week 1 basic concepts - lsa -...

2015-2016 Ellen Chen CONTRACTS Prof. Rosalie JukierTop of the Document

ContentsWEEK 1 Basic concepts.........................................7

Fuller, “Human Interactions and the law”Jobin & Baudoin, “Les obligations”Smith, “Contract Theory”

Week 2 Sources of contract law............................8 Macaulay, “An Empirical view of

Week 3 Civil, common, transsystemic law............8EurotunnelCollins, Contract and market Kennedy, Form and Substance Thibierge-Guelfucci, Libres proposMacNeil, the New Social Contract Borrows, Negotiating Treaties Miller, Compact, Contract, Covenant

WEEK 4A Standard form adhesion contracts.........9 Niglia, Transformation of Contract in Europe Dell Computer v. Union des consommateurs // website mistake (2007 SCC - QC)

WEEK 4B Problems with recognition: intent..........9 Leonard v. Pepsico // Pepsi points for Harrier jet (1999 US) Carlill v. Carbolic Smoke Ball // Quack flu medicine (1893 UKQB)

Kleinwort Benson v. Malaysia Mining // Bank v. Parent guarantor (1989 UKCA)

WEEK 5A Problems with recognition: ambiguity. 10 Fontaine, Offre et acceptation Raffles v. Wichelhaus // “Peerless” ships (1864 UK) Les Terrasses v. Saunders // Shopping center v. lease agent (1989 QCCA) Academy of Chicago Publishers v. Cheever // Dead author (1991 Illinois)

WEEK 5B Problems with recognition: Acceptance, Battle of the Forms..............................................11

Von Mehren, Battle of the Forms Draft Common Frame of Reference CUQ v. Simard-Beaudry // City of Quebec v. sewer contractors (1987 QCCA)

WEEK 6A Revocation, Place of Formation...........12 Entores v. Miles Far East // Buyer v. Seller with instant fax (1955 UKQB) Errington v. Errington // Deceased father promises house (1952 UKKB) Dawson v. Helicopter Exploration // Mineral deposits (1955 SCC - BC)

WEEK 6B Agreements to contract.......................13 Cere v. Neeley // buyer v. seller gave option to buy land (1980 QCCS) Walford v. Miles // Buyer v. Seller of photography business (1992 UKHL)

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Empress Towers v. Bank of Nova Scotia // Landlord v. Lessee renewing lease (1990 BCCA) Brewer v. Chrysler // Promised dealer v. Car company (1977 ABQB)

WEEK 7A Judicial manipulation: offer and acceptance..........................................................14

Pharmaceutical Society v. Boots cash chemists // self-serve pharmacies (1953 UKQB) Thornton v. Shoe Lane Parking // Parking ticket with conditions (1971 UKQB)

WEEK 7B QCL formalities....................................14WEEK 8A/8B Common Law Consideration...........15

Simpson, Doctrine of Consideration2nd Restatement of Contracts White v. Bluett // Father’s executor v. Complaining son (1853 UKEX) Hamer v. Sidway // Nephew’s rep. v. Uncle’s executor (1981 NY) Stott v. Merit Investments // Derivatives salesman v. Employer (1988 ONCA) Harris v. Watson // Seaman v. Ship captain (1791 UKHL)

WEEK 9A Promissory Estoppel............................16 Gilbert Steel v. University Construction // Steel mill v. Construction company (1976 ONCA) Central London Property v. High Trees // Landlord v. Tenants with lowered rent (1946 UKKB)

Williams v. Roffey Bros. // Subcontractor v. Construction company (1991 UKQB) Fredericton Airport v. NAV Canada // Paying for new beacon (2008 NBCA) Walton Stores v. Maher // Bigbox store v. Prospective landlord (1988 HCA)

WEEK 9B QCL Contract requirements.................17 In re Ross v. Royal Institute // Donor v. McGill (1931 QCCA)

WEEK 10A/10B Public order/policy in contracts. .18 Brasserie Labatt v. Villa // Employer v. Fired employee (1995 QCCA) Shafron v. KRG Insurance Brokers // Former employee v. Employer with restrictive covenant (2009 SCC - BC) Syndicat Northwest v. Amselem // Condo v. Jews with sucahs (2004 SCC - QC) Bruker v. Marcovitz // Wife v. Husband refusing Jewish divorce (2007 SCC - QC) Comité des droits de l’homme // Dwarf tossing in France (2002 UN)

WEEK 11A Obligational content: interpretation...20Hall, the Eight Fundamental Precepts of Contractual Interpretation Eli Lilly v. Novopharm // Drug Licensor v. Licensee (1998 SCC from FCA) Quebec v. AES/Riopel // Revenue Agency v. Messed up tax arrangements (2013 SCC) Sattva Capital v. Creston Moly // Advisors v. Mining company finder’s fee (2014 SCC - BC)

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WEEK 11B Obligational content: incorporation. . .21 McCutcheon v. David MacBrayne // Customer v. Shipping company (1964 UKHL) British Crane Hire v. Ipswich Plant Hire // Crane lessor v. Crane lessee (1975 UKQB)

WEEK 12A Obligational content: implication by law............................................................................22

Ouellet v. Quebec Inc // Car salesman v. BMW dealer (2000 QCCQ) A (M) v. Stations de la Vallée de St-Sauveur // Injured child v. Ski school (2010 QCCA)

WEEK 12B/13A Obligational content: good faith. 23 National Bank v. Soucisse // Heirs with suretyships (1980 SCC - QC) Houle v. National Bank // Bank calling on demand loan (1990 SCC - QC) Provigo v. Supermarché A.R.G. // Grocery Franchisor v. Franchisee (1998 QCCA) McKinlay Motors v. Honda Canada // Dealer driven out of business (1989 NFSC) Bhasin v. Hrynew // Fund salesman v. Rival salesman (2014 SCC - AB)

WINTER TERM--------------------------------------------. . .24WEEK 2A Intro to judicial control.........................24

Ghestin, “L’utile et le juste dans les contrats”Atiyah, “Contract and Fair Exchange”

♛ Lloyds Bundy Bank v Bundy // bank v mortgage for son’s business >> undue influence invented unconscionability (Denning) (1975 UKQB) ♛unconscionability♛

WEEK 2B Procedural tool at formation #1: ⚜♛Capacity (requirement of contract)...............25

⚜ CL c ML // son declared father’s administrator v mom >> incapacity enforceable (2006 QCCS) ♛ Fyckes v Chisholm // Mentally disturbed land owner v timber buyer >> incapacity (1911 xx)

WEEK 3A Procedural tool #2: ⚜Fear (defect in consent) ♛Duress...............................................27

⚜ JJ Joubert v Lapierre // employer v Milkman became contractor >> economic duress enforceable (1972 QCCS) ♛ Atlas Express v Kafco // Transportation company v manufacturer >> economic duress fresh consideration enforceable (1989 UKQB) ♛ Greater Fredericton Airport Authority v Nav Canada // airport needs beacons v equipment supplier >> economic duress consideration needed for modification enforceable (2008 NBCA)

WEEK 2B Procedural tool in formation #3: ♛Undue Influence.............................................................29

♛ Barclays Bank Plc v O’Brien // bank v wife signed husband’s mortgage >> undue influence constructive notice enforceable (1994 UKHL) ♛constructive notice♛

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♛ Royal Bank of Scotland v Etridge // Bank v wives mortgaging matrimonial homes >> undue influence enforceable (2001 UKHL) ⚜ Byrne c Trust Prêt et Revenu // wife mortgaged home for husband v bank >> undue influence fear properly adviced enforceable (1999 QCCS)

WEEK 4A Procedural tool in formation #4: ♛Misrepresentation ⚜Fraud (subcategory of error, defect in consent)...............................................30

⚜ Tremblay v Les Pétroles // garage buyer v seller misrepresented past earnings >> fraud explicit lies enforceable (1961 QCCA) ⚜ Creighton v Grynspan // Land seller omits desired strip of land v buyer >> fraud reticence enforceable (1987 QCCA) ♛ Esso Petroleum v Mardon // Gas station franchisor built backwards v franchisee >> negligent misrepresentation enforceable (1976 UKQB) ♛ VK Mason Construction v Bank of NS // Construction contractor v loan provider knowing project wasn’t viable >> negligent misrepresentation in tort enforceable (1985 SCC from NS)

WEEK 4B Procedural tool #5: ⚜Duty to Disclose (extension of good faith or fraud).......................32

Kronman, “Mistake, Disclosure, Information and the Law of Contracts”Fabre-Magnan, “Duties of Disclosure and French Contract Law”

⚜ Bail c Banque de Montreal // Hydro Quebec failed to disclose to contractor >> good faith in formation duty to disclose damages (1992 SCC from QC) ♛ Martel v Canada (encore) // Landlord v tenant not intending to renew >> good faith obligation in negotiation duty to disclose enforceable (2000 SCC from ON)

WEEK 5A Procedural tool #6: ♛Mistake ⚜Error (defect of consent)..............................................34

♛ Sherwood v Walker // buyer v seller of not actually barren cow >> essential mistake mistake in law enforceable (1887 Michigan SC) ♛ Bell v Lever Brothers // Managers committed insider trading v Former employer gave severance pay >> pre-existing mistake essential change mistake in law enforceable (1932 UKHL) ♛mistake♛ ♛ Great Peace Shipping v Tsavliris Salvage (MacFarlane article) // Ship in distress v salvage ship >> essential change impossible mistake in law enforceable (2002 UKCA) ⚜ Huot v Ouellette // wife with fear of gas lines v property seller >> unilateral subjective error enforceable (1981 QCCS) ⚜ Lepage c Allard // Sold house for loan v only sell back for more money >> inexcusable error enforceable (2004 QCCS)

WEEK 5B Procedural tool #7ish: ⚜Good faith.....37

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⚜ Desjardins c Services Informatiques DecisionOne // auction holder v bid way too low >> inexcusable error good faith enforceable fin-de-non-recevoir (2004 QCCA)

WEEK 6A Substantive tool #1: ♛Unconscionability ⚜Lesion (defect of consent)................................38

♛ Toker v Westerman // bought over-priced fridge v door-to-door salesman >> unconscionability enforceable (1970 NJDC) ♛ Harry v Kreutziger // fishing license seller in weak position v insistent buyer >> unequal position substantive unfairness unconscionability enforceable (1979 BCCA) ♛unconscionability♛ ♛ Hunter Engineering v Syncrude Canada // defective gearboxes past warranty v buyer >> fundamental breach irrelevant unconscionability valid exoneration clause enforceable (1989 SCC) ⚜ Richard v Time // consumer believed won big prize >> credulous consumer consumer lesion enforceable (2012 SCC from QC) ⚜ Gareau Auto v BC Impériale de Commerce // bought boat but had no use >> consumer lesion objective lesion subjective lesion enforceable (1989 QCCA) ⚜consumer lesion⚜ ⚜ Yoskovitch v Tabor // seller v buyer of worthless bakery >> consideration incapable undue influence duress misrepresentation pure economic error fudged consequential economic error abusive clause adhesion contract duty to disclose excusable error

unequal position substantially unfair hidden lesion enforceable (1995 QCCS) multiple themes

WEEK 6B Substantive tool #2: ⚜Abusive Clause (direct protective provision)................................41

⚜ Allendale Mutual Insurance v Hydro Québec // burned down house v exoneration clause >> valid exoneration clause for tort enforceable (2001 QCCA) ⚜ Québec c Kechichian // Gov’t v immigrant sponsor >> abusive clause fair clause enforceable (2000 QCCA) ⚜ Parent-Constantin c Voyages Symone Brouty (sample) // vacationers got sick v travel agency no cancellation >> misrepresentation error abusive clause enforceable (2007 QCCQ)

WEEK 7A Content problems #1: ⚜Exclusion (direct provision) ♛Exoneration clauses (extension of unconscionability)...............................................42

♛ Tilden Rent-A-Car v Clendenning // Car renting company v slightly drunk driver >> procedural unfairness substantive unfairness unequal bargaining consumer adhesion duress misrepresentation fraud onerous clause brought to attention valid exoneration hidden unconscionability enforceable (1978 ONCA) ♛ Hunter Engineering v Syncrude Canada (encore) // defective gearboxes past warranty v buyer >> fundamental breach irrelevant unconscionability valid exoneration clause enforceable (1989 SCC)

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♛ Tercon Contractors v British Columbia // highway contract bidder v picked ineligible bid >> 3step test unconscionability equal bargaining valid exoneration clause enforceable (2010 SCC) ♛exoneration clauses♛

WEEK 7B Content problems #2: ⚜♛Arbitration clauses (extension of abusive clause).................44

♛ Dell Computer v Union des consommateurs (encore) // arbitration clause v consumer bought computer at low price >> adhesion standard form abusive valid arbitration clause enforceable (2007 SCC) ♛ Seidel v TELUS Communications // class action against TELIS >> legislative protection valid arbitration clause enforceable (2011 SCC from BC) ♛ Comb v PayPal // arbitration clause added in user agreement >> unconscionability valid arbitration clause enforceable (2002 California)

WEEK 8A/B Post-formation problems of frustration in 3 levels: ♛⚜Impossibility/ Force Majeure >> ♛⚜Futility/Imprevision >> ♛⚜Hardship/ Impracticability...................................................45

♛ Otis Elevator v Viglione // Interrupted elevator installation due to strike >> valid modified force majeure clause personalized impossibility enforceable (1978 QCCS) ♛ Krell v Henry // rented apartment with view of cancelled coronation >> purpose was impossible frustration enforceable (1903 UKKB) ♛frustration♛

♛ Amalgamated Investment v John Walker // buyer of land designated historical v seller >> hardship frustration impossible enforceable (1976 UKCA)Ebke & Steinhauer, “Doctrine of Good Faith in German Contract Law” ♛ HR Sainsbury v Street // Lower than expected crop yields >> hardship partially possible totally impossible force majeure partially enforceable (1970 UKKB) ♛ Alcoa v Essex Group // supplier v buyer of aluminum didn’t make right pricing formula >> mutual mistake excessive hardship enforceable (1980 US) ⚜ Canada Starch v Gill & Duffus // peanut buyer v supplier facing spiked market price >> hardship impossible modified force majeure clause enforceable (1983 QCCA) ⚜ Churchill Falls v Hydro Quebec // seller v buyer of electricity at fixed cheap price >> imprevision good faith duty to renegotiate impossible enforceable (2014 QCCS)

WEEK 9A Intro to Breach, Intensity of obligations, Remedies............................................................48

Khouri, “Efficient Breach Theory in the Law of Contract ♛ Cehave v Bremeer Handelgeselleschaft // buyer of v seller delivered damaged orange pellets >> serious breach minor breach partial damages termination (1975 UKCA)

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⚜ A (M) v Stations de la Vallée de St-Sauveur (encore) // negligent ski instructor let kid ski unsupervised >> obligation of diligence obligation of result (2010 QCCA)

WEEK 9B Potential remedies #1: ⚜♛Specific Performance........................................................50

♛ Warner Bros v Nelson // movie company v actress on exclusive contract >> positive specific performance negative specific performance (1937 UKKB) ♛ Co-operative Insurance v Argyll Stores // mall v anchor grocery store wants to close >> hardship impossible enforceable positive specific performance problem of precision (1997 UKHL) ⚜ Construction Belcourt v Golden Griddle // mall v anchor restaurant wants to close >> hardship problem of supervision specific performance (1988 SCC from QC)

WEEK 10A Limiting damages #1: ⚜♛Mitigation. 51 ♛ Payzu v Saunders // silk buyer with drop in price v seller >> failure to mitigate partial damages (1919 UKKB) ♛ Southcott Estates v. Toronto Catholic District School Board // land buyer v land seller refuse to sell >> failure to mitigate specific performance damages for avoidable loss (2012 SCC from ON)

WEEK 10B Limiting damages #2: ⚜♛Remoteness............................................................................52

♛ Hadley v Baxendale // miller v delayed delivery of mill shaft >> expect to arise

naturally reasonable contemplation special situation communicated (1854 UKEX) ♛remoteness in contractual damages♛ ♛ Victoria Laundry v Newman Industries // laundry business v delayed delivery of boiler >> natural consequence reasonable contemplation special circumstance communicated full damages (1949 UKKB) ♛ Koufos v Czarnikow (Heron II) // sugar buyer v delayed sugar ship >> unusual damages foreseeable AND probable full damages (1969 UKHL) ♛ Transfield Shipping v Mercator (Akeleos) // ship owner leased out ship v ship returned late lost next lease customer >> foreseeable intent to assume risk liable (2008 UKHL) ⚜ Ciment Québec c Stellaire Construction // delivered wrong cement v suffered large damages >> direct immediate requirement partial damages only (2002 QCCA)

WEEK 11A/11B Limiting damages #3: ♛Cost of Cure vs. Diminution in Value...............................53

♛ Tabcorp Holdings v Bowen Investments // unauthorized renovation of building lobby v landlord >> cost of cure diminution in value (2009 HCA) ♛ Peevyhouse v Garland Coal (Maute) // land owners v mining company doesn’t restore land >> cost of cure diminution in value (1954 Oklahoma)

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♛ Ruxley Electronics v Forsyth // swimming pool too shallow v builder >> difference in performance cost of cure nominal consolation (1995 UKHL)

WEEK 12A Limiting damages #4: ⚜♛Non-Pecuniary Damages............................................54

♛ Jarvis v Swan Tours // inadequate Swiss vacation v tour company >> exception for enjoyment contracts moral damages (1973 UKQB) ♛Jarvis exception♛ ♛ Fidler v Sun Life // harassed insurance holder with chronic fatigue v insurance company >> apply remoteness test reasonable contemplation moral damages rules for punitive damages bad faith punitive damages (2006 SCC from BC) ♛Baxendale as one rule to rule them all♛

WEEK 12B Limiting damages #5: ⚜♛Punitive Damages.............................................................55

⚜ Brault & Martineau c Riendeau // advertising violated CPA v consumer class action >> punitive damages (2010 QCCA) ⚜ Richard v Time (encore) // credulous consumer v magazine ad >> punitive damages (2012 SCC from QC) ♛ Branco v. American Home Insurance // class action for full benefits v insurance company >> reduced punitive awards (2015 SKCA)

WEEK 13A Limiting damages #6: Disgorgement, penalty clauses...................................................56

Goetz & Scott, “Liquidated Damages, Penalties, and the Just Compensation Principle ♛ Attorney-General v Blake // gov’t v double agent with book deal >> (2000 UKHL) ♛disgorgement♛ ♛ HF Clarke v Thermidaire // exclusive distributor v manufacturer with penalty clause >> excessive punitive valid penalty clause (1976 SCC from ON) ⚜ 151276 Canada c Verville // abandoned lease v landlord wants penalty >> valid penalty clause partially reduced (1994 QCCS)

WEEK 13B Third parties.......................................58Contracts (Rights of Third Parties) Act 1999 Chapter c 31 Beswick v Beswick // xxx (1966 UKCA) Beswick v Beswick // xxx (1968 UKHL) New Zealand Shipping v AM Satterthwaite // xxx (1975 xx) London Drugs v Kuehne & Nagel // xxx (1992 x)

WEEK 14 Conclusions..........................................58McNeil, “Wither Contracts”Lloyd, “Making Contracts Relevant”

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WEEK 1 Basic concepts- Contract is about the voluntary obligations

between people, torts is involuntary obligations - Myths: Contract do not have to be written,

signed, in certain forms, enforceable even if it is technically valid, or clearly convey the actual intentions

- Contract is an enforceable promise, self-imposed promissory obligation

- Not every promise is a Contract, every Contract is a promise

- 13731. ccQ contracts bind 13782. ccQ agreement of the wills

- Traditional Contract Lawo Classical Theory of Autonomy of the Willo Contract is a freely-entered agreement,

based on intention, wills of partieso Contract Law should enforce and

facilitate free will1 1373 ccQ “The object of an obligation is the prestation that the debtor is bound to render to the creditor and which consists in doing or not doing something. The debtor is bound to render a prestation that is possible and determinate or determinable and that is neither forbidden by law nor contrary to public order”2 1378 ccQ “A contract is an agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation. Contracts may be divided into contracts of adhesion and contracts by mutual agreement, synallagmatic and unilateral contracts, onerous and gratuitous contracts, commutative and aleatory contracts, and contracts of instantaneous performance or of successive performance; they may also be consumer contracts.

o Originated from individual rights theory, freedom of the will

o State should respect Contract because Contract is the will of the parties

o Given free will and equality, there is no unjust Contract

o Parties always have the freedom to choose, state shouldn’t interfere

o Meeting of the minds, magical momento Important corollaries

1. Qui dit contractuel dit juste / Free dealing is fair dealing

2. Pacta sunt servanda / agreements must be kept

o Contract is binding on both the parties and the courts

- Unequal parties: Systematic inequalityo E.g. employer-employee minimum wage,

consumer protection, lender-borrower lesion, residential lease mandatory clauses

- Proliferation of adhesion Contracto Not voluntary promise, no meeting of

wills and intentions- Contractual justice

o Allow parties to equalize power, corrective justice not distributive justice

o Not accepted by traditional Contract lawo Tension between traditional need for

stability, reliability and flexibility- Value of Contract: social order

o Allow for peaceful exchange of goods and services

o Security and stabilityo Brings the uncertainty of the future into

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o Expectancy guarantee of interactional behaviors

- K gives expectation damageso Gold standard of damages, highest

damage possible in lawo Torts can only give reliance and

restitution damageso Expectation damage is the value of the

expectancy Contract creates, puts parties in position as if Contract was performed

o E.g. B promises to lease A’s property, A spends $3000 in renovations

Reliance: $3000, to the extent that renovation is specific to B

Expectation: $3000 + rent profitso Restitution is the greater of enrichment

and impoverishment i.e. the remedy for unjust enrichment

o Contract gives expectation damages because parties need to be able to rely fully on their agreement today for execution in the future

o Most contracts are executory, actions in the future, need to trust promise

Fuller, “Human Interactions and the law”o Customs develop into law when regularly

respected, as social order o Customs are adopted into Contracts

through common understanding, expectation

Jobin & Baudoin, “Les obligations”o Contract is a voluntary agreement,

personal juridical act

o Classical theory, liberal contract is always just

Smith, “Contract Theory”o explain Contracts through promissory

model and reliance theory

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Week 2 Sources of contract law - one of the least legislated areas of law

1. enacted / declared lawo proclaimed by state / government,

binding sourceo codes, statues, civil code

2. judgmentso jurisprudence in civil law, case law in

common lawo includes judgements of state

institutions3. the contract itself

o unique to Contract law, where the agreement forms subjective law

o created by the parties’ agreemento types of provisions

suppletive: default provisions provided by legislation

imperative: “notwithstanding” clauses, explicitly sets out what the contract say in particular

4. customs5. soft law and doctrine

o persuasive authority but not bindingo soft law important through court citation

and mutual agreements between stateso e.g. US 2nd restatement, UNIDROIT, EU

Common Framework of Reference Macaulay, “An Empirical view of contract”

o “contract law is dead” academic Contract law is irrelevant

o Leader of law in action approacho Legal education is based on pathological

cases that do not reflect how actual contracts work

o Most people don’t read contracts, don’t plan, don’t know contract law

o Actual contract law is rarely used, but understanding of contract law and remedies is behind the interactions

o Shadow of the law, parties think about the law when forming their agreements E.g. international trade law, family law

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Week 3 Civil, common, transsystemic law- Civil law

o All of continental Europe, LatAm, most of Asia, Africa, Scotland

o Common source from Roman law, Formalistic approach, 533AD Justinian’s Digest corpus iuris civilis, collection of judges’ quotes

o Roman law began with lay judges “iudex,” controlled by “praetor” clerks

o Jurisconsults developed as experts, disputes in writing, “reasoned learning”

o Code is of architectural, holistic importance

- Common law o Focus on cases, bottom up, a mess with

an index, slow to changeo Parallel equity courts, specific

performance remedy - Mixed jurisdictions

o Bijurality: civil system for private law, common law system for public law

- Transsystemico Instrumentalist, harmonization, best

practices, critical thinkingEurotunnel

o Example of transsystemic common law and civil law function, English/French cross-sections in construction, trade principles for disputes

Collins, Contract and marketo Contracts enable market order, exchange

of goods, discourage misleading

Kennedy, Form and Substanceo Shift away from altruistic moral duties to

contractual dutieso Modern conflict between individualism

and the moral duties Thibierge-Guelfucci, Libres propos

o Equality in formation, no abuse of power o Equilibrium in substance, balances

provisionso Fraternity in performance

MacNeil, the New Social Contracto Primary roots: society, specialization of

labor and exchange o Discrete contract: simple exchange vs.

relational contract Borrows, Negotiating Treaties

o Aboriginal treaties as contracts between state entities through spoken word

Miller, Compact, Contract, Covenanto Aboriginal contracts as partnerships,

based on kinship and trustWEEK 4A Standard form adhesion contracts- Adhesion contracts are non-negotiable,

standard form contracts are pre-made- Arbitration clauses: changes foreign location of

judgement, no appeal, foreign language Niglia, Transformation of Contract in Europe

o Contractual ideal of freedom to contracto Standard form contracts promote mass

transactions, source of abuseo Indirect interventions e.g. rules on

formation, duty to bring terms to attention of consumers

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o Direct interventions e.g. public policy, good faith, equity

Dell Computer v. Union des consommateurs // website mistake (2007 SCC - QC)Facts: Dumoulin exploited a mistake on Dell’s website to buy a computer at a

lower price, the terms and conditions required arbitrationIssue: Are the term and conditions external clauses to the contract? NoApplication:[Deschamps] A hyperlinked contract is

not external in sense of art. 1435 ccQ3 (example of indirect control). It was easily accessible, the same as back of the page in a paper form contract. This is the first time the court dealt with hyperlinked clauses.

1 sentence: Policy goal to promote arbitration, improve access to justice

3 1435. (1) An external clause referred to in a contract is binding on the parties. (2) In a consumer contract or a contract of adhesion, however, an external clause is null if, at the time of formation of the contract, it was not expressly brought to the attention of the consumer or adhering party, unless the other party proves that the consumer or adhering party otherwise knew of it.

WEEK 4B Problems with recognition: intent- 3 elements of recognition

1. Public policy & community values2. Formalities3. Moment of responsibility: Offer +

Acceptance + (Intent i.e. meeting of will) Art. 13864, Art 13885 ccQ Intention needs to be intention to

be legally bound Not legal intention when it’s a joke

(Pepsico), a puff (Carlill), domestic arrangements (family, friends)

Common law uses objective test, civil law uses subjective test

Leonard v. Pepsico // Pepsi points for Harrier jet (1999 US)Facts: Leonard collected enough points to redeem advertised military jetIssue: Does the advertisement have legal intent to be bound? NoApplication:[Wood] The ad, to an objective

person, is not a serious offer, obviously absurd. Generally, ads are not enforceable offers. Courts shouldn’t consider subjective views. “too good to be true,” suspicious

4 1386. The exchange of consents is accomplished by the express or tacit manifestation of the will of a person to accept an offer to contract made to him by another person.5 1388. An offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.

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Carlill v. Carbolic Smoke Ball // Quack flu medicine (1893 UKQB)Facts: Carlill used the Smoke Ball, it failed to prevent the flu as advertisedIssue: Did the reward ad have a valid legal intention? YesApplication:[Lord Lindley] The seller deposited

money, had the appearance of a serious offer for any objective person, had legal intention. This is a unilateral reward contract with continuous offer. Its acceptance is the performance of the condition. Benefit in sales in enough for consideration. Public policy decision against exaggerated advertising. [Lord Bowen] If a seller makes extravagant promises, he should be responsible. Not really offer to the world, just those who buy.

1 sentence: Intent is legally valid if it is clear to an objective person Kleinwort Benson v. Malaysia Mining // Bank v. Parent guarantor (1989 UKCA)Facts: Malaysia Mining provided letter of comfort on its subsidiary’s loan from KleinwortIssue: Does the letter of comfort have legal intent to be bound? NoApplication:[Lord Gibson] Letters of comfort

are understood by the industry as not having binding force. The

subsidiary paid for higher interest to not provide letter of guarantee.

1 sentence: Legal intent depends on what the parties should have understood.

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WEEK 5A Problems with recognition: ambiguity- Contractual terms needs to be precise to have

proper meeting of the wills- Carlill is ambiguous in its offer period Fontaine, Offre et acceptation

Actual contracts hard to tell when there’s offer and acceptance

Silence is not enough for acceptance, but behavior is enough

Raffles v. Wichelhaus // “Peerless” ships (1864 UK)Facts: Raffles wants cotton from a different ship also called “Peerless”Issue: Does ambiguity of the ships prevent enforcement of contract? YesApplication:Parties meant different things, no

meeting of the mind, no contract Les Terrasses v. Saunders // Shopping center v. lease agent (1989 QCCA)Facts: Saunders was promised bonus between/as much as $60k -70kIssue: Does the ambiguous amount prevent contract enforcement? YesApplication:[Paré] Les Terrasses had clear

intentions to pay the bonus, but courts can’t rewrite an essential part of the contract. Instead, Les Terrasses should compensate Saunders on unjust enrichment, restitution but not expectation damages.

Academy of Chicago Publishers v. Cheever // Dead author (1991 Illinois)Facts: Cheever’s widow entered into contract to publish posthumous worksIssue: Is the publishing contract too ambiguous to enforce? YesApplication:[Heiple] Too many unstated issues,

courts can’t supply terms

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WEEK 5B Problems with recognition: Acceptance, Battle of the Forms When one party makes an offer, the other

party sends an “acceptance” with different terms, i.e. counter-offer, how to deal with it?

1. No contract, no meeting of the mind2. Contract on the offeree’s terms, last shot

fired, mirror image rule, Classical If contract is executed, then

contract is considered accepted Acceptance needs to be

unconditional yes Quebec uses modified mirror image

rule art. 13936 art. 13877

3. Contract on the offeror’s terms, first word counts rule, very rare cases

Acceptance can be tacit or be actual performance

NB. QCL doesn’t generally accept simple silence as acceptance, see 13948 ccQ

Von Mehren, Battle of the Forms French law accepts disagreement over

unessential terms6 1393. (1) Acceptance which does not correspond substantially to the offer or which is received by the offeror after the offer has lapsed does not constitute acceptance. (2) It may, however, constitute a new offer.7 1387. A contract is formed when and where acceptance is received by the offeror, regardless of the method of communication used, and even though the parties have agreed to reserve agreement as to secondary elements.8 1394. Silence does not imply acceptance of an offer, unless the contrary results from the will of the parties, the law or special circumstances, such as usage or a prior business relationship.

German courts will separate problem of formation from problem of terms, will hold valid formation, decide separately on what terms to enforce drawing on background law, custom, standard form

UCC accepts valid contract with agreed upon material terms

New approaches accept “mainly agree, but agree to disagree on details”

Draft Common Frame of Reference Modified terms are seen as counter-offer

except in certain circumstances

CUQ v. Simard-Beaudry // City of Quebec v. sewer contractors (1987 QCCA)Facts: CUQ = offeror of a construction contract, Simard-Beaudry submitted

their bid with a modified acceptance form limiting liabilityIssue: Whose terms was the contract formed on? Simard-Beaudry’sApplication:[Viens] CUQ tacitly accepted

Simard-Beaudry’s counteroffer by awarding them the contract, last shot fired rule. City should’ve read the terms, is a sophisticated party.

1 sentence: Tacit acceptance so contract on terms of the party who last responded

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WEEK 6A Revocation, Place of Formation Remember, no one can revoke a contract, it’s

binding once it’s formed Either revoke before the contract is formed or

forma new contract Contracts inter absentes (absent parties)

Common law, contract by mail: postbox rule, contract is formed the moment the acceptance is mailed/expedited, protects the offeree

Common law, instantaneous: reception rule, contract is formed when the other party receives the acceptance, recognizes factors that impeded reception that are out of the parties’ control

Art. 13879 ccQ formed when acceptance is received

E.g. circular problem, X mails offer to Y from ON to QC, but X revokes by email before receiving Y’s acceptance

Offers with terms (as in a period of time) Can revoke anytime if there is no term Recall common law needs valid

consideration

9 1387. A contract is formed when and where acceptance is received by the offeror, regardless of the method of communication used, and even though the parties have agreed to reserve agreement as to secondary elements.

Art. 139010 ccQ can’t revoke before the end of the term

Entores v. Miles Far East // Buyer v. Seller with instant fax (1955 UKQB)Facts: Two companies formed contract over instant fax machineIssue: When was the contract formed? When acceptance is receivedApplication:[Lord Denning] Contract is formed

when the acceptance is received by the offeror, conform to most European countries

Unilateral contracts (flagpole problem) Technically offer is revocable any time

before the full completion of the reward condition

Courts can add in an implied promise not to revoke (Errington)

Court can also make unilateral promise into bilateral contract (Dawson)

Errington v. Errington // Deceased father promises house (1952 UKKB)Facts: The son and daughter-in-law were promised by the father that they

will own the house once they pay off the mortgage

10 1390. (1) An offer to contract may be made to a determinate or an indeterminate person, and a term for acceptance may or may not be attached to it. (2) Where a term is attached, the offer may not be revoked before the term expires; if none is attached, the offer may be revoked at any time before acceptance is received by the offeror.

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Issue: Can the father’s estate revoke the offer? NoApplication:[Lord Denning] The father intended for

the promise to carry through. He made an implied promise not to revoke as long as the conditions were being met. The estate can’t change the contract.

Dawson v. Helicopter Exploration // Mineral deposits (1955 SCC - BC)Facts: Dawson discovered a mineral deposit and made a deal to take buyer’s

helicopters to show the site Issue: Can the helicopter company revoke the offer? NoApplication:[Rand] the real contract can be

construed as a bilateral promise where the helicopter company offered to take Dawson to the site and Dawson accepted. The helicopter company broke its promise

WEEK 6B Agreements to contract NB. A contract is always a bilateral juridical act ≠ bilateral contract ≠ bilateral promise QCL totally okay with agreements to contract

Invitation to treat offer / counteroffer acceptance binding contract / binding contract to contract

see art. 139611 on modifying contracts see art.139712 ccQ on contracts made

against other contracts Bilateral promise to contract is binding

on both parties, unilateral promise to contract is binding only on one (an option), still bilateral juridical act

Offer with a term (period of time) is an unilateral act on part of the offeror, it become a promise to contract when the offeree says “I will think about it”

11 1396. (1) An offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to the offeror that he intends to consider the offer and reply to it within a reasonable time or within the time stated therein. (2) A mere promise is not equivalent to the proposed contract; however, where the beneficiary of the promise accepts the promise or takes up his option, both he and the promisor are bound to enter into the contract, unless the beneficiary decides to enter into the contract immediately.12 1397. (1) A contract made in violation of a promise to contract may be set up against the beneficiary of the promise, but without affecting his remedy for damages against the promisor and the person having contracted in bad faith with the promisor. (2) The same rule applies to a contract made in violation of a first refusal agreement.

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Breaking an unilateral promise to contract is breaking a contract, but can’t enforce what the promised contract would say, can only give damages

Cere v. Neeley // buyer v. seller gave option to buy land (1980 QCCS)Facts: Neeley gave Cere an option to buy his land over 2 yearsIssue: Can Neeley revoke the option? NoApplication:[Frenette] Neeley made a unilateral

offer that became a promise to contract when Cere expressed clear intentions to consider the offer. Neely can’t revoke.

Common law: no clear state of law Law doesn’t protect uncertain terms in

agreements to contract Not sure when a promise turns into a

contract Walford v. Miles // Buyer v. Seller of photography business (1992 UKHL)Facts: Miles promised not negotiate with 3rd parties Issue: Is the agreement to negotiate a contract? No

Application:[Lord Ackner] This agreement to negotiate is too vague. There’s no time limit, no real meeting of the mind. Obligation of good faith is inconsistent with parties negotiating in their best interest.

Empress Towers v. Bank of Nova Scotia // Landlord v. Lessee renewing lease (1990 BCCA)Facts: Scotia Bank rented from Empress Towers with renewable leaseIssue: Is the lease too vague to be enforced? No, good faithApplication:[Lambert] The lease says renewable

on market rates as mutually agreed. The problem is ambiguity in how the parties come to agreement. Courts will try their best to enforce clauses which the parties wanted to have legal effect. Court will put in implied term of good faith. Landlord won’t unreasonably withhold agreement.

Brewer v. Chrysler // Promised dealer v. Car company (1977 ABQB)Facts: Chrysler promised to give Brewer a dealership then cancelled Issue: Is the dealership agreement an enforceable contract? NoApplication:[MacDonald] Chrysler only gave a

statement of “preparation” of entering into a contract, not enforceable. But Chrysler benefited

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from unjust enrichment, should give reliance damages

WEEK 7A Judicial manipulation: offer and acceptance Pharmaceutical Society v. Boots cash chemists // self-serve pharmacies (1953 UKQB)Facts: customers can pick up drugs off the shelf, then go to the cash register to pay, where there’s a supervising pharmacistIssue: Is a contract formed when customer takes something off the shelf? NoApplication:[Lord Somervell] If a contract is

formed when the customers takes something, then the sale can’t be refused. As with ordinary stores, items on the shelf are offers to treat not full offers. Customers makes an offer to buy and the seller can accept or refuse the contract.

Thornton v. Shoe Lane Parking // Parking ticket with conditions (1971 UKQB)Facts: Thornton suffer injuries in automatic parking lot, Issue: Is the contract formed when Thornton accepted the ticket? YesApplication:[Lord Denning] Thornton couldn’t see

conditions mentioned on the parking ticket until he accepted the ticket and entered the premise. But the ticket was an offer, Thornton accepted so formed a contract.

Lottery ticket exercise

WEEK 7B QCL formalities Levels of problems with contract: valid?

Proven? Opposable? Types of formalities

In writing Specific form Content, e.g. protective clauses Delivery Language

Types of contracts in QCL1) Consensual contracts: Default position, no

formality required 1385 ccQ13

2) Real contracts: not valid until the goods are physically delivereda) Contract of deposit: b) Contract of moveable hypothec: i.e.

pawning, c) Contract of donation of moveable

property i.e. don manueld) Contract of loan

i) NB. Can totally have valid enforceable promise to contract (avant-contrat) e.g. Promise to store something, but it’s not a contract of deposit until the goods are transferred

3) Formal contracts: must be notarized in notarial forma) Marriage contracts

13 1385. (1) A contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties subject the formation of the contract to a solemn form. (2) It is also of the essence of a contract that it have a cause and an object.

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b) Contracts of immovable hypothec: NB. Not contracts of immovable sales

c) Contracts of donation: 1824 ccQ14

d) Mandate in anticipation of incapacity: i.e. living will, regular will are unilateral juridical acts, not contracts

14 1824. (1) The gift of movable or immovable property is made, on pain of absolute nullity, by notarial act en minute, and shall be published. (2) These rules do not apply where, in the case of the gift of movable property, the consent of the parties is accompanied by delivery and immediate possession of the property.

WEEK 8A/8B Common Law Consideration The only way to have valid contract without

consideration is to have contracts “under seal,” otherwise every valid contract must have consideration

Common law consideration is all about not enforcing gratuitous “bare” promises i.e. nuda voluntas

Various concepts of consideration Classical definitions: something of legal

value, moves from promisee to promisor, can be either detriment to promisee or benefit to promisor

Modern definition: quid pro quoSimpson, Doctrine of Consideration

Consideration is the factors that promisor has considered

Both parties are promisor and promisee, which one’s which depends on which side of the promise is in question

Consideration doesn’t need to have significant or fair value, only needs legal value, nominal consideration e.g. mustard seed is totally okay

A practical benefit can’t be consideration unless there’s a legal benefit

Why still have consideration? Surrogate for judicial manipulation Strong historical, traditional attachment

Fuller, Consideration and form Functions of legal formalities:

evidentiary, cautionary, channelling Illusory consideration

Consideration needs to be something legal, can’t give away something that

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isn’t legal or something the promisee doesn’t have in the first place

E.g. vexatious lawsuit not a legal right, so can’t use dropping a malicious lawsuit as consideration, but can’t prove vexatious until judge rules

2nd Restatement of Contracts Modifications are binding if it’s fair and

equitable or based on reliance White v. Bluett // Father’s executor v. Complaining son (1853 UKEX)Facts: Father promised to forgive son’s debt if he stops complainingIssue: Is stop complaining valid consideration? NoApplication:[Pollock] Consideration here is

illusory. The son didn’t actually give something of legal value because complaining is not a legal right.

Hamer v. Sidway // Nephew’s rep. v. Uncle’s executor (1981 NY)Facts: Uncle promised nephew $5000 for not drinking and smokingIssue: Is not smoking and drinking valid consideration? YesApplication:[Parker] Smoking and drinking is a

legal freedom so the nephew giving them up has legal value. This is a unilateral reward contract, valid when performance is completed

Stott v. Merit Investments // Derivatives salesman v. Employer (1988 ONCA)Facts: Stott signed an agreement to cover a client’s losses to keep his jobIssue: Was there consideration in the liability agreement? YesApplication:[Finlayson] The liability agreement

had an implied forbearance i.e. employer agreed not to sue if Stott paid the losses, valid consideration

Problem with consideration 1: Consideration needs to be co-extensive i.e. fresh, for every new contract

can’t use past consideration, i.e. performing pre-existing obligation

Performing a requested act technically has no consideration?

Esp. if the act is not asked for, can’t enforce promise

e.g. professor can’t get more for doing more work when paid a salary

Solve this by: Mutually rescind old contract and make a new one

need to explicitly rescind but risk losing protection from old contract e.g. job changes, raises

Harris v. Watson // Seaman v. Ship captain (1791 UKHL)Facts: Harris made Watson agree to pay more when the ship was in danger Issue: Did the wage increase agreement have fresh consideration? NoApplication:[Lord Kenyon] The sailor should’ve be

doing his job anyway, didn’t have

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fresh consideration for the new agreement, proxy for duress. Twin case of Stilk v. Myrick (1809 UKHC)

WEEK 9A Promissory Estoppel Problem with consideration 2: detrimental

reliance Parties relied on modifying a contract but

lacked valid consideration Solve this by: promissory estoppel

o Must have: a promise, detrimental reliance, existing contract

o Traditionally a shield only not sword, i.e. plaintiffs can’t use it

o Basically used to make the other party keep a promise, in cases where the promise lacked consideration

Gilbert Steel v. University Construction // Steel mill v. Construction company (1976 ONCA)Facts: Gilbert Steel made a new contract with higher steel pricesIssue: Did the modified contract have valid consideration? NoApplication:[Wilson] The only change in the

agreements was the increase in price. There was no legal effect in return to be called consideration. There wasn’t a new contract. The promise of

a good price is too vague to be consideration. Gilbert Steel also can’t use promissory estoppel because it can’t be a sword and no detrimental reliance.

Central London Property v. High Trees // Landlord v. Tenants with lowered rent (1946 UKKB)Facts: Landlord gave rent relief to tenants for a period of timeIssue: Did the reduced rent agreement have fresh consideration? NoApplication:[Lord Denning] The reduced rent has

no legal effect so no fresh consideration. The special condition for lower rent has passed. OBITER: the courts would protect the tenants with new concept of promissory estoppel. If a promise was intended to be binding and be acted upon, then it should be binding, regardless of consideration. The landlord would be estopped from claiming past rent difference.

Developments beyond traditional promissory estoppel

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Williams v. Roffey Bros. // Subcontractor v. Construction company (1991 UKQB)Facts: Roffey subcontracted Williams but Williams ran into financial

difficulties. Roffey offered to pay more.Issue: Was there valid consideration in the new agreement? YesApplication:[Lord Glidewell] Williams can’t use

promissory estoppel because he’s the plaintiff, can’t use as sword, also no reliance. But the practical benefit in having construction completed is enough for consideration. There cwasn’t a legal benefit, should’ve done job anyway.

Fredericton Airport v. NAV Canada // Paying for new beacon (2008 NBCA)Facts: Parties disagreed over who should pay for the new runway beacon. Issue: Is the beacon agreement valid? No, because of duressApplication:[Robertson] There is no need for

consideration for contract modifications made without duress. But the airport did not consent to paying for the beacon and was held under economic duress. OBITER: NAV Canada didn’t provide additional benefit, no fresh consideration. The airport can’t use promissory estoppel because they are the plaintiff. Classic consideration is under- and over-inclusive, outdated.

Promissory estoppel is unfair since it can’t be used as a sword.

Walton Stores v. Maher // Bigbox store v. Prospective landlord (1988 HCA)Facts: Walton Stores negotiated to lease building from Maher but backed outIssue: Is Walton Stores bound by its promise? YesApplication:[Mason & Wilson] Maher

detrimentally relied on Walton Stores’ promise to lease and demolish its building, encouraged by Walton Stores. But promisee can only get reliance not expectation damages.

1 sentence: Promissory estoppel can be used as sword in cases of detrimental

reliance encouraged by part of the promisor.

WEEK 9B QCL Contract requirements QCL has no consideration

modification totally okay, 1433 ccQ15 contracts can modify contracts

Totally okay with gratuitous “bare” and onerous contracts art. 138116 ccQ

15 1433. (1) A contract creates obligations and, in certain cases, modifies or extinguishes them. (2) In some cases, it also has the effect of creating, transferring, modifying or extinguishing real rights.16 1381. (1) A contract is onerous when each party obtains an advantage in return for his obligation. (2) When one party obligates himself to the other for the benefit of the latter without obtaining any advantage in return, the contract is gratuitous.

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1) Translative contracts: transfer ownership of propertya) Needs notarized form, see art. 180617

ccQ. on donations, art. 182418 ccQ2) Contrat de bienfaisance: gratuitous

services, no need for notarial form3) Presumed gratuitous

a) Contracts of deposit art. 228019 ccQb) Contracts of mandate as agent art.

213320 ccQ QCL requires object and cause art. 137121 ccQ17 1806. (1) Gift is a contract by which a person, the donor, transfers ownership of the property by gratuitous title to another person, the donee; a dismemberment of the right of ownership, or any other right held by a person, may also be transferred by gift. (2) Gifts may be inter vivos or mortis causa.18 1824. (1) The gift of movable or immovable property is made, on pain of absolute nullity, by notarial act en minute, and shall be published. (2) These rules do not apply where, in the case of the gift of movable property, the consent of the parties is accompanied by delivery and immediate possession of the property.19 2280. (1) Deposit is a contract by which a person, the depositor, hands over movable property to another person, the depositary, who undertakes to keep it for a certain time and to restore it to him. (2) Deposit is by gratuitous title but may be by onerous title where permitted by usage or an agreement.20 2133. (1) A mandate is either by gratuitous title or by onerous title. A mandate entered into between two natural persons is presumed to be by gratuitous title, but a professional mandate is presumed to be by onerous title.21 1371. It is of the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and, in the case of an obligation arising out of a juridical act, a cause which justifies

1) Object is the juridical operation, art. 141222 ccQa) Must be possible and legalb) Object of obligation is the desired

action e.g. to deliver goods, to payc) Object of contract is the juridical

operation e.g. transfer of ownership2) Cause is the reason for entering in the

contract, art. 141023 ccQa) Objective cause is the reason to

contract from the objective point e.g. payment in exchange for property

b) Subjective cause is the parties’ underlying reason to contract e.g. buy a piano as decoration or to learn how to play

Gratuitous contracts arguably have no real objective cause, only a desire to do good? “intention libérale” is the objective cause

All onerous contracts are bilateral, all bilateral contracts are onerous

Natural obligations Something between a moral and a legal

obligation Promise to fulfill a natural obligation

turns it into an onerous obligation A moral obligation can upgrade to a

natural obligationits existence.22 1412. The object of a contract is the juridical operation envisaged by the parties at the time of its formation, as it emerges from all the rights and obligations created by the contract.23 1410. (1) The cause of a contract is the reason that determines each of the parties to enter into the contract. (2) The cause need not be expressed.

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o Better/wagering is not enforceable on its own, it becomes natural obligation after voluntary payment, see 263024 ccQ

o If promise is made between parties with close ties (In re Ross)

A legal obligation can downgrade to a natural obligation

o Debt after the prescription periodo Uncollected debts post-bankruptcy

No need for special form or signed notes to enforce

In re Ross v. Royal Institute // Donor v. McGill (1931 QCCA)Facts: Ross promised to donate to McGill, later made a promissory noteIssue: Is the donation promise enforceable? Yes, natural obligationApplication:[Bernier] The first promise to donate

was onerous and bilateral. The second contract was unilateral since McGill had no obligation. Ross’ active participation made the obligation natural. The promise to pay the second time, made the obligation onerous. Otherwise it would have been a gratuitous contract, unenforceable without notarial form.

24 2630. (1) Where gaming and wagering contracts are not expressly authorized by law, the winning party may not exact payment of the debt and the losing party may not recover the sum paid. (2) The losing party may recover the sum paid, however, in cases of fraud or trickery, or where the losing party is a minor or a protected person of full age or not endowed with reason.

WEEK 10A/10B Public order/policy in contracts Recall 3 hurdles of contract law

1. Formation: offer, acceptance, ambiguity, battle of the forms

2. formalities: consideration, notarial form3. public order

public order is directly against autonomy of the will, freedom to contract

null ≠ illegal: only applies when a contract needs to be enforced, police won’t go around nullifying contracts against public order

unenforceable contract are called illegalities in common law

QCL incorporates public order through subjective cause and object, see art. 141125, 1413 26ccQ

Art. 827 ccQ can only contract away rights in accordance with public order

Art. 928 ccQ can’t contract out public order NB. Public order is a constantly changing

concept, recall female lawyers and birth control were once against public order

Generally courts will find something against public order when a class of people are systematically disadvantaged

25 1411. A contract whose cause is prohibited by law or contrary to public order is null.26 1413. A contract whose object is prohibited by law or contrary to public order is null.27 8. A person may only renounce the exercise of his civil rights to the extent consistent with public order.28 9. In the exercise of civil rights, derogations may be made from those rules of this Code which supplement intention, but not from those of public order.

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Morality in public order is also not clear e.g. dwarf tossing is against public order in some jurisdictions, other degrading things?

How to know when courts will use public order? “but of course” i.e. know it when I see it,

common sense External sources, foreign jurisdictions,

experts, popular opinion Absolutely null / void in common law language

See art. 141729 ccQ absolutely null when against general interest

Can be raised by anyone including the judge, no need to claim it, see art. 141830 ccQ

The parties can’t make an absolutely null contract valid even if they want to, i.e. can’t be confirmed

NB. Absolutely null means the court just doesn’t do anything, may not always be the best solution

Relatively null / voidable in in common law language

See art. 141931 ccQ relatively null when against individual interest

29 1417. A contract is absolutely null where the condition of formation sanctioned by its nullity is necessary for the protection of the general interest.30 1418. (1) The absolute nullity of a contract may be invoked by any person having a present and actual interest in doing so; it is invoked by the court of its own motion. (2) A contract that is absolutely null may not be confirmed.31 1419. A contract is relatively null where the condition of formation sanctioned by its nullity is necessary for the protection of an individual interest, such as where the consent of the parties or of one of them is vitiated.

Can only be raised by the protect person, see art. 142032 ccQ

The parties can mutually agree that a contract is valid, i.e. confirmed

E.g. a buyer can keep an item even if the seller lied and said it was an antique when it wasn’t

Even if a contract is null, parties are still given restitution damages under QCL, see art. 169933 CCQ

E.g. in QCL surrogate motherhood is against public order see art. 54134 ccQ

One precedent says since contract is null, can’t enforce anything re the surrogate e.g. if mother aborts, doesn’t get paid, or keeps the baby

32 1420. The relative nullity of a contract may be invoked only by the person in whose interest it is established or by the other contracting party, provided he is acting in good faith and suffers serious injury therefrom; it may not be invoked by the court of its own motion. (2) A contract that is relatively null may be confirmed.33 1699. (1) Restitution of prestations takes place where a person is bound by law to return to another person the property he has received, either unlawfully or in error, or under a juridical act which is subsequently annulled with retroactive effect or whose obligations become impossible to perform by reason of superior force. (2) The court may, exceptionally, refuse restitution where it would have the effect of according an undue advantage to one party, whether the debtor or the creditor, unless it considers it sufficient, in that case, to modify the scope or mode of the restitution instead.34 541. Any agreement whereby a woman undertakes to procreate or carry a child for another person is absolutely null.

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Another precedent says surrogate contract is null, but adoption can go through because it’s about the baby not the parents, technically speaking it is enforcing a clause in a null contract

Common law Canada allows gratuitous surrogacy

E.g. SCC used public order against employment contract restrictive clauses

QCL codified employment contract restrictive clauses, see art. 208935 ccQ

If courts read down the restrictive clauses, then employers would have incentive to make clauses with super long periods

NB. Courts are likely to keep contract intact if it can take out just the clause that’s against public order

Brasserie Labatt v. Villa // Employer v. Fired employee (1995 QCCA)Facts: Villa was fired for violating a contractual clause for not moving his

family to his new workplace

35 2089. (1) The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would compete with him. (2) However, the stipulation shall be limited as to time, place and type of employment, to what is necessary for the protection of the legitimate interests of the employer. (3) The burden of proof that the stipulation is valid is on the employer.

Issue: Is the moving family clause against public order? YesApplication:[Baudoin] The clause contracts away

the family members’ freedom and discriminates against married employees, against public order. [Gendreau] The clause imposes obligations on employees on how to live their private lives, against public order.

Shafron v. KRG Insurance Brokers // Former employee v. Employer with restrictive covenant (2009 SCC - BC)Facts: Shafron was subject to a restrictive covenant that prevented him from

working in “Metropolitan city of Vancouver”Issue: Is this restrictive covenant against public order? YesApplication:[Rothstein] There was no mutual

understanding of the ambiguous clause so the court shouldn’t rewrite the clause. Restrictive clauses are generally against public order unless proven otherwise. People depend on their livelihoods. Restrictive clauses in employment contracts are held to a higher standard, need to have clear time, scope and geography to be enforceable.

Human rights issues in contracts between private persons

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State isn’t a party, use provincial HR charters

Public order can nullify contracts based on rights not in Charter

Syndicat Northwest v. Amselem // Condo v. Jews with sucahs (2004 SCC - QC)Facts: Amselem wanted to build a religious structure on the condo balcony

when the lease contract prohibited themIssue: Is preventing Amselem’s sucah against public order? YesApplication:[McLachlin] Religion is subjective.

Fundamental religious beliefs cannot be waived by a contract unless the waiver is explicit. Amselem didn’t intend to waive his religious rights when he signed the lease. [Bastarache, dissent] Enough to have access to a sucah, weary of using freedom of religion as a sword.

1 sentence: Freedom of (to have) religion > freedom to contract Bruker v. Marcovitz // Wife v. Husband refusing Jewish divorce (2007 SCC - QC)Facts: Marcovitz refused to give Bruker a Jewish divorce “get”Issue: Is it against public order for husbands to refuse religious divorce? YesApplication:[Abella] The promise is a voluntary

agreement, should be legally enforceable. Public order can be used to enforce. Women should

have equality and marriage rights. It outweighs freedom from religion. [Deschamps, dissent] Secular courts should decide secular matters

1 sentence: Freedom of (from) religion < freedom to contract Comité des droits de l’homme // Dwarf tossing in France (2002 UN)Facts: Wackenheim was prevented by the government to do dwarf tossingIssue: Is dwarf tossing against public order? YesApplication:[The court] The police has the power

to protect human dignity and public morality, whether the people want it or not.

WEEK 11A Obligational content: interpretation Contract is totally valid, now the question is,

what does the contract actually say? Hall, the Eight Fundamental Precepts of Contractual Interpretation

1. Words in context, enforce what the parties meant

a. See 142536, 142637 ccQ2. Read contract as a whole

36 1425. The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.37 1426. In interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account.

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a. See 142738

3. Factual matrix: any facts relevant to the agreement

a. See 1426 ccQ4. Organizing principle of good faith

manifested in duty of honesty, est. by Bhasin

a. See 639, 740, 137541 ccQ5. Objective approach in common law

a. Subjective approach in QCL, see 1425, 1426 ccQ

6. Respect commercial efficiency7. Make every effort to find meaning

a. See 142842 ccQ8. Interpret at the time contract was made

Other tools of interpretation Ejusdem generis: include something

similar even if not explicitly mentioned Expressio unius est exclusio alterius: only

include what’s mentioned

38 1427. Each clause of a contract is interpreted in light of the others so that each is given the meaning derived from the contract as a whole.39 6. Every person is bound to exercise his civil rights in good faith.40 7. No right may be exercised with the intent of injuring another or in an excessive and unreasonable manner, and therefore contrary to the requirements of good faith.41 1375. The parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished.42 1428. A clause is given a meaning that gives it some effect rather than one that gives it no effect.

Contra preferentum: favors the party that didn’t draft the contract, still in force in QCL, see 143243 ccQ

Sample problem re windfall sale proceeds QCL subjective 1425 approach, favor

what makes sense to the parties Common law approach, words are

objectively clear, no ambiguity Eli Lilly v. Novopharm // Drug Licensor v. Licensee (1998 SCC from FCA)Facts: Novopharm made a sub-agreement with Apotex to manufactureIssue: Is the agreement with Apotex a sub-license? NoApplication:[x] Contract cannot be interpreted

differently than how it is stated if it is stated in clear objective terms. There was no ambiguity here from the court’s view. The agreement wasn’t meant to be a sub-license.

Quebec v. AES/Riopel // Revenue Agency v. Messed up tax arrangements (2013 SCC)Facts: Both AES and Riopel wanted tax-neutral arrangements but their

advisors messed up and got huge tax charges insteadIssue: Which agreement should be enforced? Intended agreement

43 1432. In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer.

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Application:[LeBel] QCL respects the subjective will of the parties premised on the principle of consensualism. If both parties agree a contract intended to have terms different from the stated terms, then the courts can correct the error and make the terms originally intended should be the terms of the contract.

Sattva Capital v. Creston Moly // Advisors v. Mining company finder’s fee (2014 SCC - BC)Facts: Crestol Moly needs to pay Sattva finder’s fee in Creston sharesIssue: On what date should the shares be valued at? What the clause saidApplication:[Rothstein] Interpreting contract as

a whole, the shares should be dated to before the acquisition announcement. The court should consider mix of facts and what’s written. Interpreting all the clauses together, the price is the pre-announcement price.

WEEK 11B Obligational content: incorporation NB. Signing a written contract isn’t the whole

story, there can be unwritten terms NB. The ticket cases say there not reading the

conditions isn’t an excuse, signing a contract is agreeing to the terms regardless of whether they were read, common law reasonable person standard

“but of course” rule: if asked parties before the dispute whether a term would be part of the contract, would the answer, but of course?

McCutcheon v. David MacBrayne // Customer v. Shipping company (1964 UKHL)Facts: McCutcheon shipped a car through MacBrayne but didn’t sign a formIssue: Is McCutcheon bound by conditions he did not expressly agree to? NoApplication:[Lord Devlin] McCutcheon was never

aware of an exemption of liability clause. A term can’t be implied into a contract if one of the party was never aware of it. [Lord Mackintosh] Parties must abide by the contract they actually made, “sauce for the goose is sauce for the gander”

British Crane Hire v. Ipswich Plant Hire // Crane lessor v. Crane lessee (1975 UKQB)Facts: British Crane made an oral agreement but didn’t sign a contractIssue: Is British Crane still liable without signing the contract? YesApplication:[Lord Denning] Both parties would

obviously understood the unstated terms, the terms are an enforceable part of the contract. It’s common industry practice for the lessor to be liable. The contract was negotiated between sophisticated equal parties in competitive market.

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Parol evidence rule: oral evidence can’t contradict, vary, add to or subtract from written terms

NB. This isn’t about interpretation, about if oral terms are part of contract

QCL doesn’t allow orally changing written contracts, see 286344, but allows completion of incomplete contracts, see 286445 ccQ

Courts get around parol evidence rule by Saying written contract is incomplete Saying written contract has parallel oral

contract e.g. Errington Lawyers get around courts by

Using “entire agreement clauses” Actually not always effective in court,

need to be very strict court will read them contra preferentum

E.g. Thomas Witter v. TRP entire agreement clause

44 2863. The parties to a juridical act set forth in a writing may not contradict or vary the terms of the writing by testimony unless there is a commencement of proof.45 2864. Proof by testimony is admissible to interpret a writing, to complete a clearly incomplete writing or to impugn the validity of the juridical act which the writing sets forth.

WEEK 12A Obligational content: implication by law Obligations implied in fact

“but of course” clauses e.g. Ipswich Parties would have expressed these

clauses if given the chance Obligation implied by law

Required by legislation, parties may not have even thought of them

Recall suppletive and imperative provisions

Parties don’t have a choice in this Paternalistic approach by the courts E.g. leases, employment contracts, sale

of goods QCL expressly states what will can be

implied, see 143446 ccQo Imply by usage: what the

contract was used to do, e.g. Purolator expected to deliver on time

o Imply by nature of contract: e.g. implied safety obligation in instruction contracts, implied obligation to warn in sales of dangerous products

o Imply by equity: i.e. good faith

46 1434. A contract validly formed binds the parties who have entered into it not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law.

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Ouellet v. Quebec Inc // Car salesman v. BMW dealer (2000 QCCQ)Facts: Ouellet didn’t get paid commission on cars delivered after terminationIssue: Is there a custom saying salespeople get paid back commission? NoApplication:[Gagnon] For something to become a

custom implying contractual obligations, it must be uniform, public, general, frequent, and ancient. There isn’t enough proof for custom but Ouellet should get restitution based on unjust enrichment

Tort vs. contract systems Common law allows the choice QCL requires contractual system but

almost equates it with the tort system general obligation, see 145847 ccQ

47 1458. (1) Every person has a duty to honour his contractual undertakings. (2) Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparation for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them.

A (M) v. Stations de la Vallée de St-Sauveur // Injured child v. Ski school (2010 QCCA)Facts: A was injured skiing unsupervised while taking lessons at St-SauveurIssue: Is there an implied obligation of safety? YesApplication:[Kasirer] Ski school has an implied

obligation of safe supervision by nature of the contracted activity. It’s liable for breaching this duty

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WEEK 12B/13A Obligational content: good faith Common law recently adopted good faith in

contractual performance Can nullify contracts when there’s bad

faith Possible remedies

o Fin de non-recevoir / estoppel: can’t sue

o Expectation damages Bad faith is acting intentionally to injure

unclear whether lack of good faith is bad faith

Forms of good faith Disclosure: Soucisse Reasonable notice: Houle Co-opreation: Provigo

Good faith can be used to Add a term: Sourcisse, as shield, got fin-

de-non-recevoir Change / override a term: Houle, as

sword, got expectation damages Recall QCL has already robust system of good

faith, recall 6/7/1375 ccQ Good faith applies to all contracts include

commercial contracts, can’t exclude using entire agreement clauses

US already has good faith, Canada and England still resistant

National Bank v. Soucisse // Heirs with suretyships (1980 SCC - QC)Facts: Heirs inherited revocable suretyships (guarantees) for someone’s all

current and future debts

Issue: Did the bank have a duty of good faith to disclose future debts? YesApplication:[Beetz] Good faith is implicit in the

contract, adds a duty to disclosure on part of the bank. The bank is at fault for not disclosing and the heirs get a fin de non-recevoir, meaning bank can’t enforce the debts

Implication:Every contract from now on has implied good faith, revolutionary in environment of freedom of the will

Houle v. National Bank // Bank calling on demand loan (1990 SCC - QC)Facts: Bank forced Houle into bankruptcy by only giving 3 hour windowIssue: Did the bank have a duty of good faith to give reasonable notice? YesApplication:[L’Heureux-Dube] Where a contract

term gives one party considerable power over the other, the party with that power has a good faith obligation to exercise that power in a reasonable manner. Contractual right was abused because the right to demand loan was exercised unreasonably. Houle brothers are third parties to the contract. It is not appropriate to lift the corporate veil but can claim through torts.

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Provigo v. Supermarché A.R.G. // Grocery Franchisor v. Franchisee (1998 QCCA)Facts: Provigo opened up competing supermarkets beside its franchiseeIssue: Does Provigo have a good faith duty to co-operate? YesApplication:[The court] Provigo has a good faith

duty to co-operate with its franchisee and not purposefully drive them out of business

Common law has no consistently accepted framework of good faith

McKinlay Motors v. Honda Canada // Dealer driven out of business (1989 NFSC)Facts: Honda spiraled down inventory allocated to McKindlay, forcing it out Issue: Did Honda have a good faith duty to fair dealing? YesApplication:[Wells] Honda purposefully used

discretionary power in the contract to pressure McKinlay out of business, acted contrary to good faith.

Bhasin v. Hrynew // Fund salesman v. Rival salesman (2014 SCC - AB)Facts: Hrynew and Bhasin’s employer lied to get Bhasin to merge Issue: Did Hrynew breach a duty of honesty? YesApplication:[Cromwell] All contracts have an organization principle of good faith

manifested as a minimum duty of honesty in performance. Parties can’t knowing

mislead in matters directly linked to performance, which Hrynew did. Bhasin gets

expectation damages.

WINTER TERM--------------------------------------------WEEK 2A Intro to judicial control Recall last term, there is a prima facie

enforceable contract if there are o offero Acceptance that responds to offero Intention to create legal relationso Certainty of termso Formalities in some caseso Consideration (in CML)o Not against public order

This winter term about all the ways not to enforce a potentially enforceable contract

Recall why law enforces contractso Protect certaintyo AotW, individual freedomo Objective law subservient to subjective

law Traditionally unwilling to not enforce contracts

due to belief in AotW Judicial review is contentious in 2 ways

o legal system should not even include an ambit dealing w/ fairness or unconscionability

o Judges use established categories (eg misrepresentation etc) in order to ‘sneak in’ unfairness when they feel it’s necessary

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Law can give relief where there is procedural (subjective) or substantive (objective) unfairness.

o Procedural unfairness = impaired bargaining power - reasons: needs or desires; ignorance or infirmity; undue influences or pressures, nature of relationship (if = susceptibility to undue influence)

o Substantive unfairness = unfair terms of K or grossly inadequate consideration. Requires no wrongdoing on the part of the other party.

Traditionally favored procedural unfairnesso Considered defect of consent, contract

not properly formedo Still within AotW theory, no real meeting

of the minds

REMEDIES for procedural or substantive unfairness: ⚜ Nullity, get out of obligation and also get

back what you’ve give b/c of FICTION OF RETROACTIVITY like K was never entered into

o For problems with formationo Relative nullity vs absolute nullity

Relative, for fraud, only evocable by contracting parties, have to act right away (3 years) b/c of prescription period

Absolute, against law or public order, may be induced by any party or the court

♛ Rescission (No recognized concept of nullity)

o cancel a K unilaterally or by agreement o “I never would have entered into K if”

⚜ quanti minoris o Keep the K but basically a reduction in

obligations equivalent to ECO damages, applies in of fraud but not plain error

o Get paid the difference btwn what you paid and what you should have paid

o was seen as against aut of will Anti-divorce mentality of CVL w/out

wrongdoing in error there’s no right to damages which is equivalent of a reduction of obligation

“I would have entered into K but not for this much”

⚜♛ Damages o Measured in same way as for an injury in

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Ghestin, “L’utile et le juste dans les contrats” rejects AotW

o Parties aren’t equal o proliferation of adhesion Ks, Parties (one

side) isn’t aware of clauses and harmful parts of K

o Doesn’t support notion of SUBJECTIVITY OF WILL of parties as that which creates Ks nor idea that will of parties is what makes K function INSTEAD says that it’s the OBJECTIVE WILL that says when a K will be enforced

o Consent isn’t enough Ks shouldn’t be enforced if don’t contain

UTILITY and JUSTICE The K is just b/c of it’s utility --- Public utility Should enforce if just, Corrective justice seeks

to retain imbalance of initial sit –not to redistribute wealth

Objective state law should overrule subjective contract law

Idea present in CML doctrine of unconscionability

Atiyah, “Contract and Fair Exchange” Control through consideration doctrine is not

enough Difficult to separate procedural and substantive

issues Market is full of imperfections Other economic imperfections have been

addressed by law, e.g. monopolies

♛ Lloyds Bundy Bank v Bundy // bank v mortgage for son’s business >> undue influence invented unconscionability (Denning) (1975 UKQB) ♛unconscionability♛Facts: Bundy mortgaged house to guarantee his son’s company debts, son’s

business was going under, Bank asked father for a mortgage on the farm, son’s company went bankrupt, Bank foreclosed Issue: Is K null (unconscionability)? Yes Application:[majority] law gives relief to one who, w/o independent advice, enters into a K on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power

is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.

[Lord Denning, concurring] Pulled thread through doctrine, invents

unconscionability, requires both procedural and substantive unfairness to give relief

1) Unequal bargaining power: procedural unfairness; the way in which

the contract was formed, negotiated and completed. Present case: undue influences or pressure by the bank

2) Unfairness of the contract: substantive unfairness in the terms of

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the actual bargaining. Here price of sale was grossly undervaluedWEEK 2B Procedural tool at formation #1: ⚜♛Capacity (requirement of contract) ⚜ can only contract if capable, presume majors

to be capable unless otherwise4. Every person is fully able to exercise his civil rights.In certain cases, the law provides for representation or assistance.

1385. A contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties subject the formation of the contract to a solemn form.It is also of the essence of a contract that it have a cause and an object.

1398. Consent may be given only by a person who, at the time of manifesting such consent, either expressly or tacitly, is capable of binding himself. ⚜Types of incapables

o incapable majors 1. Court orders that person is

incapable 2. Persons linked to incapables in

certain situations There can be 3 levels of helpers:

curator, tutor, advisor

154. In no case may the capacity of a person of full age be limited except by express provision of law or by a judgment ordering the institution of protective supervision. 281. The court institutes curatorship to a person of full age if it is established that the incapacity of that person to care for himself and to administer his property is total and permanent and that he needs to be represented in the exercise of his civil rights.The court then appoints a curator.285. The court institutes tutorship to a person of full age if it is established that the incapacity of that person to care for himself or to administer his property is partial or temporary and that he needs to be represented in the exercise of his civil rights.The court then appoints a tutor to the person and to property, or a tutor either to the person or to property.291. The court appoints an adviser to a person of full age who, although generally and habitually capable of caring for himself and of administering his property, needs, for certain acts or for a certain time, to be assisted or advised in the administration of his property.

Factually incapable majors, no legal declaration but actually incapable, have no special protection except general 1385, 1398 provisions

o minors

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165. The mere declaration by a minor that he is of full age does not deprive him of his action in nullity or in reduction of his obligations.1406. Lesion results from the exploitation of one of the parties by the other, which creates a serious disproportion between the prestations of the parties; the fact that there is a serious disproportion creates a presumption of exploitation.In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the circumstances as a whole. ♛ Majors presumed to be capable, only

incapable if other party has actual or constructive knowledge of incapacity

⚜ CL c ML // son declared father’s administrator v mom >> incapacity enforceable (2006 QCCS)Facts: heavy drinker’s son took his father to the notary to have himself

declared administrator Issue: Was the father incapable of forming the contract? noApplication:capacity of majors is presumed until proven otherwise. Health issues do not overturn the presumption of capacity if, when entering into a contract, the contracting

party is able to understand. Father was sober at time of contract formation

♛ Fyckes v Chisholm // Mentally disturbed land owner v timber buyer >> incapacity (1911 xx)Facts: Mentally disturbed man and his sister agree to sell timber on his land,

then wants a higher price. Issue: Was Fyckes incapable of entering into contract? No Application:The contract of a lunatic or person mentally incapable of managing his affairs is not per se void, but only voidable on its being shown that the other party had knowledge, actual or constructive, or such lunacy or mental incapacity, failing which such a contract, if fair and bona

fide, is binding. The onus is on plaintiff to establish mental incapacity and that defendant had actual or constructive knowledge. The onus is on the defendant to establish fair and bona fide character of the

contract. There was no evidence that Chrisholm had any basis to doubt Fyckes’ capacity and proved contract was fair and reasonable.

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WEEK 3A Procedural tool #2: ⚜Fear (defect in consent) ♛Duress ⚜ explicit recognition of fear (crainte) as

defect of consento Recall QCL focuses on integrity of

consento “Fear” is subjective component,

“serious” is objective componento Purely subjective fear doesn’t count, e.g.

paranoia doesn’t vitiate consento Ends and means BOTH must be

legitimate in order to have valid K free of duress

o threat must come from co-contractor or they must be complicit in duress

o there may be legitimate threats, e.g. threat of valid legal action, but not okay if ends or means of threat is illegitimate

o threat must be explicit, otherwise slips into undue influence

1399. Consent must be free and enlightened.It may be vitiated by error, fear or lesion.1402. Fear of serious injury to the person or property of one of the parties vitiates consent given by that party where the fear is induced by violence or threats exerted or made by or known to the other party.Apprehended injury may also relate to another person or his property and is appraised according to the circumstances.

1403. Fear induced by the abusive exercise of a right or power or by the threat of such exercise vitiates consent.1404. Consent to a contract the object of which is to deliver the person making it from fear of serious injury is not vitiated where the other contracting party, although aware of the state of necessity, is acting in good faith.1407. A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.

Classical headings of fear/duresso Threats of physical injury or deatho Threats to propertyo Threats of a moral or psychological kind,

Eg threat to ruin rep etc. Emerging headings – grey area

o Threats of an economic nature or w/ economic consequences

♛ same treatment, duress vitiates consento Consent given under economic duress is

vitiated consent and thus revocable…UNLESS it is approbated

o Previously used fresh consideration as proxy

Why protect against fear/duresso Integrity of consent

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o Promote proper behavioro Discourage duress

Economic duresso ♛ Didn’t recognize economic duress pre-

1975o Different from economic pressure in lack

of practical alternatives State of necessity is non-engineered duress,

similar principles applyo Require knowledge of the state of

necessityo May alternatively be issue of good faith

or unconscionability o ⚜ Can be saved by good faith

⚜ JJ Joubert v Lapierre // employer v Milkman became contractor >> economic duress enforceable (1972 QCCS)Facts: Milkman fired from his job in order to be an independent contractor to his employer’s benefit.Issue: Did Joubert form contract under duress? Yes Application:Fear requires looking at both objective and subjective standards of the

person claiming it. Fear does not vitiate consent if both the means and ends involving fear are legitimate. THREAT = Sign this or I will fire you. Here the means (threatening to fire – it’s ok to fire people) were

legitimate but the ends (union busting) were not. The purpose of the

threat was to get rid of the collective bargaining agreement

♛ Atlas Express v Kafco // Transportation company v manufacturer >> economic duress fresh consideration enforceable (1989 UKQB)Facts: Kafco entered into delivery contract with Atlas, Atlas later imposed

minimum fee or refused to deliver, Kafco needed to fill orderIssue: Did Kafco agree to minimum fee under duress yes?Application:Where a party was forced to renegotiate to his disadvantage and his no alternative but to accept, his consent was vitiated by economic duress. Court should inquire whether:

(1) the person coerced did or did not protest;

(2) at the time he was coerced, he did or did not have an alternative course open to him;

(3) he was independently advised; (4) after entering the contract he took

steps to avoid it. The pressure must be such that the

victim’s consent to the K was NOT VOLUNTARY. Atlas signed the contract

unwillingly and under compulsion, had no bargaining power. there was no consideration for the new agreement.

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♛ Greater Fredericton Airport Authority v Nav Canada // airport needs beacons v equipment supplier >> economic duress consideration needed for modification enforceable (2008 NBCA)Facts: Airport forced to pay for new equipment during mid-contract

otherwise NAVCAN would refuse to supply beacons needed by airport’s ongoing construction project.Issue: Did airport agree to pay under duress? Yes Application:The promise must be extracted as a result of the exercise of

“pressure” (demand or threat). The exercise of that pressure must have been such that the coerced party had no practical alternative but to agree. To consider: Was the promise supported by consideration,

Did the coerced party protest, Did the coerced party take reasonable steps to disaffirm as soon as practicable. The threat here was contract breach, which isn’t illegitimate by itself, but here pushed the Airport

to no practical alternative and that’s not okay.

WEEK 2B Procedural tool in formation #3: ♛Undue Influence ♛ CML only concept, no exact equivalent in

QCLo Equity-created doctrineo Unfair advantage from an existing

relationship o husband-wife relationship = presumption

of undue influenceo “sexually transmitted debts”o Sometimes the financial institution may

not be aware of undue influence but is still contractually liable

o Placed high burden on banks to informo Could also be alternatively framed as

unconscionability Threat/duress > state of necessity >

relationship / undue influence ⚜ Functional equivalence in fear, factual

incapacity, good faith ♛ Barclays Bank Plc v O’Brien // bank v wife signed husband’s mortgage >> undue influence constructive notice enforceable (1994 UKHL) ♛constructive notice♛Facts: Husband needed money, mortgaged family home, bank staff did not

advise to seek independent legal advice. The wife claimed that her husband put undue pressure on her to signIssue: Did the wife sign under undue influence? Yes

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Application:A person who enters into K under UI can have it set aside. Undue influence can be presumed from the fact of a relationship of trust and confidence. Burden then shifts to wrongdoer to show that K was entered into freely. Where UI exists and K is with a third party, third party must take reasonable steps to ensure that weaker party entered

into agreement freely (inform and advise to seek independent advice)

[CONSTRUCTIVE NOTICE] Marriage raises presumption of undue influence, plaintiff can succeed by simply proving having placed trust

and confidence

Critical Legal Studies Analysis of Undue Influence, Prof Richard Devlin (Dalhousie)

- Contextual analysis of K law – beyond a system of abstract rules – imp of LARGER SOCIAL VALUES

- House of Lords decision demonstrates alternative to normative vision – legalistic encodeing of communitarian ideals - -locating on spectrum of community or indiv interests

Feminist Analysis, Prof Louise Langevin (Laval)- Women need protection – paternalistic

sense of courts intervening - K L developed in context of business –

from which women were excluded, thus = masculine institution based on men’s needs

- Places COSTS ON WEAKER PARTY

Law and Ec. Analysis, Prof. Tony Duggan (U of T)

- While husband is faulty party bank is liable b/c functions as GATE-KEEPER – bank is BEST PLACED to deal w/ exploitation of wife

- Increase of transaction costs and might discourage legitimate transactions of this nature

- **BALANCE must be struck btw gate-keeping function of bank but not to extent where wife is protected from husband’s wrongdoing at cost of discouraging lending activity

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♛ Royal Bank of Scotland v Etridge // Bank v wives mortgaging matrimonial homes >> undue influence enforceable (2001 UKHL)Facts: 8 similar cases of wives agreed to mortgage matrimonial home to cover husband’s debtIssue: Was there undue influence? yesApplication:Undue influence requires:

1. Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial

2. A transaction which calls for explanation (i.e. is doubtful or shows a manifest disadvantage beyond what can be expected of gifts

Proof of both elements will shift the burden onto the co-contractant to prove the undue influence did not affect the contracting party (by ensuring the contracting party had all the necessary information and

absence of any pressure). Law need to protect abuse of influence. Confirmed /O’Brien/ that for the future bank needs to insist that wife have private meeting and understand her liability and suggest

independent legal advice.

⚜ Byrne c Trust Prêt et Revenu // wife mortgaged home for husband v bank >> undue influence fear properly adviced enforceable (1999 QCCS)Facts: Wife hypothecs her own home to cover husband’s fraud debtsIssue: Did the wife mortgage under undue influence? No Application:Undue influence is not a defense where the contractant, despite being in a relationship of possible undue influence, is well aware and informed of the nature of the contract and is not signing under any

threat. Fear must be the result of actions of the co-contractant or be known to the co-contractant at contract formation. Wife’s testimony is questionable and was properly advice by notary

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WEEK 4A Procedural tool in formation #4: ♛Misrepresentation ⚜Fraud (subcategory of error, defect in consent) ⚜ Fraud is a kind of error, so type of defect of

consento Recognizes fraud by omission, dol par

reticence ⚜ Requirements for fraud

o Imputability (committed by or known to other party), fear/duress may be present

o Determinative (in formation of K) (would not have either consented to Kor consented to specific terms of K)

o BAD FAITH on part of other party ♛ CML would find misrepresentation

(deliberate or negligent) o puff is good fraud, “this is the best horse”o lie is bad fraud, this horse has never lost

a raceo otherwise eg. all TV commercials would

be fraud ♛ alternatively can find negligent

misrepresentation against a non-contracting party as a tort

3 elements against fraud o Check yourself, do your due diligence,

don’t be stupido Ratification / acceptanceo Dolus bonus (good fraud), puffery,

exanggeration 1399. Consent must be free and enlightened.It may be vitiated by error, fear or lesion.

1401. Error on the part of one party induced by fraud committed by the other party or with his knowledge vitiates consent whenever, but for that error, the party would not have contracted, or would have contracted on different terms.Fraud may result from silence or concealment.1407. A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.

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⚜ Tremblay v Les Pétroles // garage buyer v seller misrepresented past earnings >> fraud explicit lies enforceable (1961 QCCA)Facts: representative of owner of garage stated that gross earnings were

$350,000 per year for six or seven years. In reality, the garage had shown a loss in each of these six or seven years. Tremblay was told

there were no financial statementsIssue: Is there fraud in this contract? Yes Application:OVERT DELIBERATE MISREPRESENTATION, FRAUDULENT

STATEMENTS WERE DETERMINANT. Tremblay wouldn’t have entered lease if known that the owner operated the garage at loss. Lease should be annulled and some of PL’s losses repaid ⚜ Creighton v Grynspan // Land seller omits desired strip of land v buyer >> fraud reticence enforceable (1987 QCCA)Facts: Gryspan claims that C (vendor) led them to believe that the sale

included a strip of land (which is owned by the city) that they desired and without which they wouldn’t have contracted. Creighton omitted the words dealing with that strip of property Issue: Is this contract fraud? Yes Application:concealment can be fraud Art 1401(2). It was then incumbent upon the vendor to disclose to the buyer change in language about

desired strip of land. court is condemning of fraud, even though they could

have gone to the land registry and checked themselves

♛ Esso Petroleum v Mardon // Gas station franchisor built backwards v franchisee >> negligent misrepresentation enforceable (1976 UKQB)Facts: Mardon entered into a lease to operate an Esso station which, known to Esso but unknown to him, would be built “backwards” with much less sales.Issue: Is there misrepresentation in this contract? Yes Application:Esso had specialized knowledge and intended to induce Mardon to enter K. Esso made the wrong projections negligently AND Mardon suffered damages, so = negligent misrep. Only compensated for loss

suffered. Attempting to make a contract “work” to save one’s own losses does not imply acceptance of a contract made under

misrepresentation.

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♛ VK Mason Construction v Bank of NS // Construction contractor v loan provider knowing project wasn’t viable >> negligent misrepresentation in tort enforceable (1985 SCC from NS)Facts: Mason’s construction project was financed by a loan from Bank of

Nova Scotia, but BNS new the project would not be viable without more funding. Mason’s customer defaulted on loan paymentsIssue: Is there misrepresentation in this contract? Yes Application:4 requirements for liability for neg misrep: (1) untrue statement; (2)

statement must have been made negligently; (3) special relationship = duty of care; (4) reliance which is foreseeable.

All the requirements are met in this case:

[1] Falsity - Mason sought assurance over and above terms of loan; Bank gave assurance relying solely on terms of loan.

[2] Negligence - b/c Bank made statement of assurance w/o

revealing that it was based on loan arrangement which Mason had already said was not sufficient assurance.

[3] Special Relationship - Bank was inducing Mason to sign K with Courtot (distinguish this from Bank merely making representations to third party about one of its clients)

[4] Reliance - Mason relied on it and such reliance was foreseeable.

IMPLYING A K IN THIS CASE WOULD UNDERMINE CERTAINTY

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WEEK 4B Procedural tool #5: ⚜Duty to Disclose (extension of good faith or fraud) ⚜ Mostly QCL concept, extension of good

faith or fraudo difference btwn fraud/misrep and GF is

what you’re going to have to proveo GF just have to show unreasonable

intention ♛ Particularly resistant to duty to disclose

o Has some aspects through negligent misrepresentation but no separate doctrine

o Exception of undue influence where banks have imposed duty to disclose

Note that the obligation to inform may be different depending on whether it arises in a pre-contractual or contractual relationship

o violation of pre-contractual obligation to inform gives rise to delictual, not contractual liability

⚜ 3 necessary elements for a duty to disclose (Bail test)

1. Presumed knowledge is that you are being wilfully blind or professional sellers are presumed to know of a defect in the thing as they ought to have the knowledge

2. Decisive importance, Can’t give unless it has some importance in leading them into the K.

3. Duty to share info is a positive obligation in cases where one party is in a vulnerable position with regards to info, Impossible for the other party to get it or he has legitimately relied on it

Remedieso GF, no explicit limits, e.g. fin de non-

recevoiro Fraud, must use CCQ1407 for remedies

so 3 options: nullity, quanti minoris, damages

1375. The parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished.1400. Error vitiates the consent of the parties or of one of them where the error relates to the nature of the contract, to the object of the prestation or to any essential element that determined the consent.An inexcusable error does not constitute a defect of consent.1401. Error on the part of one party induced by fraud committed by the other party or with his knowledge vitiates consent whenever, but for that error, the party would not have contracted, or would have contracted on different terms.Fraud may result from silence or concealment.1416. Any contract which does not meet the necessary conditions of its formation may be annulled.Kronman, “Mistake, Disclosure, Information and the Law of Contracts” NOT EC. EFFICIENT TO SANCTION DUTY TO

DISCLOSE incentive for deliberate acquisition of

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imposing duty to disclose on case-by-case basis might be good where imposition occurs where info has been acquired casually and then not imposed where info has been deliberately acquired

best solution to make blanket rules across different categories of info

should disclose casually acquired info but not actively acquired info

Fabre-Magnan, “Duties of Disclosure and French Contract Law” IS EC. EFFICIENT TO SANCTION DUTY TO

DISCLOSE law should maximize the production of

‘socially’ useful info’ by allowing those who discover it to benefit from their knowledge of it

law might have to enforce is where value of the prestation is diminished by the info

should disclose when info affects your prestation i.e. you side of the bargain

e,g, seller should disclose presence of termites but buyer doesn’t need to disclose proof of gold mine

⚜ Bail c Banque de Montreal // Hydro Quebec failed to disclose to contractor >> good faith in formation duty to disclose damages (1992 SCC from QC)Facts: Hydro Quebec contracted with Bail to build generating station, failed to disclose soil report to Bail’s subcontractor, subcontractor went bankrupt, BMO became its administratorIssue: Did Hydro Quebec have duty to disclose? Yes Application:An onerous obligation to inform was imposed on Hydro Quebec b/c it had assumed liability with accuracy of data; it had greater expertise than Bail and Laprise. Third case in the Soucisse-Houle-Bail trilogy adds an obligation of good faith in the pre-contractual stage in the

form of a duty to disclose. 3 necessary element for a duty to

disclose:1. Knowledge of the information

(actual or presumed)2. Information has to be important3. Impossible for the other party to get

it or he has legitimately relied Parties to a K are extra-K’ually liable

for the damage the may cause to 3rd parties

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♛ Martel v Canada (encore) // Landlord v tenant not intending to renew >> good faith obligation in negotiation duty to disclose enforceable (2000 SCC from ON)Facts: Canadian government knew it would not be renewing a lease with

Martel, but continued negotiations anywayIssue: Did Canada have a duty to disclose? No Application:There are deleterious consequences of extending a duty to disclose into the conduct of negotiations.

(1) the very essence of negotiations suggests that there are good reasons NOT to disclose certain information (i.e. it allows a party to maintain a competitive advantage)

(2) there are other causes of action available to provide rederess against bargains obtained (or not obtained) as a result of improper negotiation (e.g. undue influence, duress, unconscionability, negligent

misrepresentation, fraud)Martel’s claim resembles the assertion

of a duty to bargain in good faith. A duty to bargain in good faith has not been recognized to date in Canadian law. It would discourage industrious generation of

information if contracting parties could not then use that information to their advantage in contract negotiations.

WEEK 5A Procedural tool #6: ♛Mistake ⚜Error (defect of consent) error/mistake is “innocent” not intentional

“wrong” not reading or understanding the contract is

not an error ⚜ broad use of error, often used where lesion

can’t be usedo Mistaken representation of reality o Priority is protecting consent o Includes fraud as subcategory of erroro Doesn’t care if error was mutual or noto Allows subjective error i.e. unilateral

erroro many error cases look like undue

influence or unconscionabilityo can’t get both annulment and damages

for simple error

1399. Consent must be free and enlightened.It may be vitiated by error, fear or lesion.

1400. Error vitiates the consent of the parties or of one of them where the error relates to the 1nature of the contract, to the 2object of the prestation or to 3any essential element that determined the consent.An inexcusable error does not constitute a defect of consent.

1407. A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment,

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also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.

⚜ limit to error: inexcusable erroro Meant to encourage parties to self-informo Negligence of a certain degree on part of

the plaintiffo rarely does court find inexcusability b/c

often a party arguing error is in a position of WEAK BARGAINING POWER

o court will use A SUBJECTIVE/IN CONCRETO test for inexcusability - thus, given the education, intelligence, age, etc. of the party

o e.g. If a businessman who cannot read French signs a K written in French, he should not be excused - he had the resources to get a translation

⚜ limit to error: economic erroro can’t get remedy for purely economic

erroro error as to the value of a thing does not

vitiate consent [b/c = lets lesion through the back door] unless the mistake as to the value is the result of a mistake as to the qualitative nature

o Cannot go to court and say "I paid too much for the painting - I was in error as to the price" BUT…can go to court and say that you were mistaken as to an essential quality of the painting which thus determined how much you sold it for. This indirectly creates economic error.

o can’t do lesion unless minor or incapable major or a consumer or K of loan of money.

o Error needs to be about some essential non-monetary quality of the contract that can have economic consequences

o 3 levels of economically-related error Mistake about price only, not

actionable E.g. thought table was sold

for $5000 actually $500 Mistake about value only, not

actionable E.g. thought table was worth

$5000 actually worth $500 Mistake about value as result of

mistake about quality E.g. thought table was worth

$5000 because it’s antique, actually not antique and only worth $500

♛ narrow use of error, often proxied by unconscionability

o Priority is protecting stabilityo Distinction between Mutual vs. unilateral

mistake e.g Bell and lever broso Law of mistakes only applies to

complete, objective, mutual mistakeo Unilateral mistakes are considered

formation issue 3 types of error based on:

1. Nature of K - e.g. Rawleigh; o Thought you were entering into one

type of K but it’s actually a dif type of K altogether

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o Eg enter into a K of sale but turns out it’s actually a lease etc.

2. Object of the prestation – o Eg. you think you're buying x but

you're actually buying y o eg. shown a picture of a boat and told

it could be sold to you for x amount, when you buy it you actually get the picture of the boat or another boat than what was shown

3. Anything essential in determining consent - eg. Sherwood v. Walker

♛ Sherwood v Walker // buyer v seller of not actually barren cow >> essential mistake mistake in law enforceable (1887 Michigan SC)Facts: Walker sells cow to Sherwood on belief on cow was barren, turned out cow wasn’t, refuses to deliver Issue: was there mutual mistake? yesApplication:Mistake not in the quality of the item but in the category of the subject

contracted for. No contract b/c actual sale isn’t what was agreed upon

[Sherwood, Dissent] The mistake is in the essential quality of a thing ♛ Bell v Lever Brothers // Managers committed insider trading v Former employer gave severance pay >> pre-existing mistake essential change mistake in law enforceable (1932 UKHL) ♛mistake♛Facts: Bell committed insider trading while employed by Lever Brothers, could have led to termination with cause but neither party knew, Bell got severance package nonetheless, Lever Bros claim mutual mistake

of fact for the severance contract Issue: Was there a mutual mistake? No Application:Test laid out (Atkin’s test)

1) has to be mutual (both don’t know about mistake occurring

2) must result in such a radical change that K is no longer the same

(no longer for the same thing). Mistake need

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to make the thing essentially different from the thing as it was believed to be.

The employers bargained for a severance k & got exactly what they

bargained for. In this case, the identity of the subject-matter was not destroyed by the mutual mistake even though it is a mutual mistake

♛ Great Peace Shipping v Tsavliris Salvage (MacFarlane article) // Ship in distress v salvage ship >> essential change impossible mistake in law enforceable (2002 UKCA)Facts: Great Peace contracted Tsavliris to salvage them at sea, both believed

they were 35 miles apart but actually 420 milles apart, too far to salvage in time, Tsavliris claimed mutual mistakeIssue: Was there mutual mistake? No Application:applied the /Bell/ test, even though the mistake rendered the k more difficult, it did not “turn it into something essentially different from that for which the companies bargained and the fact that the vessels

were father apart did not mean that it was impossible to perform a contractual adventure. To rescind K must be impossible to perform

⚜ Huot v Ouellette // wife with fear of gas lines v property seller >> unilateral subjective error enforceable (1981 QCCS)

Facts Huot made offer to purchase Ouellette’s house, didn’t know there was gas line underneath, Huot’s wife has severe fear of gas lines confirmed by psychologist, wants contract annulled

Issue Can contract be annulled based on unilateral error? yes

Application

Look to purely subjective motives to nullify K. Subjective error is sufficient to annul a K. No meeting of the wills occurred. K is annulled and gets deposit returned. might have been inexcusable error if gas lines were obvious

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⚜ Lepage c Allard // Sold house for loan v only sell back for more money >> inexcusable error enforceable (2004 QCCS)

Facts Lepage gets loan from Allard by selling house to Allard and makes periodic payments, Lepage lives based on rental agreement in the meantime but thinks he can buy back the house at the same price, at end of lease Allard asked for higher price to sell back

Issue Was Lepage’s error excusable? No Applicatio

nLepage had the obligation to inform himself of the way in which to ‘guarantee’ Allard’s promise. Lepage was sophisticated and should have understood what he was signing up for. INEXCUSABLE ERROR: the error-making party should not reasonably have made if they had taken reasonable precautions to self-inform

WEEK 5B Procedural tool #7ish: ⚜Good faith1375. The parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished.

1416. Any contract which does not meet the necessary conditions of its formation may be annulled.

1434. A contract validly formed binds the parties who have entered into it not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law.

Where good faith isn’t exercised (eg. party knows you’re in error and they don’t say anything), can get fin de non-recevoir or nullify K

⚜ Desjardins c Services Informatiques DecisionOne // auction holder v bid way too low >> inexcusable error good faith enforceable fin-de-non-recevoir (2004 QCCA)

Facts DecisionOne bid 1.7 million instead of average 7 million, Desjardins knew it was a mistake but accepted the bid anyway

Issue Was the contract formed in good faith? No

Application

INEXCUSABLE ERROR and also gross negligence, but bad faith on part of

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Desjardins b/c they knew DecisionOne wouldn’t be able to perform K at that price but kept info to themselves so that they could essentially sue for damages = K not formed in good faith. Desjardins knew about mistake and took advantage of bidder. Court gave fin-de-non-recevoir stopping Desjardins from enforcing the contract

WEEK 6A Substantive tool #1: ♛Unconscionability ⚜Lesion (defect of consent) Substantive problems are about really bad

deals, but contract is technically properly formed

♛ Unconscionability may be considered by some to be a specific doctrine or by others as a general principle

o A man is so placed as to be in need of special care and protection and yet his weakness is exploited by another far stronger than himself so as to get his property at a gross undervalue.

♛ Unconscionability MUST have some element of exploitation, unfairness, abuse. Disproportion of prestation is not enough, must have twin components (McIntyre in /Harry v Kreutziger/):

a. Inequality of bargaining power (could be many situations – could be capacity or any other sit).

b. Exploitation or abuse of that unequal bargaining power creating substantially unfair bargain

♛ Problems with Unconscionabilityo Instability and uncertaintyo Purpose of Ks is to bring uncertainty of

the future into the certainty of the present (Fuller)

⚜ Lesion applies only to minors, incapacitated adults and particular situations as provided by law

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o Only 2 categories of protected persons outside of minors and incapables are consumers and borrowers 1399. Consent must be free and enlightened.

It may be vitiated by error, fear or lesion.1405. Except in the cases expressly provided by law, lesion vitiates consent only with respect to minors and persons of full age under protective supervision.1406. Lesion results from the exploitation of one of the parties by the other, which creates a serious disproportion between the prestations of the parties; the fact that there is a serious disproportion creates a presumption of exploitation.In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the circumstances as a whole.1407. A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.1408. In a case of lesion, the court may maintain a contract for which annulment is sought, if the defendant offers a reduction of his claim or an equitable pecuniary supplement.

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2332. In the case of a loan of a sum of money, the court may pronounce the nullity of the contract, order the reduction of the obligations arising from the contract or revise the terms and conditions of the performance of the obligations to the extent that it finds that, having regard to the risk and to all the circumstances, one of the parties has suffered lesion. ⚜ Lesion in consumer contracts

o Schizophrenic approach of extra strong protection for consumers in form of lesion and very limited use of lesion for others

o 2 types of consumer lesion Objective lesion - disproportion

of prestations is so great as to amount to exploitation, substantive unfairness

Subjective lesion - the obligation of the consumer is excessive, harsh, unconscionable

Consumer Protection Act (QCL)

Annulment of contract, reduction of obligations.8. The consumer may demand the nullity of a contract or a reduction in his obligations thereunder where the disproportion between the respective obligations of the parties is so great as to amount to exploitation of the consumer or where the obligation of the consumer is excessive, harsh or unconscionable.

Degree of consumer's consent.9. Where the court must determine whether a consumer consented to a contract, it shall consider the condition of the parties, the circumstances in which the contract was entered into and the benefits arising from the contract for the consumer.

♛ Toker v Westerman // bought over-priced fridge v door-to-door salesman >> unconscionability enforceable (1970 NJDC)

Facts Toker bought a fridge for 2.5 times the value of the appliance from door-to-door salesman

Issue Was the contract unconscionable? Yes

Application

court finds case shocking, public policy undertone against exploitive door-to-door salespeople. Unequal bargaining power could stemp from inequal economic power or b/c door to door salesman is considered

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particularly susceptible of abuse. Deal is substantively unfair.

♛ Harry v Kreutziger // fishing license seller in weak position v insistent buyer >> unequal position substantive unfairness unconscionability enforceable (1979 BCCA) ♛unconscionability♛

Facts Harry was a member of the First Nations, inarticulate, uneducated, sold boat and fishing license to Kreutziger way under value

Issue Was the contract unconscionable? Yes

Application

Twin Criteria for unconscionability = There is 1) unequal bargaining power/ exploitation, subjective unfairness in QCL 2) proof of substantive unfairness of bargain, objective unfairness in QCLHarry had lack of experience, old age, hard of hearing, little education. Kreutziger took advantage of Harry and exploited him.

♛ Hunter Engineering v Syncrude Canada // defective gearboxes past warranty v buyer >> fundamental breach irrelevant unconscionability valid exoneration clause enforceable (1989 SCC)

Facts Syncrude bought defective gearboxes from Hunter, sued Hunter for damages but contract warranty

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period had expired.Issue Is the exoneration clause valid? Yes

Was the contract unconscionable? No

Application

replaces the doctrine of fundamental breach with unconscionability. Better to address the protection of the weak from overreaching by the strong than to rely on artificial doctrine of fundamental breach. There was no unconscionability because the parties were of EQUAL BARGAINING POWER.

⚜ Richard v Time // consumer believed won big prize >> credulous consumer consumer lesion enforceable (2012 SCC from QC)

Facts Richard believed in misleading advertising that he had won a huge cash prize if he signed up to Time Magazine.

Issue Was there lesion in this contract? Yes

Application

Under the Consumer Protection Act, a contract is made “unconscionably” if- a credulous and inexperienced consumer is likely to understand a general impression of the representation- that representation is not true to

realityExtra strong protection for consumers. A credulous average consumer would have believed Time’s advertisement. The representation that people have won a big prize isn’t true.

⚜ Gareau Auto v BC Impériale de Commerce // bought boat but had no use >> consumer lesion objective lesion subjective lesion enforceable (1989 QCCA) ⚜consumer lesion⚜

Facts Plaintiff bought boat but had no actual use for the boat

Issue Can this contract be annulled for lesion? Yes

Application

There are two types of consumer lesion, not two requirements

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a. Disproportion of prestations (objective): when determining this, court should not look at subjective nature but must just ask if (1) there is a disproportion and (2) if the disproportion is considerable. In this case, there was no disproportion of

b. Consumer must prove that obligations are excessive OR abusive OR exorbitant. Judge interprets this as subjective lesion (based on the words of s. 9), depends on the MEANS of each consumer; must prove that it will be disastrous for THEIR patrimony = SUBJECTIVE, DON’T have to show that the obligation is objectively exorbitant or excessive; consumer can be relieved even if the price is fair. can be if there is no subjective advantage to the consumer.

⚜ Yoskovitch v Tabor // seller v buyer of worthless bakery >> consideration incapable undue influence duress misrepresentation pure economic error fudged consequential economic error abusive clause adhesion contract duty to disclose excusable error unequal position substantially unfair hidden lesion enforceable (1995 QCCS) multiple themes

Facts Yoskovitch sold essentially worthless bakery business to her cleaning lady Tabor for $50,000

Issue Was there error in this contract? YesWas there lesion hiding behind error? Yes

Application

Contract annulled based on subjective error. Error is about the “value” of the business not simply the “price.” The mistake on value of the object of the prestation is excusable when it’s founded on something else, like the quality of the item. It will be pure economic error if there was just mistake on value. Tabor’s error was excusable taking into account, inter alia, age, mental state, intelligence, financial or economic position of the parties.It was not a consumer contract but there was objective (substantive unfairness) and subjective (procedural unfairness) lesion of the

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highest order. Court snuck in lesion through error. WEEK 6B Substantive tool #2: ⚜Abusive

Clause (direct protective provision) ♛ no corresponding doctrine

o Can try unconscionability ⚜ Abusive clause is a form of direct contract

control with explicit provisiono Explicit recognition of failure of AofWo Can get nullification or quanti minoriso Not lesiono Not good faith problem because not

abuse of rights 1437. An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced.An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.

⚜ Allendale Mutual Insurance v Hydro Québec // burned down house v exoneration clause >> valid exoneration clause for tort enforceable (2001 QCCA)

Facts Hydro-Québec’s transformer caused sparks, burned down a house.

Issue Is the exoneration clause abusive? Yes

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Application

Hydro Quebec’s exoneration clause excludes “any sort” of liability, including failure to perform, overinclusive so not valid. Clauses that exonerate a person from tort damages are null

⚜ Québec c Kechichian // Gov’t v immigrant sponsor >> abusive clause fair clause enforceable (2000 QCCA)

Facts Immigrant “parrainage” clauses required Kechichian to cover living costs of his mother as his contractual sponsor

Issue Is the clause abusive? No Applicatio

nClauses which are transparent, fair, convey benefits to their contractants, and not contrary to public order are not abusive.

⚜ Parent-Constantin c Voyages Symone Brouty (sample) // vacationers got sick v travel agency no cancellation >> misrepresentation error abusive clause enforceable (2007 QCCQ)

Facts Parent-Constantin booked vacation but got sick, travel agency sold them cancellation insurance but says only limited to $500

Issue Is the no cancellation clause abusive? Yes

Application

A “non-cancellable” clause is null if the seller also offers cancellation insurance. The non-cancellation clause is excessively severe. Travel agency suffered no loss from cancellation.

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WEEK 7A Content problems #1: ⚜Exclusion (direct provision) ♛Exoneration clauses (extension of unconscionability) ⚜♛ First “interpret” clause in question, recall

last term on interpretationo Usually interpreted contra preferentum

1432. In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer.

♛ Fundamental breacho Developed to aid in interpretationo Shifts the question from a contract clause

is valid to whether the breach was about a fundamental aspect of the contract

o Actually a post-formation problemo SCC repeatedly tried to kill this concept

and replace it with general unconscionability doctrine

⚜ Clear codal prohibition1474. A person may not exclude or limit his liability for material injury caused to another through an intentional or gross fault; a gross fault is a fault which shows gross recklessness, gross carelessness or gross negligence.He may not in any way exclude or limit his liability for bodily or moral injury caused to another. ♛ Accepted 3 step test (Tercon)

a. Interpret clause

b. Unconscionability analysisc. Overriding public interest

Proso Parties should be able to limit liability as

part of their bargaining Cons

o Systematic increase of overly broad exploitative exoneration clauses

♛ Tilden Rent-A-Car v Clendenning // Car renting company v slightly drunk driver >> procedural unfairness substantive unfairness unequal bargaining consumer adhesion duress misrepresentation fraud onerous clause brought to attention valid exoneration hidden unconscionability enforceable (1978 ONCA)

Facts Clendenning rented car from Tilden, paid for additional insurance, got into accident, found slightly intoxicated, exoneration clause made insurance void for any violation of traffic laws

Issue Is the exoneration clause valid? No Applicatio

nL’Estrange v. F. Graucob rule (if signed = bound) should not be used blindly. This isn’t a ticket case, it’s a signed contract, so no special treatment. Here had unequal bargaining power, consumer adhesion contract. Procedural unfairness in the formation of the contract: Given the circumstances, the employee should have taken

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reasonable measures to draw the terms to the attention of the other party. Substantive unfairness of the clause: The ambit of the clause was potentially unreasonable and limitless Exclusion clauses that are onerous or unusual must be specifically brought to the attention of the contracting party to be in force. Alternatively this may be considered fundamental breach case, insurance company’s own exoneration clause fundamentally breached its own contract of insurance.

♛ Hunter Engineering v Syncrude Canada (encore) // defective gearboxes past warranty v buyer >> fundamental breach irrelevant unconscionability valid exoneration clause enforceable (1989 SCC)

Facts Syncrude bought defective gearboxed from Hunter but past

Issue Is exoneration clause valid? Yes Applicatio

nParties were in equal bargaining position

♛ Tercon Contractors v British Columbia // highway contract bidder v picked ineligible bid >> 3step test unconscionability equal bargaining valid exoneration clause enforceable (2010 SCC) ♛exoneration clauses♛

Facts BC asked for bid for highway project but broke its own auction rules by

selecting an ineligible bidderIssue Is the exoneration clause allowing

BC to break its own auction rules valid? Yes

Application

An exclusion clause applies when1. interpretation of the clause is such that it should apply2. the exclusion clause was not unconscionable at the time it was made (i.e. arose from the equal bargaining power of parties)3. there is no public interest against it

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WEEK 7B Content problems #2: ⚜♛Arbitration clauses (extension of abusive clause) Always binding Pros

o Private, confidentialo Relieves traditional justice system

Cons o Results not publico Could also be very expensive and slowo Arbitrators not under same oversighto Parties pay the arbitratoro Pre-selected place of arbitrationo Prevents class actiono Widely used in consumer contracts

Canadian attitude shifted from being hostile to tolerance to promotion to slight hesitation

⚜ New code of Civil Procedure require parties to seek private resolution

o Could be protected under abusive clause

1437. An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced.An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.

♛ No specific legislation, case by case

♛ Dell Computer v Union des consommateurs (encore) // arbitration clause v consumer bought computer at low price >> adhesion standard form abusive valid arbitration clause enforceable (2007 SCC)

Facts Consumer order Dell computer at low price as result of glitch, Dell invokes arbitration clause

Issue Is the arbitration clause valid? Yes Applicatio

nPolicy decision to promote arbitration clauses

♛ Seidel v TELUS Communications // class action against TELIS >> legislative protection valid arbitration clause enforceable (2011 SCC from BC)

Facts TELUS invoked arbitration clause against class action

Issue Is the arbitration clause valid? No Applicatio

nArbitration clauses can be rendered null by legislation (in this case, BC had legislation on the matter). There was legislative intent to intervene to protect consumers against arbitration clauses. Court’s job is give effect to intent of legislation

♛ Comb v PayPal // arbitration clause added in user agreement >> unconscionability valid arbitration clause enforceable (2002 California)

Facts Paypal users launched class action,

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Paypal invoked amended user agreements with arbitration clause

Issue Is the arbitration clause valid? No Applicatio

nArbitration clauses can often easily be found unconscionable in consumer contracts. Agreements can be procedurally or substantively unconscionable. Court finds Paypal’s arbitration clause substantively unconscionable.

WEEK 8A/B Post-formation problems of frustration in 3 levels: ♛⚜Impossibility/ Force Majeure >> ♛⚜Futility/Imprevision >> ♛⚜Hardship/ Impracticability Overlaps with mistake/error at formation Frustration is a broad term that includes

futility, hardship, impracticability Recall priority of pacta sunt servanda

o Priority of stability, certaintyo Post-formation changed circumstance in

general do not relieve contract performance, unless by exception

1439. A contract may not be resolved, resiliated, modified or revoked except on grounds recognized by law or by agreement of the parties. Remedies

o Renegotiate or modifyo Excuse performanceo Can’t nullify because this is post-

formation, recall can never cancel a contract

Level 1: ♛⚜ Impossibility/ Force Majeureo ♛ All contracts have implied term where

performance can be excused for impossibility

o Not caused by anyone, nobody’s faulto Parties can stipulate what counts as force

majeure in their contracts, similar to exoneration clauses

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o Doesn’t work for economic impossibility, can’t sneak in hardship disguised as force majeure

1470. A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it.Superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.

1693. Where an obligation can no longer be performed by the debtor, by reason of superior force and before he is in default, the debtor is released from the obligation; he is also released from it, even though he was in default, where the creditor could not, in any case, have benefited from the performance of the obligation by reason of that superior force, unless, in either case, the debtor has expressly assumed the risk of superior force.The burden of proof of superior force is on the debtor.

♛ Otis Elevator v Viglione // Interrupted elevator installation due to strike >> valid modified force majeure clause personalized impossibility enforceable (1978 QCCS)

Facts Elevator installation interrupted by construction strike, Otis claims force majeure

Issue Can performance be excused due to force majeure? yes

Application

Parties may stipulate their own terms of force majeure (strikes are not usually force majeure). Breach

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due to force majeure is excused. Otherwise labour strike wouldn’t have counted as force majeure since it wasn’t unforeseeable or irresistible.

Level 2: ♛⚜ Futility / Imprevisiono Narrowly defined, rarely usedo ♛ Okay if futility is non-trivial, makes the

main point of the contract impossible or futile

o ⚜ Okay if this imprevision turns into impossibility, but not only if this imprevision doesn’t make the performance impossible

♛ Krell v Henry // rented apartment with view of cancelled coronation >> purpose was impossible frustration enforceable (1903 UKKB) ♛frustration♛

Facts Man rented apartment that had a view on the King’s coronation, coronation got cancelled,

Issue Can performance be excused for frustration? Yes

Application

Frustration occurs when the purpose of a contract is no longer possible due to an external event for which neither party is responsible, and the purpose was understood to be a critical element of the contract. Seeing the coronation was the basis of the contract. The point of the contract was not to just rent a room but to see the coronation from that room, which became impossible.

♛ Amalgamated Investment v John Walker // buyer of land designated historical v seller >> hardship frustration impossible enforceable (1976 UKCA)

Facts AIP bought an old building from John Walker & Sons hoping to demolish it. It was then reclassified as a historical building, making it impossible to demolish.

Issue Can performance be excused for frustration? No

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Application

Frustration occurs whenever the law recognises that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.However, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for. Here property buyer assumes risk of change in property status, part of the business.

Level 3: ♛⚜ Hardship/ Impracticability/ Imprevision

o Still possible to perform but performance of the obligations has become overly onerous or difficult due to unforeseen events.

o Traditional response is must performance unless impossible

o Can try to use good faith to force duty to renegotiated but hasn’t really worked so far

o Recall relational contracts, want to preserve relationship despite catastrophic changes in circumstances

o ⚜ requires that, in order to be excused from obligations, such obligations must have become both unforeseeable and absolutely impossible, not just more difficult or onerous.

o Simple lack of money is never accepted as impossible

1375. The parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished.Ebke & Steinhauer, “Doctrine of Good Faith in German Contract Law” Has recognized when cost significantly exceeds

price as impossibility Broad use of impracticability and frustration

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♛ HR Sainsbury v Street // Lower than expected crop yields >> hardship partially possible totally impossible force majeure partially enforceable (1970 UKKB)

Facts Crop yield lower than expected; Street agreed to sell crops at price agreed before harvest

Issue Can performance be excused for impossibility? No

Application

Where full performance is impossible, but partial performance is possible, courts may still require partial performance (if reasonable to do so). crop failure was foreseeable. = NOT force majeure. In order to relieve party from overly onerous or difficult obligation that is result of supervening event which is not his fault, court can imply a condition which will give effect to the presumed intention of reasonable men. In this case, there was implied condition in the K that if the D, though no fault of his, failed to produce the stipulated tonnage of his growing crop, he should not be partially excused.

♛ Alcoa v Essex Group // supplier v buyer of aluminum didn’t make right pricing formula >> mutual mistake excessive hardship enforceable (1980 US)

Facts Alcoa and Essex had a contract with pricing formula that accounted for changes in production costs, but by mutual mistake they did not account for changes in electricity costs.

Issue Can performance be excused for hardship? Yes

Application

Where a mutual mistake has left one contracting party with excessive hardship, courts may intervene to share the burden. To get relief for mistake - it must be mutual, relate to a basic assumption underlying the K and cause a severe imbalance in the agreed exchange.

⚜ Canada Starch v Gill & Duffus // peanut buyer v supplier facing spiked market price >> hardship impossible modified force majeure clause enforceable (1983 QCCA)

Facts Gill & Duffus is intermediary that contracted with Canada Starch to supply peanuts at a certain price. Drought causes peanut prices to skyrocket

Issue Can performance be excused for hardship? No

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Application

Obligations are only extinguished when performance of the obligation becomes impossible (CCQ1693). If performance can still be done, the obligation remains despite hardship. In this case, the parties' agreement had a force majeure clause which excluded the seller's responsibility. This clause covered the peanut drought case even though normally wouldn’t be accepted as force majeure.

⚜ Churchill Falls v Hydro Quebec // seller v buyer of electricity at fixed cheap price >> imprevision good faith duty to renegotiate impossible enforceable (2014 QCCS)

Facts Churchill Falls contracted with Hydro Quebec to supply electricity at fixed price in exchange for Hydro Quebec building the infrastructure. Market price rose significantly, contract price now too cheap, Churchill Falls wants to renegotiate price

Issue Can performance be excused or contract be renegotiated based on imprevision? No

Application

There is no imprévision in the Civil Law. Churchill Falls tried to sneak in imprevision with good faith argument, didn’t work. There is no duty of good faith to renegotiate terms unless they impose unreasonable burdens.

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WEEK 9A Intro to Breach, Intensity of obligations, Remedies BREACH Breach is a question of fact determined at trial Performance can be a form of breach, non-

performance is not necessarily a breach Not all obligations are created equal, there are

different levels which means “breach” looks different for different levels of obligations

Right to breach, efficient breacho Holmes J, Posner, efficient breach, breach

as a totally valid option, alternative to performance

o Damages and performance are totally interchangeable

o No morality in contract lawo Fundamentally contrary to pacta sunt

servanda

INTENSITY ⚜ Intensity of obligations and by extension,

what breach would look likea. Obligation of means /diligence (moyen)

Standard of reaonsable, diligent, prudent person

Bon pere de famille Breach means: inexecution due to

failure to meet reasonable standard

Possible defence: behaved reasonably

E.g. instruction contracts for sports, contracts of deposit, lawyer’s retainer

b. Obligation of result (resultat)

Deliver a specific result Breach means: simple inexecution

only Possible defence: force majeure

onlyc. Obligation of guarantee

Assume all liability related to what was guaranteed

Only reach this level if stipulated by law or explicitly by the parties themselves

Breach means: anything contrary to what was guaranteed

Possible defence: none ♛ Similar concepts of different levels of

obligations but implicit Intensity of obligation can be specified by the

parties but rarely is, usually determined based on jurisprudence

Aléa theory for determining intensityo The more difficult it is to control the

result, the less intense the obligation will be

REMEDIES for breach No exact translation for remedies in French,

recourse? ♛ Lots of debate over remedies

o Remedies before rightso Remedies is the starting point, what

solution do you want, then see if you have the rights and obligations that fit

♛ Possible remedieso Damages, 1st choice, lot of brain juice

spent hereo Specific performance

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o Termination ⚜ not much discussion regarding remedies

o Rights before remedieso rights and obligations are the starting

point, then go to hierarchy to reward remedy accordingly

⚜ Possible remedieso Specific performance, 1st choiceo Resolution, contract never existedo Resiliation, contract will cease to existo Damageso Quanti minoriso Non adimpleti contractus, withholding

performance until other party performs

1590. An obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay.Where the debtor fails to perform his obligation without justification on his part and he is in default, the creditor may, without prejudice to his right to the performance of the obligation in whole or in part by equivalence, ( 1 ) force specific performance of the obligation; ( 2 ) obtain, in the case of a contractual obligation, the resolution or resiliation of the contract or the reduction of his own correlative obligation; ( 3 ) take any other measure provided by law to enforce his right to the performance of the obligation.

1591. Where the obligations arising from a synallagmatic contract are exigible and one of the parties fails to perform his obligation to a substantial degree or does not offer to perform it, the other party may refuse to perform his correlative obligation to a corresponding degree, unless he is bound by law, the will of the parties or usage to perform first.

1604. Where the creditor does not avail himself of the right to force the specific performance of the contractual obligation of the debtor in cases which admit of it, he is entitled either to the resolution of the contract, or to its resiliation in the case of a contract of successive performance.However and notwithstanding any stipulation to the contrary, he is not entitled to resolution or

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resiliation of the contract if the default of the debtor is of minor importance, unless, in the case of an obligation of successive performance, the default occurs repeatedly, but he is then entitled to a proportional reduction of his correlative obligation.All the relevant circumstances are taken into consideration in assessing the proportional reduction of the correlative obligation. If the obligation cannot be reduced, the creditor is entitled to damages only.

1606. A contract which is resolved is deemed never to have existed; each party is, in such a case, bound to restore to the other the prestations he has already received.A contract which is resiliated ceases to exist, but only for the future.

Khouri, “Efficient Breach Theory in the Law of Contract

Specific performance is fundamentally against efficient breach

♛ Cehave v Bremeer Handelgeselleschaft // buyer of v seller delivered damaged orange pellets >> serious breach minor breach partial damages termination (1975 UKCA)

Facts Cehave rejected “damaged” citrus pellets, claimed breach, then rebought the same pellets through intermediary at lower price.

Issue What remedies can the co-contractant get? Damages only

Application

Two potential levels of breach(1) CONDITION - serious enough that it goes to the root of the K . Breach of condition allows K to be set aside. (2) WARRANTY - not so serious that it goes to root of K. Breach of warranty will not allow K to be set aside. Proper approach should to look at the actual consequences of this particular breach ex post facto and decide whether the contract should be maintained. Here problem was minor damage that had little impact on actual use. This was a breach of warranty, not serious enough to set aside contract. Proper remedy is to for the other party to pay the difference in price between damaged and undamaged goods. Breach of one party will only excuse performance of the other party when a CONDITION (and not a warranty) is breached, other only get damages

⚜ A (M) v Stations de la Vallée de St-Sauveur (encore) // negligent ski instructor let kid ski unsupervised >> obligation of diligence obligation of result (2010 QCCA)

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WEEK 9B Potential remedies #1: ⚜♛Specific Performance Final, permanent injunction to perform ♛ Developed in equity, traditionally narrowly

defined and used by exceptiono Damages is the most important, default

remedyo Generally hesitant to grant, no one can

be forced to do something against their will

⚜ Most important, default remedyo Borrowed from equity

Refusal to comply means contempt of court, turns civil into potentially criminal

Remember performance or lack thereof have implications on 3rd parties

Proso Rights-based approach, respects

contractual right to performanceo Promotes AofWo Victim-centred remedyo Morally superioro No need to calculate damageso Avoid under- or over-compensationo Clarify rights, induce negotiation

Conso Can’t be very well defined specifically,

problem of imprecision o Problem of supervision, how to ensure

co-contractant performs wello Co-contractant can try to get around

court ordero End up having to go back to courto Violates personal liberty, forced to

perform against will

o Prevents efficient breacho Ignores practical difficulties to performo Sub-par performance

1601. A creditor may, in cases which admit of it, demand that the debtor be forced to make specific performance of the obligation.

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♛ Warner Bros v Nelson // movie company v actress on exclusive contract >> positive specific performance negative specific performance (1937 UKKB)

Facts Nelson breached exclusive employment contract with Warner Bros

Issue Can Waner Bros force specific performance? Partially

Application

Where a contract specifies restrictions that amount to a positive obligation to actively do something (i.e. not being allowed to work for anyone else), the court will not enforce positive specific performance. Negative restrictions that do not amount to a positive obligation (i.e to refrain from doing something) can be enforced. Damages would be very hard to evaluate (b/c of the nature of her occupation - she is valuable b/c of who she is) [she is a "unique good" - damages cannot replace her]

♛ Co-operative Insurance v Argyll Stores // mall v anchor grocery store wants to close >> hardship impossible enforceable positive specific performance problem of precision (1997 UKHL)

Facts Argyll closes its store, breached lease stay-open clause

Issue Can Insurance Society get specific

performance? No Applicatio

nPositive-obligation specific performance is not granted in common law. It would be too difficult to draft a court order defining positive-obligation specific performance. Store can stay open at minimum capacity and parties will have to go back to court

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⚜ Construction Belcourt v Golden Griddle // mall v anchor restaurant wants to close >> hardship problem of supervision specific performance (1988 SCC from QC)

Facts Golden Griddle wants to close location, breach stay-open clause

Issue Can Belcourt force specific performance? Yes

Application

Positive-obligation specific performance is allowable under CCQ1590, CCQ1601. Specific performance is the first remedy available under civil law. There are advantages for drawing business to the mall, can’t compensate for synergy lost in mall. The economic inconvenience that will be suffered by Golden Griddle in this case is not sufficient to warrant the application of the balance of hardship principle.

WEEK 10A Limiting damages #1: ⚜♛Mitigation ⚜♛Defendants are required by reasonably

mitigate its losseso Prevent extra damage not directly arising

from original breacho Promote good faith o Positive obligation but only obligation of

diligence ♛ Payzu v Saunders // silk buyer with drop in price v seller >> failure to mitigate partial damages (1919 UKKB)

Facts Payzu ordered silk from Saunders, Silk sale occurred later than expected, resulting in drop in price for wholesalers.

Issue Did Payzu failed to mitigate? Yes Applicatio

nDamages are what “reasonably flows from the breach”, with the additional duty that the plaintiff must take all reasonable steps to mitigate damages from the breach. Failure to mitigate reasonably will not yield damages for losses that could have been avoided. Payzu can still get damages for actual damages suffered.

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♛ Southcott Estates v. Toronto Catholic District School Board // land buyer v land seller refuse to sell >> failure to mitigate specific performance damages for avoidable loss (2012 SCC from ON)

Facts Southcott formed to buy one piece of land but TCDSB refused to sell, breached contract of sale

Issue Did Southcott fail to mitigate? Yes Applicatio

nPlaintiffs are required to mitigate their losses despite claims for specific performance. As a general rule, a plaintiff will not be able to recover for those losses which he could have avoided by taking reasonable steps. Burden of proof for this is on the defendant. Southcott should have bought similar property as backup.

WEEK 10B Limiting damages #2: ⚜♛Remoteness Similar to remoteness in torts but stricter

applicationo Damages restricted to foreseeable, direct

and immediate ♛ Hadley v Baxendale reasonable

contemplation testo Possibility, was the damages foreseeable

(tort-like test)o Probability, was the damages probable

(stricter contracts test)o Scope of liability, is the type of damage

within contemplation (Heron II)

1613. In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at the time the obligation was contracted, where the failure to perform the obligation does not proceed from intentional or gross fault on his part; even then, the damages include only what is an immediate and direct consequence of the nonperformance.

♛ Hadley v Baxendale // miller v delayed delivery of mill shaft >> expect to arise naturally reasonable contemplation special situation communicated (1854 UKEX) ♛remoteness in contractual damages♛

Facts Late delivery of a broken shaft resulted in stopped mill operations.

Issue Should Baxendale be liable for lost business? No

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Application

Damages awarded should be:1. what is “fairly and reasonably considered arising naturally” (“according to the usual course of things”) from the breach, or2. what may “reasonably be supposed to have been in contemplation of both parties” at contract formation as the “probable result” of the breach. Plus, Where parties are informed of the needs or circumstances of the contract, the foreseeability (and therefore liability) of damages may change.Most millers have a spare shaft. It was not reasonably natural to expect delayed delivery would cause Hadley to be unable to operate his mill. Baxendale not liable for consequences not reasonably in contemplation.

♛ Victoria Laundry v Newman Industries // laundry business v delayed delivery of boiler >> natural consequence reasonable contemplation special circumstance communicated full damages (1949 UKKB)

Facts Newman delivered boiler late to a laundromat, resulting in loss of special, highly-paying contract.

Issue Is Newman liable for damages of lost business? Yes

Application

Apply /Baxendale/ test. Laundromat obviously need boiler to operate, delayed delivery would reasonably cause disruption to business. Ask what reasonable party in position of breacher would have foreseen. Victoria Laundry communicated urgent need, Newman knew there was special situation. Foreseeability of damages must be a “serious possibility”, “real danger”, or “on the cards”.

♛ Koufos v Czarnikow (Heron II) // sugar buyer v delayed sugar ship >> unusual damages foreseeable AND probable full damages (1969 UKHL)

Facts Shipment of sugar on Heron II arrived late, breached contract by making a detour, resulting in lower sale price.

Issue Is Heron II liable for lost profits? Applicatio

n[Lord Reid] Plaintiffs can recover for damages that are usual and easily foreseeable. Drop in sugar prices is not unusual for delay in shipment. Previous interpretations of the Baxendale are too broad, tort-like interpretation where a party is liable for all foreseeable damage. It is not enough that something be unlikely to occur but foreseeable: It should

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be a result which is probable because it would occur in the majority of cases. In contracts, we should have a narrower test because parties can protect themselves. Tort imposes a much wider liability. Problem in Victoria Laundry – test used there is a tort test. Contract test must not be the same.

♛ Transfield Shipping v Mercator (Akeleos) // ship owner leased out ship v ship returned late lost next lease customer >> foreseeable intent to assume risk liable (2008 UKHL)

Facts Transfield leased ship to Mercator but Mercator returned it late and Transfield lost out on the next leasing opportunity

Issue Is Mercator liable for Transfield’s losses? No

Application

Contracting parties are responsible for foreseeable losses. Intent of the party takes priority, should consider what kind of damages the contracting parties would have intended to assume. But Mercator can’t be assumed to have assumed the risk that the ship’s owner may lose money in its next client.

⚜ Ciment Québec c Stellaire Construction // delivered wrong cement v suffered large damages >> direct immediate requirement partial damages only (2002 QCCA)

Facts Ciment Québec delivered the wrong cement to a worksite, cascade of events led to large damages to a dam

Issue Is Ciment Quebec liable for all damages? No

Application

Damages must be the direct and immediate consequence (CCQ1607)

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of a breach of contract in order for the plaintiff to recover. Cost for redoing work is foreseeable but lost profits isn’t b/c isn’t direct and isn’t foreseeable (as per Hadley and stricter test) lack of causal link for lost profits. Final catastrophe not really proximate consequence of Ciment Quebec’s contractual breach

WEEK 11A/11B Limiting damages #3: ♛Cost of Cure vs. Diminution in Value This is about how to calculate expectation

damageso Theoretically should put parties to

position as if contract was performedo But should that position be calculated

based on cost of cure or diminution? Problem where there was clear breach of

contract but victim didn’t suffer much damage objectively (little diminution in value)

Diminution in valueo Measure loss in only economic objective

termso Ignores subjective non-pecuniary

damageso Breacher get unjust enrichment, get

away with breach where there is no significant objective diminution

o Efficient use of resourceso Allows efficient breacho Compensation for objective loss suffered o ♛Favors this option most of the time

Cost of cureo Actual equivalent to specific performanceo Respects parole donnée, give money

equivalent to what was promisedo Windfall for small mistakes o Respects property rightso Gratuitous benefit, punitive damages in

disguise ⚜ Not really a problem, gives specific

performance most of the time

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o In case of difficult performance, would have little problem giving cost of cure as equivalent to specific performance

♛ Tabcorp Holdings v Bowen Investments // unauthorized renovation of building lobby v landlord >> cost of cure diminution in value (2009 HCA)

Facts Tenant rebuilt owner’s foyer without owner’s agreement, claimed the value hadn’t diminished

Issue Should Tabcorp pay for cost of cure? Yes

Application

Tenant charged with cost of cure

♛ Peevyhouse v Garland Coal (Maute) // land owners v mining company doesn’t restore land >> cost of cure diminution in value (1954 Oklahoma)

Facts Mining company on leased farm land didn’t restore land to original state as agreed, but land value loss was relatively minor.

Issue Should Peevyhouse get cost of cure? No

Application

Peevyhouse specifically wanted land restored and gave up advanced payments in exchange. There wasn’t much objective diminution in value but Peevyhouse really wanted land restore. Court awarded diminution in value. Where economic benefit from

full performance is grossly disproportionate to cost of performance, damages should be limited to diminution in value caused by the breach.

♛ Ruxley Electronics v Forsyth // swimming pool too shallow v builder >> difference in performance cost of cure nominal consolation (1995 UKHL)

Facts Contract for a swimming pool stipulated that it had to be 7’6” deep. It was only 6’ deep.

Issue Should Forsyth get cost of cure? No Applicatio

nWhere the breach is such that no significant difference exists in performance, no damages are awarded. Forsyth suffered in diminution in value, pool works just fine. Unreasonable to give windfall for small mistake on part of contractor.Damages was nominally awarded for “loss of amenity” technically also gave diminution of value, but diminution is zero. Cost of cure must only be awarded if it is reasonable. If not reasonable, out of proportion, award is for diminution of value (if no diminution, no loss = no compensation).

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WEEK 12A Limiting damages #4: ⚜♛Non-Pecuniary Damages

Potential damages for suffering, disappointment, frustration, distress, sadness, annoyance

⚜ theoretically entitled to moral damages regardless of contracts or not

o Limited by foreseeability1607. The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor's default.1613. In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at the time the obligation was contracted, where the failure to perform the obligation does not proceed from intentional or gross fault on his part; even then, the damages include only what is an immediate and direct consequence of the nonperformance.

♛ Traditionally reluctanto Unsympathetic to non-economic

losseso Considered role of torts to award

moral damageso Punitive damages in disguiseo Contracts fundamentally about

economic bargainso Policy decision against suing for wild

damages

♛ Jarvis v Swan Tours // inadequate Swiss vacation v tour company >> exception for enjoyment contracts moral damages (1973 UKQB) ♛Jarvis exception♛

Facts Jarvis booked Swiss vacation but actual experience was highly disappointing

Issue Can Jarvis get non-pecuniary damages? Yes

Application

Jarvis bought a vacation package specifically for enjoyment and Swan Tours didn’t deliver. Generally, contract breaches don’t get moral damages, but can create an exception. Where the object of a contract is enjoyment or “peace of mind”, mental distress can be compensated. Jarvis Rule: A proper case is one where the very object of the contract is to provide pleasure.

♛ Fidler v Sun Life // harassed insurance holder with chronic fatigue v insurance company >> apply remoteness test reasonable contemplation moral damages rules for punitive damages bad faith punitive damages (2006 SCC from BC) ♛Baxendale as one rule to rule them all♛

Facts Fidler claimed disability insurance suffering from chronic fatigue, Sun Life sent private investigators and discontinued payments

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Issue Can Fidler get moral damages? Yes Applicatio

nReplace /Jarvis/ test with general contract remedy principles. Moral damages should be treated as any other kind of damages, subject to the same tests. Apply /Baxendale/ principles of remoteness, Fidler’s mental distress damages is natural consequence of breach, in reasonable contemplation of Sun Life discontinuing insurance payment. /Baxendale/ rule should be the one and only rule for damages from contract breachTest for punitive damages1. malicious, oppressive, high-offended conduct that offends court’s sense of decency2. independently actionableSun Life’s conduct was excessive but not enough to be in bad faith, not enough for punitive damages

WEEK 12B Limiting damages #5: ⚜♛Punitive Damages

Different purpose of retribution, deterrence, denunciation

Historically not recognized, crosses public private divide

⚜ New article allows for punitive damages where legislated

o E.g. art. 272 CPA (Que); art. 49(2) Quebec Charter

o Can be awarded alone without other kind of damages

1621. Where the awarding of punitive damages is provided for by law, the amount of such damages may not exceed what is sufficient to fulfil their preventive purpose.Punitive damages are assessed in the light of all the appropriate circumstances, in particular the gravity of the debtor’s fault, his patrimonial situation, the extent of the reparation for which he is already liable to the creditor and, where such is the case, the fact that the payment of the damages is wholly or partly assumed by a third person. ♛ Threshold set at

a) malicious, oppressive, high-handed conductb) independently actionable, now interpreted

as breach of good faith o Legislated exception of insurance

contracts

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o Technically can never be give alone, work around by awarding nominal compensatory damages

o /Whiten/ set implicit max at $1MM, later bigger awards for class actions

⚜ Brault & Martineau c Riendeau // advertising violated CPA v consumer class action >> punitive damages (2010 QCCA)

Facts B&M’s advertising violated Consumer Protect Act

Issue Should B&M pay punitive damages? Yes

Application

B&M violated CPA, punitive damages is allowed by law. Awarded $4MM to class action members

⚜ Richard v Time (encore) // credulous consumer v magazine ad >> punitive damages (2012 SCC from QC) ♛ Branco v. American Home Insurance // class action for full benefits v insurance company >> reduced punitive awards (2015 SKCA)

Facts Insurance company oppressive against insurance holders

Issue Should AHI pay punitive damages? Yes

Application

Apply /Fidler/ test for punitive damages. Awarded smaller amount than trial

WEEK 13A Limiting damages #6: Disgorgement, penalty clauses Disgorgement, new kind of damages

o Reward not for what victim suffered but for what breacher gained

o Good for when victim suffers little damage

Goetz & Scott, “Liquidated Damages, Penalties, and the Just Compensation Principle

hypothesis: absent evidence of process unfairness in bargaining, efficiency will be enhanced by the enforcement of an agreed allocation of risks embodied in a liquidated damage clause.

“just compensation” formula gives all of the gains to the breacher

in assessing damages, two limiting assumptions (valuation and foreseeability) may operate to prevent the recovery of idiosyncratic value

where exchange value conceded to be inadequate, and value to the owner substituted, any fanciful or sentimental value will be excluded on the grounds that such losses are too speculative and uncertain

♛ Attorney-General v Blake // gov’t v double agent with book deal >> (2000 UKHL) ♛disgorgement♛

Facts Blake was double agent for Soviet Union, escaped prison, published memoir, made lots of money

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Issue Should Blake pay disgorgement of profits?

Application

Blake breached employment contract confidentiality that had no term limit. Government suffered no damage to be compensated for because secrets have already been declassified. Plaintiffs can claim disgorgement of profits when a party is enriched by a breach 4 factors to consider1. deliberate breach2. other remedies inadequate

Penalty clauseso Benefits: precalculated amounts, efficient

breach, better predictability, AotW, protect subjective value, self-enforcement, meeting of the minds

o Problems: abuse, exploitation, actual damage mismatch predetermined amount

o Could be seen as an option to breach or an inducement to contract

o Conceptual opposite of exoneration clauses

o Analyzed post breach not at formationo Can be reviewed whatever the contract

may be, no restrictions ♛ Liquidated v penalty damages

o Liquidated are genuine pre-estimates of damages, enforceable

o Penalty are amount meant to deter breach, not enforceable

⚜ New protection o Penal clause protected under abusive

clause doctrine1622. A penal clause is one by which the parties assess the damages in advance, stipulating that the debtor will suffer a penalty if he fails to perform his obligation.A creditor has the right to avail himself of a penal clause instead of enforcing, in cases which admit of it, the specific performance of the obligation; but in no case may he exact both the performance and the penalty, unless the penalty has been stipulated for mere delay in the performance of the obligation.1623. A creditor who avails himself of a penal clause is entitled to the amount of the stipulated penalty without having to prove the injury he has suffered.However, the amount of the stipulated penalty may be reduced if the creditor has benefited from partial performance of the obligation or if the clause is abusive.1437. An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced.An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules

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normally governing the contract that it changes the nature of the contract is an abusive clause. ♛ HF Clarke v Thermidaire // exclusive

distributor v manufacturer with penalty clause >> excessive punitive valid penalty clause (1976 SCC from ON)

Facts Clarke entered into contract with Thermidaire as exclusive distributor, with a formula penalty clause linked to sales

Issue Is penalty clause valid? No Applicatio

nStipulated damages clauses will only be enforced as far as they are reasonable enough to constitute liquidated damages and not penalty damages. Penalty formula was based on gross not net profits, meant to be too high and both parties knew it. New test for reasonableness of penalty clause is assess in comparison to actual damage suffered post breach. Court may intervene, on the basis equity, to strike down a penalty clause. Unreasonable = grossly excessive and punitive response to the actual damage incurred. Unreasonable = grossly excessive and punitive response to the actual damage incurred.

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⚜ 151276 Canada c Verville // abandoned lease v landlord wants penalty >> valid penalty clause partially reduced (1994 QCCS)

Facts Verville abandoned lease half way, landlord invoked penalty clause suing Verville for the remaining the lease payments

Issue Is the penalty clause valid? YesApplicatio

nPenalty clauses are valid in the civil code (CCQ1622, CCQ1623), but can be reduced if they are abusive or contrary to public order. The penalty amount is unreasonable considering the landlord could find someone else to lease the space without too much effort, courts reduced payment.

WEEK 13B Third parties

Contracts (Rights of Third Parties) Act 1999 Chapter c 31

Beswick v Beswick // xxx (1966 UKCA)

Beswick v Beswick // xxx (1968 UKHL)

New Zealand Shipping v AM Satterthwaite // xxx (1975 xx)

London Drugs v Kuehne & Nagel // xxx (1992 x)

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WEEK 14 Conclusions

McNeil, “Wither Contracts”

Lloyd, “Making Contracts Relevant”

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week 1 basic concepts - lsa -...

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