Bargain Promises:
Contents TOC \o "1-3" \h \z \u Bargain Promises: PAGEREF _Toc352167050 \h 5Offer PAGEREF _Toc352167051 \h 5What Is An Offer? PAGEREF _Toc352167052 \h 5Withdrawal of an Offer PAGEREF _Toc352167053 \h 5Firm Offers PAGEREF _Toc352167054 \h 6Acceptance PAGEREF _Toc352167055 \h 7How Acceptance Happens PAGEREF _Toc352167056 \h 7Acceptance or Counter-Offer? PAGEREF _Toc352167057 \h 8Formalization and Certainty PAGEREF _Toc352167058 \h 9Filling in the Gaps PAGEREF _Toc352167059 \h 9Consideration PAGEREF _Toc352167060 \h 10Consideration Provides: PAGEREF _Toc352167061 \h 10Gifts PAGEREF _Toc352167062 \h 10What is consideration? PAGEREF _Toc352167063 \h 10Explicit vs. Implicit Consideration PAGEREF _Toc352167064 \h 11Pre-Existing Legal Duties PAGEREF _Toc352167065 \h 11Money as consideration for Money PAGEREF _Toc352167066 \h 12Mercantile Law Amendment Act CB 287 (see also, Law and Equity Act, RSBC 1996, c. 253, s. 46) PAGEREF _Toc352167067 \h 12Legal compromise as Consideration PAGEREF _Toc352167068 \h 12Pledges and Donations PAGEREF _Toc352167069 \h 12Intention PAGEREF _Toc352167070 \h 13Contracts between family relations PAGEREF _Toc352167071 \h 13Contracts between business relations PAGEREF _Toc352167072 \h 13Non-bargain promises PAGEREF _Toc352167073 \h 14Under seal PAGEREF _Toc352167074 \h 14Purpose PAGEREF _Toc352167075 \h 14Consideration PAGEREF _Toc352167076 \h 14Past consideration PAGEREF _Toc352167077 \h 15Lampleigh v. Brathwait CB 313 PAGEREF _Toc352167078 \h 15Roscoria v. Thomas CB 314 PAGEREF _Toc352167079 \h 15Reliance and estoppel PAGEREF _Toc352167080 \h 16Traditional Estoppel PAGEREF _Toc352167081 \h 16Promisory Estoppel PAGEREF _Toc352167082 \h 16Requirements of Promisory Estoppel PAGEREF _Toc352167083 \h 17Restrictions of Promisory Estoppel PAGEREF _Toc352167084 \h 18N.M. v. A.T.A. CB 349 “I love you, move to Van, I’ll pay your mortgage. [Her: ok] Just kidding I hate you.” PAGEREF _Toc352167085 \h 18Unilateral contracts PAGEREF _Toc352167086 \h 19General Principles PAGEREF _Toc352167087 \h 19Interpreting a Contract as Unilateral PAGEREF _Toc352167088 \h 20Problem: Revocation before Completion PAGEREF _Toc352167089 \h 21Contracts and third parties PAGEREF _Toc352167090 \h 22Third-party Beneficiaries PAGEREF _Toc352167091 \h 22Classic Application of Privity of Contract PAGEREF _Toc352167092 \h 22Enforcing a benefit to a 3rd party PAGEREF _Toc352167093 \h 22Agency Exception to Privity of Contract PAGEREF _Toc352167094 \h 23Limitation of Liability Clause, Insurance and Privity of Contract PAGEREF _Toc352167095 \h 243rd Party Rights that Depend Upon a Contract PAGEREF _Toc352167096 \h 25Mistaken identity PAGEREF _Toc352167097 \h 25Mistake as to the Nature of the Document: Non est factum PAGEREF _Toc352167098 \h 26Contract interpretation PAGEREF _Toc352167099 \h 27Interpretation Tools PAGEREF _Toc352167100 \h 27Factual Matrix PAGEREF _Toc352167101 \h 27The parol evidence rule PAGEREF _Toc352167102 \h 28Collateral Agreements PAGEREF _Toc352167103 \h 29Signed Agreements PAGEREF _Toc352167104 \h 29Clauses excluding liability PAGEREF _Toc352167105 \h 30Misrepresentations and the relationship between contract and tort PAGEREF _Toc352167106 \h 32Collateral Contracts PAGEREF _Toc352167107 \h 32Innocent Misrepresentation PAGEREF _Toc352167108 \h 34Negligent Misrepresentation PAGEREF _Toc352167109 \h 35Drafting contracts – a short consideration of practical issues PAGEREF _Toc352167110 \h 36Residual Power of the Court: Unenforceable contracts PAGEREF _Toc352167111 \h 37Duress PAGEREF _Toc352167112 \h 37Physical PAGEREF _Toc352167113 \h 37Economic PAGEREF _Toc352167114 \h 37Undue Influence PAGEREF _Toc352167115 \h 38Lloyd’s Bank v. Bundy CB 603 PAGEREF _Toc352167116 \h 38Royal Bank of Scotland v. Etridge CB 611 PAGEREF _Toc352167117 \h 39Unconscionability PAGEREF _Toc352167118 \h 40Policy PAGEREF _Toc352167119 \h 40Requirements PAGEREF _Toc352167120 \h 40Application PAGEREF _Toc352167121 \h 41Penalties and forfeitures PAGEREF _Toc352167122 \h 42H.F. Clarke v. Thermidaire Corp. CB 545 PAGEREF _Toc352167123 \h 42Illegal Contracts PAGEREF _Toc352167124 \h 43Classic Rule PAGEREF _Toc352167125 \h 43Common law illegality PAGEREF _Toc352167126 \h 43Statutory illegality PAGEREF _Toc352167127 \h 44Mitigating the consequences of illegality PAGEREF _Toc352167128 \h 45Mistake PAGEREF _Toc352167129 \h 46Terms PAGEREF _Toc352167130 \h 46Hobbs v. E & N Railway CB 770 PAGEREF _Toc352167131 \h 46Raffles v. Wichelhaus CB 773 PAGEREF _Toc352167132 \h 46Staiman Steel v. Commercial CB 774 PAGEREF _Toc352167133 \h 46Assumptions PAGEREF _Toc352167134 \h 47Common-Law PAGEREF _Toc352167135 \h 47Equity PAGEREF _Toc352167136 \h 47New rule in UK PAGEREF _Toc352167137 \h 48New Rule in Canada? PAGEREF _Toc352167138 \h 48Rectification PAGEREF _Toc352167139 \h 49Bercovici v. Palmer CB 523 PAGEREF _Toc352167140 \h 49Frustration PAGEREF _Toc352167141 \h 49Paradine v. Jane (1647) CB 843 PAGEREF _Toc352167142 \h 49Taylor v. Caldwell CB 844 PAGEREF _Toc352167143 \h 49Frustrated Contracts Act CB 895 (see also Frustrated Contract Act, RSBC 1996, c. 166.) PAGEREF _Toc352167144 \h 49Remedies for breach of contract PAGEREF _Toc352167145 \h 50Expectation Damages PAGEREF _Toc352167146 \h 50Wertheim v. Chicoutimi Pulp CB 27 PAGEREF _Toc352167147 \h 50Hawkins v. McGee CB 36 PAGEREF _Toc352167148 \h 50Reliance Damages PAGEREF _Toc352167149 \h 50Anglia Television v. Reed CB 32 PAGEREF _Toc352167150 \h 50Restitution PAGEREF _Toc352167151 \h 50Limiting Factors PAGEREF _Toc352167152 \h 51Remoteness PAGEREF _Toc352167153 \h 51Mental Distress PAGEREF _Toc352167154 \h 52Mitigation PAGEREF _Toc352167155 \h 52Special Damages PAGEREF _Toc352167156 \h 54Punitive damages PAGEREF _Toc352167157 \h 54Specific Performance PAGEREF _Toc352167158 \h 54Bargain Promises:Requires: (1) Intention (2) Offer (3) Acceptance (4) Consideration (5) CertaintyOfferWhat Is An Offer?Denton v. Great Northern Railway CB 174 “You advertised a train, there is NO train!”IssueRatioNotesDoes a train timetable constitute a contract?A train time table constitutes an offer which is accepted when a person arrives to take the train. -The degree of certainty by Ptf important, how much they relied upon the “offer” -Policy issue: wanted railways to be responsible to the publicJohnston Bros v. Rogers CB 177 “You could buy some flour from us”IssueRatioNotesIs a price quote an offer or an invitation to treat? What is the difference btwn an offer and an invitation to treat?A price quote is merely an invitation to treat because there are still many details of the K to determine, such as quantity and timing.The amount of reliance placed on a disputed ‘offer’ is important: what would the reasonable expectation be. Also the wording of the disputed “offer”—is it clear that it is invitation to treat by wording?Lefkowitz v. Great Minneapolis Surplus Store CB 181 “Fur coats are only for ladies”IssueRatioNotesWhat is an offer versus an invitation to treat?Specific: Can an advertisement be an offer?An offer must contain all the terms necessary for the contract to be performed to be considered an offer. If it doesn’t, then it is just an invitation to treat-Anytime prior to acceptance the offer can be changed or withdrawn- Unusual situation in which court held ad was offer- b/c it was so specific. -Legislation provides consumer protection for ads now.Pharmaceutical Society v. Boots CB 183 “Do you have to keep medicine behind a counter?”IssueRatioNotesWhen does the contract of sale in a self-serve store take place? I.e. what is the offer?Displaying items on a shelf is merely an invitation to treat. The offer occurs when the customer takes the item to the till for purchase and acceptance is the cashier/clerk ringing the item through the till and taking the $.Illustrates that the courts care about the consequences of declaring something a contract. They look at the practicalities that result from declaring something an offer.Withdrawal of an OfferDickinson v. Dodds CB 192 “Rumor has it, you’re going to sell that land to Allan now!”IssueRatioNotesCan an offer be withdrawn?A firm offer is not enforceable, until acceptance the offeror is as free as the offeree to change their mind and withdraw or alter the offer.The offeror must communicate a change in the offer or a withdrawal to the offeree- You can enforce a firm offer it is placed under seal (from the old writ of covenant)Byrne v. Leon Van Tienhoven CB 242 “doing business overseas before telephones… ugh”IssueRatioWithdrawal via mailWithdrawal of an offer by mail is not considered withdrawn until the offeree receives itNote from Pollock and Restatement excerpt CB 244Can only consider offer revoked if it is communicated to other partyUnfair otherwise b/c offeree may act on the basis that they have a KFirm OffersTendering ProcessCan’t be subject to normal rules of offer and acceptance, b/c offerors who are calling for tenders need the bidders to keep their acceptance on the table and take contract if chosenTo remedy problem Courts construct a K out of the call for tenders (becomes offer) and the bids(becomes acceptance)The bidders agree to keep bids on table and to accept K if awardedThe consideration given in exchange by the offeror is to promise to treat all bids fairly.This contract is reffered to as contract A, while the contract that is awarded for the actual project (i.e. building a school) is referred to as contract BThis leads many people to sue for breach of K A when they are not awarded K BLeads to more expenses which could be lessened by legislation but there isn’t anyMJB Enterprises v. Defence Construction CB 209 “but they didn’t give you a fixed price!”IssueRatioNotesCan a call for tenders choose a non-compliant bid to award K B to?A privilege clause cannot extend to cover non-compliant bids b/c this is a breach of K A—isn’t treating bids fairly to choose a non-compliant oneThe only way to have a firm offer is to construct a contract out of the offer and agreement to negotiate itselfYou could negate terms of K A in order to choose a non-compliant bid if you stated that intention from the outset, but then no K A would be formed at all b/c there would be no consideration and bidders wouldn’t have to leave bids on table. AcceptanceHow Acceptance HappensManchester Diocesan Council CB 189 “Judge is frustrated with the assumption of time limits”IssueRatioNotesTime limitsIf acceptance exceeds a reasonable amount of time the K is not valid b/c a)the offer is considered withdrawn or b) the offer is seen as refusedThe judge preferred option b b/c that seemed more easy to determine objectively and be fair to both partiesLarkin v. Gardiner CB 191 “But I told my agent! That should count, right?”IssueRatioCommunicationWhen the power of acceptance is given to a person, that person has a duty to communicate their acceptance to the offeror. Until communication happens, no acceptance is made.Eliason v. Henshaw CB 199 “Sent acceptance for flour to wrong place via wrong mode”IssueRatioNotesModeIt is in the power of the offeror to dictate the terms of acceptance, if they are not met there is no K-Term of acceptance can’t be SILENCE. But, offeree can do an action to show they accept despite the faulty terms, there can still be a K.-Statute: unsolicited goods can be used or kept. They can’t make you pay.Henthorn v. Fraser CB 240 “Mailed acceptance before received withdrawal”IssueRatioNotesAcceptance by mailAcceptance is complete as soon as it is posted if both parties would reasonably expect the mail to be used to give acceptance-b/c risk of acceptance by mail is born by offeror, b/c they have power to set terms of acceptance and could say no mail if they wanted. -Reasonably expect mail to be used: live far away, no other options, offer sent by mail etc. Howell Securities v. Hughes CB 244 “the letter that never arrived”IssueRatioNotesAcceptance by mail EXCEPTIONRule of acceptance upon posting does NOT apply if express terms of offer specify acceptance must reach the offeror. This is the 2nd qualification for post box rule:Mail must be modeCan’t if terms indicate otherwiseEastern Power v. Azienda CB 248IssueRatioWho has jurisdiction? Was the K formed where acceptance received or where sent?Normally where acceptance is received is the jurisdiction of the K. However, this is opposite for letters that are mailed, where it is where the acceptance is sent.Should acceptance by fax fall under the post box rule?The post box rule is not applied to instantaneous forms of communication. Electronic Commerce Act CB 251Received when capable of being retrieved (if addressee uses that system for that type of communication, if they DON’T then it’s when the addressee becomes aware of it)Acceptance It’s ok to click on an icon to acceptErrors with online agents Escape clause if there is a mistake with an automated agent Sent considered ‘sent’ when it leaves your systemFurther clarification of location of things sent/received. Acceptance or Counter-Offer?Notes CB 200Not always easy to tell if counter-offer has been made b/c the terms might not be significantly different. If they aren’t different, the 1st offer dictates the terms—“material difference” required to be called counter-offerButler Machine Tool Co. V. Ex-Cell-O Corp. CB 201 “Battle of Forms”IssueRatioNotesMaterial DifferenceA counter-offer is essentially a rejection of the original offer, so must have a significant difference between it and offer. Valid counter offer contains the NEW terms that the agreement is bound by and original offer terms are thrown out. Use classical analysis of offer and acceptance to determine what the K is. K is bound by terms of offer only, so can’t have a clause that says no counter offer terms count b/c if there is a counter offer, the original offer’s terms aren’t binding.Can’t just do what the court thinks the party’s meant.Formalization and CertaintyMany details including price need to be determined for a K to be formedFew K can cover all the details, many are verbal etc.Bad public policy to declare all K with any amount of uncertainty void b/c then there would never be any Ks.Courts have a whole range of tools to attempt to fill in gaps of Ks if it appears parties meant to enter into a K.It is difficult to determine where to draw the line btwn being able to fill in gaps and the court simply writing a K which they will not do. The line btwn enforceability and void for uncertainty is trickyFilling in the GapsMay and Butcher Limited v. The King CB 219 “You can buy this tentage”IssueRatioNotesIs an agreement to agree a contract? NOThe court will not create a K between the parties. Must be enough material to work with in the original K in order for the court to “fill gaps”-Couldn’t rely on arbitration clause b/c K didn’t give the arbitrator the power to decide the price, just was a method of resolving a disagreement-B/c disagreement couldn’t be resolved, impossible to have a K b/c only way price could be decided was by agreementHillas v. Arcos CB 222 “Buying some Russian Trees”IssueRatioNotesIs an agreement to agree a contract? YESOngoing relationships/contracts require a certain amount of flexibility for them to work, therefore a court should use tools such as examining history of past details or industry standards to fills in gaps when a disagreement about an uncertain detail arises-Court wanted to limit the rule from May and Butcher. -Distinguished b/c parties had operated with the uncertain contract for 1 year before disagreement occurred. Foley v. Classique Coaches CB 223 “I’ll sell you this land if you buy your gas from me”IssueRatioNotesIs an agreement to agree a contract? YESThe courts may use past practices to ‘fill gaps’ in contracts to make them work rather than voiding them. -Distinguished from May and Butcher b/c parties had operated K for 3 years w no problem, which means party couldn’t legit believe there was no K-Also this K was a condition of a larger K to sell some land, so couldn’t just void this K w/o voiding the larger KEmpress Towers v. Bank of Nova Scotia CB 230 “I want $15,000” or you are kicked out!”IssueRatioNotesWhere is the line between gap filling and no contract for lack of detail?Courts may imply terms into a K to resolve internal inconsistanccy OR to make the K work2 Tests for when courts will imply terms1) Efficious Bystander- what would an objective third party say about the intention of the K2) Business Efficacy- Did parties act as if legal relationship was intended-imply terms to make legal relationship workConsiderationLegal requirement of a K, something given in exchangePromisor = person doing the thing you want to enforce Promisee= recipient of the thing you want to enforceConsideration must move from the promisee to the promisorWholly executory K there are just promises given in consideration, no one has actedExecuted K when something has been carried out in consideration (whole or part)Promise for a promise counts as consideration, although this is theoretically tricky. For policy reasons that we want people to be able to rely on those promises. Consideration is a detriment to the promisee (at the request of the promisor) OR is a benefit to the promisor. Consideration Provides:Evidence that a K was madeEvidence that the parties intended a legal relationshipDistinguishes transaction as a K rather than a giftProtects Reliance (even for wholly executory Ks)**See if the contested consideration fulfills any of these functions to determine if it is consideration***GiftsA promise to make a gift is NOT enforceable. A gift must actually be transferred, completed, to be consider giftee the owner of the gift.Court will protect reliance on K’s over reliance on uncompleted gifts. What is consideration?White v. Bluett CB 255 “You don’t have to pay me back if you shut up, son”IssueRatioNotesIs a promise “not to complain” consideration?‘giving up’ something for consideration is only valid if the promisee has the legal right to do that thing. Also policy: don’t want to say you can annoy someone until they agree to pay you $ for you to stop. Hard to prove if son kept his bargain anyway. Son doesn’t have legal right to complain b/c father not legally required to treat all his children the same. Hamer v. Sidway CB 257 “Nephew, stop those shenanigans and I’ll give you $5000”IssueRatioNotesIs a promise to “not smoke, drink, play cards, swear until 21” consideration?A promise to refrain from doing something that you have legal right to do is good consideration. Detriment to Nephew AT REQUEST of the Uncledistinguished from white b/c very specific transfer requirements, witnesses, evidence in writingThomas v. Thomas CB 258 “Oh I forgot to give my wife something in the will…”IssueRatioNotesConsideration, or burdens incidental to a gift?Ex. someone gives you a horse and you have to feed it, feeding it is incident to the gift. Consideration must flow from promisee to promisor and be something more or different than they would necessarily have to do if the item was a gift. Here the ?1 rent was paid to the executor not the landlord, therefore wasn’t just an incident of a gift of the house but rather was consideration. Explicit vs. Implicit ConsiderationTobias v. Dick CB 263 “I have exclusive right to sell your Dick Crusher”IssueRatioNotesIs a contract of exclusive right to sell void for lack of consideration?If the K does not specify amounts or quotas of sale there is no K b/c there is no consideration. Instead it should be seen as an “umbrella offer” and acceptance creates a mini contract each time the one person buys the product from the other. Not an Agency K because Tobias was buying the product from Dick, therefore not acting as his agent and couldn’t find implicit consideration that Tobias would “do his best” to sell. Wood v. Lucy, Lady Duff-Gordon CB 264 “Brand some fashion in my name”IssueRatioNotesCan consideration be implicit in a contract of exclusive right to sell?Consideration can be implicitly understood as “reasonable effort” if the K is an agency K. Different than Tobias b/c Wood wasn’t buying, he was providing detailed accounts, K was quite detailedlooks like joint enterprisePre-Existing Legal DutiesHarris v. Watson CB 266 “The ship is in danger! Please do this extra work to save it, I’ll pay!”IssueRatioNotesTraditional RuleExtra consideration offered for what the party already had a pre-existing duty to do is not enforceable. Policy decisiondidn’t want to fuck with sea faring business in EnglandStilk v. Myrick CB 266 “I will give you the deserters wages if you keep working”IssueRatioNotesTraditional RuleIt is not adequate consideration to continue to do your pre-existing legal obligations. Consideration must be something new, something that isn’t already required. Decision based on: Doctrine of ConsiderationNew Zealand ShippingIssueRatioNotes3rd partiesIt is valid consideration to promise to do a pre-existing legal duty from one K to a 3rd party, because the 3rd party receives the consideration of a right of direct cause to enforce the K that otherwise they wouldn’t be able to.Exception to Pre-existing duty ruleGilbert Steel v. University Construction CB 271 “The price of steel went up! Sure we’ll pay that… not”IssueRatioNotesModern application of traditional ruleContractual variations fail for want of consideration. Consideration cannot be vague or merely an incident of the variation (i.e. natural consequence). The only way to change the consideration of one party, is to mutually rescind the original K and make a new K with the new (i.e. price)Policy problem for doing business, people don’t check with their lawyers every time they need to change something in a K. Williams v. Roffey CB 274 ENGLAND 1991 “Oops, I didn’t charge enough for this job, now I can’t finish”IssueRatioNEW RULEYes if ALL these conditions are met:Pre-existing K for A to do or supply something for BB has significant doubt that A will or will be able to complete KB offers A more $ (consideration) to complete on time *Without any economic duressB receives the practical benefit of having K done on time, even if this does not come directly from B.Then performing the pre-exisiting duty can be good consideration. Greater Fredericton Airport Authority v. NAV CB 283 “We aren’t paying for your new equipment”IssueRatioNotesNEW RULE in Canada“post-contractual modification, unsupported by consideration my be enforce able so as it” (is made in a serious way with intention for legally enforceable promise) “is established that the variation was not procured under economic duress”-However misses the part from William v. Roffey which requires a “practical benefit” so doesn’t really apply it correctly even though it purports to. River Wind Ventures Ltd. v. British Columbia CB 282IssueRatioDid greater fredricton airport apply the Williams v. Roffey test?No, it was missing the “practical benefit”. This is required for contract variation with no considerationMoney as consideration for MoneyFoakes v. Beer CB 283 “Mrs. Beer has legal judgement against Dr. Foakes, but she lets him pay less at first”IssueRatioNotesIf a debtor makes a promise to receive a lesser payment than they are legally owed, is this promise enforceable? Where is the consideration?Payment of a lesser sum cannot be satisfaction for a greater-Because if I give you 10$ for 20$ what is actually happening is you are giving me a gift of $10.Mercantile Law Amendment Act CB 287 (see also, Law and Equity Act, RSBC 1996, c. 253, s. 46)English law in response to Foakes v. Beer but have similar law in BCIf creditor says part repayment in a certain way is ok, then doing so extinguishes the whole debtHowever if promise is made and not yet acted upon it is not enforceableLegal compromise as ConsiderationFairgrief v. Ellis CB 291 “Come live with me and I’ll give you my house… oh wait, my bitch wife is back”IssueRatioNotesIs giving up a right to legal action, which doesn’t actually exist, consideration?If you have genuine belief that you have a legal claim, it is good consideration to promise to give it up.No legal claim here b/c contract for sale of land was not in writing—old statute of frauds rule. Pledges and DonationsDalhousie College v. Boutilier Estate CB 292 “But he promised us $5000!”IssueRatioNotesIs a pledge to donate an enforceable K? Where is the consideration?Pledges are gifts and not contracts for lack of consideration on the part of the charity UNLESS project embarked upon with the donation is at the request of the donator or subject to their conditions (like naming the building after them)IntentionContracts between family relationsPresume that agreements between family are not legally binding contractsJones v. Padavatton CB 301 “Hey daughter, leave Washington and study for the bar in England, I’ll pay”IssueRatioNotesCan the presumption against family relation agreements being legally binding be rebutted?Yes, if intention to the contrary is shown given all the circumstancesFactors: specificity, significan detriment in reliance, evidence in writing, degree of flexibilityContracts between business relationsPresume that agreements between business relations are meant to be legally bindingRose v. J.R. Crompton CB 304 “Let’s put this into our K that it isn’t actually a K in any court”IssueRatioNotesCan the presumption that business agreements are legally binding be rebutted?Yes, if express intention is written into the agreement to the contrary. Rare, but particularly used in inter-institutional agreements (i.e. universities)Non-bargain promisesContracts where there isn’t ‘classic’ considerationWays to make informal promises enforceableUnder sealHistorically, make an informal promise enforceable by creating a deed—could bring an action in covenant if promise breached. Fact that there is a deed makes the promise enforceable, no need for consideration. Still exists today as documents “under seal” signed sealed and deliveredno need for considerationRed sticker beside signature or write on the K that it is intended to be under seal. PurposeExcerpt from Fuller CB 309IssueRatioNotesWhy put things under seal? What is the purpose of a seal?A seal performs similar functions as consideration. 1)Evidentary Functionproves K exists and what it consists of2)Cautionary Functionless likely parties will breach the K, impresses seriousness on the parties and they are less likely to enter into rash decision if they know it is under seal.3)Channeling Functionmakes it clear that a legal relationship was intended, that promise is enforceable, demarks this relationship as legal, both for the courts but also for business or contracting parties.ConsiderationExcerpt from Brudner CB 310IssueRatioNotesAre a seal and consideration inter-changeable concepts?A seal, while serving a similar purpose to consideration, functions in an entirely different manner. Promises under seal are enforced only as executed transfers of possessory titlei.e. once something is given under seal it is legally treated as if the promise has already been performed or given. Consideration is enforceable even if it is not performed—a promise under seal must be executed to be enforceable (however promises under seal are considered executed as soon as they are ‘delivered’ so this difference is more theoretical than anything).Past considerationOccurs when a gift has been completed, and then consideration is offered in return for the gift.Issue become if this ‘past consideration’ or later promise enforceable—because the original gift has already been performed so that cannot be good consideration for this new promise in order to make it enforceable. Differentiated from normal business situation in which a service is performed (i.e. plumbing) and then a bill given because in that situation payment or return consideration would be expected or implied. Lampleigh v. Brathwait CB 313 IssueRatioNotesIs past consideration good consideration in order to make a promise enforceable?YES in some situationsIf one party performs a service at the request of the other party, and that service is such that payment would be expected, consideration given after the service has been performed in return for the service is enforceable as the past consideration will be valid. Key: needs to be a service in which payment would be expected or implied. Voluntary gifts or services will not function as consideration for a later promise. Facts: Defendant asks ptf to go and get a pardon for him from the king (he is sentenced to die for murder). Ptf does so. Then defendant promises to pay 100 in return—but this is after the ptf has already gotten the pardon. Roscoria v. Thomas CB 314 IssueRatioNotesIs past consideration good consideration in order to make a promise enforceable?NO in some situationsPast consideration is only good consideration for the enforcement of a later promise if the later promise could have been inferred or implied into the original agreement. 19th century horse trading functioned on a ‘buyer beware’ principal. Had to bargain for a warranty if you wanted one. Facts: Def sells Ptf a horse. The next day the Ptf asks the def. if the horse has a good temperament, and the def promises that the horse does. The horse turns out to be very mean spirited and terrible. Reliance and estoppelEstoppel is an old equitable principal and there are many different kinds—essentially all of them function as a ‘stop’ sign. Traditional EstoppelHughes v. Metropolitan Railway Co. CB 320 IssueRatioNotesWhat is estoppel?Estoppel occurs when one party is prevented from executing their strict legal rights because it would be unfair to allow them to. Where one party essentially “waives” their rights by entering into a negotiation by their own act or consent which leads the other party to reasonably believe that the strict legal rights will not be engaged/acted upon.Facts: Lease agreement provided that the landlord had the right to demand property repairs by tenant, within 6 months upon penalty of eviction. Landlord gave notice, but then entered into negotiations w tenant to buy property. Past six months and no agreement, so the landlord tried to evict the tenant. Couldn’testoppel. Promisory EstoppelCentral London Property Trust v. High Trees CB 321IssueRatioNotesCan estoppel be engaged to prevent a party from acting inconsistently with new or altered terms of a contract?Promises that are made that vary the terms of an existing contract that are: intended to be legally bindingintended to be acted upon by the promiseeare acted upon by the promiseeare subject to estoppel. This means that the promisor will not be allowed to act inconsistently with the new terms (i.e. insist on the old terms) This type of estoppel became known as promisory estoppel. Reasonable notice can be given in order to return to strict legal rights or original terms of the contract. Facts: K to lease an apartment building for 2500/year but WWII so couldn’t rent the flats out. Agreed to lessen the rent. After the war, new person in charge, sees that the rent was reduced contrary to the K—so tries to claim it all needs to be back-paid. Heldhave to start paying full rent b/c conditions that required the variation are over BUT estopped from collecting back pay from when the conditions existed. Combe v. Combe CB 323 IssueRatioNotesHow can promisory estoppel be used?Promisory estoppel only prevents a party from insisting on their strict legal rights. A promise which modifies legal relations, even in the absence of consideration, can estop the promisor from insisting on their legal rights pre-promise. It does NOT give the promisee a right of action—no damages for failure to perform this type of promise, they can just block the promisor from doing something else as part of a separate action. Promisory estoppel does not eliminate the need for consideration, as no action can be brought on its own for a promise that is not supported by consideration. It is a SHEILD not a sword. In this case as the wife was suing on the basis of the promise, unsupported by consideration, she had no right of action in the first place and therefore could not sue for its enforcement or damages in lieu. Facts: Husband promises to pay ex-wife 100/month even though she is richer than he is. He does not pay. She then takes it to court on breach of K. Her action failscan’t use estoppel as a sword. Requirements of Promisory EstoppelJohn Burrows Ltd. V. Subsurface Surveys CB 327 IssueRatioNotesCan the intention requirement of promisory estoppel be shown via conduct alone?There must be evidence, which could include conduct alone rather than writing or verbal, that the promisor intended to affect the legal contractual relations in order for promisory estoppel to be granted. Intention is objective, judged by what a reasonable person would think they intended based on their conduct/wordsThe fact that the parties were friends was highly influential in this case. The court read the facts as the one party being ‘indulgent’ and allowing the other party to pay late—not intending to waive their strict legal rights. Facts: K between friends says payments must be made on time of full sum will be due immediately. Def pays late 10 times, no problem. Argument between parties, 11th time of late payment Ptf insists on clause that says full amount due. Heldptf did not waive his legal rights. No estoppel. Owen Sound Public Library CB 330 IssueRatioNotesHow do you determine the “intention” requirement of promisory estoppel?It does not require a direct statement but can be based on inference. If the promisor knows that the promise is likely to be seen by the promisee as affecting their legal relationship, there is intent. TEST: If the promisee reasonably understood and relied on the promisor’s promise as affecting their legal relations, there is said to be the requisite intention. Here there is a fine line between using estoppel as a shield and not a sword—The court held that Miel construction was in breach of their contract BECAUSE they were estopped from cancelling their contract in the way that they had. Therefore, because of the estoppel, they were in breach of contract and had to pay damages. Very close to just having to pay damages because of estoppel. Facts: Library is supposed to pay contractor after being presented with architect document, or contractor can cancel. Contract brings document, but library asks for a further document to be presented. Contractor agrees to produce this extra document. Library doesn’t pay. Contractor never shows them this extra document but instead uses clause to cancel the K b/c they hadn’t paid. Library says they assumed they wouldn’t have to pay until they received extra documentcourt agrees, this was reasonable. Restrictions of Promisory EstoppelD & C Builders v. Rees CB 335 IssueRatioNotesPromisory estoppel: promises made under threat/intimidationPromisory estoppel will not be granted for promises extracted by intimidation. There needs to be a true accord where the promisor ‘voluntarily’ makes the promise. It is an equitable principle so must be used to correct an inequity.At this time, promisory estoppel was used to estop creditors from collecting a full sum where they had already accepted a lesser in sum in satisfaction. Facts: Def owes ptf money for some work. Def is sick, so his wife says that they refuse to pay the balance. They will only pay 300 (not the 480 owing) or nothing at all. Wife says they have to accept lesser some as complete payment. Ptf in financial straights, so accepts lesser sum reluctantly. Held: They made the promise under threat, so promisory estoppel can’t be used as it is an equitable principle and the person making threats didn’t have clean hands. N.M. v. A.T.A. CB 349 “I love you, move to Van, I’ll pay your mortgage. [Her: ok] Just kidding I hate you.”IssueRatioNotesShould promisory estoppel engage as soon as one party relies upon a promise to their detriment? ORAre there any other elements of promisory estoppel that are necessary? A necessary element of promisory estoppel is the promisee’s reasonable assumption or expection of a legal relationship. Also: A legal relationship includes mutuality, which means you must be able to enforce BOTH sides, or affect either side—i.e. if one party can be stuck, it must also be possible for the other party to be stuck. Focus on the intention: see Jones—family/personal relations assume to be NOT intended to be legal. Also, if he had performed his promise you couldn’t then enforce her to stay in a love relationship with him, so no mutuality in this case. American way: If it would be reasonably expected by the promisor that the promise would be acted upon and was indeed acted upon by the promisee to their detriment, and the only way to avoid injustice is to enforce the promise, the promise should be enforced. Canadian courts unwilling to go this far in this case. Facts: woman moves from England to Vancouver b/c man wants her to—romantic relationship. Man says he will pay her mortgage if she moves. He gives her a $100,000 loan ‘promisory note’ in order to pay her mortgage with. Then they break up. Now he wants her to pay him back. HELD: she has to pay him back—promisory estoppel cannot be used. Unilateral contractsExample is a classic reward offer. The offer is to ‘all the world’ and not merely an invitation to treat because only one person can actually perform the conditions and complete the contract. Evidence of a unilateral contract is that the offeror is NOT looking for a return promise but rather performanceGeneral PrinciplesWilliams v. Carwardine CB 353 IssueRatioNotesIntentionThe reward is a general promise to anyone who fulfills the conditions, therefore if someone fulfills the conditions for whatever reason, they are entitled to the reward. BUT you must be AWARE of the offer. No awareness=no unilateral contract. Facts: Man puts out reward for info leading to conviction of his brother’s murderer. A woman, because she thinks she is dying and wants to clear her conscience, gives information to the police which leads to the murderer’s conviction. Held she still gets the reward. Carlill v. Carbolic Smoke Ball Company CB 356 “Use this, you won’t get the flu or we’ll pay ?100”IssueRatioNotesRequirements for a binding unilateral K.If an offer is made unilaterally (to ‘all the world’), performance of the conditions is sufficient acceptance AND consideration in order to create an enforceable contract, so long as the offer remains unrevoked. The offer can be revoked at any time before completion as an offer can always be revoked before acceptance. **This becomes a problem Company argued there ads were just “puffery” and not serious, but FACTORS: the wording, clear language, and further passages underlied the sincerity of the offer were used to discount this argument. Notice of acceptance is not required because the offeror can waive this right if they choose, which they do implicitly by making a unilateral offer as they clearly seek performance rather than a return promise. Facts: Company advertises that they will pay 100 to anyone who uses their product and still gets influenza. Ptf uses product, gets influence, tries to collect and they say no. Heldthey have to pay her 100. Grant v. New Brunswick CB 362 IssueRatioNotesWhat conditions may be placed into a unilateral offer?Offeror can add any conditions to the unilateral offer they choose—including how many ppl can qualify. Therefore not unfair to bind offeror when conditions fulfilled.OBJECTIVE TEST: What would a reasonable person consider the offer to be—unilateral or bilateral??Gov. tried to claim citizen makes offer to sell and then Gov chooses to accept—however court held unilateral offer instead so that Gov. was obligated to buy from citizen. Facts: Surplus of potatos, gov creates program that will buy them. Ptf is denied b/c they say that he did not own the potatoes. However he actually did own them. Heldthey have to pay him the subsidy. Interpreting a Contract as UnilateralDawson v. Helicopter Exploration CB 366 IssueRatioNotesHallmarks of unilateral/bilateral offer?In a bilateral offer, the offeror promises in return for a promise.In a unilateral offer the offeror does not have to do anything until after acceptance. They remain passive.An offeror must remain PASSIVE if there is to be a unilateral K. Here Helicopter’s argument that it was a unilateral K fails b/c they promised to provide a helicopter in exchange for the mine info—not passive.Facts: Man knows where mineral deposit is, arranges with company via letters that he will show them for 10% interest in their stake. Company agrees that they will take him by helicopter to the site for 10% share. Company then goes behind his back and finds minerals, cutting him out of the deal. HELDbreach of KErrington v. Errington CB 365 IssueRatioNotesInterpret an agreement as unilateral vs bilateral. Unilateral K can be construed where promise made upon the fulfillment of a condition absence of consideration required for a bilateral.Couldn’t find it was a bilateral K here b/c there was no evidence of consideration offered by the daughter in law in return. Facts: see belowProblem: Revocation before CompletionDale v. Manitoba CB 360 IssueRatioNotesWhat happens when the offer is revoked before complete performance?Argue about what the conditions actually are… perhaps they are already complete. If the offer is revoked before complete performance, there is no binding K because there has not been acceptance. Thus it is important to determine what the conditions actually are: b/c perhaps one party thinks they are complete but the other party does not. if an agent misrepresented what the conditions were, were acting within their ostensible authority, and the offeree performed these conditions, then the principal cannot revoke the offer as a binding K has already been formed. In this case however, the Gov was prevented from revoking the offer b/c complete performance had happened according the Gov. agents. (the gov claimed complete performance was something else—but this was irrelevant b/c their agents had stated complete performance was enrollment and the subsidy would last four years)Facts: Gov. of Manitoba has an “access” program to send disadvantaged students to the U of M. They delegate all authority and administration of the program to the U of M. U of M staff tell participants that this program will cover their tuition for the full four years. Then the Gov. changes the program so that it won’t cover the full four years. Held Gov. still has to cover the tuition for the full four years. Errington v. Errington CB 365 IssueRatioNotesUse unilateral K to enforce a promise. But then left with premature revocation issue. Unilateral K can be construed where promise made upon the fulfillment of a condition—then solves problem of no bilateral K for lack of consideration. Couldn’t find it was a bilateral K here b/c there was no evidence of consideration offered by the daughter in law in return. Solve premature revocation issue by implying a term.Can find an implied term that you can retain the result of the unilateral offer as long as you are performing the conditions but have not yet completed. **problematic b/c this seems like a firm offer***Can’t use estoppel in unilateral K before performance is complete b/c there is no acceptance and therefore no binding K—estoppel only prevents the use of legal rights UNDER A K. Facts: Father buys house for son and daughter in law. Says if they pay the mortgage, property will be theirs. Father also pays the ‘rates’ for them. Father dies, couple splits up. Executor wants to kick the daughter out. But she is still making the payments. Helddaughter gets to stay as long as she makes payments, but estate doesn’t have to pay the taxes. Dawson v. Helicopter Exploration CB 366 IssueRatioNotesSolve a premature revocation issue by finding a bilateral K. An offer may be revoked any time before acceptance: therefore if the K is bilateral, it cannot be revoked once a promise has been accepted in return for a promise so if you find a binding K, then the problem of early revocation no longer exists. Here Helicopter’s argument that it was a unilateral K fails b/c they promised to provide a helicopter in exchange for the mine info—not passive.Facts: Man knows where mineral deposit is, arranges with company via letters that he will show them for 10% interest in their stake. Company agrees that they will take him by helicopter to the site for 10% share. Company then goes behind his back and finds minerals, cutting him out of the deal. HELDbreach of KContracts and third partiesThird-party BeneficiariesClassic Application of Privity of ContractThe only person who can sue for breach of K is one who is a party to the K and who has given consideration. (not performance of consideration remember—just giving a promise is sufficient)Four legal devices to avoid privity of K:(1) Agency: principal can sue party with whom agent made K and vice versa (2) Trusts: beneficiaries can sue to enforce their rights under the trust (3) Assignment: Can assign your contractual rights to another person, then that person can sue to enforce their rights under K (4) Stautory: Some legislation gives people the right to sue even if they are a 3rd party—a ‘bill of lading’ which is a shipping contract is governed by statute—it gives the right to the consignee (the buyer) to sue on the contract between the consignor (seller) and the carrier. The Insurance Act gives the right to 3rd party who is intended to benefit from insurance entitlement to sue the insurance company directly (i.e. John has ICBC insurance. John drives his car into Tara. Tara can now sue ICBC)OTHERWISE PRIVITY OF CONTRACT EXISTSTweddle v. Atkinson CB 371 IssueRatioNotesCan the son (a 3rd party) sue for breach of K?In order to sue for breach of K you must be a party to the K, therefore 3rd parties who benefit from a K are not entitled to sue in order to obtain their benefit. Secondly, in order to sue for breach of K you must also have offered consideration—no binding K without consideration. Here the K was between the two fathers, so even though Son was the one who benefitted he couldn’t do anything about it. He also hadn’t offered any consideration so was doubly barred from suing. Facts: Agreement made btwn father and father in law to give son $$. Basically, “I’ll give him this much if you give him that much”. Payment is supposed to be made by a certain date, but neither party pays. HELDson not a party and provided no consideration so can’t sue for breach. Enforcing a benefit to a 3rd partyBeswick v. Beswick CB 372 IssueRatioNotesCan a 3rd party sue for breach of K which is supposed to give them a benefit—especially when original party to K is dead?What is the appropriate remedy for breach of a K when the K is meant to benefit a third party?The executor of an estate can sue, but they cannot be joined by the third party. Appropriate remedy is Specific Performance.Denning at the court of appeal argued that the wife (who was the third party beneficiary) could join the executor as a 3rd party—this type of joining should only be allowed for a 3rd party beneficiary though not just any 3rd party. Today this case would likely be decided under ‘unjust enrichment’Facts: Man has coal business, not in good health, makes agreement with nephew for nephew to take over the business. K stipulates nephew ill pay man as consultant set amount per week and after his death pay wife set amount per week. Nephew pays man, but then man dies and Nephew refuses to pay the widow. HELD wife can sue as husband’s executor and enforce the benefit to herself, but cannot sue in her own right. Agency Exception to Privity of ContractPrincipal creates a K with an agent that empowers agent to make contracts on their behalf. Scope of the agent’s power is defined by the KNow when A makes K with 3rd party, within the scope of authority= binding K btwn the 3rd party and principal. An agent has 3 kinds of authorityExpress Authority: whatever authority is written in the K btwn principal and agent. Implied Authority: authority is impliedly given to do things that are necessary for carrying out the express authority. Ostensible/Apparent Authority: If principal puts agent in position that it appears to a reasonable person that the agent has authority to do something, even if they do not have actual authority, if the agent does this thing it will still create a binding K between the principal and a 3rd party. If agent does something outside the express or implied authority and binds the principal, the principal can sue the agent for breach of warranty (breach of their original K). Dunlop v. Selfridge CB 380 IssueRatioNotesWhat is required to demonstrate someone was acting as your agent and therefore get around privity of K?To hold one party was acting as an agent for another there must be:Factual Basis—there needs to be an express provision or indication that they are acting on behalf of the principalConsideration—there needs to be consideration flowing from the principal to the 3rd party and vice versa. If consideration is flowing from the agent to the 3rd party it is evidence that the agent isn’t really an agent and is just making a bilateral K on their own behalf.Facts: Dunlop tires makes K with Dew that says they will sell him tires at discount price provided that he makes a K with his retailers that they won’t sell for less than the set retail price. Dew has K with Selfridges, puts that clause into the K. Selfridges sells for less than retail price, but Dew declines to enforce that clause. Dunlop brings an action HELDDunlop cannot sue Selfridges b/c they are a third party and have no K with them. The Eurymedon CB 393 “I will sue the Stevedore for my broken drill! How dare they throw it over board!”IssueRatioNotesUsing Agency exception to benefit a 3rd party from the limitation clause of a K?Example of Bill of Lading exception to privity of K—consignee can sue on the contract between carrier and consignor. Remember: Performance of an already owed legal duty is not good consideration. However it is good consideration if you are promising to do an existing legal duty to a 3rd party b/c you are then giving the other party a right to sue you. (note the pre-existing legal duty cases)A 3rd party can benefit from the limitation clause of a K if you can show that:One of the contracting parties was acting as their agent. This requires EXPRESS agency relationship i.e. written in the K.Consideration must flow btwn the principal (the 3rd party) and the non-agent contracting party. If the limitation clause is a unilateral offer—then consideration is given upon performance of the conditions (which is what happened here)EXAMPLE of how this case worked:A contracts with B who has a limitation of liability clause. B then gives C some of its work to do under the K. C makes a mess of the job.A then sues C—claims C has no protection b/c they are 3rd party. SO if C can prove that B was acting as its agent AND that they gave consideration to A—then they can be protected. B/C limitation clause is a unilateral offer—“whoever will carry the goods will get to have the benefit of this limitation clause.” Therefore by performing the conditions, party C gave consideration (as performance is acceptance and consideration in a unilateral K)Limitation of Liability Clause, Insurance and Privity of ContractBecause of a limitation clause, one party is likely to buy insuranceAn insurance company, if they have to pay out, can ‘subrogate’Subrogate= step into the shoes of the insured and sue whoever is responsible for the damage.London Drugs v. Kuehne & Nagel CB 398IssueRatioNotesCan employees obtain the benefit from a limitation of liability clause in a contract between their employer and a customer?A new exception to privity of K:“The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employee(s) seeking to rely on it.”The employee(s) seeking the benefit must have been acting within the course of their employment and must have been performing the exact services provided for in the contract when the loss occurred. Limitation of liability clause can only be used as a shield by the employees… they cannot use it to form a cause of action as a sword. In this case, employees are clearly included in the limitation clause b/c the company cannot do the work themselves—don’t have hands or feet. Facts: London Drugs delivered transformer to K & N for storage, pursuant to K of storage which included a limitation of liability clause for $40. LD had option to purchase extra insurance, did not but instead arranged their own all-risk coverage. Employees of K & N negligently lift transformer and cause 33,955.41 damage. This all-risk insurance company then steps into the sues of LD to try and subrogate and recover from the employees HELD employees covered by the clause. Fraser River Pile v. Can-Dive CB 406IssueRatioNotesShould the limitation of liability protection for employees be extended to other situations where a 3rd party could potentially rely on a waiver clause? YESexception to privityIntentionDid the contracting parties objectively intend the benefit to extend to the 3rd party seeking to rely on it (i.e. is it reasonable to assume they contemplated that the benefit would include the 3rd party?)ActivitiesWas the 3rd party doing the activities that come within the contract generally and that the specific exclusion clause considers?The contracting parties still have the freedom to vary their contract as they choose. However, they cannot alter the contract once the benefit for a 3rd party has CRYSTALIZED… i.e. after the need for the benefit has occurred. This exception is in line with the commercial reality—i.e. ppl know who is supposed to be covered/benefiting from these clauses—a company has no arms and legs, can’t do it themselves so obviously employees will be doing the actual work. They should be covered. Facts: Marine insurer waived its subrogation rights against “any charterer”. Insured vessel sunk by charterer’s negligence. Insurance pays out and then tries to subrogate and sue the charterer. HELD can’t sue, charterer covered by clause. Kitimat v AlcanRe-enforces that London Drugs/Fraser exception is to be used by third parties as a SHIELD not a sword. Therefore a third party can’t use this test to sue to enforce a benefit to a K, they can only use it to protect themselves should they be sued. 3rd Party Rights that Depend Upon a ContractA void contract is a nullity—it does not exist. If the contract is void, no subsequent third party can obtain rights under it because it did not exist “Nemo Dat Quod Nun Habet” You can’t get something from nothing.A 3rd party CANNOT obtain rights under a nullityVery limited situations in which a flaw in a contract can be so significant as to make it void, usually these flaws are variants of a ‘mistake’. A VOIDABLE contract IS a contract UNTIL it is set aside (by one of the contracting parties) and thus 3rd parties can obtain rights under it before the contract is ‘avoided’ (set aside). If a third party obtains rights BEFORE it is set aside, they will win over a party seeking to avoid the original K. Mistaken identityMistake of identity = void contractFraudulent Misrepresentation = voidable contractPhillips v. Brooks CB 432IssueRatioNotesWhat is mistaken identity?Example of Fraudulent MisrepresentationTrue mistaken identity is when one party intends to contract with someone else, and only this someone else, and NOT the person standing in front of them. If you intend to contract with the person standing in front of you and they give you a fake name, this is just fraudulent misrepresentation. Man pretends to be someone else, writes a check for a ring, takes ring, the cheque later bounces. Some debate on whether the contract of sale was completed before or after the man used his alias. Ingram v. Little CB 433IssueRatioNotesWhat is mistaken identity?Example of mistake of identityIf the identity of the person is important to the offeror and they take steps to confirm it, then the offeror is deemed to have made the K to only this person. Thus a person who claims to be this person has no true power to accept as they are not this person case of mistaken identity and the K is void. Hard to reconcile this with Brooks… likely no way to do that. However, perhaps in this case distinguish it on the fact that the ptf here confirmed identity before making the K where as perhaps the K was already formed when the identity came into play in BrooksLadies want to sell Car, man claims to be ‘hutchinson’ gives an address. Wants to pay by cheque… ladies only want cash. One sister goes and confirms his name/address in the directory. They sell it. cheque bounces, innocent third party buys it. Lewis v. Averay CB 438IssueRatioNotesMistaken identity TESTNo way to reconcile Brooks/Ingram so THIS is the new rule. The law will presume that you intend to contract with the person in front of you, unless evidence is produced to rebut this assumption, a person who accepts based on a false identity will have committed fraudulent misrepresentation and therefore only voidable. -The only exception is someone who claims to be acting as an agent for another, then there is clearly no K. WALDRON-Based on policy that it is not fair to prejudice an innocent third party when it was the offeror who was imprudent in not ensuring identity/credit worthiness. -really hard to rebut presumption, have to show that there is a reason you would have sold it to ONLY this one person. Lewis sells car to X, after X tells him he is a famous actor, produces ID and pays by cheque. X sells car to Averay. Cheque bounces, Lewis sues Averay to get the car back—claiming mistaken identity makes the K void, so Averay has no rights. Mistake as to the Nature of the Document: Non est factumGenerally, if you sign a document you are taken as assenting to the contract—can’t later claim you didn’t mean it or you didn’t read it/understandHowever if someone forges your signature this results in a nullity and you can’t be held to the term of the K. Non Est Factum arose as a defence for people who through no fault of their own signed a document that they thought was something else i.e. they were blind or illiterate and someone lied and told them it was different. There needs to be a material difference, with an inability to ascertain the truth on behalf of the signee and it will render the K “non est factum” and VOID (a nullity)However if someone gets you to sign a document and you were able (but didn’t) take the steps to ascertain it’s meaning, this is merely fraudulent misrepresentation and the K is just VOIDABLE. Again, important b/c third parties may then obtain rights under these contracts so need to know whether their rights will be enforced or not. Saunders v. Anglia CB 445IssueRatioNotesWho can claim ‘non est factum’?They must have taken all possible steps to figure out what the document was. (not available to those who are negligent.)There must be a material or fundamental difference between what they thought they were signing and what they were actually signing. This case, she was not negligent b/c her glasses were broken and she couldn’t read. However it FAILS because there was not a fundamental difference, she signed it to give her house to her nephew, and this essentially was a plan to do that… although round about. Ptf is old lady, wants to give her house to nephew. N doesn’t want the house straight up b/c he has alimony due and he thinks they will take it. Arranges for his friend to buy it, take a mortgage on it, and then pay him the price of the house in installments. The two of them get Ptf to sign transfer but tell her it is just a deed for the gift to the N when really it is selling it the friend. Friend gets the mortgage, but spends all the $ and never pays the N OR the mortgage company… mortgage company then forecloses on the house for default. Marvco Color Research Ltd. V. Harris CB 457IssueRatioNotesMODERN TEST:Who can claim ‘non est factum’?Only available to those who were not negligentThere must be a fundamental difference between the document signed and what they thought they were signing. Good policy because an innocent 3rd party shouldn’t have to suffer just because the signee was negligent and didn’t both to read/understand the K—the signee through their negligence enable the fraud and thus should bear the cost. Facts: lots of business arrangements…. Essentially Johnson “J” needed to get a security for his loan arrangement with Marvco (M). He goes to his wife’s parents, the Harrises (H) and tells them that there was a mistake in the date of a mortgage agreement with BMO that they had already signed and consented to (they had done this at his request and gave him the money to help him out with his business) , so J just needed them to re-sign it. They do sign, without reading it. BUT the paper that they signed was ACTUALLY a NEW mortgage agreement, using their house as security for J’s loan from Marvco. J then defaults on his loan, and Marvco goes after the H’s house. Contract interpretationOften a breach of contract action arises out of a disagreement as to what the K stipulates and what it means. If parties choose to write the K down, what happens to everything else that was discussed/negotiated in the lead up?How much influence should the factual background (‘factual matrix’) have on the result of a dispute?Collateral Contract: a K that is made in order to get a person to enter into the main K.Rectification: Equitable principle, written document inaccurately reflects the true agreement. Basically a typo or a mistake in writing down the agreement. Rectification corrects the mistake. Interpretation ToolsThe Factual Matrix (Prenn v. Simmonds) but NOT negotiationsModern Parol Evidence Rule (Galen) rebuttable presumptionHarmonious Interpretation (Galen) broad general clause can be modified by a very specific oral representation. Exclusion clauses will be read narrowly (Galen)Contrapreferentum (Tercon Contractors) if there is an ambiguity in the K, it will be read in favour of the party who did NOT prepare the document. Generally Bound to Signed Agreement (Tilden) but if other side knows you didn’t read it and were not consenting to an unusual term they may not be able to rely on it. Clear Language to Limit Liability (Photo Production)To Exclude Liability for negligence must expressly say so (Photo Production)Consider the provision in harmony with the rest of the contract and in light of its purposes and commercial context (Tercon).If different words are used, they must have different meanings (Tercon). If unambiguous, there is no discretion to change the meaning of the words chosen by the parties (Tercon).Factual MatrixPrenn v. Simmonds CB 486IssueRatioNotesWhat evidence can be used in order to interpret a term of a k??How you interpret a K WITHOUT parol evidence. Interpretation of a K is based on what was known by both parties at the time of formation. This is the “factual background”. Negotiations leading up to the formation of the K cannot be used as evidence as positions are always changing throughout negotiation and thus this evidence is unhelpful—consensus is only reached in the final document. Factual Background Factors:Aim and Gensis what were the parties trying to do. Reality of how the company functions. Commercial practice and general law of the area. Parties own past practice what the word means in other parts of the K. How the K is meant to function. Linguistic Sense/Plain MeaningGenerally interpret words in a way that has some meaning not surplus/redundant words. Facts: K Gave the ptf the right to buy shares at a really good price based on the condition that the company RTT made enough money to pay off the purchase price owed by the defendant by a certain date. However the defendant controls how much profit RTT actually has, by controlling the subsidiary companies. Thus money RTT had at that time short of the required —although there were enough funds in the subsidiary companies to more than meet the requirement. Therefore the case turned on the meaning of the word “profit”—did it include the profit of the subsidiary companies? HELD YES. The parol evidence ruleEvidence of things said or written prior to the conclusion of an agreement, which is reduced to a written doc. The parol evidence rule states that you can’t admit this type of evidence—from BEFORE the K was signed. And you can’t use evidence of what was said before to add to, vary or contradict the written K. Remember—it is perfectly possible for parties to agree to alter/vary a K after formation. Just dealing w before. Hawrish v. Bank of Montreal CB 495IssueRatioNotesHow can Parol evidence of an oral agreement be used?Parol evidence of an oral agreement from before a K was made cannot be used to contradict or cancel the plain terms of a K. However it could be used if the K was silent on the matter as independent of and collateral to the main agreement. A collateral K requires all the normal elements of a K—intention, offer, acceptance, consideration, certainty. Seems to be lacking evidence here.It is also acceptable to introduce evidence that the operation of the K was suspended until a certain time or condition. Facts: Lawyer with bad reputation signed a guarantee for this new business, claims that bank manager told him that he would be released from his guarantee as soon as other people signed on for security. K signed expressly states that no representations by a bank employee affect the K. Thus, b/c he is a lawyer and would be expected to read a K—seems as if he wouldn’t have signed considering this was directly contradictory to his oral agreement. HELD he has to pay. Gallen v. Allstate Grain CB 511IssueRatioNotesIs evidence of an oral representation before the K was made admissible?The general rule is that when parties have set down all the terms of a K in a written agreement, extrinsic evidence is not admissible to add to/vary/subtract from/contradict those terms. However, if you plead one of the exceptions, then the evidence can be admitted. EXCEPTIONS (not exhaustive):To show K is invalid b/c of fraud/ misrep/ mistake/ incapacity/ consideration/ intention.To dispel ambiguities, establish a term implied by custom, the factual matrix. Support a claim for rectification.Establish condition precedent to the K. Establish a collateral agreement.In support of a claim that the document doesn’t include the whole agreement.In support of a claim for equitable remedy.In support of a claim in tort. Collateral AgreementsGallen v. Allstate Grain CB 511IssueRatioNotesCan a collateral agreement from before the K was made contradict/vary/subtract from/add to the written and signed K?General Rule: A collateral agreement cannot be established where it is inconsistent with or contradict the written agreement. HOWEVER: The rule is merely a presumption and can be rebutted by evidence of an antecedent express stipulation not intended to be excluded but to continue in force.POLICY: Why would someone make one arrangement and then immediately sign a contradictory document? Doesn’t seem very believable. EXCEPTIONS:Cannot use this rule as a tool for the unscrupulous to dupe people. If a K is induced by oral misrepresentation that is inconsistent with written K, the written K cannot stand. PRESUMPTION IS:Less strong if it just adds to the K. Stronger if it subtracts/varies the KStrongest if it is contradictory to the K. How should collateral agreements be interpreted. The Court will make an effort to interpret the collateral agreement harmoniously with the written K to keep it in force. If it is possible to interpret collateral as just modifying the written K or making it more specific, do that. Signed AgreementsTilden rent-A-Car v. Clendenning CB 503IssueRatioNotesAre you bound no matter what to a contract that you have signed?Generally yes, even if you don’t read it (absent non est factum etc) BUT…L’estrange v Graucob: A signature is an objective manifestation of assent. If a reasonable person would know that the signee was not aware of unusual terms and thus was not consenting to them, the signor may not be able to rely on those unusual terms. “consensus ad idem” is essential to K formation. To prove this didn’t happen, must have:The other party knew that the mind of the denying party did not accompany their expression of consent at the time of making the K.Facts/circumstances show it was not reasonable for other party to believe denying party gave their real consent. FACTS: Man rents car, gets extra insurance but doesn’t read the conditions. Asks, and the employee tells him it is full coverage. Gets in an accident after having a few drinks. It is established that he was in control of the car and intoxication did not play a role. However the insurance K stipulates that there is no coverage if you have had any alcohol at all to drink, in small tiny conditions that are barely legible. Express and legible part of the K says that it is full coverage and the insured has no liability. Clauses excluding liabilityPurpose of exclusion clauses are: to avoid liability and to apportion risk appropriately so that the parties know who needs to insure. Often these are a point of negotiation. Problem arises when an exclusion clause seems inherently unfair and apportions risk to the wrong party. Ex. Consumer contracts and standard form clauses may unfairly put the risk all on the consumer. In the U.K. Lord Denning developed the “fundamental Breach” rule to deal with this problem, but it was not enthusiastically received. F.B. happened where one party deprived the other of the whole benefit of the K. In that case the party cannot rely on an exclusion clause because the whole K ceased to exist. In conflict with the contract principle of termination on serious breach which held that if one party seriously breached the K, the other party could terminate the K for future performance and then sue for damages for breach of the K. Photo Production v. Securicor CB 553 English House of LordsIssueRatioNotesHow to deal with exclusion clauses. Determine within the factual matrix what the parties intended the exclusion clause to cover. If what has happened within this, then it is covered by the exclusion clause. Factors to consider:Amount charged (the party taking on risk usually charges a lot more)Foreseeability of the situation or negligence of the partyClear or express language—to be exempt from negligence must be EXPRESS. Where is risk most appropriately placed?A serious breach of contract gives rise to the right of termination as to future performance. This is NOT rescission as it only destroys future obligations not the entire K. The party terminating can still sue for breach of contract, but because the K still exists then any clauses that deal with damages or liability are still applicable. Doctrine of Fundamental Breach is overruled. Note there is consumer protection in the U.K. now for unfair standard exclusion of liability clauses—NOT in Canada. FACTS: Appellant provides security. Has K with R to provide night patrol services. K had standard limitation of liability clause. Security guard makes visit one night but deliberately started a fire in Rs business. Most of the premises burnt down. The cost of the security service was quite small. Hunter Engineering v. Syncrude CB 556IssueRatioNotesWhen does an exclusion clause apply?Whether or not an exclusion clause applies is a matter of contract interpretation. It is necessary to interpret the exclusion clause and determine if it applies to the factual circumstance. If the exclusion clause does not apply, it does not apply. If the exclusion clause does apply then: (Court is split on the second step)See if clause is unconscionable. If yes, does not apply. See if it is fair and reasonable to enforce the clause. If no, does not apply. Interpret the exclusion clause based on the principles of contract interpretation. Facts: S contracted 32 gearboxes from H for plant. Gearboxes break soon after expiry of warranty. But there is an exclusion clause that says the company will not be liable beyond the date of the warranty. Tercon Contractors v. B.C. CB 569IssueRatioNotesWhen does an exclusion clause apply?There is a 3 step test to determine when an exclusion clause applies:Interpret the K to determine if it applies to the factual circumstance. If no stop, does not applyDetermine if the exclusion clause was unconscionable at the time it was madeIf yes stop, does not applyNevertheless, should the Court refuse to enforce a valid exclusion clause because of the existence of an overriding public policy (the burden rests on the party trying to avoid enforcement)If yes does not applyOtherwise the clause will apply. This is the definitive statement on application of exclusion clauses in Canadian contract law. Doctrine of fundamental breach put to rest. Note that step three is not very broad—must be much more than unfairness in order to protect the freedom to make Ks however you want. Something close to criminal activity: Plastex case, sold piping when they knew it was defective and planned on relying on the exclusion clause. Interpretation tools: If different words are used, they must have different meaningsInterpret harmoniously with the whole and in light of its commercial context and purposes.If unambiguous, there is no discretion to change the meaning of the words chosen by the parties. Facts: province accepted a bid from an ineligible bidder in a tendering contract. However, the tenders has an exclusion clause saying that no one ‘participating’ in the tender process who submits a bid shall have any right of action. Misrepresentations and the relationship between contract and tortThere are Four ways to deal with a misrepresentation in a contract situationTort of Fraudulent MisrepresentationSue in tort, can get damagesMust be intentionally untrue or reckless as to whether it is true or not. In contract: Find the misrepresentation as a collateral contractSue in contract, can get damages for breach of contractHowever need evidentiary basis to prove it was a collateral KWorks for accidentally untrue statementsTort of Negligent MisrepresentationSue in tort, can get damagesHowever need the statement to be made by a professional/person purporting to have special skills and the ptf must have relied on the statement in order to satisfy the duty of care/negligence requirements. In contract: Innocent misrepresentation remedy. No remedy at common lawRemedy at equity is rescission However, because equitable MUST: a) have clean hands b)act within a reasonable time c)be possible to perform rescission (leaf)There are NO damages… so usually try to fit into another category/solution. the parties are put in the positions as if the K had never existed ‘restitutio in integrum’Collateral ContractsHeilbut, Symons v. Buckleton CB 737IssueRatioNotesWhat statement constitutes a collateral K?If the statement is intended to have contractual force it is a collateral K. This can be deduced from the totality of the evidence. The court affirms that there is no liability for an incorrect statement that is innocently made. Facts: ptf confirms that they have shares for sale for a rubber company, def buys them but turns out the company doesn’t own any rubber and isn’t a rubber company. But the convo was pretty casual, so did this statement count as a collateral agreement? Otherwise it is an innocent misrepresentation. Bentley Productions v. Smith Ltd. CB 741IssueRatioNotesHow do you prove the parties intended the statement to have contractual force? Intention is based upon what a reasonable person would conclude from the conduct of the parties. If representation is made to induce the other party to enter the K and it actually does induce them, there is a prima facie collateral K. However def. can rebut this by showing that it was innocent… made without fault. BUT you can’t be innocent if you ought to have known the statement was false. Facts: ptf buys car on defendant’s assurance that it has a new motor and gearbox with only 20,000 miles. Def is in the business of selling used cars and is expected to have the knowledge of the car’s history. This assurance turns out to be false, and the car really sucks. Gallen v. Allstate GrainIssueRatioNotesWhat indicates a statement is intended to have contractual force and thus is a collateral K?There needs to be objective evidence that the statement was intended to be acted up on and was in fact acted upon. Factors:recipient makes it clear they would not contract w/o the collateral Kmaker stating knowledge they should have and which the recipient is known to be ignorant. Look at K in light of circumstance: does accuracy of statement likely affect the substance and foundation of what the K carries out?Show intention that responsibility of the soundess will rest upon the vendor i.e. who was to bear the risk should the statement be wrong?A collateral K is different from a misrepresentation b/c a collateral K (or warranty) becomes part of the contractual relations, while a misrepresentation does not. Therefore, if you breach a collateral K you have a right of action in breach of contract and all the available remedies. A collateral agreement, or warranty, effects the scope of the agreement… so it is a representation of fact or a promise to bear the risk of the loss that will flow from a failure of a fact to occur in the future. Facts: ptf makes oral agreement with allstate that weeds will not be a problem with this particular kind of crop. However, the weeds are a problem and the crop fails. Murray v. Sperry Rand Corp CB 755IssueRatioNotesWere the representations by the sales agent a collateral K or an innocent misrep? (collateral K)If the representations are made with the intention of inducing the other party to sign the contract and they in fact are fundamental that parties decision to sign collateral K. Does the Collateral K HAVE to be between the parties who have the main contract? (no)(it is good consideration to say you will contract with someone else in return for a promise)A third party to a contract may be liable for breach of a warranty, if the promise was made in return for that party to enter the K with another party this is still a collateral K. Unusual b/c normally advertisements are not considered a warranty or collateral K. Facts here were unique in that the promises were made on site to a specific individual. Facts: Ptf ordered harvesting machine after reading brochure and speaking with representative of manufacturer AND sales agent about his needs. Machine doesn’t work at all like it is promised. Innocent MisrepresentationRedgrave v. Hurd CB 743IssueRatioNotesHow does rescission in a case of innocent misrepresentation work?Classic example:K not yet completedInnocent misrep discoveredPart tries to enforce despite mistakeCourt will not enforce but instead rescinds. If a representation that induced another party to enter a K is later shown to be untrue, then there is sufficient ground to rescind the K. If a person makes a statement calculated to induce another to enter a K and then they enter the K… they are deemed at law to have been induced by the statement. Can’t enforce a K with equitable remedy based on innocent misrep once you know the statement to be untrue, b/c then you would be trying to benefit from the mistake which is not equitable. Facts: Ptf advertises his law practice and house for sale. Def enteres into agreement, but then finds out the law practice is utterly worthless—gives up possession of the house and refuses to complete purchase. Deal is made but not yet performed. However Ptf tries to enforce K with specific performance. Leaf v. International Galleries CB 751IssueRatioNotesWhat are the limitations of an action for rescission?Rescission can only be ordered if the action is brought within a reasonable time, and it must also be possible for rescission to occur—i.e. no third party rights jeopardized, property not altered etc. Additionally, rescission will likely not be ordered if the K is completed – a reflection of the value that completed contracts are final and will not be reopened. There is a whole issue with a sale of goods K here – in a sale of goods K terms are either a condition (which is fundamental to the K) or a warranty (which is of lesser importance). Breach of condition = can reject goods with a reasonable period of time (afterwards you are deemed to have accepted and can only make a claim for damages)Breach of warranty = can’t reject goods, so can only make a claim for damages. The court decided it was a condition, and that the ptf had accepted the goods as a reasonable time had passed.Therefore, the court held that if a reasonable time had passed for a condition, it must also have passed for bringing an action for rescission for innocent misrep. Facts: Seller made representation that painting was a Constable. Incorporated as one of the terms of the K. Buyer keeps painting for five years, then tries to sell but finds out it is not a Constable. Buyer brings action for recission. Negligent MisrepresentationHedley Byrne v. Heller CB 760IssueRatioNotesAre there any way to deal with misrepresentations that are not fraud and are not collateral Ks (or not part of a K at all) ? The Tort of negligent misrepresentation can be used for statements which turn out to be false but do not amount to fraud. If someone voluntarily assumes responsibility to perform a service, they can be liable for performing the service negligently – even if the loss is purely economic. In this case def’s held not liable b/c of the disclaimer they put in their statement. Facts: Def told ptf that 3rd party had good credit, however stipulated that they took no responsibility for this statement (they also didn’t receive payment for the statement, so no K formed). Ptf loans money to 3rd party who defaults. Esso Petroleum v. Mardon CB 763IssueRatioNotesHow does negligent misrepresentation interact with contract law?Negligent misrepresentation can help get around the problem of no damages/liability for an innocent misrepresentation where a collateral K cannot be found. **reliance on the statement MUST be reasonable and have actually caused damages. In a contractual situation, this could be inducing the party to sign the K which then fails and thus signee suffers damages. When does negligent misrepresentation apply?Negligent misrepresentation can apply to pre-contractual statements because it is a separate area of law.In this case, Esso had special skill and knowledge and induced tenant to contract with the estimate. When can you use negligent misrepresentation?A person who purports to have special knowledge or skill and makes a representation has a duty to use reasonable care. The estimate itself was not the promise, the promise was that the forecast was made with reasonable skill and care… which it was not. Therefore damages would be the same in both tort and contract.DIFFERENCE BETWEEN COLLATORAL K and NEGLIGENT MISREPThe difference is that a collateral K must be a guarantee OR a statement of fact while a negligent misrep, like this situation, is just an estimate.Facts: Esso contracts with tenant to run gas station based on estimate that station will do 200,000 gallons/yr. However, municipality refuses to let them put the entrance on busy road—must put in the back. Esso does not alter their estimate. Tenant signs K based on estimate, and then gas station fails… tenant loses lots of money. Note on Central Trust v. Rafuse CB 770IssueRatioNotesWhen can you use negligent misrepresentation where there is a contract involved?A ptf can pursue an action in tort or contract as they see fit. EXCEPTION: A ptf cannot pursue an action in tort if this would permit them to circumvent or escape a contractual exclusion or limitation of liability clause for the act or omission that constitutes the tort. Before this, Canadian law very confused and had said that you couldn’t pursue negligent misrep if there was a contract involved. So the court clears that up here. Drafting contracts – a short consideration of practical issuesIn class, we are often approaching what happens when something goes wrong. But in practice you are usually looking at the other side—contract creationHow do you make sure something doesn’t go wrong. Usually you aren’t preparing contracts from scratch. In context of a well-defined legal transaction. That have their own contracting rules. Start with a template and adapt and change as necessary. But to do so properly you must be able to go through the document and spot problems—ensure that it would be interpreted as your client would wish. Residual Power of the Court: Unenforceable contractsThese are vitiating factors—residual power of the Court to hold an otherwise good K to be unenforceable. DuressPhysical Historically, duress could always vitiate a K –classic example of physical violence. “sign this K or I’ll shoot you”The K is void b/c the consent of the other party is vitiated. K law depends on both parties consenting in order to enforce a ‘private law’Doesn’t matter if the bargain is a fair price or not. Need free consent—if compelled by force, the K is void. Outlined in Lloyd’s BankEconomicUnclear whether this exists, historically did not.Slowly being thought about in the 20th centuryProblem is that in negotiation, there will usually be someone with the upper hand who will try to negotiate a hard bargain—this should not be disallowed. Hard to draw the line between normal situation of driving a hard bargain and something that is illegitimate. NAV Canada v. FredrictonRecognized economic duress in situations of contract VARIATION only. In this context, economic duress is when: Other party has no alternatives and evidence shows party did not consentLook to see if there is consideration (w/o it suggests no consent, with it suggests there was consent)Was the change made under protest?Did party act promptly to have the agreement set aside?English JurisprudenceIn the context of the whole K, economic duress has been used in pleadings to set aside an entire K in ENGLAND. Problem is what kind of pressure is require to constitute economic duress?Superior bargaining power not enoughPressure must be “illegitimate”Threats of criminal or tortious conduct clearly illegitimate. But beyond this there is no clear answer nor any Canadian authority. Undue InfluenceThis is also attacking the consent of one party. No violence but some overwhelming influence is brought to bear so that the other party doesn’t truly freely consent. Doesn’t matter if the agreement is fair, once undue influence is established, onus shifts to the other party to show they took reasonable care of the party who is under their influence. Two ways it can occur: Prove the K was obtained by undue influence. Very close to duressConsent vitiated because the other person had so much control or dominance (pressure and force)Relationship of trust and confidence. Two ways to go about this category: Actually prove the relationship was one of trust and confidence. Prove it was one of several specific relationships that are presumed to fit into this categoryParent/childDr/patientTrustee/beneficiarySolicitor/clientReligious advisor/disciple Once it is established one of these two ways AND there is a transaction between the parties that calls for some explanation (i.e. and unusual K) then there is the presumption of undue influence. Can be rebutted by showing acted with scrupulous care, honestly and in best interest of the subordinate party. Lloyd’s Bank v. Bundy CB 603IssueRatioNotesProving the required relationshipThere are two ways undue influence can be established:The stronger person is guilty of fraud or wrongful act to gain advantage over the weaker. The stronger is not guilty, but because of their relationship of trust and confidence, gained an advantage. Prove this was a relationship of trust and confidence ORShow it fits into one of the presumed categories. (listed above).NEED a transaction that is not readily explicable by the party’s relationship. The other party can rebut the presumption by showing they acted with scrupulous care, honesty and in the best interest of the subordinate party. This case was resolved to be undue influence of the second category: father implicitly trusted bank manager to act in his best interest. Bank manager knew this but yet did not tell him the son’s business was very likely to fail. Facts: man mortgages farm to bank for Son’s business. New bank manager comes in, sees that son’s business is failing, goes to father and gets him to sign more interest in his property over even though bank manager knows business will likely fail and isn’t extending anymore credit in exchange for this extra interest. Royal Bank of Scotland v. Etridge CB 611IssueRatioNotesWhat if the undue influence comes from a third party to the K?(i.e. pressure on a guarantor from the person who they are helping… this person is not a party to the guarantor K it is between the guarantor and the bank)Normally, undue influence of the second category is proved when Ptf proves (1) trust and confidence of defendant (2) transaction not readily explicable by party’s relationship. Then the onus shifts to the def to prove (1) no trust or confidence (but can’t if it is one of the automatic categories) or (2) give an explanation for the transaction. A bank is fixed with constructive knowledge of undue influence anytime a guarantee is given in a non-commercial relationship. If undue influence is then proven, the bank will not be able to enforce the K UNLESS the bank… Made sure spouse knows the risk—explain carefully and thoroughlyIn a private meeting—decides in a private meeting. Urged spouse to get independent legal adviceExceptionally must insist on independent advice and receive letter from solicitor saying they have advised the spouse. If the bank knows the spouse has not received good advice, they run the risk. Otherwise can usually rely on the solicitor saying the spouse was advised to make the surety K enforceable. Usually the first two points are done by a solicitor. What must a solicitor do when advising someone whether to enter a surety K for a spouse or similar relational person?Explain nature of documents and their consequences. Seriousness of the riskEnsure spouse knows that they have a choice, individual decision. Check whether the spouse wishes to proceed. Must say they think it is a bad idea if that’s what they think. The meeting should be face to face. Can act for both spouses as long as giving advice to each individual’s best interest. Usually a spouse or other person seeking to avoid a guarantee in a non-commercial context will claim: Non est factumUnconscionabilityUndue influenceFacts: wife signed her interest in the matrimonial home to bank for husband’s indebtedness. Claims she did it under undue influence of husband and that bank was aware of this. She also sues solicitor who advised her before entering these guarantee obligations. Canadian Interpretation:SCC adopted this case in Gold v RosenburgBut in Van Der Ross the court held that failure to satisfy the O’brien requirements does not automatically vitiate a surety K. In BMO v Courtney the wife was held liable b/c she had knowledge and experience in financial matters notwithstanding the failure to get independent legal advice. Therefore, generally in Canada while the Bank will be stuck with constructive notice of undue influence in non-commercial relationships, they can avoid liability when undue influence is actually proven IF they ensure the guarantor understands the risks and nature of the transaction and is advised in a reasonable way, but not necessarily by independent legal counsel (although that would obviously help). UnconscionabilityNewer and more controversialActive area in Canadian courts. Deal in part with free consent, but also with the fairness of the bargain. Looking for a grossly unfair deal. PolicyTrebilcock Excerpt CB 581Leff Excerpt CB 585Argues that “transactional incapacity” and “unfair persuasion” could also fit into the doctrine of unconscionability. Transactional incapacity = where one party iknows of the other party’s inability to deal with complex transaction and exploits this—inducing them to enter bargain a party with capacity would probably not make. Unfair persuasion = use of bargaining methods which seriously impair the free and competent exercise of judgment. i.e. obtaining a promise from someone recently beraved. To make a K three requirements: (a) parties with capacity (b) manifest assent (c) consideration. If all met, the promise is binding unless vitiated by fraud, duress mistake, impossibility or illegality etc. Defences are divided into two categories: (1) the process of contracting and (2) the resulting contract. Unconscionability fits into both: “procedural” or “substantive” unconscionability. What does unconscionable mean? “too expensive” “inequitable bargain” “absence of meaningful choice” “one side unreasonably favoured” “inequality of bargaining power”RequirementsMarshall v. Canada Permanent Trust Co CB 595IssueRatioNotesWhat is unconscionability?There are two requirements for unconscionability:Gross inequality of bargaining power (so one party might have incapacity like this case)An improvident bargain. (a bad deal!)Person who asserts the K is unconscionable must prove it is so on a balance of probabilities… once they do a prima facie case is made out. Then it is up to the other person to rebut or explain why it isn’t unconscionable (i.e. the bargain is fair)Facts: Ptf offered to purchase land from def. who was in an elderly care home. Def accepts. The price for the land is grossly undervalue. Def. in process of being declared mentally incapacitated to deal with his legal affairs. Trust takes over his affairs and refuses to complete the K. Ptf sues for specific performance. Def’s estate counter claims for rescission due to unconscionability. Mundlinger v. Mundlinger CB 599IssueRatioNotesWhat is unconscionability? For a bargain to be unconscionable, there must be both inequality of bargaining power AND an improvident bargain. Once the party claiming unconscionability has made out a prima facie case, the onus shifts to the party seeking to uphold the bargain to prove that their conduct was scrupulous and considerate of the other party i.e. not unconscionable. Facts: Husband makes wife sign a settlement contract after divorce when she in a fragile state there is a suggestion that the husband was violent. The deal is really bad… giving her way less than what she is entitled to in exchange for her giving up her right of action. ApplicationLloyd’s Bank v. Bundy CB 603IssueRatioNotesApplication of unconscionability example. In this case, there was an inequality in bargaining power because the bank manager knew the son’s company was going to go under yet didn’t tell the father this AND it was a bad deal b/c the father gave whole security in the house for NO added funds—in fact overdraft had to be reduced a little bit. Case decided on undue influence in case this was wrong. Facts: see facts under undue influence above. Penalties and forfeituresA penalty clause is considered “in terroram” basically terrifying someone in to keeping the KClauses which simply attempt to estimate damages in advance “liquidated damages” are NOT penalty clauses. Remember, a contract party ALWAYS has the option to break the K and pay damages instead. It is not illegitimate to do this so people should not be punished unfairly for making this choice. A penalty clause will therefore NOT be enforced. H.F. Clarke v. Thermidaire Corp. CB 545IssueRatioNotesWhat is a penalty clause and is it enforceable?A penalty clause is not enforceable. A penalty clause is something that is trying to terrorize the other party into completing the K. Indicia of liquidated damages vs penalty clause thinking about the TIME OF CONTRACT FORMATION and NOT what actually happened. Just what was reasonably known to the parties at the time of formation to determine intent:Compare the amount stipulated to the reasonably anticipated damages for breach. Can’t have only one sum if there would be a wide variety of losses depending on how the K is breached (this indicates penalty clause)However if it would be difficult to estimate the damages, then makes sense to have liquidated damages clause. Is the amount set out of all proportion to any anticipated loss? If yes = penalty. Is the clause intended to punish? If yes = penalty. FACTS: K says that Clarke won’t sell competing products. There is a clause that says if they do, they must pay “liquidated damages” equal to the gross trading product realized from the sale of the competitor’s products (i.e. before expenses). Clarke breaks the K and sells a competitor’s product. HELD penalty b/c way higher than any damages could have beenIllegal ContractsClassic RuleHolman v. Johnson CB 656IssueRatioNotesCan you enforce a K that is intended for illegal purposes? (classic rule)No Court shall aid a person whose claim is based on an immoral or illegal act. A Ptf cannot bring an action if the intent of the K is illegal and the Court also will not aid a Def. In this case, b/c whole K performed in France where there was nothing illegal, the ptf could still rely on K b/c the ptf was innocent of any wrong-doing. FACTS: Ptf sells def. Tea in France. Def doesn’t pay. D wanted tea to smuggle into Englandillegal. Ptf knew of the smuggling goal, but had no part in it. Just contract for sale of Tea as per usual… all parts of K performed in France. Common law illegalityCourts would refuse to enforce Ks that were against public policy.Example: gambling, immorality (prostitution), restraint of trade, criminal offence, profiting from crime, tort The illegality does not come from a statute but rather public policy that it would be bad to enforce. Shafron v. KRG Insurance Brokers CB 660IssueRatioNotesIs a clause illegal at common-law for restraint of trade?A restrictive covenant must be reasonable to be enforceable, otherwise it will constitute restraint of trade which is illegal and thus be unenforceable. If the covenant is ambiguous, it is inherently unreasonable. Reasonable restrictive covenants often occur when someone sells a business… there is usually a ‘goodwill’ payment for this. Makes sense b/c you could seriously devalue the business you sold if you just opened a new one down the street. Makes a lot less sense for employment Ks… what is the employee getting? Reasonable depending on the geographic location and the time period. FACTS: Def. sells company, but remains there for a long time as an employee. His employment K says if he quits, he won’t work within the “metropolitan City of Vancouver” for three years. But there is no such place… he quits and works in Richmond. HELD Restraint of trade b/c unreasonable b/c ambiguous. Oldfield v. Transamerica Life Insurance 671IssueRatioNotesShould an insurance K be payable to an innocent beneficiary where the insured brought about the payment via an illegal act?Public policy bars a criminal or those claiming under the criminal through their estate from profiting from their crime, and Ks which provide benefits due to a crime are not enforceable. However, an innocent beneficiary is not claiming under the criminal and there is no public policy that prohibits enforcing a K which benefits an innocent beneficiary even if the cause of the payout was a crime. Seeking some relief from a rather harsh rule… although it seems to be an arbitrary distinction between innocent beneficiaries and innocent parties who are claiming under the criminal’s estate… but the estate is treated as if it is the person who has died so this theoretically makes sense, it’s like the deceased is ‘giving away’ the proceeds of crime as they want… which would be an indirect benefit and therefore unenforceable. FACTS: Ex-husband has life insurance policy which names ex-wife as the beneficiary. Dies in Bolivia smuggling cocaine. Statutory illegalityKingshot v. Brunskill CB 674IssueRatioNotesIs the k void due to statutory illegality? OLD RULEThe Court will not enforce a K that is illegal under a statute. A ptf cannot bring an action for enforcement of a K in which they acted illegally under a statute. FACTS: K for apple sale from producer to larger producer. Apples not inspected as they should be. Def receives apples and then decides to call inspector. Apples held in detention under statute b/c weren’t graded before sale. Def claims he should pay less due to the quality of the apples. Doherty v. Southgate CB 676IssueRatioNotesDoes statutory illegality always render a K void? NEW RULEActions prohibited by statute will only render a k void if the statute expressly says so or if it is against public policy to enforce the K. Factors: Look at what the result would have been had the statute been followed… if not different, no policy issue. Don’t want def. to take advantage and benefit from their own illegal act by declaring the K unenforceable. Was the bargain improvident?FACTS: Def. township has k for sale of land, but fails to give statute required public notice before. Township also doesn’t rezone as K stipulates. Ptf then sues for breach of K. Township uses statutory illegality as a defence… claims K unenforceable. Still v. MNR CB 697IssueRatioNotesThe modern approach to contract illegality under a statute. Where the K is expressly or impliedly prohibited by a statute, the Court can (NOT must) refuse to enforce the K if in all the circumstances—facts, object of statutory prohibition—it would be contrary to public policy to do so. Factors:Did the ptf act in good faith?Does the K contravene what the statute is trying to protect from?Would it set a bad example or encourage others to act this way if the K was enforced?Is there a penalty in the statute? Is refusing to enforce the K proportionate or disproportionate to this?FACTS: Ptf honestly thinks she is entitled to work in Canada due to confusing letter from Gov. Works. Becomes permanent resident. Gets fired. Held to be ineligible for EI b/c she was not legally entitled to work before, and therefore hadn’t been working long enough to receive the benefit. However she had paid the premiums the whole time. HELD she gets EIMitigating the consequences of illegalityNew Solutions Financial Corp v Transport NA Express CB 694IssueRatioNotesHow should contract illegality be dealt with?There is a spectrum of remedies to deal with the wide variety of circumstances that may render a K illegal. If there is a really bad illegal purpose to the K, it will render it void. However other contracts are fine but for the illegal clause etc. In those cases, severance may be affected to render the K legal and enforceable. Two ways to Sever:Blue Pencil TestUsed when the test for illegality is based on ‘reasonableness’ or something that requires discretion/judgementEssentially strike out the clauses which violate the statute/are illegal. Needs to be possible for the K to be made legal by striking out while still maintaining the ‘core’ of the K. Notional SeveranceCan only be used where there is a ‘bright line’ test for illegality i.e. a set, specific standard/limit etc. Reduce the offending clause/amount to as little as possible so as to be on the legal side of the ‘bright line’. FACTS: Commercial contract for money lending is above the maximum legal amount of 60% interest. Held notional severance applied, reduced the interest to 60% and the K was legal and then enforced. MistakeThere are three categories of mistake: Terms, Assumptions and FutureTermsCan be shared or unilateral or each party makes a different mistake. Hobbs v. E & N Railway CB 770IssueRatioNotesWhat happens when there is a disagreement as to the meaning of a term of a K?A term at issue will be interpreted to mean what a reasonable person would understand it to mean. If a reasonable person would find the term ambiguous, then there can be no true agreement and the K will be void. Use all the interpretation tools to find an unambiguous meaning for the term at issue FIRST. To use a mistake of terms as a defence it has to be the Ptf’s carelessness that led to the mistake NOT the defendant’s own carelessness. Court can also hold a K unenforceable for mistake of terms if it would be unjust to enforce the K due to the mistake… but it won’ be unjust if it was one party’s carelessness that led to the mistake. FACTS: K for sale of ‘land’. One party says this includes mineral rights the other party says it doesn’t. HELD includes mineral rights as this is what a reasonable person would think when they read “land”. Def’s fault the mistake was made… sophisticated party should have known to use the proper term. Raffles v. Wichelhaus CB 773IssueRatioNotesIf a term is ambiguous and the parties each believe it means something different?If a term would be ambiguous to a reasonable person; there is no evidence to clarify the specific meaning of the term; and the parties each claim they believed the term meant something different, the K will be void for mistake of terms as there was no true agreement to form a K in the first place. Very unusual circumstance to find a term that is truly ambiguous. The use of a proper name is more likely to be ambiguous than other types of terms. FACTS: “Peerless” isn’t so peerless… no way to tell what ship they meant!Staiman Steel v. Commercial CB 774IssueRatioNotesWhen is a K void for a mistake of terms?The court must decide what a reasonable 3rd party would infer to be the K from the words and conduct of the parties. The K is ONLY void if it is so ambiguous that a 3rd party would not be able to infer a common intention and hold that no K was created. FACTS: At an auction, decide to combine all last lots – ptf bids and asks if the sale is for “all” the steel in the yard. Auctioneer says yes. Ptf then claims he bought this other prefabricated steel that wasn’t part of the scrap steel lots for sale. Def says no, and refuses to deliver scrap steel to ptf unless ptf signs waiver. HELD there was a k for sale of scrap steel ONLY, and b/c def refused to deliver that they are in breach. AssumptionsMistake as to an underlying assumption—NOT written in to the K. Controversial area of the law. Common-LawBell v. Lever Bros. CB 793IssueRatioNotesMistake of assumption at common-law.HOUSE OF LORDSIf a mistake is an assumption as to the existence or ownership of the SUBJECT matter of the K the K is void. However, if the mistaken assumption is just regarding the QUALITY of the subject matter then… The mistake must be fundamental in the sense that it changes the entire character of the K, the assumption of quality must have been the basis for contracting. If the occurs the K is VOID only possible result. Simply saying you could have gotten a better deal had the mistake of assumption not been made is NOT sufficient to render the K void. Facts: Employment K terminated early for 30,000 pounds. Later, company finds out that they could have terminated the employment K for nothing as the employee had breached a term of the employment K. Company brings an action to rescind the termination K. HELD mistake of quality not sufficient to void the KEquitySolle v. Butcher CB 796IssueRatioNotesMistake of assumption in equity.COURT OF APPEAL (ENGLISH)Common-Law: Follow the Bell and Lever Bros. decisionEquity: can render a K VOIDABLEIf there is a fundamental mistake of assumptionAND the party seeking to set aside the K is NOT at fault for the mistakeEssentially invents the ‘equitable mistake’ doctrineNo threshold for how serious the mistake must be… must be lower than Bell v. Lever b/c Court says it wouldn’t pass that in this case. Probably just ‘very serious’Doesn’t VOID the K just sets it aside: ‘rescinds’ or perhaps just for future obligations?Better b/c it would protect third party rights b/c only voidable. Also more flexible b/c standard is vague so can be used to make sure a fair decision is given. FACTS: Ptf leases apartment, both parties believed rent was legal, turns out apartment was rent controlled at a lower rate. Ptf claims should get rent at the lower rate even though K signed for higher. HELD Ptf can either keep K at rate, or the K is just voidable. New rule in UKGreat Peace Shipping v. Tsavliris Salvage CB 803IssueRatioNotesMistake of assumption ONLY at common-law. HOUSE OF LORDSCommon mistake of assumption is parallel to the doctrine of frustration and thus the test is similar. There is NO separate equitable doctrine of mistake of assumption solle over-ruled. TEST: (must satisfy all)There must be a common assumption as to the existence of a state of affairs.No warranty given by either party (no allocation of risk for the scenario)False assumption NOT attributable to the fault of either party. False assumption makes performance of the K IMPOSSIBLE. The state of affairs at issue must be or be a vital part of the consideration OR the circumstances necessary for the performance of consideration to be possible.FACTS: K for ship both mistake distance of the ship to salvage, though 35 miles but actually 410 miles. Held: NOT void. New Rule in Canada?Miller Paving v. Gottardo Construction CB 810Not assignedNote that Great Peace Shipping expressly rejected, BUT this is only an ONCA decisionHowever does emphasize that if the K itself provides who should bear the risk of the relevant mistake than the Court cannot apply a mistake of assumption and instead the K terms will govern the result. R. v. Ron Engineering CB 824Suggests that the SCC would apply Great Peace in Canada, although they have never ruled on it so it is still unclear. Could still apply Solle v Butcher Say both options. IssueRatioNotesHow does a unilateral mistake of assumption operate in Canada?Once a K is validly formed and the K indicates where risk is to be placed, a unilateral mistake cannot operate to void the K. (unless it is so serious and fundamental as to challenge the idea that the K was even formed in the first place)Here the process of deposit and forfeiture clearly allocated risk onto the bidder should they be unwilling or even unable to accept K BK A validly formed b/c bid was submitted properly and the mistake was not so huge as to make the bid not a bid. Note also that there was huge policy here of the Court wanting to protect the integrity of the bidding process. Facts: Bidder submits tender, then realizes later they have forgotten to include the amount of $ required to pay their own work-force… $750,000. They tell Gov, but Gov still goes ahead and offers them K B b/c they are the lowest bidders by a lot. Bidder doesn’t withdraw or refuse, but tries to have K A void for mistake instead so they don’t lose their deposit. HELD Have to lose deposit, mistake cannot operate. RectificationClaim that the agreement was wrongly written down i.e. typoA claim for rectification asks the Court to rewrite the K to reflect the agreementSo the mistake is in the written document itself. Bercovici v. Palmer CB 523IssueRatioNotesWhat evidence is required to support a claim of rectification?Can use a broad scope of evidence, including the party’s conduct from before and after the formation of the K. However careful using parties self-serving declarations from after the K was formed as to what they agreed. FACTS: agreement for sale of property, ptf claims that an additional property was included erroneously, def’s claim it was meant to be there. FrustrationA mistake that happens AFTER the K is made, deals with FUTURE events. Paradine v. Jane (1647) CB 843IssueRatioNotesWhat was the rule before the doctrine of frustration was developed?You are bound absolutely to do any promises you make in a contract, regardless of whether they are possible or not. FACTS: Def fails to pay rent but claims enemy invasion has prevented him from reaping profits of the land. HELD must pay damages for breach of K. Taylor v. Caldwell CB 844IssueRatioNotesWhat is the doctrine of frustration?Where a K isImpossible to perform BEFORE a breach of K but due to circumstances AFTER the formation of the K.Neither party is at fault for the impossibilityAnd the thing which renders the K impossible is NOT mentioned in the K NOR is any risk allocated should such a scenario occur in the KThen the K is unenforceable due to frustration. The court called the mistaken assumption an ‘implied term’ although this idea has now been dropped from modern jurisprudence. Difficulty becomes, what if part of the K had already been performed? The court can’t give remedy because the K is void so there is nothing to enforce or claim rectification from etc. FACTS: K to rent hall for four days, the hall burns down accidentally before these dates (accident no fault on either party). HELD K unenforceable. Frustrated Contracts Act CB 895 (see also Frustrated Contract Act, RSBC 1996, c. 166.)IssueRatioWhat happens if a K, void for frustration, had already been partly performed. s.5 and s.5(2) the statute requires rectification, so one party must give back or adjustments are made according to what has already been performed. Remedies for breach of contractThere are three general types of damages that a party may try to claim: expectation, reliance and restitution. GeneralExpectation DamagesThe most usual type of damages for breach of contractAnswers: What would have happened had the K been properly performed?Wertheim v. Chicoutimi Pulp CB 27 IssueRatioHow to determine the amount of damages to award?The plaintiff should be compensated so that they are in the same position as if the contract had been performedHawkins v. McGee CB 36IssueRatioNotesWhat is included in expectancy damages?Damages are awarded in the amount of difference btween what was promised and what was received. put the ptf in the position they would have been had the K been performed. Can’t consider pain and suffering as this would have happened during surgery anyways even if successful. FACTS: Dr. promises a 100% good hand and then fucks up the surgery, hand is worse than before. Reliance DamagesMore common in Tort so must use if there was fraud or negligent misrepMax reliance losses that can be claimed is the max expectation losses so if the def. proves the Ptf would have taken a loss on the K, then no damages are awarded. Don’t want to saddle the def. with the ptf’s bad bargain. Bolet LoggingAnswers: What has the party lost? Anglia Television v. Reed CB 32IssueRatioNotesWhen should you claim reliance losses in K?When the expectation damages are impossible to determine. this way, the def. can’t prove that you would have taken a loss and therefore leave the ptf with no damages. What do reliance damages include?Wasted expenditure from both before and after the K was concluded. controversial to include things from before b/c what if K was never signed? They would always have been out that money. However if defendant can’t prove ptf would have lost money on the K then all these expenses would have been recoverable through expectation damages anyways, so makes sense to include them. FACTS: Movie company gets Actor on K, but then Actor is double booked and breaks K. HELD recovers reliance damages from things spent before and after K was formed (but before breach)RestitutionA benefit transferred by one party to the other which is now unreasonable for that party to keep (no juridical reason for that party to keep it)Answers: What is the benefit that has been transferred from one party to the other that they have no right to retain?Limiting FactorsRemotenessHadley v. Baxendale CB 49IssueRatioNotesWhat kind of damages are recoverable?Costs that naturally arise from the breach or that would reasonably be in the contemplation of both parties at the time of K formation to be the consequence of the breachAny special or unusual consequences of the breach that were communicated at the time of contract formation. Unusual risks in the second branch of the test is fair b/c when it is communicated it allows the parties to appropriately plan for the risk, charge more, get insurance etc. Facts: Mill sends a gear to be repaired with common-carrier, the carrier delays and mill can’t operate. Claims loss of profit for the time they had to stay closed HELD too remote. Victoria Laundry v. Newman CB 55IssueRatioNotesRe-articulation of recoverable damagesKnowledge that everyone is expected to know of what the likely consequences will be. Special knowledge that has been communicated of likely damages. Adds the ‘likely’ portion. Facts: Laundry buys a boiler from some Engineers, they are supposed to take in apart, deliver and install. They damage it while taking it apart, then there are huge delays in fixing it and getting it installed. In the meantime, Laundry claims lost business had it been done on time HELD recoverable and also for a special lucrative contract it could have gotten had the boiler been delivered HELD too remoteThe Heron II CB 66IssueRatioNotesFinal articulation of the testOn the information available to the defendant, (either reasonable knowledge or special knowledge which had been communicated to them) what would be the likely result of the breach? Compensation is only available for a serious possibility or real danger. Facts: Ship with contract to deliver sugar deviates from its route and arrives nine days late. In the meantime, sugar prices have dropped significantly HELD recoverable. Transfield ShippingIssueRatio 1Ratio 2Tricky application of remoteness rule Extreme fluctuation in price is not reasonably foreseeable, and can’t be liable for losses resulting from such fluctuation. Adjusted Remoteness rule: Contemplation refers to events as well as general understanding of the industry of what happens after a breach of K So there are limiting factors that can be derived from the legal situation of particular types of contracts and general awareness of the normal legal situation. Facts: Ship was rented, supposed to be returned on day one. Had a further contract to let the ship to another party on day eight. However there was an extreme fluctuation in the cost of rent between these two times. Traditional calculation of a ship rent: calculate the days late, and owners get the difference between what the late payers would pay and the rate that they could have got for the number of days late in this case the amount would be $100,000. So arguing for something unusual, not the difference between the original and what they could have gotten, but for the difference btwn the original K with the second party and the new renegotiated price. HELD too remote but court split as to why. Mental DistressJarvis v. Swan Tours CB 82IssueRatioNotesDamages are not awarded for mental distress. Exception: Compensation is available for mental distress when the contract was for a holiday or one for entertainment and enjoyment .Ptf needs to be put in the position had the K been performed, and in the case of a holiday K, this would have been mental relaxation and enjoyment. FACTS: Man reads brochure and goes on skiing holiday. The holiday sucks—nothing like the brochure said. Fidler v. Sun Life CB 88IssueRatioNotesNo need for special test for mental distress. The test to determine what is compensable is the Hadley test and based on the principle of remoteness. There is no need for a special test or exception in order to compensate for mental distress if mental distress passes the test, the ptf can be compensated for it. Clearly mental distress will not usually be foreseeable within normal commercial contracts. To meet the Hadley test and have been reasonably within the contemplation of the parties at the time of formation, must: Object of the K was to secure a psychological benefitDegree of mental suffering caused is sufficient to warrant compensation no damages for mere frustration, need serious and considerable mental distress. FACTS: Woman has insurance K to provide disability benefits, she becomes disabled but the company refuses to pay. She suffers considerable mental distress over five years while she is fighting with them to get her benefits HELD company must compensate for the mental distress. MitigationPayzu v. Saunders CB 106IssueRatioNotesDoes the innocent party have any obligations?A reasonably person will attempt to mitigate their loss once the other party breaks the K. Therefore you can recover no more than you would have suffered had you acted reasonably b/c further damages do not flow from the defendant’s breach. Duty to mitigate includes accepting a different offer from the original K breaker, if there are no reasons why you shouldn’t deal with them if the original K breaker is offering the next best price (or closest to what you were supposed to be paying under the K)FACTS: K for sale of silk. One party accidentally doesn’t pay on time, so other party insists they pay cash and refuses them the credit (which is breaking the K). Innocent party refuses to accept their new offer, and goes out and gets a different K for substantially more money. HELD failed to mitigate, should have accepted the better offer from the K breaker so can only recover the difference between that second offer and the original K. Where there is a serious breach before completion of K, the innocent party can they refuse to proceed with the contract, accept the repudiation and sue for damages. Don’t have to wait until the time that the K was to be performed in order to sue. Called ‘anticipatory repudiation’, breaching the K so seriously before it starts b/c you want out of it. White & Carter v. McGregor CB 111IssueRatioNotesIf one party has repudiated the K, can the innocent party refuse to accept this and continue to perform, incurring useless expense and suing for the totality of the expectancy damages – what about the duty to mitigate?When someone breaks a K in an anticipatory breach, the innocent party has a choice to except the termination, sue for breach and mitigate your damages OR they can continue to hold the K open, refuse the repudiation, continue to incur expenses and sue at the time the K should be completed. Unusual b/c normally can’t perform the K w/o the acquiescence of the other party. Seems completely opposite to the idea of mitigation, where the whole point is that you have to act reasonably, where here the court is saying you don’t have to exercise your rights reasonably. Canadian courts have not followed, although they have adopted the comment “ it may well be that if it can be shown that a person has no legitimate interest in performing the contract rather than claiming damages he ought not to be allowed to saddle the other party with an additional burden w/o any benefit to themselves” THEREFORE this is a limit on the ratio. What is a legitimate interest? Some situations in which you can sue for SP instead of damages b/c these don’t satisfy the needs of the innocent party. Can’t have for personal services, or a K where there would be a lot of supervision required and you have to qualify on equitable grounds (clean hands, promptness, no problem with 3d party rights)FACTS: Contract for advertising on trash cans, companies sign for 3 year term, right away company calls and says they don’t want the K. However company goes ahead and keeps putting up the ad, refusing the acceptNote on Asamera Oil Ltd. v. Sea Oil, CB 119When a party commits an anticipatory breach of K, it is true that the innocent party can elect to terminate the K and sue for damages and mitigate their losses OR they can refuse to terminate and insist on performance of the K and not mitigate BUT ONLY IF they have a reasonable claim for specific performance. Need a reasonable likelihood of being eligible for specific performance. This case was about sale of shares, which was broken, and the one party refused to go out and purchase comparable shares they insisted on SP. They maintained that for a long time, but ultimately the shares were disposed of to an innocent 3rd party, thereby barring the SP claim. After this point, the ptf lost their option to insist on performance they could only sue for damages at that point. So after that, they couldn’t keep insisting on the K and expect to claim damages. Once you lose your right to SP you can no longer keep your claim open, you have to accept and sue for damages. Special DamagesPunitive damagesWhiten v. Pilot Insurance CB 93IssueRatioNotesWhat are punitive damagesPunitive damages are awarded in exceptional cases for “malicious, oppressive and high handed misconduct that offends the court’s sense of decency” marked departure from ordinary standards of decent behaviour. Threshold: there must be an actionable wrong independent of the loss claim under the K to award punitive damages. This can either be a tort or a breach of an independent obligation under the K. Purpose: retribution, deterrence, denunciation NOT compensation. Only awarded where compensation does not meet the three other objectivesNo greater than necessary to rationally accomplish the purposePtf keep punitive damages as ‘windfall’Moderate punitive damages are generally sufficientOnly award where other fines or penalties are non-existent or insufficient. An appellate court is entitled to intervene if they are excessive. FACTS: Insurance company refuses to pay family and instead alleges arson, although no evidence for this. Trying to get them to settle for less b/c they know the family has money problems and can’t afford a lawyer. Jury awards punitive damages of 1,000,000$ and SCC upholds this. Specific PerformanceOriginates in the court of equity and was historically reserved for transactions involving land. Must be able to show that money can’t reasonably compensate. Ptf MUST 1) act promptly 2) Not be guilty of sharp practices or bad dealingFalcke v. Gray CB 121 “I want those ugly china vases you promised me!”IssueRatioNotesCan specific performance be sought for the sale of chattels, rather than the historic real-property?If an article in a K is of unique character the court can order SP to enforce the K to sell it.Must be impossible to find elsewhere-Court will not prejudice innocent 3rd parties (i.e. if already sold to someone else=No SP)-SP not ordered in this case b/c already sold to 3rd partyWarner Bros. v. Nelson CB 135 “Betty Davis doesn’t want to act for you anymore!”IssueRatioNotesCan the court enforce specific performance for personal service (i.e. make you do a thing you said you would do in a K)The court will not enforce a positive covenant for personal service b/c it is tantamount to indentured servitude, it is too difficult to enforce, and is too detailed requiring too much supervision. Negative covenants can be enforcedNegative covenants cannot be enforced if doing so leaves the individual with nothing else to do but starve or perform the personal service. ................
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