of goods at sea. If K makes provisions for consequences of frustration or avoidance, FCA does not apply.
Section 5: Adjustments of Rights and Liabilities: If you have done part of what you were obliged to do and other side received benefit, you are entitled to some compensation for that benefit. 5(3): If you can get compensation for benefits other party received – if there was something you should have done before frustrated event – you are no longer obliged. If you were supposed to paint their fence but were late and fire burned down fence, you are entitled to compensation for partial performance, but no longer obliged to do stuff you were supposed to do. 5(4): Act will operate to readjust risks (divide) which have led to frustration that parties did not make clear. You have to look not only at value of work that was done, but also the effect on the value of the benefits received by other party. Because fence has burned down, they did not get any value from benefit of what was painted – so the loss should be DIVIDED.
Exception: s.6: if there is some implied term in K to effect that party performing should bear loss of risk in value. Not only evidence of what parties has done before is relevant, but also practice of industry. If it is well known that owners always insure against this type of loss – that may be evidence that court should not step in and reallocate these losses.
Section 7: Calculation: (1) Only reasonable amounts should be covered.
Section 8: Account must NOT be taken of loss of profits or insurance money that becomes payable – account must be taken of any benefits which remain in hands of party claiming restitution.
Argument for keeping frustration narrowly defined: parties to K are in better position than courts to assess losses and the allocation. Reducing incentive on parties to be careful on risk assessment.
PROTECTION OF WEAKER PARTIES
Sometimes court will step in to declare K void, or say that it is voidable where there is unfairness to weaker party. The main issue is one of PROTECTION.
DURESS
• Duress to person: somebody using physical threats to make you agree to something.
• Duress to goods or property: somebody has physical control of your belongings and compelling you to do something in order to recover something you have.
• Economic duress: somebody is putting financial pressure on you in order to get you to do what they want.
Pao On v. Lau Yiu Long: To constitute economic duress in a contractual situation, commercial pressure is not enough. There must be coercion of the will. Test: (a) Did the person protest; (b) Did he have practical and reasonable alternative options open to him; (c) Was he independently advised; (d) Did he try to avoid the K by taking steps after K entered? Must be shown payment made or K entered was NOT a voluntary act.
The K the court was considering was K to reimburse the purchasers of certain shares from any loss in the shares in a one year period. Court asked to deal with issue of economic duress because guarantee resulted as due to pressure from other side. Court says economic duress is something more than just commercial pressure. May apply where money paid under economic compulsion is result of pressure which amounts to coercion of will which vitiates consent. Economic pressure can amount to duress when K entered into was not a voluntary act. “Duress, whatever form it takes, is a coercion of the will so as to vitiate consent.” Having an option is not enough ( option(s) must be reasonable. Example: You should not have choice between signing K and going bankrupt. “Lau considered the matter thoroughly, chose to avoid litigation, and formed the opinion that the risk in giving the guarantee was more apparent than real.”
Held: Decision to enter 2nd K a calculated business risk – nobody foresaw value of shares dropping. There was no coercion of will to vitiate consent.
Gordon v. Roebuck: Court applies factors from Pao On and looks at another factor: not just that there be coercion that amounted to economic duress, but must be unjustifiable economic duress. You can use economic duress successfully as long as what you are doing is not unjustifiable. The party claiming duress must prove other party did not have a reasonable and justified claim.
Issue: Was he obliged to pay funds because of promissory notes?
Two solicitors acting as trustees for persons – Roebuck asked by Gordon to provide discharge of mortgage and to sign declaration so that his clients could sell second building in the project – first building had been sold. Gordon agreed but refused to pay out funds – declared he was being forced.
Court: Found there was protest; no realistic second option due to short time span; there was independent advice; he took steps to avoid it after entering K. Adds another element: Not just that there be coercion that amounted to economic duress, but question whether it was unjustifiable economic duress. In this case, the court is not satisfied that Roebuck was NOT entitled to demand these funds: there was some evidence, and so pressure was not unjustified. Gordon could not show that Roebuck was not entitled to the funds demanded by him.
UNDUE INFLUENCE
• Doesn’t just look at circumstances at time but also a longer relational imbalance of power between parties.
• UI: Unconscientious use by one person of power possessed by him over another in order to induce the other to enter into a K. Duress falling short of CL requirements may also constitute UI in equity.
• Found where there is an ability to exercise exceptional power in relation to another’s choices – something well beyond making of suggestions – power of persuasion that is objectionable because it arises out of confidential or other special relationship between parties.
• UI: (a) Special relationship – you trust and have confidence in the person - does relationship create potential for domination? (b) Nature of transaction: only if commercial ask: Is there undue burden/benefit?
• Actual Undue Influence: Actual operating influence on the choice made. Similar to economic duress. Pressure put on one party – exercise of trust or confidence to get weaker party into K.
• Presumed Undue Influence: Solicitor-Client relationship – doctor/patient – parent/child – guardian/ward – inequality of power. These people supposed to act in best interest of other weaker party – irrebuttable.
• Presumed Rebuttable: No closed list of types of relationships. Weaker party must (1) prove relationship existed and was one of trust and confidence; (2) show some kind of disadvantage.
o If P can establish a presumption of UI, relief will be available unless the presumption can be rebutted by D.
Geffen v. Goodman Estate: P must establish presence of a dominant relationship in order to give rise to a presumption of UI. Then onus shifts to D to rebut it (by showing P acted full, free, and informed and that he had independent advice). The magnitude of the disadvantage or benefit is cogent evidence going to the issue of whether UI was exercised.
Issue: What do you have to find to trigger presumption of UI?
Family members dealing with distribution of estate – appeal had to do with validity of trust agreement which conveyed property – home left in fee simple to daughter with mental disorder – brothers sought to ensure estate remained in family ( created trust providing life estate to daughter and remainder to grandchildren – daughter dies and leaves will with property to her own children. Children attempt to claim the brothers exerted undue influence on their mother.
Court says to ask: (a) Was relationship one which creates potential for domination? (b) Nature of transaction: if commercial, P must show that K unfair in sense that P was unduly burdened or D was unduly benefited. If not commercial, you don’t need to consider burden/benefit.
In this case it was bequest, so burden/benefit did not apply. On facts of case, no UI established: (a) Very little contact between sister and brothers; (b) She received independent legal advice; (c) Trust was in accord with her wishes.
Royal Bank of Scotland v. Etridge: Creditor must take reasonable steps to bring home to individual guarantor the risks that he is running by signing guarantee (wife for husband). A transaction that is not reasonably expected to occur between parties is necessary to give rise to rebuttable evidential presumption of UI. Term “manifest disadvantage” should not be used!
Issue: How is bank supposed to protect itself when asking wives for security for their husbands’ debts?
8 appeals had to do with transactions where wives entered into K with bank – party of agreements were that they charged interests in home as security for husbands’ debts in business – wives said there was UI and banks should not be allowed to apply security agreements.
Court says UI may not require “manifest disadvantage.” Questions of proof: Who is responsible for satisfying court of element? D must provide an explanation as to why this inference should not be drawn. How does stronger party rebut presumption: independent legal advice is one way (not necessarily adequate).
In this case, disadvantage is problematic – wives have some interest in family businesses. Banks cannot be expected to protect themselves against UI claims in husband-wife relationships by investigating relationships. Practical approach to adopt: When there is non-commercial relationship, banks should be put on inquiry – they have notice there is some kind of relationship of trust and confidence. Bank should protect itself by making sure they give adequate notice to weaker party as to what risks they are taking. If bank turns blind eye and does not notify weaker party, court may step in and protect weaker party.
Important points in case:
• There will be cases where wife’s signature of guarantee in her share of home will call for explanation! UI has connotation of impropriety: “inaccurate explanations of a proposed action.”
• “…when husband is forecasting the future of his business and expressing his hopes or fears, a degree of hyperbole may only be natural. Courts should not too readily treat such exaggerations as misstatements.”
UNCONSCIONABILITY
• Doctrine which rests on idea that there is inequality between parties.
• Traditional Doctrine: two persons stand in relationship where due to inequality, one can take UI over another and one is taken undue advantage of – will not be able to stand. Can involve distress, recklessness, wildness, or want of care.
• Difference between UI and unconscionability: UI attacks sufficiency of consent; uncon invokes relief against unfair advantage gained by unconscionable use of power by a stronger party against a weaker.
Morrison v. Coast: A presumption of unconscionability requires: (a) proof of inequality in the position of the parties arising out of the ignorance, need, or distress of the weaker, which left them in the power of the stronger; and (b) proof of substantial unfairness of the bargain in favor of the stronger. The stronger party must rebut the presumption by proving the bargain was fair, just, and reasonable.
Inequality due to age – Morrison was old widow of meager means – persuaded to borrow money to pay off debts – she mortgaged her home – did not get independent financial advice – they did not pay her – she was going to lose home – court asked to step in and protect her on grounds that whole transaction was unconscionable. She could not show undue influence – no relationship of trust and confidence – nothing in mortgage showing it was unreasonable. Issue of unconscionability: Need to prove (1) Inequality arising out of ignorance, need, or weakness (not necessarily trust or confidence as in UI); (2) substantial unfairness of the bargain. She entered into transaction of extreme folly – these people are relative strangers (no UI). There was no benefit provided for her in agreement – only to be paid back original sum. After (1) and (2) evident, there is a presumption of fraud in equitable sense (not deliberate lying), but broader, equitable sense – impropriety. Effect of presumption of fraud: other party must show transaction was fair, just, reasonable ( if they cannot, court will set K aside. Remedy: Cannot set aside whole transaction – set aside mortgage without requiring her to repay money – finance company has to transfer to mortgage company the promissory note. She is taken out of transaction and the two guys owe the finance company the money.
Decision: There was unconscionability.
Marshall v. Canada Permanent Trust: Courts willing to apply unconscionability regardless of whether there is sufficient evidence that stronger party knows of other party’s incapacity. Onus on P to show K was fair. Incapability to protect one’s interest is KEY.
Unlike Morrison, there is less evidence of unscrupulous dealings – P trying to get SP of sale of land – wanted to buy parcel – owner of land living in senior citizens home – Marshall went to him and asked if he would sell land – drew up offer to purchase – owner signed K, it was witnessed – later advised there was application to provide comity (appoint someone to look after owner’s affairs if incapable) – CPT responsible for looking after his affairs. Court: If parties met under such circumstances so stronger has power over weaker, onus on stronger to show K was just and reasonable. Elements: (a) One party unable to protect interests and (b) other party taking advantage – improvident transaction. A key factor here is that he agreed to sell land for considerably less than it was worth. Found: (a) Met because of brain damage – did not have capacity of Ks consequences. Found that Marshall was not aware of his condition, but that seems implausible! (b) Onus on P to show it is fair.
Harry v. Kreutziger: New Test: Whether transaction seen as a whole is sufficiently divergent from community standards of commercial morality that it should be rescinded. Old Test: (a) Inequality of position of parties due to ignorance, need or distress of weaker; (b) Proof of substantial unfairness in the bargain. [DID NOT DECIDE between the two. They are both applicable. SCC should settle it soon.]
Application to set aside sale of fishing boat – weaker party trying to have unconscionable K set aside – boat property of aboriginal man with limited education and business experience – had fishing license attached – applicant Harry initially said he did not want license – misleading info provided by purchaser about how easy it would be to get another license – purchaser bought it for significantly less (1/4) than it was worth – Harry discovered it was not easy to get license after boat gone. Court: Must show inequality and proof of substantial unfairness – stronger party must show it was fair and reasonable. This case was not as clear as Marshall or Morrison. On weakness of Harry: there was awareness of his incapacity – Harry was dominated and within power of Kreutiziger – unconscionable bargain. New single question to ask: Here, the community standards of commercial morality broken ( Kreutziger knew he was getting boat obscenely cheap and the owner was limited in education, not provided with competent advice, and may have been incapable.
Held: K set aside.
Hunter v. Syncrude: Court talked about unconscionability without settling its scope – no inequality of bargaining power (both have lawyers, etc).
Business Practices and Consumer Protection Act ss.4-10:
• Applies to consumer transactions (rare that it will be business-business)
• Big concern: individual being taken advantage of by business. Primarily for people purchasing items for household.
• Deals with sellers of goods or services, and also people who advertise and promote. Manufacturer may be subject despite no privity of K.
• Not open to allow suppliers to relinquish their rights under BPCPA.
• “Deceptive acts or practices” – any representation or conduct that has capability, tendency, or effect of deceiving or misleading consumer. Deceptive act may occur before, during, or after consumer transaction.
• Section 4 gives examples of conduct within scope of Act.
• If there is allegation of deceptive conduct ( burden on supplier.
• Unconscionable acts: not expressly defined; may consider all surrounding circumstances the supplier knew or ought to have known; 8c: “total price grossly exceeded the total price at which similar subjects of similar consumer transactions were readily obtainable by similar circumstances.”
• Remedy: Transaction not binding on consumer; if a mortgage, there is list of remedies in 10(2).
• Unsolicited Goods or Services: Can’t force goods on people (s.11).
• ss.4-10: Deal with deceptive acts and practices and unconscionable acts.
REMEDIES
EXPECTATION OF INTEREST – (Forward Looking)
• Awarding damages to put injured party in position in position as if K performed.
• Damages for loss of profits, benefits, opportunities they should have received if other party performed properly.
• Sale of goods case: you have K to buy 100 tonnes of wheat of a certain grade and a certain time; you need it for sub-buyers; breach – supplier does not give you wheat – you have to buy it in marketplace and now you have to pay $5 more. Damages = extra amount you have to pay.
• Policy: Encouraging system people can rely on K obligations and certainty in future.
RELIANCE INTEREST
• Claim for wasted expenditure – losses and expenses innocent party incurred as part of their preparation/performance of their side of K.
• Compensation for waste expenditure – put back in position you would have been if you didn’t enter into K.
• Used when too difficult to decipher what would have happened. Or you can’t prove ED if it appears you would not have made profit even if there were no profit.
Bowlay v. Domtar: P can be compensated for damages resulting from D’s breach but not for damages resulting from P making a bad bargain. Onus on D to prove none of Ps costs would have been recovered and that P is entitled to nominal damages only.
K to do logging work – due to breach things fells apart before K completed – B to cut and skin logs, D failed to tow logs out – B claimed damages based on losses that incurred to point when K repudiated. B not asking for ED, it is asking for RI (money it spent in trying to fulfill K). B not wanting to ED, because they made bad deal – would have lost $ if K performed – could not claim loss of profits.
Court: If you are seeking damages for wasted expenditure you must show you incurred expenses in pursuance of your part of K, but ALSO show if K performed that loss flows from breach. Key facts: B had poor work practices! Are losses causes by other party’s breach or your own practices/K-making?
Decision: Awarded only nominal damages.
Sunshine Vacation v. Hudson Bay: D cannot recover for loss of capital and loss of gross profits when there are alternatives – cannot recover both preparation and expectation expenses. If you cannot prove profits are more than expenses, you don’t get ED. Where profits are uncertain, the appropriate measure is reliance damages.
Issue: Can SV recover loss of profits and loss of capital?
Relationship between loss of profit (ED) and loss of capital (RI). SV a travel business with agencies operating in Bay stores – deal to move into 4 large Bay stores – Bay renewed K with other agency – closed offices – award for loss of capital invested in company and loss of profits. Court: These are alternative claims – you cannot recover both preparation and expectation expenses. If you carried through with K and it was profitable, the investment you made would have been recovered anyway ( double recovery! Bay tries to rely on Bowlay – court says Bowlay does not apply because no loss expected here. Here: amount of lost capital is appropriate amount as damages. If you cannot prove profits more than expenses – you don’t get ED. Judge does not accept SV’s calculation. Where profits uncertain, the appropriate measure is reliance damages – put SV into position it would have been in if no K.
RESTITUTION INTEREST (Exceptional Award)
• Not based upon loss suffered by innocent party, but is measured by profits which party in breach derives from the breach.
Attorney-General v. Blake: Wrongdoers should not make profit from breach. Sometimes they may be required to pay back profits: when there is legitimate interest in preventing this type of breach. NOT instrument of punishing wrongdoer! Highly unlikely in commercial contexts.
Man sentenced to long jail term in 1960s for spying and selling of state info to USSR – he escaped and went to Berlin and Moscow – later published his memoirs – paid 60K L, and was owed 30K L more. Gov’t K with Blake: he had to sign Secrets Act, and K of employment had undertaking not to divulge info during or after career at Secret Service. Gov’t sued for breach of K. Claim not based on loss – gov’t simply saying he should not profit from his breach. HL: Basic award damages; general rule is that you get damages to put in same position as if K performed; when too difficult to measure you can get compensation for losses ( here, neither are appropriate remedies. In some cases, the just response is that wrongdoer should not obtain profit from breach.
No mention when these exceptional circumstances apply, but may included where D obtained his profit by doing the very thing he contracted not to – with something more.
When not applicable: (a) Breach deliberate; (b) enabled him to get into better K elsewhere; (c) By entering into new and more profitable K, D put it out of his power to perform his K with P.
• Appropriate here – exceptional case: fiduciary relationship – strong national interest.
Held: Had to give up profits.
QUANTUM
• How do you measure ED or RI?
Chaplin v. Hicks: You don’t have to be certain you are going to receive benefit – it is possible to receive award which court thinks is appropriate to compensate for missing out on opportunity. The fact that damages cannot be assessed with certainty does not relieve wrong-doer of necessity of paying damages for his breach.
Loss of a chance case – to go on to next stage of beauty competition – 12 going to be chosen of 50 – wrote to P telling her to show up for stage of competition – she didn’t get it – she missed out – she got award in damages. Court: Does not have to be a certain benefit. There will be some circumstances when what you would have received would be impossible to assess – but here, there were limited contestants, etc ( on in four chance!
Held: Damages ¼ of average wage paid to winner.
Groves v. John Wunder: You may get damages (expectation) without consideration whether it was economically sensible for party. In a construction K, the law attempts to give injured party when he was promised, and the cost of remedying the defect is the amount awarded as compensation for failure to render the promise performance – “owner is entitled to compensation for what he has lost, that is, the work which he has been promised.” [Not followed in Peevyhouse 1962.]
Cost of completion vs. difference in value – company had land in – area undeveloped – growth company had gravel operation and entered into K with JW to extract gravel from land and put it into condition for development – failed to do restoration work – cost of completing work $60K. But at time, market value of land if work was done would have been $12K. P awarded $15K at trial. CA: Parties should get cost of full performance because D could become “faithless” if it becomes evident they will be better off to fail to perform. Court concerned to ensure D gets what he is entitled to. Note: Ds breach was willful here!
Held: Owner’s right to be compensated for deterioration in value caused by tort: value of land irrelevant. Damages: Cost of doing work.
Fidler v. Sun Life Assurance: Damages for mental distress requires: (a) An object of K was to secure psychological benefit that brings mental distress upon breach within reasonable contemplation of parties; (b) the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. [Does not have to be principal object!] [Normally NOT commercial Ks].
Issue: Are damages for mental distress available for provision of benefits in long term disability K?
Recovery of damages for mental distress resulting from breach – Ms. Fidler could no longer work due to kidney infection – policy said you get benefits if you can’t work at any job – SunLife carried out investigations to determine if she was incapable of working at any job – took view she was not totally disabled due to surveillance video where she drove and shopped – paid disability benefits after 5 years. Trial judge awarded aggravated damages – CA gave her $100K in punitive damages. SCC: mental distress damages are not different from other K damages ( should all be recoverable for damages parties should have anticipated at time of K. Court should ask: What did K promise and provide compensation for this promise? Does not mean mental distress always available: normally not in commercial Ks; annoyance and frustration NOT enough. Consider: Where parties enter into K where object is to secure particular psychological benefit – piece of mind K. Consider whether a psych benefit is part of purpose of what K is. What did parties expect? If you are going to claim these damages where part of promise is some kind of mental security, P must prove: see Ratio.
Held: Both parties should have realized at time of K that this is what they were bargaining for. Distress was sufficient to warrant compensation – extensive medical evidence of anxiety.
CERTAINTY, CAUSATION, REMOTENESS
• Certainty: P must prove on BOP of loss. If court not satisfied, no damages even if there was breach.
• Causation: Were losses caused by breach? Need logical connection.
• Remoteness: Damages for breach recoverable only to extent that the type of loss occurred was reasonably foreseeable by parties at time forming K.
Hodgkinson v. Simms: Undue influence focuses on sufficiency of consent and unconscionability on reasonableness of transaction. Damages relating to breach of fiduciary duty is restitutionary: innocent party entitled to be put in as good a position as he would have been in had the breach not occurred. Where a party can show that “but for” the relevant breach it would not have entered into K, that party is freed from burden of rest of bargain ( entitled to be restored to pre-K status.
P advised to purchase investments – bought in – crash in market – lost money on investments – after, found D, his investment advisor, was also “in” with the developers – P relied on D for advice to buy in properties. Sued him for losses he suffered: (a) Breach of fiduciary duty – conflict of interest; (b) Breach of K – K was to obtain independent advice, and he didn’t get what he bargained for. Causation: Argument that economic downturn caused damage – had nothing to do with Simms’ advice. SCC: Applied “but for” test of causation – would he have bought these investments “but for” the advice without full disclosure? Onus on D to prove he would have! No, he should be protected against all of the risk associated with the deal. Dissent: nothing to indicate these were bad investments, nor bad advice. He paid fair market price. Losses were beyond control of Simms’ who otherwise provided sound investment advice.
Damages: Basis of the full losses suffered, including expenses.
Breach of fiduciary duty can take many forms: (a) deceit and theft; (b) no more than an innocent and honest bit of bad advice; (c) or a failure to give a timely warning.
Hadley v. Baxendale: Test for Remoteness: Damages should be such as may fairly and reasonably be considered either arising naturally (usual course of things), from the breach of K, or such as may be reasonably be supposed to have been in contemplation of both parties at the time they made the K as the probable result of the breach of it. Special Circumstances should be communicated to D at time K formed.
Ps had mill with broken shaft – hired D to take broken shaft to Greenwich to use as model for replacement shaft – promised next day delivery, but it was very late – result was mill shut down for several days and loss of profits – sued for loss of profits – D said we didn’t know, we didn’t promise to compensate for loss. Court: Loss of profits too remote. Damages available for breach limited to those of knowledge or contemplation of parties at time of Ks formation. What was known/should have been known? Losses must flow naturally from the breach. What made this damage too remote? Ordinarily, the mill would have a spare mill shaft around – unusual circumstances here that they did not. Special circumstances were not communicated to D: if told mill would have to close until completed, it would be different!
Held: New trial ordered.
Victoria Laundry v. Newman: Only damages that are RF as arising from breach are recoverable. What is reasonable depends on knowledge of parties. It is not necessary to prove the wrongdoer contemplated the loss, it is enough if they could foresee the loss was likely to result: “reasonable contemplation.” Must have actual knowledge of special circumstances.
Court tries to refine and explain principles of Hadley.
Delay of delivery of new boiler – caused P to lose profitable Ks they could have entered into. Was it too remote? Court: Losses within reasonable contemplation of parties may be recoverable even if they were not contemplated. BUT actual knowledge is required on second branch (special circumstances) of the test in Hadley. You cannot make D responsible for everything – must have some concept of foreseeability of the loss. A serious risk was enough – not just question of what was foreseen – how likely was it to manifest itself as a type of damage?
Koufos v. Czarnikow: [Critiques Victoria Laundry]: Damages have to be more than foreseeable – they have to be sufficiently likely (serious enough risk) to make them recoverable – at time K formed.
Damages rose because ship was late in delivering load of sugar – result of lateness was market price fell in meantime – sold sugar for less than if arrived on time. Were these damages too remote? Starting point: Hadley. Look at info available at time K made (reasonable expectations) THEN: Was loss sufficiently likely (probable enough)? House of Lords: Foreseeability not enough. Scaled back Victoria Laundry – needs to be foreseeable and sufficiently likely. Was there enough probability of the risk?
Held: Loss of profit recoverable as damages. Held for P.
AGGRAVATED AND PUNITIVE DAMAGES
• Aggravated: To compensate for intangible injuries (distress, humiliation) caused by Ds behavior. Purpose is to compensate.
• Punitive: Purpose to punish wrongdoer.
• Wrongful Dismissal: Usually means they breached employment K because of insufficient notice.
Vorvis v. ICBC: Aggravated damages awarded in WD cases when acts are independently actionable. Punitive damages available when acts are harsh, vindictive, reprehensible, and malicious (actionable wrong).
V lawyer fired for being overly diligent (without cause and without reasonable notice) – he sues for wrongful dismissal. Can’t get aggravated damages: aggravating conduct V received before dismissal and was not independently actionable. Punitive also only available if conduct of D is independently actionable. Punitive given to punish D for particularly bad behavior: malicious, vindictive. Either party had right to terminate K; termination of itself is not a wrong in law. Key fact: Employer’s harassment before firing is what could have led to aggravated damages – NOT the firing without notice!
Held: Only ordinary compensatory damages should be available.
Wallace v. United Grain: Damages for mental distress not recoverable for wrongful dismissal unless there was separately actionable conduct. Mental distress can be [in this case] accounted for by lengthening the notice period.
Wallace fired without cause – needed psychiatric assistance. Alternative method for compensating Ps who have something that does not quite qualify for aggravated or punitive damages: finding a longer period of notice was reasonable. Where there is bad faith conduct ( injuries caused ( you may get compensation by extending notice period. Note: Manner of dismissal falls short of an independent actionable wrong!
Whiten v. Pilot Assurance: Punitive damages awarded in exceptional cases for malicious, oppressive, and high-handed misconduct that offends the court’s sense of decency.
Breach of K claim arising out of denial of insurance coverage – P house burned down – wrongfully accused of company of arson – cut off payments – family without money – insurance company tried to bully them into settling for far less than it was worth – lawyers on appeal conceded no evidence for arson. Purposes of Punitive Damages: (a) Retribution – punish wrongdoer; (b) General and Specific Deterrence; (c) Denunciation – sending message that we find your behavior reprehensible. Actionable Wrong: Enough if there is breach of another contractual duty (eg: good faith in insurance Ks). There are many terms implied by law – part and parcel of particular type of K relationship – all that matters is parties entered into that type of K. Requirement that parties act in good faith. You don’t need to find behavior is so wrong there is tort – if wrongful behavior breaches other implied term (good faith) ( sufficient actionable wrong ( can make claim for punitive damages.
• There was no evidence of arson – insurance company acting in bad faith – in Fidler there was detective report showing she was leading acting life for a week – but nothing like that is here.
Damages: $1-million in punitive damages for breach of K duty of good faith.
MITIGATION
• General Principle: P required to take reasonable steps to reduce the extent of the losses that flow from their injury.
1. No compensation for losses avoided: skill or luck irrelevant.
2. No compensation for losses you should have avoided: did you do what you should have done?
White and Carter v. McGregor: Where a party to a K repudiates, the innocent party has an option: (a) to accept that repudiation and sue for damages; or (b) disregard or refuse to accept it and then the K remain in full effect. [Note: Recent Canadian cases suggest this case’s ratio is more narrowly defined].
“Anticipatory Breach”: Ps displayed advertisements on garbage cans – D advertised on cans – K came for renewal – employee called and said we want to renew K – D tried to cancel K but P refused [before K had been performed] – P put out ads as they would have otherwise – made no efforts to mitigate losses by finding a substitute advertiser – sued for fees. (Not suing for damages, they are suing for debt). P exposed Ds to much greater payout than if they said “we accept repudiation, we will sell advertising space to someone else (there would have been no loss to them).” In continuing with K and putting ads out, was more expensive for Ds.
LIQUIDATED DAMAGES, DEPOSITS, FORFEITURES
• Liquidated Damages: Provision in K that says in event of breach, party in breach has to pay $xxx.00 – or some formula.
o Wherever possible, parties should estimate anticipated damages ahead of time and put them in K – requires parties to think more carefully about bargain ahead of time.
o BUT courts can be reluctant if they do not reflect compensating innocent parties.
Shatilla v. Feinstein: When damages which may arise out of the breach of a K are uncertain, the law permits parties to agree beforehand as to amount to be paid in event of breach. Whether the sum agreed upon is a penalty, must depend on circumstances of each case. An agreement for payment of a fixed sum on any one of a number of breaches, some trivial and some serious, is presumed to be void as a penalty.
Classic scenario where parties put in LD clause (non-competition clause) – damages for $2K if breach. Tradition Rule: Clauses not enforceable if it is a penalty rather than genuine estimate of damages. This clause is not genuine estimate because it applies to potentially wide range of breaches. Non-competition clause here varied from opening another business, to more trivial activities like taking employment as clerk in similar business, or purchasing a few shares in a company operating in similar business.
Generally, courts reluctant to enforce non-competition clauses: restraint in trade ( public policy.
HF Clarke v. Thermidaire: It is open to parties to make determination, but it must yield to judicial appraisal of reasonableness in circumstances. The sum held to be penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.
Non-competition agreement – K with distribution of Thermidaire products through most of Canada – non-competition provision: had to pay over gross profits that you carried on in contravention to non-comp clause. Court: Not allowed; disproportionate – more than twice the amount! Reason parties agreed on clause appears to be that it was very difficult for them to estimate what likely damages would be – trying to arrive at some kind of certainty. Court concerned about reasonableness and fairness in the circumstances – can intervene. “Gross trading profit formula departs markedly from any reasonable approach to recoverable loss or actual loss since all the elements of costs and expenses which would be taken into account to arrive at net profit are excluded from consideration.”
JG Collins Insurance v. Esley: The power to strike down a penalty clause is a blatant interference with freedom of K and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression. A penalty clause should function as a limitation on the dangers recoverable – if the actual loss turns out to exceed the penalty, the party should be allowed to recover only the agreed sum.
Collins purchased insurance business of Elsey – non competition clause - $1000 for each and every breach – Elsey recommenced his own insurance business – inflicted harm on Collins – Amount of damages GREATER than amount fixed as liquidated damages. LD may act as ceiling.
Held: Damages not to exceed $1000.
Coal Harbour Properties v. Liu: When vendors suffer no actual loss, they are still entitled to retain a deposit providing that it is reasonable within terms of K.
Land deal – property with purchase price of $1.9-million – deposit $391K. Purchaser did not complete in allowed time – vendor held deposit. Argument that vendors did not suffer any loss. When they could not go through sale for $1.9 – they sold it for about $850K more. Court: Vendors can keep deposit. Deposit was not unreasonable – despite no actual loss to vendors, loss of deposit not unreasonable in accordance with terms of K. Nothing oppressive, nothing unconscionable, no basis for purchasers with independent legal advice, and who were sophisticated to get out of it.
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