ch. 5 written documents - uvic lssuviclss.ca/outlines/126-thomson_-_108a_-_final.docx · web...
TRANSCRIPT
These are my in-depth briefs for the cases we covered during the second semester of Professor Alford’s contract class (2013/2014). This covers Ch.5 – 10 of Waddams et al. Cases and Materials on Contracts. (IC) Means Incomplete. I am missing most of Ch.9, but the rest should be decent for reading before class to get the gist of the cases, or to look over well in advance of the final.
Table of ContentsCh. 5 Written Documents......................................................................................................................................................7
1. Unsigned Documents (Ticket Cases)..............................................................................................................................7
Parker v. The South Eastern Railway Company (1877)..................................................................................................7
Lamont v. Canadian Transfer Co. Ltd. (1909)................................................................................................................9
Chapelton v Barry Urban District Council (1940).........................................................................................................10
Olley v. Marlborough Court Ltd. (1949).......................................................................................................................11
J Spurling ltd. v. Bradshaw...........................................................................................................................................12
McCutcheon v. David MacBrayne Ltd. (1964).............................................................................................................13
Thornton v. Shoe Lane Parking Ltd. (1971)..................................................................................................................15
British Crane Hire Corp. Ltd. v. Ipswich Plant hire Ltd. (1975).....................................................................................16
2. Parol Evidence Rule.....................................................................................................................................................17
Federal Commerce & Navigation Co. Ltd. v. Trade Export S.A.....................................................................................17
Prenn v Simmonds.......................................................................................................................................................18
Farah v. Barki...............................................................................................................................................................19
Curtis v. Chemical Cleaning and Dyeing Co., Ltd..........................................................................................................20
Canadian Indemnity Co. v. Okanagan Mainline Real estate Board..............................................................................20
Hawrish v. Bank of Montreal.......................................................................................................................................21
Morgan v. Griffith........................................................................................................................................................21
Pym v. Campbell..........................................................................................................................................................22
Corbin on Contracts s24.7...........................................................................................................................................23
Long v. Smith...............................................................................................................................................................23
City and Westminster Properties Ltd. V Mudd............................................................................................................24
Tilden Rent-A-Car v. Clendenning (Lead Case)............................................................................................................25
Gallen v. Allstate Grain Co. Ltd. (Alford Doesn’t Like?)................................................................................................26
3. Rectification.................................................................................................................................................................29
U.S.A. v. Motor Trucks, Limited...................................................................................................................................29
Bercovici v. Palmer......................................................................................................................................................30
Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd.............................................................................31
Paget v. Marshall.........................................................................................................................................................32
Ch. 6 Protection of Weaker Parties.....................................................................................................................................33
2. Minors.........................................................................................................................................................................33
Rex v. Rash..................................................................................................................................................................33
Nash v. Inman..............................................................................................................................................................34
3. Forfeitures and Penalty Clauses..................................................................................................................................35
Shatilla v. Feinstein......................................................................................................................................................35
H.F. Clarke Ltd. v. Thermidaire Corp. Ltd.....................................................................................................................36
Stockloser v. Johnson..................................................................................................................................................36
Forfeiture/Penalty notes.............................................................................................................................................37
4. Clauses Excluding Liability...........................................................................................................................................38
(IC)George Mitchell Ltd. v. Finney Lock Seeds Ltd.......................................................................................................38
(IC)Photo Production Ltd. v. Securicor Transport Ltd..................................................................................................38
Hunter Engineering Co. Inc. Et al. v. Syncrude et al.....................................................................................................39
Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection......................................................................................40
Davidson v. Three Spruces Realty Ltd..........................................................................................................................41
Delaney v. Cascade River Holidays Ltd........................................................................................................................43
Tercon Contractors Ltd. v. British Columbia................................................................................................................44
Exclusion Clause Notes/Ratios.....................................................................................................................................45
5. Unconscionability and Undue Influence.....................................................................................................................46
The Limits of Freedom of Contract..............................................................................................................................46
Unconscionability and the Code..................................................................................................................................47
Exploitative Contracts.................................................................................................................................................48
Post et al. v Jones et al................................................................................................................................................49
Marshal v Canada Permanent Trust co........................................................................................................................50
(IC) Mundinger v Mundinger.......................................................................................................................................50
Lloyds Bank Limited v Bundy.......................................................................................................................................51
(IC) Credit Lyonnais Bank Nederland NV v Burch.........................................................................................................51
(IC)Royal Bank of Scotland p.l.c. v Etridge (No.2) and Other Appeals..........................................................................52
(IC)Pridmore v Calvert.................................................................................................................................................52
(IC)Horry v Tate...........................................................................................................................................................52
6. Duress......................................................................................................................................................................52
(IC)Greater Fredericton Airport authority Inc. v NAV Canada.....................................................................................52
Ch. 7 Public Policy...............................................................................................................................................................53
1. Introduction............................................................................................................................................................53
2. The Effects of Illegality................................................................................................................................................53
Holman v Johnson.......................................................................................................................................................53
3. Contracts Contrary to Public Policy Expressed in the Common Law...........................................................................54
Egerton v Brownlow....................................................................................................................................................54
In the Matter of Baby "M"...........................................................................................................................................54
3.a. Contracts in Restraint of Trade.................................................................................................................................55
Shafron v KRG Insurance Brokers (Western) Inc..........................................................................................................55
3.b. Contracts Related to Gaming...................................................................................................................................57
Boardwalk Regency Corp v Maalouf............................................................................................................................57
3.c. Contracts in Furtherance of illegal Purposes............................................................................................................58
Alexander v Rayson.....................................................................................................................................................58
3.d. Contracts Conferring Benefits as a Result of Crime..................................................................................................59
Brissette Estate v. Westbury Life Insurance Co...........................................................................................................59
Oldfield v Transamerica Life Insurance Co. of Canada.................................................................................................61
4. Contracts Contrary to Public Policy Expressed in Statute............................................................................................62
4.a. When a Contract is Rendered Void by Statute.........................................................................................................62
Kingshot v. Brunskill....................................................................................................................................................62
Doherty v Southgate (Township).................................................................................................................................63
4.b. A Common Intent to Perform a Contract Illegally....................................................................................................64
Ashmore, Benson, Pease & Co. Ltd. V A.V. Dawson Ltd..............................................................................................64
5. Mitigating the Consequences of Illegality....................................................................................................................65
5.a. When the Claim is Founded on an Independent Right.............................................................................................65
Mistry Amar Singh v Serwano Wofunira Kulubya........................................................................................................65
5.b. Restitution................................................................................................................................................................66
Kiriri Cotton Co. Ltd. V Rachhoddas Keshavji Dewani..................................................................................................67
Outson v Zurowski.......................................................................................................................................................68
5.c. Severance of Illegal Provisions..................................................................................................................................70
William E. Thomson Associates Inc. v Carpenter.........................................................................................................70
New Solutions Financial Corporation v Transport North American Express Inc..........................................................71
6. A More Modern Approach?.........................................................................................................................................72
Still v The Minister of National Revenue.....................................................................................................................72
Ch. 8 Performance and Breach............................................................................................................................................73
1. Repudiatory Breach.....................................................................................................................................................73
Kingston v Preston.......................................................................................................................................................73
Note Case....................................................................................................................................................................75
Bettini v Gye................................................................................................................................................................75
Poussard v Spiers and Pond.........................................................................................................................................76
Maple Flock Company, Ltd. V Universal Furniture Products (Wembley), Ltd..............................................................77
2. Waiver and the True Condition Precedent..................................................................................................................79
Panoutsos v Raymond Hadley Corporation of New York.............................................................................................79
Turney and Turney v Zhilka.........................................................................................................................................80
3. The Position of the Party in Breach.............................................................................................................................81
Jacob & Youngs, Inc. v Kent.........................................................................................................................................81
Hoenig v Isaacs............................................................................................................................................................82
Sumpter v Hedges.......................................................................................................................................................83
Ch. 9 Mistake.......................................................................................................................................................................84
2. Misrepresentations.....................................................................................................................................................85
Grotius, “Whether a Promise given under a Misapprehension Is by the Law of Nature Binding, and to What Extent" (1625)..........................................................................................................................................................................85
Heilbut, Symons & Co. v Buckleton.............................................................................................................................85
Bentley (Dick) Productions Ltd. v Smith (Harold) (Motors) Ltd....................................................................................86
Redgrave v. Hurd.........................................................................................................................................................88
Newbigging v Adam.....................................................................................................................................................89
Kupchak v Dayson Holdings Ltd...................................................................................................................................90
Redican v. Nesbitt........................................................................................................................................................91
Leaf v International Galleries.......................................................................................................................................92
(IC)O'Flaherty v McKinley............................................................................................................................................93
Murray v Sperry Rand Corporation.............................................................................................................................93
4. Mistake About Contractual Terms...............................................................................................................................95
(IC) Hobbs v Esquimalt & Nanaimo Railway Company................................................................................................95
(IC) Raffles v Wichelhaus.............................................................................................................................................95
(IC) Staiman Steel Ltd. v Commercial & Home Buildings Ltd.......................................................................................95
(IC) Henkel v Pape.......................................................................................................................................................95
(IC) Smith v Hughes.....................................................................................................................................................96
5. Mistake in Assumptions..............................................................................................................................................96
(IC) Anthony Duggan, "Silence as Misleading Conduct: an Economic Analysis"..........................................................96
(IC) Laidlaw v Organ.....................................................................................................................................................96
(IC)Bell v Lever Brothers Ltd........................................................................................................................................96
(IC) Solle v Butcher......................................................................................................................................................97
(IC)Magee v Pennine Insurance Co..............................................................................................................................97
(IC)Great Peace Shipping Ltd. v Tsavliris Salvage (International) Ltd...........................................................................97
(IC)Miller Paving Limited v B. Gottardo Construction Ltd............................................................................................97
(IC)Scott v Coulson......................................................................................................................................................98
(IC)Sherwood v Walker................................................................................................................................................98
(IC)McRae v Commonwealth Disposals Comm............................................................................................................98
(IC)Wood v Boynton....................................................................................................................................................98
Ch. 10 Frustration................................................................................................................................................................99
3. The Rule of Absolute Promises....................................................................................................................................99
Paradine v Jane...........................................................................................................................................................99
4. Relaxation of the Rule of Absolute Promises.............................................................................................................100
Taylor v Caldwell.......................................................................................................................................................100
Amalgamated Investment and Property Co. Ltd. v John Walker & Sons Ltd.............................................................101
Capital Quality Homes Ltd. v Colwyn Construction Ltd.............................................................................................102
Victoria Wood Development Corp. v Ondrey............................................................................................................103
Howell v Coupland.....................................................................................................................................................104
Canadian Industrial Alcohol Company, Ltd. v Dunbar Molasses Company................................................................105
Parrish & Heimbecker Ltd. v Gooding Lumber Ltd.....................................................................................................106
Krell v Henry..............................................................................................................................................................107
Aluminum Co. of America v Essex Group Inc.............................................................................................................108
Eastern Air Lines v Gulf Oil Corp................................................................................................................................110
Edwinton Commercial Corporation and another v Tsavliris Russ (Worldwide Salvage and Towage) Ltd. ("The Sea Angel").......................................................................................................................................................................112
Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H........................................................................................................114
Transatlantic Financing Corp v. United States...........................................................................................................115
Davis Contractors Ltd. v Fareham Urban District Council..........................................................................................116
Ch. 2 Remedies for Breach of Promise..............................................................................................................................118
1. The Interests Protected.............................................................................................................................................118
Wetheim v Chicoutimi Pulp Company.......................................................................................................................118
Bollenback v Continental Casualty Company (1965).................................................................................................118
Anglia Television Ltd. v Reed (1972)..........................................................................................................................119
A.I. Ogus, "Damages for Pre-Contract Expenditure".................................................................................................120
Pitcher v Shoebottom (1971).....................................................................................................................................121
Hawkins v McGee......................................................................................................................................................121
2. Problems in Measuring Damages..............................................................................................................................122
2.A. Cost of Substitute Performance, or Economic Value?............................................................................................122
Carson v Willitts (1930).............................................................................................................................................122
Groves v John Wunder Co.........................................................................................................................................123
2.B. Lost Volume...........................................................................................................................................................124
The Sales of Goods Act..............................................................................................................................................124
Thompson (W.L.) Ltd. v Robinson (Gunmakers) Ltd. (1955)......................................................................................125
Charter v Sullivan(1957)............................................................................................................................................125
3. Remoteness...............................................................................................................................................................126
British Columbia Saw Mills Co. v Nettleship 1868.....................................................................................................126
Hadley v Baxendale (1854)........................................................................................................................................126
Horne v The Midland Railway Company(1873).........................................................................................................127
Note Cases.................................................................................................................................................................128
Victoria Laundry Ltd. v Newman Industries Ltd. (1949).............................................................................................128
Koufos v C. Czarnikow, Ltd. (The Heron II).................................................................................................................130
Transfield Shipping Inc. v Mercator Shipping Inc. (The Achilleas).............................................................................131
Cornwall Gravel Co. Ltd. v Purolator Courier Ltd.......................................................................................................132
4. Intangible Injuries......................................................................................................................................................132
Addis v Gramophone Company Limited (1909).........................................................................................................133
Kolan v Solicitor.........................................................................................................................................................133
Jarvis v Swan Tours Ltd..............................................................................................................................................133
(IC) Vorvis v Insurance Corp. of British Columbia......................................................................................................134
Fidler v Sun Life Assurance Co. of Canada.................................................................................................................134
5. Punitive Damages......................................................................................................................................................135
Whiten v Pilot Insurance Co......................................................................................................................................135
6. Mitigation of Loss......................................................................................................................................................137
Payzu Limited v Saunders..........................................................................................................................................137
Roth & Co. v Taysen, Townsend & Co........................................................................................................................138
Finelli et at. V Dee et al..............................................................................................................................................140
Ch. 5 Written Documents
1. Unsigned Documents (Ticket Cases)
Parker v. The South Eastern Railway Company (1877)
Ratio:A party is bound by conditions on a ticket if they are there are conditions and consent to the implied conditions because they are reasonable and are what one would reasonably expect. If they are unaware of conditions they do not consent
Facts:
Plaintiff deposits a bag in the cloak-room of the defendant's train station Plaintiff is handed a ticket with writing (The front of the ticket says "see back") Back of the ticket stipulates the defendant will only be responsible for items
under $10 The bag is lost Plaintiff claims he never saw signs stipulating the condition on the back, nor did
he read the ticket.o Though he was aware that there was writing on the ticket
Judge in original trial leaves the jury with the following questionso Did the plaintiff read or was he aware of the special condition upon which
the articles were deposited?o Was the plaintiff, under the circumstances, under any obligation, in the
exercise of reasonable and proper caution, to read or make himself aware of the condition
The defendants attempted to get a new trial on the grounds that the judge misdirected the jury
o This motion was discharged, the defendants are appealing.
Issue:
Is the plaintiff prevented from recovering because of the conditions on the ticket which he/she claims to not have read or known about
o Is a written document, which contains conditions, that is created in the formation of a contract binding even if one party does not read the conditions?
Under what conditions would this document be binding or not binding?
Judgment:
New trial granted
Reasons:
First the judge addresses an argument that the defendant should not be bound because the employees should not have taken the bag in the first place.
o This is quickly dismissed, the employees were operating with the scope of their employment and the defendant will be bound by what follows
Q: Is the plaintiff bound by the conditions contained in the ticket?o People can agree to conditions on a written document without a
signature but there must be some act to show they have assented to the conditions
o People may also agree to the conditions without reading them but they must have known that the document contained conditions
By receiving the document with conditions and not throwing it away that is consent even without reading
o Is it enough to say that the plaintiff is bound because he knew there was writing?
No, just because there is writing does not mean that the plaintiff was aware it contained conditions
There are examples in which a ticket likely doesn't have conditions and serves some other purpose (a ticket at a toll booth to avoid paying at other toll booths)
And examples where a document likely does have conditions (a bill of lading for items transported off a ship)
Q: If mere awareness of writing is not enough to bind an individual to conditions, then under what circumstances can the defendant be entitled to assume that the ticket they give binds the individual?
o "this seems to me to depend upon whether people in general would in fact and naturally, draw that inference?" (that the ticket has binding conditions)
o The railway company must, do what is sufficient to inform people in general that the ticket contains conditions. If they do this then an individual cannot benefit because of their ignorance.
If a person is not bound just because they have not read the ticket and another individual is bound because they did then the ignorant individual is at an advantage because of their ignorance
Q: What questions should the original judge asked of the jury?o If the person receiving the ticket did not see or know that there was any
writing on the ticket he is not bound by the conditionso If he knew there was writing, and knew or believed that the writing
contained conditions, then he is boundo If he knew there was writing on the ticket, but was unsure about whether
it contained conditions, he would be bound if the jury found that by receiving a ticket in a manner which he could see there was writing on it was reasonable notice that the writing contained conditions.
The question isn't whether the plaintiff was obligated to read the ticket, but "whether the railway company did what was reasonably sufficient to give the plaintiff notice.
Second Judge's judgement:
The fact that people are content not to read tickets is because tickets generally contain reasonable conditions that individuals would agree to. If they contained unreasonable conditions then all dealing would soon stop.
When a person is handed a ticket, if they can see there is writing it is as though the person had said "read that"
o The writing is naturally about the matter at hand and the person is free to read it and disagree or to consent by not reading it, because these things generally are reasonable because people don't put unreasonable conditions into deals because if they did there wouldn't be deals.
What is going on:The judges are trying to protect individuals but also trying to ensure that business deals are still able to occur. Documents with conditions are made in contracts all the time, the judges are laying out what is minimally necessary for an individual to be bound by the contracts if they choose not to read the writing on the documents even though they assent to the contract the documents are a part of.
Lamont v. Canadian Transfer Co. Ltd. (1909)Ratio:
If an employee is acting within his/her employment and offers a different form of contract then that contract can be accepted and the employer can be held liable to it.
The conditions conveyed on the ticket must be handed over at the time of contracting and the ticket must be necessary to the contract
Facts:
The plaintiff gave his bags to his father-in-law to send them to his home The father-in-law gives them and 25 cents to Horn to ship them home Horn takes them to Dunn, an agent of the Canadian Transfer co Dunn offers to send the trunks free of charge but Horn refuses Horn returns 15 minutes later to ask for a receipt to give to the father-in-law The receipt contains conditions that the defendant isn't liable for bags over $50 The plaintiff sues for the whole cost
Issue:
Was the plaintiff made aware of the conditions on the receipt so as to be bound to them
Decision:
For Plaintiff
Reasons:
An unconditional offer was made when the employee offered free baggage Horn also wasn't given the receipt immediately he had to return and asked just
for a receipt A receipt alone doesn't normally contain conditions The original contract was unconditional
o The defendants are attempting to claim the plaintiff is bound by a different contract because he received a receipt that contained conditions
What’s going on:
Did the defendant sufficiently convey the conditions they wished the plaintiff to be bound by?No.
There was an unconditional offer and the employee didn't issue the receipt which contained the conditions
If an employee is acting within his/her employment and offers a different form of contract then that contract can be accepted and the employer can be held liable to it.
Employees are not just empowered to make one type of contract. In this case the employee is at fault
Chapelton v Barry Urban District Council (1940)
Ratio: The nature of the document must be one in which you expect to find conditions
on it If conditions are not public knowledge they must be expressly conveyed, they
cannot be communicated via a ticket that a sign “respectfully requests” you acquire
Facts:
Plaintiff is injured sitting in a sun chair rented from the defendant He was given a ticket from an attendant when he took the chair He did not read the ticket, nor did he think it contained conditions Ticket says "Available for 3 hours. Time expires where indicated by cut-off and
should be retained and shown on request. The Council will not be made liable for any accident or damage arising from hire of chair."
There was a sign posted which stated "hire of chairs 2d. Per session of 3 hours. The public are respectfully requested to obtain tickets properly issued from the automatic punch in their presence from the Chair Attendants.
The trial judge held the plaintiff was bound by the condition on the ticket
Issue:
Was the condition that the Council not be liable for injuries binding on the plaintiff?
Judgement:
For the Plaintiff
Reasons:
The ticket serves a function so that chair attendants may know how long the individual is allowed to use the chair for and as evidence that 2d. Is owed
The judge sees the ticket as nothing more than a receipt for money which serves to indicate when they person can use the chair.
The signs "respectfully requests" that individuals receive a ticket so that the attendants know you have paid and how long you are allowed to sit there for. The receipt is for the convenience of the attendants it is not for your convenience
What’s going on:
What's different here is that in the previous cases the ticket was used so that they person could retrieve their goods or was explicitly made exchanged to convey conditions
o In this case the reason for the receipt is for the convenience of the defendant so that they might know how long the individuals had been in the chair.
Olley v. Marlborough Court Ltd. (1949)
Ratio:
Three ways to make a condition a part of a contract:
1. Make the other party sign a document with the conditions (allowing you to believe they are aware and consented)
2. Before or at the time of the contract give the other party a written document specifying the contracts terms and making it clear the contract is on those terms
3. A prominent public notice which is plain to see when one makes the contract or an express oral stipulation will also suffice at the time the contract is made
Facts:
A man and wife check into a hotel and pay for a week in advance Upon entering the room there is a sign stating "The proprietors will not hold
themselves responsible for articles lost or stolen, unless handed to the manageress for safe custody in a sealed package and a receipt obtained"
The wife's furs are stolen. It was held that the sign was seen too late to be a binding condition
Issue:
Is the sign in the hotel room binding on the plaintiff's?
Decision:
For plaintiffs
Reasons:
Is the notice a part of the contract?o Best ways to make conditions part of a contract:
i. Make the other party sign a document with the conditionsii. Before or at the time of the contract give the other party a
written document specifying the contracts terms and making it clear the contract is on those terms
iii. A prominent public notice which is plain to see when one makes the contract or an express oral stipulation will also suffice at the time the contract is made
J Spurling ltd. v. Bradshaw
Ratio:
If an individual has received a similar ticket repeatedly in the past plays a factor in whether the terms and conditions of the ticket apply.
Clauses not expected to be implied need to be explicitly known
Facts:
Defendant stored barrels of orange juice with the plaintiffs (warehousemen) A few days after receiving the barrels the plaintiffs send a "landing account"
acknowledging receipt of goods and noting terms and conditions of storage on the back
"We will not in any circumstances… be liable for any loss, damage or detention howsoever, whensoever or wheresoever occasioned in respect of any goods entrusted to… us in the course of our business, even when such loss, damage or detention may have been occasioned by the negligence, wrongful act or default of ourselves or our servants or agents"
They were stored for several months The barrels were empty when the defendant came to pick them up and they
refused to pay the storage charges The plaintiff sues on account of the clause above
Issue:
Does the clause apply to the contract of storage when it was sent days after the defendant left the barrels at the warehouse
Decision:
For Plaintiffs, the clause does apply
Reasons:
The clause itself was not so unreasonable as to require special treatment in how it was shown to the defendant.
o The plaintiffs were not acting outside of their contract/duty The landing account clearly laid everything out
o The barrels could have been insuredo They were stored at "the owners risk"
Q: the landing account and invoice was issued after the goods had been received how could they be part of the contract?
o The defendant had done business with the plaintiffs in the past and had received many landing account documents before and so was aware, or reasonable could have and should have been aware of the terms and conditions of storing items at this warehouse.
o The defendant did not reject to the landing account upon receiving it and paid for several months
McCutcheon v. David MacBrayne Ltd. (1964)
Ratio:
Per Lord Devlin: previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and assent to them.
What is needed for a condition to be considered with a contracto Conditions in a contract must be brought into it by expression,
incorporation or implication. They are not brought into a contract simply because one party has inserted them into similar transactions in the past and has not given the other party any reason to think that he will not want to insert them again.
Facts:
The defendant is a shipping company (perhaps the only on the isle of islay) who was shipping the plaintiff's car.
o The vessel was driven negligently into rocks and sank Generally when one ships something using the defendants company they are
made to sign a lengthy document which no one ever reads because of its unreasonable length
On Oct. 8th , 1960 the defendant forgot to make the plaintiff sign the document and on this day the ship sank
The plaintiff had always signed the document in the past The defendant is attempting to use estoppel by saying the plaintiff had always
consented in the past and so the signature wasn't important and that the plaintiff had always represented that he understood the terms so he can't say no that he didn’t
Issue:
Can the plaintiff have been said to have assented to the document even though he did not sign it as the signature on these documents are a formality as the conditions have been assented to in the past (and the individual has no other means of shipping the goods)
Ruling::
For the Plaintiff
Reasons:
Devlin first deals with the problematic Ruling: from Harris v Great Western Ry. Co.o "by assenting to the contract thus reduced to writing, he represents to
the other side that he has made himself acquainted with the contents of that writing"
o In this case the plaintiff may have assented to the contract but no one could argue that he represents to the other side that he has made himself acquainted because there is no way the person has been made acquainted
But that case dealt with an unsigned document whereas this case deals with a document without a signature
o The plaintiff has signed the document in the past assenting to the contract, does this mean the defendant can claim that he would assent to it and cannot say that he wouldn't?
Devlin: Previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and assent to them.
When a party assents to a document forming the whole or part of a contract, is bound by the terms of the document, read or unread, signed or unsigned, simply because they are in the contract.
o Not because they represent that they have read the document
But, If one is to try to estoppe the other party because they represented that they had made themselves acquainted then this estoppel can only work within that contract, and not within future dealings
The defendant never shows that the plaintiff understood the conditions in the previous engagements just that he consented to the contract.
NOTE: normally there might be some liability based in the plaintiff's general knowledge about how shipping works but they gave the man an unconditional contract when they didn't ask for his signature.
Devlin then expressly states what it takes for a condition to be considered within a contract:
o "There can be no conditions in any contract unless they are brought into it by expression, incorporation or implication. They are not brought into it
simply because one party has inserted them into similar transactions in the past and has not given the other party any reason to think that he will not want to insert them again"
In this case there were no conditions in the contracto If there was the plaintiff could argue they never would have agreed to it
and it would have been tough lucko Since they slipped up the defendant can't say oh they would have agreed
to it. Tough luck. You can't make someone liable to agree to terms they are
unaware of just because that’s how its usually done.
What is going on:
In the moment of contracting you have the defendant forgetting to get the plaintiff to agree to the conditions he has agreed to in the past. But he has never understood or known what the conditions are. The defendant is then saying "oh well you agreed to them before and thus said you understood them so you would have this time." but that is bullshit and the court knows it. The plaintiff never knew any of the conditions and furthermore it doesn't matter because they contracted with him without the conditions
Thornton v. Shoe Lane Parking Ltd. (1971)
Ratio:
With automated ticket machines the customers must know the conditions which the ticket is subject to, or else the company must do what is reasonably sufficient to give him notice of it.
Facts:
Plaintiff parks his car at the defendant's multi-storey automatic car park There was a sign on the outside labelling prices for parking and stating "All Cars
Parked At Owners Risk" The main received a ticket from an automatic ticket machine When retrieving his car three hours later the plaintiff is severely injured Sues the defendant and receives almost 4000 pounds Defendant appeals claiming the ticket was a contract stating it was "issued subject
to the conditions of issue as displayed on the premises" The signs are few and you have to look for them
Issue:
Was the ticket stub a contract that binds the plaintiff
Judgment:
For Plaintiff, the ticket stub comes too late to be binding
Reasoning:
Seems straightforward example of previous cases but for automated things
Tickets in ticket cases have been seen as an offer that the customer accepted by not refusing it
o Denning things this is silly because no one reads them, there's no time to read terms and conditions
These theory doesn't apply to automated tickets because there is no way for the plaintiff to reject
o The money has been given the ticket has been given The defendant has to make all conditions of the contract explicit
o Especially an exempting condition as the statement "subject to conditions" doesn't naturally lead one to think that rights are being taken away
The conditions would need to be posted on the machine or outside the building as the customer enters so that it is brought to the customers attention sufficiently
Even if the automated machine is considered a clerk it fails because it can’t sufficiently draw attention to conditions. Limitation of personal liability is a very crucial condition that must be made explicit
British Crane Hire Corp. Ltd. v. Ipswich Plant hire Ltd. (1975)
Ratio:
A term can be incorporated into an oral contract through implication if both parties know the other party would never contract without the inclusion of the condition.
o If both parties know that that condition is generally standard for those contract
Facts:
The both the plaintiffs and the defendants are companies which hire out cranes and heavy machinery
The defendant required the rental of a crane from the plaintiff for work in a marsh Two incidents occurred but the second is what matters
o Neither the plaintiff nor the defendant were found negligent in the sinking of the crane into the marsh
The plaintiff wants to rely on the conditions found in a form that had been sent but not signed
o Though it had been signed twice in the past by the defendants
Issue:
Are the conditions of the form incorporated at the formation of the contract through implication that those conditions would apply?
Judgment:
For plaintiffs, the conditions are incorporated
Reasons:
Denning notes that generally the past dealings generally are not strong enough to support an implied term in an oral contract. Especially when there were only two past dealing
But, in this case both parties are of equal bargaining power, both have an equal knowledge of the industry of renting equipment as both rented equipment
It was found that these conditions are standard for all rentals o Both parties knew that this were the conditions that were habitually
imposed on hirers by the owners (there was an standard form of conditions for rentals in the industry)
Denning quotes Reid: "The judicial task is not to discover the actual intentions of each party it is to decide what each was reasonably entitled to conclude from the attitude of the other"
Since the plaintiffs were in a rush for a crane and the paper would not be able to get there for a day or two it is easy to assume that they knew the conditions were implied in the renting of the crane as it is standard practice
o The plaintiffs have never lent out a 10,000 pound crane without those conditions
Other judge agrees but wants to note a disagreement with the trial judge's finding that there was an obligation by the plaintiffs to return the crane. No one asked whether they had to return the crane if it was in such a state it didn't need returning (I don't quite know if this is right)
2. Parol Evidence Rule When a document containing contractual terms is signed, then in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.
If there be a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties, either before the written instrument was made, or during the time that it was in a state of preparation, so as to add to, or subtract from, or in any manner to vary or qualify the written contract
Federal Commerce & Navigation Co. Ltd. v. Trade Export S.A.
Ratio: Standard Forms will be given Standard interpretations, the intents of the parties
will not be considered
Facts:
Owners of ship charter their ship (Maratha Envoy) to move grain from the Great Lakes to Northern Europe
The contract states: time for discharge is to count whether in berth or not The Maratha Envoy arrives at the Weser Lightship and then makes two voyages
up river to be considered an "arrived ship" The Maratha Envoy then must wait 18 days to get into berth It then takes a further 10 days to unload the ship
Reasons:
This industry has many standard forms with standard clauseso Two reasons standard forms and clauses are necessary
1. Enables negotiations to be conducted quickly and allows one to compare two separate offers easily
2. Helps predictability and allows parties to allocate risk more precisely
Prenn v Simmonds
Ratio:
Evidence should be restricted to evidence of the matrix of facts known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively the "aim" of the transaction"
AKA Negotiations and party's intentions should be excluded.
Facts:
Dr Simmonds claims under an agreement under seal 1960 he can acquire from Prenn, for 6000 pounds, 4% interest in the ordinary capital of a company controlled by Prenn: now called Controls and Communications Ltd. But formerly called Radio and Television Trust.
Prenn argues the claim fails because a necessary condition was not satisfied (that 300 000 pounds in profit are available for dividend on the ordinary stock)
o Didn’t break profit threshold The issue becomes an interpretive one regarding the definition of "profits"
o If it just includes RTT then the claim falls short by 10 000o If it includes subsidiaries than it easily meets the condition
Issue:
How should the word "profits" be interpretedo Moreover what methodology should the court use when interpreting
contracts
Reasons:
The present case illustrates very well the disadvantages of allowing outside circumstances to stand as evidence of how a contract should be interpreted
Evidence of negotiations should not be included because the parties position, in negotiations, is divergent until the actual contract is signed, at which point there is convergence.
"evidence of negotiations, or of the parties; intentions, and a fortiori of Dr. Simmonds's intention, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively the "aim" of the transaction."
Note Cases:o Investors Compensation Scheme, Ltd. v. West Bromwich Building Society
[1998]
Regarding Simmonds v. Prenn What the backround may include is "absolutely anything
which would have affected the way in which the language of the document would have been understood by a reasonable man" subject to the requirement that it should have been reasonably available to the parties.
o Eli Lilly & co. v. Novopharm Ltd. [1998] The contractual intent of the parties is to be determined by
reference to the words they used in drafting the document, possibly read in the light of the surrounding circumstances which were prevalent at that time.
Notes:
Merger wouldn’t make sense if the subsidiary companies aren’t includedo “Here is some money, I’ll pay the rest out of the profits from the
company” Agreement doesn’t make sense if the party can just keep profits
in other companies and keep profits below the threshold
Farah v. BarkiRatio:
Misrepresentation of a fact, prior to entering into a contract, is grounds to void the contract ab initio due to fraud.
Actions “equivalent to fraud” are included but this is tricky-> someone might argue they meant what they said at the time and then a supervening event occurred
Facts:
Farah signs a document that states Barki transfers 650 shares in exchange for $6500
Originally Barki had invested $6500 in the company, after the company performed terribly Barki proposed the sale of his shares
Farah believed he would be acting for Barki in controlling the company and carry out a sale of shares to one Joy
Farah signed relying on this proposal
Issue:
When there is a finding of fraudulent misrepresentation on the part of the respondent as to the nature of the document which he asked the appellant to sign can the appellant successfully resist an action upon the document when he read and signed it?
Decision:
For Farah, on grounds of fraudulent misrepresentation
Reasons:
Fraud unravels everything
Common law fraud= Material misrepresentation of fact or existing "It would be very dangerous to allow a man over the age of legal infancy to
escape from the legal effect of a document he has, after reading it, signed, in the absence of an express misrepresentation by the other party of that legal effect." (emphasis added)
"where there has been fraud or conduct equivalent to fraud on the part of the defendant, there may be a ground for putting the defendant to elect between having the transaction annulled altogether or submitting to the rectification of the deed in accordance with the plaintiff's intention. This rests on unilateral mistake in one party, fraud or conduct equivalent to fraud in the other party"
Curtis v. Chemical Cleaning and Dyeing Co., Ltd.
Ratio: Verbally describing the contract as relating to a particular fact when it in fact
refers to something else is misrepresentation
Facts:
Plaintiff takes wedding dress into defendant's cleaning company Dress is stained through defendant's negligence Plaintiff had signed a receipt exempting defendant's from liabilities for damages
o Plaintiff was told it was because she had to accept responsibility for damage to the beads and sequins on the dress
Trial judge awarded damages Defendants appealed
Issue:
Can a misrepresentation change the scope of an exempting clause in a contract?
Decision:
For Plaintiff
Reasons:
"any behaviour by words or conduct is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption"
Oral evidence can be given regarding the establishment of a misrepresentation A misrepresentation of an exempting clause will limit the exempting clause to
how it was misrepresented
Canadian Indemnity Co. v. Okanagan Mainline Real estate Board
NOTE CASE:
"A party who misrepresents, albeit innocently, the contents or effect of a clause inserted by him into a contract cannot rely on the clause in the face of his misrepresentation"
Hawrish v. Bank of Montreal
Ratio:
Collateral agreements can be admissible by parol evidence if it is an independent agreement that could be made without writing, and is not inconsistent or contradictory to the main contract.
The consideration of the collateral agreement must not just alter the consideration of the main contract. In the case that it just alters the consideration of the main contract the court would just incorporated into main contract.
Parol evidence doesn’t keep out collateral or post-contractual evidence so long as they are supported by consideration
Facts:
The plaintiff signed an agreement to cover the existing and future indebtedness of the company up to $6000
He had received an oral assurance that he would be released from his guarantee when the bank obtained a joint guarantee from the directors of the company
The bank did receive these guarantees The company became insolvent and the bank came after the plaintiff for the
$6000
Issue:
Can the parol evidence be included even though it directly conflicts with clauses in the document that was agreed to
The oral agreement doesn't modify a clause in the document it contradicts a clause
Reasons:
For Defendant, parol evidence inadmissable
Reasons:
The oral agreement is in plain contradiction of para (d) Regarding the argument that the oral agreement constituted a contract that was
independent and collateral to the main contract:o Collateral agreements can be established by parol evidence on two
conditions The agreement is one which as an independent agreement could
be made without writing The agreement is not in any way inconsistent with or
contradictory of the written agreement
Morgan v. Griffith
Facts:
Plaintiff becomes tenant of defendant in 1867 Plaintiff notices rabbit infestation, agrees to re-sign in 1868 on the defendant's
promise he would take care of the rabbits Same thing happens next year upon re-signing Plaintiff then brings the action against defendant Defendant pleads parol evidence rule
o Can't be included Ruling: for Plaintiff Defendant appeals
Issue:
Is the promise to destroy the rabbits a valid collateral agreement?
Decision:
For Plaintiff
Reasons:
Verbal agreement was collateral to the lease and founded on good consideration. X agrees to sign the lease if Y agrees to take care of the rabbit problem The promise is not contradictory to the lease Removing rabbits is not a clause typically included in the main document
Would the verbal agreement make it into the main document? If ambiguous then:
See if the side agreement effects the consideration of the main contract
Pym v. Campbell
Ratio:
Evidence to vary the terms of the agreement in writing is not admissible, but evidence to show that there is not an agreement at all is admissible.
Verbal agreement that attached a condition precedent to the contract is admissible
Facts:
Campbell sets up meeting with Pym and two engineers to purchase Pym's invention
Pym shows up late, the engineers have left Campbell and Pym agreed to terms and sign the contract but agree orally that it is
not to be a binding contract unless they find the two engineers and they both approve
They find one who approves, the other does not
Issue:
Does the oral agreement nullify the signed contract?
Decision:
For defendant, parol evidence is admissible if it shows there was no contract at all
Reasons:
If it can be proven that a paper was signed with the express intention that it should not be an agreement, then no party can fix it as an agreement.
The meeting of the minds existed but was made explicitly dependant on an extra condition which was not met
"Evidence to vary the terms of an agreement in writing is not admissible, but evidence to show that there is not an agreement at all is admissible"
Corbin on Contracts s24.7 The understanding of contracts always comes from the subjective perspective of
the parties involves. So there may never be an absolutely perfect meeting of the minds as different
words will have different meanings to different individuals. But courts must come to some concrete interpretation, even if it is flawed.
"It is therefore invariably necessary, before a court can give any meaning to the words of a contract and can select a single meaning rather than other possible ones as the basis for the determination of rights and other legal effects, that extrinsic evidence be admitted to make the court aware of the "surrounding circumstances," including the persons, objects, and events to which the words can be applied and which caused the words to be used."
Long v. SmithRatio:
Alford thinks they are bending things a bit in this one to arrive at an equitable outcome
Facts: Defendant contracted with plaintiff for the purchase of a piano. Plaintiff stated that he would sell it for $575 and if the plaintiff found in the future
that he had been overcharged or the piano wasn't satisfactory he could return it or exchange and get his deposit back.
The printed contract had a clause stating it was the entire contract. The defendant found out it was only worth $400 The plaintiff wouldn't accept a return Defendant leaves the piano outside the shop Plaintiff brings action against Defendant for the $575 in breach of contract
Issue:
Is the oral agreement admissible in the face of the contract stating it was the only document?
Decision:
For Defendant
Reasons:
There is a well-marked line of cases establishing this doctrine, that evidence may be given of a prior or a contemporaneous oral agreement which constitutes a condition upon which the performance of the written agreement is to depend.
The enforcement of the contract may be suspended or arrested till the stipulation orally agreed on has been satisfied.
Defendant was prevented from getting accurate information regarding the value of the piano
The promise that he could return it if it wasn't worth the price encouraged him to sign the contract.
There was a misrepresentation
What’s going on:
If someone relies on a promise as motivation for signing a contract that collateral contract prevails over exemption clauses
City and Westminster Properties Ltd. V Mudd.Ratio:
A collateral agreement that looks like estoppel will be valid considerationo The promise was made, it was meant to be acted upon, and it was in
fact acted upon (they signed the contract). Now there is a detriment The promise induces the plaintiff to sign->plaintiff agreeing to
sign is valid consideration as otherwise they would not have
Facts:
Landlord knows tenant lives in his shop even though his lease prohibits that The two draft a new lease that states the shop will only be used for business The landlord gives an oral agreement that the tenant will be able to continue
living in the shop The landlord ten tried to bring an action against the tenant for forfeiture of lease
Issue:
Can the oral agreement be brought into the contract as a collateral contract
Decision:
For defendant, the oral assurance was relied upon by the defendant
Reasons:
The defendant relied on the promise and so agreed to sign the lease Without the promise he would have left and signed elsewhere The reasoning is identical to estoppel?
o Promise meant to be acted upono And in fact was acted upono To the detriment of the party
Notes:
3. "Where, as here, the collateral agreement is consideration for the entering into the written agreement, the exclusionary clause cannot prevail against it" (Francis v. Trans Canada Trailer Sales Ltd (1969), 6 D.:.R. (3d) 705 (Sask. C.A.)]
Tilden Rent-A-Car v. Clendenning (Lead Case)Ratio:
Facts:
Defendant, a regular traveler, arrives in Vancouver and rents car from plaintiff. They offered additional coverage for $2/day and defendant says yes. The clerk placed the contract in an envelope and the defendant in the glove box.
o He never read the contract Clause states $2/day as consideration for limiting customer liability to nil.
Issue:
The Tilden employee knew the defendant hadn't read the agreement, and was unaware of the clauses that would limited his no-liability clause. It was reasonable to think that the defendant signed a contract thinking he was covered. Does the plaintiff's exemption clause prevail against the defendant's exemption clause?
Decision:
For the defendant
Reasons:
This case goes over the history of the ticket cases as well as parol evidence cases Essentially the issue is resolved as the ticket cases are The company needs to make sure that any unusual or unexpected clauses are
made aware to the signero If they are not aware it cannot be said that they believed the signer knew
what they were assenting to In this case the exemption clauses were not expected and not made clear by the
clerk.
Notes:
Defendant want’s full liability and thinks he gets ito Is unaware of exclusion clause regarding any intoxication
Defendant wasn’t called to attention of the exclusion and said he was not intoxicated
Defendant’s incomplete information of the contract induced/motivated the defendant’s signing
In classic English Common Law:o If you signed it you represent that you have assented
In Canadian Common Law:o If you see the other party not reading the contract can you rely on the
person having assented to all the clauses?
Gallen v. Allstate Grain Co. Ltd. (Alford Doesn’t Like?)
BC Court of Appeal Case (1984)
Ratio:
Outline for determining if oral representation is a part of contract and binding:
1. Determine whether oral representation is admissible i. (WRITE IN ALL THE EXCEPTIONS TO RULE)
2. Are the plaintiffs seeking damages or equity for rescission (party must give back all benefit received?)
i. If seeking damages must show the misrepresentation was a warranty that adds to the main contract
Who bears the risk that the statement might be wrong, the person who makes it or the person who acts on it?
If it must be taken to have been intended, and understood when said, to form a part of the contractual relations between the parties, then it is a warranty.
3. Determine how the warranty effects the main contract?i. Can it be harmoniously read to add to the contract? If yes then fine?
ii. Is it contrary to the contract? If yes then:i. Parol evidence principle applies: A collateral agreement cannot be
established where it is inconsistent with or contradicts the written agreement
Evidence must be examined to determine if oral representation was intended to be consistent
The presumption is that the document is the whole contract
The strength of this presumption is strong if: The oral rep allegedly contradicts the
document The oral rep allegedly contradicts an
equally specific clause The parties negotiated a specific contract
The strength of this presumption is weaker if: The alleged oral rep adds to the
document
The alleged oral rep contradicts a general (exemption) clause
The alleged oral rep contradicts a standard form contract
4. Examine evidence to determine if the oral representation was intended to prevail, presume in favor of the written document according to the factors above. "If on the evidence it is clear that the oral warranty was intended to prevail, it will prevail"
Facts:
The defendant sold seeds to farmers and bought crops They discovered a large market for buckwheat in Japan and advertised to farmers
in the Lower Fraser Valley to farm firstcrop buckwheat The plaintiffs answered the advertisement They attended a meeting
o They asked about weeds They were assured that weeds would not be a problem, the
buckwheat was productive enough to smother the weeds. They relied upon this assurance and signed an agreement
o The agreement contained an exclusion clause stating the defendant gave no warranty regarding productivity
The Buckwheat was not more productive than the weeds The plaintiffs sued for a bunch of reasons and won
o The defendants appeal
Issue(s):
Is the evidence of the oral representation admissible Is the oral representation a warranty? Can the oral representation add to, subtract from, vary or contradict the signed
document? Is there a contradiction between the oral representation and the signed
document?
Judgment: For Plaintiff; appeal dismissed
Reasons:
Is the evidence of the oral representation admissible?
The rule of evidence: o Subject to certain exceptions, when the parties to an agreement have
apparently set down all its terms in a document, extrinsic evidence is not admissible to add to, subtract from, vary or contradict those terms
But there are exceptions if:o The agreement contains a warranty giving rise to a claim for damageo Evidence can be given of the representationo The pleadings are appropriate
o The party on whose behalf the evidence is tendered asserts that from the factual matrix it can be shown that the document does not contain the whole document
Then:o The oral representation may either be:
Included in the document as part of the agreement Or, may constitute a separate collateral-agreement
Is the Oral Representation a warranty?
A warranty will give rise to damages, an "innocent misrepresentation" gives rise to a claim in equity for rescission
The distinction turns on whether the representation became a part of the contractual relationship between the maker and the recipient
Factors:o Does the recipient make it clear that they consider the matter so
important that they would not contract without the assurance?o "Justice Robertson said that the essence of a warranty is that it becomes
plain by the words and actions of the parties that it is indeed that, in the purchase, the responsibility of soundness will rest on the vendor"
So:o Who bears the risk that the statement might be wrong, the person who
makes it or the person who acts on it?o If it must be taken to have been intended, and understood when said, to
form a part of the contractual relations between the parties, then it is a warranty.
Can the Oral Representation Add to, Subtract from, Very, or Contradict the Signed Document?
The crucial parol evidence principle of substantive law:o "A collateral agreement cannot be established where it is inconsistent
with or contradicts the written agreement" It does not matter if the oral representation constitutes a
collateral agreement or is read into the original document This principle is NOT absolute
It depends on contextual interpretation of the evidence given
"the principle in Hawrish is not a tool for the unscrupulous to dupe the unwary."
If the main contract is induced by an inconsistent oral misrepresentation, the main contract cannot stand
The presumption is that the document is treated as the whole contract
This presumption is strongest when the oral representation is alleged to be contrary to the document
This presumption is less strong when the oral representation is alleged to add to the document
This presumption is less strong when the parties use a standard form as opposed to negotiating an individual document.
This presumption is less strong when an oral representation is contrary to a general (exemption) clause than when it is contrary to a specific clause
Is there a contradiction between the oral representation and the signed document?
Oral rep: "Allstate warrants that weeds will not be a cause of loss; the buckwheat will grow up and smother the weeds."
Contract's clause: "23. Allstate gives no warranty as to the productiveness or any other matter pertaining to the seed sold to the producer and will not in any way be responsible for the crop"
Clause does not exclude ALL warranties, just warranties pertaining to the seed. If the oral rep is a warranty (which the judge thinks it is) then, if possible, the
warranty and contract should be read harmoniously.o In this case they can because the warranty regards weeds, and the
exemption clause regards the seed
3. Rectification U.S.A. v. Motor Trucks, Limited
Ratio: Parol Evidence is admissible in rectification case because it is seeking an
equitable remedy -> court is only seeking to modify the contract so that it can rectify the contract’s drafting error
o The error in drafting needs to be a bilateral mistake for rectification
Facts:
Respondent company contracts with appellant government, to make high explosive shells during war (1918)
The war comes to an end and they negotiate what is owed. They make a final agreement (settling contract) that replaces the initial
agreement that was made to enter into businesso This final agreement has a final price and also states the property and
buildings "specified in schedule A" would be annexed to the U.S. There were no property or building in Schedule A
The respondent refused to give up the building and land The appellant seeks rectification because the fact that the buildings and property
weren't included was simply an error.
Issue: Did the parties intend that the property and building be included under schedule A?
Judgment: for appellant government; clear intention
Reasons:
the respondent clearly had the intention to include the property as they claim that they were willing to give up the property because of certain understandings they had regarding their legal rights?
The court is allowed to impose any remedy it deems fit. The court can give remedies (reformation of contract) and specific performance. (something about how before you needed to go to two separate courts but now
its fine? "Both parties intended the lands and buildings to be included in the schedule.
These were inadvertently omitted. Rectification must follow unless some exceptional ground for excluding this remedy is advanced"
Bercovici v. Palmer
Ratio:
In determining whether there was an error in the drafting of a contract that requires rectification, a judge may use the parties' actions subsequent to the execution of the contract, as evidence of what the intent the parties had in their mind when forming the contract.
Facts:
Plaintiff is selling two retail businesses Defendant purchases, and some funny correspondence goes on with the drafting
of the final document between both parties' attorneys. The deal is signed Included in the deal is the transfer of "Lot 6 in Block 33A, Lakeview, Regina Beach,
etc" from plaintiff to defendanto The plaintiff does not own a Lot 6 in Block 33A, but owns Lot 6 in Block 33o The plaintiff claims there was an error and the land wasn't meant to be
included, the defendant says it was always in the deal The defendant wants a rectification to correct the address in the contract The plaintiff wants a rectification to remove the property from the contract
Issue:
Should the contract be rectified for the defendant or plaintiff? Can the judge make use of the parties' actions after the contract is executed, as
evidence regarding what the parties intended the contract to regard
Decision:
For Plaintiff, Defendant's actions indicate the property wasn't considered at the formation of the contract
Reasons:
The trial judge gives an extensive list of actions which both parties performed after the contract was signed which show that that particular property was not a part of the negotiations and was included by mistake
The defendant appeals, (partially?) on grounds that the trial judge shouldn't have used actions after the contract was executed to make his Decision:
The appeals judge states the principles of rectification, and that the court can use actions after the fact to determine what was intended.
o The court must be satisfied by evidence which leaves no 'fair and reasonable' doubt that the deed impeached does not embody the final intention of the parties
o "Rectification is concerned with contracts and documents, not with intentions. In order to get rectification, it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly." (Denning)
o The evidence must be so satisfactory as to leave no room for such doubt; parol evidence must be adequately supported by documentary evidence and by considerations arising from the conduct of the parties.
Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd.
Ratio:
Four hurdles plaintiff must clear in order to attain rectification
1. Must establish existence and content of prior oral agreement2. Must show the defendant knew or ought to have known of the mistake
in reducing the oral terms to writing If allowing the mistake would be fraud, or equivalent to fraud,
rectification ay be available3. Must show the precise form in which the written instrument can be
made to express the prior intention4. The prior three hurdles must be proved "beyond a reasonable doubt"
Can be supported by documentary evidence Can also be supported by the conduct of the parties, or "other
proof"
Facts:
Agreement between golf course and development company Agreement was supposed to read 110 yards
o Instead: it read 110 feet Trial judge grants rectification Appealed
Issue:
The fucked up the contract with land and now they gotta figure it out
Judgment:
Reasons:
Rectification:o Requires a prior oral contract whose terms are definite and ascertainable.
o Plaintiff must establish that the terms agreed to orally were not written down properly
Error can be fraudulent or innocento At the time of execution of the contract the defendant out to have known
of the error and the plaintiff did not. o The defendant, trying to rely on the mistake, amounts to fraud or the
equivalent of fraud
Four hurdles plaintiff must clear in order to attain rectification
5. Must establish existence and content of prior oral agreement6. Must show the defendant knew or ought to have known of the mistake in
reducing the oral terms to writing If allowing the mistake would be fraud, or equivalent to fraud,
rectification ay be available7. Must show the precise form in which the written instrument can be made
to express the prior intention8. The prior three hurdles must be proved "beyond a reasonable doubt"
Can be supported by documentary evidence Can also be supported by the conduct of the parties, or "other
proof" Appellant wants a 5th hurdle:
o "rectification should not be available to individuals who have been negligent in reading the document"
This is too restrictingo "one reason why the defence of contributory negligence or want of due
diligence is not persuasive in a rectification case is because the plaintiff seeks no more than enforcement of the prior oral agreement to which the defendant has already bound itself. "
Notes:
Policy issues, court doesn't want to open the floodgates to unhappy contractors who want to get out of agreement
Paget v. Marshall
Facts:
Plaintiff splits up his own unito Partitions half of room
Creates three units 48,49,50 Defendant wanted 48 and its basement, plaintiff made it clear it was for his own
use Plaintiff accidently includes 48 in the contract Defendant is trying to rely on the contract and get 48
Issue:
Can the contract be rectified if there are no grounds for rectification?
Decision:
For Plaintiff, Defendant can choose to rectify contract or throw out contract.
Reasons:
There was clearly no meeting of the minds regarding the contract The plaintiff never expressed a desire to give up 48. The defendant clearly wanted 48 included If there was no consensus there was no contract from the start (ad idum)
Note:
Even if there is no basis for rectification there may be a claim that the contract was void ad idum from lack of consensus
Ch. 6 Protection of Weaker Parties 2. Minors
Rex v. Rash
Facts:
None…
Issue:
Was the magistrate right in holding as a matter of law that a person under the age of 21 years can be convicted of the offence of removing, concealing, or disposing of any of his property, with intent to defraud his creditors?
Are persons who have supplied goods to an infant trader for the purposes of his trade, and who have not been paid, "creditors' within the meaning of sec. 417?"
Decision:
Those who supply goods to "infant" traders are not creditors
Reasons:
An infant cannot enter into a contract of purchase in the strict sense. If an infant receives goods from someone that satisfies the infant's needs, the court will oblige them to repay the supplier, but there was not a contract in the strict sense
o "the obligation arises re and not consensu" The law protects infants so as they may have an opportunity to consider the
contract and decide whether to ratify it when they reach adulthood. o So this just means prior to this there is not a proper contract?
Case law from Mississippi:o A man who had contracted debts as an infant, conveyed a life interest in
his property to his daughter, with reversion to himself, in order to prevent "creditors" from taking his property
o Court upheld conveyance stating the suppliers were not "creditors"
Notes:
Repudiation must be given within a reasonable time of reaching full age (adulthood).
o This is true in situations in which the contract deals with acquiring an interest in permanent property which has obligations attached.
Nash v. Inman
Ratio:
An infant is liable for goods sold and delivered provided that they are necessaries of life
The burden is on the supplier to prove the goods were necessaries of the infant at the time of purchase
Facts:
The defendant was an undergraduate and university The plaintiff sent an employee to the university to solicit business from students The plaintiff was a tailor The plaintiff supplied the defendant with 145 pounds of clothing The plaintiff is trying to get payment
Issue:
Were the goods sold necessaries within the meaning of the definition in s.2 of the [relevant statute]
Whose duty is it to prove that they are necessaries?
Decision:
For Defendant, no evidence that the goods were necessary
Reasons:
"Necessaries in this section means goods suitable to the condition in life of such infant or minor or other person, and to this actual requirements at the time of the sale and delivery."
Judge does not think the plaintiff can merely argue that the goods were "suitable to the condition in life" of the infant at the time of purchase
o Must also show the goods are necessary
Lord Esher: The plaintiff must show not that they were necessary in distinction from luxuries, but that they were actually necessary to the defendant at the time of purchase
o "If an infant can be made liable for articles which may be necessaries without proof that they are necessaries, there is an end to the protection which the law gives him"
An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words; but if a man satisfied the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the services rendered, and will enforce that obligation against the estate of the infant or lunatic. The consequence is that the basis of the action is hardly contract. Its real foundation is an obligation which the law imposes on the infant to make a fair payment in respect of needs satisfied
3. Forfeitures and Penalty Clauses Shatilla v. Feinstein
Ratio:
The court may decline to construe the words "liquidated damages" according to their ordinary meaning and may treat such a sum as a penalty if there is the potential for varying breaches some of which are trivial and some which are significant.
Facts:
Feinstein sold his wholesale dry goods business to Shatilla Feinstein agreed to not compete within the corporate limits of Saskatoon for 5
years Feinstein agreed to pay $10,000 on breach of this covenant, recoverable for each
breach as liquidated damages, and not as a penalty Feinstein became involved with a business that also engaged in the wholesale dry
goods business Shatillah sued to recover the $10,000 Trial judge claimed the covenant was a penalty, not liquidated damages Shatillah appeals claiming the covenant was valid pre-estimate of liquidated
damages
Issue:
Is the sum fixed by the covenant a penalty? Or is it recoverable by way of liquidated damages?
Judgment:
Reasons:
If sum is in excess of any actual damage that could possibly arise it is not a good faith estimate
The questions arise:o Is the breach one that could only occur once?o Is the breach one that could occur repeatedly?o Could the breach occur repeatedly with varying effects?
The covenant in the contract could have breaches of varying severity but the damages paid is always $10,000
The court may decline to construe the words "liquidated damages" according to their ordinary meaning and may treat such a sum as a penalty if there are varying breaches some of which are trivial and some which are significant.
If the damages caused by a breach could never reach the sum stated then the conclusion that the sum is a penalty can be reached
H.F. Clarke Ltd. v. Thermidaire Corp. Ltd.
Ratio:
The Court will read "liquidated damages" as a penalty if the amount exacted is a grossly excessive and punitive response to the breach in question.
Facts:
Clarke agrees to distribute Thermidaire's products Agrees to not sell competing products If he breaches he is to pay "liquidated damages" equal to the gross trading profit
realized through the sale of such competitive products (239,449.05) Clark breaches
Issue:
Should the liquidated damages be enforced when they are grossly disproportionate to the breach
Judgment:
Reasons:
"The exaction of gross trading profits as a penalty in this case because it is in my opinion, a grossly excessive and punitive response to the problem to which it is addressed.
Stockloser v. Johnson
Ratio:
When a buyer is attempting to recover money paid to a seller in restitutiono If there is NO forfeiture clause:
If money is paid and the buyer defaults the buyer cannot recover money so long as the sell keeps the contract open and available for performance
If the seller rescinds the contract or treats it as ended due to the buyer's default, then the buyer can recover the money
o If there IS A forfeiture clause (Or money paid expressly as deposit): The buyer who is in default cannot recover the money at all The buyer MAY have a remedy in equity IF:
1. The forfeiture clause is of a penal nature (the sum is out of all proportion to the damage); and,
2. It must be unconscionable for the seller to retain the money
Facts:
Plaintiff agreed to buy plant and machinery from defendant Price payable in instalments
o In case of default by plaintiff, defendant could, after giving notice, retake possession of machinery and retain payments made by purchaser
Plaintiff defaulted, no claims return of payments made
Issue:
Is the forfeiture clause a penalty? Should the forfeiture clause be read as a penal
Judgment:
For Defendant, defendant can keep the money
Reasons:
This is not like the previous cases where the seller was trying to impose a penalty on the buyer
o "the courts decline to give [the seller] their aid because they will no assist him in an act of oppression"
In this case a buyer is seeking restitution of money already paid This requires different principles
o If there is NO forfeiture clause: If money is paid and the buyer defaults the buyer cannot recover
money so long as the sell keeps the contract open and available for performance
If the seller rescinds the contract or treats it as ended due to the buyer's default, then the buyer can recover the money
o If there IS A forfeiture clause (Or money paid expressly as deposit): The buyer who is in default cannot recover the money at all The buyer MAY have a remedy in equity IF:
1. The forfeiture clause is of a penal nature (the sum is out of all proportion to the damage); and,
2. It must be unconscionable for the seller to retain the money
Forfeiture/Penalty notes
Page 547:
Penalty:
Payment of money stipulated in order to dissuade the party from offending
Liquidated damages:
A genuine covenanted pre-estimate of damage
Ask Alford about the doctrine of unconscionability and if we need to know it
4. Clauses Excluding Liability (IC)George Mitchell Ltd. v. Finney Lock Seeds
Ltd.
Facts:
Denning gives a history of exemption clauses in contract law At first Company's would try to exempt themselves from everything In 1978 things changed;
o "the court will not allow a party to rely on an exemption or limitation clause in circumstances in which it would not be fair or reasonable to allow reliance on it: and, in considering whether it is fair and reasonable, the court will consider whether it was in a standard form, whether there was equality of bargaining power, the nature of the breach, and so forth."
(IC)Photo Production Ltd. v. Securicor Transport Ltd.
Ratio:
Talk to Alford? The key concern when assessing if a fundamental breach occurred is the
construction of the contract. Freedom to contract
o Words need to be clear? These are clear? And it isn't unfair?
Facts:
Appeal arising from the destruction of respondent's factory being burnt down Securicor undertook to provide a service of periodical visits of respondent's
factory for a very modest charge (26p/visit)o On a Sunday the employee was Musgrove
o He was not unsuitable for the job and Securicor was not found negligent for hiring him
o He visited the factory but when inside he deliberately started a fire which got out of control
o It was not established that burning down the factory was his intention The respondent wants Securicor to be liable for the fire The contract include standard conditions:
o "Under no circumstances shall the company [securicor] be responsible for any injurious act or default by any employee of the company unless such act or default could have been foreseen and avoided by the exercise of due diligence….."
Issue:
I. Whether the standard conditions can be invoked at all in the events which happened; and,
II. If so, whether either the exclusion provision, or a provision limiting liability, can be applied on the facts?
Decision:
Reasons:
Can the exclusion of liability clause be applied to this case?o Dennings approach-> was the breach "fundamental"
If so the court will deprive the party of its ability to rely on the exclusion clause
o Whether an exclusion clause is to be applied to a fundamental breach is a matter of construction of the contract.
Wilberforce L gives 3 supplementary comments regarding Fundamental Breaches of contracts
o Regarding breaches it is important that parties are able to estimate their respective claims according to the contractual provisions they have themselves made
They need to be able to negotiate what is in their interest in case of a breach and not have some duties forced on them by the court
Hunter Engineering Co. Inc. Et al. v. Syncrude et al.
Ratio:
The parties shall be held to the terms of the agreement they have made unless that agreement is unconscionable.
Facts:
Syncrude contracted with Hunter U.S. and Allis-Chalmers for gearboxes The contracts had a 24 month limited liability warranted from date of shipment or
12 month from install Allis-Chalmers included a clause providing that no other warranty/conditions shall
be implied, statutory or otherwise The gearboxes are shit and crack outside of warranty Syncrude sues for damages and gets $1mil at the BCCA Hunter and Allis Chalmers appeal
Issue:
Judgment:
Reasons:
Majority Dickson CJ:
Takes the approach to the doctrine of fundamental breach charted in Photo Production Ltd. v. Securicor Transport Ltd.
o Fundamental breach is a matter of contract construction The courts should not disturb the bargain the parties have struck
Parties shall be held to the terms of their agreement unless that agreement is unconscionable
Dickson CJ would rather address the protection of the weak from the overreaching by the strong, than rely on artificial legal doctrine.
Dissenting Wilson J:
Summary:
Yes, the courts should, as a general rule, give effect to the bargain freely negotiated by the parties, but the courts should have the power to refuse to enforce a clear and unambiguous exclusion clause in circumstances where the party is "trying to have his cake and eat it too." But veiling this power in "unconscionability" or "fundamental breaches" because no matter what you are saying you are trying to invalidate a properly bargained clause due to subsequent actions, and the ground for what constitutes the court enacting this power isn't clearly defined
Reasons:
The Court came to the stance that agreements should be enforced according to their construction
But the question remained: is there a context in which the court should not enforce exclusion clauses
o Like then they protect the party who committed the fundamental breach "Should a party be able to commit a fundamental breach secure
in the knowledge that no liability can attend it? Or should there be room for the courts to say: this party is now trying to have his cake and eat it too."
Issues with unconscionabilityo Unconscionability traditionally occurred when there was unequal
bargaining, but in these cases there is equal so what is the source?o It is subsequent events
How can there ever be certainty if both fundamental breach and unconscionability are legal tools designed to relieve parties, who bargained in good faith, from the burden of a legitimate clause in light of subsequent events
"I believe, however, that there is some virtue in a residual power residing in the court to withhold its assistance on policy grounds in appropriate circumstances"
Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection
Ratio:
In assessing unconscionability it isn't about whether there is merely an inequality in bargaining power, but if there is an abuse of the bargaining power.
Is the limitation clause one that makes sense economically for the defendant?
Facts:
Plaintiff contracted with defendant to have an alarm system installed and monitored
Defendant installed and monitored alarm system for two years until event in question
There was a robbery and the defendant failed to respond promptly to the alarm's activation
The plaintiff is suing for damages. There was an exclusion clause
o The plaintiff did not see the exclusion clause
Issue:
Is the exclusion clause enforceable in light of the subsequent events?
Judgment:
For the defendant, Limitation clause is enforceable
Reasons:
Is the exclusion clause enforceable?1. Is there a fundamental breach of contract?
The contract was fulfilled The plaintiff did not cancel service The event occurred due to a lapse/error on the part of an
employee Commercial purpose of transact was left intact
THEREFORE: No, there is no fundamental breach
Is the clause either "unconscionable" or "unfair or unreasonable?" Mr. Gordon's not having read the contract is irrelevant The limitation clause was NOT obscure, hidden, or ambiguous. It
WAS understandable and visible The question is not whether there was an inequality of bargaining
power. Rather, the question is whether there was an abuse of the bargaining power
The next question is whether the clause is "unusual in character" It makes sense that the defendant would not be liable for
all the plaintiff's property The contract states the defendant is not an insurer,
insurance should be retained The fees charged by the defendant do not relate to the
type of risks taken into account by property insurance
Davidson v. Three Spruces Realty Ltd.
Facts:
Plaintiffs' claims are for damages for breach of contract of bailment The plaintiffs stored items at the defendants storage facility. The defendant offered large storage as well as security boxes The contract completely exempts the defendant from any liability The defendant advised the plaintiffs that they did not require insurance The defendant advised the plaintiffs that their items would absolutely be secured The defendant did not advise the plaintiff to read the contract or make the
plaintiff aware of the limitation clause There was a theft
Issue:
Should the court uphold the freedom of contract in this case?
Judgment:
For Plaintiffs, The liability clause amounts to a clear "abuse of freedom of contract."
Reasons:
Quoting Denning:o "There is the vigilance of the common law which, while allowing freedom
of contract, watches to see that it is not abused" In ascertaining whether "freedom of contract has been abused" regard may be
given to the following:o Was the contract a standard form contract drawn up by the Baileeo Were there any negotiations as to the terms of the contract or was it a
commercial form which may be described as a "sign here" contract?o Was the attention of the plaintiffs drawn to the limitation clause?o Was the exemption clause unusual in character?o Were representation made which would lead an ordinary person to
believe that the limitation clause did not apply?
o Was the language of the contract when read in conjunction with the limitation clause such to render the implied covenant made by the Bailee to use reasonable care to protect the plaintiffs' property meaningless?
o Having regard to all the facts including the representation made by the Bailee and the circumstances leading up the execution of the contract would not the enforcement of the limitation clause be a tacit approval by the Courts of unacceptable commercial practices?
Plaintiffs weren't told to read Plaintiffs were assured of the safety Plaintiffs were advised not to insure etc. This sounds like a parol evidence issue in which you have a modification of
contract prior to contract?
Notes:
Talk to Alford: can this be condensed or synthesized shorter?
Delaney v. Cascade River Holidays Ltd.
1983 BCCARatio:
The court will look at the context of the contract and relationship within a parties to determine if a reasonable person would assume the general liability clause included certain specific considerations. Such as if liability from damage includes liability from personal injury or death in the context of a contract for a rafting trip
Facts:
Plaintiff is the widow and executrix of the estate of Fergus Michael Delaney Delaney was visiting BC on business, a friend invited him to come on a rafting trip Delaney was added to the raft Paid the money, then at a later time was made to sign a contract releasing
defendant of liability Delaney signed The raft flips and Delaney drowns The defendant was using shitty life jackets and was found negligent; BUT, The plaintiff failed to show that Delaney would have lived if he had a better life
jacket on
Issue:
Must the liability clause be signed with the exchange of funds? Was there consideration for Delaney's signing?
Was there sufficient notice of the liability clause Was it constructed to include liability from damages such as death
Judgment:
For defendant, appeal dismissed; There was consideration and adequate notice. The nature of the venture would lend Delaney to understand the extent of the liability clause
Reasons:
Arguments by Nemetz C.J.B.C dissenting:o Past consideration
Delaney paid prior to signing the liability clause The defendant was obligated to take him on the trip anyways
because money had been exchanged Note: couldn't he just return the money and claim that
the liability form was in fact a required aspect to the original contract?.. Could Delaney have rejected the return of the money and demanded to be taken?
o Insufficiency of notice: The form was signed in a hurry, likely without reading The form was called standard which made the passenger feel safe The form did not mention risk of personal injury or death
Had the true risk been disclosed in the exemption clause Delaney may not have assumed the risk to absolve the defendant of liability from negligence
o Arguments of McFarlane J.A. majority:
o Plaintiff failure to show that defendant's negligence was cause of deatho Regarding past consideration:
The immediate consideration was getting to continue with the adventure
o Regarding the language of the exemption clause: The Court looks not at the construction but at the relationship
between the parties and the context within which the contract exists
(a reasonable persons test of sorts?) Given the nature of the venture liability from injury and death
could be assumed within the clause
Tercon Contractors Ltd. v. British Columbia
Ratio:
The doctrine of fundamental breach is laid to rest and the Court determined that freedom of contract would prevail unless the exclusion clause was unconscionable at the time the contract was made or there is some overriding public policy concern to defeat what would otherwise be the contractual right of parties to draft their own agreements
Facts:
The Ministry of Transportation initiated a tendering process and called for bidso The process included an exclusion of liability from any claim for
compensation as a result of participating in the process The Ministry accepted a bid from an ineligible company. Tercon is suing for … (lost profit?)
Issue:
Did the Province breach the tendering contract by entertaining a bid from an ineligible bidder; and,
if so, does the exclusion clause bar Tercon's claim for damages for the Ministry's breach?
Decision:
For the Plaintiff, The ministry did not exclude itself from liability from the sort of breach committed by the ministry.
BUT, 5-4 split Decision:
Reasons:
The dissenting view expresses the courts process in determining whether an exclusion clauses apply, It is the same view as the majority but there is a disagreement on whether the exclusion clause even applies (step 1):
o 3 part test; If step 1 and 2 succeed then step 3: I don’t remember what I was doing here so hopefully this makes
sense
3 Step Test for determining whether an exclusion clause applies
If 1. 1. As a matter of interpretation does the exclusion clause even apply to the circumstances established in evidence
Depends on Court's assessment of the intention of the parties as expressed in the contract (read in light of commercial context and purpose)
And 2. 2. Was the exclusion clause unconscionable at the time the contract was made, "as might arise from situation of unequal bargaining power between the parties" Has to do with contract formation, not breach (unconscionability in Hunter)
Then 3. 3. Should the court nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy Burden lies on the party seeking to avoid the enforcement of the clause to show that
the public policy overrides the public's interest in the enforcement of contracts.
Exclusion Clause Notes/Ratios Exclusion Clauses will NOT be enforced if the plaintiff's attention was not
adequately drawn to the limitation clause before entering into the contractual relationship, or at least before a breach of contract or a negligent act or an omission occurred.
o Adequately means they must be AWARE that there is a limitation clause… if they know that a limitation clause is included in the contract then they have been made aware enough
Regarding negligence being included in exclusion clauses:
o When can negligence be interpreted as being included in the exclusion clause?
"If negligence can reasonably be construed as being within the contemplation of the parties in formulating their agreement, then the clause will extend to liability for negligence"
o It is unlikely that a party would absolve the other of liability regarding negligent performance on the contract, so:
If an exclusion clause can reasonably contemplate any head of liability other than negligence, it is generally construed as not extending to negligence
Willful misconduct is separate and distinct from negligence, and does not fall under the scope of limitation clauses the limit liability relating to negligence
Inserting liability clauses into a contract specifically because one is operating on specific information and is trying to avoid specific liability is unconscionable conduct
Regarding whether a limitation clause should apply if the party didn't read the clause but signed:
o It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question that an obligation exists to ensure the party signing understands the exclusion clause
o The exclusion clause's relation to the nature of the contract is important… the exclusion clause cannot be contrary to the normal expectations of the signing party
5. Unconscionability and Undue Influence The Limits of Freedom of Contract
Inequality of Bargaining Power
Gordley's theory of bargaining is the both parties should gain equally from the exchange
o Ethical principle for equality of exchange… contracts should be invalidated if one party gains disproportionately
o The ethical intuition is that a party in an everyday exchange does not intend to make a gift to the other party, which is what occurs if one person pays too much or receives too little in an exchange
o It is a theory of substantive fairness I don't know how this section applies
Information Processing Disabilities: Cognitive Deficiencies
Cognitive deficiencieso Where two parties have equal access to the relevant body of information
about the contract subject matter, but have sharply differential capacities to evaluate the implication of that information for their respective welfare
Two sub-cases:1. Transactional incapacity
A knows of B's inability to deal with a given complex transaction and exploits that incapacity by inducing B to make a bargain that a person who had the capacity to deal with the transaction probably would not make
2. Unfair persuasion The use of bargaining methods that seriously
impair the free and competent exercise of judgement and produces a state of acquiescence that the promisee knows is only temporary in the promisor
Intrusive sales tactics Taking advantage of someone's
emotional state
For terms to be binding they should arise out of the autonomous consent of the parties and reflect base-line conditions of voluntariness and information
Standard Form Contracts
Two hostilities against standard form contracts:i. That the use of standard form contracts is a manifestation of monopoly
ii. That the use of standard form contracts is typically characterized by imperfect information on the part of some of the parties to them
The second argument is more substantialo People know that people do not read all the terms, and it saves people
money to bargain like thiso So when should it be wrong to enforce standard forms?
Where a supplier has deliberately exploited a consumer's ignorance of terms generally available, in the market for like goods or services, to consumers in an economically similar situation in order to exact terms substantially inferior to these
generally prevailing terms, the supplier's actions should be viewed as unconscionable`
Unconscionability and the Code
Arthur A. Leff, "Unconscionability and the Code"
Introduces the basic necessities of a contracti. Parties with capacity
ii. Manifested assentiii. Consideration
Party is bound unless he can make standard contract-law defense:o Fraud, duress, mistake, impossibility or illegality.
These defenses can be grouped into two categories:1. Process of contracting
Fraud, duress2. The resulting contract
Impossibility, illegality
These two categories are then used for two forms of unconscionabilityo Procedural Unconscionability
Problems existing in the formation process of the contracto Substantive Unconscionability
Problems existing in the resulting contract
There is not clear definition of what is meant by unconscionable (in America?) Asks the question of what is the best way to inject unconscionability doctrine into
law?o Author would prefer well drafted legislation
Discusses case where a woman of limited intelligence supporting her family off
$218/month from government purchases $500+ stereo, defaults, and has the rest of the appliances from this store taken as well.
o "Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party"
i. Negotiating aspectii. Contractual terms aspect
Notes the dangers of using class stereotypes in applying unconscionability
o Young people can't bind themselveso Old ladies can't bind themselveso Blahblahblah
Author wants more satisfying legislation.
Exploitative Contracts
Rick Bigwood, Exploitative Contracts (Oxford: Oxford University Press, 2003), 505-10,514-15
Should some conduct lesser than exploitation function as the justificatory paradigm for state interference with contracts entered into under potentially exploitive conditions?
Author uses the idea of the norms of a "legal neighbourhood"o Exploitative contracts breach the norms that define and constrain pre
contraction interactions of bargaining parties
Legal Neighbourhood:1. A situation where "serious" vulnerability or dependency exists on the one
side of an interpersonal relationship or dealing; and,2. That vulnerability or dependency is sufficiently known to the party on the
other side of the relationship, who enjoys an atypical degree of interpersonal power as a result
3. The power imbalance creates special responsibilities for the less vulnerable party
Legal neighbourhood generates norms of decent treatment toward parties who are vulnerable
Violation of these norms justifies state-intervention
Responsibilities:1. Responsibility not o create serious vulnerability to harm in bargaining2. Responsibility to not unfairly derive benefit in virtue of another's known
serious bargaining disadvantage relative to you, even though you didn't create the disadvantage
Exploitation is preferred over mere neglect because it still respects sanctity of contract
Post et al. v Jones et al.
Ratio:
Where one party has absolute power, and the other has no choice but submission is a transaction which has no characteristic of a valid contract
Facts:
A Ship the Richmond was whaling in the north Pacific Ran onto rocks close to shore in fog
o Winter was coming Other whaling ships were spotted nearby when the fog cleared The captain went to a ship and asked them to take their crew, and that there was
whale oil on the Richmond for them to take Other ships became involved and there was an auction of the oil
o The prices were LOWo The captain had to accept them
Issue:
Is the transaction between the captain of the Richmond and the other boats valid given the bargaining situation the captain was in
Decision:
For the Richmond,
Reasons:
Putting items to sale where there was no market, no competition, and where one party held all the bargaining power - is a transaction which has no characteristic of a valid contract
Courts of admiralty enforce contracts for salvage, but they do not like it when a party takes advantage of the situation and of other's misfortune to drive a bargain
Marshal v Canada Permanent Trust co. Supplemented brief by Cassidy Thomson
Issue Ratio NotesWhat is unconscionability?
There are two requirements for unconscionability:
(a) Gross inequality of bargaining power (so one party might have incapacity like this case)
(b) An improvident bargain. (a bad deal!)
Person who asserts the K is unconscionable must prove it is so on a balance of probabilities… once they do a prima facie case is made out. Then it is up to the other person to rebut or explain why it isn’t unconscionable (i.e. the bargain is fair)
Facts: Ptf offered to purchase land from def. who was in an elderly care home. Def accepts. The price for the land is grossly undervalue. Def. in process of being declared mentally incapacitated to deal with his legal affairs. Trust takes over his affairs and refuses to complete the K. Ptf sues for specific performance. Def’s estate counter claims for rescission due to unconscionability.
Class Notes:
To get equity you have to have clean hands Sharp transactions: using sharp practices and then selling a piece of junk
o Not an issue for unconscionability o Not an issue of capacity
Do you need public legislation/ contract law to determine a deal is unfair?o Just find the fair market value…
Confined to purchase of land
Did Marshall know Walsh was incapable of bargaining?o No.
Should he know/is he at fault?o There are constructive facts that you …
Doctrine only comes into play when someone takes advantage of bargaining power
You are the one getting the advantage, you leveraged ito If though you didn’t know they were weak
It doesn’t matter that you didn’t know because you got the advantage
(IC) Mundinger v MundingerRatio:
In situation with a difference of bargaining powero Burden is on the plaintiff to prove the deal was horrible due to a difference in bargaining power
Then: burden shifts to defendant to prove that the deal was fair
Facts:
Broken marriage Wife is suing for alimony
o Barrier: she signed away rights Bad bargain generally won’t be considered but:
History of cruel treatment in relationshipo Nervous breakdowno Overdose
Then, induced to signo Husband said she didn’t need a lawyer even though she wanted one
Issue:
Unconscionability within a relationship where there is no typical mental weakness?
Reasons:
He was in a position of control o Court quotes Coutes
“…..”o Burden shifting when you have to prove:
Because he got such a good deal he needs to show it was fairo Before burden is on him, you need to show the deal is really bad and
there was a difference of bargaining power
Lloyds Bank Limited v BundySupplemented brief by BBeitzFACTS Old Herbert Bundy mortgaged his only remaining asset farm that had been in his family for 300
years to bank to benefit his son. Bank sued to throw him off the property. Bundy had not obtained independent legal advice before entering agreement. Bank knew Bundy had no other assets.
HELD Undue influence. K set aside.RATIO "law gives relief to one who without independent advice, enters into contract upon terms which are
very unfair or transfers property for consideration which is grossly inadequate, when bargaining power grievously impaired by reason of own needs, desires, ignorance, infirmity, coupled with undue influences or pressures brought to bear on him by or for benefit of the other"
Bank manager knew business would fail and wasn’t trying to save it; only wanted to shore up Bank’s losses
OTHER Denning decision
Class Notes: Son needs something (securing land against something) for increased line of credit
from bank Father signs pretty much anything because he is old Father signs security for son When should the bank manager, who went over to the house to attain the signature,
be on inquiry notice to make sure the person is with ito Unifying principle: Bargaining Power
Where the bargaining power is so strong with one party, and so weak with another
Hinges on lack of independent considerationo Greviously impaired bargaining power
(IC) Credit Lyonnais Bank Nederland NV v BurchMiss Burch started working for her employer at the age of 18. She became close to the director, Mr Pelosi, who was an Italian business man 10 years older and trusted him implicitly. She often visited his home to do babysitting and went on holiday with the family to Italy. At the age of 21 she purchased a flat. 5 years later, she was still working for him but the company was experiencing financial difficulty. Mr Pelosi asked her to put her flat up as security for a loan taken out by the company. He told her that his home and villa in Italy were also secured on the debt but they would not accept 100% mortgage on these properties and needed another £20,000. She agreed to allow her home to be used as security believing that it was only £20,000 and that Mr Pelosi's properties would first be sold which would release the debt so that there was no risk to her. The bank had written to her and informed her that the charge was unlimited in amount and time and advised her to seek independent advice. She at no time was told of the extent of the company's borrowings which stood at £270,000 neither did the bank satisfy themselves that she had in fact received independent advice.
Held:
The agreement of Miss Burch had been obtained by undue influence and the bank had notice of this as the transaction was so obviously to her disadvantage. The bank had taken insufficient steps to avoid constructive notice. Therefore the transaction could be set aside.
(IC)Royal Bank of Scotland p.l.c. v Etridge (No.2) and Other Appeals
Ratio:Facts:Issue:Decision:Reasons:
(IC)Pridmore v CalvertRatio:Facts:Issue:Decision:Reasons:
(IC)Horry v TateRatio:Facts:Issue:Decision:Reasons:
6. Duress (IC)Greater Fredericton Airport authority Inc. v
NAV CanadaRatio:Facts:Issue:Decision:Reasons:
Ch. 7 Public Policy 1. Introduction
These cases expose the "inarticulate major premise" underlying judicial Decision:s
Policy is often used to denote the residual or overriding sense of justice between the parties and 'public policy' often indicates enlargement or restriction of liability because of anticipated salutary effects on the future behaviour of others
o If x changes peoples will start behaving badly regarding y Denning things policy Decision: can be good if the man being doing the
consideration is smart. The MAJOR background policy regarding contract law is the freedom of
competent men of age to contract freely with each other
2. The Effects of Illegality Holman v Johnson
Ratio:
Vendors whose items are used for illegal or immoral purposes are not guilty of any offence, once the contract is complete the vendors interest is totally at an end
The court will not lend its aid to a man who founds his cause upon an immoral or illegal act
Facts:
The plaintiff and a partner delivered tea to the defendant (to The plaintiff knew the defendant would be attempting to smuggle the tea into
Englando This was none of the plaintiff's concern, he was not involved in the
smuggling at all
Issue:
Since no court will lend aid to a man who founds his cause upon an immoral or illegal act, is the plaintiff's demand founded upon the ground of any immoral act or contract, or upon the ground of his being guilty of anything which is prohibited by a positive law of this country?
Decision:
For Plaintiff, Can't be guilty of something he wasn't involved with
Reasons:
There is an issue that on principle no court will lend aid to a man who founds his cause upon an immoral or illegal act.
Is the plaintiffs action on an immoral or illegal ground? The action is merely for goods sold and delivered at Dunkirk
o Is there a law that makes it illegal to sell goods in Dunkirk??? Not this time
Where is the guilty action?o The contract was complete with nothing left to be doneo The interest of the vendor is totally at an end, and his contract complete
Vendors whose items are used for illegal or immoral purposes are not guilty of any offence, once the contract is complete the vendors interest is totally at an end
3. Contracts Contrary to Public Policy Expressed in the Common LawTypes of contracts in this section:
Contracts I restraint of trade Contracts under which a criminal would receive a benefit from his or her crime Contracts to defraud a third party Sexually immoral contracts Contracts to commit a crime or tort Contracts prejudicial to public safety Contracts to promote corruption in public life Contracts prejudicial to the status of marriage
Egerton v Brownlow
Note Case
PARKE B. : Traditional view-
Judges should only expound the law They should not speculate upon what is best, in his opinion, for the advantage of
the communityo SOME Decision:s are founded in a public good
But judges cannot establish law as anything that may think is for the public good
POLLOCK L.C.B.:
Judges have no better insight into the public good than wise members of society Just because they are no better off than other members doesn't mean they
shouldn't address issues of public policy Judges have a clear basis to say something is illegal-> saying
something is immoral is trickier
In the Matter of Baby "M"
Ratio: ?
Facts:
Mr+Mrs. Stern want kidso Advised against because of medical conditiono Want biologically connected child because parents survived holocausto Adoption isn't option regardless
They get surrogate mother Surrogates contract states:
o She would be artificially inseminated with Mr. Sterns spermo She would assume risks of childbirth o Submit to psychiatric exam at Mr. Sterns expenseo Upon childbirth she would surrender all parental rightso Mr. Stern assumes the risk of the child being born with defectso Mr. Stern agrees to pay her $10,000+expenses
Surrogate refuses to relinquish parental rights Sterns sue for specific performance of the contract Trial judge says the contract is enforceable Surrogate appeals
Issue:
Is the surrogacy contract enforceable
Decision:
For Defendant; surrogacy contract is contrary to public policy
Reasons:
First states "in a civilized society, [there are] some things money cannot buy
Then discusses the potential negative impacts on the child and the mother o Surrogacy has unknown future impacts
Discusses how the surrogacy contract is contrary to the objectives of U.S. laws Morality informed by law
o Guarantees the separation of a child from its mothero Looks to adoption regardless of suitability (Sterns were rejected by
adoption agencies)o Totally ignores the childo Takes the child from the mother regardless of her wishes and maternal
fitnesso Accomplishes all this through the use of money
Because of the harmful effects of the contract the contract is void
Paternalistic concerns for the impoverished obviously a moral judgement
3.a. Contracts in Restraint of Trade Shafron v KRG Insurance Brokers (Western) Inc.
Ratio:
The reasonableness of a restrictive covenant is determined by considering the extent of the activity sought to be prohibited and the extent of the temporal and spatial scope of prohibition
If the covenant is ambiguous, in that what is prohibited is not clear as to activity, time, or geography (must be all 3) it is not possible to demonstrate that it is reasonable
Facts:
2009 SCC Case In 1988 Mr. Shafron sold his ownership of his insurance brokerage business to
KRG He continued to be employed but signed a contract which contained a non-
competition clauseo If he left KRG he would not carry on a similar business for three years
within the "Metropolitan City of Vancouver" <---- not a place In 2000 Shafron left KRG and began selling insurance in Richmond for another
company KRG sued for breach of contract Trial judge found clause unenforceable, Court of appeal reversed, Shafron appeals
to SCC
Decision:
For Shafron; the clause is ambiguous?
Reasons:
Policy considerations relating to restraint of trade:
o The public, and every individual has an interest in being able to trade freely
o Restraints of trade are contrary to public policy These restraints can be justified if by the special circumstance of a
particular case, and if the restraint is reasonable Reasonable in reference to interests of the parties and
interests of the public There is a presumption that restrictive agreements are prima facie unenforceable,
but a reasonable restrictive agreement will be upheld
There is a greater freedom to create reasonable restrictions between buyer and seller than between employer and employee
Relation between Buyer and Seller: Public Policy requires man not to deprive himself/state of his
labour/skill/talent by entering into contracts BUT, certain contract will require him to agree not to compete
with the other party "a person seeking to sell his business might find himself with an
unsaleable commodity if denied the right to assure the purchaser that he, the vendor, would not later enter into competition"
o When an individual sells a business there is a payment of goodwill Does this payment serve as consideration for the non-competition
clause?
Relation between employee employero These considerations do not apply to employee-employer relation
because: There is no payment for goodwill The is an imbalance in power between employee-employer
o All competition clauses are potentially void this carves out when they aren’t void
o For these reasons the reasonableness of a restraint receives more rigorous scrutiny
o The reasonableness of a restrictive covenant is determined by considering the extent of the activity sought to be prohibited and the extent of the temporal and spatial scope of prohibition
o If the covenant is ambiguous, in that what is prohibited is not clear as to activity, time, or geography (must be all 3) it is not possible to demonstrate that it is reasonable
Policy issue with non-compete clauses:o “you can’t practice your trade”
Society suffers, people might pay higher prices Different from baby M in a sense
o Balancing freedom of contracts with societies concerns Societies concern equaled paternalism
3.b. Contracts Related to Gaming
Boardwalk Regency Corp v Maalouf
Ratio:
English courts refuse to give legal effect to transactions which they hold to be immoral
In determining whether a contract relates to moral conduct see if the conduct is in the Criminal Code
o If it is check to see if it is conduct that is an outright offence or conduct that could be amended to be regulated?
Facts:
Respondent from Ontario got into debt in New Jerseyo Failed to pay debto Allowed a judgment to be entered against them in New Jerseyo Now resists that judgement
…Trial judge says the N.J. judgment should be dismissed based on the public policy in the Ontario Gaming Act
Appellant's issues: o Loan was not a wagering agreement (a bet of sorts?) within s.4 of Gaming
Acto The law of the contract is New Jersey not Ontario; and,o It is not contrary to public policy in Ontario to enforce the New Jersey
judgment
Decision:
Reasons:
Public policy concerns that may hinder enforcement of foreign judgementso English courts refuse to give legal effect to transactions which they hold
to be immoral Morality is a category
o An agreement which is intended by the parties to promote an immoral purpose are based on immoral consideration
o An important element of Canada's sense of morality is what Canada has consensually determined is not to be tolerated, as found in the Criminal Code
o The court then examines the history of gaming laws Goes from way back when up until… In 1956 gambling laws shifted because the prohibitions against
gambling were seen as not being consonant with the public perception of morality
Class notes: o It isn’t legal to loan money in consensus
But there has been gambling licenses issued in Ontario Provinces have the ability to license gambling It wouldn’t be immoral to lend money to a friend for him to play
lotto
But statute is enforced because of policy reasonso Dissent:
Didn’t need to get to morality: would it have been illegal? Yes, if it was here-> not enforceable
3.c. Contracts in Furtherance of illegal Purposes Alexander v Rayson
Ratio:
If the document itself is meant to be used fraudulently it is equivalent to the document being about an illegal activity
Facts:
Defendant leased a flat from the plaintiff for 1200 pounds/year The agreement was separated into two near-identical agreements
o The first provided services and maintenance for 450o The second provided the some plus supply and service of a frigidaire for
750 This way the plaintiff could defraud the City Council into thinking he was only
making 450 from the property She refused to pay because he didn't perform the services evidently He brought an action for specific performance She argued that enforcement of the agreement would be contrary to public
policy, since the purpose of the contract is to defraud the city council The trial was interrupted to see if this was an available defence
Issue:
Has the plaintiff left himself in the same position in law as though he had let the flat with the intention of its being used for an illegal purpose?
Decision:
For Defendant, it is an available defence
Reasons:
Has the plaintiff left himself in the same position in law as though he had let the flat with the intention of its being used for an illegal purpose?
A problem in this case is that it is not the goal or content of the contract that is in itself or immoral.
The contract on its own ;is valid, it is not the subject matter that is immoral/illegal The contract as a document was created to defraud a party, the document itself
was meant to be fraudulent The court says this does not make a difference
If the document itself is meant to be used fraudulently it is equivalent to the document being about an illegal activity
Class Notes: Did she get title from agreement?
o When she is in court is she enforcing the (immoral) agreement or defending her title?
She is just protecting a property right The plaintiff can’t bring an action based on a contract that was meant to defraud a
3rd party
3.d. Contracts Conferring Benefits as a Result of CrimeBrissette Estate v. Westbury Life Insurance Co.
SCC Case 1992
Ratio:
It is public policy that a felon cannot benefit from his/her crime If an individual is rewarded a benefit because of a crime they/their estate will be
granted the benefit if a contract directly makes them a beneficiary and they were not privy to that contract
Facts:
Married couple takes out life insurance under which they are labelled "the insured"
In the death of one, the insurance proceeds would be paid to the survivor Husband murders wife. Estate of the deceased wife claims entitlement to the proceeds of insurance
Issue:
Does the dead wife's estate have an interest in the policy
Decision:
For Defendant
Reasons:
In Demeter v Dominion Life Assurance Co.
Husband insures wife's life. Husband arranges wife's death Husband is denied from claiming the policy because they would not let the felon
benefit The wife was not party to the claim and had no interest in the claim (Only the
husband would receive the money if she died) Court decided not to give her estate anything
In Cleaver v Mutual Reserve Fund Life Association
Man insured his own life w/ wife as beneficiary Wife murders husband The money goes to the estate of the wife in trust Wife is denied money, but it remains in her estate as public policy couldn’t
abrogate a right held by her estate according to some statute
This case:
Court assesses it as being closer to Demeter as they are both "the insured" and the beneficiary is "the survivor"
o The wife's estate cannot be deemed to be a beneficiaryo There is no unjust enrichment by denying the wife's estateo Further problematic… if the denial of the wife's estate was unjust there
would be no way to get the money The interest is in the husband, so the money would have to be
transferred in trust to the husband, so that the wrongdoer does not benefit, and then transferred to the wife.
A trust can't be set up because payment of the insurance policy is unenforceable
This would be different if it were payable to the state initially like in cleaver
Oldfield v Transamerica Life Insurance Co. of Canada
Ratio:
Public Policy Rule:o A criminal should not be permitted to profit from crimeo Operates independently from contract law unless modified by statuteo Rule extends to those who claim through the criminal's estateo Rule is inapplicable to innocent beneficiaries
For this case: Public policy does not apply to bar a claim by an innocent beneficiary named in an insurance policy merely because the insured dies while committing a crime
Facts:
Plaintiff is trying to claim the proceeds of a life insurance police under which she is named beneficiary
Ex-husband was required to name her beneficiary until their children reached 18; he is paying child support and life insurance is in case he dies and can’t pay
Husband died in Bolivia, as drug mule, when cocaine balloon burst inside him Insurer refuses to pay on policy grounds
Issue:
Should she be able to collect the policy when the husband died committing a criminal act
Decision: For plaintiff
Reasons:
Public Policy Rule:o A criminal should not be permitted to profit from crimeo Operates independently from contract law unless modified by statuteo Rule extends to those who claim through the criminal's estateo Rule is inapplicable to innocent beneficiaries
Two Rationales for public policy rule
1. Enforcing illegal contracts would remove the restraint men have from committing crimes
If you could commit a crime and profit greatly from an enforceable contract you made in relation why not? (contract to be paid for assassinating someone)
2. A Court will not permit injustice To deny an innocent beneficiary proceeds from claim would be
inconsistent with justice The victim would be punished
Obiter Dicta: Public Policy rule Reformo The distinction between innocent beneficiary and those claiming through
criminal's estate seems arbitraryo "It might be appropriate to modify the public policy rule so as to permit
an innocent person who claims through the criminal's estate to take insurance proceeds.
4. Contracts Contrary to Public Policy Expressed in Statute
In many modern cases, the problem stems from a contract that is made in contravention of a statute
First Issue:o Is the contract illegal (for contravening the statute)
Bigger Issue:o If it is illegal, what is the result?
4.a. When a Contract is Rendered Void by Statute Kingshot v. Brunskill
Ratio:
The Court cannot read into the regulations exemptions which might appear to the Court to be justifiable in a given set of circumstances
Facts:
Plaintiff is farmer, who grows apples on the side The defendant grows apples and buys apples off other farmers, grades them, and
sells them The Farm Products Grades and Sales Act states farmers cannot sell produce unless
it has been "graded, packed and marked in accordance with the provisions of the Act and these regulations"
The plaintiff harvests his apples and roughly sorts them Def. agrees to purchase all the apples at a set cost Def. slowly removes apples… Plaintiff sends final group of apples, def. gets these graded and they are rejected
by inspector Def. refuses to pay, Plaintiff sues for full price of all apples. Defendant pleads the sale of apple was prohibited by statute and illegal
Issue:
Can the plaintiff recover the amount owed on a contract that contravenes a statute?
Decision:
For defendant, Court begrudgingly can't find a way to make this just because he doesn’t have the balls that Denning does.
Reasons:
The Minister of agriculture can make regulations Minister makes regulations which state no one can sell produce unless it goes
through and satisfies the regulatory process Anyone who contravenes the provisions is guilty of an offense (it is illegal) "There is no provision in the regulations that would exempt the [farmer] from
compliance with the regulations. The Court cannot read into the regulations exemptions which might appear to the Court to be justifiable in a given set of circumstances"
Doherty v Southgate (Township)
Ratio:
Lead Case If the statute does not contain a clause voiding contracts that contravene its
provisions, the contract will be enforceable so long as there would be no changes to the content of the contract had the statute been followed.
Policy: Legislature doesn’t waste its breath If the contract can be voided due to any statutory breach it
would allow the plaintiff to wait until they see if the contract is beneficial before deciding whether to void it or not. This removes the risk, which is a fundamental aspect of contracts;
Facts:
Southgate entered into contract with Doherty (a developer) to sell some surplus land
Municipal Act of Ontario requires certain conditions of municipalities selling landi. Requires to have a bylaw setting out procedures for the sale
ii. Bylaw required to provide for notice to the public Southgate never provided notice to the public Contract stipulated Southgate would rezone the land
o Southgate failed to do this Doherty sues for breach of contract Southgate argues contract void because the public notice required by statute
wasn't given
Issue:
Will the contract been rendered unenforceable because it contravenes the Municipal Act of Ontario?
Decision:
For Plaintiff, not every statutory breach results in a contract being void or unenforceable
Reasons:
Quoting Waddams, "If every statutory illegality, however trivial, in the course of performance of a contract, invalidated the agreement, the result would be an unjust and haphazard allocation of loss without regard to any rational principles"
"I think public policy favours that contracts should not be rendered unenforceable merely because of technical deficiencies
Three reasons the contract in this case isn't rendered void 1. There is nothing in the statute under consideration that states a contract
made in contravention of that statute is unenforceable2. There is evidence to show that even if public notice had been given the
contract would have gone ahead the exact same (pre-existing public support was shown)
Would it change the contract if the statute been followed? If yes, then voided.
3. Southgate is just trying to take advantage of its own failure in order to avoid going through with the zoning amendment. If needed Doherty would likely give more time for Southgate to give notice.
The court here has shifted from strictly obeying statutes and is trying to examine whether following the statute would have any different outcome on the contract
Class Notes: What is the punishment available from the statute?
Can the plaintiff bring action on the statute? No
If contract is void then enforcement of public law is happening in private law
4.b. A Common Intent to Perform a Contract Illegally
Ashmore, Benson, Pease & Co. Ltd. V A.V. Dawson Ltd.
Ratio:
Illegality in the performance of a contract may void it if both parties are aware even though the contract was not illegal ab initio
In equal fault, better is the condition of the defendant "In pari delicto, potior est conditio defendantis"
Facts:
A big piece of engineering equipment was been transported from Stockton-on-Tees to Hull
It was very heavy (25 tons) and it tipped on the way (the max weight was 10 tons) It cost 2,225 to repair. Manufacturers claim damages from the hauliers Hauliers plead that the load was too heavy for the vehicle That performance of the contract of carriage was illegal Evidence shows the cause of the tip was the weight of the load Evidence shows that the transport manager for the manufacturer knew that the
load was overweight but was content to transport it on those particular vehicles because it had worked in the past and was cheap
Issue:
Is the contract nullified because the performance of the contract was illegal?
Decision:
For Defendants, contract is voided because it was illegal
Reasons:
The question the court asks is: was the contract lawful in performanceo It acknowledges that there was nothing illegal with the contract itself it
could have been performed legally Quoting Atkin L.J in Anderson Ltd. V Daniel:
o I think that it is equally unenforceable by the offending party where the illegality arises from the fact that the mode of performance adopted by the party performing it is in violation of some statute
Illegality in the performance of a contract may void it although the contract was not illegal ab initio
While the defendants were party to the illegality it is better to be the defendant in this situation
5. Mitigating the Consequences of Illegality Because there are so many ways in which a contract may be or be
performed illegally there have been exceptions made to mitigate These exceptions are criticized as overly technical, lacking in logic and
consistency
5.a. When the Claim is Founded on an Independent RightMistry Amar Singh v Serwano Wofunira Kulubya
J.C.P.C (?) on appeal from the court of Appeal for Eastern Africa
Ratio:
If a party has a right that predates (better word?) the illegal contract it will be respected and override the principle that the defendant is in the better condition.
Property interest cannot transfer via a contract void ab initio
Facts:
The plaintiff is trying to evict the defendant from lands which he was leasing to him
The lease agreements did not acquire the consents of the governor and the "Lukiko" and so were contrary to Ugandan law
The defendant argues that since the contracts are illegal an action cannot be brought upon them
Issue:
Can the defendant continue to occupy the land, even though he has no right to the land
Decision:
For the Plaintiff
Reasons:
The plaintiff's right to claim of the land was not dependent upon the contract The defendant has no right to the land as a non-African
o He had no right without the consent in writing of the Governor The contract being illegal he could not rely on them to justify his claim
The plaintiff has a claim that predates the illegal contract The plaintiffs claim persists and so overrides the principle that in equal fault it is
better to be the defendantClass Notes:
1) Hypothetical rule: there is certain land that can only be sold to the government or certain parties
2) Statute says you can’t give title to non-aboriginal3) Singh (non-aboriginal) says the contract is illegal and so an action can’t be brough
to enforce rent4) Kaluya brings eviction notice instead5) When you bring eviction they say you’re in breach of agreement. But if there is no
agreement what right does Singh have to be on the land?6) What right does Kalubya have to evict?
His property right. This right is outside of the lease agreement
5.b. Restitution General principle of restitution:
o Where benefits have been conferred by one party on the other to an agreement that is unenforceable by reason of a doctrine of common law or equity, restitutionary relief will be available to the conferring party to enable recovery of the value of the benefit conferred
Complicated in cases with illegal transactionso "no court will lend its aid to a man who founds his cause upon an
immoral or illegal act" There are some exceptions
Exceptions:o Restitutionary relief is made out in circumstances where the party
conferring the benefit was unaware of the facts that render the transaction illegal
o Circumstances where the defendant has induced the plaintiff to enter the agreement by oppressive conduct such as fraud or undue influence
Kiriri Cotton Co. Ltd. V Rachhoddas Keshavji Dewani
Ratio:
In cases where one party is trying to recover money paid or property transferred under an illegal contract:
o If two parties enter into an illegal contract, and money is paid upon it by one to the other, money may be recovered back from the execution of the contract, but not afterwards, the court will not lend aid if the contract has been executed unless it appears that the parties were not in pari delicto (equal fault)
If the contract is fully executed (determining if the parties are not pari delicto):
If there is something in the defendant's conduct which shows that, of the two of them, he is the one primarily responsible for the mistake, then it can be shown that
the parties are not in pari delicto and the plaintiff can recover
Facts:
Plaintiff was looking for a place to live but was having trouble He eventually got a flat but had to pay a 10,000 schilling premium He argues that the premium was illegal because it was in contravention of the
Rent Restriction Ordinance Rent restriction ordinance says landowners cannot request any fee other
than rent Statute is worded confusingly so neither party knew it was illegal
Issue:
The premium paid was illegal, and has been paid to the defendant, can the court aid the plaintiff in recovering the premium when there is not ordinance in Ugandan legislation for the recovery of illegal premiums
Or, Can the plaintiff recover
Decision:
For Plaintiff
Reasons:
The Rent Restriction Ordinance does not allow for premiums like the one the plaintiff paid
o The court acknowledges though that neither party knew that it was illegal because the legislation was poorly worded
There was no evidence to show that the premium was extortionate Can the plaintiff recover? The courts have stated that "what is done in contravention of an Act of
Parliament, cannot be made the subject matter of an action" o This is in relation to cases where the party wants the court to positively
enforce an illegal contract This case is different
This case is about a party seeking to recover money paid or property transferred under an illegal transactions
o This principle applies: If two parties enter into an illegal contract, and money is paid upon it by
one to the other, that may be recovered back from the execution of the contract, but not afterwards, the court will not lend aid if the contract has been executed unless it appears that the parties were not in pari delicto (equal fault)
o If the contract wasn't fully executed he could recover
Since the contract was fully executed the plaintiff must show the parties were not in pari delicto
o Denning presents this principle If there is something in the defendant's conduct which shows
that, of the two of them, he is the one primarily responsible for the mistake, then it can be shown that the parties are not in pari delicto and the plaintiff can recover
Since the defendant had a stronger duty of observing the law the responsibility is his
o The duty is placed on the defendant strictly for the purposes of defending the plaintiff
Outson v Zurowski
Ratio:
Two exceptions to the rule that there can be no recovery under an illegal contract
i. The parties are not in pari delictoii. Where the plaintiff repents before the contract has been performed
The contract is still executory Must repent in time (unclear how much)
Policy: It would incentivize performance of illegal contracts if it was impossible to recover money once contract is agreed to.
Facts: Defendants recruited plaintiffs into pyramid scheme
o Illegal under s.189(1)(e) of criminal code The plaintiffs paid the defendants $2,200 The defendants promised to compensate the plaintiffs if the scheme didn't work The defendants knew the scheme was illegal, the plaintiff's did not Before the plaintiff's started recruiting individuals for the scheme they saw news
reports about such schemes and abandoned their plan They sue the defendants on their promise of indemnity to recover the money
they had paid
Issue:
Can the plaintiffs recover because the parties are not in pari delicto? Can the plaintiffs recover because they repented prior to the execution of the
contract
Decision:
For plaintiffs, they repented!
Reasons:
Def. argues that because the contract is illegal the action must fail Two questions:
1. Are the parties in pari delicto?2. If they are in pari delicto, notwithstanding that, can the plaintiffs recover?
Two exceptions to the rule that there can be no recovery under an illegal contract
iii. The parties are not in pari delictoiv. Where the plaintiff repents before the contract has been performed
The contract is still executory Must repent in time (unclear how much)
Are the parties in pari delicto?
o This argument is not available on the basis of a mistake of law Unlike the prior case there is no obligation on one party to know
the law for the protection of the other Did the plaintiffs repent in time?
o They dido The obligation to indemnify was ongoing and so the contract was still
executory The contract did not end because the defendants completed their
side, to complete the contract the plaintiffs had to find eight more people
Notes:
The word repented is not used morally, it just indicates that they went back on the contract
5.c. Severance of Illegal Provisions Courts have developed a means of dealing with unjust enrichment by
severing illegal aspects of contracts in order to make them enforceable.
William E. Thomson Associates Inc. v CarpenterRatio:
When looking to sever a clause from a contract for illegality consider these:i. Will the object and policy of the section of the criminal code be
subverted by a partial performance of the agreementsii. Did one or both of the parties intend to break the law
iii. Were the parties in equal bargaining positionsiv. Would one party be unjustly enriched if the contract were not enforced
Be careful enforcing contracts that are illegal/against public policy in situations where the only thing left to do with the contract is for the complainant to pay
Facts: The plaintiffs gave the defendants a loan
o The loan's rate exceeded the criminal rate The defendants had given personal guarantees for a limited amount The defendants couldn't repay the loan
The defendants resist based on rate being illegalIssue:
Can the criminal interest rate be severed from the contract so that the court can enforce the contract and make the defendants pay the principle
Decision:
For the appellants, sort of, they will have to deal with charges for the criminal interest rate but the defendants will have to pay the principle
Reasons:
When severing a section of a contract for criminality the court looks at a the following considerations:
i. Will the object and policy of the section of the criminal code be subverted by a partial performance of the agreements
ii. Did one or both of the parties intend to break the lawiii. Were the parties in equal bargaining positionsiv. Would one party be unjustly enriched if the contract were not enforced
i. Noii. No
iii. They were of equal bargaining power, so the court needs to be careful. o It is a rule that "if a contract be made contrary to public policy, or if the
performance would be contrary to public policy, performance cannot be enforced either at law or in equity" BUT when people try to get out of a contract because of this, when all they have left to do in the contract is pay some money be careful with enforcing this rule
iv. The defendants would be unjustly enriched if the contract is not enforcedo The court should sever the illegal section of the contract in order to make
sure the defendants are not unjustly enriched
New Solutions Financial Corporation v Transport North American Express Inc.
Ratio:
Notional severance is available, allowing judges to change the interest rate to a particular rate without changing the contract
The Blue-Pencil test is problematic because it alters the terms the parties agreed to
Facts:
New Solutions entered into a credit agreement with Transport North American Express
o Interest charged at 4%/dailyo Monitoring feeo Royalty paymentso Other fees and charges
All of these fell within the statutory definition of interest Monthly interest rate alone when calculated per annum = 60.1% Other payments per annum = 30.8%
Criminal rate of interest per S.347 of the Code is anything over 60% When the payments became too much for TNAE they went to the courts to get
the agreement declared illegal and unenforceable Trial judge (Cullity J.)
o If using old method ("blue pencil") had to severe clauses Only option was to eliminate monthly interest leaving lender with
30.8%o Decides to apply "notional severance" allowing the interest rate to be
reduced to 60% (making it legal, but without any particular provision being struck out
Court of Appeal used Blue Pencil Appeal to SCC
Issue:
Is "notional severance", as formulated by Cullity J. valid in Canadian law and applicable?
Decision:
For plaintiff, appeal allowed 60% interest rate from "notional severance" reinstated
Reasons:
Given the varying contexts in which s.347 issues can arise the judiciary needs a spectrum of remedies
o In certain cases voiding the contract will be fineo In other cases severance
The court applies most of the same questions in the previous caseo Equal bargaining power?o Did they intend on breaking the law?
They don't consider unjust enrichment but that is likely because they have already decided to enforce the contract the question is just how to do that.
o The SCC agrees with the trial judges "notional severance" which keeps the contract intact but changes the interest payable to the legal limit.
Discussion on Blue pencil test:
It was originally used for deeds which were under seal o For some reason the intention of the parties didn't matter with deeds
All that mattered was that a valid deed remained valid.o Sever provisions as long as the deed remains valido Now it applies to contracts though where the intentions of the parties
matter
6. A More Modern Approach?
Still v The Minister of National RevenueRatio:
In examining whether to give aid to a party who is involved in a prohibited contract the court should look to the policy considerations surrounding the legislation in question to see if this contract is contrary the goals of the legislation
The court should also look to see if the punishment (what the party is being denied of) fits the crime (the statutory breach)
Class note: USE DOHERTY Facts:
The applicant married husband and moved to Canada In Sept. 1991 she received a letter stating that she was approved for permanent
residence, subject to Governor-in-Council approval and pending other requirements are met
Applicant believed this letter meant she could work in Canada She obtained a job in May of 93, and worked there until Oct. of 93 She received her official residency in Sept. of 93 She was fired in Oct. of 93 and denied unemployment benefits on the grounds she
had only been working legally for 1 month The Tax Court Judge noted that she had acted in good faith but held she was in
violation of Immigration Regulations and wasn't able to receive unemployment benefits
Appeal to Federal Court
Issue:
Should the public policy doctrine that contract that contravenes an Act of Parliament operate in the context of this case thus denying the applicant unemployment benefits
Does the doctrine of illegality need to be updated
Decision:
For applicant, she is a legal immigrant and acted in good faith
Reasons:
Judge believes the court needs to address the doctrine of illegality as judges are just making exceptions to it anyway
o Judge sees this principle as more valuable: Where a contract is expressly or impliedly prohibited by statute, a
court may refuse to grant relief to a party when, in all of the circumstances of the case, including regard to the objects and purposes of the sta tutory prohibition, it would be contrary to public policy, reflected in the relief claimed, to do so.
The judge examines what the policy considerations (purposes) related to immigration employment laws.
o Purpose is to prevent illegal immigrants from breaking Canadian law and collecting Canadian benefits
o This doesn't mean that everyone who works without a permit in Canada should be judged like this
Not all are intending to break the law o The document shows she acted in good faith, and that she may have been
misled by it.
Judge then examines whether the punishment (denial of unemployment benefits) is a proportionate punishment for the breach
o That section of the statute has no particular penalty's Penalty would have to be pursued under Immigration Act
This act is only concerned with those who knowingly fail to obtain work permit
There is no penalty available under this statutory breach
Ch. 8 Performance and Breach 1. Repudiatory Breach
Kingston v PrestonRatio: The judge lists out three types of contracts and when an action can successfully be brought for breach
Facts:
Plaintiff contracted to be defendant's covenant servant, in his trade has a silk-mercer (dealer?) for a year and a bit
Defendant agreed that after 1.25 years he would:o Give up premiseso Stop running his businesso Nominate a nephew to take over his businesso The plaintiff and the nephew would then contract a partnership
Plaintiff was to procure sufficient security to the defendanto Something about a payment to the defendant of 250/month
Plaintiff performed but defendant didn't Defendant claimed plaintiff didn't provide sufficient security
Issue:
Can the plaintiff successfully bring an action for breach of contract
Decision:
For Defendant, Plaintiff failed to perform a condition precedent
Reasons:
Judge looks at the types of contracts and when one can recover for breach 3 types of contract:
1. Mutual and independent (both perform tasks that are unrelated) Either party may recover damages from the other for the injury
he may have received by a breach of the contract No defense for defendant to allege a breach of the
covenants on part of the plaintiff Neither promise is conditioned upon the other Sale for good contracts would never look like this
2. Conditions and dependent (both perform tasks, one depends on performance of other)
Performance of one depends on the prior performance of another
Until the prior condition is performed, the other party is not liable to an action on his agreement
Delivery of goods depending on performance of payment3. Mutual conditions (both perform tasks that must take place at the same
time) If one party is ready and offered to perform his party, and the
other neglected or refused to perform his, the ready party may bring an action against the other
Doesn't matter that neither is obliged to go first
In this case there was a prior condition that was needed to be performed before the defendant could be held liable
The plaintiff did not perform the condition of finding sufficient security, so the judgment is for the defendant
Sale of business was dependent on sufficient security
Note Case
Rules of Civil Procedure (Ontario Superior Court of Justice 1990)
If someone is bringing an action for breach of contract it is assumed that they met all the conditions necessary in order to bring their action.
o If the other party wishes to say there was a condition that wasn't met the other party must bring it to the attention of the court
McDonald v Murray (1885) Problematic aspect of paying for damages?
o Parties generally in contracting intend on getting what they bargained for when they part with what they are to give
o They do not intend on giving what they are they are to give in exchange for performance or payment for lack of performance.
o Payment for lack of performance is not generally a part of the contract and if it is it should be explicitly stated
Bettini v Gye
Ratio:
In determining whether a stipulation is a condition precedent or an independent condition the court asks:
o If a particular stipulation goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for, then it is a condition precedent
o If failure to perform it only partially affects what the defendant has stipulated for the defendant may be compensated in damages
Facts:
Defendant is director of Royal Italian Opera in London Plaintiff is a professional singer The two contract:
o Plaintiff gets hired as prime tenor for 4 months at 150/montho Shall not sing anywhere out of the theatre for 1 year
Unless 50 miles from London or out of seasono Plaintiff shall show up a week before commencement without failo Bunch of other junk
Plaintiff couldn't show up a week before due to illness Defendant terminates the agreement based on the fact plaintiff didn't show up
and gave no notice
Issue:
Can any excuse be brought that allows the plaintiff to fail to perform a part of the contract and have the contract still enforced?
Decision:
For the plaintiff, the condition was not a condition precedent, defendant must seek redress through damages
Reasons:
Answer to issue depends on whether paragraph 7 (the requirement to show up on time) is a condition precedent to the defendant's liability, or an independent agreement
o If condition precedent the defendant the defendant is not yet liable to uphold the agreement
o If an independent agreement that contract cannot be voided but the defendant can recover damages for breach of the independent clause
A party can make any clause a condition precedent or an independent condition by showing his intent to have it so
o Good drafting takes care of this There is no such intention in this contract
o The court looks at the contract as a whole and follows the following rule:
If a particular stipulation goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for, then it is a condition precedent
If failure to perform it only partially affects what the defendant has stipulated for the defendant may be compensated in damages
In this case the length of the contract (4 months), the fact that the plaintiff has agreed not to sing in London for a year by fulfilling the contract, and the fact that his lateness could only effect performances for the first week or so,
o The court determines that this does not go to the root of the contract
Poussard v Spiers and PondRatio:
In the case of an unintentional breach (such as illness), the defendant's may still be dissolved of contractual obligations to the plaintiff if the damage caused by the breach goes to the root of the agreement
o The court will examine the facts to see if there were any implicit conditions available to the defendant that would have allowed them to uphold the contract. If not, the obligations are dissolved.
Facts:
Defendants were putting on a French opera Contracted the Plaintiff ('s wife) to play the lead female role The play was delayed, the music was delayed, this was the first time it was being
put on and the length of the run would depend on the success of the production The plaintiff was taken ill 5 days before the start of the opera Plaintiffs claim defendant said she would be taken back when she got better Defendants claim the length of illness was unknown and the plaintiff stated she
could not make the opening night, which the defendants took as a rescission of the contract
Jury found the plaintiff did not rescind the contract
Issue:
Did the Plaintiff's illness discharge the defendants of the responsibility of upholding the contract, did it go to the root of the contract?
Decision:
For Defendants, Severity of failure made it go to the root of the contract
Reasons:
The judge notes that the fact that she was sick shows there was no breach of the contract by the plaintiff, and so no action can lie against her (damages cannot be recovered)
But in certain cases the damage caused unintentionally can go to the route of the contract and dissolve the defendant's obligation
o Charter-party example:
Ship is chartered to go to a port and load a cargo If ship is delayed by perils the ship owner is excused But if the delay is so great that it goes to the root of the
matter it frees the charterer from his obligation to furnish a cargo
The judge notes the importance of the lead performer being able to perform when it is a new production, whose success will depend on this performance
Whether or not her failure to perform goes to the heart of the matter is decided by looking at the evidence (weighing what options were available to the defendant's)
o If she could be replaced temporarily than it would not go to the rooto If she could only be replaced by a performer who required higher pay and
permanent engagement, than the defendant's must take this option and are dissolved
Maple Flock Company, Ltd. V Universal Furniture Products (Wembley), Ltd.
Ratio:
When a contract involves a series of payments or shipments, and a party defaults on a payment or shipment, the court will:
o In the case of default on a payment (buyer's breach): Examine the conduct to see whether it amounts to a rescission,
to an absolute refusal to perform the contract. Examine whether the conduct evinces an intention no longer to be bound by the contract
o In the case of default on a delivery (seller's breach): The objective test of the relation in fact of the default to the
whole purpose of the contract. The court will look at:1. The ratio quantitatively which the breach bears to the
contract as a whole2. The degree of probability or improbability that such a
breach will be repeated (would repetition be reasonable to infer?)
3. Are the consequences so severe that the breach went to the root of the matter?
Facts: Appellant company makes rag flock (fabric stuff) Respondent company makes furniture, including beds that use flock Breach of contract
o Contract: Sale of 100 tons of black flock, at set price, 3 loads per week as
needed Flock must meet government standards
o Rag Flocks Act: Flock must not exceed 30 parts chlorine per 100,000 parts flock
o The respondents take a sample from one shipment that comes back at 250 parts/100,000
o The respondents voice concerns but take several more shipments before deciding to rescind contract
o The appellants present a writ claiming damages
The judge finds that the appellants did operate their business well, and that there wasn't a reasonable probability that a defective shipment might happen again
Issue:
Is a defective shipment grounds for rescinding a contract? Is the condition that the shipments conform to regulation a dependent condition
that would allow for expediation?
Decision:
For Plaintiffs
Reasons:
Falls under the Sales of Goods Act A contract for the sale of goods by installments is one contract, not many
individual contracts It may be that any breach of condition in one of the installments might repudiate
the contract Or, it might be that one breach doesn't have consequences extending beyond that
breach o It is up to the courts to decide case by case.
How do they decide? The Judge looks at the case-law informing the Act
o The tradition was to see if the acts and conduct of the party show intention to no longer be bound
This history relates to a buyer not making prompt payments The test for a defective delivery may be different
Judge concludes:o "The true test will generally be, not the subjective mental state of the
defaulting party, but the objective test of the relation in fact of the default to the whole purpose of the contract."
Does the default go to the root of the agreement? Two grounds on determining the relation of the breach to the whole purpose of
the contracto The ratio quantitatively which the breach bears to the contract as a wholeo The degree of probability or improbability that such a breach will be
repeated
Case by case, there could be a case where the illegality of the shipment was so severe that it justifies an immediate rescinding
2. Waiver and the True Condition Precedent Panoutsos v Raymond Hadley Corporation of
New York
Ratio:
In determining whether a party waived their ability to rely on a condition precedent to rescind the contract:
o Did the defendants by their acts or conduct lead the plaintiff reasonably to suppose that they did not intend to treat the contract for the future as at an end, on the account of the failure to perform the condition precedent?
If so there is an estoppel on the right to assert the condition unless the sellers giver reasonable notice of that intention to the buyer so as to enable him to comply with the condition which up to that time had been waived
Facts: Plaintiffs are the buyers, of flour Defendants are the sellers, of flour Contract for a lot of flour
o Stipulates "Payment" by confirmed bankers' credit" Revocable bankers credit means that the bank could close the
credit at any time. Plaintiffs opened credit in New York that wasn't irrevocable and therefore wasn't
"confirmed bankers' credit" The sellers took several shipments with from the buyers' non-irrevocable credit Sellers ask buyers to extend the time of the payment (I don't know why) The sellers then cancelled the contract on the ground that the buyer failed to
perform a condition Buyer's did not accept Arbitrators awarded that the sellers were in default in not shipping the balance of
the flour in accordance with the contract Trial judge found the sellers could at any time insist upon the credit being put in
order, BUT if they desired to cancel the contract they would have to give reasonable notice of their intention
Issue:
Is there evidence that the sellers had waived the term in the contract that payment should be by confirmed bankers' credit?
o If yes, award goes to plaintiffso If no, award goes to defendants
Decision:
For the Plaintiffs, Defendants had waived condition and did not give reasonable notice of intention to rely on it.
Reasons:
Judge agrees with trial judge If at a later stage the sellers wished to avail themselves of the condition
precedent, in my opinion there was nothing in the facts to prevent them from demanding the performance of the condition if they had given reasonable notice to the buyer that they would not ship unless there was a confirmed bankers credit
Case law:o Did the defendants by their acts or conduct lead the plaintiff reasonably
to suppose that they did not intend to treat the contract for the future as
at an end, on the accreddit.com/ount of the failure to perform the condition precedent?
If so they just need to give reasonable notice, What is reasonable
SCC:
SCC has stated that if one accepts an alteration to the contract that substantial performance is sufficient. IE if you demand certified cheques but accept postdated cheques, you cannot void the contract because the payment goes through late. (lateness was a possibility that was accepted in accepting postdated cheques)
Turney and Turney v Zhilka
1959 SCCRatio:
A party cannot waive a precedent condition that depends on a third party for execution, as this is effectively rewriting the contract
A breach of contract cannot occur in a contract that relies on a third party for the fulfillment of a precedent condition, until that condition is satisfied
Facts: A contract between seller and buyer for property
o Contracted contained the condition "providing the property can be annexed to the Village of Streetsville and a plan is approved by the Village Council for subdivision."
The seller thought he had more land than he did, he meant to keep 5 acres but only kept 1.5
o (he probably would want to rewrite the contract if possible to give the buyer less)
Discovering this the Buyer waived the condition requiring annex and sued for specific performance
Issue:
Was the buyer able to waive the condition precedent?
Decision:
For the Seller
Reasons:
There is a problem with description of land but not the heart of the issue The obligations under the contract, on both sides, depend upon a future
uncertain event, the happening of which depends entirely on the will of a third party - the village council
o Until the event occurs there is no right to performance on either side Neither party has promised the condition will occur so there can be no breach of
contract until it does occur It is a condition precedent the relies on a third party for satisfying
"This is not a case of renunciation or relinquishment of a right but rather an attempt by one party, without the consent of the other, to write a new contract”
Question: who has to do something for the condition? The 3rd party
Question: which party is to obtain village approval Benefit is to buyer but there is no statement It is not incumbent on either party to perform
SCC confirms stating if parties want to be able to waive a precedent condition that is for their benefit they can write it into the contract
3. The Position of the Party in Breach Jacob & Youngs, Inc. v Kent
Ratio: In a contract, unless expressly stated, it will be implied that payment will be
required on substantial performance. o Policy: Perfect performance is not required because no one would
contract if they would be required to redo all the work because it was not absolutely perfect.
Damages calculation:o In cases where there is substantial performance that varies, or is below,
the standard contracted, the plaintiff can sue for the difference in value of the work performed and the work contracted
In weighing whether a condition precedent is to be interpreted as a dependent or independent condition the court weigh's the following factors:
o weigh the purpose to be servedo the desire to be gratifiedo the excuse for deviation from the lettero the cruelty of enforced adherence
If the condition is interpreted as not requiring literal fulfillment, the condition will be interpreted as a independent condition, breach of which requires the party to pay damages.
If the use is not effected the court can make the difference in value the measure of damages as opposed to the cost of replacing the defect
Facts:
Plaintiff built a home for the defendant Contract specified that "all wrought-iron pipe must be well galvanized, lap welded
pipe of the grade known as 'standard pipe' of Reading manufacture" The defendant found out that the pipe, though identical, was not of Reading
manufacture The defendant made him redo the pipe (blast everything and redo it) The plaintiff wouldn't do it and asked for payment Defendant wouldn't pay
Issue:
What is the line for trivialness at which point a condition precedent can be effectively said to be performed, even though it has not been performed exactly as written?
Did the plaintiff perform the condition, even though he used identical but different pipes?
Decision:
For the plaintiff
Reaons:
A party to a contract has a duty to full performance But if there is an omission both trivial and innocent sometimes the party will be
able to atone by paying for the resulting damageo The condition in this case appears like a condition precedent the judge
states "dependent conditions, when there is departure in point of
substance, will be viewed as independent and collateral when the departure is insignificant" (Collateral?)
What the standard of "trivialness" is not set by a formulao "We must weigh the purpose to be served, the desire to be gratified, the
excuse for deviation from the letter, the cruelty of enforced adherence" These factors determine whether literal fulfillment is to be
implied by law Parties are still free to place specific demands in contracts
The party whose default is unintentional and trivial may be relieved of specific performance if he will offer atonement for the wrong
Hoenig v Isaacs
Ratio:
In contracts that are payable in a lump sum, If the work is complete but defective the purchaser must pay the money, but is able to off-set the payment with a counter-claim based on the defective work.
Facts:
Plaintiff, interior designer, employed by defendant to decorate and furnish defendant's apartment for lump sum.
The payment was due upon completion The plaintiff completed the work The defendant refused to pay the balance because some of the articles furnished
were defective Defendant argues the plaintiff to not perform completely
Issue:
In a contract for work and labour for a lump sum payable on completion, can the defendant repudiate liability under the contract on the ground that the work though "finished" is in some respects not in accordance with the contract?
Decision:
For the plaintiff, the defendant cannot repudiate liability but may set-off the price to be paid with a counterclaim
Reasons:
"When a man fully performs his contract in the sense that he supplies all that he agreed to supply but what he supplies is subject to defects of so minor a character that he can be said to have substantially performed his promise, is it, in my judgment, far more equitable to apply the H. Dakin & Co., Ltd. V Lee principle than to deprive him wholly of his contractual rights and relegate him to such remedy as he may have on a quantum meruit
o "The price must be paid subject to set-off or counterclaim if there was substantial compliance with the contract"
Sumpter v HedgesRatio:
In a contract for payment in a lump sum, where a party refuses to perform a condition precedent required to get paid, they cannot recover for partial performance. Only if there is evidence that there was a fresh contract that would allow the party to recover will the party be able to recover.
If the contract requires a condition precedent be performed, payment will not be required until the agreed condition is performed.
If the builder refuses to continue building the contract is repudiated
Facts:
Plaintiff, a builder, contracted to build on Defendant's land two houses and stable for the lump sum of 565
The Plaintiff did a little over half the work and was paid for this Plaintiff then informed the defendant he had no money, and could not go on with
the work The trial judge found that he abandoned the contract (the condition precedent
that the work being completed to receive the lump sum of 565) The defendant completed the houses and the plaintiff brought an action for work
done and material Received compensation for materials but not for work done
Issue:
If the builder refuses to continue building can he/she receive payment for the work done?
Decision:
For the Defendant, Reasons:
The contract was formulated so that the payment of 565 was dependent on the condition that the work be complete
If the plaintiff is to recover on the work done in the original contract (which was abandoned) there must be evidence of a new contract to pay for the work done
o Question: is Lysaght v Pearson good law? (builder did not abandon but demanded to be paid before continuing on working; court found there was a fresh contract and builder had to be paid)
In order for a new contract to be possible the circumstances must be such as to give an option to the defendant to take or not to take the benefit of the work done.
o If there is no option as to whether the defendant will take the work or not, then the court must look to other facts for a new contract
If there is no fresh contract the plaintiff cannot recover on the contract abandoned
Ch. 9 Mistake Freedom of contract presumes the certain information preconditions must be met
for a given exchange to justify enforcement The idea of an exchange is that both parties will be better off
o If one party operates with poor information then it may be that the exchange is not in the best interest
No contract is perfect
Two broad categories of information imperfections:1. Asymmetric information imperfections
Where one party is substantially less well informed about some aspect
a. Fraudulent misrepresentation b. Negligent misrepresentationc. Innocent (non-negligent) misrepresentationd. Material non-disclosure - (not disclosing information that
may affect the contracting party's willingness to contract)e. A mistake by one party about the meaning of the
contractual terms or pre-existing facts
2. Symmetric imperfections Mutual mistakes about pre-existing facts Mutual mistakes about future courses of events
2. Misrepresentations Grotius, “Whether a Promise given under a Misapprehension Is by the Law of Nature
Binding, and to What Extent" (1625) If someone is accused of a crime, and it is discovered that the facts are incorrect
the action will fail. The law fails if the truth of the alleged facts fail Similarly with contracts:
o If a contract is premised on a certain presumption of fact, and this fact isn't true, the contract is void
There is a lack of True Consent The party did not agree to the contract under the other
facts (no meeting of the minds)
o If the promisor is negligent in determining the facts or expressing the facts to the promisee:
If the promisee suffers a loss because of the poor information or absence of necessary information the promisee can recover damages from the promisor for the loss
o If there is an error but it doesn't go to the heart of the matter then the contract remains valid:
But if the promisor has caused the error by fraud the promisee can recover damages suffered from the error
Heilbut, Symons & Co. v Buckleton
Ratio:
A person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made.
A representation made at the time of sale is a warranty if it is shown on the evidence that the party intended it to be so (if it induced the party to buy)
Facts:
Appellants are prominent rubber merchantso They purchased a large number of shares in a rubber producing companyo They went about receiving applications from people to purchase these
shares Respondent heard they were bringing out a company
o Called to inquire about purchasing shares of the rubber companyo Asked, "is it alright"
Reply was, "we are bringing it out"o Response to this was, "that is good enough for me"
The respondent purchased a large number of shares Later on it was determined that there was a large deficiency of rubber trees at the
production companyo Because of this the value of the shares dropped
Respondent brought action for fraudulent misrepresentation and damages for breach of warranty (that the company was a rubber company whose main object was to produce rubber)
Jury found no fraudulent misrepresentation but that the company could not be described as a rubber company -> awarded damages
Issue:
Was there any evidence that the two parties made a contract collateral to the main contract in which the defendants, in consideration of the plaintiff taking the shares, promised that the company was a rubber company?
Decision:
For the Appellants; a person is not liable for an innocent misrepresentation
Reasons:
Plaintiff must show there was a collateral contract amounting to a warranty, that is, that he purchased the shares because he was promised the company was a rubber company
The judge first addresses that there is no clear evidence that it was the parties' intention to create a collateral contract.
If the statement that the company was a rubber company was held to be a warranty then "This would negative entirely the firmly established rule that an innocent representation gives no right to damages."
The judge then goes over the history of attacks on innocent misrepresentations o The court of chancery has tried to extend the scope of the action for
deceit. Tried making innocent representation equivalent to fraud
This was quashedo The Common Law court usually has tried to extend the doctrine of
warranty, and say an innocent representation amounted to a warranty This case is an example of this
When is a representation to be considered a warranty?o Quoting Holt C.J. "An affirmation at the time of the sale is a warranty,
provided it appear on evidence to be so intended" Intention needs to be proved
"the intention of the parties can only be deduced from the totality of the evidence, and no secondary principle of such a kind can be universally true.
Note:
o Contains a good explanation of collateral contracts
Bentley (Dick) Productions Ltd. v Smith (Harold) (Motors) Ltd.
Ratio:
If the representation was made in the course of dealing for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract
o That is prima facie ground that it was meant as a warranty, it was intended to be acted upon and in fact was acted upon
This claim of warranty can be rebutted if the maker of the representation can show that it was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.
Facts:
Plaintiff brings action against defendant for damages for breach of warranty on the sale of a car
Plaintiff had dealt with defendant for several years, was looking for a well vetted Bentley car
Defendant found one and bout it for 1500
o Found out some history too,o Engine and gearbox only had 20,000 miles on it
Defendant would sell for 1850 and guarantee the car for 12 months (including parts and labour)
The car turned out to be a hunk of junk Plaintiff took it back and eventually brought the action for breach of warranty
Issue:
Was the representation that the car only had 20,000 miles on it an innocent representation or a warranty?
Decision:s:
For plaintiff, the statement was found to be a warranty that could not be rebutted
Reasons:
Whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts.
o If an intelligent bystander would reasonably infer that warranty was intended, that will suffice.
If the representation was made in the course of dealing for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract
o That is prima facie ground that it was meant as a warranty, it was intended to be acted upon and in fact was acted upon
This claim of warranty can be rebutted if the maker of the representation can show that it was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.
This looks like promissory estoppel
In this case:o The inference is not rebutted:
The defendant could have gotten the history of the car but did not do so until later
Upon inspection of the history of the car it was shown the claim was quite wrong
The defendant made a claim regarding the state of the car not based on truth in order to get the plaintiff to purchase the car
Redgrave v. Hurd
Ratio:
A party is not to receive benefits from false statements, regardless of whether they knew the statement was false or not.
If a material representation is made to induce someone to enter into contract, it will be assumed that that representation was relied upon when they entered
into the contract, it is then the burden of the opposing party to give evidence shows that they did not rely upon the representation
o If the representation is false it will be grounds for rescission
Facts:
Plaintiff, a lawyer, advertised for a lawyer to be his partner and buy his house Defendant entered into an agreement for the purchase of the house
o Defendant then discovered the law practice was worthless Defendant gave up possession and refused to complete purchase Plaintiff brought action for specific performance Defendant brought counterclaim for rescission At trial, judge held for plaintiff and dismissed counterclaim Appealed.
Issue:
Can the contract be rescinded based on the plaintiff's false representation
Decision:
Reasons:
Judge examines the rule in equity regarding rescission of a contract It is not necessary to prove that the party who made the material
misrepresentation knew at the time when the representation was made that it was false
o States two scenarios in equity in which a contract may be rescinded due to misrepresentation:
1. "A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false; he ought to have found that out before he made it.
2. "Even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a Beneficial Contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man out to seek to take advantage of his own false statements"
If someone makes a material representation that is meant to induce the other party to enter into the contract, it is an inference of law that the other party relied on that material representation.
o Unless there is evidence to show that the party was not relying solely on that representation, it will be inferred that they were, and if that representation is false it will be grounds for rescissions
An action for rescission can succeed in cases of innocent misrepresentation is the misrepresentation is what induced the person to enter the contract
o Or, had they known they wouldn’t have entered into contract
Newbigging v Adam
Ratio:
In common law with innocent misrepresentation, you are to be returned to your prior state but with the limitation that he is to be replaced in his position so far as the rights and obligations which have been created by the contract into which has been induced to enter:
1. He may get an advantage in the shape of an actual benefit, as when he receives money
2. He may also get an advantage if the party with whom he contracts assumes some burden in consideration of the contract
The contract is rescinded and the party is able to receive the benefits of this, but is not able to recover any money lost through the operation of the business?
Facts:
Plaintiff was induced by misrepresentation of the defendants as to the adequacy of the machinery to contribute 10,000 to a partnership to which he was admitted.
The business sucked Plaintiff brought an action to dissolve the partnership, an order for the defendant
to repay him the money and indemnify him from liabilities he may have become liable to in the partnership's name
Defendant appeals on the ground that this order amounted to damages for innocent misrepresentation
Issue:
Is there a remedy through common law for innocent misrepresentation that allows the defendant to recover without damages?
Decision:
For Plaintiff, appeal dismissed
Reasons:
In common law with misrepresentation if it goes to the root of the matter of the contract it is sufficient to void the contract
o In rescinding the contract the plaintiff would receive all the incidents and consequences of the rescission
In common law with innocent misrepresentation, you are to be returned to your prior state but with the limitation that he is to be replaced in his position so far as the rights and obligations which have been created by the contract into which has been induced to enter
o He may get an advantage in the shape of an actual benefit, as when he receives money
o He may also get an advantage if the party with whom he contracts assumes some burden in consideration of the contract
He is taken out of the contract? Contract was paying the money and being entered into partnership His obligations are removed
If he lost money within the business venture he could not retrieve it but he can have his contractual obligations returned to their prior state?
Kupchak v Dayson Holdings Ltd.
Ratio:
Attempts to minimize damages suffered under the fraudulent contract (ie resale/fixing fraudulent issue) does not amount to an affirmation of the contract. (From post case notes)
Facts:
The plaintiffs had been induced by fraud of defendants to:o Exchange Haro street and North Vancouver properties for shares of the
Palms Motelo Then, put mortgages on the land and chattels of the motel to pay the
remaining difference in the value of the two propertieso Defendants flip the two propertieso The plaintiffs continue operating the hotelo Plaintiffs not entitled to rescission because:
Couldn't restore the defendant's shares in the motel The defendant's couldn't restore the properties to the plaintiffs as
they had already been knocked down to make a modern apartment
o Plaintiffs appealo Defendant's counter-appeal claims of fraud
Argue that the plaintiffs operation of the motel amounts to an affirmation of the contract
Issue: Judge finds fraud evident, so what relief can be granted to the plaintiffs? Did the plaintiffs affirm the contract by not rescinding the contract
Decision:
Reasons:
The main issue is whether the plaintiffs are forfeit their right to rescind on account of laches
If someone makes a misrepresentation they can argue that the contract is still enforceable because the other party affirmed the contract through some conduct, word, or silence.
o The guilty party must plead and prove those defences to rescission Defendants did not argue this
o If the evidence is fully canvassed in trial one cannot object to the argument that there exists a defence of rescission. If evidence shows the plaintiffs affirmed the contract through action then it doesn't matter if the defendants didn't argue this defense immediately?
o Fill out these notes in class.
Redican v. Nesbitt
SCC 1924
Ratio:
Payment by cheque will constitute a full execution of the contract If you get full consideration (or, if the contract is fully executed) you cannot
receive rescission on the basis of innocent misrepresentation
Facts:
Action to demand payment by defendants on the contract Defendants purchased property from plaintiff's Plaintiff's agent allegedly misrepresented facts Defendant's had already handed over a cheque with payment, and received the
keys Upon viewing the property for the first time the defendants claimed that it had
been misrepresented by the plaintiff's agent Defendants stopped making payments Plaintiffs want payment Defendant's claim the misrepresentation allows them remedy of rescission
Issue:
Will the defendant be able to receive remedy since they paid using a cheque? Was the contract fully executed?
Decision:
For the Plaintiff's (but with a retrial for fraud), The contract was fully executed for all purposes from the position of the defendants
Reasons:
The court is unable to compel the landlord to assent to a re-assignment of the leasehold to the plaintiff.
The court finds the acceptance and payment of the cheque as intended to be the full execution and close of the contract.
o The cheque is equivalent to cash payment The court will only rescind the contract in cases where there has been fraudulent
misrepresentation, not innocent misrepresentation
Leaf v International Galleries
Ratio:
Rescission of a contract for innocent misrepresentation must occur within a reasonable time limit (just as rejection of a contract for breach of a condition must)
An innocent misrepresentation will not supply grounds for rescission if a rejection of the contract based on a breach of the misrepresented condition is barred.
"a condition is a term of the contract of a most material character, and, if a claim to reject for breach of condition is barred, it seems to me [this gives strong evidence] that a claim to rescission on the ground of innocent misrepresentation is also barred.
Facts:
Plaintiff buys a painting and is told it is a Constableo Trial judge finds that this terms was incorporated into the terms of the
contract Plaintiff wanted to sell the contract 5 years later
o Was advised that it was not a Constable and that it was worth very little Plaintiff attempted to return it to the gallery and get his money back Defendants refused and stood by their claim that it was in fact a Constable Trial judge found as a fact that the painting was not a Constable
Issue:
Is the Buyer (Plaintiff) entitled to rescind the contract in this case?
Decision:
For Defendants, the plaintiff took way too much time to bring the action
Reasons:
There is no claim for damages for breach of condition or a breach of warranty The action is only for the rescission of the contract The case is to be decided according to the well=known principles application to
the sale of goods. The mistake involved in this contract related to the implied a term that the
contract was painted by Constable Denning sees this term as either a condition or a warranty
o If a condition: Contract could be rejected prior to execution
o If a warranty Contract couldn't be rejected but damages would be available
Denning finds the term a conditiono The only thing that could be done would be reject for breach of condition
But this is barred due to the amount of time that is pasto If a claim to reject based on breach of condition is barred a claim to
rescind based on the innocent misrepresentation will be barred
The buyer is deemed to have accepted the goods if he retains the goods without intimating to the seller that he has rejected them
The only remedy after this length of time would be damages, but he has not brought this claim
(IC)O'Flaherty v McKinley
Ratio:
?
Facts:
Plaintiff had never owned a car and wished to purchase a 1950 Hillman Defendant sold plaintiff a 1949
o Design flaws existed in the 49 model Plaintiff seeks rescission
Issue:
Decision:
Reasons:
The contract was executed fully executedo She must rely on the exception to exception
The misrepresentation is significant and goes to the root
Murray v Sperry Rand Corporation
Ratio:
An affirmation made with the intention of inducing contractual relations is a warranty
Manufacturers would be liable for breached warranties if they had supplied the goods directly to the owners and are equally liable in supplying the goods indirectly
Facts:
1. The Plaintiff was induced to purchase the harvester through oral representation made by the personnel of Church and Sperry Rand Canada and through the sales brochure prepared and published by Sperry Rand Corporation
2. The performance of the machine fell seriously short of that represented in the sales brochure
3. The consequence of the machine's failure was damage suffered by the plaintiff
Issue:
Should the manufacturer who published the brochure in an obvious attempt to induce sales be shielded from liability because it had no direct contract with the plaintiff?
Decision:
For the Plaintiff, the manufacture is liable because its brochure presents a case to buy as if they were there in person.
Reasons:
An affirmation made with the intention of inducing contractual relations is a warranty
"It is the law that a person may be liable for breach of a warranty notwithstanding that he has no contractual relationship with the person to whom to whom the warranty is given.
o The brochure was put out to entice saleso It contained warranties that were proven to be inaccurateo No legal differentiation between dealer and manufacturer in relation to
collateral warranties Dealer had to rely on manufacturer in order to make the claims
Manufacturers would be liable for breached warranties if they had supplied the goods directly to the owners and are equally liable in supplying the goods indirectly
Notes:
Andrews v Hopkinsono The court will interpret contracts similarly if it is the conduct of a third
party that has exposed the contracting parties to liability In this case a car dealer who sold the care to a car rental company
was sued because it had a defect The court found the dealer liable even they were not privy to the
contract
Ranger v Herbert A Wattso Court impliedly reads into contracts that advertising will be applied fairly
In this case a man had lost his glasses and was flustered and so he could not answer a math question to win a prize
Court said the test had to be administered fairly, the man needed warning
o Court states that businesses have been taking advantage of individuals through misleading advertising.
4. Mistake About Contractual Terms (IC) Hobbs v Esquimalt & Nanaimo Railway
Company
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC) Raffles v Wichelhaus
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC) Staiman Steel Ltd. v Commercial & Home Buildings Ltd.
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC) Henkel v Pape
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC) Smith v Hughes
Ratio:
Facts:
Issue:
Decision:
Reasons:
5. Mistake in Assumptions (IC) Anthony Duggan, "Silence as Misleading
Conduct: an Economic Analysis"
(IC) Laidlaw v Organ
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Bell v Lever Brothers Ltd.
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC) Solle v Butcher
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Magee v Pennine Insurance Co.
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Great Peace Shipping Ltd. v Tsavliris Salvage (International) Ltd.
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Miller Paving Limited v B. Gottardo Construction Ltd.
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Scott v Coulson
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Sherwood v Walker
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)McRae v Commonwealth Disposals Comm.
Ratio:
Facts:
Issue:
Decision:
Reasons:
(IC)Wood v Boynton
Ratio:
Facts:
Issue:
Decision:
Reasons:
Ch. 10 Frustration 3. The Rule of Absolute Promises
Paradine v Jane
Ratio:
If you make a contract you will be held to that contract despite a change in future conditions so long as those conditions are not an accident by inevitable necessity
o You are free to contract out of potential future happenings
Facts:
Defendant failed to pay rent Defendant argues he had been ejected from his land by the invading Prince
Ruperto This prevented the defendant from getting the benefits of the contract
Issue:
Should the defendant be liable for paying the rent even though he has been prevented from performing the promise due to an unforeseen future event?
Decision:
For the Plaintiff
Reasons:
If the law imposes a duty on an party which the party is unable to perform due to some external factor, then the law will excuse the party from performance
If a party imposes a duty upon him/herself by contracting then the law will not protect him beyond his own agreement
o "Notwithstanding any accident by inevitable necessity" If something happens that could not have been considered in the
formation of the contract and after the formation happened necessarily causing the frustration of the contract they can get out.
If something is inevitable and necessary it MUST happen, had the party known this thing was going to happen necessarily he never would have made the contract.
The defendant in this case rented the land and in so gained the advantage of profits
o So he must also take on the risk of potential losses
The party was free to contract that he would not have to pay rent in the event of hoarders invading his land
4. Relaxation of the Rule of Absolute Promises
Taylor v CaldwellRatio:
In contracts, particularly contracts of sale, a condition that a certain thing will continue to exist when the contract is executed will be implied if it is apparent that the contracting parties contracted on the basis of its continued existence. If the thing should cease to exist then the parties' will be excused from having to perform the contract so long as the loss of the thing wasn't caused by the fault of one of the parties
Facts: The defendants contract with the plaintiffs to rent out a garden and hall for a
specified period of time in order to put on several concerts at 100 pounds / day Both parties agree to the contract The Hall burns down one day before the first concert The contract says nothing about what will happen if this situation arises
Issue: Should the defendants have to pay when the plaintiffs receive the full
consideration offered? Plaintiffs would have made money at the concerts and are suing for
expectation damageDecision:
For the Defendants, Music Hall's existence was impliedReasons:
Generally in contracts which require one party to do a thing, the party must perform or pay damages for failure to perform
o Even if something happens that makes the performance difficult Principle:
o If the parties must have known from the beginning that the contract could not be fulfilled unless some factor or element continued to persist, they must have considered the continued existence of that factor/element when they entered into the agreement
There is an implied warranty that the factor will continue to exist In this case the contract is not an absolute promise but is
subject to an implied warranty because if it were brought to one's mind one would always include the warranty
Personal contracts:o There are contracts that require the contracting party to perform some
task Marriage, build something, etc.
The contracting party will be excused if through some external force, no fault of his/her own, performance of the contract is impossible
o Implied condition that death or debilitating injury would relinquish party of duty to perform
In contracts there can be implied conditions as to the continued existence of a thing
o If this thing should stop existing then the parties will be excused from performance of the contract
Unless the loss of the thing was caused by the fault of one of the parties
Amalgamated Investment and Property Co. Ltd. v John Walker & Sons Ltd
Ratio:
Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
o There must also be such a change in the significance of the obligation (promised performance?) that if performed it would be a different thing from that contract for.
o Policy: if a person is aware of a risk, and intentionally doesn’t include it in the contract, courts don’t want them to be able to get out of a contract on frustration: ruins risk allocation
Facts: Plaintiff agreed to buy warehouse from defendant for 1.7 million pounds Plaintiff intended on redeveloping A day after the contract was signed the warehouse was made a heritage building
o This made redevelopment impossible and the value of the building 200 000
Defendants knew at all times the plaintiff intended to redevelop Plaintiff brings action for a rescission of the contract
Issue: Does the fact that the plaintiffs will no longer be able to develop the property
purchase frustrate the contract Plaintiff's bought contract with a known intention to develop it, immediately after
contract is executed ability to develop is made impossible. BUT no stipulation in contract regarding ability to development
Decision: For Defendants, the plaintiffs didn't stipulate anything about development and so
there was no change in contractual obligations when the status of the building changed
Reasons: The judge initially addresses the plaintiff's argument that this is a contract based
on a mutual mistake o Must establish the mistake existed at the date of the contract
Plaintiff argues important date at which the mistake existed was when the building was included on the list (of building to be made into heritage sites?)
Judge claims this date was just an administrative step and that the crucial date was when it was signed
o There were not mistakes regarding the circumstances at the time it was signed
Argument regarding Frustration of the contract:o Principle:
Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract
There must also be such a change in the significance of the obligation that if performed it would be a different thing from that contract for
e.g. I promise to purchase this property on the grounds that it can be developed->it can't be-> performance
would leave party with very different thing then developable property
Q: was there a change in the obligation? (Did the change go to the root of the
contract?)o One party contracted to purchase a propertyo The other party contract to sell a property
The plaintiffs did not make any stipulation that the contract would dependent on attaining permission to develop
The defendants gave no warrantyo There is nothing from the facts to say that the contract was dependent on
the ability to develop
Risk allocation:o There was a risk in purchasing that the plaintiff couldn't develop
The plaintiffs knew they had to get permission to develop And were aware it might become a heritage site (all buildings
"might")
Finally, no proof they can't still develop.
Capital Quality Homes Ltd. v Colwyn Construction Ltd
Ratio:
Contracts involving lease of land can be frustrated When the supervening event occurs the meaning of the contract must be taken to be not
what the parties intended (as neither had thought or intention regarding it) The event must be beyond the control of the parties and must result in a significant change
in the original obligation assumed by them Facts:
Plaintiff agreed to purchase 26 building lots each comprising lots within a registered plan of subdivision
Both parties knew plaintiffs intention to build a home on each lot and then sell using superate conveyances
In order to receive a 26 deeds of conveyance plaintiffs had to:o Pay $6000;
No demand of conveyance made prior to closing When sale agreement made no restrictions on conveying June 27th, Planning Act comes into effect
o This limits an owner's right to convey, it now requires consent from a committee
Vendor did not convey the 26 building lots into 26 separate deeds Both party argues as to whose responsibility it is to acquire the consent to convey
o Plaintiff demands separate deeds at closingo Defendant refuses to get consent
Issue: Is the effect of the planning legislation of such a nature that the law would
consider the fundamental character of the agreement to have been so altered as to no longer reflect the original basis of the agreement
Decision: For plaintiff, the contract was frustrated
Reasons: The Judge goes over the common law Establishes the general rule of frustration
o When the future event occurs the meaning of the contract must be taken to be not what the parties intended (as neither had thought or intention regarding it)
o The event must be beyond the control of the parties and must result in a significant change in the original obligation assumed by them
The issue becomes if frustration can apply to contract to do with the lease of lando Lease of land is different from other commercial contracts because you
get proprietary rights and personal rights
The judge sees no reason the rule of frustration shouldn't apply o (the issue might be clearer in a situation where after the purchase the
contract is frustrated and the new owner of property has built a home and is growing things, and now these things are taken way)
Judge concludes frustration of lease contracts is fine, finds that the factors necessary to constitute the impossibility of performance have been established
o The buyers intention was knowno There is a clear frustration of the common venture
Victoria Wood Development Corp. v Ondrey
Ratio:
There appears to be tension between giving weight to the intention of the parties and respecting one's ability to contract regarding potential risks
o This judge strictly looks at the obligations within the contract and whether they were affected by the legislation-> judge is balancing implied conditions (foreseeable risk) and freedom to contract
Facts: Facts are near identical to Capital Quality Homes
o The plaintiffs purchase 90 acres with the intention of developing the lando Legislation went through that restricted the use of property in the area to
agricultural useo Plaintiffs claim the contract is frustrated and want their deposit returned
as wellIssue:
Does the inability to develop the land go to "the very foundation of the agreement"?
One parties ability to do use the exchanged good as they intended is effected by an external source, is the contract frustrated?
Decision: For the defendants,
Reasons: The judge goes through a similar analysis of whether the ability to develop the
land is at the heart of the agreement
There is always a risk that there will be issues with zoning when it comes to developing land
o A party is welcome to insert conditions into the contract that take this risk into account
The only explicit obligations are to pay for the land and to receive the lando The ability to perform these obligations is not effected by the legislation
Furthermore, zoning issues are always a foreseeable risk, that they may not have been able to develop the land is always (or should always have been) a consideration of the development company
o Frustration requires it be an event which was not considered
The judge makes a note of addressing an argument of the defense's which states that even though they could not have developed the property at the time, it has become a possibility
o The judge states this future possibility has no bearing on the case
Howell v Coupland
Ratio:
If the contract is an exchange for a specific item, with specific characteristics, and if it becomes impossible for that particular item with those particular characteristics cannot be exchanged, through no fault of the party who cannot perform, then that party will be excused from performance (excused from having to purchase those items at market in order to perform)
Look to see if the contract deals with items with specific items, or general items (exchanging 200 pounds of red apples from Victoria, as opposed to exchanging 200 pounds of apples)
Facts: Plaintiff = potato merchant Defendant = farmer The defendant got 80-90 acres of land for growing potatoes (as a dowry for
getting married?) Defendant agreed to sell, and plaintiff buy, 200 tons of potatoes grown on his
farm at a certain price to be paid for when and as they are taken away The defendant had ample land to grow that size of crop In the summer a disease struck the defendant's crop through no fault of his own. He was only able to supply 78 of the 200 tonnes Plaintiff brought action to recover damages Court found for defendant-> plaintiff appeals
Issue: Is there an implied condition that if the crop should fail performance will be
excused
Decision:
For Defendant, the contract made the exchange for specific potatoes, in existence, from a specific place
Reasons: First judge applies similar approach to Taylor v Caldwell
o The performance was contingent on a certain thing continuing to existo The potatoes perished, and this was caused through no fault of the
farmer This was not an absolute contract of delivery
o Not: "I will deliver 200 tonnes of potatoes to you, and you will pay me X"o It was: I will buy x amount, of x potatoes, grown at x location,
The contract specifies specific items and so if it becomes impossible to deliver
those specific items (if performance becomes impossible) the party will not be held liable
That those specific potatoes should continue to exist is a foundational aspect of the contract
Canadian Industrial Alcohol Company, Ltd. v Dunbar Molasses Company
Ratio:
The duty to perform is not extinguished strictly because the ability to perform becomes difficult, and the difficulty was not adequately accounted for through the contract
If you contract negligently and fail to ensure, through contract, that you will be able to perform, you will still have to perform or pay damages
Facts:
Plaintiff contracts for purchase of sale with defendant for 1,500,000 gallons of molasses
Defendant is a middle man for a molasses refinery Defendant only delivers 344,083 gallons
o Plaintiff brings action to recover damageso Defendant argues: the duty to deliver was conditioned upon the
production by the refinery being sufficient to fill the order. The duty to deliver is proportionate to the refinery's ability to supply
Issue: Can it be interpreted that the plaintiffs would agree to the implied condition that
if the refinery couldn't supply the defendant that the defendant would be excused from having to perform
A supplier agrees to supply a manufacturer, supplier's source runs out, does the supplier still have a duty? Or are they excused?
Decision: For the Plaintiffs, the Defendants are shitty at business
Reasons: Cardoza states the key issue being whether the defendants duty being dependant
on the refinery was an implied conditiono Cardoza thinks this is completely unreasonable
There is no evidence showing that the defendants attempted to form a contract with the refinery to ensure the supply they promised to the plaintiff
o Had the refinery exploded then yes, performance excusedo If the contract stated referred to the supply relating to a contract the
defendants had with the refinery then yes.
The defendant failed to relieve itself of the imputation of contributory fault It doesn’t make any sense that they would not have had a contract with
the refinery. Had the plaintiff had known that the defendant’s didn’t have a
contract to guarantee supply why wouldn’t the plaintiffs have just contracted with the refinery directly?
There would be a fair assumption that the defendants had a solid contract with the refinery for the amount they contracted for with the defendants
Parrish & Heimbecker Ltd. v Gooding Lumber Ltd.
Ratio:
If) both parties are aware of the source(s) of the item which one party is contracting to deliver; and,
If) the source is not able to fill the contracted quantity from the source(s); and,
If) it is unreasonable to expect the delivering party to be capable of finding another source
Then) it is an implied condition of the contract that the corn is expected to come from that source; and,
If) the source is unable to supply the contracted amount; and,
If) the inability is of no fault of the delivering party,
Then) the delivering party will either be excused from the duty to perform, or the contract may be kept open by the other party until performance is available.
Facts:
The plaintiffs wished to purchase corn from a farmero This farmer only wanted to deal through the defendant
The plaintiff contacted the defendant and a contract for the delivery of corn was formed
The written contract specified how much corn, how much cost, and where. Because of whether the farmers were unable to harvest enough corn Defendant purchased the partial orders and delivered them There was a clause in the contract stating "If the above is not correct, please wire
or phone us immediately; failure to do this is understood as acceptance to these terms. Subject to strikes, embargoes etc.
Issue:
Delivering party unable to deliver due to lack of supply, no specific source specified but a source seems implied?
Decision: For Plaintiff, BUT Laskin dissenting for the defendant (which is the important bit)
Reasons:
Majority judges suck and say that because the contract did not specify it the corn coming from a specific place it was strictly up to the defendant to supply corn
o If it has said I will supply corn from Victoria If the corn doesn't exist he can't be expected to supply
Dissent is important (Laskin):o Laskin sees the contracts as being formed upon a common understanding
The conversation indicated the farmers from which the corn was to be purchased
o Furthermore, to require the defendant to acquire the corn from a different would fundamentally change the agreement (radically different)
The defendant was merely a middleman between the plaintiff and the local corn farmers
The plaintiffs set the price structure, and the price structure contemplates the cost of shipping as being from those particular farms
o It wouldn’t make sense to require the defendant to travel elsewhere to purchase the corn
o Contract seems to contemplate local purchase in the terms of the agreement
If both parties are aware of the source(s) of the item which one party is contracting to deliver, and if the source is not able to fill the contracted quantity from the source(s), and if it is unreasonable to expect the delivering party to be capable of finding another source, then it is implied that the corn is expected to come from that source and if the source is unable to supply the contracted amount, and the inability is of no fault of the delivering party, then the delivering party will be excused from the duty to perform.
Krell v Henry
Ratio:
Upon ascertaining the substance of a contract, if that substance requires the assumption of the existence of a particular state of things then this will limit the operation of the general words, and if the contract becomes impossible of performance by reason of the non-existence of the state of things assumed by both contracting parties as the foundation of the contract, then there will be no breach of contract
1. Having regard to all the circumstances, what was the foundation of the contract?
2. Was the performance of the contract prevented?3. Was the event which prevented the performance of the contract of such
a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract?
If all answers are yes both parties are discharged from further performance
Facts:
Defendant rented flat from plaintiff for 2 days (during the daytime only) A License to be on premises not a lease
Defendant wants to watch the coronation of Prince Edward 2nd Defendant pays more for the rooms than normal
Plaintiff sues for non-performance (50 pounds) Coronation doesn’t occur (due to illness) so the defendant doesn’t pay
Defendant argues frustration because there is an implied condition that the coronation will occur
Without the coronation the performance is fundamentally different Defendant counter sues for the return of his deposit (25 pounds)
Issue: Is the contract frustrated through an implied term that the coronation had to take
placeDecision:
For DefendantReasons:
Discusses the principle that in contracts there may be implied terms based on the idea that a specific would continue to exist at the time of performance
o Question is how far does this extend? Applies not only to the cessation of existence of the thing that is
the subject-matter of the contract Thing is considered necessary for the performance of the
contract Also applies when the event that renders performance impossible
is the cessation or non-existence of an express condition or state of things
An event removes an element that is required by the contract, without which the contract is completely different
Court states that the reason the rooms were rented were for one specific reason. o Had the king died before the coronation but after the contract, the hirer
would have no grounds for requesting the rooms on the contracted dates The judge is trying to create an artificial divide in order to prevent floodgates
(there is really no difference from renting a carriage specifically to go to an event and renting the rooms – the performance is still fundamentally different)
o This distinction crumbles in commercial impracticability
Aluminum Co. of America v Essex Group Inc.Ratio:
Argument available through comparison to what is done in the American courts: Impracticability does not require impossibility of performance only
unreasonable difficulty, expense, injury or loss to a party. There is an assumption in the American courts that people enter
into contracts for profit. (though this does not respect freedom to contract)
Impracticability will frustrate the contract In the case of mistake, frustration, or impracticability the general remedy will be
voiding the contract either ab initio, or by rescission, the court should not modify the contract unless it is necessary to avoid injustice.
Facts:
1967 - ALCOA and Essex entered into contracto ALCOE converts amounts of alumina, supplied by Essex, into aluminum for
Essex Contract is to run until end of 1983 (16 years) option to extend until 88 (21 years) The price per pound of aluminum converted was calculated using a complex
formula with three variable components (what are these components?) In 1973 oil prices increase and legislation (pollution control) increases ALCOA's
electricity costs ALCOA production costs rose greatly and unforeseeably beyond the indexed
increase in the contract priceo Stands to lose 75,000,000 by performing the remainder of the contract
Issue: Can the contract be frustrated because it has become financially ruinous to one of
the parties Decision:
For PlaintiffReasons:
ALCOA argues impracticability and frustration: Court agreeso Impracticability, Frustration, and Mutual Mistake all discharge an obligor
from his duty to perform where a failure of a basic assumption of the parties produces a grave failure of the equivalence of value of the exchange to the parties.
(no one would have contracted if the value exchanged was presented as such from the outset)
o Mutual mistake: mistake relates to an assumption on which the contract was made
o Impracticability: A non-occurrence of the/an "event" which was assumed would
persist/occur in order for the contract to be performedo Frustration:
Also rests on "non-occurrence"/"non-existence" or "basic assumption" equation (requires more explaining)
o There is an idea that mistakes happen prior to execution and impracticability and frustration post but this is not generally accepted
These notions come from common experience not inherent limitations
o ALCOA non-labor costs were an assumption on which the contract was made ALCOA, in the contract, didn't assume the risk for such a large increase in
their labor cost "oh by the way if labor costs raise to a point at which we lose an
exorbitant amount of money we will continue performing" <--- no one agrees to this
Court looks at aspects of frustration and impracticable that differ from mistake:o Focus of these two is Hardship
Impracticability: Supervening event makes performance impracticable
What is impracticable? "extreme and unreasonable difficulty,
expense, injury, or loss to one of the parties will be involved."
The change in difficulty must be outside the range that would have been considered from the outset
Focuses on occurrences which greatly increase costs, difficulty, or risk of performance
Frustration: Supervening event substantially frustrates the principle
purpose of the contract "the frustration must be so severe that it is not
fairly to be regarded as within the risks assumed under the contract"
Focuses on a party's severe disappointment which is caused by circumstances which frustrate his principle purpose for entering the contract
Which is it here? -> BOTH
Remedy?o Will the court reform contract?
Doesn't fall under reformationo Options?
Voidable by rescission Void ab initio
o The goal of the court is to prevent unjust enrichment Remedy requires careful examination of the circumstances of
contract, purpose of parties, circumstances of the upset. Normally modifying a contract and enforcing it due to a
development would be inappropriate: The court can void the contract and leave the
parties free to contract again in the new circumstances
In this case Essex contracted for a long-term supply at a certain price, ALCOA sought long term limited risk use for its factory.
Modifying the contract is the most just solution
Eastern Air Lines v Gulf Oil Corp.Ratio:
When considering if a contract is rendered impracticable due to a supervening event, if that supervening event was reasonably foreseeable by the party claiming impracticability, then that party's claim will fail. The party should have taken foreseeable factors into account when allocating risk in the contract.
Facts: Eastern Air Lines and Gulf Oil Corp. contract for sale and purchase of aviation fuel Have good relationship for decades Certain world events occur in the Middle East (OPEC Oil embargo), as well as the
implementation of new government regulations increase Gulf's costso Airlines run on razor thin profit margins
Gulf then demands Eastern meet a price increase or Gulf will not supply Eastern claims breach of contract and files complaint for performance Gulf replies:
o Contract is not binding, void for want of mutuality, and "commercially impracticable" under Uniform Commercial Code
Issue: Was the contract rendered impracticable? One parties operating costs go up due to supervening factors, but these factors
were foreseeableDecision:
For Plaintiff (Eastern), because the factors which caused the increased burden on Gulf were reasonably foreseeable they should have contracted out of them
Reasons: Court first looks over the history of "commercial impracticability" arguments in
cases available in states at the timeo All of which failo All use the standard of impossibility for performance
Performance is not excused if it is more difficult… it must be IMPOSSIBLE
Gulf argues:o The escalator indicator (thing that will raise the price East will have to
pay) doesn't work because of the advent of government price controlso Crude Oil Prices have risen without a concomitant rise in the escalation
indicator Like the previous case, costs have gone up, beyond the range
considered by the parties (you can tell they considered a range because they made
the escalator indication) These arguments fail:
o Court claims that do not establish great harshipo Even if they had they would fail because the two aspects of their
argument (world events raising oil prices and government regulation) were reasonably foreseeable
"though performance, subsequent to the contract, may become difficult or even impossible, (this) does not relieve the promisor, and particularly where he might have foreseen the difficulty and impossibility."
o Lots of evidence for foreseeability regarding both of Gulf's arguments
Remedy:
Specific performance is appropriateo Court doesn't want to just declare the contract valid thought (I don't
understand if they would need to re-contract with gulf? Or if Gulf can somehow be a dick?)
Court orders the initial temporary injunction placed on Gulf to perform to be made a permanent injunction (for the duration of the contract?)
Edwinton Commercial Corporation and another v Tsavliris Russ (Worldwide Salvage and
Towage) Ltd. ("The Sea Angel")
Ratio:
Test (ask Alford)1. Can the contract still be performed? (Is the delay the kind of
supervening event that would frustrate? No rule, depends on circumstances.
2. Did one party assume a particular/general risk Particular risk-> if they assumed a similar risk General risk-> if it is a risk that is assumed by an industry in
general3. Is consideration of justice an independent factor?
No, but the result (frustration or no frustration) should be a just result. If it isn’t go and check the facts again.
Since the purpose of the doctrine of frustration is to do justice, its application cannot be divorced from considerations of justice. Further, the answer to the question of whether it would be just to apply the doctrine while considering factors of the assumption of risk, the foreseeability of risk, the nature of the supervening event, etc. should conform with a proper assessment of the issue of frustration
Wait and see?..
Facts: The defendants contracted with the Plaintiff to use their boat ("Sea Angel") to aid
in a salvage of an oil tanker The charter was to last 20 days Three days before returning the boat to the plaintiffs, the Karachi Port Trust(KPT)
claimed negligence on the part of the defendants in relation to pollution cleanup As a result of these allegations of negligence the boat was unable to leave port
o The KPT would not issue a certificate that was required as a prerequisite to leave
The boat remained in port 180 days past the when it was to be returned. Plaintiffs want to be paid for these 180 days (claiming hire) Defendants argue the unlawful detainment frustrated the contract
Issue: One party contracts to borrow something from the other to perform a job, a third
party claims they performed the job negligently, won't allow the return of the thing to the party that owns it.
Decision: For the Plaintiff, the defendants had assumed responsibility for delay (via nature
of charter) required an exclusion clause to be free of liability. They had one but its terms did not cover the present situation
Reasons: The judge first covers the general principle over frustration
o Frustration occurs when . . Blahblahsupervening event…..changes nature of obligations significantly…
o Also discusses the policy background of the doctrine of frustration Frustration is a device for finding just solutions and avoiding
injustices when required by the demands of justice.
Problem: Delay as a cause of frustrationo The fact that there was a long delay isn't the only important fact, the
probability of the length of the deprivation is importanto You have to consider what the parties would have reasonably
contemplated
Discussion on Foreseeability
o Unforeseeable event does not necessarily lead to frustrationo Foreseeable event will generally exclude the operation of frustration
What about foreseeable event not foreseen? Frustration may be applicable
o Key factors: The extent to which the event was foreseeable Had one of the parties assumed the risk of the occurrence of the event? Would any person of ordinary intelligence regard the event as likely to
occur? Is the even one which the parties could reasonably be thought to have
foreseen as a real possibility?
Application of Frustration: o Judge wants multi-factorial approach to doctrine of frustration; factors:
Terms of the contract Matrix/context of contract Parties' knowledge, expectations, assumptions and
contemplations (particularly in regards to risk) Nature of the supervening event Parties' reasonable/ascertainable thoughts as to the possibility of
future performance under new circumstances
o Frustration is a doctrine of justice (Policy issue of applying doctrine) Decision: must be weighed against the demands of justice
Issue here: Frustration of the contract will completely reverse risk
allocation. If there is delay and no frustration the risk is
completely on the defendant If there is delay and frustration the risk is
completely on the plaintiff If the contract leads to a frustration it
must be in the interest of justice that the courts relieve a party of obligations
Counsel for defense wants simple test applied of probable delay vs unexpired duration of contract
Judge focusses on:o Supervening event comes at the very end of performance
Only redelivery is left (lack of redelivery only has financial consequences)
o Risk of delay must be assumed by defendants Defendant's did not contract out of liability (have an exclusion
clause but doesn't capture these terms)o There was a concern (pollution) and the concern was foreseeable
Foreseeable by the entire industry in fact
Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H
Ratio:
"Where a contract, expressly or by necessary implication, provides that performance, or a particular part of the performance, is to be carried out in a customary manner, the performance must be carried out in a manner which is customary at the time when the performance is called for" Reardon Smith Line Ltd. v. Black Sea and Baltic General Insurance Co. Ltd.
When determining if a contract is frustrated due to the breach of an implied "customary" term, assess the nature of the contract and whether both parties would have considered this term fundamental to the contract
Facts: Appeal case Respondent's agreed to buy 300 tons of Sudanese groundnuts from appellants
o To be shipped from Port Sudan to Hamburg during November or December
At the end of October the Suez Canal Crisis began and lasted until Aprilo The normal shipment route was through the Suez Canal
Cape of Good Hope was a routing option but over twice as far Respondent's brought action for breach of contract (remedy of expectation) Arbitration found for respondent, Appellant appealed, judge found for
respondento Contract was a standard form contract
Exclusion clause called for 2 month extension of contract and subsequent cancellation in case of war
Must be prevention of shipmento Judge found:
No war Shipment not prevented (just inconvenience)
Issue: Original contract's performance becomes more difficult (financially) on one party
due to an international incident Is there an implied term that goods shall be carried by a particular route? Is the contract frustrated
Decision: For Respondents, appeal dismissed: shipping was not a condition that was
considered in depth by the respondents… they didn't care how the nuts got thereReasons:
First, Is there an implied term that the route was going to be the Suez?o Judge concludes that it doesn't matter if there is an implied term as either
way it doesn't necessarily decide the issue of frustration Is it frustrated?
o Judge looks to another judges assessment of frustration in relation to the Suez crisis:
"Where a contract, expressly or by necessary implication, provides that performance, or a particular part of the performance, is to be carried out in a customary manner, the performance must be carried out in a manner which is customary at the time when the performance is called for" Reardon Smith Line Ltd. v. black Sea and Baltic general Insurance Co. Ltd.
In the quoted case shipment through the Suez canal was a fundamental assumption
o Judge agrees with the quote but argues that there was no fundamental assumption in this case
The respondent only purchased the nuts. It was the obligation of the Appellant to ship them.
The respondent made no specification for shipping route, and no specification for shipping date.
There was no issue of the nuts perishing in transit, and no season they had to arrive during
o The contract is not fundamentally changed due to the closing of the Suez canal, the cost merely increases for one party
Transatlantic Financing Corp v. United StatesRatio:
If a party can legitimately be presumed to have accepted some degree of abnormal risk (based on circumstances at the time of contracting) and if impracticability is argued for on the basis of added expense alone: then impracticability will not be available to the party unless there is a great variation between expected cost and cost of performing.
o (in this case the difference in cost was $44,000 beyond the contract price of a $306,000
Facts: Appellant is a shipping company, Plaintiff is the U.S. U.S. government chartered the Appellant to transport a cargo of wheat to Iran The contract discussed where the cargo was to be taken but not how it was to get
there In transit the Egyptian government closed the Suez Canal Appellant called the U.S. to get additional compensation to accommodate the
longer voyage around the Cape of Good Hope Plaintiff wants more money by saying the contract is void and then getting
restitution on the grounds of unjust enrichment The U.S. argues the appellant isn't entitled to such a claim
Issue: Was there an implied term between shipping company and the party hiring them Party hires company to ship item. Supervening event occurs which makes the
shipping companies intended route impossible. Circumstances made the event potentially foreseeable
Decision: For the Respondent, the Appellant could have
Reasons: Appellant's Argument
o Usually it will be implied (from custom) that the voyage will go by the "usual and customary" route. (there is nothing in the contract about route)
o When Suez closed performance became impossibleo When it continued to perform it conferred benefit upon the U.S. for which
it deserves payment Was performance impossible?
o "A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost" Mineral Park Land co. v. Howard.
When this issue is raised court must construct a condition of performance based on the changed circumstances:
o A contingency (unforeseen supervening event)
o Unallocated Risk (neither party agreed to burden supervening event imposes)
o Occurrence of supervening event has rendered performance commercially impracticable
o This case is different from the previous because: The previous involved a buyer buying an item which it left up to the seller
to transport Not a charter contract, just a contract of sale
This case involves a seller contracting to ship an item to a buyer It will be implied in the charter contract that the vessel will travel
by the customary route
Contingency definitely happened Allocation of Risk:
o Did either party consider the risk that the Canal would closeo Given that both parties were aware about what was happening it is fair to
say they knew the area might become dangerous. o Nothing necessitated the canal's closing though, at the time of contracting
It was not completely foreseeableo Judge argues that:
The circumstances indicate a willingness by the Appellant to assume abnormal risks, which makes an assessment of impracticability stricter.
The appellant knew the risks, was in a better position to insure against the hazards of war
Davis Contractors Ltd. v Fareham Urban District Council
Ratio: Contains all the standard frustration rules:
o "Frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract… it was not this that I promised to do"
o Frustration requires that "there must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be different thing from that contracted for
o Frustration requires that the parties could not have reasonably foreseen the event or risk to be allocated
Facts: Plaintiff tendered to build 78 houses in 8 months for 92,000
o a letter accompanying the tender stated: "Our tender is subject to adequate supplies of material and
labour being available as and when required to carry out the work within the time specified"
Appendix 1 of the contract stated the plaintiff was to purchase materialso Here the plaintiff wrote "subject to terms of the letter"
The plaintiff later offered a detailed list of prices to constitute Appendix 1 Project took 22 months due to lack of skilled labour Plaintiff claimed he required 115,000 due to the delay
o Arbitrator awarded, Court of Appeal held letter was not incorporatedo House of Lords dismissed appeal but considered the question of
frustrationIssue:
Does the unforeseeable delay frustrate the contract? Contractor tenders bid, work goes long and wants additional pay or frustration of
contract, (contractor attempted to get in exclusion clause that price of tender was subject to available work)
Decision: For Defendant, frustration cannot be used to get plaintiff out of something he was
free to allocate risk for using the cost of his bidReasons:
In this case Lord Radcliff lays down frustration Frustration:
o Does not depend on parties' intentions or opinions, or even knowledge, as to the even
o When the supervening event occurs the meaning of the contract must be taken to be that which the parties, as reasonably parties, would presumably have agreed upon it, having the considered supervening event in view
Judge states that this sounds silly because the parties are not these "reasonable parties"
Radcliffe gives the classic formulation of frustration: "Frustration occurs whenever the law recognizes that
without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract… it was not this that I promised to do"
Frustration requires that "there must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be different thing from that contracted for
Plaintiff argue the delay wasn't foreseeable and the change in price made the price so unfair….
Radcliffe argues the change in cost alone cannot justify frustration or it would destabilize contracting
For frustration to be applied in this case:1. The cause of the delay would have to be a new state of things which the
parties could not reasonable have foreseen Obviously foreseeable or the plaintiff wouldn't have written that
letter. 2. The risk was not allocated by the parties
Here he Radcliff states the owner draws up conditions, includes a penalty clause for delay and then the contractor offers a tender. The contractor when offering the tender is aware of the risk and prices the cost of his bid accordingly.
What if the letter had been included in the contract?
Ch. 2 Remedies for Breach of Promise 1. The Interests Protected
Wetheim v Chicoutimi Pulp Company
Lord Atkinson:
"And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed… That is a Ruling: principle. It is a just principle"
Bollenback v Continental Casualty Company (1965)
Ratio: The purpose of rescission and restitution is to return the parties as near as
possible to their positions before the formation of the contract so that they parties can find the desired performance elsewhere
The purpose of an action for damages is to put the injured party as near as possible to the position where he would have been if the contract had actually been performed
In a claim of restitution and rescission in a contract for ongoing services, the plaintiff is entitled to recover to the extent that it returns the plaintiff to the moment at which the defendant stopped performing
Facts: Plaintiff is the holder of a health/accident insurance policy purchased from
defendant Plaintiff gets in an accident. Plaintiff files claim but receives no word Plaintiff eventually finds out the defendant claims the policy lapsed in 1959 After attempting find out about the laps the plaintiff brings an action rescinding
the contract due to the defendants refusal to acknowledge its validity Plaintiff seeks all previous premiums paid under policy ($2,166.50) Defendants claimed they had made a mistake and sought to pay the original claim They go to court and the defendants argue the plaintiff has received adequate
recovery and rescission is extremeIssue:
Can the plaintiff recover all premiums paid under the contract for a rescission even though he was covered for a partial duration
Plaintiff has an insurance policy, when making a claim he finds the defendant had not intended on fulfilling obligation for several years
Decision:
For the Plaintiff, the plaintiff is entitled to recover premiums paid for the period of time they were no longer covered
Reasons:
There is confusion in the law (at this time) regarding what the remedy should be in this case due to a lack of clarity regarding the difference between:
o An action for restitution upon rescission of the contract (remedy for annulment); and,
o An action for damages for its breach (remedy for failure to perform)
rescission and restitution:o The purpose of rescission and restitution is to return the parties as near as
possible to their positions before the formation of the contract so that they parties can find the desired performance elsewhere
Action for damages:o The purpose of an action for damages is to put the injured party as near
as possible to the position where he would have been if the contract had actually been performed
If there is a rescission and restitution should the plaintiff receive all premiums paid back?
o Issue is that rescission and restitution seeks to put the plaintiff back into position prior to the contract, but the defendant may have performed partially having validly held their side of the contract for an amount of time
The plaintiff's right to rescind does not carry with it the right to recover such premiums to the extent that they represent the cost of carrying insurance protection actually furnished to the plaintiff.
o Unless it is a case of intentional misrepresentation and the defendant had no intention of fulfilling the obligation at all
Since the defendant's stated that the policy lapsed in 1959 (and it is 1965) the defendant must repay all premiums back for which the client was not covered by the contract due to its supposed lapsing (they had no intention of fulfilling their obligation during this time)
Anglia Television Ltd. v Reed (1972)Ratio:
The principle to be applied is that: A Plaintiff can claim damages for wasted expenses incurred prior to the formation of the contract if it can be reasonably held that those expenses were in the contemplation of the parties as likely to be wasted if the contract was broken and the contract was in fact broken by reason of the defendant's breach of contract
Facts: Plaintiff is a production company planning to produce a film They have gone through many stages of preproduction (hired director, found
locations, etc.) They contract with the defendant to be the lead in the film The defendant is double booked and repudiates the contract The plaintiff sues the defendant in damages claiming for the wasted expenditure
Issue:
Can the plaintiff recover for expenditure wasted prior to the formation of the contract with the defendant as this would put the plaintiff into a better position than he was in at the time of contracting
Decision: For plaintiff, plaintiff can recover for expenses contemplated by parties at signing
(def. knew that money would go to waste if he breached)Reasons:
Denning Defendant refers to an English case from 1969 stating "expenses preliminary to
the contract ought not to be allowed. The party enters into them for his own benefit at the time" before the contract is established.
Denning does not agree:o In this situation the plaintiff can either claim damages for lost profit, or
wasted expenseso The principle to be applied is that: A Plaintiff can claim damages for
wasted expenses incurred prior to the formation of the contract if it can be reasonably held that those expenses were in the contemplation of the parties as likely to be wasted if the contract was broken and the contract was in fact broken by reason of the defendant's breach of contract
Defendant can be reasonably held to know the expenses the plaintiff had incurred o Plaintiffs were obligated to attempt to mitigate damages and were
required to try and find someone of a similar skill level/level of fame as the defendant (ask what is the plaintiff really contracting for)
A.I. Ogus, "Damages for Pre-Contract Expenditure"
Article regarding Denning's judgment in Anglia Television
o Reliance interest: The amount of money put in because the party is relying on the
performance of the other partyo Expectation interest:
What the party expects to gain from the other party's performance
Should a party be able to choose which interest it elects to recover for (as in previous case Denning sets out that choice)?
o By allowing a party to choose to rely on reliance interest it places the party to where it was prior to the contract… even though it may have been in a worse position after the defendant performed.
Policy issue that parties might try and get out of a bad dealo By having to place the party into a better situation then if the contract
had been performed there appears to be a punitive aspect for breacho Principle more consistent with doctrine of compensation:
A plaintiff should never be put in a better position than if the contract had been performed
Should pre-contract expenditure form part of the reliance interest award?o The measure of damage does not put the plaintiffs in the position they
would have been in if the contract had not been made
The plaintiff still would have had spent this money…
My Notes:
Appears to be principle of reasonableness at odds with compensatory doctrine. o What OUGHT compensation doo What should people be reasonably able to recover
Pitcher v Shoebottom (1971)Ratio:
Damages for material breach = the profit/value the plaintiff would have – the cost required to close the deal)
When no time of closing is specified a reasonable time is implied
Facts: Plaintiff agreed orally to defendant to purchase land They then put the agreement in writing and several payments were made by the
plaintiff under agreement Defendant then, in breach, sold the land to a third party before the deal closed,
likely because the value had gone up Plaintiff brings action against defendant for specific performance, or for damages
against defendant and purchaser Specific performance and damages against purchaser dismissed, damages against
defendant allowed Issue:
What damages is the plaintiff entitled to recover given the value is vague What time does one determine the closing of a contract if it is not specified in a
breached contract? Parties A enters contract with B for the purchase of Land. A begins to pay for land,
but then B sells to a 3rd party. Decision:
For plaintiff, plaintiff can recover damages for the value of the property at the closing of contract
Reasons: There is not enough evidence to determine the damages suffered by the plaintiff
for the defendant's breacho The land had increased in value since the contract was formedo The court must find out the value of the contract at the date the contract
was supposed to be considered closedo Damages are being awarded to put the plaintiff in the same position he
would have been in at the time when the contract was breached by the vendor.
Thus, items of expenditure necessary to close the deal must be taken into consideration
o In determining the date of close when a date isn't specified a reasonable date is implied
Hawkins v McGee
Ratio:
Facts: Hairy hand case Plaintiff brings a claim for damages for the breach of a warranty regarding the
success of an operation The defendant performed surgery on the plaintiff, grafting skin from his chest to
his hand The defendant stated "I will guarantee to make the hand a hundred per cent
perfect hand" The defendant had also solicited the father of the plaintiff so that he might be
allowed to perform the surgeryIssue:
If a party breaches a warranty how are damages to be rewarded? Party A contracts with B for the purchase of a thing. B gives A a warranty
regarding the thing. The warranty is breachedDecision:
For plaintiff, the guarantee was in order to induce the plaintiff to allow the defendant to perform the surgery. The inducement is a warranty which was breached.
Reasons: Plaintiff argues the defendant guaranteed a perfect hand (wants damages for
breach of warranty) The defendant argues no reasonable person would consider that a contractually
binding statemento Given the uncertain nature of surgery
There is evidence the plaintiff solicited the father of the plaintiff to allow him to perform the surgery
o This is when the guarantee is made Defendant wanted a chance to experiment with skin grafting
This being the case the guarantee is taken to be warranty made to induce The measure of damages for a breach of warranty is:
o The value of the thing, if it had corresponded with the warranty and its actual value, together with such incidental losses as the parties knew, or ought to have known, would probably result from a failure to comply with its terms.
2. Problems in Measuring Damages 2.A. Cost of Substitute Performance, or Economic Value?
Carson v Willitts (1930)
Ratio:
If an absence of evidence makes it impossible to assess damages then only nominal damages can be recovered
If damages are proved but the nature of the damages makes it difficult an amount, this is no ground to refuse substantial damages
Facts:
Plaintiff entered into a contract to have the defendant bore 3 oil wells Defendant bore 1 well and refused to continue
Issue: How should the court assess damages when what the plaintiff lost could have
been nothing or could have been substantial Party A and B contract. B's lack of performance causes A to lose potentially a lot,
or potentially a little.Decision:
For PlaintiffReasons:
If there was no oil/gas in the last two wells then what was lost was nothing If there was then what was lost was substantial "difficulty in estimating the quantum is no reason for refusing to award any
damages"o where absence of evidence makes assessment impossible only nominal
damages can be recoveredo Where the nature of the damages proved makes assessment difficult
there is no ground for refusing substantial damages
Groves v John Wunder CoRatio:
The Plaintiff is entitled to receive damages for the cost of it would
Facts:
The Plaintiff owns a track of land that has a pile of gravel on it Plaintiff and the defendant enter into a contract of sales with conditions The defendant pays plaintiff $105,000 dollars in order to be able to take the
gravel with the condition that they leave the property at a level grade when they have taken all the gravel
The defendant's take all of the good gravel and then breach the contract deliberately
The cost of completing the work is $60,000 The value of the land will be $12,000 The plaintiffs are only looking to sell the land, there is not sentimental or personal
value here Plaintiffs sue
Issue:
Party A pays Party B in full to perform work on property. B quits half way. The work would cost $60,000 to complete but the end product is only worth $12,000
Should damages be awarded on the basis of the economic state the plaintiff would be in had the defendants performed, or on the basis of how much it will cost for them for performance to be completed?
Decision:
For Plaintiff
Reasons:
Majority:o For Plaintiff
The plaintiff contracted for a certain performance and the defendants willfully breached
In determining damages for breach of a construction contract the law aims to give the promisee what he was promised
Within reason… if there is substantial performance the courts will not order a structured torn down and rebuilt. In this case the court awards damages in the amount of the difference of the value of the thing construct and what should have been constructed
The figure to determine damages by in the breach of a contract to improve land is the hypothetical peak of accomplishment that would have been reached if the work was done
The owner is entitled to compensation for what he has lost, that is the work or structure he has been promised.
Diminishing the available award due to the value of the land itself ignores the plaintiff's right to contract.
If fulfilling the contract does not create economic waste (tearing down something that was built) then the cost of remedying the defect is what should be rewarded.
Defendants are liable to pay the cost of performance ($60,000)
Dissent:o For Defendant:
If damages result in more than compensation the wrong rule is applied (plaintiffs will be making more than the land is worth)
For the plaintiff's to be awarded the cost of performance it is clear that the land should be for some personal or unique purpose, not for ordinary economic purposes like sale.
Classic calculation for damages for breach of construction:
The difference between the market value of the property in the condition it was when delivered to and received by plaintiff and what its market value would have been if defendant had fully complied with its terms.
2.B. Lost Volume The Sales of Goods Act
Section 48:1. If Buyer to accept and pay for goods Seller can bring action for
damages resulting from non-acceptance2. Damages= estimated losses directly and naturally occurring from
breach3. If there is a market for the goods then (Contracted Price) -
(Market Price) = Damages
Section 49:1. If Seller refuses to sell or deliver goods Buyer can bring action for
damages resulting from non-delivery2. Damages = estimated losses directly and naturally occurring from
breach3. If there is a market to purchase the goods then (Market Price) -
(Contracted Price) = Damages
Thompson (W.L.) Ltd. v Robinson (Gunmakers) Ltd. (1955)
Ratio:
An available market for goods requires that there be sufficient demand for the goods to readily absorb them
If the application of the available market rule leads to an injustice according to the general principles (person breached has right to be put in place he/she would have been in) then it doesn't need to be applied
Facts: Defendant contracted to buy a standard model car from plaintiffs Plaintiffs are car dealer Defendant refused to accept delivery Plaintiffs took car back and returned to supplier Plaintiff sues for lost profit
Issue: Is there an available market for cars? A contracts with B to purchase then refuses to accept delivery. B sues for lost
profit. A claims there is available marketDecision:
For Plaintiff.
Reasons:
Defendant's rely on s.48(3) of Sale of Goods Act General Rule for breach of contract to supply
o If the plaintiff has proved a breach he/she is entitled to be placed, as far as money can do it, in as good of a situation as if the contract had been performed
Defendant's argue that there is a market for the car and so the damages should be the difference between what they would pay and what the market would (negligible, also might pay for storage and interest)
Judge interpretation of "available market:o The situation in the area is such that the particular goods could freely be
sold, and that there was a demand sufficient to absorb readily all the goods that were thrust on it.
Charter v Sullivan(1957)
Ratio:
Available market doesn't mean that there is someone to purchase that particular item (car), there must be enough of a market to take all of those type of item (cars). If there isn't enough to take all of those cars the plaintiff’s lost sale will be lost profit.
Facts: Defendant refuses to accept delivery of car There is evidence plaintiff could sell all cars of this sort and did resell
Issue: Does an available market mean that there is one person to purchase that item
instead? A contracts with B to purchase car, A refuses to accept car. B can sell all of his
stock anyways. Decision:
For defendant appeal allowed, damages reduced to nominal
Reasons:
When determining the damages to be rewarded, if any, always start with the profit the plaintiff would have gained if the contract had been performed
o $97.15 Even if there is a market for the car that does not preclude rewarding damages…
as the plaintiff could have sold two cars.o An available market does not just mean one other person that would buy
the car Plaintiff MUST show that he lost those profits As the demand was so high for this car the plaintiff fails to show that he lost any
profit as he would have sold all of those cars anyways
3. Remoteness British Columbia Saw Mills Co. v Nettleship
1868
Note Case:
Cases where a party's negligence causes a remote damage are difficult Discusses case from the early 1600s
o Man is to be married to heiresso Horse needs a shoe on the way. o Blacksmith worked so unskillfully the horse was lame and the man was
lateo Heiress married another
Blacksmith was found liable for the loss of the marriage
Comment by F.E. Smith: even if the blacksmith knew about the wedding he couldn't be expected to apprehend that the bride would marry another due to lateness
Hadley v Baxendale (1854)
Ratio:
Rule for damages in cases where breach of contract causes a remote damage: Where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such breach of contract should be such as:
First Prong - May fairly and reasonably be considered either arising naturally from such breach of contract itself; or,
Second Prong - Such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable breach of it
If the special circumstances were communicated then the potential damages would have been considered.
Facts: Plaintiff owns steam powered mill. The gear shaft broke. Plaintiff had to send broken gear shaft to serve has model for replacement Contracted with defendant to ship gear shaft Delivery by defendants was delayed beyond a reasonable time Plaintiff brought action against defendants for lost profit Trial judge awarded damages, Defendant's appeal
Issue: Can the plaintiff receive damages for lost profits caused by the defendant's
delayed delivery Party A contracts with B. B performs slowly, this causes a damage to A that was
unknown to B.Decision:
For Defendants, new trial ordered.Reasons:
Proper rule for damages in cases like this:o Where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such breach of contract should be such as:
May fairly and reasonably be considered either arising naturally from such breach of contract itself; or,
Such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable breach of it
We're the special circumstances of the contract communicated from the outset?o In this case there are other reasons a mill may ship a broken gear shaft
that in no way effects profitso The plaintiffs did not make it clear that their profits were dependant on
receiving the gear shaft and so the defendants could not reasonably have been expected to know that the delay was causing lost profits
Horne v The Midland Railway Company(1873)
Ratio:
In calculating exceptional damages for a remote loss:
o In order that the notice of special circumstances may have any effect, it must be given under such circumstances, as that an actual contract arises that obliges the defendant to bear the exceptional loss
Facts: Plaintiffs had contract to supply shoes to a firm in London at 4s/pair The shoes had to arrive on Feb. 3 When dropping shoes off at defendant's rail station they gave a note stating they
were under contract to have them delivered by the 3rd The shoes arrived on the 4th and were not accepted Plaintiffs resold shoes at 2s 9d/pair Defendants originally paid enough to cover the cost of resale Plaintiffs further 267pounds for difference between contracted price and market
price Issue:
Does the note make the defendant's liable for the plaintiff's loss?Decision:
For the defendant, the note did not form a contract that created liabilityReasons:
There has never been a case that affirmed that if notice is given the defendants will become liable for exceptional damages
"In order that the notice may have any effect, it must be given under such circumstances, as that an actual contract arises on the part of the defendant to bear the exceptional loss."
Note Cases
Hydraulic Engineering Co. Ltd. v McHaffie (1878)
A person contemplates the performance and not the breacho Plaintiff doesn't enter into a second contract to pay damageso But, is liable for injuries that he is aware his default might cause
Court will not imply the note as an implied condition
Rivers v George White & Sons Co. (1919) Shippers have no discretion to decline the second contract as they have already
accepted the firsto (modification without consideration)
Kinghorne v The Montreal Telegraph (1859)
It makes no sense that a shipper should be liable for all potential loss that might arise from a late delivery
Victoria Laundry Ltd. v Newman Industries Ltd. (1949)
Ratio:
The following is not precedent. The SCC qualifies Hadley v Baxendale as the standard in Fidler
When dealing with loss of profit due to unreasonable delay follow these principles:
1. In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach
2. What was at that time reasonably foreseeable depends on the knowledge then possessed by the parties, or at all events, by the party who later commits the breach
3. For this purpose: Knowledge possessed is either i) imputed; or, ii) actual Individuals are expected to know the ordinary course of things If an individual has knowledge outside the ordinary that allows
them to infer the damage that would be received by the plaintiffs then the damage is recovering
4. The contract -breaker is liable is he, having considered the question of liability, would have reasonably concluded that the loss in question was liable to result.
5. Liability does not require the contract-breaker to know the loss would necessarily result, it is enough that there was a "serious possibility" or "real danger" that a loss would result.
Facts: Defendants advertised selling two boilers they owned Plaintiffs, looking to expand their business, contracted for the purchase of the
boilers Contract was complete on Apr. 26th Plaintiffs made it very clear they wanted the boiler ASAP Plaintiffs had delays getting licensing for boiler: Defendants knew they wanted it
as soon as possible Plaintiffs went to pick up Boiler June 5th
o Boiler had been damaged 4 days earlier by contractors of defendanto Plaintiff demanded the boiler be repaired
The repairs were complete Oct.28th Delivery was taken Nov. 8th Plaintiffs sue for lost profits Trial judge did not reward loss of profits Plaintiffs appeal
Issue: Should the plaintiffs receive damages for lost profits due to a delay in shipping the
boiler they contracted to purchase from a company A contracted to by a Boiler from B. B knew A wanted the boiler for business. B
caused the boiler to be delayed unreasonably.Decision:
For Plaintiffs
Reasons:
Defendant counsel argues that under Hadley v Baxendale no damages for lost profits can be rewarded because no communication was given at the time of contract about the possible damage resulting in a breach
Court summarizes the law in these cases:
1. In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach
2. What was at that time reasonably foreseeable depends on the knowledge then possessed by the parties, or at all events, by the party who later commits the breach
3. For this purpose: Knowledge possessed is either i) imputed; or, ii) actual Individuals are expected to know the ordinary course of things If an individual has knowledge outside the ordinary that allows
them to infer the damage that would be received by the plaintiffs then the damage is recovering
4. The contract -breaker is liable is he, having considered the question of liability, would have reasonably concluded that the loss in question was liable to result.
5. Liability does not require the contract-breaker to know the loss would necessarily result, it is enough that the loss would likely result.
Applying this:o Defendants knew the plaintiffs wanted the boiler for businesso Defendants were not aware at the time of contracting of the plaintiffs
contracts which they stood to lose and so they cannot be expected to pay for those losses
o Plaintiffs can recover some losses of business
Koufos v C. Czarnikow, Ltd. (The Heron II)
Ratio:
Modifies Victoria Laundry in that if a loss is sufficiently likely to result from a breach the contract-breacher will be liable for the damages
Facts: Plaintiff chartered defendants vessel to move pick up 3000 tons of sugar in
Constanza and carry it to Basrah or Jeddah This should have taken 20 days Deviations caused the trip to take 29 days Defendant didn't know that plaintiff's wanted to sell sugar "promptly" but knew
there was a sugar market in Basrah Sugar was sold but the market price had gone done shortly before
o Sold sugar for 31 pounds 2s. 9d. / tono Could have sold for 32 pounds 10 s. 0d. / ton
Plaintiffs want the difference as damage for breach of contractIssue:
Carrier deviated course and delayed shipment by 9 days. Market value of cargo went down. Can charter recover damage for difference in market value?
Decision:
For Plaintiff
Reasons:
Court acknowledges the use of Hadley v Baxendale and Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd. And then applies these tests
o Knowledge and intentions of parties: Charterers:
Intended on selling sugar at basrah immediately after arrival
No evidence they had expected date of arrival No evidence they were aware of rising or falling markets
Shipowner: Knew nothing of the charterer's plan
o Ought the shipowener have realised that the loss incurred due to breach of
contract causing delay was not unlikely to result?
Court states that it is not unlikely knowledge for carrier's that prices in markets go up and down and that the breach of contract might cause the defendant's to lose profit.
Transfield Shipping Inc. v Mercator Shipping Inc. (The Achilleas)
Ratio:
In cases involving remote damages the court will interpret the contract to determine the liabilities which the parties may reasonably be expected to have assumed and paid for.
o Is the loss the kind of loss that risk would be considered to be assumed for when entering into the contract
Facts: Defendants had been chartering a boat (the Achilleas) from the plaintiffs for over
a yearo The latest date of delivery was set as May 2nd, 2004
Rates had gone up significantly for charters Plaintiffs contracted with new charterer's to charter the vessel for 39,500/day;
latest date for delivery May 8th, 2004 Defendants were unfortunately delayed, not due to their own negligence, and
delivered the boat on May 11th By this period rates had gone down Plaintiff, renegotiated the daily rate for the new charterers down to $31,500/day
in order to extend the date of delivery to May 11th Plaintiffs sue for lost profit ($1,364,584.37)
Issue: A charters vessel from B. A is late returning vessel to B. Delay causes B to lose
next lucrative charter. Is the rule that a party may recover losses which were foreseeable an external
rule of law, imposed upon parties to every contract unless express contrary provisions, or is it a prima facie assumption that can be rebutted in certain contexts?
Decision:
Reasons:
Defendant's argue they are only liable for the difference between the market rate and the charter rate and the market rate they were deprived by over those 9 days
Lots of academic works recently state that liability for damage is foudned upon the interpretation of the particular contract (it's type, form, context, intentions, etc.)
o It is wrong to hold a party liability for risks that people entering into a contract in that market would not consider
The original starting point for a remedy is to see what would put the plaintiff into the position he/she would be in had the contract been performed
o Judge disagrees: First determine "type" or "kind" of loss the plaintiff is seeking to
be compensated for Implied contractual duty; and, Express contractual duty
The consequences of either of these duties for which the contracting party will be liable are those which the law regards as best giving effect to the express obligations assumes
Party will not be liable for risks which fall outside risk considerations that generally exist in contracts in a given market
Foreseeability will not always lead to damages:o A party may not be liable for foreseeable losses because they are not of
the type or kind for which he can be treated as having assumed responsibility
o How does one determine if a loss is of the same or different type? "the only rational basis for the distinction is that it reflects what
would have reasonably have been regarded by the contracting party as significant for the purposes of the risk he was undertaking
The question of whether a given type of loss is one for which a party assumed contractual responsibility involves the interpretation of the contract as a whole against its commercial background-> questions involving contractual interpretations are questions of law
In cases involving remote damages the court will interpret the contract to determine the liabilities which the parties may reasonably be expected to have assumed and paid for.
o Is the loss the kind of loss that risk would be considered to be assumed for when entering into the contract
Cornwall Gravel Co. Ltd. v Purolator Courier Ltd.
Class Notes:
Business gives job tender to a delivery man (agent of Purolator) and explicitly states that it must get to its location before 3 (so that it would be accepted for the bid)
Delivery man acknowledges this and states it will It doesn’t The delivery man in court admits that he knew what a tender was
o This created the obligation with Purolator The party doesn’t need to be able to predict the exact manner in which the
breach occurso The Types of damages that occurred had to be within the contemplation
of the parties (Heron 2)o Or the type of damage must be expressly communicated
4. Intangible Injuries Addis v Gramophone Company Limited (1909)
Ratio: In cases of breach of contract there may be circumstances of malice, fraud,
defamation, or violence which would justify recovering damages under tort law. Parties will be prevented from bringing these actions under contract law because the defenses available to the defendant in tort law are not available in contract law.
o Damages will be limited to what is lost under the contract
Class Notes:
Plaintiff was employed and had contract to sell gramophones Plaintiff was supposed to receive 6 months’ notice New manager showed up and started working and the plaintiff was laid off within
one month Plaintiff is awarded 600 for wrongful dismissal and 240 in respect of excess
commission over and aboveo Seems punitive
Lord Atkinson quote: o In many other cases of breach of contract there may be circumstances of malice,
fraud, defamation, or violence, which would sustain an action of tort as an alternative remedy to an action for breach of contract. If one should select the former mode of redress, he may, no doubt, recover exemplary damages, or what is sometimes styled vindictive damages; but if he should choose to seek redress in the form of an action for breach of contract, he lets in all the consequences of that form of action: Thorpe v. Thorpe. One of these consequences is, I think, this: that he is to be paid adequate compensation in money for the loss of that which he would have received had his contract been kept, and no more.”
Policy issue:o Can the plaintiff receive damages for other suffering in contract?
If you bring the action in tort there are defences against defamation and psychological harm.
These defenses don’t exist in contract law The court doesn’t want people getting around the tort law
defenses by bringing them in contract actions
Kolan v SolicitorClass Notes:
Straight forward application of Addis
Mental distress isn’t available
Jarvis v Swan Tours Ltd.
Ratio:
In contracts that regard the protection or benefit of the contracting party’s peace of mind damages will be available for mental distress
Facts:
Jarvis is looking forward to a fun mountain getaway, his one vacation a year The vacation he booked through Swan Tours Ltd. sucked big time
o No cakes, no people, no fun He sues He is awarded half of what he paid, he appeals Denning Case
Issue:
Are rewards for mental suffering available when the contract was related to mental well-being
Decision:
For the sad man
Reasons:
Damages are available for a breach of contract that results in physical damageso If you get kicked off a train and have to walk home in the rain and you get
pneumonia damages are available Why not for mental distress when the contract was meant to protect that
(IC) Vorvis v Insurance Corp. of British Columbia
Ratio:
Facts:
Issue:
Decision:
Reasons:
Fidler v Sun Life Assurance Co. of Canada
Ratio:
SCC Case that affirms that the test in Hadley v Baxendale is the appropriate test for determining damages.
o If one is contracting for peace of mind then the mental damages that result from the breach of the contract will fall under prong 2 of Hadley.
The burden is on the plaintiff to prove his/her loss. Court must be satisfied that
1. An object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties
2. The degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation
Facts:
Re-read this case Para 47 rules
Issue:
Decision:
Reasons:
5. Punitive Damages
Whiten v Pilot Insurance Co. Ratio:
Flowchart for Punitive damages3. Is there horrifying behaviour?4. Does this behaviour constitute an “actionable wrong”
This is broader than tort damages (though can include tortious actions), but will likely refer to the breach of a quasi-fiduciary duty particular to the contract (i.e. acting in good faith to pay out valid insurance claims)
5. “If and only if” the damages awarded as compensation are too insignificant to serve as a punishment, then punitive damages may be awarded
6. Amount is that which a reasonable jury properly instructive could have concluded that an award in that amount, and no less, was rationally required to punish the defendant’s misconduct
Facts: Plaintiff purchased house in 1985, in 1994 at midnight it burnt down The defendant was their insurance company,
o Paid out an initial $5000 living allowance and paid some rent for temporary living but then cut off payments and become hostile
Defendant used legal actions to force the plaintiff to expend what little money they had in an attempt to get them to settle for an unfair amount that was substantially lower than their policy
Issue: Can punitive damages be placed upon the defendant for their behaviour and if so
how much?
Decision: For plaintiff, punitive damages apply
Reasons: Punitive damages in Canadian Law:
1. Determining when punitive damages is used isn't about the category of case but in rationally determining the circumstances that warrant an the additional punishment on top of compensation
BCCA: punitive damages are available whenever "the conduct of the defendant was such as to merit condumnation by the court"
2. Objectives of punitive damages: Punishment, deterrence, and denunciation
3. Acknowledging that punitive measures are primarily based in criminal law Prior penalties brought against the defendant can be taken into account Similar penalties used in criminal cases can be looked at if the facts are
very similar4. Damages should be principled and not exhortatory5. Courts should be rational: keep the facts in mind and see if the punishment
serves the objectives of the law (lowest reward that serves the purpose should be used)
6. Formulaic methods of determining punitive damages don't work because the plaintiff's loss is unrelated to the desire to punish the defendant
7. The overall award should be rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence and denunciation)
8. Juries need to be guided in determining punishments9. Appeal courts can change damages if they are beyond what is required to
serve the purpose of law
Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also an actionable wrong (broader than a tort) for which punitive damages are recoverableo A breach of the contractual duty of good faith constitutes an "actionable
wrong"
Assessing punitive damages:o Imposed only if there is reprehensible conducto Assessed in an amount proportionate to such factors as:
Harm caused Degree of misconduct Relative vulnerability of plaintiff Advantage/Profit gained by defendant
o List goes on Pg. 101
Reviewing Jury awardo Were the defendant's actions so outrageous that punitive damages are a
rationally required to act as a deterrence Without punitive damages the defendant would have gotten off with
just having to pay what it should have paid in the first place
Proportionate to the degree of vulnerability of the plaintiff:o Vulnerability generally works against punitive damages-> plaintiffs ought to
know contracts involve aggressive self-interested parties. In this case it was a "peace of mind" contract
o Punitive damages are not compensatory Facts about the mental distress caused to the plaintiff are only relevant
to establish oppressive behavior Punitive damages shouldn’t be proportionate to loss. If a ratio for damages is used it might not “sting” large
companies The punitive damages must be free to be large enough to
deter individuals who are driven by a duty to maximize share value
Punitive damages should be awarded "if and only if" compensatory damages are
insufficient
Notes: Fraud doesn't warrant punitive damages
6. Mitigation of Loss Payzu Limited v Saunders
Ratio: Mitigating Loss:
First look to at the facts to see whether it would be reasonable for the party to accept the offer and enter into business with breaching party again
Then do an economic analysis Accepting the offer does not mean the party loses their ability to
sue on the original contract "[the Plaintiff] can recover no more than he would have suffered if he had acted
reasonably, because any further damages do not reasonably follow from the defendant's breach"
Whether someone acted reasonably to mitigate their loss is a question of fact Facts:
Defendant agreed to sell plaintiff 200 pieces of silk at 4s 6d/yard and 200 of different silk at 5s 11d/ yardo As required between January to September
The plaintiffs made an order, the defendants delivered and the plaintiffs wrote a cheque to them
Defendants didn't receive the cheque Plaintiffs tried again but it took them a few days to get the cheque in order Defendants thought the plaintiffs were in financial trouble and demanded all further
payments be made in cash Plaintiffs refused
o Plaintiffs money, by using a cheque, would incur more benefits from the discount structure of the contract (not included in these facts because I don’t get it entirely)
Defendants refused Plaintiffs bring action claiming damages for breach of contract
o Damages claimed = difference between market price and the contract price Prices go way down? - 6d and 7d /yard.
o Plaintiffs want out because they are losing cash? Issue:
What is the rule of law as to the duty to mitigate damages? Party A has contract to order item from B over period of time. A appears to be in
financial trouble. B tries to mitigate loss by making A pay cash
Decision: Reasons:
Trial judge:o The true question:
What ought the prudent person ought reasonably to do in order to mitigate his loss arising from a breach of contract.
o Plaintiffs could have looked at the situation they were in an chosen to accept the offer or not
The plaintiffs were in a position to accept the offer (they had the cash) but instead refused and suffered large losses
It is imprudent to suffer loss without reason Even though they are stupid trial judge awards 50
pounds in damages because they did in fact suffer The plaintiffs could have accepted the offer, thus mitigating their damages, and
then still sued for breach to receive the money they would have had if they could have used cheques
o Plaintiffs appeal on damages Court of Appeal:
o Defendant argues it was unreasonable for them to not accept the offer… they should only receive what they would have would have lost had they paid in cash for the period
o What is reasonable for a person to do in regards to mitigating loss will always be a question of fact
If someone is fired and then is offered a job it wouldn't be unreasonable for them to say no due to treatment, but financially it makes no sense…they should mitigate loss
o "[the Plaintiff] can recover no more than he would have suffered if he had acted reasonably, because any further damages do not reasonably follow from the defendant's breach"
Roth & Co. v Taysen, Townsend & Co.Ratio:
Party who treats repudiation as a breach is bound to do what is reasonable to prevent he damages from being inflamed or increased
Calculating damages:o If time of performance isn't fixed, then date of breacho If time of performance IS fixed, then date of fulfilment
The determination of if some is reasonable is the objective standard of the reasonable man, not an individual's personal judgment of what is reasonable
Facts:
Contract to ship cargo of maizeo Ship to be ready to load July 15th, Buyer can cancel if ship isn't ready by Aug
15th Plaintiffs is selling defendant is buying Defendant's repudiate contract may 29th, 6 days after entering into contract Plaintiffs didn't resell maize until the last possible day delivery could have been
made under contracto Sold at a loss of 3807 3s 8d
Trial judge rewarded damages of the amount if the cargo had been sold July 24th when plaintiff's brought actiono Def appeals for date of loss being May.29th when they repudiated (688P)o Plaintiffs cross-appeal for full losses at date of selling (3807P 3s 8d)
Issue:
Should the plaintiffs have sold the maize earlier and mitigated losses? A agrees to deliver item to B. B repudiates before delivery. Item's worth goes down
so A sues.
Decision: Both appeals dismissed.
Reasons:
General rule of repudiation treated as breach:o Damages = the difference between the contract price and the market price of
the goods at the date of the breach. If repudiation takes place before the day of delivery
Then, other party can: Bring action immediately Right to have his damages assessed at the time he brings his
action Damages aren't different between contract and
market price on date action is brought but Party who treats repudiation as a breach is bound to do what is
reasonable to prevent he damages from being inflamed or increased Were the plaintiffs reasonable in not selling until sept 5th?
No. Market prices were falling, and it was known they would continue to fall
What time to use as damages?o If time isn't fixed, then date of breacho If time IS fixed, then date of fulfilment
Best judgment isn't enough (subjective state of mind doesn't matter) obje
White & Carter (Councils) Ltd v McGregor Ratio:
If there is a legitimate interest, other than immediate financial interest, to perform the contract then the party is entitled to recover damages.→ If you cant show you have legitimate interest in waiting or performing
then you have no duty to mitigate because it is not a useless expense? Facts:
Ds sales manager entered into a contract with P to display ads on litter bins. He was not entitled t do this. Later that day D wrote to P to cancel contract. P refused to accept cancellation and displayed ads. P sues for full amount of contract
Issue: Is P entitled to recover the contract price?
Decision: P is entitled to damages
Reasons: Majority - Where one party repudiates the other party has an option.
o it can accept the repudiation and sue for damages for breach of contract OR o it can refuse to accept the repudiation, fulfill your portion of contract and sue
for full contract price; o no obligation to mitigate if they have a legitimate interest (ie. Cannot incur
useless expense) in performing the contract Dissenting - Repudiation by one party does not put an end to a contract. If the party
who repudiated still refuses to carry out the contract, then what? - The innocent party can sue for damages for loss associated with the breach
Finelli et at. V Dee et al. Ratio:
Repudiation is not something is "accepted" when it is clear the other party is rescinding, the contract is just repudiatedo The innocent party:
Is free from performance Is free to sue for damages (measured on the date of breach)
Facts:
Contract between plaintiffs and the "male defendant" for paving of defendant's home
Contract formed June 18th: fixed price and terms included-> no time fixed for performanceo General idea it would be done in October
Defendant called plaintiff prior to any performance being done/contemplated and cancelled the contracto Plaintiff's sale manager agreed to the cancellation
Plaintiff's proceeded to do the job anyways in November when the defendants were out of town
Plaintiff sued for price of work done under the contract-> rejected Questions arose on appeal
Issue:
Was cancellation a rescission or repudiation? Decision:
For DefendantsReasons:
Judge (Laskin) likes the dissenting opinions from White & Cartero A repudiation gives immediate rise to a cause of action
This doesn't involve an acceptance of the repudiation The innocent party is only able to recover damages caused by the
breach of contract