lsa.mcgill.calsa.mcgill.ca/pubdocs/files/contractualobligations/527... · web viewenforcement...

1

Salut! Je ne fais normalement pas de résumés de matière, mais plutôt je me fais une courte feuille de travaille pour les examens. Sauf exception, je prends le syllabus du cours et j’ajoute les notes et références que je juge

importantes ainsi que des résumés utilitaires des arrêts. Vous n’apprendrez rien en lisant mes ‘résumés’, mais j’ai trouvé que ce style de document est utile pendant un examen. La partie la plus utile de ce document est à mon avis la page 21.

1. INTRODUCTION Contract Law: How to translate human interaction into something more structured.

MAIN CODAL PROVISIONS [1377-1456]

1372 CCQ Contracts give rise to obligations. 1378 CCQ A contract is an agreement of wills. Identifies nominate contracts [1708-2643 CCQ] 1385 CCQ A contract is formed by the sole exchange of consents between persons having

capacity to contract. A contract has a cause and an object. 1410-1414 CCQ Cause (which must be legal), object (which must be legal) and form of contracts 1443 CCQ Contract has effect only between parties and does not generally affect third persons 1590 CCQ Remedies: (1) force specific performance, (2) obtain resiliation of the contract or (3)

take any other measure provided by the law (i.e. damages). 1607 CCQ The creditor is entitled to damages for bodily, moral or material injury which is an

immediate and direct consequence of the debtor's default.

READING A COMMON LAW CONTRACTS CASE: LAW, CONTRACTS AND SOCIAL RELATIONSCommon law generally looks for compensation when there is a breach, but same as 1590 CCQ ; See contracts as two sets of promises, analyzes consequences. ‘Stare decisis’: if you match facts and issue, then you extract ratio and apply it.

Hawkins v. McGee (1929) [CB 3]o (1) Was there a promise (100% better hand) and (2) was there a breach?o Reasonable observer would find that statement induced relianceo The standard to measure against is the promise (had it been kept)o ‘Transactions’ at a price: damages should be reduced because measure of pain expectedo Legal nature can be ascribed to a social relationship after the fact (without clear intent)

C.G. Addison, A Treatise on the Law of Contracts [CB 5]o Historically based on trade, contracts are an important and universal law

Restatement (Second) of the Law of Contracts § 1 (1981) [CB 2]o Contracts as promise for the breach of which the law gives a remedy, recognizes as duty

Logan Atkinson & Neil Sargent, Private Law, Social Life [CB 9]o Classifications: public/private law, voluntary/involuntary relationshipso Contracts free from state, except courts will not enforce contracts against state ideology

READING A CIVIL LAW CASE: FIRST INTRODUCTION TO CIVILIAN PRINCIPLESCivil law generally looks at specific performance (c.f. 1590 CCQ) ; See contracts as an agreement, as duties towards one another. The new C.C.Q. erases religious implications and is a ‘social constitution’ based on private law. Judges read and interpret the law, but do not create it.History: Codification since Enlightenment to make knowledge accessible, more reasoned and more systematic

Bruker v. Marcovitz (“the get case”) (2007) [CB 21]o Contract is valid in QC law (capacity/ consent/ object/ intent)o MAJORITY: ‘Object’ limited only by public policy requirement/legality; contract is valido DISSENT: Not ‘juridical’, shouldn’t intervene in religious affairs (only religious consequ.)

NC, April 2011 – Contractual Obligations – LAWG 100

2

o Loss compensated by damages (money) Alan Watson, The Making of the Civil Law [CB 41]

o Heritage of Roman tradition; development of ‘jus commune’ (Roman law w/ local trads.) Brierley & Macdonald, Quebec Civil Law: An Introduction to Quebec Private Law [CB 44]

o Original C.C.L.C. was influenced by English law (commerce) as well as traditional values (family, succession).

INTRODUCTION TO CIVIL AND COMMON LAW METHODOLOGIES

John D. McCamus, The Law of Contracts [CB 51]o CML v. civil law, CML v. equity and CML v. statute lawo Equity rules (ex. specific performance) only invoked when CML fails, insufficient

A.W.B. Simpson, “The Common Law and Legal Theory” [CB 55]o Positivism v. CML: judges do not in theory make the ruleso Customary law (students ‘broken in’); but more lawyers means we need binding rules

Claire L’Heureux-Dubé, “By Reason of Authority or By Authority of Reason” [CB 68]o Authority of Reason: QC judges are free in their decision making, but self-restraint

TRANSNATIONAL LAW AND “TRANS-SYSTEMIC” EDUCATION

K. P. Berger, ed., The Practice of Transnational Law [CB 77]o Law is severing itself from nation-states (transnationalism, private arbitration)

Rosalie Jukier, “Challenging the Existing Paradigm: How to Transnationalize the Legal Curriculum” (discusses the trans-systemic approach and awareness to general principles) [CB 81]

THE LAW OF OBLIGATIONS AND ITS HISTORY: CONTRACT LAW AND IDEOLOGY

Geoffrey Samuel, Law of Obligations and Legal Remedies [CB 86]o Civil law focused on taxonomy (categories) – obligations is a wide term usedo Common law has know-that (the law) and know-how (the methodology)

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations [CB 100]o Society is based on contractual law (separates us from animals)o Mutual self-interest drives exchanges and contracts are necessary (classical ideology)

P.S. Atiyah, The Rise and Fall of Freedom of Contract [CB 102]o Judges unfortunately stopped invoking public interest against private agreements

2. FORMATION OF CONTRACT: DEFINING AGREEMENT (1) Reasonable intention to be bound? ; (2) Offer and acceptance? ; (3) Meeting of minds? ; (4) Formalities?

INTENTION TO CREATE LEGAL OBLIGATIONS

Carlill v. Carbolic Smoke Ball Co. (1893) [CB 111]o Unilateral contract valid: acceptance done by performance before revocation even

though no notification given (i.e. no link between consumer and manufacturer)o Don’t ask if subjectively wanted to be bound but what would reasonable observer thinko ‘Mere puff’ rejected: deposit at bank shows intent to be boundo Don’t look into the adequacy of consideration; suffering inconvenience is consideration

John D.R. Leonard v. PepsiCo, Inc. [CB 140]o Ads on TV offering jet for 7M points; offer not in catalogueo Absence of limitations obviously against Pepsi’s interest (Pepsi risks over-contracting)o Commercial cannot be interpreted as an offer by a reasonable persono Ads are generally “invitations to treats” (protection of merchant) --- here offer in jest!

Kleinwort Benson Ltd. v. Malaysia Mining Corp. BHD., (1989) [CB 145]


3

o Comfort letter is less than a guarantee – moral and only gives present intentionso Reasonable observer will analyze language used (deliberately vague?) and context

EXCHANGE OF CONSENTS/ OFFER AND ACCEPTANCE/ REVOCATION

1390 CCQ An offer with a term attached cannot be revoked before the term expires. If there is no term, it can be revoked at any time before acceptance is received by the offeror.

1392 CCQ Offer lapses after reasonable time [c.f. B.C. Wine Growers] 1394 CCQ Silence is not acceptance [1390-1396 CCQ]

CVL: “agreement of wills” [1378 CCQ], “sole exchange of consents” [1385], “manifestations of will” [1386]

CML: “offer/acceptance”, “meeting of minds” (“moment of responsibility”), “promise” Temporal, spatial and content aspects to meeting of the minds Offer: specifies terms, binding when accepted, apparent intention may suffice Test: has the offeror displayed willingness to create a power of acceptance? Accept: intention to accept (silence not acceptance, maybe if “business as usual”)

POLICY PROBLEMS WITH OFFER AND ACCEPTANCE Marcel Fontaine, “Offre et acceptation, approche dépassée du processus de formation des contrats” [CB 177]

o Sometimes no clear offeror, no clear sequence (i.e. complex negotiations)o Analyze contracts as different pieces [N.B. unrealistic and often unwanted]

Pharmaceutical Soc. of Great Britain v. Boots Cash Chemists, Ltd. (1953) [CB 184]o Desirable to make customer offeror so pharmacist can turn down if necessaryo Offer thus takes place when customer brings product to cash

Entores v. Miles Far East Corporation (1955) [CB 185]o Contract made by Telex is formed when/where acceptance received [cf 1387 CCQ]o Instantaneous communications (face-to-face, phone) = contract when reasonably heardo Mailbox rule (CML): to protect offeree, contract as soon as letter in mailbox (even if lost)o N.B. today, reasonable responses should come through means invited by offeror

Shatford v. B.C. Wine Growers Ltd. (1927) [CB 187]o Offer ends after “reasonable time” – here, for berries, prompt decision is necessary

PROBLEMS WITH UNILATERAL CONTRACTSCivilian solution is that consensual bilateral contracts are default when act is manifestation of will. Unilateral juridical acts possible even if minds don’t meet (i.e. reward, testament).CML problem, offeror can revoke right before performance done – tendency to find bilateral K (Dawson), take away power of revocation if performance started and maintained (Errington). This avoids detrimental reliance.

Stephen M. Waddams, The Law of Contracts [CB 188]o Offeree must communicate acceptance, silence is generally insufficiento Some actions are equivalent (shipping goods, paying, accepting delivery)

I. Maurice Wormser, “The True Conception of Unilateral Contracts” [CB 198]o True unilateral Ks are rare; both should be able to withdraw to avoid imbalanceo Importance of protecting freedom to contract

Errington v. Errington (1952) [CB 202]o Father offered house if pay mortgage; when he dies, widow tries to repossesso Held that promise can’t be revoked as long as couple continues to make payments

Dawson v. Helicopter Exploration Co. (1955) [CB 203]o Court finds bilateral contract where exchange of promises to protect both parties

ESSENTIAL ELEMENTS OF CONTRACTS: MIRROR IMAGE RULE


4

THE CLASSICAL MIRROR IMAGE RULEClassical rule is that perfect match is necessary.

Les Terrasses Holdings v. Saunders (1989) [CB 149]o Oral offer for a substantial bonus if man stays; man does so at considerable losso No binding contract because promise too vague (no clear amount specified)o For fairness, judge awards damages under unjust enrichment (extra-contractual)

Raffles v. Wichelhaus (the case of two ships Peerless) (1864) [CB 152]o No consensus as to which Peerless (never specified) and neither can show their

interpretation was more reasonable – no meeting of the mindso A contract is not binding if more than one set of facts, or nothing, could reasonably fit

the description of an essential term [c.f. misunderstanding due to ambiguity] C.U.Q. v. Construction Simard Beaudry (1987) [CB 205]

o City unwittingly accepted contract on CSB’s terms, though not what asked for in bido CSB’s terms are found to be a counter-offer; by accepting, City binds itselfo A call for offers (bids) is just an invitation to treat and does not set the terms.

THE MODERN TAKEToday, if all essential elements match it is valid acceptance [c.f. 1388 CCQ]. If not, it’s a counter-offer [1393 CCQ]. Essential elements are, for example, price, quality and quantity of goods involved in a sales contract, extent of liability of parties. [CB 211]

Macneil, The New Social Contract [CB 209]o This rule has conceptual limitations; no legally recognizable deal until clear matcho Sliding scale of consent v. on/off model

Doughboy Industries Inc. (difference in buyer/seller forms) (1962) [CB 207]o Arbitration clause not made explicit, only silent consent that was unknowingly giveno Agreement to arbitrate is a material term and cannot be inserted in such a wayo N.B. Courts are the default mechanism for contractual disputes [c.f. Dell Computer]

UN Convention for the International Sale of Goods [CB 211] Uniform Commercial Code, Art. 2-207. [CB 211] UNIDROIT Pr. of International Commercial Contracts [CB 212] Principles of European Contract Law, Art. 2.209. [CB 213]

In international legislation, acceptance that does not materially alter terms is generally OK. If not, it is a counter-offer.

PRE-CONTRACTUAL AGREEMENTS AND EXTRA-LEGAL ARRANGEMENTSPre-contractual agreements is where binding quality of agreement is suspended. Also, “options” (one party bound to contract, but not other).

ALTERNATIVES TO CONTRACTS

S. Macaulay, “Contract Law among American Businessmen” [CB 225]o Real-life deals often happen without much planning; lawyers worry and slow deals downo Many good reasons for disregard of K law: disdain, speed, personal relationships, etc.

Bernard Rudden, “The Gentleman’s Agreement in Legal Theory and in Modern Pratice” [CB 214]o Drafting of agreements beyond the law, often based on personal relationshipso “Deliberate no-law” (by parties) v. “Contextual no-law” (because of family/religion/etc.)o If deliberate: “No-law ever” (i.e. comfort letter) v. “No-law yet” (i.e. negotiations)

PRE-CONTRACTUAL ARRANGEMENTS

Cere v. Neely (1980) [CB 232]


5

o Option on land open for two years; before time is up, sale to a third partyo The option creates an obligation, but does not create a titleo For damages, treat as if the final contract was breached (this is the standard for Ks)o [1397 CCQ – sale to third party valid, 1611 CCQ – damages for loss and loss of profit]

Empress Towers v. Bank of Nova Scotia (1991) [CB 234]o Right to renewal does not specify a clear amount for rent increase (but not void)o Implied term that parties will negotiate in good faith, based on business efficacyo Court gives legal effect to the clause; it’s not void because of language used

3. CONSIDERATION

CONSIDERATION, CAUSE AND FORMALITIES

CAUSECause is a civil law concept. Its applicability is limited to legality v. illegality [1410-1411 CCQ]. Liberality is sufficient cause.

A.W.B. Simpson, “The Doctrine of Consideration – Introduction, in a History of the Common Law of Contract: The Rise of the Action of Assumpsit” [CB 236]

o Consideration is the factors which moved or motivated the promisor’s promiseo An unsupported promise ought not to be taken seriously and is not sufficient to impose

liability Pierre-Gabriel Jobin, Baudouin et Jobin, Les Obligations [CB 241]

o Objective cause : the other party’s obligation (this performs no specific function) In gratuitous contracts, the cause is “l’intention libérale” [not valid in CML]

o Subjective cause : serves to determine whether K illegal or against public policy Hutchison v. Royal Institution for the Advancement of Learning (“McGill”) (1932) [CB 237]

o It is held that the civil law should apply: K was made an intended to be executed in QCo In civil law, consideration is not a prerequisite: the thing to examine here is causeo Liberality is sufficient cause in CVL; the agreement is enforceable

CONSIDERATIONConsideration is a Common law concept. We don’t just look at what’s written or subjective motivation, but also what was given or suffered in return. Consideration is a formal requirement that helps indicate seriousness. It is necessary to fragment the contract in order to find the consideration for each separate promise.We don’t look at the adequacy of consideration (c.f. Carlill) – severe inadequacy only points to other doctrines of unconscionability and fraud. Consideration has different shapes: enrichment of promissor (right, interest, profit) or detriment of promisee (forbearance, detriment, loss, responsibility taken or suffered). - What did the promisee lose?

L.L. Fuller, “Consideration and Form” [CB 244]o Legal formalities serve as evidence of intent to contract in case of controversyo They also serve as a check against inconsiderate actiono The seal (CML) is the original legal formality; it always makes a promise binding

Alan Brudner, “Reconstructing Contracts” [CB 245]o When no seal, consideration (something of value) must be given in return

Stephen M. Waddams, The Law of Contracts [CB 246]o The seal is a technique for enforcing promises that are otherwise unenforceableo Parties who wish to make gifts can bargain for nominal considerationo Formalities ensure caution and deliberation on the part of the promissory

Hamer v. Sidway (1891) [CB 248]o Promise of giving 5,000$ to nephew if does not gamble/smoke/etc. before 21 yrs-old


6

o Restricting rights for the future determines value of a promise – he had right to, but did not – and is consideration, even if result was objectively beneficial [c.f. Coca-Cola]

Kirksey v. Kirksey (the weird old Alabama case) (1845) [CB 275]o Lady moves to live with her brother in law, then gets kicked outo Gratuitous promise (no consideration) so not enforceableo The detriment and reliance incurred by her moving was not expressly bargained for

THE BARGAIN THEORY OF CONSIDERATION AND “MUTUALITY OF OBLIGATION”Test of mutual inducement (quid pro quo). Something of value must be exchanged. Illusory promises (don’t restrict for future) aren’t sufficient. Past consideration is no use, but courts recognize moral obligations as valid exceptions. Obvious cases:

Promise in exchange for immediate economic value is enforceable Promise for promise of economic value is enforceable Charitable or gratuitous promise is not enforceable unless made under seal

PASSED TEST OF MUTUAL INDUCEMENT

Wood v. Lucy, Lady Duff-Gordon (1917) [CB 254]o Lucy bypasses exclusive argument for promotion; argues that W gave no considerationo Court finds that W had a duty of reasonable efforts (implied promise in K)o Implied promise based on circumstances, business efficacy interpretation [c.f. Emp. T.]o This implied duty is sufficient consideration to create a binding promise

Dahl v. HEM Pharmaceuticals Corp. (1993) [CB 252]o HEM argues that volunteers in experiment could always withdraw, so no consider.o Courts finds factual consideration: unilateral K, so completed act is considerationo The ‘mutuality test’ is not applicable to unilateral Ks (bargain for act, not promise)

FAILED TEST OF MUTUAL INDUCEMENT

Miami Coca-Cola Bottling Co. v. Orange Crush Co. (1924) [CB 253]o Coca-Cola tries to enforce agreement; there were promises on both sideso No consideration given: the promise was not a promise because they could always

renege – there was no real restriction of rights for future [c.f. Hamer]o Having not made a sacrifice, Coca-Cola has no right to enforce the contract

Roscorla v. Thomas (1842) [CB 255]o Agreement to buy horse for certain sum; after, asks for guarantee; horse not soundo Warranty is second ‘transaction’ after sale; same consideration can’t be used twiceo Mutual inducement lacks in cases of past consideration (no new consideration given)

DEVELOPMENT OF THE PRE-EXISTING DUTY RULE AND PROMISSORY ESTOPPEL

PRE-EXISTING DUTY RULEHas the promisor made a new commitment, adopted a new constraint? Public duties are not sufficient (these duties already exist). Pre-existing contractual duties owed to promisee are not sufficient (freedom already restricted).

Harris v. Watson (1791) [CB 256]o Sailor sues captain who promised more wages for doing extra dutyo Judge does not enforce contract especially for policy reasons

Stilk v. Myrick (1809) [CB 257]o Captain promises wages of two deserters to leftover sailors, refuses to pay in London


7

o Promise not enforceable because no consideration: sailors had pre-existing duty to work as hard as possible when they joined

o N.B. This case enshrines in the law the principle of Harris, yet causes many difficulties; today, it mostly only makes sense in blackmail cases

Gilbert Steel Ltd. v. University Construction Ltd (1976) [CB 258]o Steel provided for construction; price of steel rises; GS asks for higher price to fulfill

obligations; UC accepts raise twice.o In the first raise, both parties sit and rescind K and negotiate a new one. In the second

raise, they only talk about changing the price.o Second raise not enforceable: this was just a one-sided variation of the existing contract;

the pre-existing duty rule applies here and there is no considerationo ‘Good price’ is not a considerationo Promissory estoppel can’t be used by the plaintiff as a sword [c.f. Walton Stores]

PROMISSORY ESTOPPEL (to counter pre-existing duty rule)Stops plaintiff from denying a promise when it was acted upon, where there was reliance and where the plaintiff was aware of this reliance. This is only used where there was no consideration, so no contract. It is a shield and not a sword: it cannot be used to force somebody to do something [c.f. Gilbert Steel, but also Walton Stores]. It is defensive equity.

Central London Property Trust v. High Trees House (1947) [CB 260]o Landlord decreases rent during war, then tries to enforce the original price afterwardso There was no duress and no blackmailo Held that promissory estoppel keeps the landlord from going back on his promise

CONSIDERATION AND RELIANCE: INCHING TOWARDS US RESTATEMENT’S SECTION 90?Modern allowances to the doctrine of consideration: (1) no more need for promisor to suffer in order for there to be consideration as long as promisee still benefits from his actions [c.f. Williams], (2) suggestion that consideration is not needed to enforce post-contractual modifications as long as no duress [c.f. NAV Canada], (3) P. E. available as a sword, even when there is no pre-existing contractual relationship but where there is nothing missing except the signature [c.f. Walton Stores].

Restatement (Second) of Contracts § 90 [CB 276]o Promise which can be reasonably expected to induce an action is binding if injustice can

only be avoided by enforcing the promise. Remedies to the extent that justice requires.

ALTERNATIVES TO PROMISSORY ESTOPPEL

Williams v. Roffey Bros and Nicholas (Contractors) Ltd. (1991) [CB 262]o Sub-contractor hired, contractor promises to pay more money to go faster, then doesn’to “consideration must move from the promisee” still respected if the modifying party

obtains a practical benefit (or avoids a disbenefit) from the beneficiary’s promise to perform an existing obligation(avoiding a detriment from a third party may satisfy the consideration requirement)

o Court lets go of need to suffer in the case of a pre-existing relationship where no duress NAV Canada v. Greater Fredericton Airport Authority Inc. (2008) [CB 265]

o ‘beginning of the end for Stilk in Canada’ (be careful when using)o Where there is no duress, post-contractual modifications should stand [CB 273, para 31]

EXTENDED PROMISSORY ESTOPPEL DOCTRINE – only sure in Australia

Walton Stores (Interstate) v. Maher (‘extended promissory estoppel doctrine’) (1988) [CB 277]


8

o M starts urgent work on a building; when it is 40% done WS refuses to proceed with Ko WS’s conduct is defined as unconscionableo Enforcement through promissory estoppel of a non-contractual promise on which there was

detrimental reliance, even in the absence of a pre-existing relationshipo WS was aware of M’s reliance: the judges hold their silence to be an implied pre-contractual

promise to complete the contracto CONDITIONS (Brennan J)

1. Promisor induced promisee to assume promise would lead to legal relationship2. Promisor was aware of this inducement3. Promisee acts on assumption and would suffer detriment if not enforced4. Promisor failed to act to avoid this detriment (i.e. by fulfilling expectations)

o SIGNIFICANCE Extends promissory estoppel to implied pre-contractual promise Extends promissory estoppel to positive promises (‘sword’, and not just ‘shield’)

CONSIDERATION IN CONTEXT AND VIS-À-VIS OTHER DOCTRINES

John Whightman, “Intimate Relationships, Relational Contract Theory and the Reach of Contract” [CB 281] o Discussion of recognition of intimate relationships in contract law, of development beyond the bargain model, because of

problems in handling informal relationships

4. INTERPRETATION AND THE CONTENT OF CONTRACTUAL OBLIGATIONS

CONTRACT AS A “THING”

BASIC CONCEPTS OF INTERPRETATION

Arthur Allen Leff, “Contract as Thing” [CB 302]o Think about the contract as a product accompanying the sale of the product itselfo K of adhesion not a classical contract because no negotiations

John D. McCamus, The Law of Contracts [CB 309]o Traditional version of parol evidence rule is to exclude external evidence that contradicts a clear written documento Modern version allows for party to prove intention that written document should be a part of a larger understandingo Modern version accepted in Canada, except presumption in favour of written document

Pierre-Gabriel Jobin, Baudouin et Jobin, Les Obligations [CB 284]o Nominate Ks are regulated by laws or the CCQ [1708-2643 CCQ]o Innominate Ks are not regulatedo Desire to address structural weakness by empowering consumers, policing agreements

EXAMPLE OF INCORPORATION OF TERMS EXTERNAL TO THE CONTRACT

Dell Computer Corp. v. Union des consommateurs (CVL) [CB 287]o Dell had wrong price on website; OD buys computers; Dell refuses to process orderso Is the arbitration clause included in the online buyers’ form enforceable?o Terms are not unduly surprising, are accessible through hyperlink (‘one click away’): the

terms are not judged to be externalo N.B. QC Consumer Protection Act now voids clauses that eliminate right to go to court

CONTRACTUAL INTERPRETATION IN GENERAL/ DISCREPANCIES BETWEEN ORAL AND WRITTEN AGREEMENTS

Stefan Vogenauer, “Interpretation of Contracts: Concluding Comparative Observations” [CB 335]o English objective interpretation: only reference external factors that can be ascertained


9

o CVL subjective interpretation: exclusively on basis of what parties subjectively intended Catherine Valcke, “Contractual Interpretation at Common Law and Civil Law: An Exercise in Comparative Legal Rhetoric” [CB 339]

o CVL judges refer to general notion of good faith, CML judges invoke implied termso (1) to enforce parties’ original intentions or (2) to ‘discipline’ parties (go against terms)o CCQ allows disregard for clauses in contract that are deemed ‘abusive’ (abuse of rights)o No CVL limitations to the materials admissible to help find parties’ intentionso CML courts try to enforce K as expressed; equity sets K aside when justice demands ito CML generally uses literalism and ‘parol evidence rule’ for K interpretation

INCOPORATION OF TERMS IN CIVIL LAWExternal clauses binding, but protect consumers when incorporating them [1435 CCQ]. No integration of surprising or unfair terms [1437 CCQ].

Pierre-Gabriel Jobin, Baudouin et Jobin, Les Obligations [CB 325]o Rules for interpretation at 1425-1432 CCQ, good faith in obligations at 1375 CCQo Concepts : voluntarism (subjective intent); judicial interventionism; necessity of ambiguity for

interpretation; good faith and reasonablenesso Interpretations : intrinsic to K (K as a whole); extrinsic to K (testimony, circumstances); usage

(typical responses); subject matter of K; to keep usefulness of each clause; to keep terms general; in favour of debtor; in favour of consumer/adherent

INCORPORATION OF TERMS IN COMMON LAWSigned documents: binding even if they were not read, but unusually onerous provisions inconsistent with K are cancelled [c.f. McCutcheon]

Unsigned documents: crucial question is whether party proffering terms can reasonably assume the other party should have known terms

“Ticket cases”: If known that other party wants a K with terms, then they are binding. If not known, other party must be able to reasonably assume they knew because (1) nature of transaction [c.f. Crane Hire] or (2) reasonable notice given [c.f. Shoe Lane Parking]. This is based on the assumption that one can always pull out once made aware of the terms. Also, the more the terms are unreasonable, the more notice is reqd.

Thornton v. Shoe Lane Parking Ltd. (a classic “ticket case”) (1971) [CB 317]o Customer is bound if he knows that the ticket is subject to conditions or if reasonably

sufficient notice is giveno In this case, no evidence that plaintiff knew of this exemption of liability – not binding

McCutcheon v. David MacBrayne, Ltd. (1964) [CB 318]o D forgets to make M sign conditions; boat crashes; form usually discloses liability.o Previous dealings cannot help in this case: form was not expected to be read (too

complex in its design), so M could not be reasonably assumed to have known the termso Parties must abide by the actual contract that was formed (i.e. if conditions were signed,

they would have been upheld as part of the contract; if they forget it is their fault) British Crane Hire Corporation Ltd. v. Ipswich Plant Hire Ltd., (1975) [CB 321]

o Unsigned terms that hirer is responsible for extraction of craneo Cannot be argued that they were surprised by the termso Defendants IPH were reasonably entitled to expect the terms and to be familiar with

content: standard practice in their industry, they used the same kinds of terms

GOOD FAITH: INTRODUCTION AND CIVIL LAWIn QC, every obligation has implied duties of good faith [1375 CCQ]. CVL notion of GF is more demanding than just the exclusion of bad faith. Notion of reasonableness [c.f. Houle] and of abuse of rights [7 CCQ].

Martin Josef Schermaier, “Bona Fides in Roman Contract Law” (Cicero’s examples) [CB 359]o In one example, seller had duty to let buyer know of defect in the house he was buying even if he was, strictly speaking,

in his rightso In second example, buyer knows of the defect and wants to abuse GF for own gaino Reducing everything to laws (blind application) will create the greatest injustice

B.C.N. v. Soucisse (1981) [CB 364]


10

o Surety (guarantee); death of father; family unaware of surety; bank claims moneyo Court hold that there is always a GF duty in CVL (here, there was a duty for full

disclosure to the estate)o Breach of this duty is considered a “fin de non-recevoir”

Houle v. CNB (1990) [CB 377] remedy is in fact extra-K, because shareholders are not privy to Ko Bank quickly recalls loans & sells assets; it was fully within the Bank’s contractual rightso Abuse of contractual rights leads to liability because Bank had knowledge of sale

negotiations and impact of its actions on sale price (exercise of right mitigated by GF) Provigo Distribution v. Supermarché A.R.G. (1998) [CB 413]

o K seen as a partnership: this is clearly a special relationship [c.f. Houle, McKinlay]o Judge reads into K a duty of loyalty because of disparity in power franchisor/franchiseeo Provigo’s competition seen as unfair, a breach of duty

GOOD FAITH: COMMON LAWIn CML, judges need to imply duties of good faith. No need to subordinate your interests to the other party’s (Houle would have been decided differently), but reasonable behaviour is required. Courts hesitate to use GF, esp. if parties have equal bargaining power [c.f. Crane Hire, Transamerica]. Generally, courts look at if parties are deserving and if there is inequality. In other words, good faith is a last resort against clearly unfair results (unless it comes in at the interpretation stage).Generally, in CML, duties come to life when offer and acceptance meet (no pre-contractual duties). There is however ‘unconscionability’.Examples of duties of good faith could be not causing harm to your partner and not using your power in ways abusive, unfair or dishonest.

McKinlay Motors Ltd. v. Honda Canada Inc. (1989) [CB 377]o No breach for termination because terms in K were respected (more time not a breach)o Bad faith in termination not considered because they were within their rights (very CML)o Bad faith is found in allocation of cars: testimony gives proof of bad faith by executiveo Damages are awarded as if the duty had not been breached

Martel Building Ltd v. Canada (2000) [CB 405]o There clearly proximity, as proven by pre-existing contractual arrangements [CB 409]o But, policy reasons point against extending duties of GF to pre-contractual negotiations

in cases of arm’s length negotiations Transamerica Life Canada Inc. c. ING Canada Inc. (2004) [CB 421]

o Parties are equally powerful, have equal bargaining powero Nothing in K to help ING; duties are already clear, express mentions of GF elsewhereo No CML duty in first place, and judge finds no need to imply it here (no inequality)o Bref, ‘officious bystander test’ based on business efficacy [c.f. Empress Towers]

5. POLICING THE AGREEMENT CML: VOID (public policy, mistake) or VOIDABLE (misrepresentation, duress, unconscionability, undue influence)

CVL: ABSOLUTE NULLITY (public order, illegality) or RELATIVE NULLITY (error, fraud, fear, lesion)

VOID/ABSOLUTE NULLITY - PUBLIC POLICY AND “COMMUNITY VALUES”CVL: Contract against public policy will be null, regardless of parties’ desires [1416, 1417, 1422 CCQ]. Clause may be severable if not vital [1438 CCQ]. Presumption that clause is severable [1437 CCQ].CML: “Notional severance” is modern approach. Can K still be sensibly enforced without clause? Would enforcement of modified K be inconsistent with public policy?

Brasserie Labatt c. Villa (1995) [2CB 1]o No problems with formation; issues with human rightso J1: Condition requiring move of family against QC Charter (discrimination on civil status) o J2: Condition against QC Charter (right to privacy)


11

o Condition (only) is void for being against public policy Cameron v. Canadian Factors Corp. (1971) [2CB 6] “excessive non-competition clause case”

o Clause legal, but unfair: unreasonable duration (alternative would be excessive in space)o MAJORITY: refuse to sever clause because enforcement would become unfair to Factorso Fear reading down: companies would intentionally make unfair terms and hope for besto N.B. CVL see 2089 CCQ

In the Matter of Baby M. (1988) [2CB 15] “crazy New Jersey surrogate mom”o Paid surrogacy K invalid: against law, public policy (child’s best interests, not allowed in

adoption) X v. B (2009) [2CB 23] ‘’case of commercial surrogacy being against public policy in QC’’

o Rejection of ‘interest of child’ argumento Expand sanction for illegality to prevent them doing illegally what they cannot do legally

Rakhi Ruparelia, “Giving away the ‘Gift of Life’” [CB 32]o Canadian law dangerous because disapproves commercial surrogacy while implicitly

allowing non-commercial surrogacy (same potential of abuse)

VOIDABLE/RELATIVE NULLITY - INCAPACITY, FEAR / DURESS, UNDUE INFLUENCE

1398 CCQ+ Problems with consent 1407 CCQ+ Annulment, damages or reduction of obligation as remedy for vitiated consent 1419 CCQ Relative nullity, can be invoked by party (confirmation possible in 1420(2))

MENTAL INCAPACITYPersons lacking status (e.g. under guardianship), minors, temporary exceptional incapability. Presumption of capacity for adults [153+, 256 CCQ]

Thibodeau c. Thibodeau (1961) [2CB 37]o Invalidation of sales K for temporary mental incapacity (incapable of giving consent)o Proof of incapacity dependant on facts (testimony, medical experts/history)

FEAR (CVL)Of physical constraint (person or goods), moral constraint (‘chantage’) or where threat of physical violence [1402, 1403 CCQ].Leads to relative nullity [1419 CCQ] and contract deemed never to have existed [1422 CCQ].[1] Causation (fear deprives of free choice), [2] Serious injury, [3] Reasonable to not resist (subjectively), [4] Illegitimate constraint (goal, means or abuse of right)

J.J. Joubert v. Lapierre (1972) [2CB 39]o Economic violence against employee vitiates his consent – abuse of righto Employee was justified in caving in (assessment of individual circumstances – livelihood

depended on it)o Look at process, not at substance

DURESS (CML)Traditionally, duress to a natural person (actual or threatened) and duress to goods. Contract is voidable. [1] Pressure amounting to compulsion and [2] use of illegitimate means.Modern economic duress (more than legitimate commercial pressure). [1] Enter K against will, [2] no practical alternative and [3] illegitimate pressure or demands.

Atlas Express Ltd. v. Kafko Ltd. (1989) [2CB 42]o Not a mistake, because no fault on defendantso Kafco justified in accepting price (no time, too many consequences for not shipping)o More than hard bargaining, it is imposing a contractual change

UNDUE INFLUENCE (CML) Unconscientiously using power possessed over another, typically in a relationship of trust and confidence.


12

[1] Agent, actual notice [was told] or constructive notice (transaction not on its face to financial benefit and substantial risk that wrong was committed) [only if undue influence by third party – if undue influence by contracting party, can also use unconscionability; c.f. Bertolo][2] Was duty to inquire discharged (independent legal advice) [only if undue influence by third party][3] Was there actual or presumed (rebuttable) undue influence[Barclays v O’Brien] Class 1: Actual undue influence (needs proof)

Class 2A: Identified relationship of trust and confidence; only prove existence of K and of r’shipClass 2B: Not pre-identified type of relationship; must prove r’ship of trust and confidence as well as existence of K

Lloyds Bank Ltd. v. Bundy (1975) [2CB 45] has been expressly rejected, useful for definitionso 5 categories where can get out of signed contract (duress of goods, unconscionable

transaction, undue influence, undue pressure, salvage agreements)o Look for common denominator of inequality of bargaining power

Barclays Bank plc v. O’Brien (1994) [2CB 49] “poor wife case”o Undue influence of husband over wife sufficient to render legal surety K invalido Bank held to know if (1) agent, (2) ‘constructive notice’, (3) actual noticeo Creditor can prevent invalidation if takes reasonable steps to make sure of valid consento Wife was not told of extent of liability, not encouraged to seek independent legal adviceo Good faith rejected (restricted in CML, was no previous relationship)

Bank of Montreal v. Duguid (2000) [2CB 51] “educated wife case”o Wife educated real estate agent, though rocky marriageo Constructive notice if (1) transaction no benefit to guarantor, (2) substantial risk that

wrong was committedo If constructive notice then rebuttable presumption of undue influenceo Duty to inquire (discharge esp. by independent legal advice)o Presumption of undue influence would probably have been rebutted anyway

VOIDABLE/RELATIVE NULLITY - UNCONSCIONABILITY, LESION, CONSUMER PROTECTION

UNCONSCIONABILITY (CML)Focus on outcome’s clear unfairness. Generally a last resort. Can look at sufficiency of consideration. Argument can be used at same time as undue influence. Entire contract may be unconscionable, or clause may be severable.General standard: If shocks conscience of the court or “sufficiently divergent from Canadian community standards” [c.f. Kreutziger dissent]

Bank of Montreal v. Bertolo (1986) [2CB 58]o Means by which consent was obtained are such that enforcement is unconscionableo 1) Unequal bargaining power, 2) take advantage of power, 3) grossly unfair transaction

Harry v. Kreutziger (1979) [2CB 61] “ case of native selling boat with fishing rights”o Classical theory would hold contract to be binding, even if aggressive buying techniqueso Test (1) inequality in bargaining power and (2) substantial unfairness of dealo Presumed fraud: stronger party must prove K is ‘fair, just and reasonable’ or considerateo Remedy is restitution (unwinding, rescinding K)

FUNDAMENTAL BREACH (CML – Old School)Prevents enforcement of ‘exclusion of liability’ clauses where ‘fundamental breach’ attacks underlying premise of the contract. Today, look to the unconscionability of exclusion clauses.

Hunter Engineering v. Syncrude (1989) [2CB 68] “case of the bad gearboxes”o Dickson thinks better to use unconscionability, Wilson argues for continued balancing

Tercon Contractors v. British Columbia (2010) [2CB 70] “case of the list of tendering companies”o BC accepts tender from company not on list; Tercon sues; BC invokes exclusion clauseo Limited list of parties is valid contract (pre-contractual relation guiding tender process)o MAJORITY: holds that accepting attacks underlying premise of bid (context)


13

o Binnie’s test: 1) whether the exclusion clause applies to the facts, 2) whether unconscionable at formation of contract, 3) whether other public policy question

LESION (CVL)Look at structural inequality of groups like minors, consumers. [1405, 1406 CCQ – general guidelines]

1405 CCQ+ Lesion (only for minors and those under supervision, except where provided by law) 1408 CCQ Court may enforce contract where lesion if defendant offers reduction of obligation 1437 CCQ Abusive clause in consumer contract/contract of adhesion is null 1438 CCQ Presumption of severability 424, 472, 2332 CCQ Other cases where lesion provided by law (separation, loans) Consumer Protection Act ss. 8-9 (CCQ at 1813)

Gareau Auto c. Banque canadienne impériale de commerce, (1989) [2CB 76]o Sale of boat annulled for lesion by Consumer Protection Act (extends reach of lesion)o Financial situation of buyer so bad that seller would not have sold if known (justifies)o Here, monthly payments excessive for buyero Two types of lesion: (1) disproportionate prestation required [objective], (2) obligations

on consumer are excessive, abusive or exorbitant [subjective] Slush Puppie c. 153226 Canada Inc. (1994) [2CB 82]

o Abusive clause in contract of adhesion (procedural unfairness)o Burden of proof on Slush Puppie (plaintiff)

Québec (Procureur général) c. Kechichian (2000) [2CB 85]o Contract of adhesion with government for sponsorship process (immigration)o Clause requiring reimbursement for welfare not (1) excessive, (2) unreasonably

detrimental, (3) made in bad faitho Contract valid, esp. considering what is gotten in exchange, and not against public policyo Look at whether abusive at formation (don’t take into account change of circumstances)

VOIDABLE/RELATIVE NULLITY: DOL/FRAUD/MISREPRESENTATION; DUTY TO DISCLOSE

1401 CCQ Fraud (with knowledge of other party, if ‘but for’ would not have contracted) C.P.A. s. 228 (CCQ at 1848, on merchant’s obligation to disclose important facts)

FRAUD (CVL, dol ) Contract annulled if it was important for consent (causality, but for would not have entered contract). Damages possible.(1) Is it fraud? (2) Should we have expected more? (3) Was there confirmation through actions? (4) What are proper damages?

Creighton c. Grynspan (1987) [2CB 91] “case of buying property missing expected strip of land”o Intentionally vague offer and counter-offers (“more or less”)o C knew of error and G&S’s desire to buy strip of land; acted misleadingly by silenceo Facts show G&S would not have bought but for erroro Fraudulent intention held to overweigh G&S’s duty to be more vigilant in buyingo Contract annulled in whole

Tremblay c. Les Pétroles Inc. (1961) [2CB 95]o False statement that $350K was made was blatant lie (had in fact operated at loss) and

not just ‘puff’o Contract can be confirmed if person continues actions after becoming aware of fraudo MAJORITY: holds that it took a long time to discover fraud (tried hard to make it work)o Remedy is restitution


14

MISREPRESENTATION (CML, similar to fraud but broader)(1) False representation with regards to present or past fact. (2) Materiality (relevant to consent). (3) Inducement (must prove would not have entered in contract ‘but for’).Remedies: Rescission. Also damages if “fraudulous” or negligent misrepresentation.

Esso Petroleum v. Mardon (1976) [2CB 102] “Esso miscalculation of gas station’s throughput”o Reasonable observer would see no warranty as to projected revenueso Reasonable observer would see promise to take reasonable care in calculating (expert)

Damages available through Hedley Byrne doctrine: tortious measure of damages (restitution) for contractual breach

V.K. Mason Construction v. Bank of Nova Scotia (1985) [2CB 106] “fail on interim financing”o No contract between Mason and Bank (reasonable observer’s interpretation of letter)o Negligent misrepresentation (torts) gives rise to claim in contracto ‘Opportunity costs’ awarded in damages (could expect same kind of profit elsewhere):

contractual measure of damages (expectancy) for tortious conductDUTY OF DISCLOSURENo general duty to disclose in CML. In CVL, see 1401 CCQ which says fraud can result from silence. [c.f. good faith]

Bail c. Banque de Montreal (1992) [2CB 110] “case of HQ not disclosing soil quality to builders”o Failure to disclose vital info was breach of contract leading to damageso Requirements: (1) knowledge of info, (2) info of decisive importance, (3) impossible for

other party to inform itselfo Though subcontractor was on-site, HQ had all the knowledge and resources to researcho N.B. The remedy in Bail is actually based on extra-contractual liability

Muriel Fabre-Magnan, “Duties of disclosure and French Contract Law : Contribution to an Economic Analysis” [CB 126]

o Where no statute, failure to disclose can lead to mistake (erreur) or fraud (dol) claimso Objective ‘usefulness test’ in determining what is relevant enough to obs to be disclosedo English law against duties of disclosure (those who discover info should benefit)

ABSOLUTE NULLITY: ERRORCVL general argument. Must be significant and excusable [c.f. Rawleigh and Huot]. High threshold to prove inexcusability. Often, no damages.

1400 CCQ Error (excusable; nature of K, object of prestation or anything essential to consent)

Rawleigh c. Dumoulin (1926) [2CB 138]o R tries to enforce suretyship against D; D thought it was a referenceo Testimony of the victim is sufficient proofo Fraud fails because party seeking to enforce K was not aware of it [c.f. 1401 CCQ]o Held that no meeting of minds, even if not a mutual mistakeo Error as to nature of K; excusable because meant to be a trap by third party

Huot c. Ouellette (1981) [2CB 140] “where fear of gas lines puts an end to sale of the house”o No fraud or misrepresentation (facts, good faith) and matching offer/acceptanceo Error as to something essential in determining consent (proximity where subjective

expectations as to characteristics of object [not personal motive])o Restitution, but no damages justifiedo N.B. New CCQ makes relative nullity clear

VOID: MISUNDERSTANDINGS & MISTAKEN ASSUMPTIONS residual category for when all else fails


15

Mistake is underdeveloped in CML, with the focus being instead on undue influence or misrepresentation. Standard of reasonable observer.Classical cases: res extincta (goods sold have ceased to exist) or res sua (purchaser already owned object of sale)2 types: (1) Misunderstandings [basically cases of fraud]

(a) Ambiguity: no reasonable interpretation prevails over the other [cf Wickelhaus](b) Mistake as to terms: one party mistaken, other knew of mistake [person does not deserve protection of reliance](c) Mistake as to identity [of person], if important

(2) Mistaken assumptions (must be fundamental change in common assumption)

Sherwood v. Walker (1887, US) [2CB 145] “case of supposedly barren cow becoming with calf”o Valid formation of contract, no misunderstanding; nothing in cow mentions barrennesso Extension of res extincta to factual non-existence of object of sale (barren cow of same

name never existed) Bell v. Lever Brothers Ltd. (1932) [2CB 149]

o Valid formation of severance package, no misunderstanding as to termso Mistaken assumption that K had not been breached, only way to end K was buy-outo Fundamental difference allowed instead of non-existence, but very high standardo Here, not essentially different (obtain termination of employment in both cases)

C. MacMillan, “How Temptation Led to Mistake” [CB 152]o Importance of historical setting in explaining Bell v Lever Brotherso Argues against keeping ridiculous Lever Brothers as base for CML doctrine of mistake

MISTAKE, FAIRNESS, EXPLOITATION – AN ILLUSTRATION[1407 (relative nullity), 1416-1423 (nullity/confirmation), 1438 (severability) CCQ]

Yoskovitch v. Tabor (1995, QC) [2CB 170] “case that shows how it all comes together”o Y wants to enforce sale of baking company to T, her illiterate cleaning ladyo Not fraud, because T not a credible witness [1401 CCQ]o Not lesion, because does not fall under protected category [e.g. consumers, minors]o Not abusive clause, because only for minor clauses even if K of adhesion [1437 CCQ] o Error found; judge balances interests, T’s particular situation [e.g. illiteracy]

6. CHANGE IN CIRCUMSTANCES, FRUSTRATION, HARDSHIP

SUPERVENING EVENTS, CHANGED CIRCUMSTANCES

1470 CCQ Release from liability where superior force (unforeseeable, irresistible event) 1453 CCQ Acquirer is owner upon formation of contract, even if property not yet delivered 1456 CCQ Debtor of obligation to deliver bears risks to property until delivery 1693 CCQ Burden of proof of superior force on debtor 1694 CCQ If debtor released for superior force, cannot enforce contract/restitution is owed 1439 CCQ Contract cannot be resiliated except if by law or by agreement of the parties

IMPOSSIBILITY (CVL)Once contract is formed it is very hard to get out of. Need for absolute physical impossibility. Mere hardship is not an excuse.

Otis Elevator c. A. Viglione & Bros. (1978) [2CB 178]o No physical impossibilityo Contractual stipulations limiting liability if strike protect Otis Elevator


16

FRUSTRATION (CML)If wrong predictions about future. If, without promisor’s fault, (1) K requires thing that has perished or become unavailable, (2) K requires personal performance, but promisor dies or becomes incapacitated, (3) Performance becomes prohibited/prevented by law.

Amalgamated Investment and Property v. John Walker & Sons, (1976) [2CB 180]o Court holds loss should stay where it falls, because it could happen to anybody anytimeo Mistake fails, designation of property as historic site did not exist at formation of the Ko Frustration fails (1) not actual impossibility, (2) no contractual stipulation, (3) agreement

itself is not essentially different [still sale of a building]o Court’s clear reluctance to alter contracts leads to this very high standard for frustration

Sainsbury v. Street, (1970, USA) [2CB 189] “case of farmer producing less than estimated”o Identify what is scope of promiseo Dealer cannot claim 275 tonnes of barley: physical impossibility, not in contracto Dealer has claim over 140 tonnes produced: K stipulated farmer must supply all he can

Frustrated Contracts Act (ON) [CB 184] UNIDROIT Principles of Int’l Commercial Contracts [CB 185] Restatement (Second) of Contracts [CB 186] Principles of European Contract Law [CB 187]

International measures on hardship more forgiving than CVL, seem closer to CML

7. BREACH AND REMEDIES

GENERALFirst must determine if there was an actual breach.In CVL, compare with contractual undertaking: obligation of means (reasonable care to achieve), obligation of result (promise to achieve), or obligation to guarantee (guarantees result regardless of circumstances).In CML, compare with interpretation of contract. Breach where total failure to perform, late performance, partial performance or defective performance. Generally, look first to unconscionability, public policy and interpretation of K by a reasonable observer.

1590 CCQ+ Remedies: specific performance, resiliation, take any other measure to enforce right 1591 CCQ If one party fails to perform obs. substantially, other party may refuse to perform 1592 CCQ Right of retention of property until performance 1594 CCQ+ Default (types of situations) 1601 CCQ+ Specific performance 1604 CCQ+ Resiliation or resolution of contract, or reduction of obligations

TERMINATION OF CONTRACTCML: Is it repudiatory breach? Before, looked especially at nature of clause breached: warranty or actual condition? Today, test looks more at intensity of the breach: whether you are deprived of substantially the whole benefit of the bargain (HK Fir sets very high standard).CVL: CCQ states that breach must be of some significance to allow termination [1604 CCQ].

Hong Kong Fir v. Kawasaki Kisen Kaisha (1962) [2CB 190] “where chartered ship took too long”o Breach held to not to be sufficient to allow unilateral termination (def guessed wrong)o Def held to have breached contract by ending it – owes damages (risky!)o Principle that one should not be allowed to take advantage of his own wrong.o In this case, clause cannot be defined with old classification of warranty v conditiono Test: deprive of substantially the whole benefit as intended in the contract? (no)

Cehave NV v. Bremer Handelsgesellschaft mbH (1975) [2CB 193] “case of citrus pulp pellets”o (1) Is breached stipulation a condition?


17

“Merchantable”: Was a condition, but they were all fit for usageo (2) Does the breach “go to the root of the K”? (look at intensity of breach)

“Shipped in good condition”: No, because majority of pellets were OK

John D. McCamus, The Law of Contracts [2CB 197]o (1) Repudiatory breach if breach of a “condition” of the agreement (implicit/explicit)o (2) Where breach of term that the court implies is a conditiono (3) Where breach such that it goes to the root of the contract, is fundamentalo Such breaches entitle innocent party to treat K as at an end

SPECIFIC PERFORMANCE CVL: Creditor has right to specific performance, can choose. Tendency to grant performance. [1601 CCQ – rule; 1602+ CCQ – exceptions]CML: Specific performance is equitable relief if damages are inappropriate remedy (judge’s discretion). ‘Inadequacy of damages’ test.

(a) “Uniqueness test”: Could I get damages and go buy what is owed on the marketplace?(b) Is the assessment of damages too problematic?

If the test is met, court grants specific performance unless certain exceptions (difficulty of supervision, public policy [employment Ks])

Warner Bros. Pictures v. Nelson, (1937) [2CB 199] “case of Bette Davis running off to England”o Refusal to enforce positive obligation (personal promise of service, “slavery)o Prohibitory injunction OK (damages inadequate, prohibitory injunction would not

necessarily have the same effect as positive obligation) Co-operative Insurance Society v. Argyll Stores (1997) [2CB 206]

o Refusal to give injunction to “carry on a business”o Difficulty in supervising; would be economically inefficient (makes no sense)

Construction Belcourt v. Golden Griddle Pancake House (1988, QC) [2CB 210]o Creditor can get specific performance as remedy, even if loss to other partyo Contract not relatively null (no fraud/misrepresent., equal parties, no hardship in CVL)o Court interprets “must not enslave individual” literally; here it is a companyo Emphasis that promise is to obligate for the future regardless of hardship

DAMAGES

1458 CCQ Liable for reparation for bodily, moral or material injury 1607 CCQ Liable for bodily, moral or material injury that are immediate and direct consequence 1611 CCQ Liable for loss sustained and loss of profit 1613 CCQ Liable for damages foreseeable at time of K; must still be immediate and direct

CALCULATING DAMAGESDamages often claimed because more practical. Goal is to put in position as if K respected. Calculate expectancy by looking to market price.(1) Restitution, (2) Reliance, (3) Expectancy

Security Stove v. American Ry. Express Co. (1932) [2CB 227] “case trip to furnace convention”o Normally expectancy damages (shipping K, so damages for loss of value)o Was not expecting profit, so gets compensation for expenses in reliance (even if after K)

Ruxley Electronics v. Forsyth, (1995) [2CB 230] “case of dude wanting to dig up shallow pool”o Normally would give damages for

How far value of property is diminished (no difference in market price) How much it would cost to make right (would need new pool, unreasonable)

o Principle that creditor should not be better off because of the breach (no windfall)


18

o No expectancy damages, but since K for enjoyment F can get loss of amenity damages

L.L.Fuller / William R. Perdue, “The Reliance Interest in Contract Damages: 1” [2CB 217]o Criticizes that we speak of damages as if injury; ‘compensation’ for something never hado Argues contract law has lost its way

SCOPE AND LIMITS OF CONTRACTUAL LIABILITY DAMAGESCML uses test of foreseeability in Hadley v Baxendale.CVL concentrates on ‘will theory’: you get what you wanted, what was contemplated.

Hadley v. Baxendale (1854) [2CB 238] “case of lost profits through mill shaft delivery screw-up”o Normally would give damages for difference in price between service as promised and

service received (express v normal post)o Damages for consequences foreseeable

That which any reasonable observer would foresee That which has been expressly communicated (i.e. special circumstances)

o Special circumstances not communicated; no liability for loss of profit at mill R. Danzig, “ Hadley v. Baxendale : A Study in the Industrialization of the Law” [CB 239]

o Historic circumstances of Hadley (Lords in London v jury out in country) Victoria Laundry v. Newman Industries (1949) [2CB 247] “case of big boiler”

o NI had sufficient imputed or actual knowledge: VL had communicated that time was of the essence, NI was engineering firm and were the sellers (should have inferred!)

o Damages awarded for general loss of profit (foreseeable because general business)o No damages for specific profits/contracts hoped for (unforeseeable to NI)

Koufos v. C. Czarnikow (The Heron II) (1969) [2CB 251] “case where price of sugar dropped”o Not necessary for “on the cards” that more likely to happen (no “odds-on” liability)o Need higher standard than in torts (where exclusion only if risk extremely small)

Ciment Québec c. Stellaire (2002) [2CB 258] “where pure silica fumes instead of cement”o No question that contract was breached (did not deliver right material)o Causal chain not broken? (no: hard to pick up difference, weren’t experts)o Intentional or gross fault? [dispenses with need to prove foreseeability] (no: mistake)o Damages for cost of rebuilding dam, but not for loss of profit through loss of financing

AGGRAVATED DAMAGES (COMPENSATION FOR FORESEEABLE MENTAL DISTRESS)CVL: Moral damages included in 1458, 1607 CCQ. See also 1613 CCQ.Current Cdn CML: Recovery where (1) parties make K with object of securing psychological benefit and (2) mental distress is within the reasonable contemplation of the parties [Hadley]

Jarvis v. Swan Tours (1973) [2CB 268] “case of bad vacation to Switzerland”o Normally damages for difference in market value of what paid for and what receivedo Recovery because very object of K is pleasure (“peace of mind exception”) – extended in

Ruxley to recovery where pleasure is a major or important element of the contract Fidler v. Sun Life (2006) [2CB 277] “case of Sun Life not paying out illness insurance”

o SCC uses Hadley to justify ‘peace of mind exception’ – expand to everything foreseeable

PUNITIVE DAMAGES (PUNISHMENT)In Cdn CML, exceptional character with high threshold: offends court’s sense of decency [Fidler], “independently actionable wrong” [mere breach of duty insufficient, tort not necessary; breach of good faith in insurance cases is sufficient]

Whiten v. Pilot Insurance (2002) [2CB 270]


19

o Arguments against punitive damages (no windfall, private/criminal law, fear of Americanization of Cdn law)

o Held that not doing anything would be like having “license fee” to act wrongfully, plaintiffs are taking risk by suing, good for transparency to have clear categories

o Independently actionable wrong is breach of good faith in insurance contracts

LIQUIDATED DAMAGES & PENALTY CLAUSESCML: Liquidated damages clauses OK, but penalty clauses are unenforceable. Court must decide if bona fide attempt to pre-estimate damages.CVL: 1623 CCQ – creditor entitled to amount stipulated in contract; court has discretion to reduce it if abusive or partial performance received.

H.F. Clarke v. Thermidaire (1976, ON) [2CB 294] “where C violates non-competition clause”o Clause for ‘liquidated damages’ is gross profit of C – attempt to pre-estimate damages?o 1) If lump sum, look at ex ante reasonability (here, makes sense but not lump sum)o 2) If formula and amount grows in time, ex post reasonability (no benefit from breach)o Held that this is a penalty clause, so unenforceable

151276 Canada inc. c. Verville (1994, QC) [2CB 306] “case of the card shop”o Penalty clause requiring V to pay remaining rent at once is abusive, not proportionateo Abusiveness taken into account even if not consumer K or K of adhesiono Amount owed is arbitrarily reduced

8. THIRD PARTIES AND THE RELATIVE EFFECT OF CONTRACTS

PRIVITY OF CONTRACT AND THIRD PARTY BENEFICIARIES In Cdn CML, privity of contract is still a valid doctrine. Third party is a ‘stranger to the consideration’, so cannot enforce in own right. Contracting party can enforce for you. Beswick limits approach to ‘fluke situations’, calls out for legislative action. Only incremental change.CVL gives a third party beneficiary the right to exact performance of the promise in own name.

1440 CCQ+ Contract has only effect between contracting parties except where provided by law 1441 CCQ If party dies, rights and obligations pass on to heirs 1443 CCQ Cannot bind except in own name 1444 CCQ May stipulate for benefit of a third party, gives third party right to exact performance

Beswick v. Beswick (1966 – Court of Appeal) [2CB 311] Denning’s take on the widow’s plighto Widow cannot enforce in own name (no consideration); nephew got his considerationo Can sue as estate, but would only receive nominal damages (no loss to estate)o Can sue in own name jointly with estate [overturned]

Beswick v. Beswick (1968 – House of Lords) [2CB 313]o Third party cannot sue in her own name, even jointly (only as executrix)o Inadequacy of damages leads to award of specific performance (equity)

London Drugs v. Kuehne & Nagel (1992) [2CB 315] “case of $40 liability limit”o Liability limit in contract protects K&N, held to extend to its employeeso Rhetoric: will not touch rule except for incremental changeo (1) Liability limit clause must include employees, (2) must be within scope of activitieso Only use defensively (‘shield’)

Contracts (Rights of Third Parties) Act 1999 [UK] [CB 321]

“ACCESSORY RIGHTS” (“travelling rights” in the CVL tradition)Rights that blur the line between personal and real rights.

1442 CCQ Accessory rights transfer by particular title


20

1730 CCQ Manufacturer bound to warrant buyer in same manner as seller Consumer Protection Act Art. 53 and 54 (CCQ at 1818)

General Motors Products of Canada Ltd. v. Kravitz (1979) [2CB 327] now 1442 CCQo Warranty so closely connected to car that it ‘travels’ when sale to new owner

9. EPILOGUE

WHITHER CONTRACT?

O.W. Holmes, “The Path of the Law” (1897) [2CB 344] Grant Gilmore, The Death of Contract (1974) [2CB 348] (and ensuing discussion notes)

o Death of 19th century idea of K as an expression of willo Multiplication of contracts of adhesion, where no negociation possibleo Multiplication of number of contracts in people’s liveso Many doctrines in law which modify wills of parties when go to courto Defenses: consumer protection legislation, evolution of lesion/unconscionability


21

HOW TO APPROACH A CONTRACT

(1) Identify all the parties, all their relations, any hints offered in fact pattern(2) Is it a binding contract

a. Intention or serious offer express intention to be bound? (‘mere puff’ or ‘jest’?) Take into account reliance, importance of deal to parties Presumed intent in business deals, presumed against in social/domestic

contextb. Valid offer and valid acceptance?c. Meeting of the minds? (In time? In content?)d. Consideration, based on mutual inducement? Seal? (CML)e. Is there cause and object that are legal? (CVL)

(3) Are there any technical contractual issuesa. Was there a letter of comfort?b. If no consideration, is promissory estoppel available? (in the case of pre-existing

contractual relations) [see also NAV Canada]c. Is there any third party beneficiary? [can also be addressed in damages section]

(4) Should it be enforceda. Void?: Policy reasons, statutory or common law illegality, mistake (CML)b. Absolutely null?: Public order or illegal cause/object/prestation (CVL)

(5) Are there problems with consenta. Voidable?: Misrepresentation, duress, unconscionability, undue influence (CML)b. Relatively null?: Error, fraud, fear, lesion [CCQ/C.P. Act] (CVL)

(6) Was there a breacha. Breach of contractb. Breach of duty of good faith (CML: should such a duty be implied?)

(7) Is the breach excusablea. Repudiatory breachb. Impossibility/Frustration

(8) What remedies can we expect (standard is how well off had promise been kept)a. Specific performanceb. Terminationc. Damages (restitution/reliance/expectancy, aggravated, punitive)


22

OFFER (defines terms and confers the power of acceptance)

Featureso Objective : how would a reasonable person construe it?

Hawkins, Carbolic Smoke Ball, PepsiCoo Intended : must be an intention to contract and not ‘mere puff’

Carbolic Smoke Ball, PepsiCoo Finality : Offer must be clear enough to be able to give rise to contractual obligations

Kleinwort Benson, Les Terrasses Holdings, Empress Towers

Categories to be aware ofo Invitation to treat : some offers are not contractual

PepsiCo, Boots Cash Chemist, Constructions Simard Beaudryo Ticket cases : tickets themselves are the offer, actions after receiving are the acceptance

Shoe Lane Parkingo Options : Options prevent revocation and are binding to offeror, but not to offeree

Cere v. Neely

Termination of offerso By reasonable lapse of time

B.C. Wine Growerso By counter-offer

Constructions Simard Beaudry, international legislationo By revocation: CML can revoke at any time before acceptance, CVL see 1390 CCQ

Unilateral contractso Acceptance through acts

Carbolic Smoke Ball, HEM Pharmaceuticalso Different rules for revocation

Carbolic Smoke Ball, Errington

ACCEPTANCE

General ruleso Binding when communicated and received, except for mailbox rule (CVL see 1387 CCQ)

Boots Cash Chemist, Entoreso Substantial match between offer and acceptance (meeting of the minds in time and space)

Raffles, Doughboy Industrieso Actions may sometimes be interpreted as acceptance (esp. unilateral contracts)

CONSIDERATION (CML)

General principleso Generally, must be benefit to promisee or detriment to promisor

Hamer, Roffey Bros., etc.o Bargain Principle (consideration must be given in exchange for promise) – ‘mutual inducement’

Roscorla, Lady Duff-Gordon, Kirkseyo In unilateral contracts, the bargain is for the act


23

HEM Pharma, ErringtonSufficiency of consideration

o Must be sufficient, but we do not look at adequacy Carbolic Smoke Ball, Lady Duff-Gordon

o Illusory promises are not sufficient consideration Coca-Cola

Pre-existing dutyo If variation of existing contract , fresh consideration must be given

Stilk, Gilbert Steelo Promissory estoppel can be used to re-establish fairness

High Treeso Other ways developed to get around seeming lack of consideration

Roffey Bros., NAV Canada, Walton Stores

INTERPRETATION

o External elements may help with interpretation, depending on the context Dell Computer, McCutcheon, British Crane Hire

o Good faith is a tool for interpreting the content of contracts Houle, Provigo, McKinlay Motors

ENFORCEABILITY OF THE CONTRACT (CONTRACTS VOID/ABSOLUTE NULLITY)

Public Policyo Makes contract void/absolutely null

Canadian Factors, Baby Mo Possibility of severing a clause that is against public policy

Villao Can be invoked by judges against the will of the parties

X. v B.

Mistake (CML)o Makes contract voido Classical cases are res extincta and res sua

Sherwood (extends res extinct)o Misunderstandings (ambiguity/mistake as to terms/mistake as to identity)

Wickelhauso Mistaken assumptions (shared, fundamental)

Lever Brothers

PROBLEMS WITH CONSENT (CONTRACTS VOIDABLE) (CML)

Misrepresentationo (1) False representation with regards to a present or past (2) material fact and which (3) induced

the other party to enter into the contract Mardon, VK Mason


24

Duress (“blunt means”)o General duress: (1) Pressure amounting to compulsion and (2) use of illegitimate meanso Economic duress: (1) Party entered the contract against their will because (2) no practical

alternative and (3) illegitimate pressure or demands Atlas

Undue influence (“sneaky tactics”)o Actual (borrower acting as agent, other reason) or constructive notice (transaction not to

advantage of guarantor, substantial risk that wrong committed) of undue influence?o Duty to inquire discharged (independent advice?)

Duiguid, Bertoloo Actual or presumed (rebuttable) undue influence? (Class 1, 2A, 2B)

Barclays, Duguid

Unconscionability (“last resort”)o ‘Presumption of fraud’ if (1) inequality of bargaining power and (2) substantially unfair bargain

Kreutziger, Bertolo

PROBLEMS WITH CONSENT (RELATIVE NULLITY) (CVL)

General principleso Relative nullity is invoked by weaker party (or stronger, if in good faith) and annuls the contract

1420 CCQ, 1422 CCQo Relatively null contract can be confirmed after the fact

Les Pétroles, 1420 CCQo Can be error, fraud or lesion

BREACH

General principleso CVL finds breach if difference between performance and contractual undertaking (obligation of

means, of result, or to guarantee)o CML compares performance to what was promised in the contract through interpretation of the

terms from the point of view of the reasonable observer.

Excuseso Repudiatory breach

Hong Kong Fir, Cehaveo Impossibility

Otis Elevator, Sainsburyo Frustration/Hardship (CML)

John Walker, Sainsbury


25

SPECIFIC PERFORMANCE

General principleso Right to specific performance in CVL; must pass ‘Inadequacy of Damages Test’ in CML

Golden Griddleo Reluctance to enforce specific performance where it would ‘enslave’

Warner Bros., Argyll Stores

DAMAGES

General principleso Standard is to put promise in the same position as if the contract had not been breachedo Market price – Contract price = expectancy damages for buyero Contract price – Market price = expectancy damages for sellero Heads of damages must have been foreseeable at the time of formation of the contract

Hadley, Victoria Laundry, The Heron II, Stellaire

Main typeso Expectancy damages: standard measure of damages

Ruxley (did not apply)o “Restitution damages”: unwind contract for both parties if contract void/annulled

Security Stove (did not apply)o Reliance damages: get damages to cover what was spent

Security Stove

Special typeso Aggravated damages: compensation for mental distress

Jarvis, Fidlero Punitive damages: if conduct offends the court’s sense of decency

Whiteno Liquidated damages: CML will not enforce penalty clauses

Thermidaire, Vervilleo Link between contracts and tort heads of damages

Ruxley (loss of amenity), Mardon (Hedley Byrne), VK Mason


lsa.mcgill.calsa.mcgill.ca/pubdocs/files/contractualobligations/527... · web viewenforcement...

Documents