HABERSTOCKWELL OUTLINE OF THE CENTURY

Take a breath—ur gonna be great! Read what you are being asked to do. What type of problem? Are you supposed to be making any specific assumptions?

1. Is there a contract?

MISTAKE:

Before you go any further ask this: Does the K allocate the risk of the particular mistake? EXPRESS: Can’t rely on doctrine (i.e. mutual release for payment in Miller Paving) (can look at language and practices for allocation) {Note from Miller: It was the plaintiff’s fault because they had allocated the risk by sending the final $ which was then signed”this is the full amount”}IMPLIED: Associated Japanese Bank: Can also be implied allocation of risk. (look to knowledge disparity here ie. McRae vendor allocated risk- who in best position)*Is rectification an option? Was the allocation in the contract recorded WRONG?

IT’S A TERM! UNCERTAIN K (MISTAKE AS TO TERMS)1. FIRST try to apply rules of K formation: - were the parties not even on the same page? Mutual mistake if parties were at cross-purposes (2 ships in the night): this is a mutual mistake and rules of contract formation apply where we find there was no meeting of the minds and so contract is void. (this is not under doctrine of mistake just K formation and applies to mutual mistake only) (Q: mistake as to term only)

I.e. would not be able to apply objective test because no evidence/reason/ factors to cause a RP to prefer one party’s understanding over another’s THEN there will be automatically a TRUE AMBIGUITY = no true agreement = no contract (only when SO ambiguous)(Raffles)

Staiman: Objective Test: can ONLY decide that there is NO CONTRACT due to a MUTUAL MISTAKE when circumstances are so ambiguous that a RP test would not work such as in the case of Raffles(*Come back to this for conditions/warranties)

UNILATERAL MISTAKE not enough to break K on mistake (Smith v Hughes) UNLESS mistake as to terms: (If mistake as to FACT, see below)

(1) the mistake is as to the terms of the contract (as opposed to motivation) and (2) the mistake is known to the offeree at the time of purported acceptance (Hartog)

“Snapping Up” (3) Do NOT apply objective formation principle (Staiman) here (Hartog) (Purpose: It

would be against the purpose of the principle of objectivity to apply an objective analysis here) [subjective test should be used for fairness sake)

IF CAN’T FIND MISTAKE TO BREAK K, MAY BE ABLE TO USE EQUITABLE MISTAKE (below)IT’S THE DEED ITSELF! “It’s not my deed” “I did not know what I was signing”2. SECOND: NON EST FACTUM? A kind of mistake that involves a party who mistakes the kind of contract being signed. Because this type of "mistake" could be abused, it is severely limited by the common law

cannot be relied upon if the party could have easily have read the contract or if the party had a general idea as to the nature and purpose of the contract

Must prove they believed that the document they thought they were signing was fundamentally different from the one they actually signed

When there is a signature given by a person with capacity - non est factum very difficult.Saunders v. Anglia: Can use non es factum if (1) not negligent (2) fundamentally different from what

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thought (ie still a deed, just deed to a different person)“No man can take advantage of his own wrong”3. THIRD: IT’S A MISTAKE AS TO UNDERLYING FACT! (MISTAKE OF FACT)COMMON LAW MISTAKE DOCTRINE: NARROW DEPENDS on a common mistake (both parties made the same mistake about an essential aspect) = void a contract based on a common, mistaken assumption of material fact.

3 types of operative mistake mistake assumptions where could find void (Bell v Lever): (1) Identity of individual (2) Mistake RE subject matter (3) Mistake RE quality of subject matter

1. MISTAKE OF IDENTITY OF PARTY CONTRACTING WITH*Intention may be to contract with a specific individual only : therefore VOID.These cases are always dealing with the innocent victims, NOT the rogue themselves and the court must decide which party losing out would be more just. Must ask question: Who was in the best position to have discovered that the party was a rogue?

Written Dealings: Where an offer is not intended to be made to the rogue, but rather to the party being

impersonated, no K. How decided: ABC (A retains title to property because no original K was formed between A&B therefore could not pass to C) (Cundy v. Lindsay)Looking at intentions of parties on the face of the K.

Shogun: written dealings.Face to Face Dealings: (Don’t find void @ CL. Exception: equity time frame)

Intention is to contract with the person who is in front of you. Names are just labelscontract with who is actually in front of you. (How decided: AB3P 3P holds title, there was K b/c A in better position to determine if rogue) (Phillips v. Brooks)

EXCEPTION*: K can be voidable because of fraudulent misrepresentation (Would be voidable prior to sale to 3P) AB(“celebrity)3P: since 3P bought in good faith, 3P keeps.(rationale: If doesn’t outwardly appear that anything wrong, not your responsibility. Original owner of the car was in best position to avoid. (Lewis v. Avery)

Mixed Dealings: (Shogun) SPatel(fax/written)3P(in person) Follows Cundy : where written offer not intended for rogue, no K. 3P loses out here: Newcombe crit: Shogun was in best place to avoid risk. Dissent: what about ‘voidable’ Hudson should have had. Presumption that all should be

handled the same way (like face to face) Sale of Goods Act: 26(1) Subject to this Act, if goods are sold by a person who is not the owner of them and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner’s conduct precludes the owner from denying the seller’s authority to sell. nemo dat2. MISTAKE THAT SUBJECT MATTER EXISTS/BUYING SOMETHING THAT ALREADY YOURSRes extincta

- McRaebut not relied on that case because cannot rely on mistake if you made the mistake- If found to be implied condition precedent, could rely on mistake. - In this instance, there would be a K (breach) [aka didn’t find it void].

Sale of Goods Act: if you have contracted for something that has perished (such as foodstuffs) then K is void.Res Sua3. MISTAKE AS TO QUALITY OF SUBJECT MATTER (Bell v. Lever Bros)

To find contract VOID for mistake: (1) Must involve the actual subject matter of the agreement AND (2) Be of such a fundamental character as to constitute an underlying assumption without which the

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parties would not have entered into the agreements. If you have complied with the terms and essential subject matter, even if K is unfair, still void. (*In this case, if they had wanted to protect against insider trading in an employment severance situation could have stipulated this explicitly in the K{policy}remember contract drafting class here)Decision: In this case, insider trading during employment did not render the severance agreement entirely different.*Bell v. Lever is a really narrow formulation of this rule. If you still find a K at the end of this analysis, proceed to EQUITABLE MISTAKE.Cannot Rely on Mistake where you are Responsible for mistake: (McRae)

- A mistake can be genuine but also be reckless and unreasonable.- This is largely related to fairness: Who was in the best position to know of the risk?

POLICY: It is easier for the party with information to accept the risk than for the other party to have to suss it out more onerously.

- Generally this would arise in situations where the defendant is attempting to claim mistake. If can’t rely on mistake doctrine, we are acknowledging that K exists and is not void and therefore, breach would have ensued damages.

4. FOURTH: EQUITABLE MISTAKE: Lower Threshold “CL’s derpy little sister”(*Can apply for mistake of FACT or mistake of TERMS)[Despite the English CA disapproval of equitable mistake in Great Peace, Canadian courts have approved of the doctrine and the remedial flexibility it providesMiller Paving](1)Need not relate to the essential substance of the contract (but still fundamental)[this is why it would not have worked under CL: NOT ESSENTIAL] (2)looking for an honest mistake (clean hands) When mistake operative at law – apply when unfair, unjust, or unconscionable not to correct it.

Any type of mistake (common, mutual or unilateral) can give rise to relief under equitable mistake stronger case where you have a unilateral situation and one person is taking advantage of

another’s mistake (Hartog, snapping up)

Solle v. Butcher (TEST FOR EQUITABLE MISTAKE)You’ve gone through Lever and have found not enough to find for mistake at Common Law (Does the mistake about the rent render the subject matter entirely different from what it was thought to be? NO: “a lease is a lease” – not void) TEST: (Solle v. Butcher)

(1) UNILATERAL: Has one party been induced by a material misrepresentation OR one party, knowing that the other is mistaken about the terms of the offer or the identity of the person by whom it is made, lets him remain under his elusion and conclude a contract on the mistaken terms instead of pointing out the mistake. (“snapping up”)

(2) COMMON: A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.(cited in Miller)

Example: Rent ceiling gone wrong one party at fault but not fraudulently so.Miller (1) If allocated for risk, too bad (2) Works through Solle test - in this case, what charging does not fundamentally change the K (same idea as Solle: “a lease is a lease”)

Link to other doctrines:

Was there free and informed consent? Duress, undue influence [p.11] doctrine of duress : consent, voluntariness, NO relationships, “extortionate”, commercial situations undue influence : special relationship categories, questionable interaction, disadvantage (?)

Does the law prohibit the formation of K? Illegality: Restrictive Covenant/Statute? [p. 15]

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2. What are the terms of the contract?

Interpretation of Contracts: (Guiding Principles)PARSE THE WORDING CAREFULLY: USEINTERPRETIVE PRINCIPLES

(1) Look for intentions of parties at time K signed.(2) To find meaning, do not just rely on literal written terms if would not make sense within context. (Bathurst)(3) If ambiguous (ie two possible meanings), court will decide in favour of more fair result. (“sensible commercial result”) (Eli Lilly)(4) The courts apply an objective approach to the determination of the parties’ intention at the time of K. (Electric Limited) (5) Purpose and context will always be relevant in interpreting K. (Reardon Smith) (6) Where there is no ambiguity in written, no need for extrinsic evidence. (parol evidence rule) (KPMG)(7) Generally: evidence of prior negotiations is inadmissible for the purpose of construing the final agreement. (Can be used if essential to ‘genesis of the transaction’) (8) Interpretation must give effect to all parts of the agreement (‘harmonious’) (Checo)(9) Subsequent conduct: If ambiguous result and long history of contracting together. How have issues been interpreted in the past.(10) Related agreements (ie. If part of larger transaction) (11) Meaning of words Ordinary meaning assumed unless evidence to back that it is a technical term.(12) Construction: contra proferentum: Employs a narrow construction against drafter of ambiguous provision.

The most recent word: Sattava Capital Corp v. Creston Moly Corp (SCC 2014) Driedger your K: ie. Look at context, purpose, relationship etc but extrinsic info will never override words of the agreement itself.What parties using those words in that background and context would reasonably have understood them to mean.Word on parol evidence rule: Surrounding circumstances should be admitted to better understand written word and thus does not contradict.

Sale of Goods Act: “language express or implied statutory and otherwise.”—If no express language dealing with warranty, look to this act. You can essentially contract out of anything but if you are missing information that is included in this act, act will apply as default.

Parol Statements Is there inconsistency between parol statements and the written contract? Apply the Gallen framework – there is a strong presumption the written agreement trumps but….courts will not allow written agreement to override a clear, specific representation on which there has been significant reliance.

PAROL EVIDENCEThe parol evidence rule does not allow extrinsic evidence admitted that would alter the terms- add or subtract from the written agreement. (Exceptions will be made if ambiguous or if writing is unclear) *By arguing your case properly, can almost always get evidence in: can argue if contradicts, varies, adds etc.Factors influencing application of the rule

(a) General: Intent, reliance, reasonable expectations, unfair surprise(b) Nature of change/conflict: how serious is the conflict/contradiction. (c) Nature of Document

- Intended to be whole agreement—entire agreement clause?- clarity of wording- read by parties (knowledge)?

(d) Bargaining Relationship

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- power- standard form contract- past relations/experience- evidence of sharp practice- legal advice obtained

(e) Nature of Representation - quality and credibility of evidence- clarity and specificity- significance

“The Leaky Bucket”/Sham Agreement highlights problems with PE rule.If parties have agreed that their written promises are not to bind them, that agreement controls and no legal obligations flow from the writingPolicy: Criticism that admitting evidence or not has upsides and downsides and can lead to injustice. (Lying witnesses vs. excluding real information.) Acknowledging limitations of objectivity. Admission would impact business efficacy but this problem overstated. Strict application of rule in the past has led to injustices which is why there are so many exceptions.*Here extrinsic evidence is allowed (distinguishing feature: letter (stated 3-8%) and evidence of sham agreement) Oral term directly contradicts written term (BAD LAW)

Zell v. American Seating Co (US CCA 1943)(3-8% contingency fee not honored as was letter agreement)

GENERAL – ONLY submist collateral K in parol evidence when it does not contract the written/is intended to be binding/is not inconsistant*Introduces theme of collateral agreement but REJECTS here.Oral assurance is collateral to written agreement but parol evidence rule does apply because in order to have collateral K with bearing, cannot directly contradict the written contract which said continuing guarantee. (tenancy music example) **Was not acknowledged as a collateral agreement in court. Doesn’t matter that didn’t read it.RATIO: If parol evidence of collateral agreement directly contradicts written K then it is inadmissible.Distinguishing features: merger clause, did not read K but doesn’t matter, collateral oral assurance.

Hawrish1969 SCC(bank & oral assurance (collateral agreement) relieved from debts contradicts standard form K)

GENERAL- STRICT APPLICATION OF RULERATIO: Any collateral oral agreement may not stand in the face of a written guarantee. (Bank likely would have gone through with this anyway but not recognized)Could cite case when find lack of evidence that oral agreement actually occurred.

Bauer1980 SCC(oral guarantee contradicts written doc)

EXCEPTION (DENNING) SAYS OK TO COTRADICT= bad law*Considers totality of evidence here the K was intended to be written, oral & conduct.Finding collateral K: When a person gives a promise to another, intending that they act on it by entering into a K and they do act on it by entering into that K, we hold that promise binding. Finding: The printed condition is rejected because it is repugnant to the express oral promise/representation. Denning (Mendelssohn v. Normand)RATIO: Parol evidence can be considered a promise that constitutes a condition of K that override exemption conditions. Must consider oral, written, and conduct in formation of K. (See also Zippy Print v. Pawliuk (BCCA 1995): Specific oral>general written exemption clause UNLESS you specifically draw attention to it. Aka: Parol Evidence rule ≠ absolute)

J Evans & Son1976 UK CA(oral assurance that containers transported below deck- pre-existing relationship)

EXCEPTIONS *Strong presumption in favor of the written documentIF ORAL DOES NOT CONTRADICT WRITTEN, CAN APPLY BOTHHeld: Evidence of oral representation is admissible. Collateral agreement is not inconsistent and does not conflict with written K. Written K is clear so we conclude that oral agreement was not made. If written vs. oral and no clear evidence of oral, written will supersede. Kind of an LLP exercise. Must consider the construction of the K and whether or not an exemption clause was intended to exclude a particular oral term or not. In this case, promise was related to weeds and nothing more. PAROL EVIDENCE IS ADMISSIBLE WHERE:

Gallen v. Allstate1984 BC CA(oral assurance that buckwheat would not

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1. The written agreement is not the whole K. (J Evans)2. Interpretation: Extrinsic evidence can be introduced to clear up an ambiguity in the K. (Zippy

Print)3. Invalidity: Extrinsic evidence can be introduced to show that the K is invalid because of lack

of intention, consideration or capacity (non es factum?)4. Misrepresentation: Extrinsic evidence can be introduced to show there was a

misrepresentation that was either innocent, negligent or fraudulent.5. Mistake: Extrinsic evidence can be introduced to show that there was some mistake as to

the nature or effect of the agreement.6. Rectification: Extrinsic evidence can be introduced to correct an error/mistake in putting the

agreement in writing. [most readily accepted exception]7. Condition precedent: Extrinsic evidence can be introduced to show that there was a

condition precedent to the agreement taking effect.8. Collateral K/Warranty/Agreement: Extrinsic evidence can be introduced to show that there

was a separate agreement along with the written agreement. (Evans)9. Unconscionability: Extrinsic evidence can be introduced to show that the transaction was

brought about through unconscionable means.10. Modifications and discharge: Extrinsic evidence can be introduced to show that the K has

been modified or terminated.11. Equitable remedy: Extrinsic evidence can be introduced in support of a claim for an

equitable remedy.

------------------ Presumption in favour written K strengthening ----------Adds a term Varies Contradict

There is a strong presumption that if a document ‘looks’ like a K, it is a full K. Presumption would be less strong if specific oral and general exclusion clause but more strong where specific oral and equally specific written. (Zippy)Presumption stronger for negotiated K vs standard form K.

LATEST WORD FROM THE SCC: Sattava: K should be interpreted using extrinsic aids, but that extrinsic information can’t actually override the words of the agreement itself, but can be used as background.

smother weeds but destroys all crops clause in written K: “not responsible for success of crop”)

STATUTE: Business Practices and Consumer Protection Act (2004)RULE DOES NOT APPLY IN CONSUMER TRANSACTIONS

187. NOTE: "consumer transaction" means a supply of goods or services or real property by a supplier to a consumer for purposes that are primarily personal, family or household.

*Deals with Parol Evidence Rule. No such thing as rule in consumer transactions. You always have to be able to admit evidence. Companies cannot get away with hiding things in written Ks when people buying things.

Mistake as to recording of K? Rectification

RECTIFICATION Exception to the rule that the written K reigns supreme/exception to parol evidence : Where there is a mistake in recording the agreement, the court may order rectification to correct the error. (this is generally an administrative/transcription error)*High threshold for what counts as a mistake in recording the agreementFOUR PART TEST FOR RECTIFICATION BY THE SCC:

1. The plaintiff must prove the existence and content of the prior oral agreement.

2. There must be “convincing proof” of the oral agreement (beyond a balance of

Performance Industries v. Sylvan Lake(mistake as to feet instead of yards in land purchase

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probabilities but less than beyond a reasonable doubt).

Note: One concern that underlies rectification is caveat emptor. The presumption of caveat emptor is very strong in the case of written documents setting out the terms of a contract. The court is concerned that to allow rectification would promote lack of due diligence (i.e. people will be sloppy and then seek rectification).

3. The plaintiff must provide the precise wording for the rectification.

4. The plaintiff must show that defendant knew or ought to have known of the mistake in written document. Essentially, the plaintiff must prove that to refuse rectification would be inequitable and unconscionable. (AKA FRAUD)

”Odor of fraud”—he said/she said

agreement. D insisting on written terms in spite of knowing did not reflect oral agreement)

QUALIFICATION: AMBIGUITY NOT ENOUGH, MUST BE VISIBLE ERROR

(CLOSES THE FLOODGATES b/c no evidence of what intended)

Facts: “Metropolitan City of Vancouver”—restrictive covenant ambiguous.

(This case dealing with ambiguity and not a visible error)In this case, KRG Western has shown no prior oral agreement, let alone the content of one. Rather, it simply asserts that “something must have gone wrong with the language” of the contract. Without pointing to a prior agreement that was departed from when the contract was put into writing, rectification is not available.- ambiguity is not sufficient—must be indication that parties agreed on something and then mistakenly included something else in the written K.

KRG Insurance

Reasonable notice? Did the party have notice of terms of the contract, in particular, onerous provisions? Signed/Unsigned. Tilden and Karroll

SIGNED DOCUMENTSGENERAL Party signing a written contract is bound by its terms regardless of whether read or aware of terms (L’Estrange) Tilden narrows this.Facts: Standard form rental car K for extra coverage (limitation was onerous: alcohol, speed limit etc)Signed without reading (because signed them all the time; common sense assumptions)accident ensuesTilden wants to rely on clause as iron-clad. (Had instructed employees not to divulge clause unless asked)When a document containing contractual terms, then, in the absence of fraud or misrepresentation the party signing is bound

Tilden

EXCEPTION – Reasonable Notice of Onerous Clauses(Consumer Protection case) *If clause inconsistent with purpose of K (ie. Unexpected, business efficacy), and reasonable person would not be aware of it, should not be able to rely if no attention drawn to it:In absence of reasonable measures, a party attempting to rely on terms / provisions of a contract must draw attention to termsSignature Rule: Signature generally a good indication of assentQualifies this: signature not be all and end all: other factors such as speed of transaction, length of document, purpose of K and fine print must be taken into account.Main Point: Can’t always rely on signature alone.Courts generally have not applied Tilden broadlycontinue to uphold that signed document is be

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all and end all regardless of having been read (Risk activities)

QUALIFICATION: Must understand to be bound (ie. Reading not enough)Contract must be understood by audience that reads it: can render no K if misunderstood.*Cannot contract out of negligence unless you do so explicitly. Negligence is a technical term and must be elaborated upon for layperson to understand.

Ochoa v. Canadian Mountain Holidays(Japanese businessman)

UPHOLDING SIGNATURE RULE: LIMITATION to TildenJudge says: Must begin with L’Estrange: If document signed and party knows affects legal rights, they will be bound. (≠fraud/misrepresentation) [note: Estrange does not apply if misunderstood or not read (Ochoa)] Next apply Tilden: Will apply only if mistake in understanding.Employs reasonable person/objectivity test: (Objectivity introduced in Tilden) If reasonable person would know that not assenting from objective facts Change: Karrol adds that will not enforce signature if: hasty, informal, clause inconsistent with rest of K, absence of opportunity to read, length and amount of small print.

Karrol v Silver Star(Ski racesigns waiver form and participates in race. Is injured and attempts to bring action against ski hill.)

EXCEPTIONS to signed contract binding1. Non est Factum: signing document you thought was one thing and not another2. Active misrepresentation3. Reasonable person would have known that they did not intend to agree to release

a. In which case, Defendant must have taken reasonable steps to bring content to attention - Tilden Exception

Were terms added after contract concluded? Use offer, acceptance and consideration doctrines to argue that contract already formed? Loychuk v. Cougar Mountain

Leading BC case on recreational waivers: they are generally bindingAppellants also try to argue that since entered K pre Whistler, no consideration. NAV gets us over this hurdle because contract modification do not need consideration. But, as per majority in Delaney, this case says that agreement to go ziplining at the time = consideration.

Loychuk v. Cougar Mountain Adventures Ltd (Zipline collision)

3. Is there an exclusion or limitation of liability clause?Apply Tercon analysis: interpret; unconscionability; public policy

FUNDAMENTAL BREACH/EXCLUSION CLAUSESFundamental Breach: A breach that goes to the root of the contract.An exclusion clause cannot be construed to excuse liability for a fundamental breach of contract. (Doctrine of fundamental breach—Karsales- car delivered in different condition)Decided that not a rule of law, but rather rule of interpretation (aka—if you can interpret that an exclusion clause should apply, can apply) (Suisse Atlantique, Photo Productionburns down building. Exclusion clause= ok, not intended for fire.)Unconscionability introduced in Hunter which is picked up in Tercon. (doctrine is introduced but exemption clause in that case is allowed so do not need to employ it yet.)“There is much to be gained by addressing directly the protection of the weak from overarching by the strong, rather than relying on the artificial legal doctrine of ‘fundamental

Tercon Contractors“Final Nail in the Coffin of Fundamental Breach”

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breach”DICKSON in Hunter..Therefore new analytical approach is born: Unconscionable Contract Test (APPLY when repudiatory/fundamental breach and trying to determine if can rely on exclusion clause or not (K itself is intact—way carried out is issue)1. Does the exclusion clause apply to the circumstances? [still interpretive analysis.. in this case,

comes down to word “participating” and the tendering process]2. Was it unconscionable at the time the contract was made? (post formation conduct is

irrelevant) o (Morrison) Must have (1) Inequality of bargaining powers and (2) Proof of

substantial unfairness in the bargain.o NOW: if these two established, onus is reversed and it would on D to show that the

bargain was fair, just and reasonable.o Does this jive with the community standards of morality? (Kreutziger)

3. Is there an overriding public policy reason to not enforce the clause? (post formation conduct can be considered here)

o Onus on the party seeking to avoid enforcement. Must outweigh the strong public interest in the enforcement of contracts.

o High standard: (In Tercon stakes high enough for court to decide that policy reasons outweigh freedom to contractthreshold met here but strong dissent.)

1. Food suppliers knowingly and recklessly selling toxic products to public2. Company supplies defective resin to natural gas pipeline manufacturer (Plas

Texpublic policy favoring curbing abuse > public policy re: freedom of contract.)

3. Conduct approaching serious criminality or egregious fraud = public policy that may override the countervailing public policy which favours freedom of contract

No special rule for exclusion clauses prima facie- therefore, basic rules of contract law apply and analysis of the term itself is required in the circumstances.APPLICATION: Loychuk (zip lining, waiver, employee negligence) - case-law RE risky sports activities is considered here. rarely exercised discretion to decline enforcement (toxic products, pipeline materials), conduct approaching serious criminality egregious fraud that public policy will override.- decided was not unreasonable: no power imbalance etc. Nothing that was said or done would lead anyone to think the waiver would not apply.

4. Has the contract been frustrated? (Assumptions regarding future events?)Event occurring after formation? Does the event destroy the commercial purpose of the contract? Not self-induced. Not foreseeable.

FRUSTRATION (K frustrated -> parties relieved from future performance obligations)There was a contract but now it’s frustratedAKA NOT FINDING IT VOID

Difference from mistake? Mistake: assumptions regarding existing facts, Frustration: assumptions regarding future events. Music hall example: architectural flaw—mistake, fire after the K—frustration.

- Frustration involves cases where an event occurring subsequent to contract formation makes performance legally problematic. Impossibility to perform

- Judicial activism vs judicial restraint: protecting the certainty and sanctity of contracts for economic organization vs impossibility of following through with contractual obligations. Which should we do?

- If both parties have clearly allocated all of the risks, won’t go to frustration because won’t create imbalance in

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obligations.- Assignment of risk—who should bear the risk of an unforeseen event? Which of the parties -$ insurer?

“Mixed Bag” TEST for Frustration: 1. No Allocation of Risk by Contract

Is the risk of the unforeseen event expressly or implicitly allocated in the contract?2. No Fault : The event is beyond the control of the parties and is not caused by one of

them. Frustration cannot be self-induced.3. Basic Underlying Assumption : The element of the contract, or circumstance that is

disrupted by the frustrating event, must be fundamental/foundational, such that it would be tacitly assumed by the parties to be a pre-condition to performance, for example:(1) the continued existence of the goods or of the subject matter of the contract (Taylor

v. Caldwell – music hall)(2) the continuation of certain conditions or the happening of an event

(Krell v. Henry – coronation)(3) continuation of commercial value (KBK No. 138 Ventures Ltd. v Canada Safeway Ltd.)KRELL TEST FOR FRUSTRATION: a. What is the foundation of the contract, having regard to all of the circumstances?

(ie. No just hotel room but hotel room to watch coronation)b. Was performance of the contract prevented?c. Was the event that prevented the performance of the contract of such a character

that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract?

Application : Purpose is not lease of room, but a lease of a room to view the procession.4. Substantial Hardship

- major impact on economics of transaction, more than increase in $, change is permanent, must deprive one of the parties of the substantial intended benefit - National Carriers Ltd. held that the change must be so significant that it would be

“unjust to hold [the party] to the literal sense of its stipulation in the new circumstances”

5. Unanticipated Risk : a. The frustrating event must be unanticipated, not foreseen

-not a risk that the parties addressed-not a risk that the parties should have been expected to address

b. occurs after formation MODERN FRUSTRATED K EXAMPLE: approves of Victoria Wood – just because seller knows that buyer is intending to subdivide/develop the property does not mean that the K is frustrated. “mere knowledge of development intention is not a sufficient ground for frustration in case of subsequent rezoning” General rule that we would apply to cases about land.

- BUT: In this case Safeway had more than “mere knowledge”, had knowledge of specific purpose : intention to develop was specifically referenced in the K, pricing based on zoning had advertised that could zone.

- K was silent as to allocation of risk in this case **important- *Note that many cases do not follow this pattern and that this case is quite specific:

joint venture and commercial purpose of the deal could have been mutually beneficial.

KBK*Fact specific” purchase of land, zoning rule says cannot develop

Remedies for Frustration: (AKA- How to deal with $$ after Frustration)

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History: loss lies where it falls (Appleby v. Hughes) Krell (arbitrary discharging of obligations) restitution/unjust enrichment (Fibrosa) Statute (can claim reliance now too!)Frustrated Contracts act: s5 5 (1) In this section, "benefit" means something done in the fulfillment of contractual obligations, whether or not the person for whose benefit it was done received the benefit.(2) Subject to section 6, every party to a contract to which this Act applies is entitled to restitution from the other party or parties to the contract for benefits created by the party's performance or part performance of the contract.(3) If the circumstances giving rise to the frustration or avoidance cause a total or partial loss in value of a benefit to a party required to make restitution under subsection (2), that loss must be apportioned equally between the party required to make restitution and the party to whom the restitution is required to be made. (CAN CLAIM RELIANCE DAMAGES)

5. Is the contract unfair? Control of Contractual Power: DURESSUNDUE INFLUENCEUNCONSCIONABILITYa. doctrine of duress : consent, voluntariness, NO relationships, “extortionate”, commercial situationsb. undue influence : special relationship categories, questionable interaction, disadvantage (?)c. unconscionability: non-fixed categories of power/legal imbalance, substantial unfairness, weak/strong dynamic

DURESS (Common Law) Categories of duress: (1) Duress to person “gun to head”(2) Duress to goods/property “if you don’t do X I will smash your car”(3) Economic duress ** This is where most of the debate lies: At what point will economic pressure give rise to such a degree of unfairness that the court will relieve the party? (Consideration: nature of commercial bargaining. A hard bargain ≠ a bargain made under duress.)Classic “overborne will” case HIGH THRESHOLD (HISTORICAL)commercial pressure /lack of alternative option/hard bargain is not enough.

- will must be overborne - coercion of will= vitiates consent.

Pao On

MODERN TEST: Duress in Contract Formation LOWERING THE THRESHOLD*Note: This is a duress that occurred at the time of contract formation case (vs contract modification as in NAV Canada)

(1) Pressure amounting to compulsion of the will of the victim : not limited to vitiation of consent but lowers the threshold to: “victim’s intentional submission arising from the realization that there is no other practical choice open to him.” (Lowers the threshold from Pao On)Relevant factors: choice/consent/”did you wave a flag?”

- whether the coerced party protested- availability of alternative courses of action- existence of independent legal advice - whether the coerced party took steps to avoid the contract.

(2) The illegitimacy of the pressure exerted in light of the nature of the pressure and the nature of the demand *contentious point; what does illegitimate actually mean? [crim/tort vs unsavoury]

(3) If a court finds that the victim expressly or impliedly approved the contract after the pressure ceased to exist, the victim will be denied relief.-Fairness is irrelevant. (But almost all cases of duress involve bargains that are unfair to one party)-Not illegal to threaten breach of contract… but conduct that involves a tort or a breach of statutory duty is generally viewed as illegitimate.-Criterion of illegitimate pressure has been criticized as incoherent and unruly. Difficult to apply to contract mods. (but that’s what we have Nav for)

Universe Tankships(ship no choice but pay to leave harbor)

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Economic Duress and Contract ModificationsClaim that illegitimate pressure is not a condition precedent to finding economic duress in cases involving post-contractual modifications—therefore: TEST: Was the variation the result of an agreement?(1) Promise (K variation) is extracted as a result of “pressure” (whether by demand or threat)

“In most instances pressure for the contractual variation will come from the promisee in the form of an express or implied threat to breach the underlying contract, usually by withholding future performance.”Sometimes it is good business to modify a contract ..so this is not rigid (aka most of the time it is fine and not duress)

(2) Coerced party had no practical alternative but to agree to the coercer’s demand to vary the terms of the underlying contract **this is key: could they have resisted?

“In short, the absence of practical alternatives is evidence of a lack of consent, but is not conclusive of the issue. The law is still concerned with the possibility that the contractual variation may have been consented to for reasons that the promisor alone deems sufficient. This leads us to ask how one goes about assessing the presence or absence of “consent”.”

(3) Assuming the first two criteria are met: did the coerced party consent to the variation?Factors to assess: a) Was the promise supported by consideration?b) Whether the coerced party made the promise “under protest” or “without prejudice” and c) if not, whether the coerced party took reasonable steps to disaffirm the promise as soon as practicable?Other Concerns:

- independent legal advice not a relevant concern If still had no choice but to comply, not good argument.

- Good faith: Not a relevant argument - Time is of the essence: If you wait an excessively long period of time to make a claim for

duress, may have expired.

NAV Canada

(purchase or relocate equip – only 1 providerNo practical alternative. No fresh consideration: paying “under protest” [letter])

UNDUE INFLUENCE (Equity) (“Equity’s supplement to duress”)The unconscientious use by one person of power possessed over another in to induce the other to enter a K.Categories: (1) Actual undue influence: Claimant must prove the wrongdoer exerted undue influence: Here you prove/show the actual operating influence on the choice that was made.(2) Presumed undue influence: A relationship of persuasive influence proving this raises the presumption that undue influence was exercised Onus to show no undue influence is on party of power here.2 Things Must Prove:1. Relationship

a. De Jure: Presumed of dependence: Rel. that raises presumption of influence – GeffenProve one of these relationships specifically

i. Fiduciary relationshipsii. Trustee/beneficiaryiii. Solicitor/clientiv. Doctor/patientv. Priest/worshipper

b. De facto: Other special relationships of trust or confidence – Geffen; Etridge

Geffen(bro/sis MD, estate. Held: Not UD- not relying, minimal contact,

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(usually has a “something more” aspect to it: ie. Brother/sister + MD)i. Open categoriesii. Could be spousaliii. Professor/studentiv. Have to show relationship and that transaction had fairness called into question.

2. Wrongful transaction that “calls for explanation”a. In commercial transactions - must be unduly disadvantage or benefitb. In gift or similar transactions - requires only evidence of a dominant relationship

manifest disadvantage? Is there a requirement to show obvious disadvantage as a result of undue influence? La Forest thinks does not have to be disadvantage necessarily.AT THIS POINT: Onus shifts to “influencer” who has to show that K was result of “free, full and informed thought” (was independent legal advice obtained?)

independent legal advice)

3P Transactions and Undue Influence/”Sexually Transmitted Debt”Financial Institution & vulnerable person relationship wrongdoing between trust partiesDoes bank have to take on any steps to ensure that the person who is taking on a financial liability is aware of the scope of his or her potential liability. To what extent will the bank as a 3P be affected by the undue influence of the parties here? *Courts have held that the marriage relationship does not for the most part qualify as de jure [IF BANK WANTS GOOD DEFENCE IN UNDUE INFLUENCE CASE] If Bank, and if constructive notice -> “put on inquiry”: (could be put on inquiry at any point)(Failure to do this ≠ invalid guarantee, but bank would not have defence that transaction went ahead with free/independent mind)(1) Banks are put on inquiry in every case where the relationship between the surety and the debtor is non-commercial. The bank must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing as surety.(2) Banks must ensure full consent and voluntariness:

i. Meet with spouse privatelyii. Explain extent of liabilityiii. Warn of the riskiv. Urge the person to obtain independent legal advice

*Note: This case clarifies that can still be undue influence if result not disadvantageous but usually claim won’t make it to court without disadvantage) Does not meet 2 prerequisites: ( Geffen) (1) No proof that there was a power imbalance not an automatic relationship(2) Transaction is not readily explicable by the relationship between the parties: no tout of the ordinary given this relationship. (ie not a large or irrational gift)Applies to Lawyers too: “Independent Legal Advice” checklist:

- do you speak the same language as your client? - Have you enquired into the state of the marriage—is domestic violence an issue?- What if client is afraid for their marriage and that is why they are going ahead?

Royal Bank

(wife signs spousal guarantee on loan. Divorce, bank sues on security, wife says signed UD)

UNCONSCIONABILITY (Equity) [FRAUD]GENERAL REQUIREMENTS: (Look for: “Poor old Mr. X”)Control of contractual power in cases where there is:

(a) inequality in bargaining power /legal incapacity(procedural unconscionability) - contextual factors: economic resources, knowledge, need, disability that falls short of legal AND

(b) substantial unfairness in the resulting contract (substantive unconscionability)- inequality on it’s own= NOT ENOUGH If you can show both, presumption of fraud and burden shifts to defendant to prove fair, just &

Morrison(old lady mortgage: office manager knew and took advantage)

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reasonable and that no advantage was taken. Court can rescind.*Generally this approach is taken in unconscionability cases but usually the question of community morality from Kreutziger is taken into account in the analysis as well.

Wider view

How to prove unconscionability: (1) Enters into a contract upon terms which are very unfair OR (2)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(3) 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(4) Absence of independent advice In this case: - company gained very little except prolonged death, relationships of trust, grossly inadequate consideration (father not getting anything and giving bank everything), conflict of interest between bank and father that bank did not realize.*This idea of a ‘generalized unfairness doctrine’ has not been adopted.

Lloyds BankDENNING(old man & son’s business, overdraft loses home)

Transactions that are sufficiently divergent from community standards of commercial morality should be rescinded. How to answer? (1) precedent? (2) community standards, legislation etc. (Consumer Protection Act, etc)- Morrison test used here : inequality and substantial unfairness- *relief where relief difficult under Morrison? Shortening test?

Harry v Kreutziger(low education/inarticulate buys boat for too much $, which Kreutz knew)

Unconscionability: CODIFIED

8  (1) An unconscionable act or practice by a supplier may occur before, during or after the consumer transaction. (can occur at any time)

(2) In determining whether an act or practice is unconscionable, a court must consider all of the surrounding circumstances of which the supplier knew or ought to have known.(3) Without limiting subsection (2), the circumstances that the court must consider include the following: (discretionary factors)(a) that the supplier subjected the consumer or guarantor to undue pressure to enter into the consumer transaction; (inequality)(b) that the supplier took advantage of the consumer or guarantor's inability or incapacity to reasonably protect his or her own interest because of the consumer or guarantor's physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of the consumer transaction, or any other matter related to the transaction;(legal incapacity)(c) that, at the time the consumer transaction was entered into, the total price grossly exceeded the total price at which similar subjects of similar consumer transactions were readily obtainable by similar consumers; (Lloyds Bank)

(d) that, at the time the consumer transaction was entered into, there was no reasonable probability of full payment of the total price by the consumer;(e) that the terms or conditions on, or subject to, which the consumer entered into the consumer transaction were so harsh or adverse to the consumer as to be inequitable;(f) a prescribed circumstance.Section 9: burden of proof is on the seller to prove that they did not engage in an unconscionable practice (this is a significant protection for consumers!) Section 10: unconscionable situation would not be binding on the consumer.

6. Does the contract violate the law or public policy?*Is there an overly broad restrictive covenant? Restrictive covenants are prima facie unenforceable; restrictions must be reasonable: by activity; time and geography

RESTRAINT OF TRADE/RESTRICTIVE COVENANT(COMMON LAW ILLEGALITY)

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K can be rendered unenforceable on the grounds that they are contrary to public policy: injurious to state, injurious to admin of justice, immoral, affecting marriage, K to benefit from crime, K to commit a tort

NORDENFELT TEST – ENFORCEABILITY OF RESTRICTIVE COVENANTSA restrictive covenant is prima facie unenforceable unless it is shown to be reasonable with respect to the parties and reasonable with respect to the interests of the public. (NORDENFELT)RC will not be reasonable if it is overly ambiguous/if scope too wide/broad.(1) Is it an employment contract or a contract between businesses? (will be more scrutiny if employer/employee relationship. (b/c power imbalance)(2) Determine reasonableness. (Activity, Time, Geography)restrictive covenants are contrary to public policy in that there is a public interest in free trade *Impediment to the freedom of the market = restraint of trade.

- are prima facie unenforceable, but to double check this, must look at reasonability of restrictions which is determined by looking at (1) activity (scope thereof) (2) Time (how many years?) (3) Geography

If you find it to be ambiguous/broad: (must resolve ambiguity/overbreadth in order to enforce)SEVERANCE: purpose is to give effect to the intentions of the parties when they entered the K by limiting the scope of the contractual provision.2 types:

(1) Notional Read down to make the contract legal/enforceable (based on the assumption that the parties did not intend to break the law) [not applicable to restrictive covenantswhy? Because would allow the writer to make it as broad as possible to see what they could get away with.]

(2) Blue pencilRemoves part of the contractual provision altogether (Note: this only applies if the portion tainted by illegality can be removed without affecting the meaning of the rest of the K)- cannot rely on severance to save you must attempt to make restrictive covenants as

reasonable as possible at the time they are created.- In this particular case, the geographic scope of the covenant was deemed to be too wide.

BUT: could not fix with severance b/c went against intentions of parties- Onus is on the party seeking to enforce the covenant to show reasonableness.

Shafron v. KRG2009 (Scc)(“Metro city of Van” – ambiguous and prima facie unenforceable)

Statutory illegality? Is the formation or performance of contract illegal in some way? Still v. MNRSTATUTORY ILLEGALITY:

Easy cases: criminal law, cases where the statute specifies that “no contract RE: XYZ” Hard cases: Admin infractions and trivial illegality where the state does not address the effect of non-compliance.(Present day example: Assisted Human Reproduction Act)

Classical Approach: Sale of purchase of a cottage to friends and agreement is signed on Sunday contrary to Lord’s Day Act illegal and void contrary to statute.

Rogers v. Leonard

Modern Approach: More contextual considerations: ILLEGALITY CAN BE OVERLOOKED IF INCONSISTANT W/ PURPOSE OF STATUTE“Where a contract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party where, in all the circumstances of the case, including regard to the objects and purposes of the statutory prohibitions it would be contrary to public policy, reflected in the relief claimed, to do so.” lower standard for illegality in contract formation than for illegality in contract performance (entitled to relief in the instance of performance because would open a floodgate)[this is a performance case] (performance: illegal performance AND illegal conferring of benefits.)*Would finding illegality be contrary to the purpose of the statute?

Still v. Minister of National Revenue(permanent residence applicationEI but not entitled to work

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(1) Good faith? (2) Would holding K unenforceable be consistant w/ purpose of statute?FACTORS TO CONSIDER:

- consequences of invalidating the contract - social utility of consequences (are they good outcomes?)- determination of the class of persons for whom the prohibition was enacted (is this who

the prohibition was intended to affect)

(employment illegal) Immigration Act no overriding policy to justify (good faith)

Consumer Protection: Does the contract violate consumer protection legislation?

CONSUMER PROTECTIONPolicy: address certain forms of market failure and disparities between manufacturers/sellers and consumers in knowledge, bargaining power and resources. [consider information imbalances, access to justice, consumer protection as preventative of larger scale litigation [cooling off periods, cancellation rights])Non-economic rationales: protection of the vulnerable and redistributive concerns. Sale of Goods Act (Want to ask if Act applies first but if no, can go to unconscionability etc) 17: implied conditions with respect to description18: quality and fitness 19: samples (oats!!)20:No waiver of warranties or conditions A really important protection – if you buy something and it turns out it is not fit for it’s intended purpose, or does not last for a period of reasonable durability, it does not matter what the contract said, SECTION 20 kicks in as a protection. Exception: used goods, business dealings (*if can sever from K will, if not, full K void)Ambiguities will be interpreted against the drafter: onus is reversed here from caveat emptor: if you do not make full disclosure and act transparently, the court may find that you have misled the consumer (incentive to use clear language).Business Practices and Consumer Protection Act WIDE APPLICATION: consumers outside of BC, goods and services, pre-sale stuff as well

- “consumer transaction”(a) A supply of goods or services or real property by a supplier to a consumer (individuals) for purposes that are primarily personal, family or household, or (b) a solicitation, offer, advertisement or promotion by a supplier with respect to a transaction referred to in paragraph (a).

Consumer has right to cancel but must be specified in the Kexemption is shopping kiosks/if phone ahead to let know coming.Waiver or release void except as permitted 3 Any waiver or release by a person of the person's rights, benefits or protections under this Act is void except to the extent that the waiver or release is expressly permitted by this Act. Seidl v. Telus: BC courts have exclusive jurisdiction under the BPCPA: does not matter if have contracted with American company and if the K specifies that they have jurisdiction.MODERN PUFFERY = not excuse for unqualified opinion[case law says will not be held liable for puffery but given the Consumer Protection Act, can be held liable]s. 3(1) of the Trade Practices Act :{Note that this is now section 5 of the BCPCA)Suppliers involved in the defined transactions must refrain from any sort of potentially misleading statement, including honestly-held opinions given in circumstances in which the supplier knows that giving the opinion without appropriate qualification may mislead. Reasoning: should not have used laudatory language to describe the car in circumstances where he knew there might be extensive rust under the undercoating this was “conduct having the capability,

Case: knew that car likely had rust underneath but stated that it was the best car of its kind in Vancouver despite knowing the undercoating probably hid rust. Puts car in storage and decides to sell it a year later but rusted so badly that could cost upwards of $10,000 to repair.

Rushak v. Henneken

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tendency or effect of misleading a person.”- just saying that it should be looked at by others does not mean his opinion was not misleading. DECEPTIVE ACTS AND PRACTICES[Section 5 of the BPCPA] Loychuk: plaintiffs attempted to rely on section 4 of the BCPCA RE “deceptive acts or practices” relating to the FAQ. A consumer cannot allege that a statement was deceptive without establishing that he or she relied on that statement entering into the transaction at issue. No reliance = no coverage at statute.

BURDENOn supplier to prove the [alleged] deceptive act or practice was not committed (BPCPA 5(ii))

UNCONSCIONABLE TRANSACTIONS[Section 9 of BPCPA]A supplier must not commit or engage in an unconscionable act or practice in respect of a consumer transaction. Application same as in CL

BURDEN on supplier to prove they were not unconscionable

REMEDYIf an unconscionable act or practice occurred in respect of a consumer transaction, that consumer transaction is not binding on the consumer or guarantor. Anyone can challenge the practice, regardless of interest.

7. Has there been dishonest performance?Duty of honest contractual performance (Bhasin): Parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

GOOD FAITHCanadian statute does not recognize an explicit or overriding principle of good faith but we do have piecemeal case law solutions! (US has Uniform Commercial Code, Quebec Civil Code of Quebec) Canada should adopt? Would bring in line with other jurisdictions. But maybe it is better to have case law targeted at more specific instances of ‘bad faith’ than to have a vague overarching standard. Situations have led to recognition of good-faith requirements: insurance, franchising (Franchises Act), employment Good faith pre- Bhasin: (Recognized categories)

- Good faith duty to cooperate in achieving objectives of K: Dynamic Transport: The vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale. (“best efforts”)

- Good faith limits exercise of K discretionary powers: McKinlay Motors Ltd v. Honda Canada: Where discretionary powers are conferred by a contract, courts have implied terms that the discretion is to be exercised reasonably, honestly and in light of the purposes for which it was conferred.

- Good faith precludes party from evading K oblgiations: MDS Health Group Ltd v. King Street Medical Arts : Avoiding a restrictive covenant or right of first refusal by incorporating related corporate entities

Canada recognizes the duty of honest performance : general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance.3 principles: (1) There is a general organizing principle of good faith that underlies many facets of K law. (2) Implications of this broad principle of honest performance by looking more closely at specific situations/relationships.(3) Common law duty of good faith applies to all contracts : requires honesty. *Case emphasizes the benefit of an incremental approach building upon what is already known.You can’t exclude liability for dishonest performance because it is doctrine of K law now.

Bhasin v Hrynew

8. What is the remedy?Defences to Damages: (Want to try this first b/c will be restitution or reliance) [NOT BREACHES]No contract: if there is no contract (step 1), then restitution of benefits (i.e. deposit). [p. 11]

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Equitable mistake: court has broad remedial discretion – set aside the contract of terms. [p. 3]Contract frustrated: parties relieved of future performance obligations, restitution of past benefits, sharing of costs. [p.9]Unconscionability, undue influence, duress: contract voidable, set aside on terms, order restitution of benefits/damages [p.11]

Breach of contact: Damages! (Did they allocate for who should bear costs in the K?) Expectation damages = general measure Expectation damages= reliance plus loss profits How to measure? Cost of performance, diminution in value, loss of a chance Reliance damages can be granted is ED speculative Restitution of benefits conferred

REMEDIESDamages- The remedy for breach of KYou have the choice to perform or pay: Freedom of K/autonomy (not force)

- Objective: giving the promisor an incentive to perform promise, unless the result would be inefficient.- No distinction is made in awarding damages based on manner of the breach. - Choice of remedy depends on what interests protect/ what goals we are trying to promote.- *Key is to balance the reasonable expectations of the plaintiff without unfairly surprising the defendant.

EXPECTATION MEASURES of DAMAGES “What if it had happened” (the ‘default’ in Canadian contract law)[3 Approaches: “Cost of Completion” & “Loss of Chance” & “Difference in Value” (See below)] Aims to put the innocent party in the position she would have been in had K been fulfilled-

forward looking (what if it happened). Purpose: Secure benefit to promisee, Measure: Expected benefit to the promisee. Sale of goods example: Contract price – market value = expectation damages + ‘incidental costs’ (reliance?) –duty to mitigate= Expected profit. {if can purchase same price no damages}

“Faulty Performance Principle”: Calculation of what expected and what received. Faulty performance example. McGee: Healthy hand- hairy hand= expectation damages.) ”Distributive” :Promote market activity

creates more certainty considers future value (ie resources) encourages reliance on contracts protection of the non-breaching party

o Placing plaintiffs in same position they would have occupied had the contract been performed – Sally Wertheim

o Expectation inappropriate when Profit is unascertainable/speculative (need a boat to salvage to know what it would be worth) – Mcrae

o Courts utilize mitigation/remoteness control amount of expectation damages given.McRae v.

Commonwealth Disposals Comm.

(Wrecked oil tanker—

commission sells rights to salvage

oil tanker that did

ARE YOUR EXPECTATION DAMAGES TRICKY TO ASSESS? [LOOK HERE] DIFFICULTY OF SHOWING EXPECTATION LOSSES IN COMMERCIAL INTERACTION Just because it is hard to calculate ≠ promisee should get nothing

- No market value because of specific nature of the industry: salvaging is inherently risky ”Storage wars” scenario

- Reliance should be reasonable in this case, considerable $$ spent, but this conduct in preparation for salvage operations was natural course.

- Court awards reliance damages, including loss of revenue blurs line.TEST: For Reliance Damages if Expectation hard to prove:

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(1) This expense was incurred (2) It was incurred because of your promise (3) The fact that the promise was broken made it certain that this expense would be wasted. ONUS SHIFTS: on the Commission of establishing that, if there had been a tanker, the expense incurred would equally have been wasted.Reliance claim: Base is expenditures lost, but if you want to be more aggressive, can say that your lost opportunity to do something else is a reliance claim. (market value?)*Not loss of chance case b/c no boat (compare to beauty contest case)LOST PROFITS: I didn’t get THIS boat, give me the $ I would have made. (Expectation)LOST OPPORTUNITY: I didn’t get THAT boat, cuz I was trying for this boat (Reliance) _______________________________________________________________________________EXPANSION OF RELIANCE DAMAGES: INCURRED PRE & DURING KClaims wasted expenditures from before (rental space, costumes etc) AND after Reed had agreed to play the lead role. Whole movie built around lead actor, drops outP CAN ELECT BETWEEN LOST PROFITS (E) & LOST OPPORTUNITY (R)Can claim pre-K if: reasonably be in the contemplation of the parties as likely to be wasted if the contract was broken” In this case, was reasonable to assume that if Reed pulled out, that movie could not be made._______________________________________________________________________________RELIANCE CANNOT EXCEED EXPECTATION AMOUNT OF DAMAGES.Attempts to claim that Anglia stands for the choice between the 2.Court finds that Bowlay would have lost profits anyway, regardless of the breach.TEST: If you can show that the breach had nothing to do with the loss: Where it can be proven that even if the contract had been performed, the plaintiff would have lost money, then no recovery for what would have been lost. *Remoteness in connection to reliance: Claimed that it was a startup and that they spent $$ in preparation for further contracts judge claims this too remote._______________________________________________________________________________*AUTHORITY FOR THE IDEA THAT YOU CAN ONLY PICK ONE METHOD OF DAMAGES..*Try to make double claim: Here’s how much we spent, here’s how much we would have made. (1) Plaintiff proves damages: Plaintiff makes reliance claim because expectation damages too difficult to calculate “I spent $100 getting my store ready and because of breach, I lost this.” →on a balance of probabilities, have proven this loss. (2) Burden shifts to defendant to prove not the case: Would have incurred loss anyway

not exist. Salvager relies on promise

and spends substantial funds

in salvage attempt.)

Anglia Television v.

Reed(Reed backs out

and Anglia unable to replace. Claims

wasted expenditures from before AND after Reed had agreed Restitution measures: this measure aims to give back what the innocent party transferred to the

contract breaker. Promisee has relied on something and as a result, the promisor has gained something. Purpose: Prevent unjust enrichment to the breach-or. Measure: Measured in benefit to the breach-or: Should not be able to retain their gain. (think of deposit example here) *”Corrective”

MEASURING EXPECTATION DAMAGES LOSS OF CHANCE

P DEPRIVED OF SOMETHING WITH PERSONAL $ VALUE, IF WERE TRANSFERRABLE, PEOPLE WOULD PAY THEREFORE WE SHOULD COMPENSATE FOR THE LOSSThe degree of certainty for damages does not have to be perfect.

Chaplin v HicksBeauty contest—12/50 shot

MODERN APPLICATION: “probability of success”proof of damage not part of the inquiry. (like strict liability) When would see this? Natural resource cases, uncertainty in obtaining zoning permissionBest efforts for obtaining approval The Court identifies four requirements for obtaining damages for loss of a chance:

Folland v. Reardon

Modern natural resources case. If they had actually

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(1) the plaintiff must show that it lost a chance due to the defendant’s conduct(2) the chance must be sufficiently real and significant to rise above mere speculation;(3) the outcome did not depend on the plaintiff’s own conduct; (4) the loss of the chance must have some practical value (could you sell opportunity?)

done the work in this case, would

they have reached the precious resources?

COST OF COMPLETION/PERFORMANCEDefinition: The cost of buying substitute performance from another including the cost of undoing any defective performance. Difference in value = Market value of performance the K breakers undertook – value actually given *ARGUE FOR COST OF COMPLETION AND DIFFERENCE IN VALUE (looking for situation where would be unreasonable or unjust to enforce one or the other) We know how much it would cost to get back to original state of land, we know how much would cost to compensate for difference in value= what to use based on fairness principles? Look for whether clause is essential to K: If essential, will fix land, if not, $$$.Arguments for going with COST OF COMPLETION: (EXPECTATION) THE PROPER MEASURE OF DAMAGES IS THE REASONABLE COST OF PERFORMING THE PART OF THE CONTRACT THAT THE DEFENDANT WILLFULLY FAILED TO COMPLETE.Would cost 5x was property is worth to return it to a uniform grade“Economic waste” rule—only for large waste from having to wreck a completed or nearly completed structure. If, in order to complete the K, you do not have to destroy something, then you should complete it (large scale destruction not reasonable so difference in value would probs kick in)You own the property so you can do whatever you want – argument for no increase in value does not stick. (Caitlin’s ugly statue analogy) critique of the diminiuation of value dissent - don’t want to reward people for breaching KsYou contracted for this.

GrovesLease/contract for removal of sand

and gravel. Property to be left at uniform grade.

Arguments for going with DIFFERENCE IN VALUE: (EXPECTATION) Argument that cost is out of proportion with value of the property.. unjust enrichment Damages recoverable for breach of a contract to construct is the difference between the market value of the property in a condition it was when delivered and received by plaintiff and what its market value would have been if defendant had fully complied with terms AKA should be based on plaintiff’s monetary loss and not the cost to the defendant: DID THEY EVEN LOSE ANYTHING WE CAN COMPENSATE? What would they use $ for?

Groves dissent

SPECIFIC PERFORMANCEPosner’s Alternative Solution: Groves should have applied for specific performance in suit (rather than the cost of that performance). It would have been more reasonable in that instance to hold for value of completion of contract. Both outcomes (either for P or D) result in a windfall for the winner of the suit. Either D would not have to pay for the cost of completion or P would be overcompensated.

Posneron Groves

Picks up the dissent/Posner’s opinion from Groves *2 important terms in the K: Peevyhouse entitled to royalties on the coal extracted and there was a reclamation clause($) to ensure that restorative work occurred after mining. Property value will only decrease by $300, but to perform reclamation = $29,000. (100x more) Majority: DIFFERENCEE IN VALUE: cost of performance disproportionate, windfall, reclamation clause incidental despite the fact that he paid for it.-->Reasonable land owner would not reclaim. *Incidental key here Look for whether clause is essential to K.Dissent: sanctity of contract, reclamation clause was essential, unjust enrichment, fairness (not a surprise), argues for specific performance.

Peevyhouse v. Garland

(strip mining)

Different context—Cost of Performance for Building FenceFENCE WAS ESSENTIAL PART OF THE CONTRACT, AND IT WAS CLEAR THAT PROMISEE WANTED THE FENCE, A POINT THAT IS LESS CLEAR IN PEEVYHOUSE.COST OF PERFORMANCE because it was essential.

Radford

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(fence specified height and material for privacy – would not effect land value)MIDDLE GROUND APPROACH BETWEEN COMPLETION AND DIMINUTION OF VALUE: “CONSUMER SURPLUS”kind of like economic waste rule2 extremes (1) Award nothing because no diminution in value or (2) Re-build entire pool.Give them 3K in damages but take into consideration that unlikely they will dig up pool.– more comfortable, more convenient subjectiveHow to deal with? Would look to INTANGIBLE HARMS. (see below)

Ruxley Electronics

(Swimming pool not built to standard.)

Limiting Principles: Remoteness & Mitigation (Found damages, can you limit them?)

REMOTENESS(flows naturally/was communicated)

A limit on compensation that can be claimed. Must ask “Should the D pay for this type of claimed damage?”Policy: Should only be found liable for losses if it can be reasonably and fairly said that were aware that they were responsible for them. ordinary allocation of risk. Whoever bares the loss of the damages is the big question – if efficiency is goal, should place liability on the party who can bare the risk at least cost. “We don’t look back in action.” Reasonable contemplation @ time of K.Concerns: Where to stop the ripplePolicy: allocation of risk (whose insurance will cover it), test for standardization: if there was a principle, it would not be left to the jury to determine what is/is not remote, reasonable expectation/avoidance of unfair surprise.(All of this applies in the absence of an express contractual provision) Factors to take into account the level of knowledge of parties, relationship between the parties, was there an assumption of responsibility/did defendant create responsibility (Cornwall Gravel tenderseven though transitory relationship), nature of defendant’s business (expertise?), nature of product or service (second hand?), ordinary allocation of risk/expectations of the marketplace (Koufos), proportionality (compare contract price and nature of service with risk)GENERAL: DAMAGES NEED BE REASONABLY FORESEEABLE from D’s breech to be awarded.Case Application: No special circumstances communicated, therefore loss not stemmed from breech. How would they have known mill shut down in meantime? *Now we have other mechanisms to deal with this= corporations, insurance. (consider history here)HADLEY “Reasonable Contemplation” TEST:

Hadley v Baxendale

(Shaft not made and delivered on time →Mill not running in mean time)

FIRST RULE OF HADLEY (imputed knowledge)Assumed knowledge is that which the reasonable person is taken to know in the "ordinary course of things." Normal damages for breach.

SECOND RULE OF HADLEY (Actual knowledge)Additional loss recoverable if there is actual knowledge possessed outside of ordinary course (special circumstances/communication)

KNOWLEDGEADDS TO FIRST RULE OF HADLEY Expertise seller will know more about what their product is likely to be used for. Expansion of what can be considered to fall within reasonable contemplation at the time of contracting. Loss will be recoverable if “serious possibility”, “real danger”, “liable to result” sets standard.Cory v. Thomas if something used for specific purpose and use it for something else, cannot expect the seller of that thing to know that you are using it for that obscure purpose*Can only recover for what could be found to reasonably have happened (no way to know of lucrative Ks. would recover same amount of damages as if reasonable use of the product.*Could easily remedy this by explicitly stating your purposes (RULE 2)

Victoria Laundry

(Boiler late, ministry

contracts)

OPERATION OF HADLEY RULE 2Clarifies do not need full extent of special circumstances Loss of profits reasonably foreseeable regardless of Rule Does not matter if knew $ extent of K.

Scyrup(Fixing part of tractor

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DISSENT: Insufficient information about the K second hand tractor*Because they did not know the specifics of the 3PK, doubtful that knew responsibilities to be assumed by second hand equipment.Policy: Want to encourage efficient and proactive contract drafting *

and tractor needed for separate K)

HEIGHTENED STANDARD: “SUFFICIENTLY LIKELY” (RATHER THAN “REASONABLE CONTEMPLATION”) raises the standard from ‘liable to result’ to ‘sufficiently likely’ (Victoria Laundry) Can you take into account something as seemingly remote as a fall in the marketplace? On information available to the defendant when the K was made, the reasonable person would have realized that such loss was sufficiently likely to result from the breach of K to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation. ”proper” leaves a lot up to discretion.General type of loss must be foreseeable, not necessarily full extent. Choice of language contentious in this case vague terminology does not really clear anything up.

(Will come down to policy considerations and judicial discretion – depends on court characterization of the loss that occurred) [policy: more stringent than tort?]

Koufos(If sugar had

arrived in Iraq on time, would have

sold for more $$ pre-

market saturation.*terminus)

MITIGATIONdoctrine that can be used to limit damages (fact-based inquiry)

GENERAL RULE: Party seeking damages has to take reasonable steps to avoid losses. That means that if someone breaches the K, you go out and find a substitute performance. A way to ensure fairness in $ on breachor.What is a ‘reasonable step’ What is reasonable for the claimant to do and the time within the claimant must do it are questions of fact dependent on the circumstances of the case.Policy: Avoid hardship/unfairness (not a punishment)(expectation damages can tend toward exorbitance, fair allocation of post-breach risks (plaintiff usually in best position), promote economic efficiency (salvage the transaction).*May have to contract with breachor because reasonable (Payzu) ie only supplier in town? [not for personal services]*Reasonable time is key (“Date of breach” Rule)- For sale of goods, expected to go out into market at time of breach. (but will take specific facts into consideration as circumstantial) *Interest/inflation: Court may award pre-judgment damages based on need, or take account of inflation.Reasonable steps: (1) Onus on defendant to prove that plaintiff ought to have mitigated. (2) Court will ask what a reasonable business person would have done in the plaintiff’s position courts generally reluctant to second guess efforts to avoid loss b/c ptf responding to unexpected event/difficult circumstance. (3) Ptf can recover additional costs incurred taking steps to avoid loss provided these steps are taken reasonably, even if fruitless attempt (caviar and reasonableness)WHAT IS REASONABLE? fact based inquiry DEALING WITH CONTRACT BREAKOR Facts: Silk sales, 2.5% discount and 1 month credit. Requirement to pay cash deemed a breach. Mitigation attempt results in higher market price. Fact based inquiry into whether or not it is reasonable to expect a person to deal with the contract breaker. Would not be reasonable in personal services K, but here is commercial so is okay.

Payzu Limited v. Saunders

COURT DISCRETION & MITIGATION (LOOK @ SPECIAL CIRCUMSTANCES) Facts: Rising and falling prices of shares between breach and trial. Took account of unstable nature of shares in deciding share price to be awarded. Courts have the discretion to take into account any special circumstances that indicate it is unreasonable to require the plaintiff to mitigate immediately.

Asamera Oil Corp v.

Sea Oil

MITIGATION & PETS/COURT DISCRETION Dogs=consumer products“But the law is coldly unemotional and I really must view Bear as just another consumer product.”Facts: Dog bought and loved but unhealthy contrary to initial warranty. Court finds: Should have mitigated: would have likely included just putting the dog down/opted out of expensive procedures. Also says that defendant not liable due to remoteness of the extreme measures taken by Pezzante to maintain the dog.

Pezzante v. McClain

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Liquidated damages, deposits and forfeitures: Court can provide relief against penalties and forfeitures

LIQUIDATED DAMAGES/PENALTIES: K requires payment of specific sum in the event of a breach: AKA different from everything we just went through because you already have a pre-decided fixed amount for damages. “Liquidated Damages Clause” (penalty implies punishment – must be proportionate.Law and Equity Act: (aka court has discretion here)24 The court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that court thinks fit.Enforceability of a liquidated damages provision in an agreement engages competing objectives: (1) Freedom of K (2) Right of the courts to intervene to relieve oppressive/unconscionable result from enforcement of a liquidated damages term. (AKA—HIGH THRESHOLD)

Non-Exhaustive list of factors to consider: (case-specific assessment) - terms of K and inherent circumstances of the K - Relationship (commercial? Equal? Sophistication/bargaining power?)- Type of K - Length of term remaining - Failure to give notice during automatic renewal period? - Whether it specifically says is penalty/liquidated damages is not necessarily conclusive. **Onus on party asking for damages to prove if penalty vs a fair liquidation damage.*Compare to greatest loss conceivably proved from this breach: but can’t be extravagant.(Past Ks)

Supersave Disposal

(pay out rest of

agreement upon

termination. It is decided that this is

fair. )

Intangible harms Apply Fiddler (might endup here from difference in value v. cost of performance middle ground (“Consumer Surplus”) approach from Ruxle) [would be awarded in addition to other damages]

INTANGIBLE HARMS: (Aggravated damages cases/Pecuniary Damages)*Historically, “stiff upper lip” approach (Addis v. Gramophone), moving into development of pigeon hole categories where would allow damages for mental distress/non-economic interests: Holidays (Jarvis), weddings, disability insurance (Warrington),Pets: Newell (dogs die in CP air hold), Ferguson (kennel loses dog), Weinberg (absconds with cat, $200 reliance damage to locate cat and $1000 in intangible harm. Physical inconvenience/discomfort caused by sensory experience: Wharton- high pitched noise on radio in $60,000 car. Court says not loss of enjoyment/mental distressEmployment: Vorvis—where there is an independent actionable wrong (such as intentional infliction of mental distress/defamation/fraud etc)Where are we now? (Fidler) Now also recognize potential for coverage for peace of mind benefit/privacy and security. Still apply Hadley v. Baxendale TEST for reasonable contemplation: Get compensation if:(i) an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and(ii) the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.(Still does not have to be dominant purpose of K)ENJOYMENT/PEACE OF MIND HAS TO BE COMPONENT OF KAny contract that deals with “peace of mind” for enjoyment and entertainment contains an intangible component that need be remedied through aggravated contractual damages

Jarvis

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Facts: Holiday does not live up to brochure, sues tour company for damagesgets twice what paid. Is this enough/too much?*NEED NOT BE “ESSENCE OF K”, SUFFICIENT IF IT IS A “MAJOR OR IMPORTANT PART” OF K(Also applies to mental distress cases) Farley

EXPANDS HADLEY TEST TO MENTAL DISTRESS COMPENSATION (AGGRAVATED)-> modified Hadley expands to new category of damages that you would not have had before. (Hadley originally introduced to narrow/limit damages but here using it to expand the “peace of mind” category) [Sun Life did not act in bad faith, therefore no punitive damages here]TEST: REASONABLE RESULT/CONTEMPLATED @ TIME OF K/ PUT INTO POSITION K’D FOR: 1. That an object of the contract was to secure a psychological benefit that brings mental distress upon

breach within the reasonable contemplation of the parties2. That the degree of mental suffering caused by the breach was of a degree sufficient to warrant

compensation(Whiten referenced here as comparison – insurer here not in bad faith.. not bad enough to just turn down a claim)

Fidler v Sun Life(denial of long term disability benefits causing mental

distress)

Punitive damages: are vindictive, penal, and retributory where conduct merits punishment. (deter) Requires conduct constituting marked departure from ordinary standards of decency. Designed to address the purposes of retribution, deterrence, and denunciationMental Distress & Employment AGGRAVATED VS. PUNITIVE (Case shows differences)General Rule: employment K are not for peace of mind. Just because you get fired does not mean you are entitled to damages… general rule is that employers have the right to terminate, with our without cause upon payment of reasonable notice. (Termination not reasonably contemplated pursuant to Hadley)Harsh/Oppressive: punitive damages for mental distress. (duty of good faith in manner of termination)BUT: If psychological distress as a result of termination was within reasonable contemplation at the time of K( ie due to nature of work etc)/or if employer was insensitive etc @ termination/more low-key bad faith: could still get non-pecuniary damages.*Consider the unique nature of employment/having the power to fire people here

Keays v. Honda

Punitive damages Apply WhitenPunitive Damages case – Leading Case (Misconduct of defendant is key here) HIGH STANDARDExtreme egregious conduct = punitive damages on top of compensatory/legal costs.Defines as (1) Must be markedly malicious departure from ordinary standards of decency (2) Must be independently actionable. (could be K breach, (in insurance cases that is GF) or tort or FD breach)3 things to bear in mind: Exceptionality, Rationality and Proportionality (Proportionate to blameworthiness of D’s conduct, degree of vulnerability of the P, to need for deterrence, to other awards in similar circumstances, and to advantage wrongfully gained by the misconduct)**Actionable wrong here was BREACH OF GOOD FAITH. (Remember Bhasin here—honest performance)Why was award so high in this case? Because of underlying purpose of getting insurance and put very vulnerable P in the exact position trying to avoid by taking out an insurance policy.**See Good Faith notes for recognized categories such as employment, insurance Have the power here to set precedent for future deterrence of conduct: “We don’t want an insurance company to do this ever again”**Don’t make punitive damages claim in ever claim where remedies awarded. Only for extreme. Will always be on top of compensatory damages !! In this case could get reliance & mental distress.Policy~ worry about Americanization of system and repercussions of awarding such large $.

Whiten(Not

fraudulent fire claim on evidence but

denying insurance

claim anyway, upper

management knew.

Continued with actions

knowing extreme

hardship on P)

Equitable remedies Is specific performance available Injunction available to enforce negative covenant?

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EQUITABLE REMEDIESEquitable Remedy Tool Kit: (“Clean Hands”)Specific Performance: When CL damages inadequate. Negatives: admin costs of enforcing specific performance (“keeping tabs”), inefficiency of not mitigating (“life on hold”)Absolute Rule: Never for personal services Defences to specific performance: (1) mutuality of remedy Would other party have also been able to get specific performance too?(2) Mistake/misrepresentation/conduct [enforceable K but still some element of mistake/misrepresentation because you are not a complete victim](3) Hardship—imposing specific performance would = too much hardship.Injunction: Order not to do something: that would prevent K from being performed or not do breach at all. (ie Negative Covenant) Can be prohibitory or mandatory Interim, Perpetual [time frame of injunction important/ discretionary] Specific Performance (And land) Applies Smelhago TEST FOR SPECIFIC PERFORMANCE: Can only be granted where plaintiff can demonstrate that the subject property is unique in the sense that “its substitute would not be readily available.”Examples of ‘unsubstitutable’ qualities: superior access to attraction/commercial area, traffic patterns*Must be able to demonstrate certainty of the KOntaro Inc v. Windham: this case clarifies the test by saying that property does not have to be so unique that no other property like it, but rather just that must show especially suitable for the proposed use.

John E Dodge

Holdings(K for land

near Canada’s

Wonderland)

CONTRACTS FOR PERSONAL SERVICEFacts: Negative covenant saying should not act in other films. Court enforces the negative covenant.(Positive covenant not enforce here—forcing specific performance) The Court will not grant specific performance of a contract when it is for personal service, nor will it grant an injunction when it is the basis of someone’s livelihood.

Bette Davis/WB

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