K is for Kontreezy Checklist

QUESTION ONE: IS THERE A K?.................................................................................................................................................... 2MISTAKE AS TO FACT.................................................................................................................................................................................................2MISTAKE AS TO TERMS............................................................................................................................................................................................. 2MISTAKE AS TO ID..................................................................................................................................................................................................... 2MISTAKE AS TO SUBJECT MATTER.......................................................................................................................................................................... 3MISTAKE AS TO QUALITY.......................................................................................................................................................................................... 3EQUITABLE MISTAKE................................................................................................................................................................................................. 3MISTAKE FACTORS TO CONSIDER............................................................................................................................................................................4

QUESTION TWO: THERE IS A K! WHAT ARE THE TERMS?.................................................................................................. 5PRINCIPLES OF CONTRACT INTERPRETATION.......................................................................................................................................................5MISTAKE AS TO RECORDING.....................................................................................................................................................................................5SIGNED K...................................................................................................................................................................................................................... 5UNSIGNED K................................................................................................................................................................................................................ 6

QUESTION THREE: IS THERE AN EXCLUSION CLAUSE OF LIABILITY?.............................................................................7

QUESTION FOUR: HAS THE K BEEN FRUSTERATED?............................................................................................................8

QUESTION FIVE: IS THE K UNFAIR?............................................................................................................................................ 9UNCONSCIONABILITY................................................................................................................................................................................................. 9UNDUE INFLUENCE.................................................................................................................................................................................................. 10DURESS...................................................................................................................................................................................................................... 11

A. POST CONTRACT MODIFICATION DURESS (Nav Canada).......................................................................................................... 11B. DURESS TEST (Universe Tankships)..................................................................................................................................................... 11

QUESTION SIX: DOES THE K VIOLATE PUBLIC POLICY?....................................................................................................12COMMON LAW ILLEGALITY.................................................................................................................................................................................... 12ILLEGAL-ILLEGAL..................................................................................................................................................................................................... 12RESTRICTIVE COVENANTS...................................................................................................................................................................................... 12

QUESTION SEVEN: HAS THERE BEEN DISHONEST PERFORMANCE?.............................................................................13GOOD FAITH............................................................................................................................................................................................................. 13

QUESTION EIGHT: WHAT IS THE REMEDY? DAMAGES!....................................................................................................14DAMGES V RELIANCE.............................................................................................................................................................................................. 14HOW MUCH SHOULD YOU GET?........................................................................................................................................................................... 15MITIGATION.............................................................................................................................................................................................................. 16LOSS OF ENJOYMENT............................................................................................................................................................................................... 17PUNITIVE DAMAGES................................................................................................................................................................................................ 17

COMMERCIAL PRACTICE AND EFFECTIVE K DRAFTING................................................................................................... 18

COMMON MISTAKES TO LOOK OUT FOR................................................................................................................................ 20

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QUESTION ONE: IS THERE A K?

Mistake as to Fact

Step 1: Is it a mistake to fact? (Smith & Hughes) Where the buyer though it should have been higher quality, better, etc “thought the car was good and its not” Does consumer protection apply? See s. 3(deceptive acts) and s. 5(onus on supplier)

Yes: Caveat emptor applies Unless seller mislead you/deceived you

No: move on

Mistake as to Terms

Step 2: Is it a mistake as to terms of the K (Staiman and Raffles) Mistake as to terms if it is fundamental to K and a unilateral mistake then the K is void because you know what I

was getting K’d for and so no agreement Party cannot rely on a mistake in a situation where the “mistake” was created by one party’s negligence or

unreasonable assumption and the other party relied on that information (McRae)

A. Fundamental Uncertainty Add odds over what is being K’d for. “Two ships passing in the night”

Apply What would a third person think? (Staimain) Policy Considerations

Price/Risk allocation Knowledge and skills of the parties Ease of avoidance Common usage of the trade

Still unsure - VOID for ambiguity (Raffles) Policy Considerations

Price/Risk allocation Ease of avoidance Seller’s position

B. Snapping up Mistake (Hartog) VOID if about a fundamental offer Knew someone made a mistake and took advantage of it K is VOID

Yes: to any of the above – apply appropriate remedy No: move on

Mistake as to ID

Step 3: Is it a mistake as to the ID of the Parties? (Cundy, Lewis, Shogun)

Must matter who you K’d with First: apply normal rules of K formation: intention of the parties in words and conduct. There is a strong

presumption that you intend to K w/ the person you are in face-face contact with

Step 3A: Written Contract with No Offer (Cundy) If K was written, the ID was important and the offeror took steps to confirm the ID, then the offer is VOID

for impersonation by the rogue, you did not mean to K with that person No K 3P Does not Hold Title Nemo Dat: Can’t transfer something you don’t own.

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Step 3B: Face to Face Commnunction/Written (Shogun) When there is no face to ace communication, but the ID has been confirmed, courts will likely hold VOID

for mistaken ID Opinion 1: Written document and so No K and Does not hold title: 3 P holds title Opinion 2: No special rule for written document. If you create a K it’s concluded: 3 P holds title Opinion 3: Depends on the intentions of the party : No Contract

Step 3C: Face to Face (Lewis) There is a K but may go to Equity to have K set aside

If sold to a third party then 3P holds title Assumption you mean tot K with that person

Ask: Does consumer protection/sale of goods act apply? S. 26(1): Nemo Date S. 28: But if sale under voidable title has not been rescinded then buyer acquires good title to the good it

bough in good fiath and without notice of defect in title Policy: Nemo Dat at common law vs protection of innocent parties when sller is in best performance ti

mitigate risks

Mistake as to Subject Matter

Step 4: Is it a Common Law mistake to the subject matter? Res Extinctia: Object does not exist – before/at the time of K

K is VOID Res Sua: You own the object, idiot

K is VOID Ask: Did the seller promise they owned the thing in question

Party cannot rely on a mistake in a situation where the “mistake” was created by one party’s negligence or unreasonable assumption and the other party relied on that information (McRae)

Mistake as to Quality

Step 5: Is it a Common Law mistake to the existence of some quality? (Bell) BOTH parties are mistaken about ONE thing related to a quality of the K Essential Quality

Makes the K fundamentally different

Policy Considerations Certainty and predictability v unfair/surprise and unjust unrichment Risk allocation v fairness Caveat vendetor

Equitable Mistake

Step 6 – Equitable Mistake (Solle) (Miller Paving) (NO Great Peace) Can apply equitable mistake because Canada has not adopted Great Peace Equity will relieve a party from the consequence to a mistake under a common mistake or unilateral mistake. Result K is VOIDABLE – court has more discretion about how to alter the K and make it fair. Common Law is a

“switch” VOID or NOT VOID Doctrine of Equitable Mistake is Applicable in Canada – Miller Paving State Solle v Butcher as a Leading Case Courts will only relieve a party of their own mistake if it does not injustice to a third party

Step 6A – What Type of Mistake Is It? (a) Unilateral Mistake or (b) Common Mistake Unilateral (Solle): snapping up, where one party takes advantage of another and it doesn’t amount

to fraud then at the common law Caveat Emptor applies Knowledge: If the party knew about the mistake and let the other party remain under the

delusion and concluded the K then Equity may VOID the K. 3rd Parties: Would it be unfair

Common (Solle) Fundamental and

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Party seeking to put it aside not at fault

Policy Considerations Fairness between all parties.

Mistake Factors to Consider

Knowledge of Parties – Courts are less likely to protect a mistake made by a person who possesses knowledge of the skill/K at hand

Ease of Avoidance – Courts will consider who is in the best position to avoid the mistake Usage of the Trade – Courts will examine what the protocol is of the trade and where the risk is usually allocated Knowledge of Ambiguity – Snapping Up – Courts of Equity will often look at “snapping up” in order to avoid

taking an advantage of a person and leading to inequitable results Contra Proferentem - Ambiguity will be construed against the interest of the person who drafted or proffered

the ambiguous provisions Policy Considerations, Fairness and all that Lovey-Dovey Shit

Result: Now assume there is a K – K may be voidable or void on a number of doctrines

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QUESTION TWO: THERE IS A K! WHAT ARE THE TERMS?

Principles of Contract Interpretation

Intentions of party – whole of K, reasonable interpretation, written word usually best indication, context, it is presumed the parties intend the legal consequences of their words, but don’t give a literal interpretation if unreasonable.

Objective approach to determination of intentions at the time of the K – terms of the K, the relationship, relevant facts in an objective manner. Protect reasonable expectations. Read terms as a whole. No subjective intentions

o The ‘commercial context’ or surrounding circumstances are always important – know the purpose of the K, market, genesis of transaction

o Where there is no ambiguity in the written agmt there is no need to extrinsic evidence General rule is that evidence of prior negotiations is inadmissible for the purpose of construing the final

agmt – subjective line though, hard to draw. Only admitted when “relevant to show the aim and genesis of the transaction”

Interpretations must give effect to all parts of the agmt – no term is meaningless, but can be duplicative sometimes. Where there are apparent inconsistencies b/w different terms of a K the court should attempt to fina na interpretation which can reasonably give meaning to each of the terms in question

Subsequent conduct: where there are two reasonable interpretations of a provision then evidence of subsequent conduct “may be admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable interpretations is the correct one”. Especially in a long term r/ship where interpreted one way for a long time

Related agmts. – taken into account where the agmts are components of one large transaction Meaning of words – natural and ordinary, evidence for technical Construction Contra proferentum – ambiguity works against the drafter

Mistake as to Recording

Step 1 – Mistake as to the recording of the terms of the K (Performance Industries)

Step 1 – Rectification Analysis: A Determinative test for mistakes in Recording Step 1.1 – P Must Prove the Existence and Content Prior to Oral Agreement Step 1.2 – Must be Convincing Proof of the Oral Agreement – must prove on a balance of probabilities, less

than beyond a reasonable doubt. Step 1.3 – P Must Provide the Precise Wording for the Rectification Step 1.4 – P Must Show the D Knew or Ought to Have Known Of the Mistake – for the to refuse

rectification would be inequitable and unconscionable

Signed K

Step 2 – Was the K signed?

A. Signed 1. General Rule: A party signing a written K is bound by its terms regardless of whether read or

aware of Terms (L’Estrange) 2. General rule, the Doctrine of Reasonable Notice, states that if there was no knowledge of the

conditions then a person is still bound if there was reasonable notice that the ticket contained conditions

3. Narrow Exception for Tilden: where a party seeking to rely on K knows the signature of the other party does not reflect the true intention of the signed, and the other party is unaware of the stringent/onerous provisions, then the party seeking to rely on the terms must first taken reasonable measure to give notice of the terms of the party (Tilden)

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hasty – speed of transaction informal clause inconsistent with the rest of k absence of opportunity to read length and amount of small print in the K is it unconscionable

4. Karroll Rebuttal: Tilden is a limited principle. It is only applicable in a narrow set of circumstances when one party knew or had reason to know of the signing party’s mistake as to terms (didn’t read it, etc). It is not a general duty in a usual setting to make sure the exclusion clause is brought to the attention of the consumer (Karroll)

signed a document knowing it affects legal rights consistent with the purpose of the K hazardous activity short and easy to read signed familiar release before

5. Non Est Factum: Not available where the person is (Saunders

of full age and understanding careless/negligent did not take all reasonable precautions relied on a trusted advisor/friend

It is available where a person is: not capable of reading or understanding the document document was fundamentally different than what was believed ot be signed mistaken person must prove that he took all reasonable precautions before signing

Unsigned K

B. Unsigned K’s 1. If the P does not see the writing that contains “conditions” of the K and no reasonable effort as

taken to make him aware of it then he is not bound by the terms. Being bound by the terms requires: (Parker) You Need:’

actual knowledge that the document contains conditions OR reasonable steps were taken to provide notice that the document contained

conditions 2. When the clause is an unusual or onerous one the P has to know of actual exemption condition

rather than just that there was one (Thornton)

size location whether necessary to read the clause when it was necessary to read the clause (pre/post purchase)

Step 3: Were Parties Aware Conditions Existed Before Acceptance? Unsigned: offer/acceptance/consideration (Thornton) Signed:

Hazardous Activity – terms are applicable (for a waiver/exclusion clause) (Loychuk) Releases are binding even if they were signed after you pay for the activity (Delaney)

Must say more than negligence – person doesn’t understand that (Ochoa)

QUESTION THREE: IS THERE AN EXCLUSION CLAUSE OF LIABILITY?

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Step 1 – Is there an Exclusion Clause (Tercon)

1. Old Rule: An exemption clause cannot be construed to excuse liability for a fundamental breach of the K (Karsales)

2. New Rule: Canada now applies fundamental breach as a rule of construction, not law. Liability may be excluded based on the interpretation of the exclusion clause (Tercon)

1. Does Tercon Apply? A. Is It an Exclusion clause?

Yes! No

2. Does the Exclusion Clause Apply? Based on the assessment of the intention of the parties Court have the ability to read down Interpret the provision as a whole Contra proferentum

3. Is the clause unconscionable? See unconsionability test. Consider:

Sophistication of parties De minimus Result Bargaining process

4. Is their overriding public policy to uphold the K? Freedom of K v Harm to Public Fraud Criminality Abusive Conduct Risk allocation Unfairness Unequal bargaining power A party will not be permitted to engage in unconscionable conduct secure in the knowledge

that not liability can be imposed upon it because of an exclusionary clause (Plas Tex)

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QUESTION FOUR: HAS THE K BEEN FRUSTERATED?

Frustration applies to assumptions regarding future events, where an event occurring subsequent to K formation makes performance legally problematic

Result is that you are relieved of your future obligations under the K and the BC frustrations act apportions losses/reliance equally

HISTORY of FRUSTRATION

Frustration typically dealt with Impossible to Perform

Promise to marry - promissor dies Contract for portrait – painter loses sight Music hall lease – music hall burs down (Taylor)

Destruction of Commercial Venture Commercial purpose of K is destroyed

1. Paradine: rule of absolute promises. Caveat emptor, lessee takes benefits and burdens 2. Taylor: relaxing of the rule. Devloped the doctrine of a rule of law – after this case 3. Krell: can deal with the purpose of a contract. Introduces a three step test 4. KBK: historic rule said frustration was not available for land. This changes

Step 1 - Basic Underlying The element of the K that is disrupted by the event occurring AFTER formation must be foundational so that it is

assumed by parties to be a pre-condition Occurred after formation (KBK) Foundation/Fundamental to the K

Step 2 - Substantial Hardship More than mere inconvenience (KBK) Radical change in the K (KBK) Must be permanent (KBK) Deprive one party of the substantial benefit intended from the transaction

Step 3 - Unanticipated Risk Event was of such character that it cannot reasonably be said to have been in the contemplation of the parties at the

date of the contract. Frustrating event must be unanticipated (KBK) Not foreseeable (KBK)

Not a risk that the parties addressed

Step 4 – No Allocation of Risk by K Risk of the unforeseen event expressly or implicitly allocated in the K?

Relates to unforeseen Step 5 – No Fault

Not self-induced (KBK) Beyond the control of the parties and not caused by one of them

Policy Considerations Risk allocation v unfairness for remedial implications

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QUESTION FIVE: IS THE K UNFAIR?

Unconscionability

Unconscionability (Morrison) Focuses on the overall commercial morality of the bargain in light of the inequality in bargaining power and

resultin gbargain Relief against unfair advantage due to bargaining power Must prove it on a Balance of Probabilities – prima facie CL BPCPA s. 9 – Stat Law Reverses BoP Can be invoked even with consent No pre-existing relationships s. 8 of BPCPA - factors the court considers Unconscionable s. 8(1) of BPCPA – may occur after formation s. 10 of BPCPA – K is VOID for Unconscionability

o between consumer and business ONLY Result is Voidable HISTORY OF UNCONSCIONABILITY

1. Morrison: Traditional View – unconscientious and unfair bargain 2. Lloyds: Wider view – may be unconscientious 3. Harry: asks the ultimate question

Step 1 – Type of Unconscionability Statutory

May be discussed after time of formation BPCPA: Business v Consumers Reversal of BoP: D has to prove that it was NOT unconscionable

BPCPA s. 9(2) – burden of proof on supplied to prove NOT unconscionable BPCPA s. 8 Factors:

Physical or mental disability Ignorance or illiteracy Age, inability to understand Nature of transaction Total price grossly exceedd similar objecits Overly harsh terms

BPCPA s. 10: Remedy is Recission

Policy Considerations Truth in market place Disclosure of information

Common Law Assessed only at the time of K formation B of P: P has to prove Unconscionable

Step 2 – Unconsionability Test (Morrison)

A. Inequality in Bargaining Power Economic resources Knowledge Need Disability Pre-existing relationship

B. Inequality in substantive Result C. Wider View: Is the transaction, seen as a whole, sufficiently divergent from community standards or

commercial morality that it should be rescinded? (Harry)

Result prima facie duty made out

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Common Law Onus now falls on the Stronger Party to rebut the Presumption contract entered into: Was fair from the formation No unjust or substantive inequality against community standards

Undue Influence

Undue Influence? Improper exercise of influence by someone in a special relationship of trust and confidence Unconsciontious use of one person’s power over another to influence them or enter a transaction

Step 1 – What is the type of Undue Influence? (Geffen) Actual Undue Influence – no special relationship, prove the influence Presumed Undue Influence – presumption of undue influence, burden falls on D to

A. Presumed Undue Influence 1. Is there a relationship of dependence

De Jure Fiduciary relationship Trustee/Beneficiary Solicitor/Client Doctor/Patient Priest/Worshipper

De Facto Relationship of trust or confidence

2. Is the Nature of the Relationship Commercial or Gift? Commercial: required undue disadvantage or benefits to the other party (Geffen)

Newcombe disagrees with this. Can have UI without Manifest Disadvantage Gift: requires only evidence of dominant relationship

3. Onus Shifts Defendant must show that the transaction was entered into as a result of “full, free and informed thought”

No actual influenced was deployed Legal advice was obtained No relationship No benefits received (in commercial) Policy Considerations

B. Constructive Notice to 3rd Parties of UI Spouses do not presumptively fall into a de facto relationship.

Spouse signs for another’s debts AND The transaction on its face isn’t for financial benefit of spouse AND Parties in a relationship that raises suspicions of UI

If bank knows/ is willfully blind to the fact that consent was obtained through UI then can’t rely on it unless good reason to believe wife understands the nature and effect of transactions (Eldrige)

Meet with spouse privately, explain extent of liability Warn of the risk Independent legal advice to explain the nature documents Seriousness of risks and state clearly they have a choice

Policy Considerations Innocent 3rd party liability Unfair surprise

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Duress

Duress A coercion of will so as to vitiate consent Gun to the head idea

Step 1 - Classify the Duress Duress to the person Duress to goods or property Economic Duress

Step 2 - Does this question involve post-contract modification without fresh consideration? YES – Nav Canada Test NO – Universe Tankships

A. POST CONTRACT MODIFICATION DURESS (Nav Canada)

Step 1 – The Threat – The contract variation was extracted as a result of pressure that was a demand or a threat (implicit or explicit)

Step 2 – Practical Alternative – Coerced party had no practical alternative but to agree to the demand to vary the terms

Step 3 – Consent - Assuming the first two are met, did the coerced party consent to the modification? Did the party protest? Did the party take reasonable steps to disaffirm the promise as soon as possible? Was the promise supported by consideration?

Result is K is VOIDABLE

B. DURESS TEST (Universe Tankships)

Step 1 – Compulsion – Was there pressure amounting to the coercion that vitiated the will of the P? Consider the Pao On factors as evidence (not determinative)

Did the party protest? Was there an alternative course of action available? Did the P receive independent legal advice? Did the coerced party take steps to avoid the K?

Step 2 – Duress is Found – Was the nature of the pressure and the demand illegitimate? Illegal? Yes – GAME OVER Not Illegal - More than economic pressure

Step 3 – Approbation of K – If the victim expressly or implicitly approved the K (receiving benefits) then the victim will be denied relief

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QUESTION SIX: DOES THE K VIOLATE PUBLIC POLICY?

Common Law Illegality

1. Common Law Illegality No court will lend it’s aid to a man who founds his cause on an immoral or illegal act (Holman) Illegality is the boundaries of what parties can consent to and do under K’s, and the extent to which the

courts will enforce performance Categories traditionally recognized as illegal: Injurious to state, administration of justice, immorality,

marriage, benefit from crime, commit a tort, contracts in restraint of trade Ks Injurious to the state Ks Injurious to the administration of justice Ks involving morality Ks affecting marriage (restricting who you can marry) Ks to benefit from a crime Ks to commit tort/law wrong

Illegal-Illegal

2. Illegal Traditional approach would mean that K void (Rogers)

Modern test: (Still): Where a contract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party where, in all the circumstances of the case, including regard to the objects and purposes of the statutory prohibitions it would be contrary to public policy, reflected in the relief claimed, to do so

Consider: (Still) Purpose of the underlying statutory provisions (public policy) Remedy being sought Consequences which flow from finding K unenforceable Good faith

Restrictive Covenants

3. Restrictive covenant Prima facie unenforceable b/c of public interest in free trade (Shafron) Consider the following

Clarity (Shafron) Geographic and temporal conditions (Shafron) Does it go further than it has to (Shafron) Ambiguous (Shafron)

QUESTION SEVEN: HAS THERE BEEN DISHONEST PERFORMANCE?

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Dishonest Performance (Bhasin) There is now a recognized duty for honest performance in a K, requiring the parties to be honest with each other

in relation to the performance of their K obligations (Bhasin) Highly context specific understanding of what honest and reasonableness in performance require Operates irrespective of the intentions of the parties (analogous to unconscionability) High threshold: Parties must have knowingly mislead each other about matters directly linked to the K

(Bhasin)

Good Faith

Step 1 – Is it a recognized Category of Good Faith? Insurance – K’s of utmost good faith (Whiten) Franchisor to Franchisee Employment – duty of good faith and fair dealing in the manner of termination Duty of Honest Performance – if you promise to do something and K depends on it then you have to

(Bhasin)

Policy Considerations Necessary for growth of longer term Relational contracts depend on trust and cooperation Private ordering certainty

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QUESTION EIGHT: WHAT IS THE REMEDY? DAMAGES!

Was there a K? No – restitution of benefits (ie. deposit)

Was it an Equitable Mistake Broad remedial discretion by courts Court does whatever the fuck it wants, when it wants

**drop mic** K frustrated

Parties relieved of future performance obligation Restitution of past benefits Sharing of reliance costs BC Frustration Act

Unconscionability, Undue Influence & Duress K is voidable Set aside on terms Order of restitution of benefits/damages

BREACH OF K: DAMAGES Expectation damages = general measure Expectation damages= reliance plus loss profits

Damages that are Available Restitution? P awarded damages equal to the benefit unjustly acquired by the D Reliance P awarded damages equal to unreasonable enrichment of D, plus expenditures made in reliance

on the K being fulfilled Policy: Restorative

Expectation P awarded damages equal to the benefit of K fulfillment; measured based on expected benefit to P, typical damages, measure as cost of performance

Policy: Distributive Market ordering and reliance Future events

ATTACKING A REMEDIES/DAMAGES QUESTION

Generally, the P can elect b/w the lost profits and wasted expenditures (Anglia)

Damges v Reliance

1. Was it Speculative? Reliance Reliance Requirements (McRae)

1. P has to prove they suffered a loss (This expense was incurred); 2. P relied on promise and that caused them to incur expenses (It was incurred because of the K); 3. Expenses wasted because of the breach (The breach of K made it certain expense would be wasted)

o Burden shifts to he D to show that the P would not have made money if K was completed (Bad deal from the start – very hard to do)

Damages Include: Loss of revenue/opportunity Expenses (travel, wages) –

Damages DO NOT Include: o Capital expenses (you still have the value of the assets

You can recover reliance expenditures even before the K, provided that it was in the reasonable contemplation of the parties as likely to be wasted if K broken (Anglia)

You can recover reliance where it was too difficult to say what the financial position would have been if there hadn’t been breach (McCrae)

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Reliance damages cannot exceed expectation damages (Bowley)

2. Was it a Loss of chance? The fact that damages cannot be assessed with certainty does not relieve the wrong-doer (Chaplin)

Apply the Folland Test 1. P must show that it lost a chance due to D’s conduct (Folland) 2. Chance must be sufficiently real and significant to rise above mere speculation 3. The outcome did not depend on the P’s own conduct (some other event) 4. The loss of the chance must have some practical value

o The courts will discount the damages by probability of success

3. Were you going to lose money? Reliance damages cannot exceed expectation damages (Bowlay) Prima facie: P must prove expense incurred, because of the breach of the D, and expense was certain to be wasted if

breach occurred (McCrae) D must prove they would have lost money anyway (Sunshine)

How Much Should you Get?

HOW MUCH SHOULD YOU GET? PART 1 Trade off between an award for cost of performance vs. Economic Value

Definitions: Economic Waste: Court will not order cost of performance where it is grossly and unfairly out of

proportion to the good to be attained. Only applies where it would result in the destruction of a substantially complete structure (Groves)

Consumer Surplus: the personal/subjective value a person places on something over and above market value (Ruxley)

Conflicting jurisprudence: Sanctity of K means cost of performance unless economic waste (Groves) The court will not award cost of performance out of proportion to the value gained (Peevyhouse)

What about non-monetary value? Will award cost of performance for certain K obligations: privacy implies non-economic significance

(Radford) Courts will consider consumer surplus, but will still not allow economic waste

Policy: Windfall Sanctity of k Reclamation Unjust Enrichment Unfair surprise

HOW MUCH SHOULD YOU GET PART 2?

Step 1 : Were Damages TOO remote? Just because the P suffered harm, doesn’t mean there are damages We are concerned if the harm that occurred was in the reasonable contemplation of the parties if the

K were to be breached Test: (Hadley):

Did the damages arise naturally from the breach? Was it in the reasonable contemplation of the parties as the probable result of the breach? OR Special circumstances communicated?

Type of work (Scyrup) Circumstances that need to be met, second hand tractor (Munroe) Assumption of responsibility (Cornwall)

Consider: (Victoria) Ordinary expectations Ordinary allocation of risk in understandings of the market place (customs of trade) Proportionality b/w service price and risk

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The nature of the business and product The knowledge and status of the seller and buyer The losses claimed and the expertise of the D (Victoria) The relationship b/w the parties (Hadley vs. Victoria) Consumer expectations created by the D (Cornwall) Proportionality between price and service

Policy Considerations Reasonable Expectations Unfair surprised

Mitigation

Step 2: Did you Mitigate the Losses? (Asamera) You cannot recover for losses that you could have reasonably avoided The general rule is that you must take reasonable steps, in a reasonable timeo If you can avoid losses completely, there are no damages

Policy Considerations Avoid hardships/unfairness Fair allocation of risk Avoiding economic waste Seller in best position

A. Did you take reasonable steps to mitigate? You have a duty to mitigate (Payzu) In commercial contexts it is reasonable to require continued dealings (Payzu)

o Except for personal services k’s Lack of resources doesn’t justify failure to mitigate

Consider the following: Facts and Context What the Reasonable business person would have done Standard is Low In commercial contexts it is reasonable to require continued dealings (Payzu)

B. In a reasonable time? Courts have discretion to take into account any special circumstances that indicate it is unreasonably to

require it to mitigate immediately (Asamera) Nature of the transaction Circumstances that influence what is “reasonable” If good is unusual – time extended If P exposed to risk from mitigating – time extended If P has inadequate funds – time extended If Goods cannot be resold instantly – time extended

Step 3: Were your attempts to mitigate reasonable?o The P may recover additional costs reasonably incurred in taking steps to avoid a loss, even if the attempt

is fruitlesso BUT costs are not recoverable if the actions taken to avoid the losses are not reasonable (aka you can’t

have a champagne reception to entice orange purchasers)

Step 4: Look at your life, look at your choices : Doctrine of electiono Where anticipatory breach, contracting party has option (1) accept repudiation or (2) treat contract as if

still in effect and perform the contract (White & Carter). Election is only available in rare circumstances where contracting party can unilaterally perform. There must be a legitimate interest in the performance (Asmera)

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In Finellis v Dee Plaintiff (paving contractor) unable to unilaterally perform (trespass on property).

Loss of Enjoyment

Historically, courts considered that emotional distress was not compensable in the law of contracts ( Addis); however, commencing with Jarvis v. Swan Tours, courts began to recognize that contracts may provide for more than simply economic gains and that in some cases damages for emotional losses should be allowed.

In Canada today, the Supreme Court of Canada laid down the general principles for recovering for intangible losses for mental distress in Fidler v. Sun Life. The Court held that compensation for mental distress is simply an application of the remoteness test of Hadley: If the contract is intended to secure an intangible benefit such as peace of mind, such that it would be reasonably foreseeable that a breach of the contract would cause emotional harm and if the emotional harm is sufficiently serious to be compensable (simple frustration or annoyance are an expected part of any breach of contract), then damages for such loss may be awarded.

Non-Pecuniary Damages for Loss of Enjoyment/Distress Step 1 – Does it Fall into one of these categories?

Pleasure/Enjoyment/Peace of Mind – need not be an essential part of the K (Farley) Holidays (Jarvis) Weddings Disability Insurance (Warrington)

Pets Death of an Animal (Newell) Loss of Pet (Ferguson)

Physical Inconvenience & Discomfort Caused by a Sensory Experience (Wharton) Employment where there is an Independent actionable Wrong (Keays)

Step 2 – Hadley Test for Reasonable Contemplation of Mental Distress (Fidler) A. Object of the K: Was it to secure a psychological benefit that brings mental distress upon breach

within reasonable contemplation of the parties B. Degree: degree of mental suffering caused by the breach was of a degree sufficient to compensation

Consider: (Victoria) Ordinary expectations Ordinary allocation of risk in understandings of the market place (customs of trade) Proportionality b/w service price and risk The nature of the business and product The knowledge and status of the seller and buyer The losses claimed and the expertise of the D (Victoria) The relationship b/w the parties (Hadley vs. Victoria) Consumer expectations created by the D (Cornwall) Proportionality between price and service

Punitive Damages

Step 1 – Should Punitive Damages be Applied Courts will award punitive damages to condemn the behaviour of the D (Whiten)

Step 2 –Highly Reprehensible – Whiten – Was the misconduct of the D highly reprehensible? Consider: High handed, malicious, arbitrary Departs to a marked degree from ordinary standards of decent behavior Deliberateness of misconduct Motive behind it Length of time during which it continued Whether he knew he was doing something wrong Whether he profited from the misconduct

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Stronger party abuse its position or exploit a weaker party Step 3 – Independent Actionable Wrong – Whiten – Was the misconduct an independent actionable wrong aside

from the main cause of action? ie. breach of implied contractual duty by insurers to act in good faith

Step 4 – Policy Considerations – Court should only award punitive damages when an award is necessary for denunciation and deterrence.

Exceptionality: must be driven by highly reprehensible behaviour of the D Rationality: Either (1) punishment (2) deterrence or (3) denunciation Proportionality: Proportionate to the misconduct exhibited

Blameworthiness of the D’s conduct Degree of vulnerability of the P To harm or potential harm Need for deterrence

COMMERCIAL PRACTICE AND EFFECTIVE K DRAFTING a. Determine what the parties have agreed to

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b. Reduce that agreement to words

A. Precision

Make the K as precise as possible. An ambiguous provision will be construed against the draftspersoni. do NOT use a pronounii. Must be clear when payment or performance is requirediii. Use legalese language. Has specialized diction and vocabulary.

B. SimplicityEvery point should be as simple as possible in order to understand, interpret.

i. keep sentences shortii. use the active voiceiii. delete unnecessary words

C. Consistencyi. keep sentences short

D. Clarity(a) Rule of thumb: If it cannot be reasonably understood by a judge after a reasonable amount of time then the

draftsperson has failed

STEP 1: Preliminary ConsiderationsA. what are the legal obligations I am imposing on individuals?B. What time of risk am I trying to allocate to each partyC. PurposeD. Strategy – Who drafts?E. Ethics

STEP 2: 5 C’s1. Clear2. Concise3. Comprehensive4. Consistent5. Connected – make sure things are in a logical order

STEP 3: Building Blocks to Be Aware ofA. Legally required: execution clauses, signature blocks, notarizations, witnessesB. Customary: title, cover page, table of contents, headers, etcC. Aesthetics: font, spacing, margins, etc

STEP 4: COMPONENTS Definitions: for ease of interpretation Representations: statements to rely on, warrantees, etc Covenants: on going promises by parties to not take certain actions

o Affirmative: promise to take action o Negative: promise not to take action

Conditions Precedent: clause that sets out an action to be performed before agreement becomes effective Remedial Provisions: provisions that dictate the remedies available at breach Limitations of Liability: enforceable unless unconscionable

STEP 5: COMMON PIT FALLS1. Language use – will/shall/agrees all have different levels of meaning2. Passive Clauses

COMMON MISTAKES TO LOOK OUT FOR

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1. General Rule: decrease ambiguityo Make standards objective. Reasonable is not enough (time, etc)

2. Sources of Ambiguityo Crappy pronouns (it)o Lack of time references – be clear about time frames and deadlines for obligations

Do not use promptly, reasonable time Be distinct between business days and non-business days

o Legalese 3. Be Consistent

o stick to the same definitiono does use same word in different contexts or different words for the same meaning

ie will/shall/agrees 4. Lack of Simplicity

o take out unnecessary wordso make sure provisions can be interpreted easily

5. Passive Clauses “the payment shall be done”o says who is doing what and what is what

6. Cross References o careful how you number provisionso careful how cross references will change other provisions

7. Preambleo does it impose obligations? It should NOT

8. Exclusion Clauseso not too broado or too narrow ie “no liability for physical” should be “no liabity for ALL damages (loss of enjoyment, physical,

etc)

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ANSWERING A K QUESTION

IRAC Intro/Issue Identification

o Intro paragraph of what will be argued/sought and discussed ID issue

o State the historical case/tradition viewo State the leading case o State the test

Apply the Factso Using the test

Apply Policy Issues Conclusion

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