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Law 108A: Contracts Outline (Final) TOC \o "1-3" Standard Form Contracts & Exclusion Clauses PAGEREF _Toc289781241 \h 4Contractual Interpretation PAGEREF _Toc289781242 \h 4Scott v. Wawanesa Mutual Insurance Co (1989, SCC) PAGEREF _Toc289781243 \h 5Standard Form Contracts & Exclusion Clauses PAGEREF _Toc289781244 \h 5Unsigned Documents PAGEREF _Toc289781245 \h 7Parker v South Eastern Railway (1877, Eng. CA) PAGEREF _Toc289781246 \h 7Thornton v. Shoe Lane Parking (1971, UK CA) PAGEREF _Toc289781247 \h 8Interfoto Picture Library v Stiletto Visual (1989, Eng. CA) PAGEREF _Toc289781248 \h 8Promech v Bronco Rentals (1995, Man. CA) PAGEREF _Toc289781249 \h 9Signed Documents PAGEREF _Toc289781250 \h 9Tilden Rent-A-Car v. Clendenning (1978, Eng. CA) PAGEREF _Toc289781251 \h 10Delaney v Cascade River Holidays (1983, BCCA) PAGEREF _Toc289781252 \h 10Ochoa v Canadian Mountain Holidays (1996, BCSC) PAGEREF _Toc289781253 \h 10Karroll v. Silver Star Mountain (1988, BCSC) PAGEREF _Toc289781254 \h 10Doctrine of Fundamental Breach PAGEREF _Toc289781255 \h 11Karsales v Wallis (1956, Eng. CA) PAGEREF _Toc289781256 \h 12Suisse Atlantique v Rotterdamsche (1967, Eng. HL) PAGEREF _Toc289781257 \h 12Photo Production v Securicor (1980, Eng. HL) PAGEREF _Toc289781258 \h 12Hunter Engineering Co v Syncrude Canada (1989, SCC) PAGEREF _Toc289781259 \h 12Plas-Tex Canada v Dow Chemical (2004, ABCA) PAGEREF _Toc289781260 \h 13Tercon Contractors v BC (2010, SCC) PAGEREF _Toc289781261 \h 13Mistake PAGEREF _Toc289781262 \h 14Mistake: Introduction PAGEREF _Toc289781263 \h 14Staiman Steel v Commercial & Home Builders (1976, Ont. HC) PAGEREF _Toc289781264 \h 17Smith v Hughes (1871, Eng.) PAGEREF _Toc289781265 \h 17“Snapping up” a Mistaken Offer PAGEREF _Toc289781266 \h 18Mistaken Assumptions PAGEREF _Toc289781267 \h 18Bell v Lever Bros (1932, Eng. HL) PAGEREF _Toc289781268 \h 18McRae v Commonwealth Disposals Commission (1951, Aust. HC) PAGEREF _Toc289781269 \h 19Equitable Mistake PAGEREF _Toc289781270 \h 20Solle v Butcher (1950, Eng. CA) PAGEREF _Toc289781271 \h 21Great Peace Shipping v Tsavliris Salvage (2002, Eng. CA) PAGEREF _Toc289781272 \h 21Miller Paving v Gottardo Construction (2007, Ont. CA) PAGEREF _Toc289781273 \h 22Mistaken Identity PAGEREF _Toc289781274 \h 23Cundy v Lindsay (1878, Eng. HL) PAGEREF _Toc289781275 \h 26Phillips v Brooks (1919, Eng. KB) PAGEREF _Toc289781276 \h 26Lewis v Averay (1972, Eng. QB) PAGEREF _Toc289781277 \h 26Shogun Finance v Hudson (2003, Eng. HL) PAGEREF _Toc289781278 \h 26Non Est Factum PAGEREF _Toc289781279 \h 28Saunders v Anglia Building Society (1971, Eng. HL) PAGEREF _Toc289781280 \h 28Rectification PAGEREF _Toc289781281 \h 28Performance Industries v Sylvan Lake Golf & Tennis Club (2002, SCC) PAGEREF _Toc289781282 \h 29Morley Shafron v KRG Insurance Brokers (2009, SCC) PAGEREF _Toc289781283 \h 29Frustration PAGEREF _Toc289781284 \h 29Introduction PAGEREF _Toc289781285 \h 30Historical Development PAGEREF _Toc289781286 \h 31Paradine v Jane (1647, Eng. KB) PAGEREF _Toc289781287 \h 32Taylor v Caldwell (1863, Eng. QB) PAGEREF _Toc289781288 \h 32Krell v Henry (1903, Eng. KB) PAGEREF _Toc289781289 \h 32Land Cases PAGEREF _Toc289781290 \h 32KBK No. 138 Ventures v Canada Safeway (2000, BCCA) PAGEREF _Toc289781291 \h 32Frustration: Summary PAGEREF _Toc289781292 \h 33Frustration: Remedial Consequences PAGEREF _Toc289781293 \h 34Control of Contractual Power PAGEREF _Toc289781294 \h 35Duress PAGEREF _Toc289781295 \h 35Universe Tankships of Monrovia v Int’l Transport Workers Federation (1982, JCPC) PAGEREF _Toc289781296 \h 36Nav Canada v. GFAA (2008, NBCA) PAGEREF _Toc289781297 \h 37Undue Influence PAGEREF _Toc289781298 \h 38Geffen v Goodman Estate (1991, SCC) PAGEREF _Toc289781299 \h 39Royal Bank of Scotland v. Etridge (2001, Eng. HL) PAGEREF _Toc289781300 \h 40Unconscionability PAGEREF _Toc289781301 \h 40Morrison v Coast Finance (1965, BCCA) PAGEREF _Toc289781302 \h 42Lloyds Bank v. Bundy (1975, Eng. CA) PAGEREF _Toc289781303 \h 43Harry v Kreutziger (1978, BCCA) PAGEREF _Toc289781304 \h 43Illegality and Good Faith PAGEREF _Toc289781305 \h 44Common law illegality PAGEREF _Toc289781306 \h 44KRG Insurance v Shafron (2009, SCC) PAGEREF _Toc289781307 \h 45Statutory Illegality PAGEREF _Toc289781308 \h 46Still v Minister of National Revenue (1988, FCA) PAGEREF _Toc289781309 \h 47Good Faith PAGEREF _Toc289781310 \h 48Bhasin v Hrynew (2014, SCC) PAGEREF _Toc289781311 \h 49Consumer Protection PAGEREF _Toc289781312 \h 51Rushak v Henneken (1991, BCCA) PAGEREF _Toc289781313 \h 53Loychuck v Cougar Mountain (2012, BCCA) PAGEREF _Toc289781314 \h 54Commercial Practice & Contract Drafting PAGEREF _Toc289781315 \h 55Remedies PAGEREF _Toc289781316 \h 58Principles of Remedies and Damages PAGEREF _Toc289781317 \h 59Reliance Damages PAGEREF _Toc289781318 \h 60McRae v. Commonwealth Disposals (1951, Australia H.C.) PAGEREF _Toc289781319 \h 60Anglia Television v. Reed (1972, Eng. CA) PAGEREF _Toc289781320 \h 61Bowlay Logging v. Domtar (1978, BCSC) PAGEREF _Toc289781321 \h 61Sunshine Vacations v. Hudson’s Bay (BCCA, 1984) PAGEREF _Toc289781322 \h 61Loss of a Chance PAGEREF _Toc289781323 \h 61Chaplin v. Hicks (1911, Eng. CA) PAGEREF _Toc289781324 \h 62Folland v. Reardon (2005, Ont. CA) PAGEREF _Toc289781325 \h 62Cost of Completion v. Difference in Value PAGEREF _Toc289781326 \h 62Groves v. John Wunder (1939, US) PAGEREF _Toc289781327 \h 62Peevyhouse v. Garland (1963, US) PAGEREF _Toc289781328 \h 63Radford v. De Froberville (1977, UK) PAGEREF _Toc289781329 \h 63Ruxley Electronics (1996, House of Lords) PAGEREF _Toc289781330 \h 63Remoteness PAGEREF _Toc289781331 \h 64Hadley v. Baxendale (1854, UK) PAGEREF _Toc289781332 \h 65Victoria Laundry v Newman Industry (1949, Eng. CA) PAGEREF _Toc289781333 \h 65Scyrup v. Economy Tractor Parts (1963, Man. CA) PAGEREF _Toc289781334 \h 65Cornwall Gravel v Purolator Courier (1980, SCC) PAGEREF _Toc289781335 \h 66Koufos v. Czarnikow (The Heron II) (1969, Eng. HL) PAGEREF _Toc289781336 \h 66Mitigation PAGEREF _Toc289781337 \h 68Punitive Damages PAGEREF _Toc289781338 \h 69Whiten v Pilot (2002, SCC) PAGEREF _Toc289781339 \h 70Loss of Enjoyment PAGEREF _Toc289781340 \h 70Jarvis v Swans Tours (1973, Eng. CA) PAGEREF _Toc289781341 \h 71Fidler v Sun Life Assurance (2006, SCC) PAGEREF _Toc289781342 \h 72Standard Form Contracts & Exclusion ClausesContractual InterpretationGuiding principles:The process of contractual interpretation is aimed at ascertaining the true intention of parties at the time the K was signed.A contract is an agreement. Written piece of paper is evidence of that agreement.Courts will look at: the whole K, the context, its commercial purposeCourts will look at literal meaning of words (courts only depart from this if an unreasonable result, or if clearly goes against purpose of K/parties’ intentions) – Consolidated-BathurstIf there is no ambiguity, then must give it plain meaning (cannot interpret for a more “fair result” or a “sensible commercial result”). Must presume that parties intended the legal consequences of their words – Eli Lilly v. Novopharm LtdCourts use an objective approach to determine parties’ intentions.Inquiry into subjective intentions is usually not allowedPolicy: K law is to protect reasonable expectations. The test is thus how the promisor’s conduct would strike a reasonable person in the position of the promise.Surrounding circumstances are almost always relevant.Ks not made in a vacuum. The factual matrix, commercial context, genesis of the K, market etc will be consideredIf there is no ambiguity in the written document, there is no need for extrinsic evidence.If intention is clear, courts cannot stray beyond the “four corners” of the agreement.Majority in Scott v. Wawanesa – when the wording is unambiguous, courts cannot take a different meaningEvidence of prior negotiations is inadmissible.However, might be included to show the general aim or genesis of the transactionNo redundancy. Interpretation must give effect to all parts/provisions of the agreement.Doctrine of effectiveness – must give effect to every word of the agreementGeneral terms are often seen as qualified by specific termsSubsequent conduct is not relevantCanadian courts have been flexible here – to resolve ambiguity, courts may look to see if a party behaved as if they were in a KRelated agreements may be considered if components of one larger transaction.Words given their natural or ordinary meaning.Evidence may be admitted to prove the word has a special/technical meaning.Contra ProferentemAmbiguities construed in favour of the non-drafting party.AmbiguityNo AmbiguityContra proferentum (authority: minority in Wawanesa)Subsequent conduct can be relevant if two reasonable interpretations (Re Canadian National Railways)Objective approachNo need for extrinsic evidence if no ambiguity (majority in Wawanesa)Give words their natural/ordinary meaningPer majority in Wawansa: judiciary can only give effect to a different meaning if it is a) unreasonable or b) clearly contrary to the intention of the partiesSattava Capital Corp v. Creston Moly Corp (2014, SCC)Most recent word from the SCC on interpretation of contractsInterpretation is generally a practical, common-sense approach – not dominated by technical rules of construction – focus on finding the true intention of the partiesMost evidence of surrounding circumstances can be admitted (however, the parol evidence rule precludes evidence re: subjective intention of parties)However, evidence of surrounding circumstances cannot overwhelm the words of the KFocus on the words of the written document, in light of its entire context and the commercial purpose of the agreementPolicy considerations: Finality, certainty, reasonable expectations versus unfair surpriseCasesScott v. Wawanesa Mutual Insurance Co (1989, SCC)Facts: Mr/Mrs. Scott had homeowner’s (fire insurance) policy. 15 year old son Charles was covered by the policy. Charles deliberately set fire; insurer denied coverage by relying on exclusion clause which excluded any losses caused by criminal/wilful acts of an insured.Issue: Does the exclusion policy apply only to the insured responsible for the wrongful act (i.e. Charles) or does it also apply to an innocent insured (i.e. Mr/Mrs. Scott)?Dissent: Insurance policy = classic standard form contract. Policy language is ambiguous, thus contra proferentum – insurance companies prepare policies for their own benefit, naturally; so any ambiguities should fairly be resolved in favour of the insureds.For insurers to succeed here, would have had to clearly bring clause to the insureds’ attentionThus, the insurer’s obligation was owed severally to each insured, and the exclusion clause applied only to the insured responsible for the act (and not other innocent insureds)Policy: reasonable expectations of parties (parties unfamiliar with complexities of insurance law might assume coverage)Majority: The terms of the policy are clear and unambiguous. It clearly excludes this type of risk.If wording is clear, courts cannot give K a different meaning unless:contract is unreasonablecontract has an effect contrary to the intention of parties.Restrictive approach taken by courts (“if I could find another meaning, I would gladly use it, but the policy is clear, so I can’t – the insureds’ damages are excluded under the policy.”)Policy: Balancing reasonable expectations with unfair surpriseStandard Form Contracts & Exclusion ClausesStandard form Ks/exclusion clauses: related but distinct issues (standard form Ks may be problematic without having exclusion clauses; exclusion clauses may appear in Ks that are not standard form).Standard Form ContractsThree different contexts where standard forms are used:Ticket cases: Earliest use of standard form. Hundreds of transactions a day – entrepreneurs did business on fixed terms (no time to negotiate the terms of each).Businesses with numerous, lengthy and complex transactions often rely on standard form Ks (entrepreneur can’t negotiate terms with each customer, and customers don’t have the expertise). E.g.: insurance, finance & lending agreements, car rentalsTransactions (usually of sale) where a vendor uses a standard form for ease, but also to introduce disclaimer clauses meant to limit the vendor’s liability.Benefits: Convenient/efficient tool for parties in equal positionsDownsides: Can be used as an oppressive tool; party in dominant position can dictate termsIn commercial arenas, standard form Ks are necessary for complex dealings like freight, insurance or commoditiesMust distinguish between standard form Ks between commercial equals from those between parties where there is a disparity in bargaining powerPresumption: Standard form Ks assumed to be fair if parties equal. No presumption between parties in unequal positions.Two main types:Business to business standard form contractCommodity markets, charter-party agreementsReduces transaction costs, increases certainty and predictabilityEfficiency in bargainingEnsures consistent interpretation of these kinds of contractsFacilitates administration of contractBusiness to consumer standard form contractSigned or unsigned (tickets/oral)Concerns: terms imposed by stronger party (“take it or leave it”)Fairness of termsExclusion of liabilityKnowledge of termsTrebilcock, The Common Law of Restraint of Trade (1986)Standard form Ks reduce transaction costs (e.g. dry-cleaning K – you don’t want to negotiate the terms every time)They are not always the result of concentrated market power; the real measure of market power isn’t whether a supplier presents his terms on a “take it or leave it” basis, but whether the consumer, if he decides to “leave it”, has a competitive range of alternate sources of supplyStandard form Ks aren’t always evidence of abuse of market powerExclusion ClausesClauses which limit/deny liability are not inherently offensive; are often necessary to define the bargain between the partiesWhen do problems arise?If exclusion clause is inserted in a standard form K by a dominant partyIf exclusion clause appears to relieve contracting party of the very responsibility which the K imposedIf exclusion clause is relied on by one party and challenged by the other, must ask:Was the clause effectively included as a term of the K (i.e. was there notice given?)What does the clause mean? (Strict reading may narrow meaning.)Is there some reason to simply refuse to apply the clause? (E.g. unconscionable result).Strict construction: Ambiguities will be construed against the drafting party (contra proferentum)Exclusion of liability for negligence: Line of cases here (p. 510-511)Generally, very clear words are needed to protect from liability for negligence – courts usually take a very restrictive approach hereGeneral exclusion clauses will not protect against negligence unless CLEAR words to this effectAuthority: Canada SteamshipWhere a defendant’s liability rests ONLY in negligence, then general words of exclusion can cover negligence (since otherwise, the clause wouldn’t have a subject matter) - AldersladeUnsigned DocumentsGeneral rule for signed documents: party signing written K is bound by its terms, regardless of whether they read or are aware of terms (L’Estrange)For unsigned documents, courts have developed the doctrine of reasonable notice: If there is no knowledge of conditions, a person is bound to conditions if there was reasonable notice that the ticket contained conditions (Thornton)Mellish rule (reasonable notice): Where written document contains conditions but document not signed and party did not know of conditions, evidence is required to show assent to terms. Evidence may be:actual knowledge that the document contains conditions; orreasonable steps taken to provide notice that the document contains conditions.Reasonable notice doctrine was developed in many railway cases (see Parker)Trilogy of cases using the reasonable notice doctrine:Parker (Mellish rule: reasonable notice of terms)Thornton (reasonable notice for exemption clauses)Interfoto (reasonable notice for any stringent/unusual clause)Ticket cases deal with two levels:Pure contractual analysis (did one party do enough to give the other notice that a term was being incorporated in the K?)Question of fairness/reasonableness (would it be fair in the circumstances, given the natures of the transaction/character of the parties, to hold one party bound by a particularly unusual/stringent conditionCivil law systems have principles of good faith; English common law has instead used piecemeal solutions to issues of unfairness (i.e. playing with contract formation rules, finding no consideration, using reasonable notice doctrine, etc)CasesParker v South Eastern Railway (1877, Eng. CA)Facts: Parker received ticket for storage of bag at railway; bag lost; ticket limited liability to $10.Reasons: Creation of the Mellish ruleParker had no actual knowledge (thought it was simply a receipt, didn’t read conditions).However, Railway company had taken reasonable steps – he had been handed ticket, ticket said “See back” and conditions limiting liability were on the other side, and there were prominent notices at the place where he received the ticket that it was subject to conditionsAs long as railway company has done what would be sufficient to inform people in general that the ticket contains conditions, then that is enough (wouldn’t be fair for a particularly ignorant plaintiff to succeed because of his own stupidity or carelessness!)Held: Based on this reasonable notice that there were conditions, Parker was held to be bound by those conditionsRatio: Creation of the Mellish rule. Law treats signature and notice as substitutes.Thornton v. Shoe Lane Parking (1971, UK CA)Facts: Car accident hurt Thornton when he was in a multi-storey car park owned by defs. Sign says, “All cars parked at owner’s risk”. Ticket printed from machine.Issue: Defs. acknowledge fault, but rely on exemption clause (ticket said “subject to conditions” – long list of conditions were printed on panel elsewhere in the car-park).Held: Exclusion clause does not apply. Df cannot rely on exclusion clause to escape liability.Reasons: Plays with rules of contract formation. Historically, tickets were offers – customer could accept by buying. Here, ticket from an automated ticket booth is merely a receipt (customer pays and gets a ticket – cannot then refuse terms and get money back – this would be K modification)Insufficient notice (per Parker): Terms must be brought to his notice before buying ticket (i.e. placed on or near machine). This ticket was simply a receipt – subsequent terms could not alter K since K was concluded.Df didn’t do what was reasonably sufficient to bring notice of exempting conditionThis exemption clause was so destructive of rights that it would need to be specifically brought to plaintiff’s attention – printed in red ink with a red hand pointing to itActual knowledge: No finding that the plf knew of the conditionDfs didn’t bring clause to plf’s attention, and no evidence that he knew of exempting condition, thus it does not applyRatio: Rather than just requiring knowledge that there are conditions, there must be knowledge of the actual exempting conditionInterfoto Picture Library v Stiletto Visual (1989, Eng. CA)Facts: Interfoto runs a library of photo transparencies; Stiletto is a advertising agencyStiletto asked Interfoto for some transparencies; Interfoto sent over 47 picturesStiletto liked them, said one or two may be of interest and they would be in touchStiletto never got in touch and didn’t return photos til almost a month laterTransparencies had been accompanied by a delivery note with the word “Conditions” in fairly prominent capital letters (Condition 2 stipulated all transparencies must be returned within 14 days, or a holding fee would be charged)Stiletto did not send transparencies on time and Interfoto sent a bill for 3800 pounds (evidence was that the reasonable charge, i.e. market rate, would’ve been only 330 pounds)No previous dealings between partiesIssue: Was condition 2 sufficiently brought to Stiletto’s attention to be binding on Stiletto?Held: No. Nothing was done to draw the plf’s attention to condition 2 specifically, thus it is not part of the K. Reduces the amount of the judgment to the reasonable market rate stated above.Reasons: Rejects argument that condition 2 was not part of the K (the delivery note was supplied with the transparencies)Rejects contract formation argument (i.e. that K was already formed over the phone and that delivery note was a contract modification) – this kind of playing around is unrealisticConsiders the jurisprudence on ticket cases:Parker: Concerned with whether the printed conditions as a whole were sufficiently drawn to the customer’s attention (if yes, customer bound, even if hadn’t read them)Thornton: Concerned with whether one particularly onerous condition was sufficiently drawn to the customer’s attentionThus the Mellish rule is not limited to exemption clauses and can generally be appliedCondition 2 is very onerous/$$ - no way pls could know, unless it was brought to their att’nHistorically and today, people tend not to read printed conditions (today, printed conditions are very complicated & usually one-sided in favour of the drafting party)Plus, plfs never asked for 47 transparencies – this, plus huge cost, leads to inordinate liabilityRatio: If one condition (not necessarily an exemption clause) in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that the particular condition was fairly brought to the attention of the other party.Promech v Bronco Rentals (1995, Man. CA)Facts: Bill of lading between a shipping company and a railway company acknowledge receipt of goods “subject to the classifications and tariffs in effect”, and limited liability to $500.Principle: Reasonableness of any notice depends on the particular recipient involved (in this case, the plaintiff shipping company was bound by terms because they weren’t just a layperson – they were a company who regularly worked in this business, knew this kind of language and bills of lading – less was required to give them reasonable notice)Principle: That which is reasonable for one class of customers may not be reasonable for another. The threshold for what constitutes “reasonable notice” with unsigned contracts may be much lower if parties can be assumed to know certain things based on their commercial capacity.Signed DocumentsL’Estrange: general rule for signed documents (bound, regardless of whether party has read or is aware of terms)Tilden: departure from strict signature rule in l’EstrangeTilden was decided in 1970s (height of consumer protection legislation); since then, has not been broadly applied – Courts today tend to uphold standard form contracts and signed waivers of liability (even if waivers haven’t been read)Karroll: A very narrow view of the rule in Tilden (narrows it considerably). Has been widely cited with approval and implicitly accepted by the SCC.Therefore: the rule in L’Estrange applies, with certain exceptions:Cases of fraud/misrepresentationNon es factumWhere the party seeking to enforce the document knew or had reason to know of the other’s mistake as to its terms – then those terms shouldn’t be enforcedGenerally, there is no obligation on a party to bring terms to the other party’s attention, except in special circumstances, and the signature rule holdsCasesTilden Rent-A-Car v. Clendenning (1978, Eng. CA)Facts: Df rented car, signed standard form car rental contract without reading all terms/conditions.Clendenning paid extra premium for additional coverage ($2/day)Front of K said client would have no liability for damages (unless vehicle used in violation of provisions of K).Back of K had numerous small, faint, barely legible conditions - contained clause limiting liability if vehicle used contrary to any law, rule or regulation, or if driver consumed any liquor, whatever the quantityAccident (df had alcohol in his system, but wasn’t impaired)Issue: Is df liable for damage caused, due to exclusionary provisions in the K?Held: No. Tilden could not rely on the exclusionary clauses.Reasons: Condition was unreasonable (inconsistent with reasonable expectations that collision damage would be covered, as long as party was not impaired)Policy concerns: reasonable expectations, unfair surpriseSignature: Plf had no actual knowledge of this term and no reasonable steps taken to bring it to his attention. Thus here the signature wasn’t enough – still need knowledge of particularly onerous termsCannot rely on signature as indication of assent to terms (speedy transaction, long document, lots of fine print, clause was inconsistent with overall purpose for which the K was entered into by the plaintiff); different than a formal, sophisticated business exchangeDissent: Affirms signature rule (policy concerns: business efficacy, market ordering). Emphasizes judicial restraint; courts should give effect to the clear intent of a commercial K. Terms were not unusual, oppressive or unreasonable. Limitation was reflected in the price ($2/day).Ratio: Qualifies the signature rule in l’Estrange: If a party seeking to rely on the K knows the signature of the other party does not reflect the true intention of the signer, and the signer is unaware of the stringent/onerous provisions in the K, then the party can only rely on the terms if they have taken reasonable measures to draw them to the attention of the signing party.SHORT: Extension of the ticket cases to signed contracts. Must give reasonable notice to onerous terms if you want to rely on them.Delaney v Cascade River Holidays (1983, BCCA)Facts: Signed waiver/risky activity case (plfs signed liability waiver before white water rafting)Majority: Signature rule applies to “Standard Liability Release” hereDissent: Says signature rule does not apply – insufficiency of notice (per Tilden)Ochoa v Canadian Mountain Holidays (1996, BCSC)Principle: Reasonable individual doesn’t understand the word “negligence”. Thus, any waiver seeking to cover negligence must use something more than the word “negligence” to make sure that the individual signing it actually understands what is meant.Karroll v. Silver Star Mountain (1988, BCSC)Facts: Plf in a downhill ski race signed release of liability waiver, broke leg, then sued mountain. She argues she was neither given notice of its contents nor sufficient opportunity to read/understand it.Issue: Is Karroll bound by the terms of the release?Held: Yes. No onus on the defendant to bring the contents of the release to plf’s attention.Reasons: How to reconcile two conflicting principles? (Signature rule – if you sign, you’re bound – versus Tilden – you need reasonable notice of onerous conditions)Reconciliation: Tilden is a limited principle available only in certain circumstancesHasty, informal, absence of opportunity to readClause inconsistent with rest of KLength and amount of small printParties reasonable expectationsObligation arises where a reasonable person should have known that the signing party was not consenting to the terms in question (i.e. if they were mistaken as to a term)A reasonable person would not have known Karroll was not consenting:The release was consistent with purposes of the K (to limit liability to permit her to engage in a hazardous activity)She signed knowing it affected her legal rightsThe release was short, easy to ready, headed in capital letters to “please read carefully!” Such releases are common; this term is not unusual; she had signed similar releases in previous ski racesThe onus is on the plaintiff to bring herself within one of the exceptions to the rule in l’Estrange, and she failed to do this – thus no obligation on df (and even if there were an obligation on df, they actually did bring the contents to her attention! Capitalized letters to read contents carefully, sufficient time to read)In usual commercial situations, no need to bring exclusions of liability or onerous terms to the att’n of the signing party (safe to assume signing party intends to be bound by them)NB: Vernon Ski Club could benefit from the release (agency exception to privity rule)Ratio: Reigns in the application of Tilden – it is a limited, not general, principle. Rule: No general requirement to bring terms to signing party’s attention, unless circumstances are such that a reasonable person should have known that the signing party was not consenting to the terms. This case limits Tilden to its unique circumstances.Doctrine of Fundamental BreachDoctrine of fundamental breach: an exemption clause cannot excuse liability from a breach that goes to the root of the contract (Lord Denning, Karsales)“Repudiatory” versus “fundamental” breach:Repudiatory breach: Breach of K (breach of condition, innominate term, creates situation which deprives a party of substantially all benefits of the K) which allows an innocent party to repudiate the KFundamental breach: Common law doctrine – question is whether a party can rely on an exclusion clause that results in a fundamental breach of KHouse of Lords confirmed that fundamental breach is merely a rule of construction, not a rule of law (Suisse Atlantique, Photo Production)Denning tried unsuccessfully to resurrect the rule (Harbutt’s, 1970)SCC agreed in Hunter Engineering with House of Lords’ positionDickson: “Fundamental breach” should be laid to rest – use unconscionability insteadWilson: “Fundamental breach” should continue in limited circumstances (sometimes, courts should have discretion to refuse to enforce excl. clauses)Case left in this bifurcated state until TerconDoctrine of fundamental breach was laid to rest in TerconRather than using semantics like “fundamental” or “immense” breach, the basic principle is that the court has no discretion to refuse to enforce a valid and applicable contractual exclusion clause unless the plaintiff can point to some paramount public policy concern which overrides freedom of KThree step analytic approach:Does the exclusion clause even apply?If so, was the exclusion clause unconscionable at the time of K formation?If exclusion clause is valid and applicable, are there overriding public policy reasons which say the Court should nevertheless refuse to enforce?CasesKarsales v Wallis (1956, Eng. CA)Facts: Df inspected second-hand car (in excellent condition), agreed to buy. Plf kept car on bailment, left it out, became badly damaged. When df later saw car in deplorable state, refused to accept it. Plf now sues df for 10 months of payment instalments on car.Issue: Can plf rely on clause (no conditions/warranty as to condition of car)?Held: No. Fundamental breach of K – disentitles plf from relying on exempting clause.Reasons: Implied term to deliver car in the same condition as when it was seenExempting clauses, no matter how clear, can only protect the party when he is carrying out the contract in its essential aspects (must look at the contract overall)Doctrine of fundamental breach: exempting clause cannot protect a party who is guilty of a breach that goes to root of the K (applied as a rule of law)Suisse Atlantique v Rotterdamsche (1967, Eng. HL)Principle: Doctrine of fundamental breach is merely a rule of construction, not a rule of law.Flexible approachThe more serious the breach, the clearer the language required to protect the defendantPhoto Production v Securicor (1980, Eng. HL)Facts: Contract between Photo Production and Securicor to provide nightly patrol of Photo’s premises. Contract contained an exclusion clause that Securicor not responsible for any injurious act of its employees. Security guard started a fire, burnt down premises.Held: Fundamental breach of K brings contractual obligations to an end (i.e. party can repudiate)Question of interpretation as to whether the exclusion clause applies to the loss in questionThus, doctrine of fundamental breach is a rule of construction, not a rule of lawHunter Engineering Co v Syncrude Canada (1989, SCC)Facts: Syncrude contracts for 14 conveyor systems from Hunter. Contract provides 1 year warranty – they fail after 15 months. Value of K was $4 million, cost of repairs was $400,000.Held: All 5 members of SCC agreed that the doctrine is a rule of construction. All 5 upheld the exclusion clause (with 2 sets of judgments).Dickson: Problem with doctrine of fundamental breach (too uncertain, exclusion clauses are usually fair/reasonable, disguises the real inquiry, which is around unfairness)Better approach is unconscionabilityUpholds exclusion clause (clause clear and unambiguous – no unconscionability)Wilson: Agrees there are problems with the doctrine, but unlike Dickson, would retain it as a rule of construction (especially useful for post-contractual conduct)Exclusion clauses need not be fair/reasonable at the time the K is made (courts should not second guess the parties in making their contract)Unconscionability is problematic because it is assessed at the time of K formation; conversely, an exclusion clause may be fair at the time of formation, but may become unfair during the course of performanceGood to keep some residual power with the courts to withhold its assistance on policy grounds in the appropriate circumstancesHeld: even if the breach of K is fundamental, there is nothing unfair or unreasonable in giving effect to the exclusion clause (two commercial parties, equal bargaining power)Plas-Tex Canada v Dow Chemical (2004, ABCA)Facts: Dow sold resin to plaintiff pipeline company. Dow knew resin was defective & would need fixing (dangerous pipe, huge cost). Plf sued for breach of K, df relied on limitation of liability clauses.Held: Down cannot rely on limitation of liability clause.Reasons: Confirms that the doctrine of fundamental breach is a rule of constructionCourts usually enforce contracts regardless of stringent terms, to allow for certainty, unless party seeking enforcement has engaged in unconscionable conduct (does this sparingly)Refers to Hunter Engineering: Courts will only refuse to enforce limitation of liability if to do so would be unconscionable (Dickson) or unfair, unreasonable, or contrary to public policy – basically all mean the same thing (Wilson)Unconscionability can arise from unequal bargaining power (if defendant knew of possible risk, failed to disclose such knowledge, or deliberately withheld information)Dow knew the resin was defective and could be potentially dangerous, but solid it anyway and tried to protect itself from liability by inserting these liability limiting clauses – its behaviour was clearly unconscionablePublic policy: concerns over abuse of power/unconscionability outweighed freedom of KTercon Contractors v BC (2010, SCC)Facts: BC issues RFP for highway contract, but selects a bidder who was technically ineligible.Issue: Did exclusion clause in RFP for highway construction exclude BC’s liability for breach of RFP?Held: No – exclusion clause does not exclude BC’s liability for damages here.Analytical Approach (Binnie):As a matter of interpretation, does the exclusion clause even apply?Depends on intention of the parties in the KIf it applies, was the exclusion clause unconscionable at the time the K was made?Has to do with K formation, not breachProcedural and substantive (fairness in terms of the process, and fairness in terms of a substantive result)Was the K unconscionable at the time of K formation? (Concern over inequality in the bargaining process. Post-formation conduct is not relevant here.)If exclusion clause is valid and applicable, Court may nevertheless refuse to enforce due to overriding public policy (proof lies on the party seeking to avoid enforcement of the clause) that outweighs the very strong public interest in the enforcement of contractsExamples: criminality, fraud, abusive conduct (see Plas-Tex v Dow)A party can’t be allowed to engage in abusive/unconscionable conduct knowing that no liability can be imposed on it due to an exclusion clauseMajority (Cromwell): The time has come to lay the doctrine of fundamental breach regarding exclusion clauses to rest (as Dickson did in Hunter Engineering, 20 years ago).Uses Binnie’s analytic approach (above) and says exclusion clause does not applyReasons:Characterization of context: Misconduct (trial judge found that BC acted egregiously by ensuring that the bidder was not disclosed – attacks the underlying premise of the tendering process)Special commercial context of tendering: Need for transparency/integrity in bidding processNo other effective remedyProvince could have drafted clearer exclusion clauseInterpretation: Court takes narrow meaning of what it means to participate in RFPTercon’s claim is not barred because the exclusion clause only applies to claims arising as a result of participating in the RFP, not to claims resulting from the participation of other, ineligible partiesA process involving other ineligible bidders isn’t part of the RFP – it is completely outside of the process, thus the exclusion clause cannot applyInterpretation in the context of other provisions: Right to cancel RFP/have new RFP would be redundant if exclusion clause were so broad that it would exclude compensation for allowing ineligible bidders to participateAgain, interpretation narrows the scope of the exclusion clauseContra proferentem: At the end of a long argument, “even if I am wrong”, the clause is at best ambiguous and thus ambiguity should be construed against drafting partyFails at stage 1 of analytical approach: exclusion clause does not apply to this breach.Minority (Binnie): Majority and minority agree on analytical approach, but disagree on whether the exclusion clause actually applies (majority says no, minority says yes)Exclusion clause was not ambiguous: Province’s breach of the RFP process did not end the RFP process (Tercon was still participating in the process)Not unconscionable: No imbalance in bargaining power (Tercon is a major contractor, sophisticated commercial entity – doesn’t need court’s protection)Policy of the Transportation Act: Does not bar exclusion clausesNot contrary to public policy: BC’s behaviour not so terrible that the protection of the contract can be overridden by public policy (distinguishes Plas-Tex)Floodgates argument: If claim succeeds here, floodgates would open to all ineligible biddersDe minimis argument: Conduct not that bad (not an egregious breach)Leave it to the market: If someone doesn’t like the terms, they don’t have to participate!Other relief available?: Possibility of injunctive reliefRatio: There is no special rule re: fundamental breach in the context of exclusion clauses.MistakeMistake: IntroductionIntroduction: A residual basis for reliefMany cases involve “mistake” are addressed by the law of misrepresentation and termsMany cases of so-called “mistake” dealt with by traditional contract formation principles: offer, acceptance, and appl’n of objective reasonable person test (Smith v Hughes)Mistake is a nebulous, residual category of relief involving a serious ambiguity in the terms of the contract or in parties’ contractual assumptionsThis is an argument of last resort, where no other doctrine fitsTrue mistake cases are very rareMistake as to fact (matters external to the agreement - e.g. I thought the car you were selling me had a six-cylinder engine) versus mistake as to terms (e.g. I thought you promised, as part of the K, that the car you were selling me had a six-cylinder engine)Mistakes as to terms of the K relate to law around offer/acceptance (K formation), not law of mistakeLegal doctrines involving questions of mistakeCommon law mistakeMistake as to terms (“internal mistakes” – what was agreed in the k?)Mistaken assumptions (“external mistakes” – common mistaken assumptions that lead parties to enter into a K)E.g. Sherwood v Walker: sale of fancy cow – rancher thought she was barren and sold her to a hobby farm. Turns out she was not barren, and her value as a breeding cow was 10 times higher.Majority said, no K – fundamental misapprehension as to one of the cow’s essential qualitiesMinority said, there was a K – this was a mutual mistake (rancher thought she was barren, buyer didn’t know either way) – they weren’t necessarily making the same mistake, so caveat emptorDifference is whether the parties made the same factual assumption, or different assumptions (common or mutual mistake). Affects whether there actually was a KMistaken identity (“rogue” cases – somebody impersonating somebody else)Equitable mistake (if common law doesn’t work)More discretionary remediesRemedies: Common law only awards damagesTakes binary approach (either there was a K or there wasn’t)Dealing with questions of contract formationNon es factum: Documents mistakenly signedRectification: mistake in recording of documentsMistaken payment (usually dealt in restitution – an unjust enrichment)Frustration: mistakes as to future eventsMistake: Mistake as to existing facts/assumptions (e.g. K for purchase of a vase that does not exist)Frustration: Mistake as to future events (e.g. K for a vase which was then destroyed)Contract is frustrated – destruction of the subject matter of the K – parties thus relieved of contractual obligationsCategorization of mistakeCourts and scholars sometimes distinguish between different kinds of mistake based on (i) who made the mistake; and (ii) whether the mistake is sharedThese are analytical categories, not doctrinal categoriesSometimes terms used interchangeably, piecemeal; no single accepted “theory of mistake”(a)Common mistake: Both parties make the same mistake(b)Mutual mistake: Misunderstanding where parties are at cross-purposes/ “not of the same page” / “two ships passing in the night” (one person thinks they are selling X, the other person thinks they are buying Y).- Raffles and Wickelhouse: Cotton meant to go on boat called Peerless. 2 boats with same name, left 3 months apart; no K because each party thought it was a different boat(c)Unilateral Mistake: One party is mistaken about an important issue concerning the contract and the other party knows or ought to know of the mistake. IllustrationSeller is selling a painting. Buyer believes that it is an original but it is in fact a copy. If seller also believes it is an original then there is a common mistakeThis scenario often arises in cases of mistaken assumptions—both parties make a mistake about a fundamental matter: they think they are contracting over an original but in fact they are contracting over copy. If this mistake is about a fundamental matter then no contract formed—fundamental mistake as to the subject matter of the contract.If seller believes/knows that it is a copy: mutual mistakeSeller is selling copy, buyer thinks they are buying original.Result will usually depend on normal rules of contract formation and representation and warranties. If buyer is simply mistaken about a fact then caveat emptorWhat was promised (the terms of the contract) will depend on normal contractual rulesIf seller believes/knows it is a copy and knows that buyer believes it is an original: unilateral mistakeAgain caveat emptor will normally apply.Seller does not have an obligation to tell buyer of their mistakeBUT – Note the potential application of consumer protection legislationNormal rules of contract formation/representation apply—what did seller say, represent? Did seller promise through words/conduct that it was an original?Per Smith v Hughes – no duty to disclose (if I thought you believed it was an original but it wasn’t, then caveat emptor – unless I made a representation that it was – but then this brings us out of the realm of mistake and into the realm of representations and warranties)Thus, critical difference between terms and assumptionsLots of consumer protection legislation, so for consumers common-law rule of caveat emptor usually doesn’t apply – but often still does in a commercial contextMutual MistakeBoth parties make mistake as to terms of the agreement, and mistakes are differentCourts must ask whether there is nevertheless a valid K (principles of offer/acceptance)Lack of subjective agreement due to mutual mistake may prevent K formationBut sometimes objective test of K formation determines that a K exists despite the parties being subjectively at cross-purposes: see Staiman SteelUnilateral Mistake as to TermsNo general duty on one party to disabuse the other of a mistake (caveat emptor)Smith v Hughes: Distinguishes “mistaken belief of external facts” (mistaken assumption) and “unilateral mistake as to terms” (mistake by one party about one of the terms, and the other party knows – or ought to know – of the mistake)CasesStaiman Steel v Commercial & Home Builders (1976, Ont. HC)Facts: K for sale of goods: “all the steel in your yard”. Plaintiff (buyer) thought it included building steel and used steel; defendant said used steel only. Plaintiff sued for breach of K.Issue: Did the mutual mistake prevent a contract from being formed?Held: No. Binding contract did exist (for used steel only).Reasons: Defendant argued no consensus ad idem, thus no K (relied on Raffles)Plaintiff argued subjective intention doesn’t matter; must look at objective assessment, which shows there was a sale for building steel (used steel only)Court uses objective approach to say K was created, but for used steel only (buyer’s expectations that new steel was included were unreasonable)Court takes middle ground between two extremes (buyer: K for both new and used, seller: no K at all). Yes, K, but only for used steel.Distinguishes Raffles, where it was truly impossible to figure out a definite agreement between parties (could not tell which ship)Cases of mutual mistake: Courts must decide what terms are from an objective standpoint (only in cases of TOTAL AMBIGUITY will courts decide that no K was created)Talks about mistake, but really turns on contract formation (what were terms of K?)Ratio: Raffles (mutual mistake) only applies where the circumstances are so ambiguous that a reasonable person could not infer any common intention.Smith v Hughes (1871, Eng.)Facts: Sale of oats from plaintiff farmer to defendant horse trainer. Df thought oats were old; when oats not old, he refused to complete K (said he was told by plf that oats were old, he would not buy old oats since horses won’t eat them, plus price matched normal price for old oats)Principle: Foundational case on objective approach (subjective intentions in K formation irrelevant)Mere fact that Hughes thought he was buying old oats doesn’t affect K formationCaveat emptor: no general obligation for one party to disabuse the other of a mistake, short of fraud or deceit (today, courts moving away from this towards duties of good faith)But, if one party intends to contract on one set of terms and the other party on a different set of terms, there may be no K, unless court can apply objective K formation principle to see that a reasonable person would have found certainty as to termsCourt distinguishes between:Purchaser agreeing to take oats under belief they are old (binding K – mistake as to fact only)Purchaser agreeing to take oats under belief that vendor warranted them to be old (mistake as to terms – mutual mistake)Whether there is a K, and what the terms are, will depend on traditional contract formation rules. What was promised/agreed?Purchaser agreeing to take oats under belief that vendor warranted them to be old, and vendor knew purchaser had misapprehended the terms of the K (mistake as to terms – unilateral mistake)For defendant succeed, there would need to be a unilateral mistake – i.e. that the plaintiff believed the defendant to belief that he, the plaintiff, was contracting to sell old oatsPlaintiff would have to know the df misapprehended the actual terms of the KImportant difference here between mistaken assumption (simply believing oats were old) versus mistake as to the actual terms of the K (that the plaintiff was actually contracting to sell old oats specifically)Unclear as to what they actually believed or knewHeld: Can’t confuse motive to enter K with the actual terms of the K (clearly was a purchase for sale of oats – though buyer thought they were old oats, this wasn’t a term of the K, so K stands)“Snapping up” a Mistaken OfferCases where there is no consensus ad idem – one party just “snapping up” the other party’s mistake before that party realizes it (Hartog v. Colin & Shields)Despite the fact that objectively the offer was clear, both parties knew or should have known there was a mistake – thus no KFairness-based principle: exception to the normal objective approach to K formation (courts look to parties’ subjective intentions)To prevent a form of fraud, court can look to parties’ subjective intentionsOnly applies to mistake of the terms of the K itself (not facts external to the K)Example: I state the weight in kg but it was meant to be lbs, and you try to opportunistically snap up my mistaken offer before I realizeMistaken AssumptionsMistaken assumption: A mistake that goes to the basis for entering into the K, i.e. “external mistake” (Bell v Lever Bros, Sherwood v Walker)Highlights tensions between values of certainty/predictability (caveat emptor) versus unfair surprise, regret and unjust enrichmentIssue 1: Risk allocation (who should bear risk of mistake?)Issue 2: Fairness (will one party be unjustly enriched if K enforced?)Courts rarely grant relief on the basis of mistake: general principle remains caveat emptorIf there is a mistaken assumption regarding an essential quality, at common law the K is voidBasically, law of mistake fills a gap where a mistake, by no fault of either party, makes the K impossible to perform, and it is unclear who should bear the riskCases below deal with common/mutual mistake (i.e. both parties made the same false assumption concerning a matter material to decision to enter into K)CasesBell v Lever Bros (1932, Eng. HL)Facts: Severance agreement (LOTS of $) for Bell and Snelling, two senior employees. Employer (Lever Bros) subsequently discovers that employees had been engaged in insider trading and it could have fired them without reasonable notice.Issue: Employer claims mistake (mistakenly entered severance agreement – if employer had known true facts, could have fired employees with no severance).Held: K not void for mistakePrinciple: Courts take very narrow view here – strong judicial policy in favour of upholding settlement agreements and keeping them out of courts (w/ settlements, you accept uncertainty)Further, Bell/Snelling had done very well for company, given huge bonus (weren’t some terrible employees they wanted to get rid of)Court identifies three types of operative mistaken assumptions where mistake can nullify consent and makes contract void:identity of contracting partiesintention is to contract with specified individual onlyexistence of subject matterres extincta: where subject matter is assumed by both parties to be in existence, but is notres sua: contract for sale of item but you already own itquality of subject matter: contract void wheremistake of both parties, andmistake is to existence of some quality of the thing contracted for, which makes the thing without the quality essentially different from the thing it was believed to bee.g. Sherwood v Walker (barren vs. breeding cow)Applies narrow formulation here. Mistake does not render the severance agreement entirely different – no mistake re: substance (doesn’t matter that they wouldn’t have entered the K if they had known true facts – the nature of the contract was the same either way)Although cases of mistake often benefit one party over another, perhaps unjustly, it is still of paramount importance that the K be observed, as long as parties can still comply with the essentials of the formation of contracts (i.e. agree in the same terms on the same subject-matter) and as long as there wasn’t a representation/warranty as to the mistakeFactors:Both received reasonable notice plus a substantial bonus (which reflected good past performance). No mistake regarding performanceJury acquitted defendants of fraudulent misrepresentation or concealmentPolicy of certainty and predictability regarding compromises/settlementsPower relations differential: employer takes risk when it settlesCautions against implied conditions just b/c they seem just or more businesslikeRatio: It is a mutual mistake when both parties make an erroneous assumption which was a fundamental reason for entering into the contract (and where, due to this mistaken fundamental underlying assumption, the quality of the K is essentially different). Courts should use restraint when determining whether the assumption was a fundamental reason for contracting.McRae v Commonwealth Disposals Commission (1951, Aust. HC)Facts: Commission sells rights to salvage oil tanker that did not exist (reckless, irresponsible promise). Salvager relies on promise and spends lots of $ in a salvage attempt.Issue: Was there a K between plaintiff and Commission, or was it void due to mutual mistake?Held: K not void for mistake. K did exist – defendant owes damages.Reasons: Must first see whether a K actually existed – question of constructionDiscussion of Couturier v Hastie – question of construction, based on language in the KDiscussion of Bell v Levy – true analysis is that there is a K, but that the one party is unable to supply the goods contracted for, & thus K is unenforceable and other party can recover $A party can’t rely on mutual mistake if they had a) no reasonab?le grounds for the belief and b) deliberately induced that belief in the mind of the other partyThey took no steps to verify what they were asserting (i.e. the existence of a tanker”, should have known that any tenderer would rely on their assertion of the existence of a tanker, and thus any “mistake” was induced by their own culpable conductThe existence of the tanker was not a condition precedent to the creation of contractual obligationsCourt differentiates between contract that is subject to a condition precedent (i.e. common assumption that the goods exist) and a situation where the vendor promises the goods are in existence (even if they are not). In the first case, there is no K; in the latter, there is a K and the risk is on the vendorNo common assumption of fact (as to the existence of a tanker). Rather, the Commission made an assumption, but the plaintiff’s didn’t – simply relied on CommissionThe proper construction of the K is that it included a promise by the Commission that there was a tanker in the position specified, and since there was no tanker, then plaintiffs are entitled to damages for breach of KRatio: Party cannot rely on mistake to get out of a K where it is responsible for the mistake.Equitable MistakeBell v Lever Bros set out basic principles of mistaken assumptions20 years later, Lord Denning set out a new approach in Solle v Butcher:Is the K void at common law (per Bell v Lever Bros)?If K is valid at common law, is it voidable on grounds of equitable mistake?Examples where equitable jurisdiction might be used:FraudMaterial misrepresentationMistake by one party (re: terms or identity) and other knows but remains silentCommon assumption regarding a fundamental fact or rights, and party not at faultBenefits of equitable mistake:Much less restrictive than common law mistakeEnables courts to avoid injustice to third parties who relied on existence of valid KCriticisms of equitable mistake:Denning’s approach is flatly contrary to authorityToo uncertain (i.e. court can set aside K based on equitable mistake if it is “unjust in all the circumstances” and the party is without “fault”, but who decides? Too much variation in possible outcomes)50 years later, Eng. CA overturned equitable mistake in Great Peace – said Denning was wrong, and mistake should only extent to common law mistakeCanadian courts have not accepted Great Peace; equitable mistake remains a part of Canadian law. We should not overturn Solle v Butcher. Why? Good policy reasons:Restrictive: Test for mistake in Great Peace (i.e. fundamental mistake/impossibility of performance) is too restrictive. Too high a standard.3Ps: Common law mistake doesn’t allow flexibility for third parties who may have relied on the contract – how do we balance their interests?Remedial flexibility: Very important! Without remedial flexibility, the mistaken assumptions doctrine is in an unsatisfactory state.Summary: Narrow doctrine of common law mistake, supplemented by more flexible doctrine of mistake in equity, is a satisfactory state of the lawDid K (expressly or impliedly) provide who bears the risk of mistake?If not, can turn to common law mistake.If K is valid at common law, can make a plea in equity (last ditch attempt!)CasesSolle v Butcher (1950, Eng. CA)Facts: Solle and Butcher are business associates. Butcher owned house, Solle wanted to rent a flat. Solle advised Butcher it was not subject to rent control, and they entered into a lease at a rate above that permitted by rent control legislation. Relationship sours; Solle claims rent control legislation applies and he is entitled to recover difference in rent. Butcher claims lease was entered into on basis of mistake, asks for rescission (equitable remedy – “unmaking” of the K).Reasons: Not void at common law, no fundamental change in subject matter (a lease is a lease).Solution: Uphold the contract but invokes equitable jurisdictionCourts of common law could only find a K void (mistake as to contract formation)Other types of mistakes can make contract voidable in equity, at discretion of court, to do justice between parties (as long as no injustice to third parties)Policy concerns: If these kinds of contracts are void, then landlords can make mistake re: rent control and kick out tenants – big problemClaims common law has gone too far re: mistake – made contracts void which are merely voidable, and thus does injustice to third parties relying on the contractTest: Equity will relieve a party from consequences of a mistake where K entered into:Test on basis of unilateral mistake:If one party induced by a material misrepresentation by the other (even if not fraudulent/fundamental), or if other party knows of the mistake and lets him conclude the K rather than pointing out the mistakeTest on basis of common mistake:If parties were under common misapprehension as to facts/rights, as long as misapprehension was fundamental, and the party seeking to set it aside was not himself at faultHeld: Lease set aside on terms that allowed landlord to apply to have rent increased to previously agreed amount. Tenant can either choose to stay at proper rent, or leave.Great Peace Shipping v Tsavliris Salvage (2002, Eng. CA)Facts: Boat suffered damage en route to China. Salvage company hired to provide help; advised that “The Great Peace” was closest vessel and would be there in 12 hours. Advised the Great Peace (plaintiff) was closest to them and would be there in 12 hours. Defendant thus hired plaintiff to go help; agreement permitted defendant to cancel, but would have to pay minimum 5 day fee. Turns out Great Peace was actually 410 miles away (not 35). Once they found a closer ship, defendants canelled agreement with plaintiff but refused to pay cancellation fee. Salvage company seeks to avoid liability on the basis of a mistaken shared fundamental assumption that “The Great Peace” was in close proximity to the vessel in need of assistance.Held: Court applies Lever Bros (very narrowly!) and says no mistake. Also, overturns Solle v Butcher.Principle: Lever Bros and Solle v Butcher are irreconcilable – led to much confusion in the lawWhat is the difference between a common misapprehension that is “fundamental” (Solle) and a mistake as to quality which “makes the thing contracted for essentially different from the thing it was believed to be” (Lever Bros)?These are the same thing, but just looser threshold when applied in equity. Must restore coherence to the law and say that there is no equitable mistakeDiscussion of risk allocation (i.e. did one party, either expressly or by implication, take responsibility in case the K becomes impossible to perform?)Court finds the distance between vessels was not so great as to make the contractual adventure impossible of performance (high threshold for doctrine of mistake)Plus, df didn’t cancel K until they knew there was a closer vessel (thus, clearly didn’t find K completely devoid of purpose, or they would have cancelled at once)They entered K, had right to cancel (subject to cancellation fee), did cancel, so are liable to pay 5 day cancellation fee. This is a just result.Requirements for common mistake to void a contract (Great Peace):There must be a common assumption as to the existence of a state of affairs;There must be no warranty by either party that the state of affairs exists;The nonexistence of the state of affairs must not be the fault of either party;The nonexistence of the state of affairs must render performance of K impossible;The state of affairs may be the existence, or vital attribute, of the consideration to be provided, or circumstances which must subsist if performance of K is to be possibleMiller Paving v Gottardo Construction (2007, Ont. CA)Facts: Parties signed agreement where Miller acknowledged it had been paid in full for materials. Later, Miller realized it had not billed Gottardo for some materials. Send further invoice; Gottardo relied on the first invoice (though it had actually been paid itself by highway owner for those materials – question of unjust enrichment?)Held: Courts refuse to set aside release of claims. Supplier knew it was releasing claims & fault was due to its own accounting error.Principle: Court confirms Great Peace has not been adopted in Canada; there are good reasons to retain the flexibility provided by the doctrine of equitable mistake.Thus gives reason to keep doctrine of equitable mistake, even tho it doesn’t apply hereHighlights importance/predictability of settlement agreementsAnalysis: Clearly a common mistake (both parties mistakenly believe all materials were paid for)In determining whether to set aside a K, courts must balance values of contractual stability versus providing relief in cases of severe injusticeLooks to tests in Bell v. Lever and Solle v. ButcherBvL: It must be shown that the subject matter of the K has become something essentially different from what it was believed to beSvB: K can be set aside if there is a common misapprehension which is fundamental, and that the party seeking to set it aside was not himself at fault.Allows relief where it would be "unconscientious" for the party to avail itself of the legal advantage it obtained, and where this could be done without injustice to third partiesRisk allocation: Responsibility was on supplier to determine amount owing, thus supplier bears risk of any mistakeCommon law approach (Bell): Must show the subject matter of the K became something essentially different from what it was believed to be - but the subject matter hasn't changedEquitable approach (Solle): Miller must show it was not at fault, which it cannot do - it made errors, Gottardo did nothing wrong, so it is not unjust for Gottardo to avail itself of the legal advantage it obtainedHeld: The December 20 agreement precludes Miller from resorting to the doctrine of common mistake, but even if it could, neither the common law doctrine nor the equitable doctrine would result in the contract being set aside.Summary: Approaching Mistake QuestionsApply normal contract formation rules: is there a contract? Was there sufficient certainty about the subject of the contract, the price and the parties? Apply objective reasonable person test? Is this a Raffles-type case where parties were contracting over two different ships or a Staiman type case where the court can impute a definite agreement between the parties.Is this a snapping up the offer type of situation where the offeree might be seen to be taking advantage of the offeror by not disabusing the offeror of a mistake (Hartog v. Colin & Shields).Courts have not enforced because no consensus ad idemCaveat emptor generally applies in business-business sales: risk of mistakes as to fact rest with party making the mistake (if you make a mistake regarding the quality/performance of the thing you are buying, the risk will generally fall with you).If a problem arises with respect to contract, typically a question of the terms of the contract – was there a representation or warranty? What are the terms of the contract? Did the contract allocate the risk? Did the contract exclude liability for the risk? (E.g. risk allocation in Gottardo – supplier responsible for mistake) If, after all these steps, the issue is not resolved and there was clearly a fundamental mistake, then turn to the next steps (common law mistake first – high threshold – then equitable mistake)Apply common law mistake analysis: mistake about a fundamental underlying assumption? If so, contract is void. If the contract allocated the risk of the relevant mistake, then mistaken party bears risk.Apply equitable mistake analysis: fundamental mistake, no fault, one party taking advantage of other, would it be unconscientious to enforce contract? If yes, contract is voidable (court can rescind). If the contract allocated the risk of the relevant mistake, then mistaken party bears risk. Remember: parties in equity must come with clean hands – can’t have been at fault themselves. Also, can’t have assumed the risk which they are now asking the court to relieve them of (Gottardo)Contextual Factors to ConsiderPrice: Price may be relevant in determining the reasonable expectations of the party.Knowledge and skill of the parties: The court is less likely to protect a mistake made by a person who possesses, or should possess, substantial knowledge or skill.Ease of Avoidance: Who is in best position to avoid the mistake – who can avoid it the cheapest?Common usage of the trade: The common usage of the trade may be another way in which the court can get a sense of what the parties probably expected. Also, trade usage indicates normal allocation of risk Knowledge of ambiguity - snapping up: If one party is aware of the ambiguity they should presumably be bound to clear up the ambiguity. Often times expressed as the “snapping up” point: taking an advantage that leads to inequitable results.Mistaken IdentityCommon scenario: A contracts with B (a rogue, pretending to be someone else). B then sells the property to C, an innocent party (bona fide purchaser for value). A is unpaid and B absconds. A, the defrauded owner, sues C, arguing that as a result of fraud B did not obtain title to the property and had no rights to transfer (nemo dat).Thus, unilateral mistake created by deliberate deception. Difficult question: is there an enforceable K between B (the rogue) and C (the innocent party?)Policy considerations:Between two innocent parties, who do we protect?Common law traditionally v. protective of rights of property ownersJudges often disguise policy concerns in decisions based on the status of the contract itself (i.e. rules of K formation)However, rise of ID theft in today’s world – courts becoming more transparent about policy decisions in these casesNemo dat quad non habet: No one can transfer to another something that he does not haveLegislated by statute in most provincesSale of Goods Act, s. 26(1)However, this conflicts with policy of protecting bona fide purchasers for valueRisk allocation:This is the ultimate issue in mistaken ID casesWho bears the risk, between two innocent parties?Economic analysis generally favours BFP, since seller is usually in the best position to avoid the loss at least costSeller can protect itself (should require full payment, bank draft, certified cheque, security etc) before allowing purchaser to take possessionCheaper for seller to do this than BFP to make a full search of seller ID and title to goodsNevertheless, common law has traditionally favoured property owner (nemo dat)You can register real property but not usually personal property – thus, very difficult/costly to prove what belongs to whomUltimately, no solution to this problem of who to protect. Long series of cases where courts have come to dif. solutions & distinguished them on the factsThe common law non-solution: void and voidable contractsWhether the property owner (A) retains title depends on the characterization of the contract between A and B (rogue)No offer to rogue – contract void:A-B contract can be characterized as void ab initio because there was no offer/acceptanceThere was an offer, but it was not made to the rogue – it was made to the person the rogue was impersonatingThus, no contract as formed and no title passed from A to B (thus B cannot pass any property to C)Result: A retains title to property (Cundy v Lindsay)Fundamental mistake regarding ID of contracting party – contract void:If A-B contract is void for fundamental mistake regarding the ID of a contracting party, then same result as in (a)Arrive at same result, but using language of mistake rather than offer-acceptancePossibility is hinted at in Bell v Lever BrosResult: A retains title to propertyContract voidable because of fraudulent misrepresentation:If A-B contract is voidable due to B’s fraudulent mispreresentation, then there is a contract, but A has an equitable right to rescindThus, property can pass from A to B, but if contract rescinded then A regains titleNB: If B transfers title to C before A can rescind, then C gets title to property (see option d)Result: A can regain title to property (Lewis v Avery, Lords Nichols and Millett in Shogun)Contract voidable but not avoided before sale to BFP:If B transfers title to C before A rescinds contract with B, then C (the BFP) acquires the propertyCodified in the Sale of Goods Act: s. 28, Sale under voidable title: “When seller of goods has voidable title to them, but seller’s title has not been avoided at time of sale, then buyer acquires a good title to the goods.”Compare to a “condition subsequent” (i.e. transfer subject to original owner discovering fraud in time)Result: C takes title to property (Lewis v Avery, Lords Nichols and Millett in Shogun)Apply normal rule of contract formation:What was the intention of contracting parties from their words/conduct?Strong presumption that parties intend to contract with the person with whom they are in personal contact (or phone, email, etc)Will depend on facts, look at form/medium of communication, etcLord Philipps in Shogun3 cases considered in Shogun (Cundy, Phillips, Lewis): 3 different approaches/results used by courts.Shogun: Majority (Hobhouse, Phillips & Walker) held there was no K, thus car did not belong to BFPFollowed principle in Cundy, that written agreements do not infer a presumption to sell to the immediate purchaser if identity is of key importanceDissent: Nicholls & Millett – argued to overrule Cundy, preferred later decisions of Philipps and Lewis. Policy reasons: In cases of fraud, if a party parts with their property without receiving payment, then they assume the inherent risks of fraudAccords with the intention of Parliament and the creation of statutory exceptions to the rule of nemo datCriticisms of Shogun:Financing company should have assumed risk (could have avoided this by doing better due diligence)What else could Hudson have possible done? (Registration was there with Patel’s name, etc)Some consumer protection legislation has arisen to deal with this (car dealers of the world should assume the risk – it’s the cost of doing business)Still, strong common law presumption to protect the Shoguns of the worldName of CaseScenarioType of DealingReasoningResultCundy v Lindsay (1878, Eng. HL)Rogue called Blenkarn passes himself off as W. Blenkiron & Sons. Plaintiff provides goods to rogue, which he sells to 3P.WrittenFocus on intention of the offeree.Presumption that written agreements do not infer a presumption to sell to the immediate purchaser, where identity is of key importanceNo contract w/ rogue (void ab initio).3P holds no title.Original owner wins.Result: No K.Phillips v Brooks (1919, Eng. KB)Rogue passes himself off as Sir George Bullough, write cheque for ring, which he sells to 3P.Face to face- Inference that plaintiff intended to contract with the rogue, and not the person whose identity the rogue had assumed.- Face-to-face K, thus courts make this inference- Rogue only passed himself off as Sir George after the K was completed, therefore K was with the rogue (court plays with rules of contract formation – very flexible)Contract concluded with rogue.3P holds title.Result: K.Lewis v Averay (1972, Eng. QB)Rogue passes himself off as Richar Green of Robin Hood fame, takes car and sells to 3P.Face to face- Fraudulent misrep. makes K voidable and liable to be set aside by mistaken party- Means courts can rescind using equity- Turns on timing (i.e. whether title was voided before rogue sold it)Contract concluded with rogue.Contract not rescinded before sale to 3P.3P holds title.Result: K voidable, but not yet voided.Shogun Finance v Hudson (2003, Eng. HL)Rogue passes himself off as Patel, takes car and sells to 3P.- UK: “hire purchase agreements” (i.e. technically “lease” the car from the finance company and then have option to purchase). Rogue disappears, Shogun wants to get the car back from Hudson, who purchased it from the rogue.Face to face, phone, and writingCourt is split. See three judgments below.Lords Hobhouse & Walker- Construe written document; Patel did not authorize conclusion of K- Thus no K; since there was never a K with Patel, the rogue never obtained title, therefore Shogun keeps the car and Hudson (the BFP) is out of luckNo contract.3P holds no title.Original owner keeps title.Lords Nichol & Millett- No special rule for written correspondence. When two persons deal with each other, whatever the medium, a contract is concluded between them- Overrules Cundy v Lindsay (old case of written contract which resulted in no K)- Says whatever the medium, if two people are dealing with each other, a K is concluded between them- So there WAS a K; however, it is voidable because of the fraudContract.3P holds title.K voidable, but not voided before property transferred to BFP (Hudson); thus 3P holds title.Lord Phillips- Must look at intention of parties from their words/conduct (objective approach)- Strong presumption that parties intend to contract with the person they are personally dealing with- Contract concluded in writing, intention of parties thus depends on construction of written terms- Patel was the contracting party, not the rogueNo contract.Non Est FactumSignature rule: Signed K is binding (signature is proof of acceptance)Non est factum: “It is not my deed”Originally available where:Person had not signed (fraud/forgery)Blind/illiterate person (didn’t know what they were signing)Effect: K void (there was no consent). K is thus void ab initio.Very rare cases (must be completely different, i.e. you thought you were signing a petition but it is the deed of transfer to your house)Capacity: What if a person of full capacity signs a document mistakenly?Policy concerns:What about innocent 3Ps who rely on document? (Like mistaken ID cases)Who should bear the loss as to mistaken party and innocent 3P?CasesSaunders v Anglia Building Society (1971, Eng. HL)Facts: Mrs. Gallie was induced to sign transfer to third party.Issue: Was transfer to Lee void on the basis of non est factum?Held: No.Principle: General principles in this area:A person of full age and understanding, who can read/write, is bound by their signature on a legal document.Plea of non est factum is available to persons who, for permanent or temporary reasons, are not capable of reading or sufficiently understanding the document signedThe effect of non est factum is no contract (void).A plea of non est factum is NOT available where:signature on document was brought about by negligence (i.e. carelessness) of signer in failing to take reasonable precautionsthe actual document is not fundamentally different from what the signer believed the document to be (difference in class – difference in substance isn’t enough)Onus is on the mistaken person to prove that he/she took all reasonable steps in the circumstances (usually not enough to say, “I relied on a trusted friend/advisor”)RectificationTypically, the written contract reigns supreme. Parties are generally bound to a written and signed contract.Exception: If there as a mistake in recording the agreement (e.g. technical/typographical transcription error)Legal requirements set out in Performance v Sylvan Lake (see below). Very high threshold – you must show the other party is trying to engage in unconscionable conduct and that they knew or ought to have known there was an error (not quite fraud, but almost).Caution: One concern underlying rectification is caveat emptor, which is very strong in cases of written documents setting the terms of the K (will allowing rectification promote sloppy work, lack of due diligence?)Cannot undermine the confidence of the commercial world in written contractsFraud is a concern underlying many of these casesCasesPerformance Industries v Sylvan Lake Golf & Tennis Club (2002, SCC)Facts: Typical rectification scenario – K for purchase of land next to golf course, oral agreement for land measured in yards, but written agreement mistakenly referred to 110 feet. Defendant insisted on the written terms, despite knowing the terms did not accurately reflect the prior oral agreement.Held: Judgment for plaintiffs; SCC granted rectification.Principle: SCC set a four part test for rectification:Plf must prove the existence and content of prior oral agreementThere must be “convincing proof” of oral agreement (beyond BOP, short of beyond a RD)Plf must provide the precise wording for the rectificationPlf must show the defendant knew, or ought to have known, of the mistake in the written document (basically must show refusing rectification would be inequitable/unconscionable)Morley Shafron v KRG Insurance Brokers (2009, SCC)Facts: Shafron signed restrictive covenant with employer, agreed that he would not work in the “Metropolitan City of Vancouver” for 3 years after his employment with them. He then began working in Richmond. Issue: “Metropolitan City of Vancouver” is not clear/certain. Can rectification apply?Held: No. Doctrinal requirements for rectification set out in Performance v Sylvan not met.Principle: KRG unable to show prior oral agreement, let alone the contents of one. Rectification is thus not available.3rd requirement (i.e. “precise form”) is to close the floodgates argument – court cannot speculate about parties’ unexpressed intentions, or to impose what seems reasonable in hindsight – rather, the court can only put in the words which the parties had orally agreed to“The power of rectification must be used with great caution”Parties simply used an ambiguous term in the K. This is different than an error in the written agreement and fixing the mistake to reflect the oral agreement.FrustrationIntroductionFrustration falls within the general ambit of the law of mistake. Distinction:Mistake: assumptions regarding existing factsFrustration: assumptions regarding future eventsNot black and white (often very hard to distinguish between the two)Often arises in land sales (contract executed on day 1, but you actually purchase at day 60 to allow time for financing/due diligence, and something happens in the interim which frustrates the K – either makes performance impossible or very difficult)Balance: Relieving party of obligations where foundations have shifted and would be unfair/onerous to complete, versus the idea of certainty/predictabilityRisk allocation: Parties should have allocated risks under the K (if problem does arise, risk usually falls on one of the parties)Strategy: More remedial flexibility under mistake, so a party trying to get out of contractual obligations should first argue mistake, and make an alternative argument for frustrationFrustration involves cases where an event occurring subsequent to K formation makes performance legally problematic:Impossible to performPromise to marry: promisor diesContract for portrait: painter loses sightMusic hall lease: music hall burns down (Taylor v Caldwell)Int’l sale: export ban – legal impossibility (rather than physically impossible)Destruction of commercial ventureCommercial purpose of the K is destroyedMore common than above; no real impossibility of performance, more that the contractual purpose for which the K was entered into is destroyedPolicy context: assignment of riskWho should bear the risk of the unforeseen event?Mere fact that a K becomes more expensive/difficult to carry out is not enoughUnexpected event must be so far beyond the range of risks allocated by the K that it constitutes a fundamental change in the bargain:“A radical change of circumstances”“Significantly changes the nature of the contract”Renders the obligation “radically different”, a “different thing”Role of the judiciary: If judge grants frustration, it is almost like insurance (i.e. you are relieved of an obligation you should otherwise have to comply with). But are judges in the best position to do this?Trebilcock, The Limits of Freedom of Contract: No. Parties should allocate the risk. If they are concerned with non-performance, they should obtain insurance, not judicial remedies via frustrationEchoes Posner’s arguments – usually one party is better placed to estimate the probability of a given contingency, and thus absorb the risk (through self-insurance, market insurance, or simply superior wealth)Judicially rendered insurance via doctrine of frustration is much more expensive – first-party insurance is preferableClear enforcement is the clearest signal to parties to future contractual obligations to always get insurance (rather than turning to frustration – deterrence aspect)Collins, The Law of Contract: Judges take fairness between parties into consideration when considering contract formationWould insisting on performance be unfair?Consider sophistication of parties, risk allocation (if one party lacked skill, risk wasn’t properly allocated, then courts more likely to find frustration – but if parties have comparable resources for devising complex transactions and can allocate risks between the parties, it will take a CALAMITY for the court to find an imbalance in obligations between the parties)Posner, Economic Analysis of Law: Distinction between prevention and insurance as methods of minimizing lossCommercial contracts are a form of insurance – shifts risk, commits parties to future courses of action in the face of uncertaintyWho is the “cheaper” insurer (can best bear the loss?)“Impossibility” is a very high threshold (e.g. unforeseen death). If contractor unexpectedly encounters difficult soil conditions, K is not impossible – he should be able to self-insure at a low costForce majeure clauses often included, specifying circumstances where failure to perform will be excusedHistorical DevelopmentStage 1: Rule of absolute promises (strict liability, property protection)Paradine v Jane: caveat emptor, lessee takes benefits and burdensStage 2: Relaxing the absolute ruleImply a condition of continued existence of subject matter (only bound by obligations as long as what was being contracted for continued to exist)Taylor v CaldwellCriticisms of this artificial “presumed intent” (frustration only arises where parties have not considered the risk and thus have no intent) – courts have since abandoned this devise and developed the doctrine of frustration as a rule of lawStage 3: Move from destruction of physical subject matter to destruction of commercial purpose of the KKrell v HenryLays out test for frustration. NB: Very similar to mistake! “The subject matter of the contract is entirely different from that which was contracted for.”Mistake versus Frustration:In mistake, K is void ab initio. In frustration, the K is not void ab initio – rather, it means parties are relieved of future obligations only (so everything done up until the point of frustration has been done in accordance with the contract and is okay).Must determine date of frustrating event (very difficult)Frustration is forward-lookingThus, in Krell v Henry, landlord got to keep 25 pound deposit – but defendant didn’t have to pay remaining 50 pounds, because at that point K had become frustratedPotential unfairness: So much depends on timing. What if everything was paid up front?CasesParadine v Jane (1647, Eng. KB)Facts: Paradine had leased lands to Jane, Jane failed to pay. English Civil War; Jane argued that due to invasion, he had been expelled from the lands and couldn’t enjoy them. By law of reason, he ought not be charged rent (he wasn’t even there, through no fault of his own!)Held: Jane had to pay rent.Principle: Strong property protection: “The landlord shall have his whole rent, no matter what”Absolute risk allocation: once you take on land, you assume all risks, no matter whatTaylor v Caldwell (1863, Eng. QB)Facts: Rental of music hall for four nights. Music hall burns down (not the fault of either party); lessee sues for damages.Held: Contract was subject to an implied condition of continued existence of subject matter in K. Music Hall ceased to exist; thus, both parties excused from their contractual obligations.Criticisms: This presumed intention/implied condition is artificial. Frustration only arises where parties have not considered the risk, thus have no intent.Krell v Henry (1903, Eng. KB)Facts: Coronation of Edward VII. Plaintiff rents out rooms to view coronation procession. Defendant pays a 25 pound deposit. Coronation cancelled. Plaintiff sues for remaining 50 pounds.Held: Parties discharged from further performance (thus plaintiff keeps deposit but doesn’t get remaining 50 pounds).Principle: Test for frustration:What is the foundation of the K, having regard to all the circumstances?Was performance of the K prevented?Was the event foreseeable or not (i.e. cannot reasonably be said to have been in the contemplation of the parties at the time of the K?)Application: Purpose wasn’t just to lease a room, but to lease a room with a view of the procession. No longer possible, thus commercial purpose was destroyed & contract frustrated.Land CasesHistorically, frustration was not available for sale of land. Land is land: no matter what happens (fire, trees cut down), the land is still there.But this absolute rule re: land has softened over timeCriticisms of KBK: Even if this specific rezoning by the City was unusual, risks of rezoning are generally known risks; Safeway had a clause for this and the risk thus should’ve been on KBKCasesKBK No. 138 Ventures v Canada Safeway (2000, BCCA)Facts: Safeway owns a parcel of land in East Van, advertises it as a “prime development opportunity” for $8.8 mil. KBK was interested in purchasing and redeveloping the land as mixed commercial and residential. Contract for sale closed - $8.8 million purchase price, KBK pays $150,000 deposit. One month later, the City (on its own motion – highly unusual) rezones the land which creates redevelopment restrictions (despite both KBK and Safeway’s objections at a public hearing). This results in a loss in value of $3.4 million.KBK claims contract is frustrated and requests return of $150,000 depositSafeway argues that purpose of K was simply sale/purchase of property, i.e. not frustratedLegislation – Frustrated Contract Act – if contract is found frustrated, party is entitled to restitution (i.e. deposit back)Trial: Contract is frustrated. KBK is entitled to restitution (see legislation above) to prevent unjust enrichment.Held: K is frustrated. KBK is entitled to restitution (agrees with trial judge).Principle: Cites four different tests (event that changes the nature of contractual obligations, radical change, totally different, etc).Event: Must occur after formationMust not be self-inducedMust not have been foreseeable (otherwise, parties could have allocated risk)Impact: Must be more than mere inconvenience – must make contract fruitlessMust be radical change in K (completely affects nature, meaning, purpose, effect and consequences of K)Change must be permanent (e.g. not just a delay)Approves of Victoria Wood, where mere knowledge of development intention was not sufficient ground for frustration in case of subsequent rezoningHowever, here there was more than “mere knowledge”:Ad specifically referred to zoning designation & set out permitted usesContract contained a clause specifically stating KBK’s intention to redevelopPurchase price specifically calculated on basis of redevelopment potentialContract silent as to allocation of risk (highly unusual rezoning – unforeseen change)Risk allocation: Safeway argued K allocated risk (clause stipulating no representations or warranties as to zoning, development or permitted use of land. Agreement shall be completed whether or not permit is obtained)Court held that these clauses were just generally worded, not specifically intended for this scenarioNeither party foresaw the rezoning – it was part of a pilot project and is unfortunateRisk is on the developerDevelopers get out of bad deal, get deposit back, and Safeway sells to somebody else (but for $3.4 million less)Ratio: This was a fundamental change in circumstances which struck at the root of the agreement and is entirely beyond what was contemplated by the parties when they entered into the K. The contract is “radically altered” (not mere inconvenience) and is thus frustrated.Frustration: SummaryThe fundamental question in frustration is whether, due to changed circumstances, the risk of unfair hardship to one party outweighs the general policy of enforcement through caveat emptor.In order to be entitled to frustration, the plaintiff must establish that:Basic Underlying Assumption: The elements of the contract, or circumstances that are disrupted by the frustrating event, must be fundamental/foundational, such that it would be tacitly assumed by the parties to be a pre-condition to performance.The continued existence of the goods or subject matter of the K (Taylor v Caldwell – music hall)The continuation of certain conditions or the happening of an event (Krell v Henry – coronation)Substantial Hardship:Major impact on economics of transactionMust be more than mere increase in expense that renders K less profitableChange must be permanentMust deprive one of the parties of the substantial intended benefit of the transactionNational Carriers Ltd: The change must be so significant that it would be “unjust to hold the party to the literal sense of its stipulations in the new circumstances”Unanticipated Risk: The frustrating event must be unanticipated.Occurs after formationNot foreseenNot a risk that the parties addressedNot a risk that the parties should have been expected to addressNo Allocation of Risk by Contract: Is the risk of the unforeseen event allocated in the contract? The contract is always our starting point here.No Fault: The event is beyond the control of the parties and is not caused by, or the fault of, one of them. Frustration cannot be self-induced.Frustration: Remedial ConsequencesIssue: If K is frustrated, parties are relieved of future performance obligations. However, they may have suffered losses in partial performance.E.g. Manufacturer to design/build special machine, but K becomes frustrated due to export restrictions. What if buyer had already paid a deposit, and seller had already performed design work?Historical common law test: the loss lies where it falls (Appleby v. Myers)Frustration does not render a contract void ab initio – parties relieved of future performance obligations, but everything up until that point is okay (because it had been performed under a valid contract until that point)Critique: this is unprincipled and leaves losses to pure chanceE.g. Krell v Henry – coronation viewing – contracted frustrated, landlord entitled to keep deposit. But had deposit not been paid, landlord would’ve had nothing; or if entire price had been paid, landlord would’ve had everythingThe Reform – Restitution:Fibrosa Spolka Akeyna v Fairbairn Lawson (1943, Eng. HL): Sale of machine by English company to Polish company. Contract price is 4,800 pounds; 1000 pounds paid in advance. WWII frustrates contract, Polish company sues to get deposit backHeld: Buyer may recover deposit based on restitution (prevents unjust enrichment)Problem: Recover on restitutionary grounds is limited to monetary payments (ignores any expenses incurred in reliance on the K)In Fibrosa v Fairbairn, court stated that while restitution helps, it still isn’t always fair (party might have to return deposit money, and what if they spent a lot in reliance/partial performance of the K?)Response: Frustrated Contracts ActMany jurisdictions have this act, which allows courts to apportion pre-frustration lossesIn many jurisdictions, reliance losses are recoverable but only to the extent of pre-payment (i.e. may be offset against payment/deposits)In BC, reliance losses are independently compensable – even if there is no prepayment, court may still apportion any reliance losses. Losses are apportioned equally.Adjustment of Rights and Liabilities:5 (1) In this section, "benefit" means something done in the fulfillment of contractual obligations, whether or not the person for whose benefit it was done received the benefit.(2) Subject to section 6, every party to a contract to which this Act applies is entitled to restitution from the other party or parties to the contract for benefits created by the party's performance or part performance of the contract.(4) If the circumstances giving rise to the frustration or avoidance cause a total or partial loss in value of a benefit to a party required to make restitution under subsection?(2), that loss must be apportioned equally between the party required to make restitution and the party to whom the restitution is required to be made.Control of Contractual PowerDuressClassic formulation: focuses on the voluntariness of consent – the “overborne will”Pao On (1980, JCPC): “A coercion of the will so as to vitiate consent … In a contractual situation, commercial pressure is not enough.”The compulsion has to deprive the party of the “freedom of exercising his will”Effect:Older authorities held contract void as it vitiated consentModern approach is to find that the contract is voidable at the option of the party who was the object of the duressSame for all three unfairness situations (undue influence, duress, unconscionability): effect is that the contract is voidable, and party then has a decision (they can bear the contract, or can have it voided)Categories of duress:Duress to person: Threats to person or family, etcDuress to goods/property: Threat to damage/take another’s property; extortionate payment require to release a good (pawnbroker cases)Economic duress: Now an accepted subcategory of duressEconomic pressure is not enough – many commercial situations occur in circumstances of unequal bargaining power where one party feels pressuredCoercion of will test is difficult to apply as it involves an inquiry into the psychological state of the party. Further, just because one party forces a hard bargain, should the choice to accept the hard bargain (even where there is no alternative choice) result in the contract being set aside?Very difficult to establishExamples:Port Caledonia (1903): Contract for rescue assistance from tug to prevent collision. Tug signaled “?1000, or no rope.” Court set aside agreement as “inequitable, extortionate, and unreasonable”. Awards ?200 based on quantum meruit. D & C Builders (1966, Eng. Q.B): Settlement case. Overdue bill of ?480. Plaintiffs facing bankruptcy and accept ?300 in satisfaction. Denning: no valid consent—creditor held to ransom. Stott v. Merit Investment (1988, Ont. C.A.) Stockbroker agrees to pay his client debt on margin account and hold the investment firm harmless. Although finding economic duress, court concluded that stockbroker subsequently affirmed the agreement through his conduct. Modern Test: Universe Tankships (see below).Economic duress and contract modification: Nav Canada (see below). Not yet picked up by SCC, but law might be moving in this directionCasesUniverse Tankships of Monrovia v Int’l Transport Workers Federation (1982, JCPC)Test: (1)Pressure amounting to compulsion of the will of the victim. Note: Lord Scarman observes that although previous cases refer to the test as coercion or vitiation of consent, the real issue is not lack of will to submit “but the victim’s intentional submission arising from the realization that there is no other practical choice open to him.”Relevant factors include:whether the coerced party protested;the availability of alternative courses of action;the existence of independent legal advice; andwhether the coerced party took steps to avoid the contract(2) The illegitimacy of the pressure exerted in light of the nature of the pressure (i.e. was there a threat of unlawful action?) and the nature of the demand (what was being demanded). (3) If a court finds that the victim expressly or implicitly approbated (approved) the contract after the pressure ceased to exist, the victim will be denied relief. Notes:Fairness of bargain is doctrinally irrelevant. The issue is one of consent. However, almost all cases of duress involve bargains that the coerced party claims are unfair. Subsequent cases have emphasized (i) whether there is a lack of practical alternatives; and (ii) the illegitimacy of the pressure exerted.Threat would almost always be viewed as illegitimate where it involves a tort or breach of a statutory duty. Difficult cases arise where the pressure is lawful: is it akin to blackmail or economic pressure to enforce a bona fide claim? —i.e. threats to fire an employee;—i.e. threats to breach a contract and contract modifications;Criterion of illegitimate pressure has been criticized as incoherent and unruly. Further, it is difficult to apply in the context of contractual modifications (see Nav Canada)Breaching a contract simply leads to liability to pay damages. It is not necessarily illegal – so may not be illegitimate pressure.This is the modern test (to be applied on exam)Nav Canada v. GFAA (2008, NBCA)The criterion of illegitimate pressure in context of K modifications is problematic to apply (the nature of pressure in all cases is a breach of contract, and that is not actually illegal – just leads to liability to pay damages)In contract modification cases, the nature of the pressure (breach of contract) and the demand (for more $) will always be the sameFocus should be on victim, not the legitimacy of pressureThus, rejects illegitimate pressure test in the context of contract modificationsTest:Promise (the contract variation) extracted as a result of “pressure”, whether characterized as a “demand” or a “threat”;“In most instances pressure for the contractual variation will come from the promisee in the form of an express or implied threat to breach the underlying contract, usually by withholding future performance.”Coerced party had no practical alternative but to agree to the coercer’s demand to vary the terms of the underlying contract;“In short, the absence of practical alternatives is evidence of a lack of consent, but is not conclusive of the issue. The law is still concerned with the possibility that the contractual variation may have been consented to for reasons that the promisor alone deems sufficient. This leads us to ask how one goes about assessing the presence or absence of “consent”.Assuming the first two criteria are met: did the coerced party consent to the variation? Factors to assess:Was the promise supported by consideration?Whether the coerced party made the promise “under protest” or “without prejudice”; andIf not, whether the coerced party took reasonable steps to disaffirm the promise as soon as was practicable? (I.e. acting opportunistically or in good faith?)NB: Neither good faith, or the fact that the coerced party received independent legal advice, is a defence (i.e. often advice will just confirm the circumstances you find yourself in).Undue InfluenceUndue Influence: Definition: the unconscientious use by one person of power possessed over another in order to induce the other to enter a transaction (Earl of Aylesford v Morries)Duress was a common law doctrine. Undue influence is an equitable doctrine (i.e. valid contract at common law, but courts of equity can step in to rescind the transaction)Undue influence = ability to exercise exceptional power in relation to another’s choicesRelationships of trust and confidence (closely related to equitable doctrines of trust and fiduciary relationships)NB: There is nothing reprehensible about influence itself (often arises in relationships of trust or confidence) – rather, it is the motivation sought when that influence is exercisedNeed not be any specific overt acts of persuasion (simply the relationship itself can mean that, without more, one party is predisposed to agree with the other party) – Royal BankExample: Caregiver on whom an elderly person has become dependent threatens to abandon person. Elderly person provides gift, or enters into a transaction.Effect: Transaction is voidable. Court can rescind transaction.Categories of Undue Influence1 . Class 1 – Actual undue influence: Claimant must prove the wrongdoer exerted UI.No pre-existing relationship of trust/confidence, thus claimant must prove UI2. Class 2 – Presumed undue influence: A relationship of persuasive influence.2(a) De jure: Relationships that raise the presumption of dependenceTrust/confidence between parties = dependence is presumed (claimant need not prove it), and this, coupled with a suspicious transaction, gives rise to a presumption of UI; onus then shifts to the other party to show the transaction was entered into freely and voluntaryShifting in the evidentiary burdenExamples: fiduciary relationships, trustee/beneficiary, solicitor/client, doctor/patient, priest/worshipper, parent/child, guardian/wardExample: If you enter into questionable real estate deal with your psychiatrist, a relationship of influence is presumed and the onus shifts to your psychiatrist to show that you entered into the deal freely and voluntarily2(b) De facto: Other special relationships of trust or confidenceRelationship of trust/confidence must be proven, unlike in 2(a) – e.g. sexual relationships, bank/client, professor/student, etcHusband/wife – not presumed – must actually show that there is a relationship of trust, confidence, or dependence, and further that the transaction is one where the fairness is called into question (see Royal Bank v Etridge)NB: This overall framework for UI has generally been accepted in Canada.CasesGeffen v Goodman Estate (1991, SCC)Facts: Family dispute over Tzina Goodman’s estate (troubled life, mental health issues). She had created a trust under which her children and nephews/nieces would share. Goodman children argued that Tzina’s brothers had exercised UI over her (didn’t want money shared with cousins).Issue: Does the presumption of UI apply? Is it a requirement to show a manifest disadvantage?Analysis: 3 stages to consider.A relationship of dependence? Recognized relationships of dependency (de jure – solicitor/client, parent/child, guardian/ward), and other relationships which defy easy categorization (de facto relationships)Manifest disadvantage? Must this be shown as a required element of UI? (HOL says yes)SCC says not always – depends on contextWith gifts/bequests, makes no sense to insist that the donor prove their generosity placed them at a disadvantage (person may have materially less after giving a gift, but may have wanted to anyway out of generosity)However, in commercial transactions, the plaintiff should be required to show, in addition to the required relationship between the parties, that the contract was manifestly disadvantageous (either plaintiff unduly disadvantaged by it, or defendant was unduly benefited by it). Makes sense because parties act in their own self-interest in most commercial exchanges.La Forest’s minority view also supports that UI need not always involve undue disadvantage or benefit, even in a commercial transaction. The focus on UI is on the use of influence, rather than the result itself – UI is just as concerned with the process as it is with the resultUI can thus exist without a manifest disadvantage (e.g. doctor abuses relationship of trust & convinces patient to sell house, patient gets better than market price, no manifest disadvantage – but still sold something they didn’t want to sell due to UI)Policy considerations: Protecting abuses of trust, confidence or power, on the one hand, with the idea that the law should not interfere with reasonable bargains on the other (freedom of K)NB: Court was split on the manifest disadvantage test, so can argue it either way – unsettled area of the lawOnus then shifts: “Influencer” must show the transaction was entered into as a result of “full, free and informed thought.” The presumption is thus rebuttable.Show no actual influence was deployed in the transactionIndependent legal advice obtained?The magnitude of the disadvantage or benefit is evidence going to the issue of whether influence was exercised (so, even if manifest disadvantage isn’t a required element, the extent of the unfairness will still be relevant – if a really unfair transaction, then will be much harder to rebut the presumption)Held: Relationship between brothers/sisters has the potential for influence (so fits into the 2(b) de jure category). However, presumption is rebutted because: little contact between Tzina and her brothers at the relevant time, she was not in fact relying on them to advise her, the brothers’ main motivation was to advance Tzina’s welfare, and she received independent legal advice and it seems the agreement was in line with what she wanted.Principle: Sets out a test. 1) What kind of relationship? (De jure or de facto?) 2) What kind of transaction? (If commercial, must show manifest disadvantage). 3) Onus then shifts to defendant to rebut the presumption.Royal Bank of Scotland v. Etridge (2001, Eng. HL)Facts: Common scenario: Husband works, wife is home with kids. Husband’s business is going badly and he takes out a loan; the bank wants security so wife signs a personal guarantee. Husband gone broke, couple is divorced and now bank is suing on the security (often the matrimonial home). She is in a direct contractual relationship with the bank, which is a third party to the undue influence alleged between the husband and wife.Issue: Can the bank rely on the guarantee obtained by the husband’s undue influence?Analysis: This case is important because it sets ground rules for banks in these situations.Husband/wife relationship does NOT fall into the 2(a) de jure category, although Courts are aware of the opportunities for abuse here. Thus onus is on the spouse to show the relationship falls into 2(b) – not automatically assumed (factors: were you relying on your partner to take care of your interests in financial affairs? Were sexual or emotional ties being used as a weapon?)The position of the bank: The transaction may be set aside where the bank has actual or constrictive notice of the risk of UI (the bank is put on inquiry in every case where the relationship between parties is non-commercial. Assumption is that commercial parties can look after themselves here). Court set out steps the bank must take to ensure the person making the guarantee is doing so voluntarily and with full consent:meet with spouse privately;explain the extent of liability;warn of the risk; andurge the person to obtain independent legal adviceCourt justifies this – it is a valuable means of protection but only a modest burden on banksIndependent advice is a factor – weight attached varies (doesn’t necessarily disprove UI)Policy question: To what extent is the third party to the wrong affected by it?If it turns out there was UI, then the bank will have no defence (they will be “constructively tied” to this relationship of influence). But if they did their due diligence in the 4 steps above, then they are shieldedUnless bank had actual or constructive knowledge of UI, then generally they are protected and wife would be held to the guarantee, even if she actually was subject to UIPolicy considerations: free market liberalism, can’t be paternalistic just because people are in spousal relationships (they are still autonomous individuals capable of making decisions and maximizing their own welfare)So: bank not actually required to take these steps, but if they don’t and there is UI, then they will be at risk of not getting their $.NB: Solicitors have a similar checklist as well: if someone is seeking independent legal advice, ask about undue influence, do they need an interpreter, have a witness, etc (this area is problematic for lawyers – taken seriously by courts, could be opening themselves up to serious liability).Principle: Banks are put in “inquiry” in every non-commercial relationship. Must then take four steps to protect themselves (in case UI is being exercised) so they can rely on the guarantee.UnconscionabilityEquitable doctrine to control contractual power in cases where there is:Inequality in bargaining power (procedural unconscionability)Contextual factors: economic resources, knowledge, need, disability that falls short of legal capacity, etcCommon categories: unlike UI, no express categories of relationships here. However, cases often involve pre-existing relationships where there is potential for an inequality of bargaining power (e.g. familial relationships)Substantial unfairness in the resulting contract (substantive unconscionability)Mere inequality of bargaining power is insufficient; claimant must also prove that the bargain was substantially unfair (no clear cut-off for what meets this threshold)Traditional Doctrine:Narrower view – uncontroversialIf there is a relationship where a person can take undue advantage of the other, whether by distress, recklessness, wildness or want of care, a transaction resting on such unconscionable dealing will not be allowed to stand; if parties are not on equal terms, the party who gets a benefit cannot hold it without proving that everything has been fair & reasonable on his partMorrison v. Coast FinanceWider (Modern) View:Contracts may be avoided if there is unequal bargaining power or if community expectations are offendedDeparts from traditional narrow view (which was limited to unconscionability if a person’s severe physical or situational disadvantage was taken advantage of)Time of expanding consumer protection legislation; pushing back against traditionally strict doctrinesLloyd’s Bank v Bundy, Harry v KreutzigerNB: Denning’s attempt to create a unified principle of unfairness (in Bundy) has NOT been accepted in Canada. We still have the triumvirate of unfairness (undue influence, duress, and unconscionability).NB: Lambert’s attempt in Kreutziger to create an overarching principle based on community standards of commercial morality has been applied by the courts, but usually along with an unconscionability analysis (thus has a more supporting role than replacing the actual unconscionability test)Criticisms of the community standards test as being too subjective (based on that judge’s specific views, etc)Some say it is better to have the two-step test which focuses both on the procedural unconscionability (unfairness in the bargaining process itself) while also considering the resulting unfairness in the bargainLegislation:The test for unconscionability in the Consumer Protection Act is more beneficial to consumersTiming: Says unconscionability can occur before, during or after the transactionWhereas the doctrine of unconscionability only looks at the time of K formation (problem raised by minority in Tercon – what if an exclusion clause becomes unfair over time?)Burden of proof: This shifts to the supplier (i.e. if unconscionability is alleged by consumer, then leads to a prima facie presumption of unconscionability which must be disproved by the supplier)Laesio enormis (enormis loss): Roman law concept – rescission available if sale of land for less than half market value (Louisiana Civil Code)Business Practices and Consumer Protection Acts. 8, Unconscionable acts or practices (1): Unconscionable act by supplier may occur before, during or after the consumer transaction (2): In determining unconscionability, court must consider all surrounding circumstances that the supplier knew or ought to have known (3): Lists circumstances that a court must consider (undue pressure, taking advantage of physical or mental infirmity, ignorance, illiteracy, age, or inability to understand the transaction, whether price grossly exceeded what would be charged elsewhere, if there was no reasonable probability that full payment would be made by the consumer,or if terms or conditions were inequitable).s. 9, Prohibition and burden of proof (1) A supplier must not commit any unconscionable acts or practices in a transaction. (2) If unconscionability is alleged, the burden of proof to disprove allegation is on the suppliers. 10, Remedy for an unconscionable act or practice (1) Subject to sub 2, an unconscionable transaction is not binding (2) Gives specific remedies in respect of unconscionability in the context of a mortgage loanCasesMorrison v Coast Finance (1965, BCCA)Facts: 79 year old widow of meagre means is persuaded to borrow money ($4200) on a mortgage granted by Coast Finance and lend it to two rogues, who used the money to pay back a finance company and buy two cars (so companies weren’t themselves the rogues, but did benefit from this relationship, plus office manager Crawford knew about the dealings).Issue: Claim to have the mortgage set aside.Analysis: Discusses the difference between UI and unconscionabilityUI attacks the sufficiency of consentUnconscionability invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against a weakerTwo requirements:proof of inequality in the positions of the parties arising out of the ignorance, need or distress of the weaker, which leaves him in the power of the strongerproof of substantial unfairness in the bargain obtained by the strongerIf met, these requirements create a presumption of fraud, which the stronger must rebut by proving the bargain was fair, just & reasonable, or by showing that no advantage was takenHeld: Clearly unequal bargaining positions between the widow and the rogues/companies. Plus, it is absurd that she would mortgage her home (without no $ to pay it back) to lend to two basic strangers. They took advantage of her ignorance and inexperience and made no attempt to prove that the transaction was fair, just and reasonable.Huge abuse of power. Policy: protect the vulnerable.Mortgage set aside; widow need not repay anythingLloyds Bank v. Bundy (1975, Eng. CA)Facts: Old Herbert Bundy owns a farm worth 10,000 pounds. Signs a series of bank guarantees for debt of son’s company, all secured by farm. Son & bank manager see Bundy and initially secure 7,500 against house. 2 years later, son & new bank manager go see Bundy. Bank wants guarantee of an additional 3500; all paperwork done (no opportunity to seek legal advice). Final guarantee for 11,000 pounds charged against Bundy’s house – his only asset, and worth only 10,000. “Poor old gentleman”; just trying to help his son, didn’t really know what he was doing.Issue: Notwithstanding valid consent, is the contract nonetheless unenforceable?Analysis: Other judges in this case looked to fiduciary duty, but Denning looked to unconscionabilityConsiders all the exceptions to the general rule that a contract is binding:duress of goodsunconscionable transactionsundue influenceundue pressure (duress)distress and salvage agreementsSays the common denominator is inequality of bargaining power: English law gives relief to one who, without independent advice, enters into an unfair bargain, when his bargaining power is grievously impaired by his own needs/desires, his own ignorance/infirmities, or undue influence or pressures brought to bear on him by another.Held: Insufficient consideration moving from the bank, relationship of trust/confidence which the bank failed to properly discharge, etc. Appeal allowed.Principle: Attempts to bring various strands of common law together in a common, overarching principle of unfairness.Harry v Kreutziger (1978, BCCA)Facts: Aboriginal man (grade 5 education, hearing defect) had a boat which was worth little, but had a valuable fishing licence attached to it. Man wanted to buy it for $2000; plaintiff refused, defendant assured him he would be able to get a new fishing licence for a new boat. Plaintiff eventually agreed to sell for $4500. However, buyer knew boat was worth $16,000 due to fishing licence. Plaintiff was left without boat and his application for another fishing licence was denied.McIntyre: Morrison is the leading test in this area. Two requirements – inequality in bargaining power, plus substantial unfairness in the bargain – create presumption of fraud, which can be rebutted by proof that the bargain was fair/reasonableThis case was unconscionable and should be rescindedPlaintiff was not equal to df (education, physical infirmity & economic circumstances)Defendant was aggressive, assured plaintiff falsely/recklessly that he could get another licence, wouldn’t take no for an answerPlaintiff clearly overpowered by this. Resulted in an improvident bargain.Lambert: Tries to unify the general principles in both Morrison and BundyCentral question: Whether the transaction, seen as a whole, sufficiently diverged from community standards of commercial morality that it should be rescinded?Canadian cases are more helpful to consider (since different standards of commercial morality may exist in different jurisdictions). Can also look to legislation as embodying these standards.Applies to the facts to say that this clearly departs from community standards of commercial morality & should be rescindedIllegality and Good FaithWhen will the court decline to enforce a transaction because it is “illegal”? When does public policy trump private ordering?Either the K itself may be illegal, or performance under the K may be illegalWhat can parties consent to under contracts?Boundaries of K law and public policyPolicies in support of freedom of K:Agreements made by rational individuals should be enforcedPromotes individual freedom and security of expectations19th century law of K – libertarian state encourages liberty & self-relianceWhen can public policies override freedom of K?Borderline between “public” and “private” realmsWhen do private rights injure the public interest?Tercon: Courts retain the ultimate power to decide when to enforce K, taking public policy into considerationStrict test: Usually, freedom of K will be respected. Public policy should only override in rare and clear cases where harm to the public is “substantially incontestable” (not based on the opinion of just a few judges)Terminology: “Illegality” here means a transaction that a court will refuse to enforce for public policy reasons – doesn’t necessarily mean unlawful (statutory/criminal penalties may also apply, but that isn’t our focus here)Categories:Common law illegalityContrary to public policy (courts have long recognized power to set aside a K in this case – Holman)Contrary to common law (e.g. contract to commit a tort)Statutory illegalityCommon law illegalityHolman v Johnson (1775, Eng.): No court will lend its aid to a man who found his cause upon an immoral or illegal act.Categories of contracts traditionally recognized as contrary to public policy/common law:Contracts injurious to the stateE.g. K with enemyContracts injurious to the administration of justiceE.g. K not to testify in criminal proceedingsContracts involving immoralityE.g. frequently K’s involving prostitutionContracts affecting marriage (restricting right to whom you can marry)K’s affecting who you can marry based on race/religionContracts to benefit from a crimeContracts to commit a tort or a common law wrongContracts in restraint of tradeCourts took very restrictive approach here due to general laissez faire attitudes (that it is in everyone’s best interest to have freedom of K)Liberal economic thinking = should not limit ability to engage in commerceThus restrictive covenants are prima facie unenforceable, since free trade/freedom of K is in the public interestException: restrictions can be allowed if they are reasonable (by time, activity and geography)Stricter scrutiny applied to employment contracts because of disparity in bargaining power, as opposed to restrictive covenant in the sale of a business, for example (KRG v Shafron)Notional v blue pencil severance:Notional = reading down the provision so that it isn’t illegalBlue pencil = scratch out individual words in order to avoid illegalityCasesKRG Insurance v Shafron (2009, SCC)Facts: Shafron left work with KRG, went to work in Richmond. Restrictive covenant said he would not work for 3 years in the “Metropolitan City of Vancouver. Reference to “Metropolitan City of Vancouver” was ambiguous and a restrictive covenant that is ambiguous is prima facie unenforceable.Issue: Can the court use severance to render an unreasonable restrictive covenant reasonable?Analysis: Restrictive covenant = restraint of trade – tension between this and freedom of KRestraint of trade is only allowed if it is found to be reasonable (balanced between private parties & interests of the public)K for sale of business versus employment K:More freedom of K in the sale of business than in the employment contextPublic policy requires that everyone work and not deprive themselves of the ability to work (via a restrictive covenant); whereas in buying/selling, it makes more sense for people to sell in the most advantageous way possible (which sometimes includes precluding competition with purchaser through a restrictive covenant)Goodwill payment: Often in the sale of a business – goodwill payment made to vendor to protect the purchaser’s business (i.e. no competition)Doesn’t apply in employment context (imbalance between employer/employee)Thus, more scrutiny of restrictive covenants hereAssessing reasonableness: Look at geographic coverage, time period, and extent of activities being prohibited, plus terms must be unambiguousNotional (reading down) versus blue pencil severance (removing part of a provision).Notional severance isn’t appropriate to cure a defective restrictive covenant – ONLY blue line severance can be used. Why?No objective “bright-line” rule that can be applied in all cases to render the covenant reasonable – this basically amounts to the court rewriting the KInvites overly broad restrictions by employer, increases risk of unreasonable K for employeeBlue pencil severance can only rarely be resorted to, where the part being removed is trivial and not the main purpose of the restrictive covenantHeld: Rejects using blue-pencil severance to fix geographical ambiguity (BCCA tried to “resolve” the ambiguity, but simply substituted what they thought would be reasonable – this is wrong). Ambiguity can’t be resolved, thus restrictive covenant is unreasonable.Principle: Courts will not use notional severance to save a restrictive covenant. Can only use blue pencil severance, and even then only in rare cases.Surrogacy contractsSome jurisdictions have found surrogacy K’s to be contrary to public policy (Baby M, 1988)Canada has legislation on this (Assisted Human Reproduction Act). Essential idea is that there is no commercial surrogacy in Canada. Someone can be a surrogate mother and be reimbursed for expenses, but cannot be paid income/work-related expenses for actual surrogacy. Canada’s Royal Commission recommended that Parliament prohibit surrogacy agreements as being incompatible with Canadian social values (concerns: commoditization of children/reproduction, detriment to the autonomy of gestational mothers, etc).Good e.g. of where legislation has intervened to address issue specificallyAlthough, the statute doesn’t address the common law status of a commercial surrogacy agreement. Also, there may be other issues related to surrogacy which aren’t addressed in the Act (donation of sperm, etc)What about donor anonymity? No jurisprudence on this. Open question.SexualityCourts had the power to refuse to enforce some contracts on the basis of immorality (e.g. unmarried cohabitation, prostitution) on the basis of infringing public policies on sexual moralityHighly unlikely that this would happen todayBrings in constitutional questions; while the Charter only applies to government action (and not between private parties), some contracts may either be enforced or not enforced because to do otherwise would conflict with fundamental Charter valuesE.g. Bruker v Marcovitz (2007, SCC): A wife cannot remarry under Jewish law unless her husband releases her via a Jewish divorce. Marcovitz agreed to release Bruker in a contract, so she could remarry; when he then refused, she sued him for damages. He claimed enforcing the contract would violate his religious freedom, but the SCC disagreed. Abella held that enforcing this agreement was consistent with public policy, protecting equality rights, dignity and autonomy of Jewish women, and the public benefit in enforcing valid contractual obligations.Statutory IllegalityStatutory illegality can arise in various ways, such as where contract:is expressly/impliedly prohibited by statuteis entered into with the object of committing an act prohibited by statuterequires performance contrary to statuteconfers benefits in violation of a statuteEasy cases:Criminal law (drugs, crime)Cases where the statute specifically states that “no contract shall be entered into…”Hard cases:Administrative infractions, trivial illegality and regulatory regimes where the statute does not address the effects of non-complianceE.g. in a regulatory regime, it may be an offence with a fine/prohibition attached – but this doesn’t necessarily mean a K would be unenforceableClassical approach:Such a K would be void since it is contrary to statuteRogers v Leonard (1973, Ont. HC): Sale & purchase of a cottage. Agreement signed on Sunday, contrary to statute (Lord’s Day Act). Vendor knew of the Act but was willing to ignore it as she was dealing with friends. When the vendor refused to complete (and presumably was no longer a friend), the purchasers sued.Held: Contract was illegal & void – contrary to statute.Modern approach:More contextual view (look to the purpose of the statute, etc)See Still v Minister of National RevenueTo determine the effects of illegality, courts must balance the gradations of offensiveness and the relative innocence of partiesCasesStill v Minister of National Revenue (1988, FCA)Facts: Still applied for permanent resident status in 1991 and assumed she was entitled to work. Still worked as a housekeeper from May to October 1993. She was granted permanent resident status on September 23, 1993. She was laid off on October 1, 1993 and applied for EI benefits, which were denied on the basis that her employment was illegal for the period of May to September.Trial: Court held she was not engaged in “insurable employment” because under the Immigration Act she was not entitled to work without a work permit (she could have applied for one, but didn’t).Held: FCA held she had engaged in insurable employment. No overriding public policy to justify a denial of benefits. Thus, Court took a more contextual approach.Analysis: Court acknowledged that there are now numerous exceptions to the traditional common law rule that illegal contracts are void ab initioTraces the long history of common law and statutory illegalityContracts can be either expressly or impliedly prohibitedContracts can also be illegal as to formation (i.e. prohibited by statute) or illegal as to performance (i.e. lawful in formation, but performed in a manner prohibited by statute)Courts have been more relaxed in the illegal performance of contracts – if EVERY trivial statutory illegality in performance rendered a K void, the result would be chaosExamines case law to show a shift away from the classic, rigid approach to illegalityModern approach: “Where a contract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party where, in all the circumstances of the case, including regard to the objects and purposes of the statutory prohibitions it would be contrary to public policy, reflected in the relief claimed, to do so.”Lots of discretion left to the courts (“a court may refuse…”)Policy: Courts will factor in the serious consequences of invalidating the K, social policy reasons for the prohibition (i.e. the legislative purpose), and the determination of the class of persons for whom the prohibition was enacted (i.e. who is the prohibition meant to protect?)This means if a statute prohibits the formation of a contract, the courts should be free to decide the consequencesStill’s employment was technically prohibited by statute, and would be illegal according to the traditional doctrine – but they took the modern approachPublic policy concerns here:A person should not benefit from his/her own wrongRelief shouldn’t be granted to a party if it would undermine the purposes of the statute at handStill acted in good faith, was not an illegal immigrant (she had PR status, could have applied for a work permit but didn’t because of a misunderstanding – important factors); thus, public policy weighs in her favour herePrinciple: Illustration of a modern approach to statutory illegality. The court takes a contextual approach and has lots of discretion as to whether to enforce the contract or not.Good FaithA traditional reluctance to recognize a duty of good faith in common lawEnglish common law has been resistant to recognize a general duty of good faith in performance of contractsInterfoto v Stiletto: Most other legal systems recognize overriding principles of good faith; common law, instead, has developed piecemeal solutions in response to problems of unfairness (rules around exclusion clauses/signed documents – also, doctrines of unfairness like duress, UI, unconscionability)The principle of good faith in contracts is well established in other legal systemsCivil Law – e.g. Civil Code of Quebec (everyone bound to exercise civil rights in good faith)US, Uniform Commercial Code (obligations of good faith)US, Restatement of Contracts (duty of good faith & fair dealing)UNIDROIT Principles of Int’l Commercial Contracts: requirement of good faith & fair dealing in international trade – parties cannot exclude/limit this liabilityCanadian law reform bodies have recommended that Canadian jurisdictions adopt the principleOntario Law Reform CommissionThe Academic DebateMost debate has been for the imposition of a duty of good faithFor:Many common law doctrines already recognize the doctrine, although not in name (i.e. courts imply terms that parties use “reasonable efforts”)Adoption of the doctrine will bring Canadian jurisdictions into line with expectations of contracting partiesAdoption of doctrine will bring Canadian jurisdictions into line with law in other jurisdictions (e.g. trading partners in the US/Quebec – reasoning in Bhasrin)Against:Uncertainty: good faith is too nebulousCommon law already has discrete rules to address particular forms of bad faith; piecemeal approach is better suited to the common law – preferable to a vague general standardComparative law analysis suggests the doctrine of good faith is problematic and there are dangers in incorporating doctrines from other jurisdictionsThe Content of Good Faith in Canadian Case Law pre-BhasinPre-Bhasrin, there was some (limited) acceptance by Cdn courts of a duty of good faith in performance of contractsGood faith imposes a duty to cooperate in achieving the objectives of the agreementE.g. conditions precedent: general duty that they be satisfied in order to achieve objectives of the agreementDynamic Transport v. OK Dealings (1978, SCC): Agreement for sale of land subject to CP of subdivision approval being obtained. Court implied a term that the vendor “use best efforts” to obtain approval (i.e. duty to act in good faith)Good faith as limiting the exercise of contractual discretionary powersIf discretionary powers are conferred by a K, courts have implied terms that discretion is to be exercised reasonably, honestly & in light of the purposes for which it was conferred (not arbitrarily or opportunistically)E.g. McKinlay Motors v Honda Canada (1989, Nfld)Good faith applied to preclude a party from evading contractual obligationsE.g. avoiding a restrictive covenant or rights of first refusal by incorporating related corporate entitiesMDS Health v King Street Medical (1994, Ont)Categories of contractual relationships where good faith requirements are recognizedInsurance: Contracts of utmost good faith (uberrima fides) – insured must disclose all relevant info & insurer must assess claims in good faithFranchisor-franchisee: Addressed by statute in some provinces (e.g. Alta – Franchise Act – imposes duties in fair dealing in franchise agreements)Employment: Duty of good faith and fair dealing in terminationSummary: Limited categories of contracts where courts have recognized good faithBhasin v Hrynew – Recognition of Duty of Honest Performance (see below)CasesBhasin v Hrynew (2014, SCC)Facts: Bhasin had a business agreement with Can-Am. Their relationship soured and his contract was not renewed. Can-Am basically colluded with a direct competitor of Bhasin’s to force Bhasin to give confidential business information to this competitor, and basically screwed him over and out of business. Bhasin sued, alleging a breach of an implied duty of good faith in their agreement.Held: Can-Am repeatedly and intentionally misled Bhasin. The court articulated a new duty of honesty in contractual performance and held Can-Am liable for damages.Principle: General recognition by SCC of a “duty of honest performance”General organizing principle that underpins more specific legal doctrines (not a doctrinal principal)Definition: “This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.”Important points:It is limited to performance only (not negotiations)It isn’t a duty of loyalty or disclosure (parties aren’t expected to abandon their own self-interest)It is a contractual doctrine like unconscionability (not an “implied” term)You can’t exclude it (also like unconscionability)Breach of this duty gives rise to damagesWhat does this mean for lawyers advising clients?Unclear as to how far this duty extends (outright lies are forbidden, but what about failure to answer questions? Silence?)Parties may want to add clauses to a contract detailing standards of performance to modify the duty (since it can’t be excluded outright)Will be context-dependent and depend on specific types of situations & relationshipsHowever, court still recognizes that the duty applies to all contracts“The general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.”A basic level of honest conduct is necessary to the proper functioning of commerce, whereas misleading/deceitful conduct is counter to the expectations of the partiesApplies equally to relational contracts (e.g. long-term supply agreement) and one-off, transactional exchanges (typical sale of goods)Policy concerns: Always, the touchstone of reasonable expectations of the parties, versus the importance of private ordering and certainty in commercial affairs. Some critics say commercial certainty will definitely suffer due to this duty.Generally, this organizing principle manifests in existing doctrines about situations and relationships where the law requires honest performance (but this list isn’t closed)Allows for incremental developments in this areaCan apply in many circumstances – requires a highly contextual approach (so applies equally to long-term versus transactional exchanges, but implications may be different – different standards of trust/cooperation required). Probably a higher duty required in a long-term relationship versus a transactional exchange.Thus, the duty of honest performance should not be thought of as an implied term, but rather as a general doctrine of contract law that imposes a minimum standard of honest contractual performanceThus, it is a rule of law that exists irrespective of the intentions of the parties. You cannot contract out of this minimum standardExclusion clauses cannot exclude the duty to act honestly (just like parties can’t exclude liability for unconscionable conduct)Ratio: Courts recognize a duty of honest performance in contracts (however, it is a general principle, not a legal doctrine, and doesn’t apply to the negotiating process, etc).Consumer ProtectionPolicy behind Consumer Protection“Seller beware”, rather than buyer bewareIdea that challenges the liberal assumption that rational, autonomous individuals enter contracts to maximize self-interestTargets information failures and enhancing truth in marketingIdea that if we provide consumers with more info, they’ll make better/rational decisionsAddresses market failure and disparities between sellers/consumers in knowledge, bargaining power and resourcesEconomic rationales for govt interventions in the consumer marketplace:Prevent monopoly (ensures competitive marketplace)Regulation of product safety hazards/pollutionAddresses information failures (prohibits fraud/deception, mandatory disclosure requirements, etc)Supply consumer educationNon-economic rationales:Paternalistic concerns (transactions may not be in a consumer’s long-term interest: capacity issues, protecting vulnerable/gullible consumers, unconscionability, etc)Redistributive concerns (interest rate regulation, rent controls, etc)Sale of Goods ActFocuses on substantive rightsExamples: that a good is fit for purchase and is of merchantable qualityConsumers thus have a statutory right that a good is fit for its intended purposeHowever, only applies to goods, not servicess. 20: No waiver of warranties or conditionsDoes not apply to primarily business/commercial purposesThese rights cannot be waivedAny term/contract that tries to waive these rights is voidBusiness Practices and Consumer Protection ActFocuses on procedural rightsVery wide definition (consumer, consumer transaction, supplier)Reversed burden of proof is on supplier for any allegation of deception or unconscionabilityLike the Sale of Goods Act, these rights cannot be waivedThe BPCPA also deals with door-to-door sales, unsolicited goods, internet sales, credit/debt collection, contracts for gym/dance memberships and weight loss (areas where people have historically been taken advantage of)Remedies: Can bring an action for damages or an injunctinoNB: Make sure to distinguish between a consumer situation and a purely business to business situationDefinitions (s. 1)Applies to consumers (i.e. an individual participating in a consumer transaction), NOT business to business transactions, or profit-making venturesConsumer transaction: Supply of goods/services/real property for purposes that are primarily personal, family or householdOr a solicitation, offer, advertisement or promotion by a supplier with respect to a consumer transactionSupplier: A person who supplies goods, services or real property to a consumer, or solicits, offers, advertises or promotes material regarding a consumer transactionThis relationship is not dependent on privity of contractWaiver (s. 3)These statutory rights CANNOT be waivedDeceptive acts or practices (s. 4)Definition: Any a) oral/written/visual representation made by a supplier, or b) conduct by a supplier, that has the effect or capability of deceiving or misleading a consumerRepresentation includes any term in a contract (or any document used in connection with a consumer transaction)Timing: Can occur before, during, or after the consumer transactionList of what constitutes a deceptive act or practice:(a)?a representation by a supplier that goods or services(i)? have sponsorship, approval, performance characteristics, accessories, ingredients, quantities, components, uses or benefits that they do not have, (ii)? are of a particular standard, quality, grade, style or model if they are not, (iii)? have a particular prior history or usage that they do not have, including a representation that they are new if they are not, (iv)? are available for a reason that differs from the fact, (v)? are available if they are not available as represented, (vi)? were available in accordance with a previous representation if they were not, (vii)? are available in quantities greater than is the fact, or (viii)? will be supplied within a stated period if the supplier knows or ought to know that they will not; (b)?a representation by a supplier(i)? that the supplier has a sponsorship, approval, status, affiliation or connection that the supplier does not have, (ii)? that a service, part, replacement or repair is needed if it is not, (iii)? that the purpose or intent of a solicitation of, or a communication with, a consumer by a supplier is for a purpose or intent that differs from the fact, (iv)? that a consumer transaction involves or does not involve rights, remedies or obligations that differs from the fact, (v)? about the authority of a representative, employee or agent to negotiate the final terms of a consumer transaction if the representation differs from the fact, (vi)? that uses exaggeration, innuendo or ambiguity about a material fact or that fails to state a material fact, if the effect is misleading, (vii)? that a consumer will obtain a benefit for helping the supplier to find other potential customers if it is unlikely that the consumer will obtain the benefit, (viii)? that appears in an objective form such as an editorial, documentary or scientific report if the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or promotion, or (ix)? to arrange for the consumer an extension of credit for a fee, unless the fee is deducted from the advance, as defined in section 57 [definitions]; (c)?a representation by a supplier about the total price of goods or services if(i)? a person could reasonably conclude that a price benefit or advantage exists but it does not, (ii)? the price of a unit or installment is given in the representation, and the total price of the goods or services is not given at least the same prominence, or (iii)? the supplier's estimate of the price is materially less than the price subsequently determined or demanded by the supplier unless the consumer has expressly consented to the higher price before the goods or services are supplied; (d)a prescribed act or practice.Unconscionable acts or practices (s. 8)Unconscionable act by supplier may occur before, during or after the consumer transactionIn determining unconscionability, court must consider all surrounding circumstances that the supplier knew or ought to have knownLists circumstances that a court must consider (undue pressure, taking advantage of physical or mental infirmity, ignorance, illiteracy, age, or inability to understand the transaction, whether price grossly exceeded what would be charged elsewhere, if there was no reasonable probability that full payment would be made by the consumer,or if terms or conditions were inequitable).s. 9, Prohibition and burden of proof (1) A supplier must not commit any unconscionable acts or practices in a transaction. (2) If unconscionability is alleged, the burden of proof to disprove allegation is on the suppliers. 10, Remedy for an unconscionable act or practice (1) Subject to sub 2, an unconscionable transaction is not binding (2) Gives specific remedies in respect of unconscionability in the context of a mortgage loanCasesRushak v Henneken (1991, BCCA)Facts: Plf bought a used car. Df knew history of the car, that it came from Germany and would likely have rust. They recommend she take it to a Mercedes Benz dealer for a rust inspection, but he nonetheless told her it was a good car & one of the best of its kind in Vancouver. She had it examined by another guy but not by a Mercedes Benz dealer. She bought it, then a year later wanted to sell it but found it so badly rusted that it cost over $10,000 just to repair rust damage.At trial: Judge held that df didn’t fall below the common law standard of care, but he had committed a “deceptive act” per the BPCPA (a representation/exaggeration as to a material fact). Need not involve deliberate deception; must simply have the capability to deceive (his opinion may have been honestly held, but still totally wrong)The point of this legislation is for the welfare of the consumer, to allow them to make proper judgment; the supplier thus owes a duty of candour to the consumer to disclose all material facts (context-specific)Broad scope of the Act (“any sort of potentially misleading statement”) – very different form the usual common law caveat emptor approachIssue: Was his use of laudatory language a “deceptive act”, given what he knew about the car’s history and the probability of rust?Analysis: He should have known that just expressing is opinion, w/out qualifying it, might mislead herA deceptive act leads to an “error in judgment”The intention really doesn’t matter – even if they behaved honestly, if the effect is deceptive, then it contravenes the statuteThus, what used to be “puffery” on the part of salesmen can now give rise to legal consequences under the statute (especially if the salesman knows something important, like a potential defect, and doesn’t say anything)The defendant gave an honest opinion, but he also knew that his opinion might be wrong, and didn’t tell her thatJust because he told her to have the car looked at by others doesn’t change the fact that is statement was misleadingPrinciple: If a seller has evidence suggesting a possible defect, they cannot give their honest opinion without qualification, otherwise this will be misleading and could lead to an error in judgment on the part of the plaintiff.Loychuck v Cougar Mountain (2012, BCCA)Facts: Old student of Newcombe’s! Clients collided on zipline. Cougar Mountain admitted negligence but argued they had waived their cause of action by signing the release.Issue: Was the waiver of liability enforceable?Held: Yes. Iron clad release, very thorough, not unconscionable.Analysis: It is neither unconscionable nor contrary to public policy for a recreational sports facility to have such a waiver.In the unconscionability analysis, they considered that one party was a law graduate, and the other ran a gym where she frequently had people sign similar waivers – thus inequality in positions wasn’t really an issueThere was no pressure on the plfs to participate in the activity, and it was not unreasonable for the df to try and protect itself from liability – no public policy grounds to refuse to enforce thisPublic policy: Plfs argued that such a waiver is contrary to public policy because the activity was totally within the control of the operator (unlike skiing)No overriding public policy to not enforce this waiverThese kinds of releases have been consistently upheldThe plaintiffs knowingly and voluntarily entered into the agreement and decided to engage in an inherently risky activityThe standard for unconscionability is very high & courts will rarely use that discretion (food supplier knowingly selling toxic products to public, etc)Courts will find this if the party seeking to rely on the exclusion clause “either knew it was putting the public in danger by providing a substandard product/service, or was reckless in doing so” – i.e. reprehensible conductBPCPA: Plf argues there is a lower bar for unconscionability under the statute than there is at common law, but court says the tests are basically the sameBurden of proof that the K is not unconscionable is on Cougar Mountain. They satisfied this burden by showing the appellants knowingly & voluntarily signed the release in order to participate in zip lining.Deceptive statements cannot be pleaded in the abstract. Plfs pointed to potentially deceptive statements on the website, but no evidence that they actually looked at or relied on advertising materials on the website. There was still a requirement for reliance (because if they didn’t rely on it, then it wasn’t a representation)Consideration: Their consideration was being allowed to actually do the zip lining when they signed the waiver. Thus it doesn’t fail for want of consideration.Concerns: Lots of law reform that says these kinds of waivers for physical injury should not be allowed, and the risk of injury from negligence should stay on the operator Principle: It is not unconscionable for the operator of a recreational-sports facility to require a person who wishes to engage in activities to sign a release that bars all claims for negligence against the operator or its employees. If the person doesn’t want to participate on that basis, then they are free not to engage in the mercial Practice & Contract DraftingWill be either issue spotting – i.e. someone comes to you with a draft contractOr, someone comes to you with a K and is asking your advice regarding to a particular provision and you are reacting to that in the context of the contractOr, a couple of contractual provisions where there are fairly obvious errors based on the facts, and you are asked to identify those errors (again, issue spotting)E.g. huge ambiguity – the limitation of liability clause covers limits for physical injuries, but doesn’t say anything about economic injuryProblematic: Tercon says we interpret this, will use contra proferentum, so I will advise my client to tighten up the language hereJohn McLeodRepresenting tenant in a commercial lease agreementSophistication of parties is importantMarket conditions are important in commercial lease agreements: lots of space, lots of options for rent and more leverage to negotiateFrom the landlord’s perspective in the lease, they want as many rights as possibleBig danger for the landlord is tenant’s business not going well (cash flow problems – might leave in the middle of the night with all the stuff so landlords can’t claim the inventory)Add phrases like “acting reasonably” except where there is: a breach by the tenant (don’t want to be told be reasonable in this case)usage of common areas in the mall (landlord doesn’t want to be told how to run the mall)This agreement had a restrictive covenant (you aren’t to operate another store that competes with the store within a certain radius of the malls. Dropped from 4 to 2 km, for 5 years). Time, nature of business and area specified.Minimum rent (per square foot), additional rent (insurance, taxes, maintenance), percentage rent (extra money paid to landlord if business is going well)Be specific – i.e. business days, instead of just “days”“General prohibitions” – things you can’t do (e.g. fancy mall doesn’t want a pawn shop)“Alterations/fixtures” – tenants’ ability to mess around with the premises, and landlord’s ability to change the shopping mall. Fixtures: Landlord can seize fixtures to reduce liability of tenant if lease is terminated prematurely, etcAlterations: Adds conditions for what happens if the landlord is doing work to the premises (can’t impair access/visibility to the premises, affect tenant’s business, etc. If tenant can’t reasonably operate its business for 9 months due to interference, it may terminate the lease).Michael Litchfield5 Cs of drafting:Clear – plain language/short sentencesConcise – No redundancies/repetitionComprehensive – everything important is expressed/legal requirements metConsistent – defined terms are used properly/consistentlyConnected – logical order, deal with each topic only onceDon’t mix up “will/shall/agrees to” – courts might interpret them to mean different thingsForm:Legal form: are signatures always required? Think about evidentiary rulesStatutory form: BPCPA has form requirementsCustomary form: title, cover page, table of contents, etcOperative provisions: payment, and root of contract – what is the K trying to do?Representation: A statement of fact upon which a party is meant to relyMeant to ascertain facts & allocate riskRep’s as to the contract, subject matter, and parties ($ condition, etc)Warranty: A party’s assurance as to the fact, coupled with an implicit indemnificationCovenants: Ongoing promises by a party to take or not take certain actions (affirmative, negative, and financial – to maintain certain financial conditions)Condition precedent: Must be performed before the agreement becomes effective, calls for the happening of some event/performance after K has been agred on but before it becomes binding on the partiesCP must be clear, precise and objective (otherwise the K will still basically be in the “offer” stage, i.e. not certain enoughThese can be waivedBasically a way for a party to get out of a deal if something doesn’t happen (common CPS are authority to purchase, third party consent, all reps/warranties being true, etc)Remedial provisions: Usually set out a triggering event (e.g. breach of warranty) and a remedy (termination of K, indemnification, damages)Not required, but a good ideaLimitation of liability: Reduces/eliminates a party’s liability for damages / Indemnity clause commits one party to compensate the other in case of loss arising from the agreementKey elements to include are the party receiving the benefit, the party agreeing to the limitation, and the liability being limited, as well as the categories of damages (i.e. not just physical) and the amount of limitationExample: Under no circumstances is the company liable to the client or any 3P for claims, losses, costs or damages, including damage to persons or property, arising from performance of this agreement. Not liable for ANY DAMAGE WHATSOEVER arising from the contract.Tercon: these clauses are enforceable (unless unconscionable or overriding public policy reasons)Anticipate possible conditions to limit, use plain language, specifically address negligence (use clear language if you want to limit liability for negligence), be aware of exceptions to enforceabilityCourts are less harsh towards indemnity clauses, but will still narrowly construe them in favour of the indemnifying partySpecificity: “It” – who does this refer to?Refer specifically to periods of time (or “as soon as is reasonably practicable”), business days versus non business days, etcDelete unnecessary words, use the active voice, be consistentLaylee RohaniInvestigation about the business (due diligence):Any risks involved?Authorization forms to get information regarding the businessDocument list (checklist of due diligence searches)CRA searches (assets clear of any charges?)Worksafe BC (unsafe working conditions?)Corporate search (business in good standing?)Municipal searchesDrafting/negotiation of terms:Buyer’s lawyer almost always drafts contractDefinitions sectionSection describing assets (i.e. what is actually being bought?)Restaurant plus all equipment/machines/furniture, for exampleBusiness licence includedGood will of the business – value attached to the name of the franchise (separate from the purchase price itself: not taxable, plus this amount goes to the franchisee itself, not the seller, who just has a licence to use name)Inventory: Take stock on last day and include value in the purchase priceRepresentations/warranties: Make sure all seller’s obligations are paid off, no charges on assets, no actions/proceedings ongoing – wants to make sure buyer takes business on a clean slate – does searches for this, but ALSO puts in a warranty to that effect, to protect the buyerFranchise: Certain requirements before buying (2 week training course, financial obligations, licence and payment to use the name)Covenants: Another way to protect buyer – rely on covenants to ensure seller maintains business and all assets being sold intact until buyer takes themEmployees: Ensures buyer is taking employees on clean slate (no unpaid obligations re: severance, holiday etc)Conditions: Usually, big section with conditions precedent before buyer is willing to pay the purchase price (lease agreement, franchise agreement, want to make sure all representations/warranties made in the agreement are just as true on closing date). All CPs must be satisfied or waived by closing date. Protects buyer in case big chain refused franchise agreement at the 11th hour (buyer is protected and doesn’t have to go through with the agreement)Closing: Provision on what is involved on closing the transactionRestrictive covenants: Very normal in business transactions – “non-competition agreements” (wouldn’t help buyer if seller opened competing business next door)Can be difficult to enforceMust pay attention as to what is “fair and reasonable”Can’t restrain seller’s ability to earn a living – needs to be limitedWhat is being restrained (e.g. trade), what is the area (e.g. city of Victoria – must be clearly defined), what time limit (e.g. 2 years)Reasonableness varies, depending on nature of transactionClosing of transaction: Closing agenda (checklist of documents required to convey title)Officer’s certificate – representations/warranties guaranteed as of closing date, agrees covenants/conditions have been complied withLays out the consideration, the conveyance of title, the actual breakdown of money owed and paid, do all the mathWorking with Contracts: What Law School Doesn’t Teach YouThe Lawyer’s FunctionsUsually the party with the most to lose will draft the contract (e.g. buyer in a deal – wants to have a lot of conditions/representations as to the business)Make sure client carefully reads/confirms all representations and warrantiesAdd exceptions to the representations, if need beCovenants: make sure client understands the scope and practical effect of the covenantConditions precedent: make sure they are not too onerous/difficult to satisfy, or the deal will never closeUse words like “reasonably” to avoid a purely subjective standard (i.e. to their “reasonable” satisfaction)Use “best efforts” language (for things like third party deliveries) so the deal can close even if the delivery wasn’t made, as long as best efforts were madePrinciples of Effective DraftingShould be clear and simple. Contracts are about determining what two parties agreed to, and boiling it down to words.Precision: Weaknesses/ambiguities can lead to litigation (remember, contra proferentum)Antecedents: Be careful! Who does “it” refer to? Repeat the party (say “buyer”, instead of “it”) just to be extra clearTime references: Specify days (business or non), even hours, or “as soon as is practicable” if actual days can’t be specifiedLegalese is sometimes necessary, but avoid wordinessSimplicity: Avoid undue complicationKeep sentences short, use the active voiceDelete unnecessary wordsBe consistent (love the hobgoblin!). There is no such thing as too much consistency. Otherwise, there is space for ambiguity and differing interpretations.RemediesPrinciples of Remedies and DamagesRemedy for breach of K = damages, and nothing else (exception: equitable remedies sometimes available, e.g. injunctions/specific performance).Assumptions:There is a contractA term has been breachedThere is no excuse/defence to that breachRemedy:Common law damages based on economic losses (usually expectation damages - $)Can also be intangible losses (e.g. promised vacation, wasn’t great, psychological suffering)Limiting principles: remoteness and mitigationThe goal is compensation, not punishmentMoney remedies: left to plaintiff to effect judgment (may need to try to seize assets, etc)Coercive remedies: enforced by power of court (e.g. specific performance of contractual obligations, or prohibiting behaviour through an injunction)Holmes, The Path of Law (1897): “The duty to keep a contract at common law means you must pay damages if you do not keep it – and nothing else.”It is morally neutral – either perform or pay (usually not infused with ethics)Posner, Economic Analysis of Law (2003): It may often be uneconomic to require performance once a K has been broken (wasting resources, etc).Instead of requiring performance, K law usually just requires damagesIdea of an efficient breach (i.e. the profit of a party’s breach actually exceeds profit from completing the K)Categories of damages: restitution, reliance, and expectationInterestPurposeMeasureJusticeRestitutionPrevent unjust enrichment to Δ (gives back to π whatever they transferred to the Δ)Benefit to ΔCorrectiveReliancePrevent harm to π (puts π in position as if they had not entered into K)Loss to πRestorativeExpectationSecure benefit to π (puts π in position as if K had been completed)Expected π benefitDistributiveExpectation Damages: These are the default measure in K law.Definition: “The party complaining should, so far as it can be done by money, be placed in the same position as it would have been if the contract had been performed.”Fuller & Perdue, The Reliance Interest in Contract Damages (1936):Expectation damages protect reliance interests of non-breaching partiesMost effective sanctionEasier to calculate expected benefit than measure reliance (difficult to quantify)Policy: favours promoting/facilitating reliance on business arrangementsPromotes market ordering – gives future entitlements present valueWe want people in a free market to plan into the future, invest, allocate future riskCost of performance: This is the normal measure of expectation damagesExample: seller fails to supply goods –measure difference between the contract price and the (higher) current market price, plus any incidental costs/lossesIf buyer can buy substitute which is same as contract price, damages will be nominal (no actual losses suffered). This is the mitigating aspect of damages.If no faulty performance, expectation damages are measured by the difference in value between what was contracted for and what was receivedMust measure the difference between what was promised and what was actually obtained (can be very hard to measure)Remember, when we are talking about damages, REMOTENESS and MITIGATION are always at issue. Defensive arguments; the breaching party usually claims damages are either too remote, or the plaintiff didn’t properly mitigate.Reliance DamagesUsed when expectation damages are too speculative/uncertain.Shifting burden of proof: Plaintiff proves prima facie caseCasesMcRae v. Commonwealth Disposals (1951, Australia H.C.)Facts: Contract for salvage of ship. Salvager goes, turns out there is no ship – Commission made a reckless mistake.Issue: Can McRae claim expectation damages?Held: No. Too uncertain (what was contracted for didn’t exist). Used reliance damages.Reasons: Boat didn’t exist – and even if it did, no guarantee it would have value. Thus expectation damages too speculative/uncertain.Different from loss of chance (no quantifiable value to the potentially salvageable ship, whereas a prize has a quantifiable value – e.g. Chaplin v. Hicks)Plaintiffs show an expense was incurred in reliance on the promise of a tanker, and they suffered losses because the tanker doesn’t actually exist. They make a prima facie case. Burden then shifts to defendant (to prove that if there had been a tanker, expenses incurred would have equally been wasted). Defendant obviously can’t do this.Plaintiffs allowed to claim reasonable wasted expenses (not capital expenses like navigating lights that they needed anyway, but some loss of revenue/opportunity expenses, plus some travel expenses, crew’s wages and office expenses)NB: Conceptually, once you add lost opportunity to your reliance measure of damages, then reliance damages and expectation damages may be functionally equivalent Principle: If expectation damages too speculative, court may award reliance damages, but only for reasonable wasted expenses.Anglia Television v. Reed (1972, Eng. CA)Facts: Anglia making movie production for TV, Reed (Brady Bunch actor) agreed to play leading role. Reed backs out and Anglia can’t find replacement. Anglia abandons production and claims for wasted expenditures made both before and after Reed had agreed to play the leading role.Held: Court awarded reliance damages for production expenses both before and after Reed’s K.Reasons: Here, expectation damages too speculative/uncertain (impossible to know how popular movie would have been/how much it would have earned – could’ve been bust or a jackpot)Objective test – plaintiff knew, or should have known, that Anglia was in pre-production and were relying on him. Thus he was liable for some reliance damages even before he signed KCritcisms of this – were expenses really “reasonably contemplated? (He entered K and backed out 3 days later, they still had a month before filming – couldn’t find substitute?Principle: 1) Plaintiff can elect between expectation damages (lost profits) and reliance damages (wasted expenditures). 2) Remoteness test: Plaintiff can claim expenditures incurred before the K, provided that it was such as could reasonably be in the contemplation of the parties as likely to be wasted if the K was broken.” (Usually plaintiffs will claim expectation damages – biggest possible payout – then court will assess, but may reject like McRae b/c too speculative, and award reliance instead)Bowlay Logging v. Domtar (1978, BCSC)Facts: Domtar owns timber rights and contracts with Bowlay to log. Domtar also agrees to provide logging trucks. Partway through K, Domtar fails to provide trucks (breaches K). Bowlay claims breach of K, claims for its losses.NB: Aggressive litigation strategy! Expected benefit was $150,000 but they had already spent $232,000 – Bowlay was bleeding money and should’ve been happy to get out of KInstead, said Anglia tells us we can elect, so we elect reliance damages (and thus asked for $232,000 – the amount they were out of pocket)Held: Bowlay would have lost money on the K either way. In fact, they would’ve lost even more money had Domtar not breached the K. Thus, no damages awarded.Key fact: Domtar proved Bowlay would have lost money anyway (if Reed had proved a similar thing in Anglia, then no damages would have been awarded)Principle: Damages are to compensate for losses. However, if it can be proven that the plaintiff would have lost $ even if the K had been performed, then no recovery for what would’ve been lost.Policy: Remedies can’t provide compensation for those who enter into bad dealsSunshine Vacations v. Hudson’s Bay (BCCA, 1984)Facts: HBC breaches K with Sunshine for operation of travel agencies in HBC stores.Held: Awarded reliance damages (wasted expenditures of $195,000).Principle: Analogous to Anglia – Sunshine established that it had incurred a loss resulting from the breach of K, however could not establish loss of profits. Burden of proof shifts to HBC, who cannot prove that Sunshine would have lost money in any event (unlike in Bowlay). Thus, reliance damages.NB: Avoid double recovery (expectation and reliance damages are alternatives. Can’t usually award both)Loss of a ChanceMust be some degree of certainty to award expectation damages (McRae)However, an element of guesswork won’t always prevent expectation damages (Chaplin)If loss of a chance can be quantified to an extent, then not too speculative (Chaplin)Modern application: Often in land development contracts (level of uncertainty about obtaining rezoning or development permission). Example: defendant is required to do everything to obtain sub-division approval, fails to make best efforts, and plaintiff sues for loss of chance. No 100% guarantee that approval will be obtained (discretionary), but evidence can be adduced re: probability of success (e.g. expert says this type of subdivision is approved 70% of the time).4 requirements set out belowCasesChaplin v. Hicks (1911, Eng. CA)Facts: Hicks advertised a beauty contest. 12 winners would be selected and hired as actresses for a 3 year term. Plaintiff was selected as one of 50 finalists for one of 12 prizes, but defendant failed to properly notify her and was held to have breached the K.Issue: She could have received hundreds of pounds through prize, but she could also have ended up with nothing. Defendant argues that damages were impossible to assess.Held: Jury awarded 100 pounds – CA upheld (about one seventh of total jackpot, 750 pounds).Principle: The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages for his breach of contract.Folland v. Reardon (2005, Ont. CA)Principle: If a contract is breached, you are entitled to damages (strict liability, in this sense – you simply need to prove the breach. Though if no real loss, then damages may be nominal).Court identifies four requirements for obtaining damages for loss of chance:Plaintiff must show that it lost a chance due to defendant’s conduct;Chance must be sufficiently real and significant to rise above mere speculation (no specific percentage of probability. Chaplin was only 1 in 7);The outcome did not depend on plaintiff’s own conduct;The loss of chance must have some practical value.Cost of Completion v. Difference in ValueTwo different approaches to award expectation damages:Cost of Completion: The cost of buying substitute performance, including undoing any defective performance.Difference in Value: The market value of the performance the contract breakers undertook, minus that actually given.Possible middle ground – compensation for consumer surplus (see Ruxley Electronics)POSNER? Groves – didn’t ask for specific performance!CasesGroves v. John Wunder (1939, US)Facts: Lease/contract for removal of sand and gravel. Property to be left at uniform grade, but this wasn’t done. Cost of performance = $60,000. Entire market value of property if K had been properly completed = $12,160. Cost of performance is five times the market value of the property.Issue: Should plf get the difference in value, or the cost of performance for the work left undone?Majority: Cost of performance Policy considerations: Defendant’s breach was deliberate (bad faith, can’t favour faithless contractor). Must protect plaintiffs’ rights to contract and build for the future.Lack of value in land does not absolve the breaching party of the consequences of his breachNo unjust enrichment – they decided to enter K! Proper measure is the work promised, not the land value“Ugly statue” scenario (man may do what he wants with his land – just because statue is ugly/worthless doesn’t mean contractor can deliberately breach)Economic waste: Court will not order cost of performance where it is grossly out of proportion to the good to be attained (does not apply here; usually only the destruction of a substantially completed physical structure)Dissent: Difference in valueCost of performance out of proportion to value gained (windfall – 500% more)Property has no unique value to plaintiff (cost of completion only applicable if some special or particular use to the plaintiff)Goal in damages is compensation, not punishment of bad faith contractorNot fair that he gets the market value and also still ahs the title to the landNB: Plaintiff didn’t bring an action for specific performance! He didn’t even use the money to actually do the work which the defendant left undone. Wrong measure of damages – this was an efficient breachPeevyhouse v. Garland (1963, US)Facts: Mining lease, 5 year term. Garland has right to engage in strip-mining on Peevyhouse’s property. Peevyhouse entitled to royalties on coal extracted. Reclamation clause (restorative work after mining) not completed by Garland. Cost of reclamation: $29,000. Diminution in value: $300. Majority: Difference in valueCost of performance not proportionate to value gained (almost 10 times as much)Windfall for Peevyhouses if costs of completion awardedPeevyhouses admitted they wouldn’t remediate anywayReclamation clause incidental only (main purpose of K = extraction of land)Minority: Cost of performanceSanctity of K (Garland = coal company, sophisticated commercial entity)Reclamation clause essential, not incidental (plaintiff had given up $3000 payment for this)Unjust enrichment for coal companyFair – not a surprise (defendants knew what they were getting into, should abide by K)Policy: Majority is basically rewarding opportunistic conductRadford v. De Froberville (1977, UK)Facts: Plaintiff sells part of land to defendant and parties enter K where defendant agrees to build a fence. Fence would have no effect on value of land. Nonetheless, court orders damages based on costs of performance (i.e. building a fence) rather than difference in value.Principle: Sale of property implicitly included price of fence (otherwise plaintiff could have built fence himself and sold property at higher price) so cost of performance order is fair.Plus, if no damages awarded, then basically no recourse for plaintiff (policy considerations)Privacy implies non-economic significance (no difference in value, but privacy was imp.)Court said erection of fence was an essential part of K (courts play with language like incidental/essential – this is just judicial rhetoric)Ruxley Electronics (1996, House of Lords)Facts: Swimming pool is constructed 9” too shallow. Two extremes: award nothing (no diminution in value), or award cost of performance to rebuild pool (21,560 pounds).Held: Awarded 2,500 pounds (middle ground)Principle: Court recognizes concept of consumer surplus: personal/subjective value a person places on something over and above market valueMinor deviations from K may have no effect on market value, yet householder places value on it and is thus entitled to it (something to make house more comfortable, convenient, suited to their tastes, instead of just based on market value)RemotenessRemoteness: The “ripple effect” of a breach of K – where to stop the ripple?Policy: Reasonable expectations versus unfair surpriseThe rule in Hadley v Baxendale: Entitled to damages if:arising naturally (i.e. in the usual course of things); orin reasonable contemplation of the parties (as a result of the notification of special circumstances) Unified test: Were damages in the reasonable contemplation of parties – either because they should have been in the usual course or because of the communication of the (special) circumstances?Effect of Hadley v Baxendale:Changed the law on damages (previously, a factual matter determined by juries)Now, court establishes a rule for more certainty/predictability re: damages for K breachDanzig, Hadley v Baxendale: A Study of Industrialization of LawEconomic context (1854): industrialization, emergence of rail transport, liability of carriers (i.e. Baxendales of the world) was of considerable economic significance Baxendale as a defendant is personally liable (not a company) – concerns hereConcern with protection of capital and promotion of investmentNo insurance – limited ability for people to insure against risksJudiciary: thinking about classical liberalism, protect yourself from risks by contracting in the marketFloodgates concern: economic losses from large damages claimsDanzig’s thesis: this is a judicial innovation in an age of industralizationStandardization of law (ensuring same standard to be applied by juries)Centralization of power (elite, central, London-based judiciary taking power away from local juries – who would have been composed of local merchants like Hadley) – idea of controlling juriesMass production of judicial products – lots more cases are coming throughThis was an innovation – not based on any authorityCasesHadley v. Baxendale (1854, UK)Facts: Foundational case on remoteness. Miller ordered crankshaft (old broke). Breach of K – shaft did not arrive on time, and days of production were lost in the mill. Hadley claimed lost profits on those days of production.Issue: Can plaintiff recover for days of lost profit?Held: Lost profits not recoverableReasons: Establishes two part test – imputed knowledge (part 1) or actual knowledge (part 2).Unfair to impose an unknown risk of lost profits if that risk wasn’t allocated expressly in the contractThere could be other reasons why the mill had stopped, or maybe there were other replacement shafts on hand (defendant couldn’t be reasonably expected to know that the delay in the shaft being delivered would mean the mill was stopped entirely in production)Thus wouldn’t arise naturally in the defendant’s contemplation, plus no communication of special circumstancesNB: Plaintiff would have to have expressly told defendants that the mill would be waiting on this new crank shaft. Clerk was told but failed on technical issue of agency law (notification did not pass on to Baxendale)Principle: Establishes test for remoteness (see above).Victoria Laundry v Newman Industry (1949, Eng. CA)Facts: Plaintiffs buying boiler from defendant engineering company for dyeing business, boiler damaged prior to delivery, delay, plaintiff claims lost profits.Held: Hadley test applied – court grants lost profits.Reasons: Seems a very analogous case to Hadley – failure to properly deliver an implement necessary for commercial activity – but different resultLost profits were in the reasonable contemplation of the defendant: expertise (defendant had knowledge of plaintiff’s products), defendant not a public carrier (not simply delivering good, also selling it), and the product itself (launderers clearly need a boiler to heat water and clean clothes and do their business)Defendants knew the plaintiffs were launderers and dyers & they required the boiler for use in their businessThink about the nature of the product and the nature of the business (and what would the parties reasonably assume about the product – would the business stop waiting for it?)Sellers/buyers generally have better knowledge of each other than general carriers would (they are simply transferring something from A to B)Victoria Laundry lost a) normal contracts, and b) special lucrative contracts from the Ministry of Supply – court allowed recovery for normal lost profits, but not for the special, particularly lucrative Ks (because no communication of those special, lucrative contracts) – normal contracts could reasonably be assumed, but not the special ones (unless actual communication)So Court can “slice and dice” losses – pick which ones are in the reasonable contemplation of the parties, and which ones are notPrinciple: Application of Hadley test. Categories where lost profits are usually awarded (if something is “obviously a profit-earning chattel”, e.g. ship) or where they usually aren’t awarded (e.g. if defendant is just a carrier – Hadley)Scyrup v. Economy Tractor Parts (1963, Man. CA)Facts: Plf purchased tractor attachment from df. Made it plain that he needed it in a hurry for an upcoming job. The attachment delivered was broken, problematic, and the plf’s job was cancelled. Plf sues for loss of profit that he would have earned on the job.Majority: Applies Hadley (two branch test) and Victoria Laundry (emphasis on reasonable foreseeability & knowledge, either imputed – sufficient for 1st branch of test – or actual – required for 2nd branch of test)Plaintiff satisfies on both branches of testBreach would in the ordinary course of events result in loss of profits, plus plaintiff actually communicated the special circumstances about the upcoming jobDissent: Says that reasonable foreseeability of lost profits is not made outPolicy: To saddle the defendant with liability for lost profits, the information communicated must be VERY specificNot sufficient to simply say “I need it for a contract”; must specify the type of work, magnitude of operation, etc (e.g. K worth only $100 or $100,000?)Thus concerns about sufficiency of information communicatedDefendant didn’t know enough about the job that the plaintiff needed the attachment for, didn’t know the scope of liability, had no way to contract out of the liability if it didn’t want to be subjected to itRaises proportionality concernsCornwall Gravel v Purolator Courier (1980, SCC)Facts: Courier picked up tender, was told it had to be delivered by 1 the next day, but wasn’t delivered til 3:17, and tenders closed at 3 pm.Issue: Cornwall argued they would have gotten the K if their tender had been delivered on time – sued for $70,000.Held: This was in the reasonable contemplation of parties. First, there was a specific assurance by the employee that it would get there. Second, they had a slogan: “It just has to get there in time.”Question of proportionality/risk allocation: this probably cost $50, and yet the award was $70,000. Massive risk.As a result of this case, Purolator changed its standard form K, putting in lots of exclusions of liability – expressly said that employees are NOT allowed to make promises like thisKoufos v. Czarnikow (The Heron II) (1969, Eng. HL)Facts: Charter of ship to carry cargo of sugar to Basrah in Iraq. Charter makes deviations to other ports, in breach of K, resulted in a delay of nine days in arriving at Basrah. During this time, the market price of sugar in Basrah fell.Issue: Can they claim damages on the fall in market value?Held: HOL ultimately awards lost profits. Reasons: No special information communicated; however, shipowner was aware that there was a market for sugar in Basrah. Claim for lost profits thus upheld.So, carrier situation (like Hadley) but court DID award lost profits hereNB: Lord Reid takes issue with the terminology used in Victoria Laundry: they used language like “reasonably foreseeable”, but he says this is too loose a formulation (not every type of damage that is “reasonably foreseeable” should be recoverable). The crucial question is whether, on the information available, whether such a loss was sufficiently likely to result from breach of K to make it proper to hold that the loss flowed naturally form the breach, or that loss of that kind should have been within his contemplationTort versus K: remoteness in contract is a higher standard than it is in tortIn contracts, a party can protect himself against risk in the K – but a party cannot do the same thing in tort, so it is fair to have a lower, broader in tort to allow easier recoverySomething might be “reasonably foreseeable”, but might not meet the standard of being “sufficiently likely”Can’t use language that confuses damages in contract with damages in tortA maze of semantics (likely, highly likely, reasonably foreseeable, etc) – Lord Reid wants to set a single standard to make it clearHowever, Newcombe says this is all rhetoric. The more important issue is the policy concerns which drive these questions. See summary below.Principle:Remoteness: Summary and FactorsGeneral PolicyCourts try to strike a fair balance between reasonable expectations of the party to whom the promise was made, and the risk of unfair surprise to the defendant if she is held to be responsible for an unexpected liabilityRather than semantics, the difference really is how you categorize the loss: categorizing in specific versus general terms – this will vastly change the implications of the resultSCC has affirmed that the proper test is that in HadleyRemoteness really is a question of policy rather than law, based on parties’ reasonable expectationsExpress Contractual ProvisionsThe rules relating to remoteness of damages act as default rules in the absence of express contractual provisionsA contract may expressly limit the type or amount of damages that can be claimed if the K is breachedThese clauses are usually binding – so all these rules around remoteness won’t matter if the contract says damage is limited to $50Factors to consider in deciding whether damages are too remoteDegree of probability/foreseeability of loss: What would ordinarily be expected in the circumstancesCommunication of special circumstances: Fact of communication, plus particulars (clarity, specificity, and timingScyrup: plaintiff made known to the defendant that the attachment was for a tractor needed for a job. Specific type of work not communicated. Majority grants damages for the lost profits. Minority says no – just bought a used tractor attachment for $1000. Defendant can’t be guarantor of the plaintiff’s business (so how reasonable is this expectation, really?)Munroe Equipment Sales: Tractor needed to remove snow so timber operation could proceed. Tractor doesn’t work, so timber can’t be removed. Majority says no – lost profits not within the reasonable contemplation of the parties. No specificity in communication of circumstances that tractor needed to keep road clear from timber removal during peting policy concerns apparent in these two casesWas there an assumption of responsibility? It will not be conclusive, but it may be an important factor nonetheless (Cornwall Gravel)Defendant’s knowledge: Generally, and of plaintiff’s business in particularHadley (carriers) versus Victoria Laundry (expertise re: boilers, knew use). As a general rule, if defendant only has transitory relationship with plaintiff, then scope of liability may be reduced. If there is an established relationship between the parties, the defendant’s knowledge of the plaintiff’s business is likely to be greaterHowever, where consumer expectations are reasonable and created by the defendant, then liability might result even where the relationship is transitory (Cornwall Gravel). Reasonable consumer expectations due to advertising, promise made = better knowledge.Nature of defendant’s business: Expertise, and what is being offered to the plaintiff.Nature of the product or service: Second hand, or top of the line?Monroe: Second-hand tractor, obtained late in the season.Again, affects reasonable expectationsSophistication of parties: Generally the more sophisticated/knowledgeable the parties, the more likely the damages in question will be foreseeable.Ordinary allocation of risk: Understandings or expectations in the marketplace (custom of the trade)E.g. carriage trade: usually you take out insurance to guard against damage to those goods, plus usually an exclusion clauseContractual liability should be based on legitimate understandings of parties – fair and reasonable risk allocationAn important function of contracts is risk allocation. Contract terms allocate the risk of specific events (i.e. in the case of sale of goods, the contract price typically allocates the risk of a potential change in market price)Where a party to a contract may suffer exceptional harm if a contract is breached (loss of lucrative contracts), then the defendant will only be liable for those losses if it can be reasonably and fairly said that they were aware of them.Insurance: In cases such as Hadley, it may be more efficient for businesses to get business interruption insurance to cover lost profits than for carriers to have to carry third party liability insurance to cover claims of lost profitsProportionality: Comparison between contract price, and nature of the service with risk (ultimate loss claimed)Anomalous to impose extensive liability for a breach of K to provide an ordinary service at a low price (consider the dry cleaning contract)NB: None of this is a legal test. Just factors which courts will consider when assessing remoteness.MitigationDefinition: Doctrinal tool used to limit recovery of damages (similar to remoteness). Principle is that a plaintiff cannot recover for damages it could reasonably have avoided.“Duty to mitigate”: plaintiff isn’t liable if it fails to mitigate, but just might get damagesGeneral rule: Claimant must take reasonable steps to avoid lossWhat constitutes “reasonable steps” and “reasonable time” are questions of fact (depends on circumstances of the case)Onus of proving the plaintiff failed to mitigate is on the defendantCourt asks, what would a reasonable business person have done? (Standard is fairly low since the plaintiff is responding to an unexpected breach)Plf may recover additional costs incurred to mitigate (e.g. oranges example, purchaser breaches, seller may claim reasonable losses incurred to re-sell oranges)RationalesAvoid hardship and unfairness (unfair to make df liable for losses that the plf could have avoided)Fair allocation of risk (plf usually in best position to deal with consequences of the breach). Oranges example: purchaser breaches & refuses to buy oranges, seller can sue for damages but must still resell oranges (can’t just let them spoil and then get full expectation damages)Avoid economic waste/promote economic efficiency (would be inefficient to allow oranges to spoil)In the commercial context, often reasonable to require continued dealings with contract breaker (Payzu)Payzu: Plf argued it was unreasonable to expect them to deal with someone who just breached their contract, but court rejected this argument (mitigation might mean go back to the person you dealt with to get the cheapest price possible)Exception: personal services contracts (e.g. housekeeper)Claimant is requited to mitigate within reasonable time of breach. Timing is context dependent on facts.Where there are unique circumstances, damages can be measured at a later time, including the date of the trial or some time in between breach and trialCourt may take into account circumstances which indicate that it is unreasonable to require the plaintiff to mitigate immediatelyAsamera: Loan of shares not returned on time (price of shares subsequently skyrocketed). Plaintiff had duty to mitigate and buy new shares, but wasn’t expected to do so immediately (price for shares decided by the court when assessing damages reflected this)Generally, damages are assessed at the time of the breach; additional losses after the breach come from the failure to mitigate, not the breach itselfJustification for this is risk allocation (i.e. after breach, defendant is powerless to reduce plaintiff’s losses – so any further losses should be also on the plf)Punitive DamagesLeading case we look at is Whiten v Pilot (2002, SCC)General rule: Damages are compensatory (try to compensate plaintiff for loss).Exception: Punitive damages condemn behaviour (focus on df’s misconduct)Result of social engineering (i.e. impose a fine to deter similar conduct)These are incredibly rare (e.g. court declined to order punitive damages in Fidler)Usually for intentional torts (e.g. sexual assault) or insurance/employment Ks (taking advantage of a vulnerable insured)Notional maximum usually around $1 millionCasesWhiten v Pilot (2002, SCC)Facts: Fire burned house down, Whitens lost everything. Vulnerable financial position but had home insurance through Pilot. However, Pilot took advantage of the Whitens’ precarious financial situation and refused insurance by alleging fraud (even after arson was ruled out). Pilot was trying to force the Whitens to accept a much smaller settlement than what they deserved – even cut off their rent.Held: SCC allowed a $1 million award for punitive damages. Pilot violated “peace of mind” inherent in an insurance K; their behaviour as planned and deliberate.Principle: Despite awarding punitive damages, Court addressed concerns over controversial status of punitive damages (increased frequency of such awards in recent years).Set out two basic requirements:Conduct must be highly reprehensibleMisconduct must be an independent actionable wrong aside from the main cause of action (can be breach of K, not necessarily a tort)Here, the IAW was anchored in Pilot’s breach of the implied contractual duty owed by all insurers to act in good faith (could also be breach by an employer, fiduciary obligation)Court laid out policy framework to guide application of punitive damages:Exceptionality: these are the exception to the general rule (damages as compensatory)Rationality: Must have a rational purpose and be linked to one of the three goals of punitive damages (punishment, deterrence, and denunciation)Proportionality: Sum should be proportionate to the degree of misconduct & nothing more.To safeguard against these being used excessively (like in US)Proportionality as against the blameworthiness of conduct, the vulnerability of the plaintiff, the harm directed at plaintiff, the need for deterrence, and to the advantage wrongfully gainedShouldn’t be awarded if compensatory damages/criminal penalties are adequateTrying to maintain a principled framework and not just “sting” the pocketbook of the dfNotes: Punitive damages straddle public/private – uneasy place. Plaintiffs more likely to claim punitive damages than just mental distress (potentially more $ recoverable).Loss of EnjoymentHistorical DevelopmentPhase 1: Early times to 1974Historically, general rule: no damages for mental distress/non-economic interests (Addi v. Gramophone)Why? Commercial transaction, stiff upper lip, these are the rules of the game!Tough luck. This is the commercial world. K is about the pursuit of self-interestMaintain distinction between K and tort – i.e., if my conduct causes you mental distress, there is a tort for that. My duty of care to you is in the tort realm.Exceptions (as per Addis) – very fewBreach of promise to marryFailure to pay on a chequeVendor failure to make titleOr physical discomfort (old railway cases – train didn’t come, and I had to walk 10 miles to get to the next station)Phase 2: 1974-2005Development of pigeon holes – categories where damages would be grantedK for pleasure/enjoyment/entertainment/peace of mindDamages in these areas tend to be small/unprincipledHolidays (Jarvis)Weddings (Jamshidi): loss of enjoyment – photos, music, venueDisability insurance (Warrington)Need not be “essence of the contract”, sufficient if it is a “major or important part of the K” (Farley, 2001, Eng. HOL)PetsNewell: Dogs died in CP Air Hold – damages awardedFerguson: Kennel looses dog, $1000 in damagesWeinberg v Connors: Connors absconds with cat, $1000 in mental distress damages.Physical inconvenience & discomfort caused by a sensory experienceWharton: Family up in Tofino, buy a Cadillac for $60,000, radio makes irritating buzzing sound – take it back to dealer 6 times to get it fixed. Eventually make a claim for pecuniary damages re: car, but also for loss of enjoymentThey relied on railway cases here. They were awarded damages.Employment (per Volvis): Where there is an independent actionable wrong (such as intentional infliction of mental distress, defamation, fraud)Old rule: you can’t get damages simply from being fired (still the case today). Employers have a common law right to terminate employees.Exception is if there is an independent actionable tort (e.g. if the way in which they were fired amounted to intentional infliction of mental distress)Phase 3: 2006 onwardsSo, up until 2005, simply had these pigeon-holes. This changed in 2005.Fidler v Sun Life Assurance: See case brief.On an exam, the proper case to apply is FidlerCasesJarvis v Swans Tours (1973, Eng. CA)Facts: Lonely solicitor goes to Swiss Alps for Christmas holiday, but it is a solitary and nasty holiday. He was promised many things and none of them panned out (“dry little nut cakes”, short yodeling performances, nobody was there for parties, etc).Issue: What could he recover?Held: Denning granted double cost of holiday – i.e. he got back what he paid & another 63 poundsAnother way of thinking about this is he lost his two week holiday – so we should let him take another (might’ve been based on his weekly salary as well – seen as a lost opportunity)Trial judge had given difference in value (i.e. difference in what he paid for and what he got)Principle: Takes a broader approach to damages, taking loss of entertainment/enjoyment (i.e. ruined expectations) into account. Analogizes to tort law (just as damages for shock can be recovered in tort, so too can damages for mental distress be recovered n tort).Fidler v Sun Life Assurance (2006, SCC)Facts: Sun Life denied Fidler long-term disability benefits. They hired PI’s to film her, she was out shopping etc, they said nothing wrong with her, she can go back to work, cut off benefits. Eventually they settled right before trial (admitted they were on the hook for the disability part) – only went to trial on damages.Analysis: Said mental distress is no longer subject to remedial ostracization (old law is no longer applicable). Reaffirms that the rule is in Hadley – it is a question of remoteness. What is in the reasonable contemplation on the parties, based on the K? Then award damages based on that.You don’t get damages for incidental frustrationIssue is whether an object of the K has to be a psychological benefitSo, court allows damages in this kind of case; but plaintiff is still required to prove his lossCourt basically asks (per Hadley), what did the contract promise? And award damages based on that. These principles still apply if the promise was an intangible, like mental securityCourt sets out clear two part test:An object of the K was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; andThe degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.Need not be the dominant purpose or essence of the K – the question is whether: is it part of the bargain?One general rule for compensatory damages for breach of K: Hadley v BaxendaleHeld: Part of an insurance contract is a psychological benefit – can rest easy knowing you will be taken care of. Insurance companies sell insurance that way. Significant evidence of mental distress on the part of Fidler. Principle: Typical frustration or mental distress that goes along with a contract breach will usually not be sufficient. Must meet this test – i.e. must have been an object of the K, and must be of a degree sufficient to warrant compensation.“Aggravated” Damages: Was used in context of mental distress – don’t confuse this term.Term used in tort context: manner of breach of duty may exacerbate or aggravate the harm in the sense that it imposes an additional intangible harm – i.e. not just a breach, but the way in which it was done causes additional injuryAvoid using this term in contracts damages casesThis is a DIFFERENT CONCEPT than mental distress damagesMental distress damages are simply another kind of damages that can be recovered in K, based on rule in HadleyMental Distress and Employment:Traditionally, no mental distress damages available here (i.e. from simply being fired)Exception where there is an independent actionable wrong (i.e. a tort such as intentional infliction of mental distress, defamation)Keays v Honda (2008, SCC):No damages for loss of employment other than reasonable notice (i.e. three months and then no job) or payment in lieu (three months wages);As a general rule, no mental distress damages merely for being fired: mental distress not ordinarily in the contemplation of parties as employer has the right to terminate; andThere is a duty of good faith and fair dealing in the manner of termination, breach of which is compensable under damages principles (Hadley v Baxendale): Examples: attacking employee’s reputation; misrepresentations regarding the reason for dismissal; dismissal to deprive an employee of pension benefitsYes, employer has a right to fire you, but the manner must be done in good faith & in a fair wayNB: Won’t be examined on this. ................
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