consideration - web viewin this case, because both parties agreed to the word...

James Amar Gill, Contract Law CAN Long Form – Dr. Oppong

Table of Contents

Consideration..................................................................................................................................7Thomas v. Thomas (1842) 2. Q.B. (Consideration means something which is of some value in the eye of the law moving from the promisee; This case affirms that when we discuss consideration, the consideration need not be equivalent to the promise received)...................................................................................................................... 7The Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier, Deceased (Subscriptions to donate are not legally enforceable contracts; where there is no reciprocal promise, and thus no consideration).......................................................................................................................................................................................... 8Eastwood v. Kenyon (Past consideration is no consideration – everytime there is a new bargain, there must be fresh consideration)............................................................................................................................................................. 9Lampleigh v. Brathwait (Exception for which past consideration can still be valid. If there is a 1) requested undertaking rather than a voluntary one, and there was a 2) reasonable expectation that a reward was reasonably expected, it is valid. Thus even though the consideration in this case is passed, it is still valid)................................................................................................................................................................................................... 9Callisher v. Bischoffsheim (Legal forbearance is good consideration – Ie. Promise not to sue is good consideration)....................................................................................................................................................................................... 10D.C.B. and Harold J. Arking and Zellers Inc (You can’t forbear to sue when you have no basis to sue – this cannot constitute consideration).................................................................................................................................................. 10Pau On v. Lau Yiu Long (Past consideration can still be good consideration when the act was at the promisor’s request. Also, the parties must understand that the act was to be paid for either by payment or the conferment of some other benefit. The conferment of a benefit must have been legally enforceable and had it been promised in advance) (A promise of performance of a pre existing duty already owed perform to a third party may be good consideration as long as the promise has not been fulfilled).............10Stilk v. Myrick (Where no commercial benefit or practical benefit arises from a new promise made over an existing contract, the new promise would be unenforceable because the new consideration would be no good consideration)............................................................................................................................................................................ 11Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. (1990)(The practical benefit of timely completion even though a pre exsiting duty is performed can be good consideration if the party obtaining the benefit would obtained an additional practical benefit)................................................................................................................... 12Gilbert Steel Ltd. v. University Const. Ltd (A modification to a contract must contain new consideration) 13Greater Fredericton Airport Authority Inc. v. Nav Canada (Contrary to the decision in Gilbert & Williams, if you have a post contractual modification, unsupported by consideration may be enforceable so long as it may be established that the modification was not engaged in under duress says that STILK didn’t consider economic duress)............................................................................................................................................................... 14Law and Equity Act (R.S.B.C. 1996, c. 253) s. 43 ‘Part performance of an obligation either before or after a breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation’.................15Foakes v. Beer (Traditional common law position that an agreement to accept a smaller sum in lieu of the whole amount is not consideration) This has been s. 43 of the Law and Equity Act........................................15Re Selectmove Ltd. ().......................................................................................................................................................................... 15Foot v. Rawlings: (A promise to pay............................................................................................................................................ 16Consideration Part 2: October 26, 2011..................................................................................................................................... 16

Misrepresentation.........................................................................................................................18Redgrave v. Hurd (1881) (C.A.) (Defines a material representation: something that would likely influence the reasonable person and would have a significant impact on the transaction: In order to be deprived of the right to be relieved of the contract, it must be shown that the person either had full knowledge of the facts contrary to the inducement, or that it was clear, by his conduct, that he did not rely on the

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material representation; the reason why rescission is available and not damages is because the courts are balancing a misrepresentation from an innocent party and to a wronged party).................................................19Smith v. Land and House Property Corp (1884) 28 Ch. D. 7 (C.A.) (If the facts are not equally known to both parties, a statement of one party will be taken to be statement of fact, because it will be taken that he impliedly states that he knows facts which justify his opinion).................................................................................20Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 W.L.R. 623 (C.A) (Defines how a misrepresentation can become a warranty - when a party making a representation has an opportunity to verify the.................................................................................................................................................................................................. 20truth behind it, but chooses not to, and that representation ends up being false, there will be no defense; this can be rebutted if the respresentor can demonstrate he innocently spoke).....................................................21Kupchak v. Dayson Holdings Ltd. (1965) B.C.C.A.(General rule: there’s no rescission for misrepresentation if: 1) a third party has acquired a right, 2) when restitution integrum is impossible, 3) action to rescind is not taken within reasonable time, 4) contract is executed, 5) an injured party affirms the contract – in this case, they don’t adhere to this – when ; 2 factors to consider for a remedy for fraudulent misrepresentation: 1) is rescission practical and restitution possible; was the claim to rescind submitted in a timely fashion)............................................................................................................................................................................. 21This is a case of compensation as remedy: compensation only puts you back to your original position, damages may put you in a position better than original, but this is uncommon.....................................................21Redican v. Nesbitt [1924] S.C.C. (Impossibility of restitution will prevent rescission - the representations would be fraudulent if they were false and were made knowing they were false or without belief in their truth or recklessly, careless whether they were true or false; once a contract is executed without a) fraud, or b) substantial difference between what was contracted for and what was received, then there is a bar from rescission – the bar for rescission is restricted to contracts dealing with land)...........................................22Esso Petroleum v. Mardon [1976] Q.B. (C.A) (Misrepresentation- the divide between a statement of opinion and fact becomes more factual if one holds himself out as having expert knowledge; if one has expert knowledge, the statements will be taken to be statements fact - only true if the respresentor was making the statements to induce the other party into the contract and those statements were relied upon)...................................................................................................................................................................................................................... 23Car and universal Finance Co. Ltd. v. Caldwell [1965] (Must take steps to void/rescind a contract - It holds that an unequivocal act communicating the wish to rescind a contract can override third party rights --The communication does not need to go to the misrepresentor; an innocent party must be able to rescind a contract that was made under fraudulent misrepresentation)...................................................................................24High Court............................................................................................................................................................................................... 24Court of Appeal..................................................................................................................................................................................... 24Sodd Corp v. N Tessis (1977) (If a def is a professional, he may be held to a higher standard; furthermore he may be held to be in a special relationship creating a duty of care to the plaintiff)........................................24BG Checo International Ltd. v. British Columbia Hyrdo and Power Authority [1993] (There is no bar for seeking damages simeoultaneously in tort and contract, the party may sue in either or, unless the contract has some sort of limitation clause preventing this – no double recovery allowed, however)..........25V.K Masion Construction Ltd. v. The Bank of Nova Scotia [1985] (The requirements for a negligent misrepresentation: 1) an untrue statement, 2) made negligently, 3) foreseeable reliance on the statement, 4) a special relationship between the parties creating a duty of care [specific to this case])............................25S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994)(Execution or performance of a contract is a relevant but not decisive factor to be considered when deciding whether the remedy of rescission should be denied because of the pltnfs undue delay in seeking a remedy or because rescission might affect third parties or would otherwise be inequitable) Reconciles with Redican because it is not for a sale of land.....26Guarantee Co of North American v. Gordon Capital Corp [1999] S.C.R. (Defines rescission vs. repudiation; repudiation is the refusal to perform an action by a party because he believes he is exercising a contractual right; if repudiation is accepted [both parties must agree to it], that provision is deemed to be terminated)............................................................................................................................................................................................ 27

Summary of Law: Duress (Common Law) & Undue Influence (Equity)............................................27

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Greater Fredericton Airport Authority Inc. v. Nav Canada (2008) NBCA (Economic Duress Framework for contractual variation; impact on the victim is how you assess illegitimacy of the pressure; of pressure is not a condition precedent for economic duress when dealing with variation in contract; Illegitimacy of pressure not a part of economic duress).................................................................................................................................... 29Geffen v Goodman Estate [1991] SCC (Presumption of Undue Influence and how to rebut it; for gifts consideration is not an issue)......................................................................................................................................................... 30Royal Bank of Scotland PLC v. Etridge (No.2) [2001] (Undue Influence, and Familial – material disadvantage is only a requirement for commercial relationships, not familial relationships – familial undue influence just requires a special relationships; whereas commercial requires a special relationship and a manifest disadvantage; burden of proof is on the person who was wronged, unless you can prove a special relationship and a questionable transaction in which the burden of proof reverses)............................31Allcard v. Skinner (1888) (Presumed Undue Influence of Commercial nature: The law’s place is not to get back people’s possessions that they parted with foolishly; rather the law’s job is to protect parties from being forced, tricked or misled into parting with their possessions)............................................................................32Stott v. Merit Investment Corp (1988) Ont CA – (Duress, Economic Duress - This case is unlike Greater Fredericton, it adds illegitimacy-Reconcile the cases because this is about contract formation, not variation like Greater Fred- This case affirms that two elements are needed to prove economic duress namely: (1) Pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted; remedy for this is to render it voidable)................................................................................................33Gordon v. Roebuck (1989) Ont CA (Economic Duress – Contract Variation - COMPREHENSIVE APPROACH)............................................................................................................................................................................................ 34

Summary of Mistake in Law:.........................................................................................................34Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976) HC (Mutual mistake- court must decide what reasonable third parties would infer to be the contract from the words and conduct of the parties who entered into it. It is only a case where the circumstances are so ambiguous that a reasonable bystander could not infer a common intention that the court will hold that no contract was created).......36Smith v. Hughes (1871) (Mistakes as terms - there is a distinction in mistakes in the terms of a contract, and mistakes in assumptions/motivations for entering a contract– there is no positive duty of a vendor to notify a buyer of his mistake)......................................................................................................................................................... 36Hartog v. Colin Shields [1939] (Unilateral mistake & Snapping mistake– i.e. where the mistake of X is known to Y – Y is taken to have known what would have been obvious to a reasonable person in the light of the surrounding circumstances, Y must adhere to the price that they were discussing, not the incorrectly stated price)................................................................................................................................................................... 37R. v. Ron Engineering & Construction (Eastern) Ltd. [1981] SCC (Unilateral Mistake – An owner cannot accept a tender if he knows there is a mistake in the tender, because this is a commercial example of snapping up in a commercial situation).................................................................................................................................... 38Solle v. Butcher (1949), [1950] (Eng CA) (Common mistake in EQUITY test-apply this after Great Peace [common law] - Court has power to set aside a contract that is binding in law on the ground of common mistake – this case rarely followed)............................................................................................................................................ 39Great Peace Shipping v. Tsavliris Salvage [2002] (Eng. CA) (COMMON LAW APPROACH - 5 requirements for a common mistake to be able to make a contract void)..............................................................................................40Miller Paving Ltd. v. B Gottardo Construction Ltd. [2007] (Ont. CA) (THIS IS THE GO TO TEST FOR COMMON MISTAKE- Incl. Common Law, Equity, and some other shit).......................................................................41Shogun Finance Ltd. v. Hudson [2002] UKHL (Mistake of identity - When parties are dealing face to face, there is a strong presumption they are intending to deal with each other; unless this is rebutted, when dealing strictly in paper, no presumption that the parties are intending to deal with which each other because the persons identity is in the terms of the contract; a mistaken party can set aside a contract, but only before third parties acquire rights in good faith)........................................................................................................ 42Performance Industries Ltd. v Terrance O’Connor Sylvan Lake Golf & Tennis Club Ltd [2002] SCR (Unilateral mistake - 4 Prerequisites for Rectification which is an equitable remedy)........................................42

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Summary of Law: Unconscionability & Illegality............................................................................43There are several tests for unconscionability –state them all – then apply the one, Morrison is the most commonly applied test....................................................................................................................................................................... 44Morrison v. Coast Finance Ltd. (1965) BCCA (2 requirements for invoking unconscionability and creating a presumption of unconscionability) This is the most commonly applied test....................................................44Marshall v. Can. Permanent Trust Co. (1968) Alta SC (Alternatively provides a different test from Morrison, can apply either: 1) was the weaker party incapable of protecting his interest and 2) the transaction was improvident (ex. can I forsee this is a good deal for me?) for him )............................................45Harry v. Kreutziger (1978) BCCA (2 Alternative tests for unconscionability: 1. Was there an inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain [Application is Morrison]. Or 2. It has to be decided whether the transaction is sufficiently divergent from community standards) –Opp likes test 1 & Morrison approach.............................................................................................................. 46Business Practices and Consumer Protection Act ss 4-10..................................................................................................47KRG Insurance Brokers (Western) Inc. v. Shafron (2009) SCC (Illegality – Restrictive covenants are generally restraints of trade and contrary to public policy; freedom to contract requires an exemption for reasonable restrictive covenants; reasonableness of covenant determined by geographical and period of effective time; restrictive convenants and notional & blue-pencil severance are tools that can be used to correct the terms )............................................................................................................................................................................... 48Still v. Minister of National Revenue (1997) FCCA (Illegality: Doctrine of Illegality divided into two categories: common law & statutory; common law illegality can be rendered unenforceable on the grounds that they are contrary to public policy; statutory illegality renders contracts void; BUT if the illegality goes to the performance of a contract as opposed to formation, a good faith party can be entitled to relief).................................................................................................................................................................................. 49

Performance – Contract Law.........................................................................................................50Fairbanks Soap Co. v. Sheppard [1953] SCR (Abandonment of Contract - Where there is a contract to do work for a lump sum, until the work is completed or substantially completed, the price of it cannot be recovered; contract will not be substantially complete when the underlying purpose of the contract cannot be served in any way: see below; Quantum meruit can only applies when contracts can be broken down into distinguishable steps, and the def has the option to take or leave the semi-completed work- Abandonment overrides principles of substantial completion).......................................................................................52Bolton v Mahadeva [1972] (Imperfect performance warrants no obligation by the other party to fulful their obligations [ie. Pay])............................................................................................................................................................... 53Sumpter v Hedges [1898] (Defines Quantum Meruit- In order to recover on quantum meruit you must be able to distinguish the work done and work to be done; this can be inferred by the def having the option to take or leave the work)..................................................................................................................................................................... 53Stevenson v. Colonial Homes Ltd. [1961] (Difference between part payments and deposit – If a contract was breached, a deposit is not recoverable, but a part payment is – to determine the difference, use a plain language meaning of the terms of the contract)................................................................................................................... 53

Frustration – Contract Law- Summary...........................................................................................54Paradine v Jane (1647) (When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract).................................................................................................................................. 55Taylor v. Caldwell (1863) (Implied terms - In all contracts of loan of chattels or bailments, if the performance of the promise of the borrower or bailee to return the things lent or bailed, becomes impossible because it has perished, this impossibility (if not the fault of either party) excuses the borrower or bailee from the performance of his promise to deliver the chattel).........................................................................56Krell v Henry [1903] (Implied term - Frustration of purpose; Performance will be excused when the purpose of a contract is frustrated by an unforeseeable supervening event and the purpose was within the

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contemplation of both parties when the contract was executed. A contract’s purpose may be inferred from surrounding circumstances)........................................................................................................................................................... 56Herne Bay Steamboat Co v. Hutton (Implied Term - Frustration of Purpose is different limitation of purpose; limiting of purpose will not be seen as a frustrating event)...........................................................................57Maritime National Fish Ltd. v. Ocean Trawlers Ltd. [1935] (Self Induced Frustration - Frustration of purpose/goods cannot be self Induced; any supervening frustrating event must be unforeseeable and vitiated by entirely external factors)........................................................................................................................................... 57Davis Contractors Ltd. v. Farehamd U.D.C. [1956] HL (Frustration occurs whenever the law recognizes that 1) without the fault of either party, 2) a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would 3) render it a thing radically different from that which was undertaken by the contract; unforeseen events that make a contract more onerous does frustrate the contract) USE THIS TEST.....................................................................58Capital Quality Homes Ltd. v. Colwyn Constructions Ltd. (1975) (New Legislation can amount to a frustrating event – The legislation was -> 1) Not contemplated by either party, 2)was not discussed in the agreement, 3) Not brought about by voluntary actions of either party. 4) Destroyed the foundation of the agreement, by not allowing the purchaser to do what he intended;)...........................................................................58Edwinton Commercial Corporation and Another v. Tsavliris Russ Ltd. The Seal Angel [2007] (Adds to Davis - Foreseeability in Frustration – This reiterates the doctrine of frustration in Davis, but it adds that foreseen events will generally preclude invoking the doctrine of frustration; this is rebuttable)....................59

Summary of Remedies...................................................................................................................59McRae v. Commonwealth Disposals Commission (1951) 84 C.L.R. 377 (Aust H.C.) (Damages: One can recover for reliance loss, or your wasted expenditure based on reliance of the contract being completed; BUT, for mutual mistake you can’t recover reliance damages for mutual mistake when the mistake is unreasonable however)..................................................................................................................................................................... 61Bowlay Logging Ltd. v. Domtar Ltd. BCCA (1982) ((1) Applies net loss principle, can’t put the plntf in a better position; 2)case affirms the principle that damages are awarded only for losses incurred as a consequence of the def’s breach of the contract. A plaintiff is not allowed to recover as damages losses it has incurred as a result of being a party to a bad bargain: Hadley Baxendale; 3) If a victim is in a better position as a result of a breach, the court will nonetheless award nominal damages [in essence to just say you were right]).................................................................................................................................................................................... 61Sunshine Vacation Villas Ltd. v. Hudson Bay Co. (1984) BCLR (Loss of capital and loss of profit must be alternative approaches to damages: This case establishes that reliance loss, such as loss of capital, is only available as an alternative to loss of profit and that it is wrong in principle to make an award based upon a mixture of reliance loss and loss of profit; you must only base the damages based on where the parties would have been but for the breach [similar to Bowlay])..................................................................................................62Attorney General v. Blake [2001] 1 A.C. 268 (H.L.) – (Restitutionary Damages: Rest damages are measured as the def’s gain, instead of the plntf’s loss: In exceptional cases, account of profits may be an appropriate remedy- there are factors to consider as per notes below) *Note this case is long.................................................63Chaplin v. Hinks [1911] 2 K.B. 786 (C.A.) (Loss chance - Damages are still assessable in cases which involve a great number of contingencies; for loss of chance you must assess the actual probability of having succeeded had there not been a breach)................................................................................................................................... 63Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (Alta. C.A. 1975) (Mitigation and assessment of damages: Damages allowable for the reasonable cost of hiring someone else to deconstruct and appropriately reconstruct a poorly constructed item; The wrongdoer is entitled to expect the aggrieved party to act reasonably (in mitigation); he is not entitled to have him act perfectly)..........................................64Groves v. John Wunder Co. (1939) (Minn.C.A.) (Damages should reflect the cost that it would be to fix the problem, not the difference in value of the item; damages reflecting the cost also reflects the idea of putting the party back into the position had there been no breach; remember, the ultimate goal is compensation, the law merely provides the rules for getting there).............................................................................65Jarvis v. Swans Tours [1973] (C.A.) (Mental distress damages allowable; includes loss of entertainment and enjoyment; mental distress has to arise naturally from contract)........................................................................65

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Hadley v. Baxendale (1854) (Rule on remoteness: Where 2 parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either 1) arising naturally or 2) such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it)..................................................................................................... 66Victoria Laundry v. Newman [1949] 2 K.B. 528 (Remoteness of damages is analyzed at the time of contract formation (reasonable foreseeable test); measurement of damages is made at the time of the breach)..................................................................................................................................................................................................... 66Koufos v. Czarnikow (The Heron II) [1969] (Applies Victoria – changes its to reasonable contemplation instead of reasonable foreseeable at step 1 in order to broaden the test)..................................................................67Whiten v. Pilot Insurance Co. [2002] 1 S.C.R. 595 (Punitive damages are recoverable in breach of contract cases when the def’s conduct can be said to give rise to an “actionable wrong” within itself –The actionable wrong need not be a tort. It can be breach of a contractual or fiduciary [like fiduciary relationship] obligation.)................................................................................................................................................................. 68Fidler v. Sun Life Assurance [2006] 2 S.C.R. 3 (Damages for mental distress for breach of contract may be recovered where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made: Test of mental distress: The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation; unlike punitive damages, no independent actionable wrong is required)................................................................................................................................ 68Honda Canada Inc v. Keays [2008] 2 SCR. 362(Restates Fidler – where parties considered breach of contract would lead to mental distress, and that contract is breached, the suffering party can recover on that breach for mental distress – consistent with Hadlex step 2 and Fidler – Punitive damages are restricted to acts so malicious and outrageous that they are deserving of punishment on their own (consistent with Whiten) )............................................................................................................................................................... 69Asamera Oil Corp. v. Sea Oil & Gen. Corp. (1987) S.C.C. 1979 (Mitigation of Damages: A duty is imposed on a party who has suffered from a breach to take all reasonable steps to avoid losses flowing from the breach. A plaintiff need not............................................................................................................................................................. 70take all possible steps to reduce his losses. A plaintiff need not put his money to an unreasonable risk including a risk not present in the initial transaction in endeavouring to mitigate his losses)........................71Semelhago v. Paramadevan [1996] 2 S.C.R. 415 (Damages can be taken in lieu of specific performance where specific performance is awarded; damages should be assessed at the time of breach except where this would lead to injustice ; unique items need not be assessed at the time of breach, rather the date of trial can be used; specific performance can be used to revive a contract).................................................................72

Liquidated Damages......................................................................................................................73Shatilla v. Feinstein [1923] Sask. L.R. 454 (Presumption of Penalty- 1) Liquidated damages that provide a lump sum for any number of breaches of varying importance will raise a rebuttable presumption against it being liquidated damages, 2) If an agreed upon sum is more than could possibly arise from breach or less, there is a presumption of a penalty because it is not a genuine pre-estimate; 3) If multiple factors need to be breached to trigger the agreed upon clause, the presumption is a penalty).......................................73H.F. Clarke Ltd. v. Thermadaire Corporation Ltd. [1976] 1 S.C.R. 319 (Maximum Amount Recoverable - First you characterize whether it is liquidated damages or penalty? Liquidated damages, if accepted, serves as the actual amount recoverable. If it is a penalty, that serves as a maximum recoverable, even if the actual loss is greater)................................................................................................................................................................. 74J.G. Collins Insurance Agencies Ltd. v. Esley [1978] 2 S.C.R. 916 (Maximum recoverable - where the stipulated sum by the parties in their contract is less than the actual loss, the agreed sum represents the maximum amount recoverable whether the sum is a penalty or a valid liquidated damages clause)..........75

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ConsiderationThere are typically two ways to determine whether the provisions or terms within a contract are enforceable.

[Since there is no evidence of a sealed agreement in the present case there must be consideration moving from the promisee to the promisor for each promise in order to be enforceable]. The general rules for consideration are that it must be something of value in the eyes of the law and it must move from promisee to promisor (Thomas v. Thomas). As long as there is value courts will not question the adequacy of that value (Mountford). Forbearance, the promise not to something is typically not considered value unless the promisee reasonably considers it to be of value (Callisher). Consideration must be given at the corresponding time of the promise and so past consideration is generally not valid (Eastwood) except in circumstances where the previous benefit was conferred at the request of the promisor and there was an understanding that it will ultimately be paid for (Lampleigh).

Pre-existing legal duties to the public are generally not sufficient consideration unless the promise goes above and beyond those duties (Glasbrook Brothers Ltd.). Pre-existing legal duties to third-parties can be construed as consideration as courts have viewed the ability to enforce legal duties through contract law as sufficiently valuable (Pao On). Pre-existing legal duties to the promisor however, have not been held to be consideration. These types of duties typically fall in to two categories. The promise to pay more than what was contractually obligated in the face of demands from the promisor was found to invalid in Gilbert Steel, though some jurisdictions have viewed such demands as modifications to the contract and acceptable as long as they were not procured under economic duress (Greater Fredericton). Likewise, a promise to accept less than was contractually obligated is not enforceable (Foakes), unless it was done under seal, accord and satisfaction (Foot), or promissory estoppels (High Trees).

Assess consideration like this: identify the promise, then identify the consideration; assess which came first,

o If the promise was first, then its good, o If consideration came first, it is invalid unless it meets with the 2 exception requirements that will

validate past consideration Was the act requested by the promisor? Was the act expected to be enumerated by some sort of payment or conferment? If yes to the above, it is good consideration

Thomas v. Thomas (1842) 2. Q.B. (Consideration means something which is of some value in the eye of the law moving from the promisee; This case affirms that when we discuss consideration, the consideration need not be equivalent to the promise received)Facts:

John Thomas (deceased) owned 7 houses in Merthyr Tidvil, appointed his brother, Samuel Thomas (deceased) and defendant executors of the houses

Part of the will stipulated that they were executors subject to payments to be made as mentioned in the will, one of which was to be to the plaintiff (wife/widow)

Evening before his death, he orally expressed a wish to make some further provision his wife, which he declared again the morning, in the presence of two witnesses

o Provision stated that his wife should have either the house he lived in, or an additional sum of 100l This declaration later brought to the brother, Samuel, and the declaration was executed upon During Eleanor Thomas’ (widow) time in the house, she was to pay one pound yearly towards the ground rent

payable If in the case Eleanor remarried or died, the dwelling house shall fall in and form part of the left over estate of

John Thomas Samuel Thomas, after the death of the co-executor, refused to execute a conveyance (transfer of property from

one to another) for the property in question and ejected the widow from the propertyIssue:

Was the contract to have the house conveyed to the widow binding?Holding:

No Reasoning:

Consideration means something which is of some value in the eye of the law moving from the plaintiff

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Promise here is that the widow would eventually get the houseo Consideration that she would pay 1 pound per year – this was good consideration

In this case, the consideration here is not so; it does not move from the plaintiff, instead it moves from the testator (creator of the will), therefore it is not consideration

Since there is no consideration, it is merely a voluntary gift There is not a mere provision that the gift receiver shall take the gift with the burdens, but it is an express

agreement to pay part of the ground rent made payable to the landlords Its is not subject to the assignment of the house, otherwise the payable would have been to the landlord

Ratio: This case affirms that when we discuss consideration, the consideration need not be equivalent to the promise received. In this case, 1 pound per year for the house was acceptable. Also,

The Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier, Deceased (Subscriptions to donate are not legally enforceable contracts; where there is no reciprocal promise, and thus no consideration) Facts:

Appellant (College) alleges estate was subscribed to Dalhousie Campaign Fund, in the amount for $5000 Subscription was obtained from the deceased on June 4, 1920 in the course of a canvass which was being

conducted by a committee for the purpose of raising funds to increase the general resources of the institution; provision:

o Stated “I promise to pay to the Treasurer of Dalhousie College the sum of Five Thousand Dollars, payment as follows..” – Arthur Boutilier

o The subscription was not accompanied or followed by any letter from the deceased as to the terms of payment

o AB wrote a letter to the President of the school saying that he acknowledged having not made payment yet, but that he was still intending to do so, despite his difficult financials

o Boutilier died October 29, 1928 w/o making payment on accountIssue:

Was this agreement supported by good and sufficient consideration?Holding:

No it was not, thus it was not a binding legal contractReasoning:

Promise was to pay $5,000 University argued 3 types of consideration here (See below these sub points for greater detail):

o The fact that other people are subscribed is argued as consideration – rejected by courtso The promise to use the money for what the deceased wanted them to use it for – rejected by courtso Dr. MacKenzie (on behalf of Uni) had increased expenditures – rejected by courts

Must look into the subscription paper itself and also into the circumstances disclosed by the evidenceo Subscription paper – appellant argues that it has good consideration b/c it was given in consideration of

the subscription of others SCC – the fact that others had signed separate subscription papers for the same common object

or were expected so to do does not itself constitute a legal considerationo Doctrine of Mutual Promises: put forth by the appellant – a contract was formed when Dalhousie

accepted the deceased request to continue improving the school; the consideration argued here was for the promise of the deceased to pay the money being the promise of the College to apply it to the purpose stated

SCC rejected this saying that no express request was stipulated by the deceased. He simply indicated that the purpose of the $5,000 was for the purpose of enabling the college to do so

o The only evidence provided in support of consideration for the subscription outside of the subscription itself is the fact the Dr. MacKenzie increased expenditures of the College between 1920 and 1931 -- > but there is no direct personal interest on the part of the subscriber in the particular project undertaken or some personal participation in the action of the promisee as a result of which the expenditure or liability was incurred

To rule otherwise would be to hold that a naked, voluntary promise may be converted into a binding legal contract by the subsequent action of the promisee alone without the consent express or implied of the promisor

o In this case, there is no evidence which in any way involves the deceased in the carrying out of the work for which the promised subscription was made other than the signing of the subscription paper itself

Ratio: In order to enforce this promise, the Uni had to show there was good consideration.

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Eastwood v. Kenyon (Past consideration is no consideration – everytime there is a new bargain, there must be fresh consideration) Facts:

Sarah, was left the sole heiress of John Sutcliffe’s estate; the plaintiff acted as Sarah’s guardian Plaintiff spent money on Sarah’s education for the benefit of the estate, and for this purpose she borrowed money

from Blackburn, to whom in return he gave a promissory note (a signed note promising to pay a specified amount of money at a given date)

Sarah promised to pay the amount of money stipulated in the note, and she paid one year’s interest Sarah later married the defendant, who promised the defendant to pay the money to the Blackburn Defendant failed to make payments, plaintiff sued

Issue: Was there sufficient consideration so as to make the agreement to pay binding?

Holding: No??

Reasoning: The consideration argued here was that it was the care given to the daughter during her childhood. In this case,

the consideration was given in the past, well before the promise to pay to Blackburn was made. And it wasn’t made at the request of the defendant. The promise was the promise by Sarah/Husband to pay Blackburn.

An express promise can only revive past, good consideration, which might have been enforced at law through the medium of an implied promise, had it not been suspended by some positive rule of law; but can give no original cause of action, if the obligation on which it is founded never could have been enforced at law, though not barred by any legal maxim or statute provision

The promise of the defendant is taken to have been an express promise, thus the consideration for it was past and executed long before, and yet it is not laid to have been at the request of the defendant, nor even his of his wife while sole (?) and the declaration really discloses nothing but a benefit voluntarily granted by the plaintiff and received by the defendant, with an express promise by the defendant to pay money

Ratio: In this case, past consideration is not good consideration. There is no request to validate it.

*if Sarah was the defendant, it would likely still be unenforceable for several reasons: she was an infant, consideration was passed-unless you could demonstrate that Sarah had a contract with the Plaintff at the time when she was a child, which was then affirmed (again the contract, not the act) upon her coming of age. Even in this case, only the former child can take action, not the other party. Moral promises are not binding (due to consideration issues) otherwise all promises would become legally binding.

Lampleigh v. Brathwait (Exception for which past consideration can still be valid. If there is a 1) requested undertaking rather than a voluntary one, and there was a 2) reasonable expectation that a reward was reasonably expected, it is valid. Thus even though the consideration in this case is passed, it is still valid) Facts:

Brathwait killed Mahume, after the said felony he was required to work (through actual labour) towards a pardon form the King

Braithwait engaged in the services of Lanmpleigh to go to London to request a pardon on his behalf; lampleigh followed through and got the pardon for Braithwait, who then promised 100 pounds

Braithwait argued that since he didn’t have to do anything (Lamp), he wouldn’t pay; argued there was no consideration

Issue: Was the consideration is this case adequate to make the contract enforceable? Or was it invalid due to it being

past consideration?Holding:

Yes there was consideration, the consideration was in the travelling to London, not simply the begging for the pardon. Typically, this would be past consideration and therefore invalid, but in this case the difference is that the defendant requested the services. Also, you can infer that this service would also have been paid for in the past (See 2nd point below)

Reasoning: There is a difference between a voluntary undertaking would have no consideration to uphold a contract – thus if

Lampleigh had approached Brathwait and volunteered to go to London, there would be no consideration

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o In this case however, Brathwait requested the services of Lamleigh Where a past benefit was conferred at the beneficiary's request, and where a reward would reasonably be

expected, the promisee would be bound by his promise.Ratio: This case provides the exception for which past consideration can still be valid. If there is a requested undertaking rather than voluntary, and also there was a reasonable expectation that a reward was reasonably expected. Thus even though the consideration in this case is passed, it is still valid.

Callisher v. Bischoffsheim (Legal forbearance is good consideration – Ie. Promise not to sue is good consideration)Facts:

Callisher alleged that money was owed to him from the Government of Honduras, and was about to take proceedings to enforce payment.

In consideration that the plaintiff would drop the suit for an agreed time, the defendant promised to Callisher Honduras Railway Loan Bonds,

Defendant did not deliver the bonds & argued the reason for doing so was unenforceable because the original suit would have failed anyway

Issue: Does the fact that the suit was groundless in turn make the promise to deliver the bonds unenforceable?

Holding: No it does not for the reason that the Plaintiff believed that his suit was well grounded

Reasoning: If a person bona fide believes he has a fair chance of success, he has reasonable grounds for suing and his

forbearance to sue will constitute a good considerationo S/he gives up what he believes to be a right of action and the other part gets an advantage and, instead of

being annoyed with an action, he escapes from the vexations incident to itRatio:

D.C.B. and Harold J. Arking and Zellers Inc (You can’t forbear to sue when you have no basis to sue – this cannot constitute consideration)Facts:

Store caught a teenager shoplifting, items were returned Lawyer for the store sent letter to teen’s mother demanding payment of $225 to help recover their incremental

costs of shoplifting, if not paid, then store threatened civil suit against mother Mother paid, later sued the store to recover the money

Issue: Was the mother entitled to a refund due to the original payment being made under false pretenses, thus

eliminating any good consideration that would have existed?Holding:

Yes, mother entitled to refund as there was no consideration & she was misledReasoning:

Generally, forbearance to sue is good consideration & thus money flowing in exchange of this creates a valid contract

However, in this case, the claim is known to be invalid, therefore there was no consideration However, the mother had voluntarily paid the store the money, creating an executed compromise. Therefore to

establish a claim for the return of the money the mother had to rely on other grounds. Mother honestly believed that the demand for payment was serious The lawyer for the store ought to have known that the claim had no chance of succeeding in court Mother was mislead, thus the mother was entitled to a refund on the ground that the money was paid under a

mistake

Pau On v. Lau Yiu Long (Past consideration can still be good consideration when the act was at the promisor’s request. Also, the parties must understand that the act was to be paid for either by payment or the conferment of some other benefit. The conferment of a benefit must have been legally enforceable and had it been promised in advance) (A promise of performance of a pre existing duty already owed perform to a third party may be good consideration as long as the promise has not been fulfilled)Facts:

Plaintiffs own all shares in Shing On, which owned a building

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http://en.wikipedia.org/wiki/Honduras


Defendants were majority shareholders in a public company, Fu Chip, which wished to acquire the building Agreements made to do so w/o exchange of cash; Plaintiff’s agreed to give Fu Chip all their shares in Shing On in

exchange for the allotment to the plaintiffs of 4.2 million shares in Fu Chipo Plaintiffs promised to retain 2.5 million of these shares until April 30, 1974 to protect against price

depreciationo Plaintiffs wanted protection against price depreciation, the subsidiary agreement provided that the

defendatns would buy back from the plaints o Pao agreed to not sell 60% of the shares for at least one year; also, in case the share price dropped later,

Lau agreed to buy back shares (60%) at 2.50; but the same was the case if the price rose above 2.50o Pau stated that the market rate should prevail if it rose above, insisted that the agreement reflect this

otherwise the main contract would not prevailo Lau agreed and signed on; price dropped; Pau tried to enforce agreement, o Lau argued the guarantee agreement was not valid (1) because there was no consideration, only in the

past and under a pre-existing duty, and (2) because it was a contract procured by duressIssue:(1) because there was no consideration, only in the past and under a pre-existing duty, and (2) because it was a contract procured by duress (before arguing duress, you must admit that you have a contract)Holding:

The consideration in this case was good, despite being past consideration because it was requested.

Reasoning: Important to note:

o The promise here is to indemnify them against any losses that would result from a fall in the share priceo The consideration here was the promise to hold onto the shares for the specified amount of time

The consideration to hold the shares was done April 30, 1973, before the promise was created But, since this scenario it was requested, the court held that the consideration was good Also, there was an understanding that the act would be enumerated by the signing of the main contract.

Ratio: Past consideration can still be good consideration when the act was at the promisor’s request. Also, the parties must understand that the act was to be paid for either by payment or the conferment of some other benefit. The conferment of a benefit must have been legally enforceable and had it been promised in advance.

d) Duty owed to the Promisor:

Stilk v. Myrick (Where no commercial benefit or practical benefit arises from a new promise made over an existing contract, the new promise would be unenforceable because the new consideration would be no good consideration) Facts:

Action is for seaman’s wages Plaintiff was to be paid at the rate of 5 pounds per month During the voyage, two of the seaman deserted & the captain, in order to compensate for the loss of the two,

entered into an agreement with the remaining crew to divide up the wages of the two men amongst whoever was left over, if he couldn’t replace them while on a stopover in Gottenburgh

He was unable to replace them, the ship was worked back to London by the plaintiff with 8 men of the original group

Issue: Was the captain’s agreement to pay a higher wage a binding contract? Ie - Was the plaintiff entitled to a higher

rate of wages?Holding:

No, lacked proper consideration – there was no commercial benefit arising out of the new contract Reasoning:

Promise: to pay the additional wages Consideration: that the remaining workers would stay:

o This was deemed as not good consideration b/c the captain obtained no benefit whatsoever b/c the seaman were merely continuing to perform their original duties.

Def. argued the agreement was contrary to public policy, thus voido Harris v. Watson – where that learned Judge held, that no action would lie at the suit of a sailor on a

promise of a captain to pay him extra wages, in consideration of his doing more than the ordinary share

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of duty in navigating the ship; and his Lordship said, that if such a promise could be enforced, sailors would in many cases suffer a ship to sink unless the captain would accede to any extravagant demand they might think proper to make

Attorney general said the above case does not apply b/c: o In this case, the agreement was made on shore where there was no pressing emergency or dangero The question remains: why should they be deprived of the compensation he voluntarily offers them in

perfect security for their extra labour during the remainder of the voyage? the argument of public policy is not applicable here the agreement is void for lack of consideration – there was no consideration for the ulterior pay promised to the

mariners who remained. What could have been argued as consideration is that they had undertaken to do all that they could under all emergencies of the voyage

o this was not consideration for the promise to pay more because they had promised to carry on those duties well before the promise was made Ie. At the time the journey was embarked on

o if they were able to quit at Cronstadt, this would be a different situationRatio: Where no commercial benefit or practical benefit arises from a new promise made over an existing contract, the new promise would be unenforceable because the new consideration would be no good consideration.

Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. (1990)(The practical benefit of timely completion even though a pre exsiting duty is performed can be good consideration if the party obtaining the benefit would obtained an additional practical benefit)Facts:

the defendant building contractors (Roffey) entered into a contract with the owners Shepard’s Bush Housing Association to renovate 27/28 flats in a block that contained 28 flats in total

o it contained a penalty clause that if it was not completed on time, that they would have to pay a penalty Contractors then hired the plaintiff for a price of 20,000 pounds Plaintiff encountered financial difficulties As a result of their concerns, the contractors agreed to pay the plaintiff a further 10,300 in addition in order to

have the work finished The contractors made one payment of 1,500 under this arrangement, plaintiff completed 8 more flats When the contractors failed to make further payments, the plaintiff stopped work and claimed more than 10,000

in damagesIssue:

Was there sufficient consideration in the further agreement to make it a binding agreement?Holding:

3 different Judge Opinions:Glidewell LJ. Reasoning & Holding:

judge found there was an oral agreement to pay the additional 10,300; Was there consideration?

o Trial Judge: sub contract price is too low and the parties subsequently agree that the additional moneys shall be paid to the sub-contractor, this agreement is in the interests of both parties

o Counsel submits that, though the defendants may have derived, or hoped to derive, practical benefits from their agreement to pay the bonus, they derived no benefit in law, since the plaintiff was promising to do no more than he was already bound to do by his sub contract.

o Economic duress: if a sub-contractor has agreed to undertake work at a fixed price, and before has completed the work declines to continue with it unless the contractor agrees to pay an increased price, the sub-contractor may be held guilty of securing the contractor’s promise by taking unfair advantage of the difficulties he wil cause if he does not complete the work

o Counsel for the defendants accepts that in the present case by promising to pay the extra 10,300 the defendants secured benefits; there is no finding, and no suggestion, that in this case the promise was given as a result of fraud or duress

o It is this Judge’s opinion that on his findings of fact in the present case, the judge was entitled to hold, as he did, that the defendants’ promise to pay the extra 10,300 was supported by valuable consideration, and thus constituted an enforceable agreement

Russell LJ

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Does not believe that the rigid approach to the concept of consideration to be found in Stilk v Myrick is either necessary or desirable

The courts should instead be ready to find its existence so as to reflect the intention of the parties to the contract Key Question: What was the true intention of the parties when they arrived at the agreement?

o True it was that the plaintiff did not undertake to do any work additional to that which he had originally undertaken to do but the terms on which he was to carry out the work were varied and that variation was supported by consideration a sensible approach to the true relationship between the parties readily demonstrates

But where, as in this case, a party undertakes to make a payment because by so doing it will gain an advantage arising out of the continuing relationship with the promisee the new bargain will not fail for want of consideration

Purchas LJ – The arrangement was beneficial to both sides The point of some difficulty which arises on this appeal is whether the agreement reached on April 9 failed for

lack of consideration Where an agreement on which reliance is placed provides that an extra payment is to be made for work to be done

by the payee which he is already obliged to perform, then unless some other consideration is detected to support the agreement to pay the extra sum that agreement will not be enforceable

Modern cases tend to depend more on the defence of duress in a commercial context rather than lack of consideration for the second agreement

The key question here: what consideration has moved from the plaintiff to support the promise to pay the extra 10,300 added to the lump sum provision

o There was a commercial advantage to both sides from a pragmatic point of view in reaching the agreement of April 9

o There was, however, no obligation added to the contractual duties imposed on the plaintiff under the original contract. Prima facie, this would appear to be similar to Stilk v. Myrick case. It was, however, open to the plaintiff to be in deliberate breach of the contract in order to ‘cut his losses’ commercially

o In normal circumstances, the suggestion that a contracting party can rely on his own breach to establish consideration is distinctly unattractive

o The modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement

Gilbert Steel Ltd. v. University Const. Ltd (A modification to a contract must contain new consideration) Facts:

Plaintiff entered into a written contract to deliver to the defendant fabricated steel for apartment buildings The price fixed by the contract was 153 per ton for Hard grade, 159 for Grade 60,000 Deliveries for the Flavin & Tectate projects were completed in August 1969 and October 1969 respectively &

paid for at the agreed-upon price Prior to the def’s notifying the plaintiff of its intention to commence construction on the first of the buildings at

the 3rd site, the owners of the steel mill announced an increase in the price of unfabricated steel; also notified further increases would come

New written contract dated Oct 22, 1969 entered into reflecting new, higher prices; but this increase did not reflect the full amount of the initial increase announced by the mill owners

March 1, 1970, while the building under construction was still far from completion, mill announced 2nd price increase; a further discussion ensued between the representatives between the two sides of the agreement

Plaintiff alleges this discussion resulted in binding oral agreement that the defendant would pay 166/ton Hard Grade; 178 for grade 60,000

From march 12, 1970 until the completion of the first building the def accepted deliveries of the steel against invoices which reflected the revised prices; but, in making payments on account, it remitted cheques in rounded amounts, which at the date of the issuance of the writ resulted in a balance owing to the plaintiff in accordance with the invoices

Issue: Does the contract fail for want of consideration?

Holding: Yes it fails

Reasoning:

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Argument from Appellant – there was an implied rescission of the written contract and the creation of a whole new contract which was reneged by the defendant

o Argument was that the consideration for this new oral agreement, was the mutual agreement to abandon the previous written contract and to assume the obligations under the new oral one

o Rejected: the sole reason for the discussions between the parties in March 1970, concerning the supply of steel to complete the first building at the University site was the increase in the price of steel by the mill owners, not a new contract/agreement

Judge no persuaded that either party intended their discussion in March 1970 to rescind their original contract and replace it with a new one

o Thus consideration cannot be found in the mutual agreement to abandon the earlier contract in favour of a new one – b/c this is not what happened

Appellant also argued that the following was a source of consideration:o Previously the def had credit outstanding for 60 days in the amount owed on the prices, after the oral

agreement was made, he had credit outstanding for 60 days in the amount owed on the higher prices. o There was consideration flowing from the promise and the law does not inquire into its sufficiencyo Rejected:

Appellant argued the final submission put forward by counsel for the appellant was that the defendant, by his conduct in not repudiating the invoices reflecting the increase in price when and as they were received, had in effect acquiesced in such increase in price and should not subsequently be permitted to repudiate it. There would appear to be 2 answers to this submission:

o Estoppel can not be used as a sword, only a shieldo The plaintiff relied on the defendant’s conduct to its detriment

Ratio:

Greater Fredericton Airport Authority Inc. v. Nav Canada (Contrary to the decision in Gilbert & Williams, if you have a post contractual modification, unsupported by consideration may be enforceable so long as it may be established that the modification was not engaged in under duress says that STILK didn’t consider economic duress)Facts:

In 1996 fed gov’t entered into an Aviation and Services Facilities (ASF) agreement with Nav Canada Nav Canada assumed responsibility for the air navigation services at airports across Canada

The gov’t subsequently began divesting itself of airports; in 2001 the Greater Fredericton Airport Authority was created and the gov’t duties and rights under the ASF agreement were assigned to it

As part of a runway extension project, the Airport Authority requested that Nav Canada relocate an instrument landing system (ILS) to the runway being extended; Nav Canada concluded that it made better economic sense to replace a portion of the existing ILS with new distance measuring equipment (DME)

Dispute arose as to who should pay the money for the acquisition of the DME, Nav Canada refused to relocated the ILS unless the Airport Authority agreed to pay for the new equipment

AA eventually gave up resisting, but maintained it was not responsible to pay for the equipment AA promise by way of letter signed under protest, to pay the acquisition costs; once it was installed, AA refused

to payIssue:

Was the promise by AA to pay for the DME legally binding? Holding:

Reasoning:

The Consideration Issue:o Did Nav Canada (party seeking to enforce the post contractual modifcation) agreed to do more than

originally promised in the ASF agreement in return for the agreement to modify the contract? No, they promised nothing in return

o Nav Canada put forth an argument that AA’s promise to pay is enforceable, runs afould of other tenets of consideration

Nav Canada’s estoppel-based argument that it relied to its own detriment on the AA’s gratuitous promise must be rejected also

Ratio: Contrary to the decision in Gilbert & Williams, if you have a post contractual modification, unsupported by consideration may be enforceable so long as it may be established that the modification was not engaged in under duress.

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Law and Equity Act (R.S.B.C. 1996, c. 253) s. 43 ‘Part performance of an obligation either before or after a breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation’.

Foakes v. Beer (Traditional common law position that an agreement to accept a smaller sum in lieu of the whole amount is not consideration) This has been s. 43 of the Law and Equity ActFacts:

Foakes indebted to Beer; they later entered into an agreement:o F requested more time to pay, B agreedo Consideration of allowing this, F paid 500 on the signing of the agreement, taken to be in part

satisfaction of the said judgment debt of 2090o 150 would be paid 1st of July and 1st of Jan until the entired sum has been paido B agrees not to take part in any proceedings in return

The entire amount of 2090 was paid, but B was claiming interestIssue:

Is beer entitled to interest from this agreement? Or was there already consideration in the agreementHolding:

Yes entitled to interestReasoning:

Was there consideration in order to make agreement enforceableo The only possible consideration on the face of the agreement is the payment of 500 upfront o Only promise was that of the respondent to take no proceedingso Payment at the deferred dates, by the forbearance and indulgence of the creditor of the residue of the

principal debt and costs, could not be a consideration for the relinquishment of interest and discharge the judgement, unless the payment of 500 at the time of signing was such consideration

Question: whether consideration is given in this case by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt;

o Consideration is not given

Re Selectmove Ltd. () Company failed to pay tax and national insurance contributions Gov’t representative approached the company requesting payment On June 15, 1991 Company proposed to make payments at a rate of 1000 per month from Feb 1 1992 Gov’t rep allegedly said he would seek approval, then get back to the company Then Oct 1, 1991 govt sent a full bill to the company In oct 1991, company dismissed all ee’s & sold its WIP to another company Sep 1992 the crown brought a winding up petition in which it sought the liquidation of the company in order to

pay debts Company claimed it had an arguable case that the Crown had accepted its proposal on July 15, 1991 Court of Appeal found Crown had not accepted the proposal; regardless it considered had there been acceptance,

would the agreement have been supported by consideration?o Counsel submitted Gov’t likely to gain practical benefits therefrom:

Gov’t was likely to recover more from not enforcing its debt against the company, which was known to be in financial difficulties, than putting the company into liquidation

Counsel relied on Williams v Roffey Bros and Nicholls ltd. –promise to perform an existing obligation can amount to good consideration if there are practical benefits

o But this case is more like Foakes v Beer - if the principles in Williams is to be extended to an obligation to make a payment, it would leave Foakes without any application

o When a creditor and a debtor who are at arm’s length reach agreement on the pymnt of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v. Beer and it was held not to constitute good consideration in law

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The agreement was unenforceable for want of consideration for Crown

Foot v. Rawlings: (A promise to pay Facts:

Def owed resp large sum of money accumulated from series of promissory notes Agreement made for the payment of the debt on the basis of a letter sent by resp to appellant:

o Resp. willing to accept 300/month paid on 16th; will agree to lower interesto Only valid if no payments are missedo There should be 6 predated cheques at a timeo Any bounced cheques would result in the original conditions being restoredo Reasoning for making offer is to help resp carry on as he is getting oldo App. Has privaledge of paying off the whole debt at any time if he chooses, o Offer has to be accepted in written before August next

Both parties signed this on July 17, 1958 Appellant substantially complied with this; after cashing his Nov 1960 cheque, resp sued appellant for the balance of his debt

Issue: Did the appellant receive consideration in the agreement of July 1958?

Holding: Yes, but he had no right to sue

Reasoning: The giving of the several series of post dated cheques constituted good consideration for the agreement by the

resp to forbear from taking action on the promissory notes so long as the appellant continued to deliver the cheques and the same were paid by the bank on presentation

So long as the appellant continued to perform his obligations under the agreement of July 17, 1958, the respondent’s right to sue on the notes was suspended, consequently his action brought on Dec 7, 1960 was premature and should have been dismissed on that ground

Consideration Part 2: October 26, 2011 Core PrinciplesConsideration must be sufficient, consideration need not be adequate

Consideration must be something of value in the eyes of the lawo Generally things of economic value qualify as sufficient considerationo But the fact that something is of economic value does not make it good consideration

The courts will not inquire into the adequacy of consideration (no quantitative assessment, assessment of comparative values or fairness of transaction)

o freedom of contracto A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be

good consideration if it is established that the promisee does not like pepper and will throw away the corn – Lord Somervell

o Qualifications: inadequate consideration may affect right to equitable remedies (equity will not assist a volunteer) evidence of undue influence, duress etc. discretionary jurisdiction to set aside unconscionable bargains statutory powers to set aside contracts [See. Business Practices and Consumer Protection Act 1996 s. 8-10]

Values in the Eyes of the Law: Performance of existing Duties:Should the performance of a pre-existing legal obligation (could be contractual, statutory or otherwise), or the promise to perform such an obligation be sufficient consideration for a promise?

Yes: Promotes freedom of contract Such agreements may offer some practical benefits

Noo Enforcing such agreements encourages extortion, duress and other forms of unconscionable dealings

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Caveat: the performance of an existing duty may amount to consideration for a promise, but the contract so resulting may be unenforceable or voidable because the promise was secured under duress or enforcement of the promise may be contrary to public policy

Performance of existing Duties: Public DutyIllustrated:

o A promises to pay B in return for B’s performance of, or promise to perform a public duty imposed on B by law (e.g. policing, giving evidence in court under a subpoena, maintaining ones child)

Legal Position: o Neither B’s promise to performance, nor his actual performance of his existing public duty is sufficient

consideration to make A’s promise enforceableJustification:

o need to guard against extortion/ public policy‘Exception’:

o B’S performance of his existing public duty is sufficient consideration to make A’s promise enforceable if B does something more than the public duty entailed for example, in this case where a wife was paid for looking after the children (a statutory duty) was held enforceable because she did more than what the statute expected her to do the courts found that she made the kids “happy” beyond what statute required

oArgument for a broader principle: Should such promises be enforceable so long as nothing contrary to the public interest (?)

o A obtains a practical benefits – the right to sue B in contract of his promise if the duty is not performedo Uncertainty as to when the court will decide that something more was done

Performance of existing Duties – a duty arising under a contract between the promisee and a third party Illustrated:

o B has a contract with C. A, a stranger to that contract, makes a promise to B in return for B’s performing, or promising to perform, one or more of his obligations under that contract (i.e. the contract with C)

Legal Position: o Notwithstanding the prior contractual duty, B provides sufficient consideration for A’s promise by performing or

promising to perform duties arising under his contract with CJustification:

o A obtains direct contractual relations with B which allows him to enforce that performance otherwise A would not have been a party to the contract between B-C. Thus A can now, by engaging in this contract, have the ability to enforce that B completes the original contract. Thus if B has a contract with the University ( C ) to teach, A can come in and promise an additional 5,000 to B if he completes his teaching contract. B benefits by the additional money, A benefits by being able to enforce the B-C contract legally.

o B suffers a detriment by opening himself up to two potential actions for breachCase: Pao On v. Lau Yiu Long

Performance of existing Duties – a duty arising under a contract between the promisor and the promisee Illustrated:

o A has a contract with B. A makes a new promise to B to secure B’s performance of one or more of the obligations owed under their pre-existing contract.

Legal Position: o The performance of the pre-existing contractual obligation owed by B to A, or the promise to so perform is not

sufficient consideration for A’s new promiseException:

o In cases where a practical benefit or commercial advantage is conferred on the promisor (A), the promisee’s (B) performance of, or promise to perform, a contractual duty arising under an existing contract with the promisor may be sufficient consideration for the promisors new promise

Caseso Stilk v Myricko William v Roffey Broso Gilbert Steel v. University Construction Ltdo Greater Fredericton Airport Authority Inc. v. Nav Canada

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Performance of existing Duties – a duty arising under a contract between the promisor and the promisee: promises to accept a lesser payment Illustrated:

o A owes B $200. B promises to accept $150 and to treat the debt as discharged. B subsequently sues to recover the outstanding $50

Legal position: o The payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction of the whole

[because it appears to the judges that by no possibility a lesser sum can be satisfaction to the plaintiff for a greater sum]; essentially you can always come back for the $50 unless there is good consideration (the promise of a lesser sum, unsupported by other benefits is not sufficient consideration)

Justification: o Protecting creditors against extortion and duress

Objection: o commercially unrealistic in that it disregards real practical benefits of sometimes accepting less

Common law and equitable exceptions:o Variation in time place and method of paymento Payment by negotiable instrument (e.g. promissory note or Cheque)o Payment by a third partyo Payment in kindo Promissory estoppel

Statutory change (BC) – o Law and Equity Act (R.S.B.C. 1996, c. 253) s. 43 ‘Part performance of an obligation either before or after a

breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation’.

Cases:o Foakes v. Beer (1884) 9 App. Cas. 605 (H.L.) o Re Selectmove [1995] 2 All E.R. 531 (C.A.)o Foot v Rawlings [1963] S.C.R. 197

Misrepresentation The basic problem that the doctrine of misrepresentation seeks to address is what is the legal effect of pre-

contractual statements. Before discussing the doctrine itself, it is necessary to understand what the meaning of representation is. A representation is a statement of fact which induces the representee to enter into a contract but which does not form part of the contract, and therefore is not a term of the contract. A statement of fact is distinguishable from statements of intention and statements of opinion, in that a statement of fact is about an existing fact, not about a past or future event. Further a statement of fact is not based on one’s belief. However, it is nonetheless entirely possible for statements of intention and opinions to constitute misrepresentations. For example, if a party claims that s/he will hold an item for another party for a certain amount of time, without any real intention to do so, this exemplifies a statement of intention as a misrepresentation. Another example of a representation that is not a statement of fact, but can nonetheless result in misrepresentation is a representation of law. It is important to note that there can be no misrepresentation of the law itself, as in most cases the rule of Ignorantia juris non excusat applies; there can only be a misrepresentation of the consequences of the law.

In order for a misrepresentation to constitute an actionable wrong, there must be some sort of inducement. Thus a false statement, whether made innocently, negligently or fraudulently does not in itself give rise to a cause of action. Where a representee never knew of the existence of a misrepresentation, did not allow it to affect her/his judgment, or was aware of its untruth, the misrepresentation will be legally harmless: Redgrave v. Hurd. There are a number of factors that can lead to an inducement including cheap pricing and relationships of trust. It is important to note that when determining proceedings on misrepresentation, courts will also consider whether the representee was given an opportunity to verify the misrepresentation. The case of Redgrave v. Hurd etablished that if a plaintiff was given an opportunity to verify information but chose not to do so, there will be no defence for the defendant and will not bar rescission against

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misrepresentation. This case dealt with a solicitor who made representations with respect to the income of his business to a potential buyer. The potential buyer, when given the opportunity to verify the representations chose not to do so. Subsequently, the buyer purchased part ownership in the business, which he later found was worthless. Lastly, it must be noted that a misrepresentation must be material in order to justify a cause of action. Thus the misrepresentation must be one that would have influenced the judgement of a reasonable mind.

It is important to classify the type of misrepresentation at hand as this will affect the available remedies. There are three types of misrepresentation that can be found. First, there is fraudulent misrepresentation. This is a false statement of fact that was made knowingly, without the belief in its truth, recklessly, or with carelessness as to its actual truth: Redican v. Nesbitt. For this type of misrepresentation, the available remedy in contract law is rescission. One can also seek damages through the avenue of the tort of deceit. Next, there is negligent misrepresentation. This is a false statement made negligently by a person who had no reasonable grounds for believing it to be true or founded on a failure by the representor to take reasonable care to ensure that the representations made were true and reliable, with there being there being a reasonable possibility of reliance on the statement: Car & Universal Finance Co Ltd. v. Bank of Nova Scotia. Like fraudulent misrepresentation, the remedy in contract law for negligent misrepresentation is rescission. One may also pursue damages for the tort of negligent misrepresentation. Lastly, there is innocent misrepresentation, which is simply a false statement, which the representor honestly believed to be true. The equitable remedies in contract law for this are rescission and indemnity. The common law rule for an innocent misrepresentation is that there can be no pursuit of damages unless the representation is regarded as a term of the contract.

As the remedy of rescission is available to all three forms of misrepresentation, it is worth discussing here. The purpose of rescission is to restore the status quo ante by, essentially, treating a contract as though it never existed. In order to invoke rescission, a representee must communicate the decision to rescind to the representor: Car and universal Finance Co. Ltd. v. Caldwell. This requirement makes rescission effect the day of notification to the representor. There are two qualifiers for rescission: recaption and impossibility of communication. First, recaption requires that one must be able to return the item that was contracted for to the other party. Second, when one is unable to contract the representor, the representee is required to take some other reasonable steps, such as notifying the police. The right to rescind a contract may be limited by the circumstances of a given case. For example, affirmation and lapse of time both have the ability to eliminate the right to rescind a contract. Further, when restitution in integrum becomes impossible, in other words it becomes impossible to restore the parties to their original position, again the right to rescind may be limited. Lastly, when rescission may have an adverse effect on third parties, the right to rescind will be limited.

Redgrave v. Hurd (1881) (C.A.) (Defines a material representation: something that would likely influence the reasonable person and would have a significant impact on the transaction: In order to be deprived of the right to be relieved of the contract, it must be shown that the person either had full knowledge of the facts contrary to the inducement, or that it was clear, by his conduct, that he did not rely on the material representation; the reason why rescission is available and not damages is because the courts are balancing a misrepresentation from an innocent party and to a wronged party)Facts:

Plntf, an elderly solicitor, advertised that he would take as a “partner an efficient lawyer and advocate about forty who would not object to purchase advertiser’s suburban residence”

Def, also solicitor, entered into negotiations with plntf with intention of purchasing home and share in the practice Def. asked what annual income of business was, plntf responded 300-400f per year, then showed papers

demonstrating that it was 200 per year; def asked how the difference was made up, plntf showed a bunch of papers that he said related to the business, def. did not examine them

Def. agreed to purchase for 1600; parties entered into written agreement for the purchase of the house, def. paid deposit, but then found out the business was worthless, and refused to complete the transaction

Plntf brought suit for specific performance Def alleges he had been induced to enter the agreement by misrepresentation, counter claimed for rescission

Issue: Whether the fact that the defendant did not take the opportunity to verify the representation was a bar to the relief

he was claiming?Holding:

Trial judge came to the conclusion that either the def. did not rely on the statement, or that if he did rely upon it, he had shown such negligence so as to deprive him of his title to relief

o This court found that the second conclusion is not founded in law, and first is not found in fact

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o When a person makes a material representation to another to induce him to enter into a contract, and the other enters into that contract, it’s not sufficient to say that the party to whom the representation is made does not prove that he entered into the contract, relying upon that representation

o In order to be deprived of the title to be relieved of the contract, it must be show that the person either had full knowledge of the facts contrary to the inducement, or that it was clear, by his conduct, that he did not rely on the representation

When one is unable to prove one of two, the inference remains that the other person relied on the statement

The mere fact that you did not take the opportunity to verify does not deprive you of the remedy of rescission

o Courts rules as it did in this case You should not be allowed to benefit from a statement which you not admit is false as that is morally wrong

Ruling: in favour of def.; contract rescinded this was an innocent misrepresentation, thus the damages were not awarded, only rescission

Ratio:In order to be deprived of the right to be relieved of the contract, it must be shown that the person either had full knowledge of the facts contrary to the inducement, or that it was clear, by his conduct, that he did not rely on the material representation

When one is unable to prove one of two, the inference remains that the other person relied on the statement

The mere fact that you did not take the opportunity to verify does not deprive you of the remedy of rescission

The representee has the onus of proving the representation was material (a representation that is likely to influence a reasonable person)

Side note, this case looks more like negligent misrepresentation, but negligent misrepresentation did not really arise until much later in time

Side note, in this case, the fact that they were lawyers does not make them experts as the representation was made with respect to the finances, something that lawyers are not deemed to be experts in

Smith v. Land and House Property Corp (1884) 28 Ch. D. 7 (C.A.) (If the facts are not equally known to both parties, a statement of one party will be taken to be statement of fact, because it will be taken that he impliedly states that he knows facts which justify his opinion)Bowen LJFacts:

Plntfs offered a hotel for sale, stating that it was leased to Fleck, a ‘most desirable tenant’ Def. agreed to buy the hotel; Fleck went into bankruptcy Def. refused to complete the transaction & argued that the misdescription of Fleck’s virtues amounted to

misrepresentation Plntf’s argued that the reference to Fleck was a mere expression of opinion, not statement of fact

Issue: Did the pltnf’s statement regarding the quality of the tenant amount to a representation?

Holding: If the facts are not equally known to both parties, a statement of one party will be taken to be statement of fact,

because it will be taken that he impliedly states that he knows facts which justify his opinion A landlord knows better knows the relations between himself and his tenant, if the other parties doesn’t know

them or doesn’t know them equally well, then statements made by landlord will be taken as fact by the purchaser What did the statement amount to?

o It’s not a guarantee that the tenant will continue paying indefinitely, but it does amount to an assertion that nothing has occurred in the relations b/n the landlord and tenant that would make the statement false

o That being said, there was evidence that the relationship between landlord and tenant had been unstable w.r.t finances in the past

o Also, it was a statement based on facts known to the landlord, which he chose not to disclose o Thus the statement was a misrepresentation

Ratio: If the facts are not equally known to both parties, a statement of one party will be taken to be statement of fact, because it will be taken that he impliedly states that he knows facts which justify his opinion

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Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 W.L.R. 623 (C.A) (Defines how a misrepresentation can become a warranty - when a party making a representation has an opportunity to verify the truth behind it, but chooses not to, and that representation ends up being false, there will be no defense; this can be rebutted if the respresentor can demonstrate he innocently spoke) Lord DenningFacts:

Pltnf brings suit for breach of warranty on a car sold by def. Bentley, who had been dealing with Smith for years, told Smith he was looking for a Bentley car Smith found one, and bought it He then wrote to Bentley stating “I have just purchased a Park Ward power operated hood convertible. It is one of

the nicest cars we have had in for quite a long time” Smith told Bentley earlier that he was in a position to find out the history of cars; Smith made several statements

as the to history of the car – namely that it had done 20K, and had a replacement engine & gearbox Smith quoted the price, and guaranteed the car for 12 moths including parts and labour Bentley purchased the car, owned it for some time, which ended up being a lemon, brought action for breach of

warranty seeking damagesIssue:

Did Smith’s statement w.r.t. the mileage and new engine constitute a warranty or innocent representation? Holding:

Notice, a warranty would be a term of the contract, whereas an innocent representation is noto If warranty, he could get damages; if not, only rescissiono Rescission would be difficult because he had the car for some time and it would be difficult to return the

car in the same condition as it was when he purchased it Was the statement w.r.t. to 20K & enginge an innocent representation or warranty?

o “An affirmation at the time of sale is a warranty, provided it appear on evidence to be so intended Heilbut, Symons & Co v. Buckleton

Would a reasonable bystander infer that a warranty was intended? If a representation is made in the course of dealings for a contract for the very purpose of inducing the other

party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty – this can be rebutted if it was an innocent representation ways to rebut, what would the intelligent bystander (ie. Reasonable man) think of the representation; or look at the words of the contract; and objectively ascertain the intention of the parties

Innocent misrepresentation v. Warranty – In this case, the seller was in a position to know or at least find out the history of the car, since her could have

gotten it from the makers of the vehicle and he didn’t do so- thus he made the statements w/o any foundation Was found to have been a warranty

Ratio: When assessing whether the representation was a term of the contract, you start with a presumption: If a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty – this can be rebutted if it was an innocent representation

Can also look at the written terms of the contract to see if it was warranty “ at whether the statement was significant “

Kupchak v. Dayson Holdings Ltd . (1965) B.C.C.A.(General rule: there’s no rescission for misrepresentation if: 1) a third party has acquired a right, 2) when restitution integrum is impossible, 3) action to rescind is not taken within reasonable time, 4) contract is executed, 5) an injured party affirms the contract – in this case, they don’t adhere to this – when ; 2 factors to consider for a remedy for fraudulent misrepresentation: 1) is rescission practical and restitution possible; was the claim to rescind submitted in a timely fashion)This is a case of compensation as remedy: compensation only puts you back to your original position, damages may put you in a position better than original, but this is uncommon

Facts: Plaintiff (Kupchaks) purchased shares in motel company from Defendant (Dayson). In exchange, D took P properties and mortgages on the land and chattels owned by motel company; 2 months later P learned that representations about motel’s past earnings were false and stopped making payments on the mortgages. P’s solicitor notified D’s solicitor that they would be

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withholding payment. D proceeded to sell an undivided half interest in on the properties formerly belonging to Ps, tore it down and built an apartment building. P brought action for rescission. TJ denied rescission to P but awarded damages; C.A. set aside damages and awarded rescission and compensation (equitable damages).

Issues: Is Plaintiff (Kupchaks) entitled to rescission? YESAre they barred from rescission by the principle of laches? NODid P elect to adopt the K? NO

Held: b/c the Def tore down the Haro St. property, there can be no rescission for that property (can’t recreate beginning position). In cases of fraud, rescission shouldn’t be barred unless it’s impractical or so unjust that it shouldn’t be imposed on the guilty party. If parties are claiming in equity and the normal equitable remedy (i.e. rescission) isn’t available, then the court may impose restitution (in other words, equitable damages).Laches: acts as a waiver if the Pltf delays in acting. Laches is based on the length of the delay and the nature of the acts done during the delay. If you waive under laches, no rescission available.Election: election is sometimes seen as a defence to rescission. Election asks – did the person who knew there was fraud elect to continue w/ the contract anyway? Election may be implied (if so, no rescission).

*Putting these two items together, the court asks about the time it took to bring the action and the Pltf’s actions during that period. Neither leads the court to find that the Pltf should be barred.

Dissent: The Pltf retained the shares and stayed on the register. These actions are positive acts that are evidence of the Pltfs asserting their rights under the contract (election).

Main Principles: If rescission is impractical, courts may allow compensation in lieu of rescission. Introduction to Doctrine of Laches and the “defence” of Election. Note – if misrepresentation had been innocent, no rescission – no going back once K is executed.

Main Principles:Before you get to rescission, restitution must be possible. If rescission is impractical, courts may allow compensation in lieu of rescission. In addition to rescission, the court has to right order additional remedies to restore one to an original position, so they may supplement a decision with the payment of additional money (this is not considered damages though because damages is a common law remedy).

Compensation in this case vs. damageso Aim of compensation is restoration, this is given at the discretion of the courtso Aim of damages is to place you in a position that you would have been had you not gotten into the

contract; unlike the above compensation, damages is a right that one is entitled to when there is a breach

Introduction to Doctrine of Laches and the “defence” of Election.Note – if misrepresentation had been innocent, no rescission, but you could get an indemnity – no going back once K is executed.

Redican v. Nesbitt [1924] S.C.C. (Impossibility of restitution will prevent rescission - the representations would be fraudulent if they were false and were made knowing they were false or without belief in their truth or recklessly, careless whether they were true or false; once a contract is executed without a) fraud, or b) substantial difference between what was contracted for and what was received, then there is a bar from rescission – the bar for rescission is restricted to contracts dealing with land)Facts:

appellants made an offer in writing to the respondent to buy from her "premises" so described as if trying to buy the fee simple of lands therein described, contents of house to be included, for $3,100, and paid therewith to respondent's agent a deposit of $100

the house was sold without prior inspection, the dealings between the parties were of loose nature, The keys were exchanged for the cheque and when the purchaser saw the property for the first time, she was

largely dissatisfied as a result, of what she claimed, were misrepresentations of the agent of the respondent, ordered a stop payment at the bank and phoned the payee, who was the husband of respondent, what she had done and the reason therefore founded upon said misrepresentation

The vendor sued for payment and the purchaser defended by suing for rescissionIssue:

Whether recission available as a remedy for an executed contract for the sale of land?Holding:

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You cannot rescind this type of contract – this case decided that where a contract of sale has been executed, rescission for innocent misrepresentation is not an available remedy for the defendant.

o This is only for innocent mispresentationo This is only for the sale of lando You cannot apply this if the error was substantial

Justification for this?o Execution is affirmation of the contract, o Third parties may have intervened

In an action for the purchase money under such contract, to which the purchaser pleaded fraudulent misrepresentations in respect to the property, the trial judge misdirects the jury in telling them that proof of intention deceive is essential to support such plea and in refusing to submit to them the question of whether or not the vendor made the representations without caring whether they were true or not, to induce the contract. A new trial was therefore necessary.

Court first decided that the property did not differ to that extent from the representations made about it. Considering the circumstances of the case, notwithstanding that the cheque was stopped, the contract was executed (for innocent misrepresentation (i.e. non-fraudulent), rescission is not possible where the contract has been executed)

APPEAL from a decision of the Appellate Division of the Supreme Court of Ontario maintaining the verdict at the trial in favour of the respondent.

This rule no longer applies in England, which is the place of its origin, because of s1 of the Misrepresentation Act of 1967 – English legislation

Ratio: this case decided that where a contract of sale has been executed, rescission for innocent misrepresentation is not an available remedy for the defendant.

This is only for innocent misrepresentation This is only for the sale of land You cannot apply this if the error was substantial

Esso Petroleum v. Mardon [1976] Q.B. (C.A) (Misrepresentation- the divide between a statement of opinion and fact becomes more factual if one holds himself out as having expert knowledge; if one has expert knowledge, the statements will be taken to be statements fact - only true if the respresentor was making the statements to induce the other party into the contract and those statements were relied upon)Facts:

Mr Mardon was buying a Esso gas station Esso told him they had estimated that the throughput of a gas station in that area would be 200,000 gallons a year. However, local council decided that the city planning would be such that there would be no direct access from the

main street, thus few customers Esso nonetheless told Mardon that the estimated sales would be 200K; Mardon bought the station, business did

not go well Mardon negotiated a lower rate with Esso, and he continued to put money in but subsequently lost more Esso brought action for possession against Mardon, he counterclaimed for breach of warranty

Issue: Did Esso’s statements constitute a warranty? If so, had Esso breached it

Holding: Yes, Warranty The statement of 200,000 was an estimate provided by Esso, who had special knowledge and skill

o They knew the facts, location, and similar outputs from other gas stations in town They were in a much better position than Mardon to make a forecast

o if such a person makes a forecast, intending that the other should act upon it - and he does act upon it, it can well be interpreted as a warranty that the forecast is sound and reliable in the sense that they made it with reasonable care and skill

if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another… with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.’ Esso did profess special knowledge and had it.

Court: you cannot make the determination based simply on words:

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o Must take into account: How the parties would interpret the words that were said How important were the words said What was the purpose of making the representation How did it influence the outcome of the decision/situation

Car and universal Finance Co. Ltd. v. Caldwell [1965] (Must take steps to void/rescind a contract - It holds that an unequivocal act communicating the wish to rescind a contract can override third party rights --The communication does not need to go to the misrepresentor; an innocent party must be able to rescind a contract that was made under fraudulent misrepresentation) Facts:

Mr Caldwell owned a Jaguar Mr Norris convinced him to sell it for a £965 cheque and a £10 deposit. On January 13 when he (Caldwell) tried

to cash the cheque, it bounced; he notified the police and the automobile association in order to try to fix the situation

Mr Norris sold the car to some dealers, who sold it on, and it was sold on again and again to Car and Universal Finance Ltd.

o Mr. Norris subsequently had disappeared and was nowhere to be found They bought the car in good faith without any notice.

Issue: Whether the def. rescinded the contract for the sale of the car, even though his intention to rescind was not

communicated to the other contracting party?Holding:High Court

Lord Denning MR (sitting in the Queen’s Bench) said the contract was validly rescinded. It was so without communication, but through an unequivocal act of election, demonstrating Caldwell no longer wished to be bound.

Court of Appeal Seller LJ, on appeal said the ‘general rule, no doubt, is that where a party is entitled to rescind a contract and

wishes to do so the contract subsists until the opposing party is informed that the contract has been rescinded. He noted that just because, ‘another innocent party or parties may suffer does not in my view of the matter justify imposing on a defrauded seller an impossible task.’

Upjohn LJ said if a party absconds and makes communication of rescission impossible, he cannot insist on his right to be made aware. ‘I think that the law must allow the innocent party to exercise his right of rescission otherwise than by communication or repossession.’

Davies LJ noted the old maxim lex non ogit ad impossibilia (the law does not compel the impossibleRatio: In circumstances where it is impossible to communicate ones intention to rescind a contract to the other contracting party, it is enough (for the purposes of the law on rescission) if he does all that he can in circumstances to unequivocally make known his intention to rescind. If it is possible to communicate it to them, it must be communicated ASAP. A misrepresentation merely makes the contract voidable, not void. It will not become void until steps are taken to void a contract, such as communication of intention to rescind.

Sodd Corp v. N Tessis (1977) (If a def is a professional, he may be held to a higher standard; furthermore he may be held to be in a special relationship creating a duty of care to the plaintiff)Facts:

The def. (CA & licensed trustee in bankruptcy) advertised for sale by tender the stock of a furniture business carried on by the bankrupt under the name and style Riteway Furniture

Plntf submitted tender after its principal officer made a cursory examination of the stock in the warehouse Officer states that the def. represented to him that to calculate retail value of the goods, double the wholesale cost Trial judge found that value of goods was overstated by 100%; found def negligently misrepresented the quantity

& value of items incl. in the assets of the bankrupt advertised for sale Issue:

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http://en.wikipedia.org/w/index.php?title=Lex_non_ogit_ad_impossibilia&action=edit&redlink=1


Holding: The def. as a professional accountant and trustee in bankruptcy was in a special relationship creating a duty of

care to the plaintiff and was negligent in his representation concerning the retail value of the stock-in-trade Rejected appellant’s argument – that since relationship was contractual, Hedley Byrne does not apply

o This case involved a pre-contractual negligent misrepresentation which induced the plaintiff to submit its tender, and the defendant’s liability follows on the authority of Esso Petroleum Co. v Mardon

The def’s negligent misstatement also constituted a collateral warranty inducing the plntf to submit the tendero The def’s stipulation amounted to a binding promise, depriving him of the terms of the exemption

BG Checo International Ltd. v. British Columbia Hyrdo and Power Authority [1993] (There is no bar for seeking damages simeoultaneously in tort and contract, the party may sue in either or, unless the contract has some sort of limitation clause preventing this – no double recovery allowed, however) Facts:

Hydro called for tenders to erect transmission towers and string transmission lines Hydro accepted Checo's tender and the parties entered into a written contract. The tender documents, which were

subsequently incorporated in the contract, stated that clearing of the right-of-way would be done by others and formed no part of the work to be performed by Checo

In fact, no further clearing of the right-of-way ever took place, and the improper clearing caused Checo a number of difficulties in completing its work

Checo sued Hydro seeking damages for negligent misrepresentation, or, in the alternative, for breach of contract Hydro had contracted the clearing out to another company, and that, to Hydro's knowledge, the work was not done

adequatelyIssue:

Holding:

Hydro is liable to Checo for breach of contract. The contract required Hydro to clear the right-of-way as specified and that duty was not negated by the more general clauses relating to errors and misunderstandings in tendering, site conditions and contingencies

The mere fact that the parties have dealt with a matter expressly in their contract does not mean that they intended to exclude the right to sue in tort. It all depends on how they have dealt with it

This principle is illustrated by consideration of the three situations that may arise when contract and tort are applied to the same wrong.

o The first class of case arises where the contract stipulates a more stringent obligation than the general law of tort would impose.

o The second class of case arises where the contract stipulates a lower duty than that which would be presumed by the law of tort in similar circumstances

o The third class of case arises where the duty in contract and the common law duty in tort are co-extensive The case at bar falls into this third category. Hydro's common law duty not to negligently

misrepresent that it would have the right-of-way cleared by others is not excluded by the contract, which confirmed Hydro's obligation to clear the right-of-way

availability of concurrent liability in contract and tort should not be predicated on whether the contractual term is express or implied

o Problems with doing so: Difficult to distinguish them not evident that if parties to a contract choose to include an express term in the contract dealing

with a particular duty relevant to the contract, they intended to oust the availability of tort remedies in respect of that duty

Finally, the test will be difficult to apply in situations where the express contractual term does not exactly overlap the tort duty

The contract did not limit the duty of care owed by Hydro to Checo, nor did Checo waive its common law right to bring such tort actions as might be open to it

The real fault is that Hydro misrepresented the situation and Checo may have relied on that representation in performing its other obligations under the contract

Checo is to be put in the position it would be in had the work site been cleared properly, and is therefore to be reimbursed for all expenses incurred as a result of the breach of contract, whether expected or not,

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There was no evidence of an intention on the part of Hydro to deceive, and the Court of Appeal therefore correctly concluded that Hydro should not be liable for fraudulent misrepresentation

V.K Masion Construction Ltd. v. The Bank of Nova Scotia [1985] (The requirements for a negligent misrepresentation: 1) an untrue statement, 2) made negligently, 3) foreseeable reliance on the statement, 4) a special relationship between the parties creating a duty of care [specific to this case]) Facts:

C was the owner of property, which it wanted to develop into an office and retail shopping complex M submitted a tender to C for the construction of the complex.

o The tender was expressly subject to C's ability to secure adequate financing for the project. o C eventually obtained interim financing for the project from the bank, with interest calculated at a 360-

day rate. o In order to assure M that the contract price would be paid by C, the bank informed M that there was

adequate financing for the project. The bank wrote to M saying: We wish to advise that we have accorded [C] interim financing sufficient to cover the

construction of the ... complex .. On the strength of this letter, M signed a construction contract and completed the project. The amount that the bank had agreed to lend C was insufficient to cover the costs of construction, and on

substantial completion of the project, C owed M about $1 million. M brought an action against the bank for damages for breach of contract and negligent misrepresentation. The claim was for the amount owed by C to M on the construction contract. M also brought an action against the bank and C in an action under the Mechanics' Lien Act (Ont.), alleging that

the bank was limited by s. 4 of the Interest Act (Can.) to no more than 5 per cent on its loanIssue:

Holding: The bank was not liable in contract. Contractual liability requires more certainty than the document here provided.

o The bank's letter would not have been construed by reasonable business people as an absolute and unqualified guarantee.

There was no contractual relationship between the bank and M. The bank's letter, supported a claim for negligent misrepresentation.

o M relied on the negligent misrepresentation and such reliance was foreseeable by the bank. o The damages recoverable in this action included M's opportunity costs, equal to the profit that M would

have made had the contract been performed.o If M had not made the contract with C, it would have found an equally useful investment and would

have earned its profit there. M's claim on the Interest Act could not be supported. Section 4 of the Act was not applicable because the bank's

loan constituted a mortgage on real estate. o To allow M's claim would frustrate both the letter and policy of the Act, the latter being for the

protection of those consumers who might not understand a rate of interest other than one expressed on an annual basis

S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994)(Execution or performance of a contract is a relevant but not decisive factor to be considered when deciding whether the remedy of rescission should be denied because of the pltnfs undue delay in seeking a remedy or because rescission might affect third parties or would otherwise be inequitable) Reconciles with Redican because it is not for a sale of landFacts:

The plaintiff was the prime contractor in the development of a 52-unit townhouse project. It invited the defendant to bid on exterior stucco finishing

o It accepted the defendant's bid of $157,000 The plaintiff prepared an agreement covering 52 units at that price and the defendant executed the agreement and

embarked upon the work after completing the first phase of the project, 22 units, the defendant left the job. The plaintiff had the work

completed by other contractors and sued for the difference between the cost of having all 52 units completed and the contract price

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The defendant counterclaimed in quantum meruit (allows you to sue for services you have put forth and performed for a person when that person has accepted) for the work it had done on the project

Issue:

Holding: basically, this case decided that the remedy of rescission even after execution of the contract

o Note, (vs. Redican), this one is not re: the sale of land While the trial judge found the parties' dispute resulted from a unilateral mistake induced by the conduct of the

plaintiff, the case was really one of innocent misrepresentation, relied upon by the defendant, which induced it to enter the contract.

On that basis, it was entitled to rescission of the contract and to recover the value of its work on the basis of quantum meruit

Ratio: basically, this case decided that the remedy of rescission even after execution of the contract (I might have typed this ratio for the wrong case, double check)

Note, (vs. Redican), this one is not re: the sale of land, thus rescission is still a possible remedy – this makes sense, for example, that it is for the performance of a service – thus it does not conflict with Redican

Regardless, the court will still consider the fact that the execution of the contract has occurred in deciding whether the remedy is available – this is because execution demonstrates affirmation of the contract

Guarantee Co of North American v. Gordon Capital Corp [1999] S.C.R. (Defines rescission vs. repudiation; repudiation is the refusal to perform an action by a party because he believes he is exercising a contractual right; if repudiation is accepted [both parties must agree to it], that provision is deemed to be terminated)Notes:In summary, a misrepresentation, even one that was incorporated into the contract, gives the innocent party the option of rescinding the contract, i.e. to have it declared void ab initio. The misrepresentation must be "material," "substantial" or "go to the root of" the contract. We express no opinion on the availability of damages in such cases. Repudiation, by contrast, occurs when one party indicates its intention not to fulfill any future obligations under the contract. If the other party accepts the repudiation, the contract is terminated, not rescinded. To use "rescission" and "accepted repudiation" synonymously can lead only to confusion and should be avoided. Where there is some doubt as to whether repudiation or rescission is intended, courts should look to such factors as the context of the contract, particularly the intent of the parties. For sophisticated parties, it will take strong evidence to displace the meaning suggested by the parties' choice of language in the contract itself. In this case, because both parties agreed to the word "rescission," and Guarantee acted in accordance with that intention, the consequence of a valid rescission based on Gordon's misrepresentation is the avoidance of the contract, and Guarantee's release from any liability thereunder.

Summary of Law: Duress (Common Law) & Undue Influence (Equity)1. Introduction

The doctrines of duress and undue influence look at the will of the contracting parties rather than the substance of the transaction itself. The two doctrines can be broadly categorized as doctrines of protection, along with illegality for example. The two doctrines are sourced in different aspects of the law. Duress is sourced in common law, whereas undue influence is sourced in equity. With both of these doctrines the law is, in essence, working to protect the weaker party to the transaction. A distinction may be drawn between these doctrines and misrepresentation, in that the former address the consent behind a contract and the latter which does not address the consent. For relief to be granted under either the doctrine of duress or undue influence, two conditions must be satisfied. First there must be a coercion of will. Second, pressure applied in the process of coercion must be illegitimate.

1.1 Duress - Coercion of WillTo demonstrate coercion of will, one must be able to demonstrate that s/he was under some pressure, which was

significant enough to affect her/his decision to enter the contract. It is important to mention that this does not necessarily refer to commercial pressure. The pressure behind the coercion can be either direct or indirect. Further, it need not be the sole reason that a party entered the contract, so long as it was a significant cause. Lord Scarman famously addressed the factors to consider when assessing the doctrines in the Pao On case: ‘In determining whether there was a coercion of will

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such that there was no true consent, it is material to enquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it’. Pao On stated that these factors should be considered in order to determine whether the victim’s will was overborne; however, the later case of Universe Tankships of Monrovia v. International Transport reworded this first step as “pressure amounting to compulsion of the will of the victim” thus making it less strict, which appears to be the dominant approach in Canadian courts. In this first step, courts will often consider whether there was a lack of a practical alternative.

1.2 Duress - Illegitimacy of PressureUniverse Tankships also carried on the second step of the Pao On test, namely that the pressure exerted must be

illegitimate. In a contract between A and B, where B is being pressured, the pressure can come directly from the opposing party, or indirectly from an agent of the opposing party. Additionally, it may also come from a source that A is aware of, and A wants to take advantage of that situation. Factors to consider when assessing whether pressure is illegitimate include:

The nature of the pressure, including the unlawfulness; and The nature of the demand to which the pressure is applied.

Illegitimate pressure typically falls into one of three categories. First there is threat to person (or duress of person); next there is threat to goods (or duress of goods); and lastly there is threat to economic interest (or economic duress). Although not addressed here, it is worthwhile to note that there has been considerable debate in Canadian law as to whether this second requirement of illegitimacy of pressure should even exist as a requirement distinct from coercion of will.

1.3 Remedies for DuressDuress can render a contract either void or voidable, however the preferred approach by the courts has been to

render it voidable. A key disadvantage of this approach is that delays (on the part of the victim) to take steps to set the contract aside can be treated as affirmation. In addition to this, the courts may offer rescission, restitution or indemnity as remedies for duress. Lastly, damages may be available for duress, however these aren’t available through contract law. Instead, the damages are available through tort law

1.4 Duress and ConsiderationThe concepts of duress and consideration are may overlap in certain scenarios where it is open to a party to argue

either the the promise made was not supported by consideration or that it was secured under duress, each of these will afford different remedies. This is perhaps best illustrated by the following example: where parties already have a contract, a variation of the contract secured by one party as a result of threats to break the contract (duress) might also give rise to an argument that the new contract was invalid on ground of lack of consideration. So this leaves two courses of possible action, duress and lack of consideration. Choosing to argue lack of consideration in essence attacks the very existence of the contract whereas the duress course of action admits that you have a valid contract, but that the consent underlying that contract was vitiated.

2. Undue Influence

Undue influence has been defined as some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating and generally, though not always, some personal advantage obtained by the wrongdoer: Alkard v. Skinner. Additionally, ‘influence’ refers to the ability of one person to dominate the will of another whether through manipulation, coercion, or outright but subtle abuse of power: Geffen v. Goodman Estate. The doctrine is an equitable one. Generally speaking, a contract procured under undue influence is voidable for two reasons. First, the consent of the victim is vitiated because s/he was unduly influenced to enter the contract. Second, undue influence also suggests that there was an abuse of influence or position by one of the parties to a contract. In cases of undue influence, the focus of the analysis is on the effect of the victim and the motive of the wrongdoer is immaterial. For relief to be granted, the level influence need not be great. It is enough for the victim to demonstrate that her/his judgment was impaired.

There are two distinct types of undue influence cases. First, there is the case of actual undue influence. Here, the influence is clear, deliberate, and directed at the victim. It may often take the form of a threat or domination/control of will and for actual undue influence, there is no requirement of a pre-existing relationship. Also, the undue influence must be proved absolutely and affirmatively. There can, therefore, be no presumption in the theorem of undue influence. Also,

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undue influence absolutely cannot be inferred. These distinctions are helpful in differentiating between duress and undue influence. In practical terms, in order to demonstrate actual undue influence, one must show the presence of coercion.

The second type of undue influence is presumed undue influence, which is found on relationships of trust and confidence. The analysis for this type of undue influence was well articulated in Geffen. That case looked at whether a conveyance of property in a will was procured by undue influence. Geffen provided that first, the plaintiff must establish that there is a relationship of influence and a transaction that cannot be explained by the nature of that relationship. If this is found, a presumption of influence is created in the plaintiff’s favour unless it can be rebutted by the defendant by, for example, demonstrating that the plaintiff sought independent advice or that the relationship was not a dominating one.

It is worth noting that there exists a third category of undue influence cases known generally as non-presumptive relational undue influence, however, this third category will not be assessed here.

Undue influence renders a contract voidable. Again, this requires the complainant to take steps to set aside the contract. The courts may also provide the remedy of rescission. However, as in all cases of rescission, this has the potential to be vitiated by affirmation on the part of the complainant. Also, there is the possibility that a lapse of time after the contract formation may amount to acquiescence of the terms.

Greater Fredericton Airport Authority Inc. v. Nav Canada (2008) NBCA (Economic Duress Framework for contractual variation; impact on the victim is how you assess illegitimacy of the pressure; of pressure is not a condition precedent for economic duress when dealing with variation in contract; Illegitimacy of pressure not a part of economic duress) Ratio: Canadian court adopted approach in Williams: if there’s mutual benefit for both parties, then consideration may be found; there can also be a discharge of duty by part performanceFacts:

ASF agreement made between NAV and the Fed; Fed divested rights and duties under ASF to GFAA; ASF included terms assigning responsibility for certain capital expenditures; GFAA rqstd that NAV relocate ILS to a different runway; NAV determined it was economically better to replace portion of the ILS with new DME rather than relocate the

entire ILS; dispute arose over who should pay for the acquisition of the DME; NAV refused to relocate the ILS unless GFAA paid for the DME; GFAA agreed to pay by way of letter signed under protest for the acquisition of the DME; NAV acquired and installed the DME; GFAA subsequently refused to pay.

Issue: Was agreement to contract procured under economic duress?

Holding: No A variation unsupported by consideration remains enforceable provided it was not procured under economic

duress The legitimacy of pressure applied is unimportant, what is important is the impact it has on the victim

The issue of Economic Duress: Onus is on the party seeking to enforcement the doctrine to demonstrate econ duress A. The Developing Doctrine of Economic Duress & Illegitimate Pressure

o Privy council extended the duress doctrine to include econ duress in Pao On v. Lau Yiu Long The compulsion against the party had to be such that the party was deprived of his freedom of

exercising his will At this point, in order to meet the test for economic duress then it must be shown that the

conduct coerced did not amount to a voluntary acto In Universe Tankships Inc of Monrovia v International Transport Workers Federation

Dissent – Lord Scarman reformed the tenets economic duress Test for econ duress:

Pressure amounting to compulsion of the will of the victim The illegitimacy of the pressure exerted

o Nature of the pressure

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o Nature of the demand B. Economic Duress –The Analytical Framework According to this case

o A finding of economic duress is dependent initially on 2 conditions precedent (1st) the promise must be extracted as a result of the exercise of pressure, whether

characterized as a demand or a threat (2nd) the exercise of that pressure must have been such that the coerced party had no

practical alternative but to agree to the coercer’s demand to vary the terms of the underlying contract

o Once the two threshold requirements are met, the legal analysis must focus on the ultimate question: whether the coerced party “consented” to the variation. To make that determination, three factors should be examined:

(1st) Whether the promise was supported by consideration (2nd) Whether the coerced party made the promise under protest or without prejudice (3rd) If not, whether the coerced party took reasonable steps to disaffirm the promise as

soon as practicable Also, can consider Consultation from legal counsel, were the parties acting in good

faith, etco a promisor who sits back and waits several years before challenging the enforeceability of the variation

will be deemed guilty of acquiescence and though the plea of economic duress may have been made out, it will fail on this ground

o the fact of the matter is that access to independent legal advice on the part of the victim is not sufficient to overcome the finding that he or she had no alternative but to submit to the contractual variation demanded by the coercer

o also, the ‘good faith’ of the coercer should not impact on the victims contractual right and expectation to receive performance in accordance with the original terms of the contract

This case: Nav Canada had the contractual right to decide whether to relocate the existing equipment or purchase new

equipment and that Nav Canada elected to go with the new The evidence also established equipment until such time as the airport authority agreed to pay for the DME Alternatives?

o In reality, the airport authority could not unilaterally withdraw from the ASF Agreement and turn to another service provider in the industry

2 threshold questions have been met, next:o the fact that the promise was not supported by fresh consideration suggests that consent was lacking

Oppong’s notes: what is different between duress of person and duress of goods, when compared to economic duress:

o with threat to person illegitimacy is not really necessary because it is already embedded in the threat, namely the physical threat; similar for threat to goods, as the threat results in threat to property

o economic through?? this doesn’t on the face of it look unlawful, because the threat of breaching a contract is not lawful, instead it merely goes against the principles of contract law and thus may result in remedies, but its not illegal

o Remember as per Oppong’s notes, there are two components to duress: coercion of will and illegitimacy of pressure –this judge says to only concern yourself with the coercion of will; if you add the illegitimacy of pressure to the requirement, there is no way anybody can succeed because the wrongdoer was lawful

o What is lawful cannot be illegitimate – this is what the judge believeso Judge says threatened breach of contract is not only lawful, but also a right – this makes sense – contract law

is founded on the principles that parties are free to enter a contract, whereas in cases of threat to person or goods touch on criminal/tort law which are affected by imposed rules

o Robertson JA suggests a refined approach to criminal law – says that a variation unsupported by consideration is enforceable provided it was not procured under duress

o What does it mean when it is suggested that the true cornerstone of the doctrine of econ duress is lack of consent? – duress says that consent is vitiated

o What is the difference between economic duress vs. commercial pressure: It would be difficult to distinguish without facts, Generally, commercial pressure is the kind of pressure you can expect during everyday commercial

transactions

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Geffen v Goodman Estate [1991] SCC (Presumption of Undue Influence and how to rebut it; for gifts consideration is not an issue)Facts:

the deceased , inherited the family home from her mother as well as a life interest in the residue of her mother's estate which was to pass on her death to her children

earlier will had given the deceased a life estate and directed that on the mother's death the estate was to be divided among all the mother's grandchildren

The house was conveyed to trustees on terms that the deceased retained a life interest in it and that on her request the trustees would consider a sale of the property so long as the sale was in her best interests.

The trust deed further provided that upon her death the trust property would be divided equally among the surviving grandchildren of the deceased's mother. The deceased's will left her entire estate to her own children

Issue: Was the presumption of undue influence appropriately applied by the trial judge and court of appeal?

Holding: "Influence" refers to the ability of one person to dominate the will of another, whether through manipulation,

coercion, or outright but subtle abuse of powero To dominate the will of another simply means to exercise a persuasive influence over him or her.

The inquiry should begin with an examination of the relationship between the parties. o The first question to be addressed in all cases is whether the potential for domination inheres in the

nature of the relationship itself To show undue influence one must show trust and confidence that was sufficient to create a possibility of domination, and that the bargain is careless Consideration of this will lead to the rebuttable presumption

o Second, the inquiry must next involve an examination of the nature of the transaction. When dealing with commercial transactions a plaintiff must show in addition to the required relationship between the parties that the contract worked unfairness either in the sense that he or she was unduly disadvantaged by it or that the defendant was unduly benefited by it

Once the plaintiff has established that the circumstances triggering the presumption, the onus moves to the defendant to rebut it by showing it wasn’t a dominating relationship

review of the circumstances between the deceased and her brothers at the relevant time disclosed a potential for the brothers to exercise a persuasive influence on their sister. The trust instrument was more akin to a gift or bequest than a commercial transaction and the existence of the required relationship without more was sufficient to trigger the presumption.

solicitor/client privilege belongs to the client alone. Confidential communications between them can only be divulged in certain circumscribed situations

o An exception has developed, however, to permit a solicitor to give evidence in wills cases, this allows the court to ascertain the true intention of the will creator

Appellants successfully rebutted the presumption of undue influence given that there was very little contact between the brothers and the deceased at the relevant time, that the deceased was not in fact relying on her brothers to advise her, and that the prime motivation of the brothers was to advance their sister's welfare.

o It is also relevant that the deceased received some independent legal advice and that the agreement ultimately concluded was in accord with her wishes

The potentially adverse consequences of not having an asset which she could liquidate if necessary were offset by two important considerations. First, it was her express, and perhaps her primary, objective to put the sale of the house beyond her reach so that she could be assured of always having a home of her own. Second, it was also her wish that all her mother's grandchildren share equally in the estate.

Oppong’s You have to address between cases of gifts, and commercial transactions

o In cases of gifts – its enough if the donor establishes a relationship of influence and this is enougho In cases of commercial transactions – merely establishing a relationship of influence is not enough, you

have to show that the contract went was manifest– either that you unduly were affected by it, or that the other party unduly benefited from it

Royal Bank of Scotland PLC v. Etridge (No.2) [2001] (Undue Influence, and Familial – material disadvantage is only a requirement for commercial relationships, not familial relationships – familial undue influence just requires a special relationships; whereas commercial requires a special relationship and a manifest disadvantage; burden of proof is on the person who was wronged, unless you can prove a special relationship and a questionable transaction in which the burden of proof reverses)

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Facts: 8 appeals, each case arises out of a transaction in which a wife charged her interest in her home in favour of a

bank as security for her husband’s indebtedness or the indebtedness of a company through which he carried on business

the wife later asserted she signed the charge under the undue influence of her husband in each case, the bank sought to enforce the charge signed by the wife

o bank claimed an order for possession of the matrimonial home – wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband’s undue influence

Issue: Was the wife’s charging of her interest in the home as security done under undue influence, thus rendering the

bank’s order for possession of no effect? Holding:Undue Influence:

history given as per above cases; reference made to Allcard v SkinnerBurden of Proof and Presumptions

the burden of proving an allegation of undue influence rests upon the person who claims to have been wronged the evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case

proof that the complainant placed trust & confidence in the other party in relation to the management of the complainant’s financial affairs couples with a transaction which calls for explanation, will normally be sufficient

o proof of the above two is prima facie evidence that the defendant abused the influence he acquired in the parties relationship

in certain cases, the law presumes that one party had influence over the other (parent child, doctor patient etc) – Husband/wife is NOT one of them

Independent Advice proof that the complainant received advice from a third party before entering the impugned transaction is one of

the matters a court takes into account when weighing all the evidenceo the weight or importance to be attached to such advice depends on all the circumstanceso proof of outside advice does not, of itself, necessarily show that the subsequent completion of the

transaction was free from exercise of undue influenceManifest Disadvantage

again, there are two prerequisites to the evidential shift in the burden of proof from the complainant to the other party

o that the complainant reposed trust and confidence in the other party or the other party acquired ascendancy over the complainant

o the transaction is not readily explicable by the relationship of the parties Lord Scarman in National Westminster Bank – noted that whatever the legal character of the transaction, it must

constitute a disadvantage sufficiently serious to require evidence to rebut the presumption that in the circumstances of the parties relationship, it was procured by the exercise of undue influence

o Scarman attached the label manifest disadvantage to the second ingredient necessary to raise the presumption

When deciding whether a transaction is disadvantageous to the wife, it is best to use the approach outlined by Lindley LJ in Allcard b Skinner & and adopted by Scarman in National Westminster Bank PLC

Wider Principle O’Brien Principle – sexual relationships are no more than one type of relationship in which a person may acquire

influence over another individual – what is appropriate for this type of relationship in terms of analysis, ought to be ok for other relationships

Important question raised by this concerns the wider circumstances which will put a bank on inquiry: if the bank knows of the husband wife relationship – it must inform the wife of the risks involved, this is the case with other types of such relationships (???????) parent child?

Oppong’s Odometer on the Case:It is noted that the objective of undue influence is to ensure that the influence of one person over another is not abused. How does this objective fit with the policy objective for certainty of contracts?

It undermines the level of certainty with respect to the terms agreed to in the contract

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Allcard v. Skinner (1888) (Presumed Undue Influence of Commercial nature: The law’s place is not to get back people’s possessions that they parted with foolishly; rather the law’s job is to protect parties from being forced, tricked or misled into parting with their possessions)Facts:Miss Allcard was introduced by the Revd Mr Nihill to Miss Skinner, a lady superior of a religious order named "Protestant Sisters of the Poor". She had to observe vows of poverty, chastity and obedience. Three days after becoming a member, Miss Allcard made a will bequeathing all property to Miss Skinner, and passed on railway stock that she came into possession of in 1872 and 1874. She then claimed the money back after she left the sisterhoodIssue:

Whether the gift that was given to the sisterhood can be set aside due to undue influence?

Judgement:Lindley LJ, held that she was

A delay in itself will not nullify a claim, unduly influenced but barred by laches from getting restitution. And in any case she would

only have been able to recover as much of the gift as remained in the defendant’s hands after some of it had been spent in accordance with her wishes

What then is the principle? Is it that it is right and expedient to save persons from the consequences of their own folly? or is it that it is right and expedient to save them from being victimised by other people? In my opinion the doctrine of undue influence is founded upon the second of these two principles. Courts of Equity have never set aside gifts on the ground of the folly, imprudence, or want of foresight on the part of donors. The Courts have always repudiated any such jurisdiction. Huguenin v Baseley 14 Ves 273 is itself a clear authority to this effect. It would obviously be to encourage folly, recklessness, extravagance and vice if persons could get back property which they foolishly made away with, whether by giving it to charitable institutions or by bestowing it on less worthy objects. On the other hand, to protect people from being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate objects of all laws; and the equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and with the infinite varieties of fraud

The basis of this doctrine is to save people from being victimized – it is an equitable principle – the basis is also to prevent people from benefiting from their own wrong -

Stott v. Merit Investment Corp (1988) Ont CA – (Duress, Economic Duress - This case is unlike Greater Fredericton, it adds illegitimacy-Reconcile the cases because this is about contract formation, not variation like Greater Fred- This case affirms that two elements are needed to prove economic duress namely: (1) Pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted; remedy for this is to render it voidable)

Facts: Stott was a salesman with Merit Investment Corp. He sold gold contracts to a customer, Guyenot. The customer did not maintain margin required, so Stott sold two of their gold contracts. Douglas, Stott’s superior, intervened and authorized the repurchase of the contracts, paid for by a cheque. The cheque was not honoured, and Guyenot’s account was sold. Guyenot was left owing $66 000 to Merit (because the price of gold had declined). On January 30th, 1980, Stott signed a document holding him responsible for the debt. He left Merit in 1982 and brought an action to recover the amount that had been deducted from his commissions.

Issue: Is the agreement to be held responsible for client’s debt enforceable?

Judicial history: The trial judge concluded that the losses were a result of Douglas’ intervention. Stott should therefore not be held liable.

Holding: Trial judge’s ruling overturned. Agreement has sufficient consideration to be enforceable.

Reasoning:

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http://en.wikipedia.org/w/index.php?title=Huguenin_v_Baseley&action=edit&redlink=1

http://en.wikipedia.org/wiki/Lindley_LJ

http://en.wikipedia.org/wiki/Shares

http://en.wikipedia.org/wiki/Vow_of_obedience

http://en.wikipedia.org/wiki/Poverty


o The trial judge made a mistake in saying that agreement of January 30th was made without consideration, making everything thereafter legally void. Instead of focusing on whether the claim of liability can hold up in court, must look at the nature of the claim itself. Was it bona fide at the time it was made?o The claim is bona fide, the senior officers at Merit believed that Stott was liable. Through his actions (signing the agreement, signing off on reduced wages), Stott also shows that he is responsible for debt. Forbearance to sue is then implied, and constitutes sufficient consideration for the agreement.o Consideration also in the fact that Stott might have lost his job if he did not sign. He was given a trading account, so there was some mutuality in the arrangement.

Ratio: Forbearance to sue constitutes sufficient consideration for a bona fide agreement.

Oppong’s Notes:o The effect of duress is to make the contract voidable – as this is the case, you must take steps immediately to

distance yourself from the contract o Remember duress focuses on the procedure behind the formation, it doesn’t give a shit about the terms

of the contracto The court noted [p 54] …there was valid consideration, the question then becomes whether the contract was

entered into as a result of duress, what does this observation teach you about the relationship between duress and consideration?

It is possible that you can have a void contract (Ie. Supported by consideration), but it was procured under economic duress. Thus making it voidable.

o This case affirms that two elements are needed to prove economic duress namely: (1) Pressure amounting

to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted. How do you explain this principle?

To demonstrate coercion of will, you have to demonstrate many factors incl (steps taken to avoid contract after having entered into the contract, amount of time taken in seeking a remedy etc)

Illegitimacy of Pressure: (if the pressure was unlawful, then def. illegitimate; but if it was lawful, then consider):

The nature of the threat The nature of the demand

Gordon v. Roebuck (1989) Ont CA (Economic Duress – Contract Variation - COMPREHENSIVE APPROACH) This case applies Stott v Merit as follows

o 1) Pressure amounting to compulsion of the will of the victim; and Consider the 4 Pao On factors here:

Whether the party protested? The viability of alternatives open to the parties? Was independent advice: Allcard v. Skinner Were steps were taken to avoid the contract?

o (2) the illegitimacy of the pressure exerted

Summary of Mistake in Law:1. Introduction

The doctrine of mistake can be seen through the light of both the common law and equity. It has typically been defined rather narrowly with courts being reluctant to apply it. One of the reasons for the reluctance is that the doctrine, when applied, has the ability to severely undermine certainty of contracts. Consider the converse, or in other words, if the doctrine were applied generously. Doing so would allow a party to a contract to rather easily escape a contract on the basis that she/he was mistaken at the time of the contract formation. Another reason for the reluctance to apply the doctrine is the possibility that fact patterns that fall under the doctrine of mistake can also often fall under other areas such as misrepresentation, frustration and so forth, thus opening up the possibilities for remedies under those doctrines.

The doctrine has two aspects, namely that of mistake at common law, and mistake in equity. Depending on the lens through which the mistake is assessed, the effect can be entirely different. At common law, the effect of a mistake makes the contract void, thus disallowing any rights to accrue under it, and this makes the effects very dramatic ab

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initio.In stark contract, the effect of mistake in equity merely renders a contract voidable, thus requiring the mistaken party to take steps to set the contract aside. Regardless, an appropriate analysis of mistake always begins with the common law approach first.

The first step in the analysis is to ensure that the mistake existed at the time of contract formation R. v. Ron Engineering & Construction (Eastern) Ltd. [1981] SCC. The discovery of the mistake will likely follow sometime after the formation of the contract, but the actual mistake itself must exist at the time of the formation. The next step is to classify the mistake. There exist three different types of distinct types of mistake. Although in theory they are distinct, in practical terms it may often be the case that the mistake can be interpreted in more than one way. The first type of mistake is the common mistake. In this case, both parties make the same mistake and each party knows the intention of the other party, but each is mistaken about an underlying fact affecting the transaction. The second type of mistake is that of a mutual mistake. Here, both parties misunderstand each other. Finally is the unilateral mistake. In this case, only one party is mistaken, the non-mistaken party knows that the other party has committed a mistake, but often he nonetheless tries to exploit the situation. Generally, an important question to ask when classifying a mistake is whether an agreement has been reached or not. If the answer is yes, this is likely to be a common mistake; alternatively, if the very existence of an agreement is denied and the answer is no, this is likely to be a case of mutual or unilateral mistake.

2. Common MistakeWhen it has been found that an agreement was reached, but it was upon the basis of a common mistake, one must

demonstrate that it affected the transaction in very fundamental way, or in other words it should empty the agreement of all of its context. These are known as res extincta cases. In other words, this is when, unknown to both parties, the specific subject matter of the contract is in fact non-existent; however, this does not mean that goods have to exist at the time of the contract. For example, futures contracts are based on goods that will exist at some point in the future. Rather, res extincta refers to when both parties mistakenly believe that the goods existed. In British Columbia, S.10 of the Sale of Goods Act [RSBC 1996] c. 410 speaks specifically to this matter:

10 A contract for the sale of specific goods is void if, without the knowledge of the seller, the goods have perished at the time when the contract is made.

Also, Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd., established five criteria that must be satisfied for a contract to be void in circumstances of a common mistake. These are i)there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

In contrast, a mistake merely renders an agreement voidable in equity; Solle v. Butcher (1949), [1950] (Eng CA). That being said, there may be some overlap between the two aspects of mistake. For example, a contract void for common mistake at common law is void in equity. However, the reverse is not necessarily true. A mistake which did not make a contract void at common law might give rise to relief in equity; thus even if the contract is not void at common law, equity may be willing to intervene to provide some level of relief. This relief can come in three forms: the courts have the discretion to refuse specific performance; the courts may rectify the contract; and lastly, the courts may set aside the contract on certain terms, or perhaps the entire transaction.

3. Mutual and Unilateral MistakesUnlike the scenario of a common mistake, when there is an apparent mutual or unilateral mistake, one party is

challenging the very existence of the contract. Here the analysis becomes more complex. At common law, for a case involving mutual mistake, a court will decide what a reasonable third party would have inferred from the words and/or conduct of the parties to the agreement, thus the test is an objective one; Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976) HC. The test requires that all of the circumstances of the case are given adequate attention. The courts, therefore, will decide what the reasonable person’s understanding of the promise would have been, and this will subsequently bind the parties. If however a reasonable person would be unable to understand the promise, there would be no binding contract.

For a case involving a unilateral mistake at common law, the courts are not concerned with what a reasonable third person would have interpreted. Instead, the court will decide whether one party was aware of the other’s mistake. A person is taken to have known what would have been obvious to a reasonable person in the light of the surrounding circumstances. As previously mentioned, the effect of this test is to potential render the contract void. However, if the strict standards discussed above cannot be met, one may still be able to seek a remedy, such as specific performance in equity.

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4. Rectification of DocumentsIf a contract is reduced to writing, but the writing does not accurately reflect the true intention or agreement

between the parties, in equity, the courts may be willing to step in to rectify the documents so long as that agreement between the two parties is mutual. In layman’s terms, this allows the courts to rectify a typographical error. Known as the rectification of documents, this is the process by which a document is made to conform to reflect the agreement that was between the parties. It is not, however, a means for interfering with the substance or intention of the parties. The reason is that the rectification is of the document itself, not the contract. In cases pertaining to the rectification of documents, the burden of proving that it is necessary is on the party wishing to rectify. This burden, referred to as convincing proof, is relatively high, falling somewhere below a reasonable doubt but above the civil standard of a balance of probabilities. There are two requirements that are necessary in order to have documents rectified. First, one must demonstrate a prior common agreement. For example, the prior agreement could have been for the purchase of a good for $300.00 despite the document showing $3.00. This agreement need not be binding. As previously stated, this agreement must have existed at the execution of the document. Next, one must be able to demonstrate that there was indeed a mistake in the document. There exist defences for the party not seeking rectification of the documents. These defences include affirmation of contract, lapse of time or delay in bringing forth the mistake, adverse affects on the rights of a third party, and non est factum.

Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976) HC (Mutual mistake- court must decide what reasonable third parties would infer to be the contract from the words and conduct of the parties who entered into it. It is only a case where the circumstances are so ambiguous that a reasonable bystander could not infer a common intention that the court will hold that no contract was created) Facts:

In the course of an auction, plntf made a successful bid for bulk lot of steel which he understood included both building steel and used steel

Def. gave evidence that the lot consisted of used steel only Def refused to deliver any of the steel to the plaintiff b/c he would not sign a waiver to the effect that the lot did

not include building steel Def. argues that there was no consensus between the parties because they believe the terms were different Plntf argues that it is not a party’s actual intention that determines contractual relationships, but rather the

intention manifested by the words and actions of the partiesIssue:

Was the auction bid for both used steel and building steel? What is the appropriate remedy?

Holding: The plaintiff must succeed on the point that a reasonable man would infer that the auctioneer, despite his words,

was manifesting an intention to offer for sale the bulk lot without the building steel Def had the right to insist that the plntf take delivery & pay for the bulk lot excluding the building steel, but def

had no right to require the plnt to give up its claim that the contract included the building steel as well as the remained of the bulk lot

o By insisting on such waiver or acknowledgement, def was attempting to introduce unilaterally a new term

o Why did the def seek a wavier? – was trying to prevent liability for breach of contracto The waiver was in essence an acknowledgement that the contract originally included the building steel

This case of one of mutual mistake – both parties thought the bulk meant something other than what the other party thought

o In such a case, court must decide what reasonable third parties would infer to be the contract from the words and conduct of the parties who entered into it. It is only a case where the circumstances are so ambiguous that a reasonable bystander could not infer a common intention that the court will hold that no contract was created

This case, a reasonable man would infer the existence of a contract to buy and sell the bulk lot without the building steel and therefore there was a contract to that effect binding on both parties, notwithstanding such mutual mistake

By refusing to deliver any steel from the bulk lot to the plaintiff, def has breached its contract Oppong says:

o They could have elected to use the waiver; or they could have just delivered the steel and waited to see what happens; or they could have gone to courts first

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o What does this case teach you about the approach of courts to resolving cases of mutual mistake? In your opinion does the approach adopted by the courts ‘force’ a contract on the parties?

The approach taken here is to understand the contract through the eyes of the reasonable person – it doesn’t necessarily force a contract on anyone – the contract will be upheld where a reasonable person would have seen it a certain way, but not when it doesn’t

Smith v. Hughes (1871) (Mistakes as terms - there is a distinction in mistakes in the terms of a contract, and mistakes in assumptions/motivations for entering a contract– there is no positive duty of a vendor to notify a buyer of his mistake)Facts:

(Plntf farmer_, the def a trainer of racehorses – ) pltnf had some good winter oats to sell applied to the def’s manager to know if he wanted to buy oats, and having received for answer that he (the manager) was already ready to buy good oats, exhibited to him a sample, saying at the same time that he had more of the same for sale

Manager took the sample, following day he wrote to say he would take the whole quantity at a specified price There was a conflict of evidence between them as to whether anything passed at the interview between the

plaintiff and the def’s manager on the subject of the oats being old oats, def says he expressed that he would buy old ones and the plnt agreed, plntf denies this

Issue:

Holding: Cockburn J

o The issue to be dealt with is that the def intended to buy old oats and the plaintiff to sell new, so that the two minds were not ad idem, and that consequently there was no contract

o The def believed the oats to be old and was thus induced to agree to buy them, but he omitted to make their age a condition of the contract

Blackburn J – does not contend the first part of the case, only the secondo If one of the parties intends to make a contract on one set of terms and the other intends to make a

contract on another set of terms, if the parties are not ad idem, then there is no contract unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other

o Whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conduct himself would be equally bound as if he had intended to agree to the other party’s terms

o There may have been more evidence that is stated in this case, and the demeanour of the witnesses may have been strengthened the impression produced by the evidence there was; it does not seem a very satisfactory verdict if it proceeded on this latter ground

Hannen J – on both sides it appears that the plaintiff sold the oats in question by a sample which the defendant’s agent took away for examination

o The bargain was only completed after this sample had been in the defendant’s possession for 2 dayso The case must be considered on the assumption that there was no express stipulation that the oats were

old… more notes needed!!!! Oppong says: these facts are difficult to categorize, it is unilateral but could be argued as mutual

o Should the law impose a legal duty on a vendor to inform a purchaser that he/she is under a mistake not induced by the act of the vendor?

No legal obligation but law provides remedies after the fact if mistake is proven There is a distinction between ‘agreeing to take the oats under the belief that they were old, and

agreeing to take the oats under the belief that the plaintiff contracted that they were old’. What distinction is being made here? How significant is the distinction to the law of mistake? Would you prefer the law did not make that distinction?

There first part is dealing with motive whereas the second part is a mistake with regard to the terms of the contract

Should the law protect the motive of parties to a contract? How should that be done? How would you legally protect the rational with which people enter into particular contracts?

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This can be done by the injection of motives to the contract Hartog v. Colin Shields [1939] (Unilateral mistake & Snapping mistake– i.e. where the mistake of X is known to Y – Y is taken to have known what would have been obvious to a reasonable person in the light of the surrounding circumstances, Y must adhere to the price that they were discussing, not the incorrectly stated price) Notes:

Parties had been negotiating the sale of Argentinian hare skins and had discussed a possible sale at a price of 10.75 pence per piece,

By mistake, the defendants offered the sale at a price of 10.25 pence per pound, which worked out to about 3.75 pounds per piece,

Court found that the plntf must have realized a mistake had occurred before snapping up the offer and his claim for breach of contract was denied

Snapping up occurs here: vendor misstates the price in the document, the buyer knows this and snaps it up Oppong says:

o This case decides that in cases of unilateral mistake – i.e. where the mistake of X is known to Y – Y is taken to have known what would have been obvious to a reasonable person in the light of the surrounding circumstances.

o Why is knowledge so central in cases of unilateral mistake? Unilateral mistake cases almost always look like fraud cases, this is a means of differentiating

the two. Also note, mistake is about consent and thus knowledge is important as it pertains to consent

o Would you have decided the case the same way if the plaintiff had taken delivery of the Argentine hare skin and sold it on to a third party?

o Discuss the view that in cases of unilateral mistake in addition to knowledge of the mistake the non-mistaken party should have deliberately encouraged the mistaken party in his or her mistake.

R. v. Ron Engineering & Construction (Eastern) Ltd. [1981] SCC (Unilateral Mistake – An owner cannot accept a tender if he knows there is a mistake in the tender, because this is a commercial example of snapping up in a commercial situation)Facts:

the contractor submitted his tender accompanied by a certified cheque for $150,000 that was to be returned after the execution of the contract and the receipt of the performance bond and the payment bond.

The bid submitted was discovered to be in error after the opening of tenders: an amount of $750,058 had been omitted from the total sum tendered.

The tender documents included the term that if a tender were withdrawn, or if the Commission did not receive the executed agreement within a certain time, the Commission could retain the deposit.

Although the contractor requested by telex to withdraw its tender without penalty, it maintained in subsequent correspondence and in these proceedings that it had not withdrawn its tender but that, by reason of the notice of its error given to the owner prior to acceptance of the tender, the offer was not capable of being accepted.

The owner, after receiving the contractor’s notice of the mistake and in response to the contractor’s position that the offer was not revoked, submitted the contract in prescribed form for the contractor’s signature

Issue:

Holding: A unilateral contract, contract A, arose automatically upon the submission of a tender between the contractor and

the owner whereby the tenderer could not withdraw the tender for a specified period of time, after which, if the tender had not been accepted, the deposit could be recovered by the tenderer

The principal term of contract A was the irrevocability of the bid and the corollary term was the obligation in both parties to enter into a construction contract, contract B, upon the acceptance of the tender. The deposit was required to ensure the performance by the contractor-tenderer of its obligations under contract A.

It is not correct to say that when a mistake was proven after the tenders were opened by the production of reasonable evidence, the person to whom the tender was made could neither accept the tender nor forfeit the deposit.

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o The test was to be imposed when the tender was submitted, not at a later date, and at that time the rights of the parties under contract A crystallized, at least in circumstances where the tender was capable of acceptance in law.

There was no question of mistake on the part of either party before the moment when contract A came into existence. The tender, despite its being the product of a mistaken calculation, could be subject to the terms and conditions of contract A so as to invoke forfeiture of the deposit

No mistake existed which impeded the coming into being of contract A. The effect of a mistake upon the formation, enforceability or interpretation of a subsequent construction contract need not be considered in this case.

The issue did not concern the law of mistake but the application of the forfeiture provisions contained in the tender documents. The deposit was recoverable by the contractor under certain conditions, none of which was met

Solle v. Butcher (1949), [1950] (Eng CA) (Common mistake in EQUITY test-apply this after Great Peace [common law] - Court has power to set aside a contract that is binding in law on the ground of common mistake – this case rarely followed)Denning JFacts:

Butcher owned house with 5 flats it that required repairs, which he undertook with his business partner Solle Solle expressed interest in renting one of the flats, parties discussed whether the the repairs would exclude the flat

from the governing rent control legislation Solle advised that the rebuilt flat would not be subject to rent control, they subsequently entered a 7 year lease at

rate of 250, but later found out that the rent was fixed by statute at 140 Solle brought action to recover the overpayment after discovering the mistake

Issue:

Holding: There are two kinds of mistake:

o Mistake that renders the contract void (a nullity from the beginning – common law) o Mistake which renders the contract not void, but voidable, liable to be set aside on such terms as the

court thinks fit (equity) Here there was a contract – parties agreed to the same terms on the same subject matter

o The landlord was under a mistake which was to him fundamental – he made the fundamental mistake of believing that the rent he could charge was not limited to a controlled rent, but whether it was his own mistake or a mistake common to both him and the tenant, it is not a ground for saying that the lease was from beginning a nullity

o This was common mistake because they were both mistaken about the same fact Considering mistakes which render a contract voidable,

o A contract will be set aside if the mistake of 1 party has been induced by a material mispresentation of the other, even though it was not fraudulent or fundamental, or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and conclude a contract on the mistaken terms instead of pointing out the mistake

o Apply Great Peace Shipping test first (Common Law) o (EQUITY –TEST) A contract is also liable in equity to be set aside if the parties were under a

common misapprehension either as to facts or as to their relative and respective rights, provided that:

1) the misapprehension was fundamental, and Ex. Factors to consider for fundamental:

o How important is this term to the contract?o What is the impact of that mistake on the contract (performance)?

2) that the party seeking to set it aside was not himself at fault

Here the tenant was the agent for letting and he clearly formed the view that the building was not controlled, he told the valuation officer so; and he advised the landlord

The landlord relied on what the tenant told him and authorised the tenant to let at the rentals which he had suggested

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o The tenant not only let the four other flats to other people for a long period of years at the new rentals, but also he took one himself for seven years at 250 a year

o By reason of common misapprehension, this lease can be set aside on such terms as the court thinks fit Oppong: Was this a mistake of fact or mistake of law??

o Mistake of fact has to deal witho Mistake of law does not allow a contract to be set aside – ignorance of the law is not an excuse –

this case looks like a mistake of lawo Historically the distinction mattered – however, this distinction no longer matters

The case distinguishes between mistake in equity and mistake in common law – o The approach in equity is much more flexible which is reflected in 2 levels:

First, it makes it voidable, not void like common law Second, when a contract is voidable as such, there is greater flexibility in terms of rectification The test for mistake in equity is much more flexible –SEE the

The principle of ignorance of the law is no excuse thus does not apply to civil matters anymore as this doesn’t make sense due to the difficulty of knowing the law resulting from judge made decisions – this principle was originally the rationale behind not allowing mistake of law cases – but courts ultimately decided this no longer made sense

Great Peace Shipping v. Tsavliris Salvage [2002] (Eng. CA) (COMMON LAW APPROACH - 5 requirements for a common mistake to be able to make a contract void)Facts:

Tsavliris (a salvor) were advised a vessel named "Cape Providence" was in trouble. They used the Ocean Routes service to try and find a salvage tug nearby, and were told that there was one about

35 miles away called the "Great Peace" Tsavliris contacted its owners, and agreement was made to hire the tug for a minimum of five days. It then became apparent that the Great Peace was not 35 miles from the Cape Providence, but 410 miles. Tsavliris

then found a closer tug and terminated the contract with Great Peace Ltd. GP Ltd sued. Tsavliris argued it was a common mistake as to the location of the stricken vessel and this

invalidated the contract.Issue:

Holding: The issue in relation to common mistake turns on the question of whether the mistake as to the distance apart of

the two vessels had the effect that the services that the Great Peace was in a position to provide were something essentially different from that to which the parties had agreed (Answered later?)

Mistake In Equityo In Solle - Denning identified the requirement of a common misapprehension that was fundamental and

that adjective has been used to describe the mistake in those cases which have followed Solleo A common factor in Solle and subsequent cases is that the effect of the mistake has been to make the

contract a particularly bad bargain for one of the partieso Bell v. Lever Brothers? – this court concludes it is impossible to reconsile Solle and Bell

If coherence is to be restored to this area of law, it can only be by declaring that there is no jurisdiction to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable on ordinary principles of contract law

Result in this Caseo Revert to the question that was left unanswered above – was the distance between the two vessels so

great as to confound that assumption and to render the contractual adventure impossible of performance? If so, the appellants would have an arguable case that the contract was void under the principle in Bell v Lever Brothers Ltd

Counsel for the appellant submitted that it was not legitimate for the Judge to have regard to the fact that the appellants did not want to cancel the agreement with the Great Peace vessel until they knew whether the could get a nearer vessel to assist – this court disagrees

– the reaction was a telling indication that the fact that the vessels were considerably further apart than the appellants had believed did not mean that the services that the Great was in a position to provide were essentially different from those which the parties had envisaged when the contract was concluded

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(Taken from full case reading of Miller Paving on CanLii)o Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd., [2003] Q.B. 679 (C.A.), may have

changed things for that country. In that case, after a detailed analysis, the Court of Appeal was of the view that Solle could not stand with Bell and therefore should not be followed. In addition to apparently eliminating the equitable doctrine, the court also elaborated and restated the test for declaring a contract void at common law. At p. 703, the following is said:

[T]he following elements must be present if common mistake is to void a contract: 1. there must be a common assumption as to the existence of a state of affairs; 2. the state of affairs may be the existence or a vital attribute of the consideration;

or circumstances that must subsist if the contract is to be performed 3. there must be no warranty by either party that that state of affairs exists; 4. the non-existence of the state of affairs must not be attributable to the fault of

either party; 5. the non-existence of the state of affairs must render performance of the

contract impossible; (this case falls apart on this step, they could not demonstrate that the performance of the contract would be impossible)

(an important consideration) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

Oppong:Miller Paving Ltd. v. B Gottardo Construction Ltd. [2007] (Ont. CA) (THIS IS THE GO TO TEST FOR COMMON MISTAKE- Incl. Common Law, Equity, and some other shit)Facts:

Miller Paving Limited (“Miller”) contracted to supply aggregate materials to the respondent B. Gottardo Construction Ltd. (“Gottardo”), which then used the materials for a highway extension it had contracted to build for the owner of the highway.

On December 20, 2001, Miller and Gottardo signed an agreement in which Miller acknowledged that it had been paid in full for all the materials it had supplied.

Then, on January 31, 2002, it rendered a further invoice after discovering deliveries for which it had not billed Gottardo. Gottardo relied on the December 20 agreement to resist the claim, although Gottardo had itself been paid by the owner for most of these materials.

Miller advanced its claim first on the basis of materials sold and delivered pursuant to its supply contract, and in the alternative, based on the doctrine of unjust enrichment.

The trial judge found that the December 20 agreement stood as a complete bar to both, and concluded that the misapprehension as to the facts did not justify setting the contract aside

Issue: Did the trial judge err in failing to properly apply the doctrine of common mistake to the December 20

agreement?Holding:

trial judge reached the correct decision. I would therefore dismiss the appeal There can be no doubt that this is a case of common mistake. Miller and Gottardo reached an agreement on

December 20, 2001 on the terms of their memorandum of release, but shared an error with respect to an important contextual circumstance, namely that all material supplied by Miller had been paid for by Gottardo.

At the time, each thought that this was so. The question is whether in all the circumstances the contract should be set aside because of that common mistake.

o As in other areas of law, the Canadian doctrine of common mistake has drawn heavily on its English antecedents. The two most important cases are Bell v. Lever Brothers Ltd., Solle v. Butcher

o Bell articulated the test for determining whether a contract is void for mistake at common law. The well known opinion of Atkin L.J. in that case is most often cited. His view was that for the doctrine to operate, it must be shown that the subject matter of the contract has become something essentially different from what it was believed to be

o Solle, Denning L.J. developed the equitable jurisdiction to set aside as voidable contracts that might be found enforceable at common law. This allowed the court to relieve for common mistake when it would be “unconscientious” in all the circumstances to allow a contracting party to avail itself of the legal advantage it had obtained, and where this could be done without injustice to third parties

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o At this point, the test in Great Peace has not been adopted in Canada, but it provides a useful aspect nonetheless as below:

“it must be noted that Great Peace does provide one useful reminder that is of significance here, whether or not its approach to common mistake is adopted in Canada. It is that in considering whether to apply the doctrine of common mistake either at common law or in equity, the court should look to the contract itself to see if the parties have provided for who bears the risk of the relevant mistake, because if they have, that will govern” – [27]

the December 20 “Memorandum of Release” as it is titled, is just such a contract. It clearly provides that it is the supplier that “acknowledges and agrees that payment in full has been received for the materials supplied.” Moreover, the billing practice here, as with most supply contracts, made it the responsibility of the supplier to determine what was owing for the material supplied and to then invoice for that amount.

When the contract language is read in the context of this factual matrix, I conclude that the contract clearly allocates to Miller the risk that payment in full has not been received. I would therefore find that the December 20 agreement itself requires Miller to bear the consequence when that risk transpires, rather than allowing it to invoke the doctrine of common mistake.

However, even if Miller can resort to the doctrine of common mistake, it cannot succeed in setting aside the December 20 agreement.

o First, to apply the common law approach found in Bell, Miller must show that as a result of the common mistake, the subject matter of the contract has become something essentially different from what it was believed to be. – this is not so

o Second, to engage the equitable doctrine of common mistake as described in Solle, Miller must show that it was not at fault. – again, this is not so

Test:o First, you must identify the mistakeo Second, decide whether the risk of that mistake was allocated to one of the parties

In doing that, your first place to look should be the contract. Did the parties allocate the risk in the contract? Check first if there are express terms stating so. If not, are there implied terms? If yes, this is the end.

o Is the contract void at common law?? (Great Peace Test) If yes, then end of story

o If not void at common law, then assess if it is void at equity? (Apply Solle test) If yes, are there any circumstances that should prevent you from setting aside the contract.

Check the conduct of the party seeking to set aside the contract (Ex. affirmation, lapse of time, third party rights)

Shogun Finance Ltd. v. Hudson [2002] UKHL (Mistake of identity - When parties are dealing face to face, there is a strong presumption they are intending to deal with each other; unless this is rebutted, when dealing strictly in paper, no presumption that the parties are intending to deal with which each other because the persons identity is in the terms of the contract; a mistaken party can set aside a contract, but only before third parties acquire rights in good faith) Denning LordFacts:

A rogue went to buy a Mitsubishi Shogun on hire purchase. The rogue told Shogun Finance Ltd that his name was Mr Patel and produced Mr Patel’s driving licence.

The finance company did a credit check on Mr Patel, finding no problems, and the rogue drove away. Then, the rogue sold the car to Mr Norman Hudson. Under s.27 Hire Purchase Act 1964 a non-trade buyer of a car who buys in good faith from a hirer under a hire purchase agreement becomes the owner, so Mr Hudson would have been the owner if the hire purchase agreement were valid.

Shogun Finance argued that it was not on the basis that there was a mistake as to identity. They therefore claimed against Mr Hudson for conversion

Issue:

Holding: ‘A makes an offer to B. B accepts it, believing that he is dealing with C. A knows of B's mistake, and may even

have deliberately caused it. What is the result of the transaction? Is there a contract at all? There is obviously no contract with C, who is not a party to the transaction and knows nothing of it. But is there a contract with A? And if so is it void or merely voidable? Generations of law students have struggled with this problem. They may be

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http://en.wikipedia.org/w/index.php?title=Hire_Purchase_Act_1964&action=edit&redlink=1

http://en.wikipedia.org/wiki/Hire_purchase


forgiven for thinking that it is contrived by their tutors to test their mettle. After all, the situation seems artificial and is one which is seldom likely to arise in practice, at least in the absence of fraud’. [Per Lord Millet].

“As the contract was a written document, the identity of the hirer falls to be ascertained by construing that

document. Adopting that approach, the hirer was, or more accurately purported to be, Mr. Patel. As he had not authorised the conclusion of the contract, it was void”.

“Where two individuals deal with each other, by whatever medium, and agree terms of a contract, then a contract will be concluded between them, notwithstanding that one has deceived the other into thinking that he has the identity of a third party. In such a situation the contract will be voidable but not void”. Comment on this approach to resolving cases of mistake in identity cases

Performance Industries Ltd. v Terrance O’Connor Sylvan Lake Golf & Tennis Club Ltd [2002] SCR (Unilateral mistake - 4 Prerequisites for Rectification which is an equitable remedy) McLachlin CJFacts:

respondent operated an 18-hole golf course. The appellant O entered into negotiations with B, the respondent’s principal, for a joint venture. The trial judge found that B and O made an oral agreement, which included an option on the 18th fairway for a specific residential development to be undertaken by B.

During the negotiations, B discussed with O photographs and plans of a double row of houses clustered around a cul-de-sac along the length of the 18th fairway. W

o hen O’s lawyer reduced the terms of the oral agreement to writing, the option clause accurately specified the 480-yard length of the proposed development, but instead of sufficient width to permit a double row of houses (approximately 110 yards), the clause as written allowed only enough land for a single row of houses (110 feet).

o When B sought to exercise the option, O insisted on the written terms, despite knowing that these terms did not accurately reflect the prior oral option agreement.

Issue:

Holding: The necessary preconditions to obtaining the equitable remedy of rectification of the contract are met in this case.

(As an equitable remedy, it is discretional – thus meeting these 4 factors does not necessarily mean that the remedy will be issued)

o First, the respondent has shown the existence and content of an inconsistent prior oral agreement. There was a definite project in a definite location to which O and B had given their definite assent. Although the parties did not discuss a metes and bounds description, they were working on a defined development proposal

o Second, it was found that O(defendant) had fraudulently misrepresented the written document as accurately reflecting the terms of the prior oral contract. the def know or ought to have known of the mistake?

o Third, the precise terms of rectification are readily ascertained, namely to change the word “feet” in the phrase “one hundred ten (110) feet in width” to “yards”.

o Fourth, there is convincing proof of B’s (plaintiff’s) unilateral mistake and O’s (defendant) knowledge of that mistake. Basically, establish all of the above with convincing proof. B’s version of the oral agreement was sufficiently corroborated on significant points by other witnesses and documents.

The discretion will be assessed by considering, among other things, the conduct of the party. o While as an experienced businessman, B ought to have examined the text of the option clause before

signing the document, due diligence on the part of the plaintiff is not a (fifth) condition precedent to rectification

The award of punitive damages in this case should not be restored as it does not serve a rational purpose. Only in exceptional cases does tort attract punitive damages. An award of punitive damages is rational “if, but only if” compensatory damages do not adequately achieve the objectives of retribution, deterrence and denunciation

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Summary of Law: Unconscionability & Illegality 1. Unconscionability

In modern contract law, where terms to a contract are excessively unfair to one party, the doctrine of unconscionability may be invoked as a defence against the enforcement of that contract. The doctrine may be invoked both in equity and under statute. In equity, there are two essential elements that must be established in order to invoke the doctrine: first, one must establish that there was some form of inequality between the positions of the parties. (examples include distress, recklessness, wildness, want of care or ignorance); second, one must also establish that there is substantial unfairness in the bargain obtained by the stronger party Morrison v. Coast Finance Ltd. (1965). The test applied in equity for cases of unconscionability is often seen to be quite broad. It asks whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that is should be rescinded?: Harry v. Kreutziger (1978). As noted, this test is rather broad and in reality has been shown to be difficult to apply in some cases. When the unconscionability can be established, this renders a contract voidable, thus requiring this disadvantaged party to take steps to bring an end to the contract. In addition to any specific remedies that statute may afford (more on this later), the remedy available to a party is rescission.

In addition to equity, the doctrine is also covered by statute. In British Columbia, the Business Practices and Consumer Protection Act SBC 2004 c. 2 ss. 7-10 covers this issue. Broadly speaking, the aforementioned provisions describe that an unconscionable act may occur before, during or after a transaction; provides examples of circumstances to consider; places the burden of proof on a supplier; and outlines remedies available to the court.

Often, differentiating between the doctrine of unconscionability and the doctrine of undue influence may prove to be a difficult task. Both have common parentage as they are both founded in the court of equity. In addition, both are found on the basis of the relationship between the contracting parties. However, there is a key distinction between the two. Undue influence focuses on the issue of consent between the contracting parties and therefore pertains more to the formation of the contract itself. Unlike undue influence, unconscionability addresses the fairness and reasonableness of a transaction. Also, unconscionability looks at the specific terms of the contract, not the formation of the contract itself. In recent years, there has been much academic debate regarding the potential merger of the doctrines of duress, undue influence and unconscionability in a single doctrine, which could, for example, be known as the doctrine of inequality of bargaining power. However, this issue will not be discussed here.

2. Illegality When approaching the doctrine of illegality, it is important not to strictly affiliate the doctrine’s name with the

layman’s use of the word illegality. Instead, illegality here means that the action goes against some rule of law either founded in statute or common law; many of these acts will not result in a crime being committed, although that may not always be the case. Statutory illegality is relatively straightforward in that it pertains to an act that contradicts a provision of some established statute. Under common law, years of jurisprudence have established a variety of rules that can result in illegality. These include: contracts that restrain trade; contracts to commit crimes or perform illegal wrongs such as torts; contracts prejudicial to good public administration; contracts prejudicial to good foreign relations; contracts which involve or encourage immorality; contracts affecting marriage; and contracts affecting public policy.

In general the basic effect of illegality is to render the contract unenforceable. In other words no action can be founded on the contract. It is a fundamental legal principle that ex turpi causa non oritur action, meaning no action can be founded on a base cause. In general property, including money that has been transferred under an illegal contract cannot be recovered. The courts may however allow a party to recover property transferred under an illegal contract where: both parties are not equally blameworthy (in pari delicto); the party seeking to recover repented of the illegality before execution of the contract (locus poenitentiae); and the party seeking recovery is able to base the claim on without relying on the illegal contract.

There are several tests for unconscionability –state them all – then apply the one, Morrison is the most commonly applied test

Morrison v. Coast Finance Ltd. (1965) BCCA (2 requirements for invoking unconscionability and creating a presumption of unconscionability) This is the most commonly applied testDavey JAFacts:

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Appellant (Morrison), an old widow of meagre means, was persuaded by 2 men (Lowe & Kitely) to borrow $4,200 from the respondent Coast Finance Ltd – money was to be given to Lowe and Kitely to pay off debts and purchase cars

Appellants debt was to be paid at 300/month which was to be secured from payments to be made by Lowe at the finance company’s officer on her account - she had no other means of repaying – house was her only asset

She had no independent advice, but evidence shows she wanted and asked for helpIssue:

Was it unconscionable for Lowe and Kitely and the two companies to have the appellant mortgage her home in order to secure the money to lend to Lowe and Kitely to enable then to pay off debts and purchase cars?

Holding: YES Undue influence vs. unconscionability

o Undue Influence attacks the sufficiency of consento A please that a bargain is unconsciounable invokes relief against an unfair advantage gained by an

unconscientious use of power by a strong party against a weaker, focuses more on the substantive terms contract instead

To invoke unconsciounability:o 1) Proof of inequality in the position of the parties arising out of the ignorance, need or distress of

the weaker which left him in the power of the stronger o 2) Proof of substantial unfairness of the bargain obtained by the stronger Establish substantial

unfairness of the bargain – look at the substantive terms o On proof of the above, a presumption of fraud is created

Presumption can be rebutted by the stronger party by proving the bargain was fair, just and reasonable, consider these factors

No advantage was taken? Did the weaker party derive any benefit? Did the weaker party get independent legal advice?

The finance company was engaged in the business of financing automobile purchases and lending money on mortgages, the other respondent company was an automobile dealer – they shared adjoining offices and had one common officer manager (Crawford)

There was a clear inequality in the position of the appellant and respondent companies and Lowe and Kitely - the respondent companies knew the essential facts, and undertook the preparation of the documents for the transaction – for them to take advantage of her obvious ignorance and inexperience in order to further the respective business raises a presumption of fraud

o Can’t rebut this presumption – evidence supports gross overreaching by the resp. companies – they received loan application from Lowe and kaitely, Crawford obtained valuation of appellants home without ever seeing her; appellant expressed need of advice

Oppong’s notes:o Pay attention to the character of the parties and the circumstances under which

Marshall v. Can. Permanent Trust Co. (1968) Alta SC (Alternatively provides a different test from Morrison, can apply either: 1) was the weaker party incapable of protecting his interest and 2) the transaction was improvident (ex. can I forsee this is a good deal for me?) for him ) Kirby JFacts:

Plntf offered to purchase land from def – the offer was accepted by the John A Walsh (owner), cash in the sum of $1000 was paid by the purchaser to the vendor - at the time, Walsh was a patient at Bow View Rest Home

Plntf stated that Walsh said that he did wish to sell for cash and felt that he should get between 7K -8K; and that Walsh pointed out that the land was under a lease; that he offered 7K and would take over the lease – through an ee of the rest home, he was put in touch with the def. who in turn referred him to a solicitor who drew up the offer to purchase and acceptance

Plntf returned to the Home and had Walsh sign the offer in the presence of a witness (member of the staff) and gave him a cheque for 100, Walsh signed it and instructed him to give to his solicitor for deposit

Later, plntf received a letter from solicitors informing that the transfer would not be delivered – and they were in the process of appointed a committee for Walsh – later, the def was apponted a committee for the estate of Walsh under Mentally Incapacitated Persons Act

Issue:

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Was the agreement for sale of land secured under conditions sufficient to establish unconscionabilty?Holding:

Yes Court refers to Knuff v. Bell:

o “the courts intervene to rescind the contract whenever it appears that one of the parties was incapable of adequately protecting his interests and the other has made some immoderate gain at his expense…. If one was not preyed upond by the other, an improvident or even groslly inadequate consideration is no ground upon which to set aside a contract freely entered into. It is the combination of inequality and improvidence which alone may invoke this jurisdiction”

On the basis of these principles, in this case, the plaintiff’s claim for specific performance must fail if it is established:

o That victim was incapable of protecting his interest (-it is immaterial whether wrongdoer was aware of victim’s incapacity); and

o That it was a improvident (thoughtless) transaction for victim (onus rests with plntf to show that the price given for the land corresponded to its fair value)

this test focuses entirely on the victim and is more subjective- assesses capabilities of the individual, and the thoughtlessness of the transaction

For the first requirement: o Walsh was 68, his doctor testified he had symptoms typical of brain damage due to hardening of arteries,

Walsh had a minor stroke, was on various medications o Thus he was incapable of protecting his interests

Second requirement:o Walsh had previous been offered considerably more – thus the price agreed upon was less than the

value of the land, it was therefore an improvident transaction

Harry v. Kreutziger (1978) BCCA (2 Alternative tests for unconscionability: 1. Was there an inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain [Application is Morrison]. Or 2. It has to be decided whether the transaction is sufficiently divergent from community standards) –Opp likes test 1 & Morrison approachMcIntrye JA Facts:

Appellant has a hearing defect, has a grade 5 education, is mild, inarticulate, retiring person, and is not experienced in business matters – he is a fisherman and logger

The boat itself worth little, but the fishing license attached has great value – he was approached by a buyer who gave him a cheque for 2,000

Appellant initially decided against the sale and had the cheque returned, the respondent returned and slipped the cheque under the appellants door;

o a later meeting occurred where the respondent assured the appellant that he would be able to get a new license for a new boat, cheque was handed back and forth several time, each with the appellant refusing to sell, finally it was agreed that the boat would be sold for 4,500

o buyer knew it was worth 16,000Issue:

Did appellant enter into this bargain under such circumstances (constituting unconscionability) that the court will exercise its equitable jurisdiction to rescind the contract and return the contracting parties to their original position?

Holding: The bolded rule above in Morrison is restated Appeal will succeed, contract will be rescinded All the characteristics of the appellant demonstrate that he was an unequal party

o Respondent was adament and aggressive; he made assurance w.r.t. licenses when in fact he had no knowledge of how this worked & he knew this was of vital importance to him

The position taken by the appellant’s counsel was that the appellants ignorance, coupled with pressures exerted upon him by the respondent caused the inequality of the bargaining position –

o This court’s view, the improvidence was shown – the appellant was so dominated and overborne by the respondent that he was ‘within the power of the respondent’

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Lambert JA (offers an alternative means of assessment – Community Standard) Agrees with much of what McIntyre says, but offers alternative assessment: “I am not satisfied that the principle so stated exhausts all cases where rescission might be order under the rubric

of unconscionable bargain” After synthesizing the principles from Morrison and Bundy, Lambert proposes a single question that encompasses

all of the above:o Test: Single question is “Whether the transaction, seen as a whole, is sufficiently divergent from

community standards of commercial morality that it should be rescinded”o This question prevents the real issue from being obscured by an isolated consideration of a number of

separate questions Answer this question by:

An examination of the decided cases and a consideration of the fact patterns that require that the bargain be rescinded and those that do not. – Canadian cases are more relevant, as a recent ones – more likely to reflect community standard

Also seek guidance from legislationo The whole of the circumstances here should that the bargain revealed such a marked departure from

community standards of commercial morality that the contract of purchase and sale should be rescinded Oppong’s says:

o This case sets out two alternative tests for unconscionability: 1. it must be shown that there was inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. Alternatively 2. It has to be decided whether the transaction, seen as a whole, is sufficiently divergent from community standards of morality that it should be rescinded. 1. Compare and contrast the two tests? 2. Which one would you prefer? 3. Indeed, should courts have power to rescind a contract on the basis of unconscionability?

o ‘On the whole of the evidence, it is also my view that the appellant was so dominated and overborne by

the respondent that he was within the power of the respondent in these dealings’. Assuming there is no doctrine of unconscionability and given the facts of the case explore an alternative basis upon which the appellant could have rescinded the contract.

Business Practices and Consumer Protection Act ss 4-10Deceptive acts or practices4 (1) In this Division:"deceptive act or practice" means, in relation to a consumer transaction,(a) an oral, written, visual, descriptive or other representation by a supplier, or(b) any conduct by a supplierthat has the capability, tendency or effect of deceiving or misleading a consumer or guarantor;"representation" includes any term or form of a contract, notice or other document used or relied on by a supplier in connection with a consumer transaction.(2) A deceptive act or practice by a supplier may occur before, during or after the consumer transaction.(3) Without limiting subsection (1), one or more of the following constitutes a deceptive act or practice:(a) a representation by a supplier that goods or services(i) have sponsorship, approval, performance characteristics, accessories, ingredients, quantities, components, uses or benefits that they do not have,(ii) are of a particular standard, quality, grade, style or model if they are not,(iii) have a particular prior history or usage that they do not have, including a representation that they are new if they are not,(iv) are available for a reason that differs from the fact,(v) are available if they are not available as represented,(vi) were available in accordance with a previous representation if they were not,(vii) are available in quantities greater than is the fact, or(viii) will be supplied within a stated period if the supplier knows or ought to know that they will not;(b) a representation by a supplier(i) that the supplier has a sponsorship, approval, status, affiliation or connection that the supplier does not have,(ii) that a service, part, replacement or repair is needed if it is not,

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(iii) that the purpose or intent of a solicitation of, or a communication with, a consumer by a supplier is for a purpose or intent that differs from the fact,(iv) that a consumer transaction involves or does not involve rights, remedies or obligations that differs from the fact,(v) about the authority of a representative, employee or agent to negotiate the final terms of a consumer transaction if the representation differs from the fact,(vi) that uses exaggeration, innuendo or ambiguity about a material fact or that fails to state a material fact, if the effect is misleading,(vii) that a consumer will obtain a benefit for helping the supplier to find other potential customers if it is unlikely that the consumer will obtain the benefit,(viii) that appears in an objective form such as an editorial, documentary or scientific report if the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or promotion, or(ix) to arrange for the consumer an extension of credit for a fee, unless the fee is deducted from the advance, as defined in section 57 [definitions];(c) a representation by a supplier about the total price of goods or services if(i) a person could reasonably conclude that a price benefit or advantage exists but it does not,(ii) the price of a unit or instalment is given in the representation, and the total price of the goods or services is not given at least the same prominence, or(iii) the supplier's estimate of the price is materially less than the price subsequently determined or demanded by the supplier unless the consumer has expressly consented to the higher price before the goods or services are supplied;(d) a prescribed act or practice.Prohibition and burden of proof5 (1) A supplier must not commit or engage in a deceptive act or practice in respect of a consumer transaction.(2) If it is alleged that a supplier committed or engaged in a deceptive act or practice, the burden of proof that the deceptive act or practice was not committed or engaged in is on the supplier.Advertising6 (1) In this section, "advertiser" means a supplier who publishes advertisements.(2) An advertiser who, on behalf of another supplier, publishes a deceptive or misleading advertisement is not liable under section 171 [damages recoverable], 172 [court actions respecting consumer transactions] or 189 [offences] if the advertiser proves that the advertiser did not know and had no reason to suspect that its publication would contravene section 5.(3) An advertiser, for each advertisement accepted, must maintain a record of the name and address of the supplier who provides the advertisement.Division 2 — Unconscionable Acts or PracticesApplication of this Division7 Nothing in this Division limits, restricts or derogates from a court's power or jurisdiction.Unconscionable acts or practices8 (1) An unconscionable act or practice by a supplier may occur before, during or after the consumer transaction.(2) In determining whether an act or practice is unconscionable, a court must consider all of the surrounding circumstances of which the supplier knew or ought to have known.(3) Without limiting subsection (2), the circumstances that the court must consider include the following:(a) that the supplier subjected the consumer or guarantor to undue pressure to enter into the consumer transaction;(b) that the supplier took advantage of the consumer or guarantor's inability or incapacity to reasonably protect his or her own interest because of the consumer or guarantor's physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of the consumer transaction, or any other matter related to the transaction;(c) that, at the time the consumer transaction was entered into, the total price grossly exceeded the total price at which similar subjects of similar consumer transactions were readily obtainable by similar consumers;(d) that, at the time the consumer transaction was entered into, there was no reasonable probability of full payment of the total price by the consumer;(e) that the terms or conditions on, or subject to, which the consumer entered into the consumer transaction were so harsh or adverse to the consumer as to be inequitable;(f) a prescribed circumstance.Prohibition and burden of proof9 (1) A supplier must not commit or engage in an unconscionable act or practice in respect of a consumer transaction.(2) If it is alleged that a supplier committed or engaged in an unconscionable act or practice, the burden of proof that the unconscionable act or practice was not committed or engaged in is on the supplier.Remedy for an unconscionable act or practice

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10 (1) Subject to subsection (2), if an unconscionable act or practice occurred in respect of a consumer transaction, that consumer transaction is not binding on the consumer or guarantor.(2) If a court determines that an unconscionable act or practice occurred in respect of a consumer transaction that is a mortgage loan, as defined in section 57 [definitions], the court may do one or more of the following:(a) reopen the transaction and take an account between the supplier and the consumer or guarantor;(b) despite any statement or settlement of account or any agreement purporting to close previous dealings and create a new obligation, reopen any account already taken and relieve the consumer from any obligation to pay the total cost of credit at a rate in excess of the prevailing prime rate;(c) order the supplier to repay any excess that has been paid or allowed by the consumer or guarantor;(d) set aside all or part of, or alter, any agreement made or security given in respect of the transaction and, if the supplier has parted with the security, order the supplier, to indemnify the consumer;(e) suspend the rights and obligations of the parties to the transaction.

KRG Insurance Brokers (Western) Inc. v. Shafron (2009) SCC (Illegality – Restrictive covenants are generally restraints of trade and contrary to public policy; freedom to contract requires an exemption for reasonable restrictive covenants; reasonableness of covenant determined by geographical and period of effective time; restrictive convenants and notional & blue-pencil severance are tools that can be used to correct the terms )Rothstein JJFacts:

1987, S sold his insurance agency to KRG. KRG renamed the agency KRG Western and in 1991, sold the agency to another party.

S was employed by KRG Western from 1987 to 2001 pursuant to a series of employment contracts. Each employment contract contained a similarly worded restrictive covenant in which S agreed that for three

years after leaving his employment for any reason other than termination without cause, he will not be employed in the business of insurance brokerage within the “Metropolitan City of Vancouver”.

In January 2001, S began working as an insurance salesman for another agency in Richmond, B.C. KRG Western commenced an action to enforce the restrictive covenant.

Issue: Whether the doctrine of severance or rectification may be applied to resolve an ambiguity in a restrictive

covenant in an employment contract or render an unreasonable restriction in a covenant reasonable?o Is the term Metropolitan ambiguous?o Were the parties equal in their respective positions when agreeing on the condition of no employment in

Metropolitan Vancouver?Holding:

term “Metropolitan City of Vancouver” was uncertain and ambiguous. o Nothing demonstrates a mutual understanding of the parties at the time they entered into the contract as

to what geographic area the restrictive covenant covered and it was inappropriate for the Court of Appeal to re-write the covenant.

o the findings that S was not a fiduciary and did not abuse confidential information belonging to KRG Western are not pure questions of law.

Restrictive covenants generally are restraints of trade and contrary to public policy. Freedom to contract, however, requires an exception for reasonable restrictive covenants.

Normally, the reasonableness of a covenant will be determined by its geographic and temporal scope as well as the extent of the activity sought to be prohibited.

o Reasonableness cannot be determined if a covenant is ambiguous in the sense that what is prohibited is not clear as to activity, time, or geography.

o An ambiguous restrictive covenant is by definition, prima facie unreasonable and unenforceableCourts - Means of Correcting the Terms

Restrictive covenants in employment contracts are scrutinized more rigorously than restrictive covenants in a sale of a business because there is often an imbalance in power between employees and employers and because a sale of a business often involves a payment for goodwill whereas no similar payment is made to an employee leaving his or her employment

Notional severance , reading down a contractual provision so as to make it legal and enforceable, is not an appropriate mechanism to cure a defective restrictive covenant.

o Notional severance may be available where an objective bright line test exists to distinguish what is legal from what is not.

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o There is no objective bright-line test for reasonableness and applying notional severance simply amounts to a court rewriting a covenant in a manner that it subjectively considers reasonable.

o Employers should not be invited to draft overly broad restrictive covenants with the prospect that the court will sever the unreasonable parts or read down the covenant to what the courts consider reasonable.

This would change the risks assumed by the parties and inappropriately increase the risk that an employee will be forced to abide by an unreasonable covenant.

Blue - pencil severance , removing part of a contractual provision, may be resorted to sparingly and only in cases where the part being removed is clearly severable, trivial and not part of the main purport of the restrictive covenant. Blue-pencil severance cannot be applied to remove the word “Metropolitan” from the restrictive covenant in this case because it is not merely a trivial part of the covenant agreed to by the parties

Rectification cannot be invoked to resolve the ambiguity in this case. Rectification is used to restore what the parties’ agreement actually was, were it not for the error in the written agreement. Here, there is no indication that the parties agreed on something and then mistakenly included something else in the written contract. Rather, they used an ambiguous term in the contract

Still v. Minister of National Revenue (1997) FCCA (Illegality: Doctrine of Illegality divided into two categories: common law & statutory; common law illegality can be rendered unenforceable on the grounds that they are contrary to public policy; statutory illegality renders contracts void; BUT if the illegality goes to the performance of a contract as opposed to formation, a good faith party can be entitled to relief)Facts: P marries a Canadian citizen, immigrates – given a document she interprets to mean that she can work

in Canada (but doesn’t) – employed for 5 months, laid off – told she can’t apply for unemployment benefits because her work K was illegal. Note Immigration Act contains no punishments and applies only to those who intentionally break it and P acted in good faith.

Held: Traditional CL approach has so many exceptions written into it that it is worthless. New principles: Ifstatute makes forming K illegal, courts should decide consequences. When a K is expressly of impliedly prohibited by statute a court may refuse to grant relief to a party, when, in all of the circumstances of the case, including regards to the purpose of statutory prohibition, it would be contrary to public policy to do so. People should not profit form their own wrongs. Court can do nothing, or make a K void, voidable, or unenforceable. Unemployment Act aims to provide benefits to the needy, Immigration Act is concerned with not denying jobs to citizens so P should be able to recover.

New trial

Performance – Contract Law1. Introduction – the starting point is that the law imposes a duty to perform the contract – a duty to perform the terms of the contract - whenever there is a breach of contract, the victim is entitled to damages- the terms of the contract govern performance; thus if a problem arises, the terms should be the first place of call- and where the parties have not provided for a certain circumstance, contract law may imply rules or have existing rules in place

Order of performance – often the parties do not have to perform the duties under the contract at the same time – the contract may stipulate who is to perform what and when and contingent upon something, this will be informing – the order of performance is always an issue of construction of the contract, which can be interpreted through the terms

bilateral contracts Unilateral contracts

Excuses for non-performance – there are instances where a party may be excused for non-performance of a contract Agreement – the parties may have an agreement where one party has an agreement that excuses the other from

performance – this agreement should be binding, thus it should be a separate contract that is supported by consideration –

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o Wholly executory contracts – this poses no real problem where the contract has yet to be performed because both parties will promise to release each other from the obligation to have to perform their respective obligations

o Partially executed contracts – this is where one party has partially performed the contract but the other party as not performed – Ex. A is to sell B tomatoes for $20 – A has delivered the tomatoes, but B has not yet paid – Now say A has made an agreement that B will not have to pay… this leads to a partial performance with an agreement by A to release B from obligation – THIS RELEASE will NOT be binding unless B can demonstrate that:

1) s/he has provided consideration, 2) or that the promise was made under SEAL 3) or it was covered by the relevant legislation – See Law and Equity Act s.43 and Bills of

Exchange Act S. 141(1) as they both speak to this o Law and Equity Act

Rule in Cumber v. Wane abrogated43 Part performance of an obligation either before or after a breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation.

o Bills of Exchange ActRenouncing rights141. (1) When the holder of a bill, at or after its maturity, absolutely and unconditionally renounces his rights against the acceptor, the bill is discharged.(2) The liabilities of any party to a bill may in like manner be renounced by the holder before, at or after its maturity.(3) A renunciation must be in writing, unless the bill is delivered to the accept

o Waiver – where one party to a contract takes steps to amount to foregoing obligations (???) – a waiver need not

be supported by consideration, and it may be in writing or inferred from the conduct – the courts are generally reluctant to enforce waivers – the party looking to enforce the waiver must demonstrate full knowledge on the other party’s part – but nonetheless, a waiver may be able to excuse performance

Frustration – without the fault of either party, the contractual obligation has become impossible to perform – if you have a frustrating event, it discharges the parties from any future performance under the contract

Impossibility falling short of frustration - - there may be events that fall short of frustration, but nonetheless excuses performance

Contractual excuses for non performance – often a contract will contain provisions that specifically allow for non-performance

2. Imperfect Performance and PaymentCentral question: can a party who does not perform perfectly claim payment or performance from the other party?

-Ex. A builder contracts to construct a pool that is 7’6” deep, but in fact constructs a pool that is 6 feet deep but in all other respects is as it should be. Should that person be able to claim the full amount?

2.1 Common law position: Historically, the position has been that a party who does not perfectly/exactly perform is not entitled to claim the contract price or performance from the other party. [Sunter v Hedges, Botlon v Mahedeva- on the reading list under Performance ] Qualifications for this principle:

trivial deviations may be allowed (de minimis non curat lex) – Principle: when the amount of work has been carried out under a lump sum contract, and the work left out is very minor in relation to the whole contract, the contractor is entitled to the lump sum subject to deductions from the full amount for the deviations – what is a trivial deviation is a case by case assessment

terms may qualify need for strict performance – For example, so in some contracts a party will be given discretion as to how to perform.

divisible contracts – some contracts can be divided into parts – so the courts will assess whether some parts of the contract have been perfectly performed – thus you divide the contract into parts, and argue that the parts that of the contract that have been performed, have been performed perfectly

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2.2 Equity’s interventions: Equity intervenes where a party derives benefit from the contract, but loses nothing under the common law approach

doctrine of substantial performance {where there has been substantial, though not exact and literal performance by one party, the other party cannot treat himself as discharged. A party who has substantially performed is permitted to sue on the contract (this is distinct from suing for damages), subject to the other party’s claim for damages for his partial non-performance]

o This doctrine has a limited scope and thus DOESN’T apply to ALL contracts – Ex does the contract demand exact performance?

o Factors to consider when the doctrine is invoked in order to assess if the contract has been substantially performance

% of work completed Contract price Cost remedying those defects in whatever has been provided Ease with which the defects can be remedied

o When you come to the conclusion that the contract has been substantially performed, then the performing party is entitled to the contract price subject to the right of the other party to claim damages for the breach

doctrine of quantum meruit [where a person has has partially fulfilled his obligations under the contract and it is possible to infer from the circumstances a fresh agreement by the parties that payment shall be made for the work already done, that person can sue on a quantum meruit to recover remuneration proportionate to the benefit (distinguishes from substantial performance on this point, and note it is on the benefit, not contract price) conferred upon the other party]

o Note here, it is not suing on the original contract, it is a separate contracto

2.3 Pre-payments and deposits – the question we want to address here is whether a party who has made advanced payment (Ex. a deposit) may be able to recover that payment in the event of non-performance? The characterization of the prepayment is the fundamental point of analysis for this

-Stevenson v. Colonial Home – the answer to this question depends on how you characterize the payment: if you characterize as a deposit, then it is a guarantee of performance, and a party will not be entitled to have a it returned; if you characterize it as a part payment of the performance only, then you can recover it, again this is subject to the other party’s claim for damages.

3. Breach and Innocent PartyA party who does not perform the obligations in contract results in a breach. Every failure to perform, no matter how trivial, it will be a breach

Nature of breach – regardless of the nature of the breach (Ex. how trivial) the innocent party is always entitled to damages – Question for analysis: under what circumstances is the innocent party entitled to terminate the contract?

1. Where there has been a repudiation (this is a type of breach, but it comes with special rules) of the contract – this occurs where a party intimates by words or conduct that he does not intend to fulfil obligations under the contract – it may be express or implied and may be inferred from the conduct of the party – whether an actions constitutes a repudiation is a serious matter

a. Must demonstrate that the party had a very clear intention to no longer perform his side of the bargain; in assessing this, you want to pay attention to the nature of the contract, the surrounding circumstances, and the motive

b. The repudiation must also be wrongful and without justification for this doctrine to applyc. Repudiation (anticipatory breach) applies NO legal right on the innocent party unless the

repudiation is accepted/agrees to the repudiation – once it is accepted, the innocent party has the right to immediately to sue for damages – this will be unaffected by a lapse of time –

d. If the innocent party decides not to accept the repudiation – then the status quo remains – the contract is maintained for the benefit of both parties –

e. One a party decides whether or not to accept or reject the repudiation, this is final – thus one cannot decide to accept at one point, then later reject it

2. Where there has been a fundamental breach – this entitles the innocent party to treat the contract as though it has been discharged – like repudiation, it has to be accepted– there are two alternative ways to testing whether there has been a fundamental breach

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a. You can focus on the specific terms that are breachb. You can focus on how serious the consequences of the breach are

3. It is important to note that these two doctrines allow a contract to be discharged– thus allowing an innocent party to go beyond the mere award of damages – remember that all breaches allow for damages, but these two doctrines are the only two doctrines under this that will allow a discharge

Effects of breach of contract – typically one is entitled to damages – but the two doctrines above allow for termination

4. Contractual Provisions on Time and Termination Termination – parties are always free to provide termination provisions in the contract – this will tell who can

terminate the contract, under what circumstances, obligations to perform etc etco Where the grounds for termination are not expressly provided, the courts may infer the terms into the

contracto

Time – if the time is indeterminate, then you can bring it to a determinate time by with reasonable notice

Fairbanks Soap Co. v. Sheppard [1953] SCR (Abandonment of Contract - Where there is a contract to do work for a lump sum, until the work is completed or substantially completed, the price of it cannot be recovered; contract will not be substantially complete when the underlying purpose of the contract cannot be served in any way: see below; Quantum meruit can only applies when contracts can be broken down into distinguishable steps, and the def has the option to take or leave the semi-completed work- Abandonment overrides principles of substantial completion)Facts:

S contracted to build a machine for F for a price of 9800; F paid 1000 on account When the machine was nearly completed S refused to do more unless he was paid a further, 3000 F sued to recover the 1000 and for other consequential lossess; S counterclaim for the contract price

Issue: Is F entitled to recover the 1000 paid?

Holding: Rule: Where there is a contract to do work for a lump sum, until the work is completed or substantially

completed, the price of it cannot be recovered. Did the respondent substantially complete the contract?

o Noo At the time when the resp definitely refused to proceed further with the construction of the machine, it

was incomplete in several respectso The contract was to construct a machine to produce soap chips of a certain standard o The resp refused to do anything further at a time when on his own evidence the partially constructed

machine would not produce the soap chips at all, which is what it was intended for

Bolton v Mahadeva [1972] (Imperfect performance warrants no obligation by the other party to fulful their obligations [ie. Pay]) Facts:

Mr Walter Charles Bolton installed central heating for £560 in Mr T Mahadeva’s house. It was too cold, the heat came unevenly and it all gave off fumes. Bolton refused to correct it, which would cost £174. Mahadeva refused to pay any money at all. Bolton sued.

The Brentford Deputy County Court judge, Sir Graeme Finlay, held that the contract price needed to be paid, minus a sum for the cost of putting the heating system right (a total of £446, including labour).

Issue:

Holding: Bolton was entitled to nothing because there had been no substantial performance at all. At 1015 he said, ‘It is not

merely that so very much of the work was shoddy, but it is the general ineffectiveness of it for its primary purpose that leads me to that conclusion.

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Sumpter v Hedges [1898] (Defines Quantum Meruit- In order to recover on quantum meruit you must be able to distinguish the work done and work to be done; this can be inferred by the def having the option to take or leave the work) Facts:

The plaintiff had contracted to erect certain buildings for a lump sum; when the work was only partly done, the plaintiff said that he could not go on with it, and the judge has found that he abandoned the contract

Issue:?Holding:

There are cases in which, though the plntf has abandoned the performance of a contract, it is possible for him to raise the inference of a new contract to pay for the work done on a quantum meruit from the def’s having taken the benefit of that work, but, in order that that may be done, the circumstances must be such as to give an option to the def to take or not take the benefit of the work done

Where, as in the case of work done on land, the circumstances are such as to give the def no option whether he will take the benefit of the work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new contract

Stevenson v. Colonial Homes Ltd. [1961] (Difference between part payments and deposit – If a contract was breached, a deposit is not recoverable, but a part payment is – to determine the difference, use a plain language meaning of the terms of the contract) Facts:

Appellant sued for the return of 1000, a down payment made by him on the execution of a written contract for the purchase of a prefabricated cottage, delivery of which the appellant subsequently refused;

The def by its defence alleged that it was entitled to retain the 1,000 as having been forfeited by the appellant and in the alternative counterclaimed for damages for breach of contract

Issue: Was the 1000 a partial payment or a deposit?

Holding: The contract (and its terms) should be examined to see if the intention of the parties with respect to the 1000 can

be ascertained If the seller chooses to use words of uncertain meaning when he could have forgone any doubt by using

clearer, and more explicit language, a court should not imply any benefit to the seller If the resp had intended to induce the appellant to enter into a contract and pay money under conditions whereby

the money would have been forgeited in the event of default, it should have included the word deposit in its contract instead of down payment, or it should have spelled out the particulars in the contract

Frustration – Contract Law- Summary 1. Nature and Evolution

The doctrine of frustration has its roots in the recognition that some events may occur after the formation of a contract, which renders holding the parties to their bargain unjust or unfair, and accordingly the law intervenes to discharge parties from further performance under the contract. However, the rule on absolute contracts states that despite the above, if a party binds himself/herself to a contract absolutely, the fact that the performance has become impossible due to no one’s fault will not bar them from having to perform the contract: Paradine v Jane. The origins of the doctrine can be traced back to Taylor v. Caldwell, which provided the groundings of the doctrine, which was subsequently elaborated upon. The rule, at that time, existed to mitigate the harsh effects of the rule of absolute contracts. More specifically, the rationale behind the ruling in that case was that in the nature of the law of contracts, it is apparent that parties engage in the contract on the basis of the continued existence of the underlying person, chattel etc. From here, the House of Lords decision in Davis Contractors Ltd. v. Farehamd U.D.C. defined, for the first time, the term frustration. Lord Radcliffe stated that “frustration occurs whenever the law recognizes that without default of either party a contractual

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obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.”

The doctrine itself is rather flexible and is applicable to a variety of contracts, if not all contracts. Historically this was not the case, as it did not apply to leases or contracts for the sale of land. Despite the broad applicability, the doctrine is, however, very rigid in its application. The rationale for the rigidity in its application is that the consequences of a finding of frustration are rather dramatic and thus it should not be invoked lightly.

Before moving into the theoretical basis, it is important to distinguish frustration from common mistake. There exists a clear link between the two doctrines as both deal with the impossibility of performance. However, they are distinguishable in that frustration comes into play after the point of contract formation whereas mistake deals with the point of contract formation. Also, there is a significant difference in effect; frustration discharges parties from future obligations but does not render the contract void whereas common mistake will render a contract void at common law and voidable at equity.

2. Theoretical Basis for the DoctrineThe central question driving the different theoretical approaches is as follows: when invoking the doctrine, is the

court striving to give effect to the intent of the parties or is it just imposing something it thinks is just and firm within the facts of the case? There are five key theories that attempt to answer this question by explaining the doctrine and its basis.

The implied term theory sees the doctrine operating in order to allow the court to imply a term into the contract, providing for discharge. In essence, this theory says that by applying the doctrine, all that the court is doing is giving effect to the intent of the parties. This theory has been argued to be relatively artificial as it is hard to imagine that the parties would have had any such intention pertaining to the frustrating event. Thus the frustrating event is thought to be unforeseeable and therefore, beyond what the parties could have reasonably intended.

The just solution theory sees the doctrine as a device by which the rules to absolute contracts are reconciled with a special exception demanded by justice. This theory is rather vague and rarely applied.

The disappearance of the foundation of the contract theory states that the doctrine is based on the idea that the foundation of the contract has disappeared. Thus the doctrine of frustration exists to address the fact that the foundation of the contract has disappeared in such cases.

Next there is the total failure of consideration theory which states that the doctrine is based on a total failure of consideration caused by the frustrating event.

Lastly, the construction theory states that the doctrine of frustration is primarily based on construction of the contract, which subsequently causes frustration to merely become an issue of interpretation of the original contract. The analysis under this theory is as follows: first interpret the contract and decide what the parties agreed to do; then, measure those obligations against the frustrating event, to decide whether the event has rendered the performance of the obligations which the parties agreed to do radically different from what was intended. It is important to note that this is the dominant and most widely accepted theory.

3. Establishing Frustration In accordance with the construction theory, one must satisfy three requirements in order to establish frustration.

First, one must establish that there has been a frustrating event, which must be clearly identifiable. In order to establish this, one must apply the radically different test as stated above: Davis Contractors. When doing so, one must pay attention to the particular circumstances of the case. For illustrative purposes, the following are 3 broad categories of frustrating events that are relatively common: impossibility of performance; supervening illegality; and, frustration of purpose: Krell v. Henry. Second, one must demonstrate that the occurrence of that frustrating event was through the fault of neither party, therefore not self induced: Maritime National Fish Ltd. v. Ocean Trawlers Ltd. Third, one must demonstrate that the frustrating event was not foreseen or provided for. Once frustration has been established under these common law rules, the next step is to look at the appropriate legislation to determine what the subsequent effects are. The applicable statute here is the Frustrated Contract Act.

4. Effects of Frustration – Common Law Generally, when frustration is established, it ends the contract forthwith regardless of the will of the parties.

It has the effect of prospectively discharging the parties from future performance/obligations under the contract. This does not mean that parties are excused from obligations that had already arisen/existed prior to the frustrating event. Also, it is important to note that frustration does not give rise to a claim for damages, as it is not a breach of contract. Additionally, partial performance of a contract prior to frustration does not give rise to a restitutionary claim, and therefore quantum merit doesn’t apply. However, a party can recover money paid under the frustrated contract where there is a total failure of consideration. For example, if one party paid an amount pursuant to a contract, then subsequently that contract was frustrated and the party that paid money received absolutely no consideration in return for the money, then that amount would be recoverable. This does not apply to expenditures, as expenditures are non-recoverable.

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5. Effects of Frustration - Frustrated Contract Act RSBC 1990 c. 166After having determined that a contract has been frustrated, one must look to the Frustrated Contract Act in order

to determine the effects of the frustration. The scope of the application of the Act is as follows: it applies to every contract (including government contracts) from which the parties to it are discharged by reason of the application of the doctrine of frustration, or that is voided under section 11 of the Sale of Goods Act; it does not apply to a charter party or a contract for the carriage of goods by sea, except a time charter party or a charter party by demise, a contract of insurance, or contracts entered into before May 3, 1974; and, it does not apply to a contract which on the true construction contains provision(s) for the consequences of frustration or avoidance.

6. Restitution In general, every party to a contract is entitled to restitution from the other party or parties to the contract for benefits created by the party's performance or part performance of the contract. Also, every party to a contract is relieved from fulfilling obligations that were required to be performed before the frustration but were not performed, except in so far as some other party to the contract becoming entitled to damages for consequential loss as a result of the failure to fulfill those obligations. Lastly, if restitution is claimed for the performance or part performance of an obligation under the contract, other than an obligation to pay money, in so far as the claim is based on expenditures incurred in performing the contract, the amount recoverable must include only reasonable expenditures.

Paradine v Jane (1647) (When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract) Facts:

None really. Issue:

Holding: When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may,

notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract There if the lessee covenant to repair a house though it be burnt by lightning or thrown down by enemies, yet he

ought to repair itOppong:

¨‘Though the land be surrounded or gained by the sea, or made barren by wildfire, yet the lessor shall have his whole rent’. Are there any policy/’law of reason’ reasons why this should be the law?

¨The facts of the case indicate that under the lease the interest in the land passed to the lessee and that the harm suffered by the lessee was due to trespass on the land by Prince Rupert and his army. Was this really a case about impossibility of performance or one in which the lessee should have sued the trespassers in tort for damages? Should the inability of a lessee to find the means to pay the rent stipulated by the lease be considered a frustrating event?

Taylor v. Caldwell (1863) (Implied terms - In all contracts of loan of chattels or bailments, if the performance of the promise of the borrower or bailee to return the things lent or bailed, becomes impossible because it has perished, this impossibility (if not the fault of either party) excuses the borrower or bailee from the performance of his promise to deliver the chattel) Facts:

Plntfs and defs had entered into a contract – def’s agreed to let the plntf’s have the use of a music hall for four days for the purpose of staging a concert

After the agreement was made, before the first day of the concert, the hall burned down completely due to neither party’s fault

The fire rendered the staging of the concert impossible – the parties made no express stipulation in their contract for such an incident

Issue: Was the event (fire) such that it frustrated the contract?

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Holding: Both parties are excused The law is now that in all contracts of loan of chattels or bailments if the performance of the promise of the

borrower or bailee to return the things lent or bailed, becomes impossible because it has perished, this impossibility (if not the fault of either party) excuses the borrower or bailee from the performance of his promise to redilber the chattel

The excusal from performance when there is destruction of the person or things underlying the contract is not express, rather it is implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel

Krell v Henry [1903] (Implied term - Frustration of purpose; Performance will be excused when the purpose of a contract is frustrated by an unforeseeable supervening event and the purpose was within the contemplation of both parties when the contract was executed. A contract’s purpose may be inferred from surrounding circumstances) Facts

Henry (D) contracted to use Krell’s (P) flat in London to view the coronation procession of King Edward VII. Under the terms of the contract Henry was granted use of the flat for two days in exchange for 75 pounds, but the

contract did not mention the purpose of Henry’s use. Henry refused to honor the agreement after the King became ill and the coronation was postponed. Krell sued for the balance due under the contract and Henry countersued for the return of his deposit. The lower court cited Taylor v. Caldwell and entered judgment for Henry on the grounds that the coronation was

an implied condition in the contract. Krell appealed.Issue

Under what circumstances will a party be excused from performance when an unforeseen supervening event occurs?

Holding and Rule Performance will be excused when the purpose of a contract is frustrated by an unforeseeable supervening

event and the purpose was within the contemplation of both parties when the contract was executed. A contract’s purpose may be inferred from surrounding circumstances.

Where a contract indicates that the parties knew that it could not be fulfilled unless some particular specified thing continued to exist, such that the parties must have contemplated the continued existence of that thing as the foundation of the performance; then in the absence of an express or implied warranty that the thing shall continue to exist, the contract is subject to implied condition that performance will be excused if that thing ceases to exist without fault of either party.

The principle also applies where a certain condition or state of things that is essential to performance must continue to exist; in this case, the occurrence of the coronation during the time in which Henry was to have use of the flat. The condition or state of things need not be expressly specified.

o It is sufficient if that condition or state of things clearly appears by extrinsic evidence to have been assumed by the parties to be the foundation or basis of the contract, and the event which causes the impossibility is of such that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made.

Necessary inferences drawn from the contract and surrounding circumstances need to be examined to determine if the contract has in fact become impossible to perform. The purpose for the high rent of the room on those particular dates during the daytime was to view the coronation. The court held that without the coronation, there was no purpose to this contract.

Herne Bay Steamboat Co v. Hutton (Implied Term - Frustration of Purpose is different limitation of purpose; limiting of purpose will not be seen as a frustrating event)Facts:

The defendant, Mr Hutton, contracted to hire a steamship, named Cynthia, on June 28 and 29, 1902. This was following a public announcement that a Royal naval review was to take place at Spithead on that day. The contract was "for the purpose of viewing the naval review and for a day's cruise round the fleet". Following the cancellation of the coronation, and of the naval review, the defendants refused payment, stating the

contract was frustrated in purpose.Issue:

Did the naval review frustrate the purpose of the contract?Holding:

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This case differs from Krell v. Henry because the purpose was not only to watch the (now cancelled) naval review, but for a day’s cruise as well (which was still fully possible)

Limiting the purpose is different that frustrating the purpose

Maritime National Fish Ltd. v. Ocean Trawlers Ltd. [1935] (Self Induced Frustration - Frustration of purpose/goods cannot be self Induced; any supervening frustrating event must be unforeseeable and vitiated by entirely external factors) Facts:

The appellants chartered a trawler (st Cuthbert – Which could ONLY operate as a trawler) from the respondents for a period of one year

The appellants operated 4 other trawlers in addition to st Cuthbert The Minister decided that license were only to be granted to 3 of 5 trawlers operated by the appellants, minister

requested the appellants inform the Department which 3 of their vessels they desired to have licensed Appellants did not choose the St Cuthbert – thus it was no longer lawful for the appellants to employ the Cuthbert

as a trawler Issue:

DHolding:

Parties were aware of certain legislation which made it a punishable offence to leave from any Canadian port with the intent to fish with a vessel that uses an otter (or similar trawl) for catching fish, unless licensed

The case could be decided on the conclusion that it was the act and election of the appellants which prevented the Cuthbert from being licensed for fishing with an otter trawl

What matters here is that the could have got a license for the SC if they choseo If the case is understood as one in which the SC was removed from the group of trawlers that could

lawfully operate as so, then it was the appellant’s choice that it would be removed, because they elected to not have it licensed

o The ESSENCE of frustration is that it should not be due to the act or election of the party It was the appellants own choice which frustrated the adventure; the appellants cannot rely on their own default to

excuse them from liability under the contractDavis Contractors Ltd. v. Farehamd U.D.C. [1956] HL (Frustration occurs whenever the law recognizes that 1) without the fault of either party, 2) a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would 3) render it a thing radically different from that which was undertaken by the contract; unforeseen events that make a contract more onerous does frustrate the contract) USE THIS TESTFacts:

The plntf contractors entered into a building contract to build 78 houses for the def municipality within a period of either months

Owing to unexpected circumstances, and without fault of either party, adequate supplies of labour were not available in the post war market and the work took 22 months to complete

Issue: Was the contract frustrated by the circumstances which caused the delay, thus entitling the contracts to a sum of

money on a quantum meruit basis in addition to the contract price?Holding:

Frustation is not to be lightly invoked There is a logical difficulty in seeing how the parties could even impliedly have provided for something which ex

hypothesi they neither expected nor foresaw; and the ascription of frustration to an implied term of the contract has been criticized as obscuring the true action of the court which consists in applying an objective rule of the law of contract to the contractual obligations that the parties have imposed upon themselves

Frustration occurs whenever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract

o The date for decisions are the terms & construction of the contract, read in light of the then existing circumstances, and on the other hand the evens which have occurred

2 things prevent the application of frustation here:o the cause of the delay was not any new state of things which the parties could not reasonably be thought

to have foreseen – instead, the possibility of enough labour and materials not being available was before their eyes and could have been the subject of special contractual stipulation

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o the other is that, though timely completion was no doubt important both sides, it is not right to treat the possibility of delay as having the same significance for each

Capital Quality Homes Ltd. v. Colwyn Constructions Ltd. (1975) (New Legislation can amount to a frustrating event – The legislation was -> 1) Not contemplated by either party, 2)was not discussed in the agreement, 3) Not brought about by voluntary actions of either party. 4) Destroyed the foundation of the agreement, by not allowing the purchaser to do what he intended;) Facts:

plntf agreed to purchase from def 26 building lots, each comprising parts of lots within a registered plan ofsubdivision

both parties were aware that purchaser was buying building lots for purpose of erecting a home on each lot with intention of selling the several homes by way of separate conveyances

it was agreed that no demand for any converyance was made prior to the date of closing when sale agreement was executed, the designated land was not within an area of subdivision control and not

subject to any restriction limited the right to convery at a later point, legislation came into effect which precluded the vendor from conveying the 26 lots without proper

consents this substantial change in law resulted in some discussion between the parties relative to possible postponement

of the closing date – no arrangement was ultimately made on the closing date, the balance of the agreed purchase price was tendered by the solicitors for the purchaser but

no conveyances were forthcoming in the mode contemplated by the agreement Issue:

Does the doctine of frustration apply to contracts involving the sale & purchase of land?Holding:

Unless otherwise provided in the agreement of sale the vendor is required to convey a marketable title in fee simple

There was no provision in the instant agreement which would permit the vendor to escape from that normal obligation

In the instant case, the planning legislation which supervened was not contemplated by the parties, not provided for in the agreement and not brought about through a voluntary act of either party

The legislation destroyed the foundation of the agreement – o The purchaser was purchasing 26 separate building lots upon which it proposed to build houses for

resale involving a reconveyance in each instance – this purpose was known to the vendor o The lack of ability to do so creates a situation not within the contemplation of the parties when they

entered the agreement – o Thus doctrine of frustation can be invoked

If the factual situation is such that there is a clear frustation of the common venture, then the contract, whether it is a contract for the sale of land or otherwise is at an end and the parties are discharged from further performance and the adjustment of the rights and liabilities of the parties are left to be determined under the Frustrated Contracts Act

Edwinton Commercial Corporation and Another v. Tsavliris Russ Ltd. The Seal Angel [2007] (Adds to Davis - Foreseeability in Frustration – This reiterates the doctrine of frustration in Davis, but it adds that foreseen events will generally preclude invoking the doctrine of frustration; this is rebuttable)Facts:

An oil tanker ran aground outside a port, Tsavliris undertook the salvage operation In order to salvage the oil, T charter a small storage tanker, the Sea Angel – the Charter was to last up to 20 days 3 days before T was to redeliver SA, the Port Trust claimed compensation for pollution clean up from T and

refused to grant a certifcate which the SA required to leave the port 3 days after the planned return date, T ceased paying hire – the eventual delay was 108 days, ending when the

court of the Port trust order the Port Trust to release the vesselIssue:

Holding:

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Summary of Remedies1. Introduction:

There are several remedies available to a party in contract law including rescission, specific performance and damages. Only damages will be looked at in this analysis. The term damages can take multiple meanings. It can refer to the loss suffered by a party; alternatively it can refer to a monetary award, which is the ultimate consequence of litigation. The latter definition is what it addressed here. The right to damages arises in law and is not created by the contract; however, parties can address the right in the contract by, for example, limiting it. There are two elements to the assessment of damages: remoteness of damages and measurement of damages. Remoteness asks for “what kind of losses are damages available for?” whereas measurement of damages deals with how to evaluate or quantify the loss.

In general, in the case of contract law, you can recover for losses suffered, but not for profits made by the other party. There are three different types of losses. Expectation interest refers to the loss of something which the plaintiff would have received had the contract not been breached. For example, if a party contracts for goods, which s/he plans to sell for profits and the contract is breached, the expected profits are the loss. Reliance interest refers to the loss suffered by the plaintiff due to the reliance on the contract, which will often take the form of wasted expenditures. For example A contracts for B to come and sing at a birthday party, that A then invests money in the party on the reliance that B will be coming to perform, in the event of breach, A will be able to recover for the cost of putting the party together. Finally, there is a restitutionary interest, which does not fall under contract law. This deals with situations where the party in breach of the contract benefits from the breach of the contract, or where the party has been unjustly enriched.

2. Remoteness of Damages When assessing damages (monetary award), either pecuniary or non-pecuniary damage (loss) must be proven; unlike

certain Torts, there is no presumption that one has a suffered a loss. Further, the loss must meet the test of remoteness as established by the case of Hadley v. Baxendale: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally (i.e., according to the usual course of things), or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Subsequent cases have further elaborated on this test. For example, Victoria Laundry v. Newman established that remoteness of damages (reasonable contemplation test from Hadley) is assessed at the time of contract formation.

3. Measure (Assessment) of Damages An often-difficult aspect of damages revolves around the assessment or measurement of appropriate damages in a

given case. By no means is the assessment of damages an exact science. The basic principle is to give effect to restitutio in integrum so far as the actionable damage is concerned. The main objective of damages is compensation; however there are instances where damages are used to pursue other objectives, as exemplified by punitive damages.

Time is an important factor in the assessment of damages. For example, a lapse in time between the time of contract formation and the time of contract breach may result in a change in value of the underlying contracted item. The general principle in law, and starting point, is that the damages are assessed at the time of breach: Hadley v. Baxendale. this is known as the ‘breached date rule’. However, where the plaintiff is pursuing damages in lieu of specific performance, the damages will be assessed at the date of trial as affirmed in the case of Semelhago v. Paramadevan. Also, currency is an important factor as much money can turn depending on the currency applied. Historically, courts were unwilling to award damages in foreign currencies. Now, however, in cases of international contracts, the courts may be prepared to award damages in foreign currencies.

4. Mitigation of DamagesVictims of breaches have a duty to mitigate any damages suffered after the breach. This consists of the two

principles: the plaintiff must take all reasonable steps to reduce or contain his loss; and, plaintiff must not act unreasonably so as to increase his loss. The onus for demonstrating that damages were not mitigated lies with the defendant, and the burden applied is heavy, as the law does not expect the plaintiff to take unreasonable steps. These principles were affirmed by the Supreme Court of Canada in the case of Asamera Oil Corp. v. Sea Oil & Gen. Corp. Special consideration is given to cases of anticipatory breach, where the contract is due for performance in the future, and one party decides to breach the contract before the performance date. If the party is able to demonstrate that he had a legitimate interest in the performance of the contract, the courts will reward for the full performance of the contract Asamera Oil Corp v. Sea Oil & Gen Corp; however, generally, the law doesn’t compel you to accept a breach by one party. The court may also take into consideration whether there are policy reasons why a party should not be allowed to perform a contract for which the other party has informed him he does not need.

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5. Liquidates Damages and Penalties The assessment of liquidated damages (damages that a predefined at the time of contract formation) requires a

unique consideration. Though the parties to a contract who use the words "liquidated damages" may prima facie be supposed to mean what they say, the words may nonetheless be inconclusive. The Court must find out whether the payment stipulated is in truth a penalty (or threat), or indeed liquidated damages. The assessment becomes a question of interpretation and construction, which is to be decided on the terms of the contract at the time of contract of formation: Dunlop Neumatic. The test to be applied in the interpretation which asks ‘is this a genuine pre-estimate of loss? Or is it intended to intimidate the other party to perform?’

The essence of a penalty is that it is a payment of money stipulated as in terrorem, (similar to a deterrent warning), of the offending party whereas the essence of liquidated damages is a genuine pre-estimate of damage. The question whether a sum stipulated in the contract is a penalty or liquidated damage is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the contract formation, not at the time of the breach.

To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such tests include:

It will be held to be penalty if, the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach: H.F. Clarke Ltd. v. Thermadaire Corporation Ltd.

It will be held to be a penalty even if the breach consists only in not paying a sum of money; and the sum stipulated is a sum greater than the sum, which ought to have been paid.

There is a presumption (but no more) that it is penalty when " a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage ": Shatilla v. Feinstein; on the other hand,

It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.

McRae v. Commonwealth Disposals Commission (1951) 84 C.L.R. 377 (Aust H.C.) (Damages: One can recover for reliance loss, or your wasted expenditure based on reliance of the contract being completed; BUT, for mutual mistake you can’t recover reliance damages for mutual mistake when the mistake is unreasonable however) Facts:

The Commonwealth Disposals Commission sold McRae a shipwreck of a tanker on the Jourmaund Reef, supposedly containing oil.

No tanker ever existed. CDC argued there was no liability for breach of contract because it was void given the subject matter did not exist

Issue:

Holding This case demonstrates quite clearly some of the challenges of assessing damages. It is sometimes easy enough to

decide that a plaintiff has incurred a loss within the scope of the rule in Hadley v Baxendale. However, when it comes to putting a money value on the loss insuperable difficulties may ensue. What are some of the challenges a court is likely to face in assessing damages? How do courts overcome those challenges?

o Often courts will look to the markets to assess what the value iso 3

Bowlay Logging Ltd. v. Domtar Ltd. BCCA (1982) ((1) Applies net loss principle, can’t put the plntf in a better position; 2)case affirms the principle that damages are awarded only for losses incurred as a consequence of the def’s breach of the contract. A plaintiff is not allowed to recover as damages losses it has incurred as a result of being a party to a bad bargain: Hadley Baxendale; 3) If a victim is in a better position as a result of a breach, the court will nonetheless award nominal damages [in essence to just say you were right])Facts:

Appellant contract with the resp to log a 10,000 cunit timber sale; the appellant was to cut, skid and load the logs for $15/cunit – the resp was to haul the logs but in breach of its contract failed to provide sufficient trucks,

Damages claimed by appellant for the breach = 125KIssue:

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Holding: Appellant asked to be put in the position it would have been in had it never entered into the contract An unprofitable ventureer that was injured is precluded from recovering damages for breach of contract

o If its loss was greater by reason of the breach than it otherwise would have been, the increase in the loss is the amount necessary to put the plaintiff in the position it would have been in had there been no breach

There was no evidence of start up costs that should not have been absorbed in the first half of the work – the whole of the evidence respecting damages leads to the conclusion that the trial judge correctly ruled when making no allowance for start-up costs

Losses that are incurred prior to a breach that would have continued regardless of the breach are not compensable

The result of the breach was to release the appellant from further performance that would have resulted in further losses

o Thus no losses as a result of the resp breach Oppong: This case applies the net loss principle: thus cannot put the plntf in a position that is better than s/he would have

otherwise been Causation and Damages: The case affirms the principle that damages are awarded only for losses incurred as a consequence of the

def’s breach of the contract. A plaintiff is not allowed to recover as damages losses it has incurred as a result of being a party to a bad bargain

Onus is on the plntf to demonstrate that he has incurred a loss. The onus is on the defendant to demonstrate that the losses admittedly incurred did not result from the breach

In some cases, the law allows the plaintiff to claim as resitutionary damages benefits obtained by the def as a result of his breach of contract. Should the law allow for the def – the person in breach – to counterclaim for the ‘savings’ the plaintiff has made as result of the breach? Argument against, you don’t want a wrongdoer to benefit from the breach – Argument for, because allowing so provides an incentive for the plntf to mitigate the losses – chances are, however, that the award will only be for nominal damages -

Sunshine Vacation Villas Ltd. v. Hudson Bay Co. (1984) BCLR (Loss of capital and loss of profit must be alternative approaches to damages: This case establishes that reliance loss, such as loss of capital, is only available as an alternative to loss of profit and that it is wrong in principle to make an award based upon a mixture of reliance loss and loss of profit; you must only base the damages based on where the parties would have been but for the breach [similar to Bowlay])Facts:

Plntf contracted with the Bay to open several travel agencies within the Bay’s stores in interior BC; also contracted to provide 4 travel agencies in the Bay’s stores throughout Vancouver/Victoria once the existing licenses expired (the next year)

At some point, the Bay had decided to renew its existing agreements with the already existing agencies in Vanc/Victoria

Plnt later became away that Bay was in breach of its promise to make available the 4 large outlets, and subsequently engaged in further negotiations directed towards the possibility Sunshine (pntf) becoming the Bay’s exclusive travel agency in W. Canada

In hopes of successful negotiations w.r.t. to the above, plnt nonetheless opened an agency in Cranbrook, negotiations subsequently broke down

Plntf then decided it didn’t want to do business w/Bay anymore and closed all of its stores The damages awarded were 275,956 which broke down as follows:

o Loss of Capital: 175,956, breaks down as follows 80,000 Invested by 5 shareholders The rest was the increase of the letter of credit by Plntf

o Loss of profits : 100,000Issue:What is the correct assessment of damages?Holding:

Loss of capital here means unrecovered working capital One method of assessment, the return of expenses or loss of capital approaches the matter by considering what

sunshine’s position would have been had it not entered the contract

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The other method, loss of profit, approaches it by considering what the position would have been had the Bay carried out its bargain –

The two of the above must be alternatives The amount of lost capital is the appropriate award for breach of contract in this case

o That amount represents the expense incurred by the plntf and not recovered by it – that approach to assessment is particularly appropriate in this case – the breach was one which went to the root of the contract

o After Plntf had incurred large expenses in carrying out obligations which were recognized to be unprofitable portion of the contract, the Bay refused to carry out its promise in relations to the profitable part

Oppong: ¨This case establishes that reliance loss, such as loss of capital, is only available as an alternative to loss of

profit and that it is wrong in principle to make an award based upon a mixture of reliance loss and loss of profit.

This position has been challenged by one author who argues that ‘in principle, the claimant should be entitled to claim damages for his wasted expenditure incurred up to the date of his terminating the contract and also for his net loss of profit which he would have made but for the breach. There can be no valid objection to this provided the calculations show that there is no overlapping in the claimant’s recovery’.

Does this case establish an inflexible rule that a plaintiff must choose between claiming for his wasted expenditure and claiming for his loss of expected profit and that he is not entitled to recover for both? Should this be the legal position?

Attorney General v. Blake [2001] 1 A.C. 268 (H.L.) – (Restitutionary Damages: Rest damages are measured as the def’s gain, instead of the plntf’s loss: In exceptional cases, account of profits may be an appropriate remedy- there are factors to consider as per notes below) *Note this case is longFacts:

George Blake was a former member of the Secret Intelligence Service (MI6) from 1944 to 1961. For his employment contract he had signed an Official Secrets Act 1911 declaration to disclose no information about his work. It applied after his employment ceased.

In 1951 he became a Soviet agent, thus being a double agent. The British government imprisoned him in Wormwood Scrubs (HM Prison). He escaped and fled to the Soviet Union. He wrote a book about it and his secret services work called No Other Choice. He got a publishing contract for release in 1989 with Jonathan Cape Ltd. The information in the book was no longer confidential.

Blake received advanced payments and was entitled to more. The Crown brought an action for all the profits he made on the book including those that he had not yet received. It argued a restitutionary principle should apply.

Issue:

Holding: ¨‘The law recognises that damages are not always a sufficient remedy for breach of contract’.

o Oppong: What alternative remedies are provided in law for breach of contract? Can you think of any additional remedies that may be appropriate?

¨This case decided that in appropriate but exceptional cases account of profits may be an appropriate remedy for breach of contract. A number of Canadian courts have discussed and approved Blake (see e.g. Indutech Canada Limited v. Gibbs Pipe Distributors Ltd., 2011 ABQB 38 at [498]-[510]; Amertek Inc. v. Canadian Commercial Corp 229 DLR (4th) 419; 39 BLR (3d) 290 at [462-467]).

o Oppong: What factors should courts consider in deciding whether an account of profits is the appropriate remedy for breach of contract?

You also want to make sure that the plaintiff has indeed lost NOTHING thus damages would not be available

Whether the plntf had a legitimate interest in preventing the def from making a profit. The point is, the courts are trying to prevent a person from benefitting from their own

wrong acts “in suitable cases, damages for breach of contact may be measured by the benefit gained by the wrongdoer from

the breach. The def must make a reasonable payment in respect of the benefit he has gained” – similar to restitution?

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Chaplin v. Hinks [1911] 2 K.B. 786 (C.A.) (Loss chance - Damages are still assessable in cases which involve a great number of contingencies; for loss of chance you must assess the actual probability of having succeeded had there not been a breach) Facts:

Def announced a competition for aspiring actresses who were invited to submit photographs for publication in a newspaper – the readers would then take part in a selection process which would result int eh nomination of 12 ladies, who would all receive three year contracts from the def to work as actresses

First group would receive 5/week, 2nd group 4/week, 3rd group 3/week Later, an alteration was made in terms of the competition procedures The plntf assented to the alteration in the terms of the competition The plntf’s name appeared as first in her particular section and she became one of the fifty eligible for selection

by the def o The def’s secretary wrote to the plntf secretary wrote to the plntf at her London address asking her to call

to see the def in London on a certain date – the plntf was at the time in Dundee and did not receive the letter in time to permit her to keep the appointment – as a result she was unable to see the def who selected 12 other winners

Issue:

Holding: It is said that in a case which involves so many contingencies it is impossible to say what was the plnt’s pecuniary

loss – court is unable to agree with that contention, however the court agrees the presence of all the contingencies upon which the gaining of the prize might depend makes the calculation not only difficult but incapable of being carried out with certainty or precision

In a case such as this, the jury must do the best they can, and it may be that the amount of their verdict will really be a matter of guesswork – but the fact that damages cannot assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract

Oppong: ¨This case decides that the fact that damages cannot be assessed with certainty does not relieve the wrong-doer of

the necessity of paying damages for his breach of contract. In criminal cases where there is doubt it is resolved in favour of the wrongdoer. Why shouldn’t that be the case here too?

o The implications are not as severe – Stigma attachment; severe punishment happens; also the presumption of innocence exists in criminal law but in contract law, by the time you have reached the damages assessment, you will already have determined that there has been a breach of contract

¨How do you place a money value on loss of chance? How do you arrive at damages for loss of chance?o First look at the ultimate profit that would have been made, then discount it by a factor reflecting

the liklihood that he would be able to do so. Such awards are not quantified strictly, there is some element of judgement

o Figure out the actual probability of the chance (Ex. 1 in 4 chances)

Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (Alta. C.A. 1975) (Mitigation and assessment of damages: Damages allowable for the reasonable cost of hiring someone else to deconstruct and appropriately reconstruct a poorly constructed item; The wrongdoer is entitled to expect the aggrieved party to act reasonably (in mitigation); he is not entitled to have him act perfectly)Moir JAFacts:

NW contracted to build a house for T for 51,219 in accordance with certain plans and specifications – respondent began construction, after a few months it had completed several components including the frame, basement floors, the roof etc

At this point, appellants began complaining about serious deviations from the plan such that no further work was to be done on the project

The appellants later took possession of the house, had it examined and arranged for completion by another contractor

NW sued the appellants for 16,000 in addition to the sum they had already paid to NW – the appellants counter claimed for the cost of rectifying the deficiences in construction and the difference between the cost of completing the house and the original contract price

Evidence establishes that the house was very SHITILY built Issue:

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Holding:

General law as per Allen v. Pierce - the owner of the building is, therefore, entitled to recover such damages or to have such deductions made as will put him in a position to have just eh building he contracted for ..

o This rule is subject to exceptions – for example – where the cost of rectification is great in comparison to the nature of the defect, the Court will not force a slavish following the precise specifications of the contract

One should be careful not to weigh in too fine a set of balances the conduct of the aggrieved party – the proper test (Banco de Portugal v. Waterlow & Sons Ltd)

o The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because th party in breach can suggest that other measures less burdensome to him might have been taken

The defects and deficiences cannot be categorized as trivial and innocent - & T acted reasonably – T should be able to recover the 16,000 paid to the other contractor to tear out and rebuild the basement

Oppong: ¨This case decides that where the cost of rectification is great in comparison to the nature of the defect, the court

will not force a slavish following of the precise specifications of the contract.

¨The wrongdoer is entitled to expect the aggrieved party to act reasonably. He is not entitled to have him act perfectly. What is the nature of the duty to mitigate? What is the legal foundation of the duty to mitigate?

o Mitigation is not a legal duty per se, but it is something that the courts will take into account in deciding how much to award

¨The right to damages is a creature of law but the parties are free to waive, vary or modify it in their contract. Can parties do same with the duty to mitigate and if so how?

Groves v. John Wunder Co. (1939) (Minn.C.A.) (Damages should reflect the cost that it would be to fix the problem, not the difference in value of the item; damages reflecting the cost also reflects the idea of putting the party back into the position had there been no breach; remember, the ultimate goal is compensation, the law merely provides the rules for getting there)

Facts. Plaintiff owned a tract of land. Both Plaintiff Defendant operated plants for excavating and screening gravel. The contract at issue here was essentially a lease from Plaintiff to Defendant for a term of seven years. Defendant agreed to remove sand and gravel from Plaintiff’s property and leave the land at a uniform grade, using the stripped overburden for the purpose of creating the grade. Defendant received the Groves screening plant and paid $105,000. Thereafter, Defendant intentionally breached the contract by removing the “richest and best of the gravel” and leaving the premises not substantially at the grade required by the contract. Rather, it was “broken, rugged and uneven.” The cost of bringing the land into compliance with the contract would be upwards of $60,000. However, if Defendant had fully performed by leaving the land at a uniform grade, it would have only been worth $12,160.

Issue. Is Plaintiff entitled to damages equal to the reasonable cost to him of doing the work called for by the contract rather than the difference between the value of the land at the time of contract and the value the land would have had Defendant fully performed?

Oppong:¨This case raises a fundamental question: in cases where the breach takes the form of a failure to construct what should be the appropriate measure of damages. Should it be the cost of construction or the difference in value of the land at the time the contract was made and what it would have been had the contract been performed. Are these the only measure of damages in such cases? What alternative measures would you propose?

Loss of enjoyment

¨This case decides that in such cases the cost of remedying the defect is the proper measure of damages. How appropriate is such an approach from a legal and policy perspective?

Remember the first objective of damages is to compensate -

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¨The dissenting judge held that damages recoverable for breach of a contract to construct is the difference between the market value of the property in the condition it was when delivered to and received by the plaintiff and what its market value would have been if defendant had fully complied with its terms. How appropriate is this approach to measuring damages in such cases?

¨The owner’s right to improve his property is not trammelled by its small value. It is his right to erect thereon structures which will reduce its value. Is this a socially desirable principle?

Jarvis v. Swans Tours [1973] (C.A.) (Mental distress damages allowable; includes loss of entertainment and enjoyment; mental distress has to arise naturally from contract)Lord DenningFacts:

o Jarvis (a solicitor) bought a 2 week holiday package in the Swiss Alps – Swan tours sold him the package which made various assurances in a brochure

o The holiday fell well below those assuranceso Jarvis sued the tour company for damages which included:

o Failure of the holiday to meet the expectations generated by the tour company through its brochure o Mental distresso Aggravation he experienced both on the holiday and its wake

Issue:o What is the correct amount of damages and how should the court assess them?

Holding:o The statements in the brochure were representations or warranties – the breaches of them gives Jarvis a right to

damageso Damages for mental distress can be recovered in contract just as in torto Jarvis went to enjoy himself with all the facilities which the defendants said he would have – he is entitled to

damages for the lack of those facilities and for his loss of enjoyment o The right measure of damages is to compensate him for the loss of entertainment and enjoyment which he

was promised and did not geto ¨This case overruled the principle that on breach of contract damages cannot be recovered for mental distress. It

held that in a proper case damages for mental distress can be recovered in contract. Why is the law often slow to acknowledge physiological related matters as a head of damage (nervous shock in tort)

o it is difficult to proveo the law expects some minimal level of fortitudeo it has the potential to open up liability

o ¨However, the principle is that now one may recover for it. How do you compensate the victim of a breach for mental distress?

o Take it account evidence of the impact of the distresso Look at the contract price itself

o Remember, the point is to put you in the position that you would have been in had the contract NOT been breached

Hadley v. Baxendale (1854) (Rule on remoteness: Where 2 parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either 1) arising naturally or 2) such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it)Facts:

Plntfs were millers, their mill was stopped by a breakage of the crank shaft by which the mill was worked Pltnfs wished to have the shaft sent away for repairs Plntfs engaged the services of the def who was a carrier the delivery of the shaft was delayed by some neglect, causing the plntfs to receive the shaft late

o this delayed mill operations resulting in a loss of profits Issue:

Can the profits form part of the assessment for damages?Holding:

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Rule: Where 2 parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally (according to the usual course of things, from such breach of contract itself) or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it

o If special circumstances under which the contract was actually made were communicated by the pltnfs to the def, thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated

Here, the only circumstances communicated by the plntfs to the def at the time the contract was made, were, that the article to be carried was the broken shaft of a mill

o The loss of profits here cannot reasonably be considered such a consequences of the breach of contract as could have been fairly reasonably – would neither have flowed naturally from the breach

Oppong: ¨What does it mean when it is said that damages are too remote? Why should the victim of a breach not be

allowed to recover damages for losses that are too remote?o Basically it means that it is too far removed from the breach; when it is too remote, you cannot recover

damages for ito Reasons for this: there has to be a limit on the liability of the def; damages aim at placing the plntf in the

position he would have been had the contract not been formed; also, certain types of insurance are designed to cover certain remote losses

¨What is the rule on remoteness of damage laid down in this case? What was the damage in this case? Explain how the court applied the rule to the facts of the case.

o This was not a loss that arose naturally; ¨How would you have acted differently if you were advising the plaintiff on this transaction today?

Victoria Laundry v. Newman [1949] 2 K.B. 528 (Remoteness of damages is analyzed at the time of contract formation (reasonable foreseeable test); measurement of damages is made at the time of the breach)Facts:

Plntf’s wished to expand their laundry and agreed to purchase a large boiler owned by the def’s Def’s knew that the plntfs were launderers and dyers & that the boiler was for use in their business Boiler was damaged during the delivery process, while it was being dismantled on the def’s premises Repairs caused a lengthy delay and

Issue: Can loss of profits be included in the assessment of damages?

Holding: A carrier commonly knows less than a seller about the purposes for which the buyer or consignee needs the

goods, or about other special circumstances which may cause exceptional loss if due delivery is withheld o 1) It is well settled that the governing purpose of damages is to put the party whose rights have been

violated in the same position, so far as money can do so, as if his rights had been observedo 2) in cases of breach of contract, the aggrieved party is only entitled to recover such part of the loss

actually resulting as was at the time of the contract reasonably foreseeable by as liable to result from the breach this aspect of the ruling is incorrect – it is reasonable contemplation

o 3) What was at that time reasonably so foreseeable depends on the knowledge othen possessed by the parties or, at all events, by the party who later commits the breach

o 4) For this purpose, knowledge ‘possessed’ is of two kinds; one imputed, the other actualo 5) In order to make the contract breaker liable under either rule it is not necessary that he should actually

have asked himself what loss is liable to result from a breacho 6) Nor to make a particular loss recoverable, need it be proved that upon a given state of knowledge the

def could, as a reasonable man, foresee that a breach must necessarily result in that loss knew they were supply the boiler to a company carrying on the business of laundrymen and dyers for use in that

business – they should have know it was for a business advantage order that the plaintiffs should recover specifically and as such the profits expected on these contracts, the def

would have had to know, at the time of their agreement with the plntfs, of the prospect and terms of such contracts

o the def did not know these things –

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o it does not follow, however, that the plntfs are precluded from recovering some general sum for loss of business in respect of dyeing contracts to be reasonably expecte, any more than in respect of laundering contracts to be reasonably expected

Oppong: ¨How significant is time in the law on remoteness of damage in contract law

o Remoteness of damages is assessed at the time of contract formation (reasonable contemplation test); assessment of damages is made at the time of the breach.

¨What is the relationship between the two legs of the rule in Hadley v Baxendale?o Just have to meet one or the other : either arising naturally from the contract or reasonable contemplation

¨Discuss the principles on remoteness of damage laid down at page 862-863 of the judgment.o

Koufos v. Czarnikow (The Heron II) [1969] (Applies Victoria – changes its to reasonable contemplation instead of reasonable foreseeable at step 1 in order to broaden the test)Facts:

the resp chartered the appellants vessel (Heron II) a reasonably accurate prediction of the length of the voyage was 20 days – the vessel had in breach of contract

made deviations, which caused a delay of 9 days it was the intention of the respondents to sell the sugar promptly after arrival at Basrah and after inspection by

merchants – the appellant did not know this, but he was aware of the fact that there was amarket for sugar at Basrah

sugar was later sold, but prior to the sale, the market price had falled, partly due to the arrival of another cargo of sugar

the resp claim that they are entitled to the difference as damage for breach of contract – the appellant admits that he is liable to pay interest for the 9 days, but denies the whole market value

Issue: Can a plntf recover as damages for breach of contract a loss of a kind which the def, when he made the contract,

ought to have realised was not unlikely to result from a breach of contract causing delay in delivery?Holding:

Hadley v Baxendale interpretation: the court did not intend that every type of damage which was reasonably foreseeable by the parties when the contract was made should either be considered as arising naturally, or be supposed to have been in the contemplation of the parties

Present case: not enough that in fact the plntfs loss was directly caused by the defendant’s breach of contract – it clearly was so caused in both –

o the crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realized that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation

Interpretation Victoria Laundry: expressions such as ‘liable to result’, on the cards’, ‘a real danger’ etc were regarded as expressions which could in ____??an in appropriate extension of liability for damages for breach of contract - he also denigrated the use of reasonably foreseeable as likely to result from the breach of contract as confusing exposure to damages for breach of contract with damages in tort

Whiten v. Pilot Insurance Co. [2002] 1 S.C.R. 595 (Punitive damages are recoverable in breach of contract cases when the def’s conduct can be said to give rise to an “actionable wrong” within itself –The actionable wrong need not be a tort. It can be breach of a contractual or fiduciary [like fiduciary relationship] obligation.)Facts:

Appellant bought her home – one night the house caught fire, forcing the entire family out into the cold while they waited for help

o Husband suffered frostbite, was confined to a wheelchair – generally the family appeared quite pooro No evidence of arson

The family was forced to rent a place, Pilot paid them 5000 once + rent for a few months, then without notice, stopped paying the rent

Pilot thereafter pursued a hostile and confrontational policy which the jury must have concluded was calculated to force the appellant to settle her claim at substantially less than its fair value

Issue: The scope to be given this expression is the threshold question in this case: is a breach of an insurerer’s duty to

act in good faith an actionable wrong independent of the loss claim under the fire insurance policy?Holding:

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1. Punitive Damages for Breach of Contract: Punitive damages are recoverable in breach of contract cases provided the def’s conduct said to give rise to

the claim itself is an “actionable wrong” Pilot acknowledges that an insurer is under a duty of good faith and fair dealing Oppong: ¨This case decides that in an action for damages for breach of contract punitive damages are recoverable provided

the defendant’s conduct said to give rise to the claim is itself an actionable wrong. The actionable wrong need not be a tort. It can be breach of a contractual or fiduciary obligation.

Punitive damages (exemplary damages) represent an obvious departure from the principle of compensatory damages. How do you justify the award of punitive damages in actions for breach of contract? Discuss the view that it is inappropriate to award punitive damages in breach of contract cases

Fidler v. Sun Life Assurance [2006] 2 S.C.R. 3 (Damages for mental distress for breach of contract may be recovered where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made: Test of mental distress: The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation; unlike punitive damages, no independent actionable wrong is required)Facts:

F worked as a bank receptionist and was covered by a group policy that included long-term disability benefits. At the age of 36, she became ill, was eventually diagnosed with chronic fatigue syndrome and fibromyalgia, and began receiving long-term disability benefits in January 1991.

Under the terms of the policy, she was only entitled to continued benefits after two years if she was unable to do any job. In May 1997, the insurer informed F that her benefit payments would be terminated.

According to the insurer, its video surveillance detailed activities inconsistent with F’s claim that she was incapable of performing light or sedentary work.

Despite the medical evidence in its possession to the effect that F was not yet capable of doing any work, the insurer, relying on its own consultants and experts, confirmed its decision to terminate benefits

The trial judge awarded her $20,000 in aggravated damages for mental distress but, concluding that the insurer had not acted in bad faith, dismissed her claim for punitive damages. The Court of Appeal unanimously upheld the award for mental distress, and a majority of the court awarded F an additional $100,000 in punitive damages, finding palpable and overriding error on the question of bad faith.

Issue:Holding:

Damages for mental distress for breach of contract may be recovered where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made.

o In order to be successful, a plaintiff must prove his or her loss and the court must be satisfied that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

Here, given the nature of a disability insurance contract, it would have been within the reasonable contemplation of the parties at the time the contract was made that mental distress would likely flow from a failure to pay the required benefits.

The Court of Appeal’s award of punitive damages must be set aside. Punitive damages are not compensatory. o They are designed to address the purposes of retribution, deterrence and denunciation.

However, an insurer will not necessarily be liable for such damages by incorrectly denying a claim that is eventually conceded, or judicially determined, to be legitimate.

The question in each case is whether the denial was the result of the overwhelmingly inadequate handling of the claim, or the introduction of improper considerations into the claims process.

the trial judge found that the insurer had not acted in bad faith. The termination of benefits relating to an unobservable disability in the absence of any medical evidence

indicating an ability to return to work represents conduct that is troubling, but not sufficiently so as to justify interfering with the trial judge’s conclusion that there was no bad faith

Oppong: This case decides a number of important things:

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¨Damages for mental distress for breach of contract may, in appropriate cases, be awarded as an application of the principle in Hadley v. Baxendale. Damages for mental distress may be awarded where such damages were in the reasonable contemplation of the parties at the time the contract was made.

¨Not all mental distress associated with a breach of contract is compensable.

¨The plaintiff has to prove his or her loss. The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. These questions require sensitivity to the particular facts of each case.

¨There is only one rule by which compensatory damages for breach of contract should be assessed: the rule in Hadley v. Baxendale . The Hadley test unites all forms of contractual damages under a single principle. ... In all cases, these results are based on what was in the reasonable contemplation of the parties at the time of contract formation.

¨ A breach of contract will sometimes give rise to censure. But to attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency — the exceptional case that can be described as malicious, oppressive or high-handed and that offends the court’s sense of decency. The misconduct must be of a nature as to take it beyond the usual opprobrium that surrounds breaking a contract. Punitive damages must be resorted to only in exceptional cases, and with restraint. In addition to the requirement that the conduct constitute a marked departure from ordinary standards of decency, it must be independently actionable.

Honda Canada Inc v. Keays [2008] 2 SCR. 362(Restates Fidler – where parties considered breach of contract would lead to mental distress, and that contract is breached, the suffering party can recover on that breach for mental distress – consistent with Hadlex step 2 and Fidler – Punitive damages are restricted to acts so malicious and outrageous that they are deserving of punishment on their own (consistent with Whiten) )

K had worked 11 years for the same employer, first on an assembly line and later in data entry, when, in 1997, he was diagnosed with chronic fatigue syndrome. He ceased work and received disability benefits until 1998, when his employer’s insurer discontinued his benefits.

K returned to work and was placed in a disability program that allows employees to take absences from work if they provide doctor’s notes confirming that their absences are related to their disability. K’s employer became concerned about the frequency of his absences. Moreover, the notes K offered to explain his absences changed in tone, leaving the employer to believe that the doctor did not independently evaluate whether he missed work due to disability.

As such, the employer asked K to meet Dr. B, an occupational medical specialist, in order to determine how K’s disability could be accommodated. On the advice of his counsel, K refused to meet B without explanation of the purpose, methodology and parameters of the consultation.

On March 28, 2000, the employer gave K a letter stating that it supported K’s full return to work but that K’s employment would be terminated if he refused to meet B. When K remained unwilling to meet B, the employer terminated K’s employment.

K sued for wrongful dismissal. The trial judge found that K was entitled to a notice period of 15 months. He held that the employer had committed acts of discrimination, harassment and misconduct against K. He increased the notice period to 24 months to award additional damages dependent on the manner of dismissal. He also awarded punitive damages against the employer in the amount of $500,000, a costs premium, and costs on a substantial indemnity scale. The Court of Appeal reduced the costs premium and, in a majority decision, reduced the punitive damages award to $100,000. The Court of Appeal otherwise upheld the trial judge’s decision.

Holding:

K was wrongfully dismissed and the award of damages reflecting the need for 15 months’ notice should be maintained.

An action for wrongful dismissal is based on an implied obligation in the employment contract to give reasonable notice of an intention to terminate the relationship in the absence of just cause. Generally, damages are not available for the actual loss of a job or for pain and distress suffered as a consequence of being terminated.

However, in cases where parties have contemplated at the time of the contract that a breach in certain circumstances would cause the plaintiff mental distress, the plaintiff is entitled to recover. This is consistent with

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the view expressed in Fidler that all compensatory damages for breach of contract are assessed under one rule, i.e., what was in the reasonable contemplation of the parties (Hadley v. Baxendale).

In the employment law context, damages resulting from the manner of dismissal will be available if they result from the circumstances described in Wallace, namely where the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive”. These damages should be awarded through an award that reflects actual damages rather than by extending the notice period.

Aggravated damages should not have been awarded in this case. The employer’s conduct in dismissing K was in no way an egregious display of bad faith justifying an award of damages for conduct in dismissal.

Similarly, punitive damages should not have been awarded. Punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. The facts of this case demonstrate no such conduct.

Courts should only resort to punitive damages in exceptional cases and the employer’s conduct here was not sufficiently egregious or outrageous to warrant such damages. Even if the facts had justified an award of punitive damages, both the trial judge and the Court of Appeal should have been alert to the fact that the compensatory damages already awarded carried, under the old test, an element of deterrence and they should have questioned whether punitive damages were necessary.

Both the trial judge and the Court of Appeal also erred in concluding that the employer’s “discriminatory conduct” amounted to an independent actionable wrong for the purposes of allocating punitive damages. The Ontario Human Rights Code provides a comprehensive scheme for the treatment of claims of discrimination.

o A breach of the Code cannot constitute an actionable wrong; therefore the legal requirement for the common law remedy of punitive damages is not met.

o Since there is no evidence of discrimination to support a claim of discrimination under the Code and no breach of human rights legislation serves as an actionable wrong, there is no need to deal with K’s request for recognition of a distinct tort of discrimination.

Oppong: ¨At [50]-[60] and 62 where the court explains aspects of the Fidler decision, including the fact that Hadley v

Baxendale represents the sole test for determining whether a loss may be compensated for in damages when there is a breach of contract

Asamera Oil Corp. v. Sea Oil & Gen. Corp. (1987) S.C.C. 1979 (Mitigation of Damages: A duty is imposed on a party who has suffered from a breach to take all reasonable steps to avoid losses flowing from the breach. A plaintiff need not take all possible steps to reduce his losses. A plaintiff need not put his money to an unreasonable risk including a risk not present in the initial transaction in endeavouring to mitigate his losses) Facts:

Asamera sought rescission of the basic agreement between the two groups of entrepreneurs represented by Baud on the one hand, and Brook on the other.

Under the basic agreement, entered into on June 18, 1957, Baud was to receive 3,500,000 shares of Asamera, and SOG was to receive 500,000 shares in that company. In return Asamera was to receive $250,000 together with 196 shares in an Indonesian corporation known as Nusantara, which shares represented a 49 per cent interest therein.

Issue: The appeal of Asamera from the judgment of the Appellate Division affirming dismissal of its action of July 27,

1960, against SOG and Baud should be dismissed. Holding:

The Court approached the matter of the proper appraisal of the damages assessable in the peculiar circumstances of this case on the following basis: that the same principles of remoteness will apply to the claims made whether they sound in tort or contract subject only to special knowledge, understanding or relationship of the contracting parties or to any terms express or implied of the contractual arrangement relating to damages recoverable on breach; that Baud was under the general duty to mitigate its losses and may not escape this duty by relying interminably on an injunction obtained by it in 1960, restraining the sale of 125,000 Asamera shares held by Brook; that the specific duty to mitigate and to crystallize its claim for damages within a reasonable time of the breach of contract by bringing action seeking appropriate remedies and to prosecute such action with due diligence, was qualified or postponed by Brook’s request of Baud sometime prior to 1966 to refrain from enforcing its claims; that any postponement of such requirement to prosecute and to acquire replacement shares had come to an end at the latest on the awareness of Baud that the defaulting party was not only in breach of the duty to return the shares but had disposed of shares at least equal in

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number to those loaned by Baud; that any postponement of the duty to acquire replacement shares which may have been due to the sharp reduction in the value of the shares which occurred during the loan, was ended with the revival in values on the public market at least by the end of 1966; that a plaintiff in the position of Baud may not successfully assert throughout the years of litigation a right to specific performance of the contract to redeliver the subject-matter of the contract and at the same time seek to avoid or reduce his losses on the grounds that to do so by buying replacement shares would involve him in investing his funds in the shares of a company managed or dominated by his adversary, Brook; that having regard to the nature of a common share neither the terms of the injunction or the loan contract, nor the action by Brook in disposing of shares in number equal to those loaned, have any effect on the characterization of the rights of Baud or the obligation of Brook throughout this long and tortuous transaction; that damages are an adequate remedy and that a court in these complex and particular circumstances will not invoke the extraordinary remedies of equity.

The application of these principles and determinations to the particular circumstances in this case requires a determination of the damages payable by Brook on the assumption that Baud ought to have crystallized these damages by the acquisition of replacement shares so as to minimize the avoidable losses flowing from the deprivation by Brook of Baud’s opportunity to market the 125,000 shares. Such share purchases should have taken place within a reasonable time after the date of breach. Having regard to all the special circumstances, the time for purchase was the fall of 1966 when Baud was by its own admission free from any agreed restraint not to press its claims against Brook. It would be unreasonable to impose on Baud the burden of going into the market and acquiring replacement shares at a time when the litigation of its claims was in a dormant state at Brook’s request. Furthermore Baud acknowledged that by the fall of 1966 the fortunes of Asamera had improved and this had begun to be reflected in the market price of its shares. In short, the appellant is not entitled in law to any compensation for the loss of opportunity to sell its shares after that date. Thereafter its loss of this opportunity is of its own making. The theory of such a damage award is to provide the funds needed to replace the shares at the time the law required it to do so in order to avoid an accumulating claim. There should be an allowance of a reasonable time to permit the organization of the finances and the mechanics required for the careful acquisition of 125,000 shares either by a series of relatively small purchases or by negotiated block purchases. This would carry the matter into the fall of 1967. By

this time the price had risen to a range of $5 to $6. Making allowance for the upward pressure on the market price which would be generated by the purchase of such a large number of shares on a relatively low volume stock, the purchase price would surely have exceeded the $6 price reached in mid-1967 without any market intervention by Baud. For this factor an allowance of $1 per share should be made. Taking into account the effect of market intervention by Baud, the median price during the period from late 1966 to mid-1967, adjusted accordingly, would be about $6.50, and the damages should be awarded to Baud on that basis; that is, the total damages for breach of agreement to return the Asamera shares should amount to $812,500. In weighing the magnitude of this award one should not lose sight of the essential fact that Brook at any time right down to trial could, if he had remained in compliance with the injunction of July 1960, have avoided this result or the risk of this award by delivering from any source 125,000 Asamera shares.

Oppong: ¨A duty is imposed on a party who has suffered from a breach to take all reasonable steps to avoid losses flowing

from the breach. A plaintiff need not take all possible steps to reduce his losses. A plaintiff need not put his money to an unreasonable risk including a risk not present in the initial transaction in endeavouring to mitigate his losses.

¨Identify and discussion some of the ‘all-important and overriding considerations which have led to the judicial recognition of the desirability and indeed the necessity that a plaintiff mitigates his losses arising on a breach of contract’

o Economics: It is likely to result in economic wasteo Causation: If the loss was such that it could have been avoided by mitigation of losses, then it wasn’t

caused by the breach

¨This case decides that the existence of an ‘asset’ in the hands of the plaintiff created by the breach of contract is not a necessary prerequisite of the duty to mitigate. Explain.

o The plntf was arguing that, before I mitigate, I must have an asset in my hands; this was rejected by the courts; instead, the presence of the asset is just another factor for the courts to take into account

¨This case decides that the duty to mitigate prevails over a plea for specific performance unless there is a substantial and legitimate interest represented by specific performance.

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oSemelhago v. Paramadevan [1996] 2 S.C.R. 415 (Damages can be taken in lieu of specific performance where specific performance is awarded; damages should be assessed at the time of breach except where this would lead to injustice ; unique items need not be assessed at the time of breach, rather the date of trial can be used; specific performance can be used to revive a contract)Facts:

In August 1986, the respondent purchaser agreed to buy a house under construction in the Toronto area from the appellant vendor SP for $205,000, with a closing date of October 31, 1986

To finance the purchase, the respondent was going to pay $75,000 cash, plus $130,000 which he was going to raise by mortgaging his current house. The respondent negotiated a six-month open mortgage, so that he could close the deal on the new house and then sell his old one at an appropriate time in the six months following closing.

Before the closing date, the appellant vendor reneged and in December 1986 title to the house was taken by the appellant BP.

The respondent remained in his old house, which was worth $190,000 in the fall of 1986, and $300,000 at the time of the trial. The respondent sued the appellants for specific performance or damages in lieu thereof. At the time of trial, the market value of the property to be purchased was $325,000.

respondent elected to take damages rather than specific performance and the Ontario Court (General Division) awarded him $120,000, being the difference between the purchase price he had agreed to pay and the value of the property at the time of trial.

appellants appealed on the ground that the assessment was a “windfall” because the respondent was benefiting not only from the increase in the value of the new house, but also from the gain in the value of the old house.

Issue:

Holding: While specific performance should not be granted as a matter of course absent evidence that the property is

unique, this case was dealt with by the parties throughout on the assumption that specific performance was an appropriate remedy, and this appeal should thus be disposed of on that basis.

o A party who is entitled to specific performance is entitled to elect damages in lieu thereof. Damages are normally assessed at the date of breach in the case of breach of contract for the sale of goods.

o The rationale for this rule is that if the innocent purchaser is compensated on the basis of the value of the goods as of the date of breach, the purchaser can turn around and purchase identical or equivalent goods

Given the flexibility of the rule at common law as to the date for the assessment of damages, it would not be appropriate to insist on applying the date of breach as the assessment date when the purchaser of a unique asset has a legitimate claim to specific performance and elects to take damages instead.

It is not inconsistent with the rules of the common law to assess damages as of the date of trial. o The rationale that the innocent purchaser is fully compensated if provided with the amount of money

that would purchase an asset of the same value on the date of the breach no longer applies where the claim for specific performance has been maintained until the commencement of the trial.

Moreover, the claim for specific performance revives the contract to the extent that the defendant who has failed to perform can avoid a breach if at any time up to the date of judgment, performance is tendered. In the circumstances of this case, the appropriate date for the assessment of damages is the date of trial. The increase in value of the respondent’s residence which he retained when the deal did not close should not be deducted from the amount of damages awarded.

If the respondent had received a decree of specific performance, he would have had the property contracted for and retained the amount of the rise in value of his own property. Since there was no cross-appeal with respect to the deductions made by the Court of Appeal, they are not at issue here

Oppong: ¨This case decides that a party who is entitled to specific performance is entitled to elect damages in lieu thereof

and the courts have jurisdiction to award damages in lieu of specific performance. ¨This case affirms the general rule that damages are assessed at the date of breach. It however holds that in

appropriate circumstances (in this instance where the plaintiff elects damages in lieu of specific performance) the appropriate date for the assessment of damages is the date of trial. Explain

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Liquidated DamagesShatilla v. Feinstein [1923] Sask. L.R. 454 (Presumption of Penalty- 1) Liquidated damages that provide a lump sum for any number of breaches of varying importance will raise a rebuttable presumption against it being liquidated damages, 2) If an agreed upon sum is more than could possibly arise from breach or less, there is a presumption of a penalty because it is not a genuine pre-estimate; 3) If multiple factors need to be breached to trigger the agreed upon clause, the presumption is a penalty)Facts:

def had a business wholesaling dry goods; def sold his business to plntf def agreed to a non-competition clause (aka a restrictive covenant – generally these covenenants are considered

against public policy) that stated:o they will not…carry on or be engaged…in the business of wholesale drygoods, men’s furnishings, [etc]

…within Saskatoon…for 5 years…in the event of breach shall pay $10,000) the def purchased shares in a company and became the director; subsequently entered into the business of

wholesale merhcants of woollen and cotton mitts, gloves, men’s socks, hosiery and ladies and men’s leather coats

Issue is the sum fixed by the above agreement a penalty, or is it recoverable by way of liquidated damages?

Holding: if the sum fixed is in excess of any actual damage which can possibly arise from the breach of the contract, the

sum fixed as damage is not considered to be a bona fide pre-estimate of the damage – A single stipuldation which, if broken at all can only be broken once only – this is a liquidated damage Where the parties have agreed that a fixed amount will be paid on the breach of any of a number of

conditions, a presumption is raised against the sum being treated as liquidated damages – the damage likely to accrue from breaches of various kinds in such a case is different in kind and amount, and a separate estimate in the case of each breach would be necessary

o Presumption may be rebutted if it is shown on the face of the agreement or evidence that the parties have taken into consideration the different amounts of damages that might occur, and had actually arrived at an amount which was considered proper under all the circumstances.

The covenant in this case covers a number of matters & provides for the payment of a lump sum upon the occurrence of any one of a number of things

Oppong:o ¨How would you characterize the term of the contract reproduced at p.885. Assess the legal significance

of your characterization. It is a non-competition clause – aka a restrictive covenant, which is generally considered

against public policy, BUT THE COURTS WILL ENFORCE IT BASED ON A TEST OF REASONBILITY WHICH ASSESSES: 1) IT’S IMPACT ON THE PUBLIC, 2) IS IT REASONABLE (CONSIDER THE FOLLOWING FACTORS)

Take into account factors like the scope of the convenant (Subject matter, geographical coverage, duration of time)

o ¨‘... the law permits the parties to agree beforehand as to the amount to be paid in case of breach’. How do you justify this?

It acts as an incentive to not breach the contract – it’s also evidence of freedom of contract - o ¨This case decides that where parties agree on a fixed sum as payable on the breach of a number of

stipulations of various degrees of importance, there is a presumption against the sum so fixed being treated as liquidated damages. Explain and justify this principle.

o How do you decide whether it is liquidated damages or a penalty? – The essence of a penalty is a payment of money stipulated as in terrorem of the offending the

essence of liquidated damages is a genuince covenanted pre-estimate of damage. In deciding this, consider:

Is it a fixed sum payable on the breach of a variety of terms of varying importance Depending on whether it is a liquidated damage or penalty,

o ¨... the Court may decline to construe the words ‘liquidated damages’ according to their ordinary meaning and may treat such sum as a penalty’. What does this tell you about the legal significance of how parties characterize provisions in their contract stipulating a fixed sum of money as payable on breach?

Characterization is not important, what matters is the substance

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H.F. Clarke Ltd. v. Thermadaire Corporation Ltd. [1976] 1 S.C.R. 319 (Maximum Amount Recoverable - First you characterize whether it is liquidated damages or penalty? Liquidated damages, if accepted, serves as the actual amount recoverable. If it is a penalty, that serves as a maximum recoverable, even if the actual loss is greater)

Laskin CJFacts:

In January 1966, the parties entered into a written contract constituting the appellant as the exclusive distributor of the respondent’s products in the larger part of Canada

This contract which replaced an earlier one under which there were two restrictive covenants, one respecting competition during the currency of the contract and the second respecting competition during the three year period after termination or cancellation, showed one marked variation in the successor covenants in that the 1966 covenant dealing with sale of competitive products omitted the references to the three year period and to the territory.

The covenant dealing with Termination of Agreement by Clarke in neither case made reference to territory but provided for liquidated damages payable by Clarke to Thermidaire of an amount equal to the gross trading profit realised through the sale of competitive products.

The contract was terminated by Thermidaire The appellant had continued to sell competitive products contrary to the terms of the covenant and put itself at

risk of having to account under the formula for post-contract damages. The respondent however did not seek an interim injunction and while the prayer for relief in the counter-claim did

ask for an injunction by the time the action came on for trial there was no longer any basis for one.Issue:

first, the validity of the convenants by reason of their alleged unlimited scope? second, the main issue of whether the formula fixing damages for breach of covenant in the post-contract period

establishes a measure of liquidated damages or is a penalty against which relief must be given?Holding:

Without interfering with the view taken by the Court of Appeal, reasonable construction of the covenants would, in the absence of indication to the contrary, have limited them to that territory in any event. The covenants having been by construction or rectification limited as to territory the appellants failed also in any challenge to the covenants as being in unreasonable restraint of trade.

As to whether the formula fixing damages was in the circumstances a penalty, while it is always open to parties to make such a pre-determination of damages or their measure this must yield to judicial appraisal of its reasonableness.

The doctrine that a sum will be held to be a penalty if extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach is well established and does not lose its force in cases where exact calculation or pre-estimation is difficult.

In the present case the stipulation for liquidated damages (of which the estimated loss of net profits of respondent is only 40 per cent) was disproportionate and unreasonable. The respondent was however entitled to recover its provable damages for breach of covenant

Oppong: o ¨‘If all that was involved in determining whether the parties had agreed on a measure of liquidated

damages or on a penalty was the intention of those parties, there could be no quarrel with the result reached at trial and on appeal’. Discuss the view that it is inappropriate for the courts to look beyond the intention of the parties. Assess the justification for judicial intervention in such cases.

Is it appropriate to look beyond the intention of the parties? Why should the courts be willing to intervene?

o ¨How would you have decided this case if the gross profit made by the party in breach of the restrictive covenant was 50,000 and the actual loss from the breach was 92,000?

In the actual case the gross profit was 200,000 vs an actual loss of 92,000 – thus the party was seeking to get the gross profit as this is the term that was used in the

According to the principles, you would end up with 50,000 because First you characterize whether it is liquidated damages or penalty? If liquidated, then you get what was stipulated, regardless If it was a penalty, then you can get the still get on 50, 000; this is because a penalty is

unenforceable, and you get your actual loss, subject to the the amount stipulated being the maximum that is recoverable

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So here, either way its 50,000 but if the numbers were otherwise, that’s

J.G. Collins Insurance Agencies Ltd. v. Esley [1978] 2 S.C.R. 916 (Maximum recoverable - where the stipulated sum by the parties in their contract is less than the actual loss, the agreed sum represents the maximum amount recoverable whether the sum is a penalty or a valid liquidated damages clause)Dickson JFacts:

Covenant stated: “…in the event of his failing to observe or perform…[plntf would pay] the sum of $1000 as and for liquidated damages”

Issue:

Holding:

Authority indicates that a penalty clause is ineffective even where it is less than the actual loss suffered – the result would be that actual damages could be recovered which exceeded the amount stipulated as penalty

“it is now evident that the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum

o it has no place where there is no oppression. If actual loss > penalty, then normal rules of enforcement apply to allow recover of only the agreed sum [in the penalty clause] Ex. remoteness etc all apply

o the party imposing the penalty should not be able to obtain the benefit of whatever intimidating force the penalty clause may have in inducing performance, and then ignore the clause when it turns out to be to his advantage to do so”

A penalty clause should function as a limitation on the damages recoverable, while still being ineffective to increase damages above the actual loss sustained when such loss is less than the stipulated amount

Oppong: o ¨“Beyond the penalty you shall not go; within it, you are to give the party any compensation which

he can prove himself entitled to”. This case decided that where the stipulated sum by the parties in their contract is less than the actual loss, the agreed sum represents the maximum amount recoverable whether the sum is a penalty or a valid liquidated damages clause. Explain and assess the rational for this principle.

o ¨To what extent does the existence of a liquidated damages/penal clause prevent a plaintiff from seeking other remedies (e.g. specific performance or injunction) available to him in law or equity?

The starting point is that as a victim of the breach, you are entitled to all the remedies that the law makes available

The other remedies are available nonetheless even if you are receiving some damages, for example.

You cannot, however, double recover!!

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