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Contracts CAN(McDougall)

Avoided Contract = .................................................................................................................................... 9Voided Contract =...................................................................................................................................... 9Voidable Contract =................................................................................................................................... 9

OFFER AND ACCEPTANCE..............................................................................................................10

1. OFFER: ...................................................................................................................................10a. Offer v Invitation to Treat: ....................................................................................................10

Canadian Dyers Association Ltd. v. Burton (1920), 47 O.L.R. 259 (H.C.) ................................................. 10Must be offer and acceptance for a k ................................................................................................................................. 10Price quotation is usually an invitation to treat ................................................................................................................ 10

Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. [1953] 1 All E.R. 482 (C.A.) .......... 11Must have offer and acceptance for a k ............................................................................................................................. 11A display of price or goods is an invitation to treat ......................................................................................................... 11

R. v. Dawood [1976] 1 W.W.R. 262 (Alta C.A.) ........................................................................................ 11A display of goods is usually an invitation to treat unless cashier has no authority ................................................... 11

Carhill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (C.A.)..................................................................... 11Ads are generally an invitation to treat, unless language interpreted as offer by reasonable person ..................... 11

Goldthorpe v. Logan [1943] O.W.N. 215 (C.A.) ........................................................................................ 11Ad with all components of an offer is an offer not an invitation to treat...................................................................... 11It is easier to find liability in k than in torts ...................................................................................................................... 11

b. Communication of the Offer: ................................................................................................12Blair v. Western Mutual Benefits Assn. [1972] 4 W.W.R. 284 (B.C.C.A.).................................................. 12

Offer must be formally communicated and must have intent to create legal relations.............................................. 12Williams v. Carwardine (1833), 110 E.R. 590 (K.B.) ................................................................................. 12

Knowledge of the offer is required in order to accept ..................................................................................................... 12Intention of acceptance is not required .............................................................................................................................. 12

R. v. Clarke (1927), 40 C.L.R. 227 (Aust.H.C.).......................................................................................... 12Both knowledge of offer and intention to accept are required ....................................................................................... 12

2. ACCEPTANCE:......................................................................................................................12a. Acceptance: ..........................................................................................................................12

Carhill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (C.A.)..................................................................... 13Acceptance must have meeting of minds. .......................................................................................................................... 13

Livingstone v. Evans [1925] 4 D.L.R. 769 (Alta.S.C.)................................................................................ 13Counter-offer kills original offer ......................................................................................................................................... 13An inquiry about the offer does not kill it ......................................................................................................................... 13

Butler Machine Tool Co. v. Ex-Cell-O-Corp [1979] 1 All E.R. 965 (C.A.)................................................. 13Battle of the Forms – terms should be taken as a whole and reconciled when possible............................................. 13If they cannot be reconciled then the k is concluded ....................................................................................................... 13

b. Communication of Acceptance:.............................................................................................14Exceptions: waiver of communication, ............................................................................................................................. 14the performance is the acceptance, ..................................................................................................................................... 14postal acceptance rule ........................................................................................................................................................... 14

Postal Acceptance Rule: .......................................................................................................................... 14Jurisdiction of Law that applied to the Contract: ..................................................................................... 15Felthouse v. Bindley (1862), 142 E.R. 1037 (Ex. Ch.)................................................................................ 15

Silence does not constitute acceptance (even if it ok in the offer) .................................................................................. 15Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (C.A.)..................................................................... 15

Silence can constitute acceptance if offerer makes it clear than performance is acceptance and that notice is not required ................................................................................................................................................................................... 15

Brinkibon Ltd. v. Stahag Stahl Und [1982] 1 All E.R. 293 (H.L.).............................................................. 15K is made where acceptance was received = Brinkibon Rule......................................................................................... 15

Household Fire & Carriage Accident Insurance Co. v. Grant (1879), 4 Ex. D. 216 (C.A.) ........................ 15Postal acceptance rule ........................................................................................................................................................... 15

Holwell Securities v. Hughes, [1974] 1 All E.R. 161 (C.A.)....................................................................... 15Postal acceptance does not apply if terms of offer stipulate otherwise ......................................................................... 15

3. TERMINATION OF OFFER: ................................................................................................16a. Revocation: ..........................................................................................................................16

Byrne v. Van Tienhoven (1880), 5 C.P.D. 344.......................................................................................... 16

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Postal rule does not apply to revocation – revocation is effective upon receipt ........................................................... 16Dickinson v. Dodds (1876), 2 Ch.D. 463 (C.A.)......................................................................................... 16

Revocation must be communicated before acceptance.................................................................................................... 16If there is knowledge of revocation then the offeree has no remedy ............................................................................. 16Offeree is not legally bound by a promise to keep an offer open unless there is consideration for that promise. . 17

b. Unilateral Contracts: offeree accepts by completing the obligation and offeror still has obligations to fulfill (consideration = the act in uni k) .....................................................................17

a. Law of Restitution.......................................................................................................................... 17b. Preliminary Contract ..................................................................................................................... 17c. Make the unilateral k bilateral....................................................................................................... 18Errington v. Errington & Woods [1952] 1 All E.R. 149 (C.A.) .................................................................. 18

Generally can revoke offer prior to completion in a unilateral k, sometimes not once performance has begun... 18Carlill v. Carbolic Smoke Ball Co., [1893] 1 Q.B. 256 (C.A.).................................................................... 18

Generally can revoke offer prior to completion in a unilateral k, sometimes not once performance has begun... 18c. Rejection and Counter-Offer: ................................................................................................18

Livingstone v. Evans [1925] 3 W.W.R. 453 (Alta S.C.) .............................................................................. 18Counter offer = rejection of original offer ......................................................................................................................... 18

d. Lapse of Time:......................................................................................................................19Barrick v. Clarke [1950] S.C.R. 177......................................................................................................... 19

Acceptance must be communicated within time limit or if no time limit, within reasonable time .......................... 19Look at time of offer.............................................................................................................................................................. 19

Manchester Diocesan Council v. Commercial and General Investments [1969] 3 All E.R. 1593 (Ch.D) ... 19If no time limit for acceptance is expressed, reasonable time will be determined. If not accepted within reasonable time = implied revocation................................................................................................................................ 19Look at time of acceptance and intervening events = CAN VIEW ............................................................................... 19

Dickinson v. Dodds (1876), 2 Ch.D. 463 (C.A.)......................................................................................... 19Offeror is not legally bound to keep offer open unless there is consideration ............................................................. 19

CERTAINTY OF TERMS....................................................................................................................20SALE OF GOODS ACT: ......................................................................................................................... 21Nicolene Ltd. v Simmonds [1953] 1 Q.B. 543, [1953] 1 All E.R. 822 (C.A.)............................................... 22

Look at importance of the disputed clause to the transaction as a whole: if not fundamental, can be ignored/severed; if important – implies k is repealed ...................................................................................................... 22

May and Butcher Ltd. v R [1934] 2 K.B. 17 (H.L.) (COMPLICATES)....................................................... 22If crucial term is undetermined = no k at all..................................................................................................................... 22

Hillas and Co. Ltd. v Arcos Ltd. (1932), 40 Lloyd’s Rep. 307 (C.A.).......................................................... 22Affirmed May v Butcher .......................................................................................................................... 22Hillas and Co. Ltd. v Arcos Ltd. (1932), 147 L.T. 503 (H.L.)..................................................................... 22

Business k are often not complete/precise – courts must look at intention and uphold where possible .................. 22Foley v Classique Coaches Ltd. [1934] 2 K.B. 1 (C.A.)............................................................................. 22

Look to intention – strong presumption in business k’s that courts will fill in details ............................................... 22Courtney and Faribairn Ltd. v Tolaini Brothers Ltd. [1975] 1 All E.R. 716, [1975] 1 W.L.R. 297 (C.A.)... 22

If essential term is missing, and no mechanism = no k = basic CL principle............................................................... 22Exception = May v Butcher.................................................................................................................................................. 22

Empress Towers Ltd. v Bank of Nova Scotia [1991] 1 W.W.R. 537, 50 B.C.L.R. (2d) 126, 48 B.L.R. 212, 14 R.P.R. (2d) 115, 73 D.L.R. (4th) 400 (C.A.) leave to appeal to S.C.C. refused 79 D.L.R. (4th) vii................... 23

Can’t enforce an agreement to agree, but there is an obligation to negotiate in good faith ...................................... 23Agreement to agree = no k ................................................................................................................................................... 23

Mannpar Enterprises v Canada (1999) 173 D.L.R. (4th) 243 ..................................................................... 23There is no obligation to negotiate in good faith in an agreement to agree.................................................................. 23An agreement to agree = no k .............................................................................................................................................. 23Distinguished from Empress b/c a mechanism for determining price is not expressed ............................................. 23

INTENTION TO CREATE LEGAL RELATIONS.............................................................................24Balfour v. Balfour [1919] 2 K.B. 571 (C.A.) ............................................................................................. 24

Family agreements are not legally enforceable – this hurts the weaker party ............................................................ 24Rose & Frank v. JR Crompton & Bros [1923] 2 K.B. 261 (affirmed in H.L.)............................................. 24

If parties explicitly state that they have no intention to create legal relations, then the k is not bound by the court................................................................................................................................................................................................... 24

CONSIDERATION...............................................................................................................................25

1. NATURE OF CONSIDERATION AND SEALS..................................................................................26Thomas v. Thomas (1842), 114 E.R. 330 .................................................................................................. 26

Consideration must be something of value in the eyes of the law moving from the promisee to the promisor ..... 26

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Motive (love & affection) is not the same as consideration ............................................................................................. 26Royal Bank v. Kiska [1967] 2 O.R. 379 (C.A.) .......................................................................................... 26

When sealed with awareness of what a seal means = sufficient consideration ............................................................ 262. ADEQUACY OF CONSIDERATION ...............................................................................................263. PAST CONSIDERATION ..............................................................................................................26

≠ consideration EXCEPT Lampleigh, statutes and under age....................................................................................... 26Eastwood v. Kenyon (1840) 113 All E.R. 482 (Q.B.).................................................................................. 27

Past consideration is no consideration ............................................................................................................................... 27Lampleigh v. Brathwait (1615) 80 E.R. 255 (K.B.).................................................................................... 27

Past consideration may be consideration if one party agrees to give the other party something in exchange for an action. The action is completed. Then the reward is made explicit. The k is binding. ............................................... 27

4. FORBEARANCE .........................................................................................................................27= good consideration except Arkin ..................................................................................................................................... 27

B. (D.C.) v Arkin [1996] 8 W.W.R. 100 (Man. Q.B.; affirmed [1996] 10 W.W.R. 689 (Man. C.A) ............... 28Forbearance from suing is good consideration as long as the person threatening to sue believes that he has a chance to win. ......................................................................................................................................................................... 28

5. PRE-EXISTING LEGAL DUTY ....................................................................................................28= NOT good consideration except for below exceptions.................................................................................................. 28

a. Public Duty .........................................................................................................................28b. 3rd Party ..............................................................................................................................28

Pao On v. Lau Yiu Long [1980] A.C. 64 (P.C.) ........................................................................................ 28Promise to perform, or the performance of a pre-existing k obligation to a 3rd party can be valid consideration as long as the promise has not been fulfilled (past consideration)...................................................................................... 28

c. Promisor..............................................................................................................................291. The Same Promise for More:......................................................................................................29

Gilbert Steel v. University Construction (1976), 12 O.R. (2d) 19 (C.A.) ..................................................... 29Promise to do more than original promise made in pre-existing k cannot be sufficient consideration unless what is being received is changed. ................................................................................................................................................ 29Mutual abandonment of agreements ≠ consideration ..................................................................................................... 29CANNOT USE EQUITY STATUTE ................................................................................................................................. 29

2. The Same Promise for Less: .......................................................................................................29Foakes v. Beer (1884), 9 App. Cas. 605 (H.L.) ......................................................................................... 29

A promise to do less in exchange for the same promise is not good consideration = OVERRIDDEN BY STATUTE IN BC................................................................................................................................................................... 29

RE Selectmove Ltd. [1995] 2 All E.R. 531 (C.A.) ...................................................................................... 29Reiterated Foakes v Beer...................................................................................................................................................... 29Can’t just be an agreement for less..................................................................................................................................... 29

4 ways around Foakes v Beer: ................................................................................................................. 30A. Put the agreement under seal ...................................................................................................................................... 30B. Statute – some statutes outline situations in which Foakes v Beer is eliminated (ex: Law and Equity Act) ........ 30C. Structure the new arrangement so that not only are the parties paying less but something else is different (ex: different time, place, method of payment, anything additional) – then the new arrangement is binding (ex: Foot v. Rawlings) ACCORD IN SATISFACTION = replacing the earlier duties with new duties ............................................ 30D. Estoppel – in certain circumstances you cannot go back on your word .................................................................. 30

LAW AND EQUITY ACT:....................................................................................................................... 30Accord in Satisfaction:...................................................................................................................30

Foot v. Rawlings [1963] S.C.R. 197.......................................................................................................... 30A difference in the agreement in addition to a chance in what is promised is good consideration for a k ............. 30

Equitable or Promissory Estoppel: (EQUITY NOT K-LAW)..........................................................31Central London Property Trust Ltd. v High Trees House Ltd. [1947] (King’s Bench) –............................ 31

Beginning of Equitable Estoppel ......................................................................................................................................... 31John Burrows Ltd. v Subsurface Surveys Ltd. [1968] (SCC) .................................................................... 31

Waving rights in the past does not constitute a promise to wave rights in the future – cannot use promissory estoppel .................................................................................................................................................................................... 31

D. & C. Builders Ltd. v Rees [1966] (Queen’s Bench)............................................................................... 31promissory estoppel – it must be fair to enforce the promise ......................................................................................... 31

Combe v Combe [1951] (CA) ................................................................................................................... 32Estoppel is a shield not a sword ........................................................................................................................................... 32Definition of Estoppel............................................................................................................................................................ 32

Walton Stores Pty Ltd. v Maher (1988) (High Court of Australia) PERSUASIVE ONLY IN CANADA..... 32Estoppel is a sword and a shield .......................................................................................................................................... 32Allows Gibert Steel situation to use promissory estoppel but does not mean outcome would have been different 32

Robichaud v Caisse Populaire De Pokemouche Ltee (1990) (NBCA)........................................................ 32Although estoppel cannot be used as a sword, you can be the P if you care seeking the right to use promissory estoppel. ................................................................................................................................................................................... 32

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PRIVITY...............................................................................................................................................33

1. THIRD PARTY BENEFICIARIES:.................................................................................................33Tweddle v. Atkinson (1861) (QB) (Horizontal Privity) .............................................................................. 33

Third party cannot enforce k since provided no consideration ..................................................................................... 33Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. (1915) (HL) – (Vertical Privity) ......................... 33

Only parties to the k can sue on the k. ............................................................................................................................... 33Beswick v Beswick [1966] (CA) (Horizontal Privity) OVERRULED BELOW ......................................... 33

A third party who has a legitimate interest in enforcing the k may do so in the name of the contracting party... 33Beswick v Beswick [1968] (HL)................................................................................................................ 34

A third party CANNOT enforce a k ................................................................................................................................... 342. CIRCUMVENTING PRIVITY:.......................................................................................................34

Ways of Dealing with Privity Doctrine so a non-Party can Benefit from the k: .........................34London Drugs Exception to Privity: - this exception can only be used as a defence ................................... 34

→ Narrow exception ........................................................................................................................................................ 34= in an employment k between A and B, if the employee is acting on behalf of one of the employer (one of the parties), then the k can be extended to the employee if: ...................................................................................................................... 341. the limitation of liability clause explicitly or impliedly extends to the employees ................................................ 342. the employee was acting in the course of employment and undertaking to requirements of the k. ...................... 34

Edgeworth Construction Ltd. v ND Lea & Ass. Ltd. (1993) (SCC)............................................................ 34To use the London Drugs exception: the clause in the k must have been intended to extend to the 3rd party. ...... 34London Drugs Exception does not only apply to employment k’s................................................................................. 35

THE CONTENT OF THE CONTRACT .............................................................................................36

1. THE REQUIREMENT OF WRITING: ............................................................................................36Law and Equity Act, s. 59 ........................................................................................................................ 36

2. MISREPRESENTATION AND RESCISSION: REPRESENTATIONS AND TERMS ................................36A. Misrepresentation and Rescission: .....................................................................................36

In order to be an Operative Misrepresentation:........................................................................................ 36i. Have to be a misrepresentation of fact: ........................................................................................... 36ii. There has to be something said that is false ..................................................................................... 36iii. The statement must be addressed to the party misled........................................................................ 36iv. The representation must induce the k............................................................................................... 36

REMEDIES: ........................................................................................................................................................................... 37Bars to Rescission: ................................................................................................................................................................. 37A. Rescission would adversely affect a 3rd party rights ............................................................................................ 37B. The impossibility of complete restitution .............................................................................................................. 37C. Affirmation = the innocent party may lose an equitable remedy because they are taken to have affirmed the k. 37D. Execution of the k...................................................................................................................................................... 37

Redgrave v Hurd, (1881) (CA).................................................................................................................. 38If a person investigates a statement, he does not rely on the statement made and there can be no misrep ............ 38

Smith v Land and House Property Corp. (1884) (CA)............................................................................... 38A statement of opinion is a statement of fact when the facts are not equally known by both parties ..................... 38

Kupchak v Dayson Holdings Ltd. (1965) (BCCA)..................................................................................... 38Rescission of a k is an option even when complete restitution cannot be reached. ..................................................... 38

E. What is a term and what is a representation?:...................................................................38Heilbut, Symons & Co. v Buckleton [1913] (HL) ..................................................................................... 38

The term is a statement made for which the party intended to give an absolute guarantee ..................................... 38Dick Bentley Productions Ltd. v Harold Smith (Motors) Ltd. [1965] (CA)................................................ 38

Anything said to induce a party to enter into a k becomes a term in the k (this approach has not been adopted)383. CLASSIFICATION OF TERMS......................................................................................................39

Conditions, Warranties and Intermediate Terms: ......................................................................39Hong Kong Fir Shipping Co. v Kawasaki Kisen Kaisha Ltd. [1962] (CA) ................................................ 39

Introduced the Intermediate Term ..................................................................................................................................... 39Sale of Goods Act can include an intermediate term ....................................................................................................... 39

Krawchuk v Ulrychova (1996) (Prov. Ct) ................................................................................................. 40Reaffirmation of Hong Kong’s ratio of importation of intermediate terms into SoG Act ........................................ 40

Wickman Machine Tool Sales Ltd. v Schuler A.G. [1974] (HL) ............................................................... 40Placing labels on terms in a k does not imply the legal definition of the label onto the term.................................... 40

Rescission versus Repudiation:....................................................................................................40Leaf v International Galleries [1950] (CA) .............................................................................................. 40

There is a bar to rescission when an argument for repudiation is rejected ................................................................. 40Entire versus Severable Contracts: .............................................................................................40

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Fairbanks v Sheppard [1953] (SCC) ........................................................................................................ 41Substantial Performance Doctrine = an obligation is completed when it is substantially completed ...................... 41Quantum Meruit = If the innocent party of an abandoned k takes the benefit of the work done, he can be liable for the cost of that work........................................................................................................................................................ 41

Cutter v Powell ........................................................................................................................................ 41Quantum Meruit = restitution remedy allowing a party to receive value for the goods or services performed (even if obligations within the k have not been fulfilled .................................................................................................. 41

4. EXCLUDING AND LIMITING LIABILITY .....................................................................................41Contractual Interpretations: .......................................................................................................41

Machtinger v Hoj Industries [1992] (SCC) .............................................................................................. 41Terms can be implied into a k based on custom or usage, business efficiency or presumed intention and terms implied by law. ....................................................................................................................................................................... 41

Scott v Wawanesa Mutual Insurance Co. [1989] (SCC) ........................................................................... 41Terms in the k can make k interpretation very difficult. ................................................................................................ 41Facts: The P was insured by the D for fire. The P’s son was also covered by the insurance, but caused the fire. The D refused to pay insurance compensation on the basis of a clause that stated damage caused by the insured will bar recovery. 41

Clauses Limiting Liability: ..........................................................................................................42Techniques used to control and reduce the use of the above provisions (because Courts do not like limiting liability: ................................................................................................................................................... 42

1. Notice Requirement .................................................................................................................................................. 422. Doctrine of Fundamental Breach ........................................................................................................................... 423. Doctrine of Unconscionability ................................................................................................................................. 42

Parker v SE Ry Co. (1877) (CA)............................................................................................................... 42A person is not bound by Limitation of liability clauses unless they saw or knew of their existence. ..................... 42

Thorton v Shoe Land Parking Ltd [1971] (CA)........................................................................................ 42A limitation of liability clause is only binding if the customer had reasonable notice of the clause before entering into the agreement. ................................................................................................................................................................ 43

McCutcheon v David MacBrayne Ltd [1964] (HL)................................................................................... 43A statement can be imported into a k if previous dealings show that a party knew or agreed to the term in previous dealings.................................................................................................................................................................... 43

Tilden Rent-A-Car Co. v Clendenning (1978) (CA) .................................................................................. 43Unless reasonable measures are taken to draw a party’s attention to terms in a standard form document, the terms are not enforceable. .................................................................................................................................................... 43

Delaney v Cascade River Holidays Ltd (1983) (CA).................................................................................. 43Not an important case ........................................................................................................................................................... 43

Karsales (Harrow) Ltd. v Wallis [1956] (CA) Adopted in Canada............................................................. 43Doctrine of Fundamental Breach applies to all fundamental breaches ........................................................................ 43

Photo Production Ltd. v Securicor Transport Ltd. [1980] (HL) ................................................................ 44Doctrine of Fundamental Breach no longer exists, but fundamental breaches do ..................................................... 44

Hunter Engineering Co. Inc. v Syncrude Canada Ltd. [1989] (SCC) ...................................................... 44No doctrine of fundamental breach in Canada................................................................................................................. 44Test for determining if an exclusion or limitation clause applies .................................................................................. 44

Sale of Goods Act, ss. 15-20 ..................................................................................................................... 44For retail sale of new goods, cannot contract out of protection ..................................................................................... 44

5. PAROL EVIDENCE .....................................................................................................................44Gallen v Butterley (1984) (CA)................................................................................................................. 44

Parol Evidence Rule .............................................................................................................................................................. 446. RECTIFICATION ........................................................................................................................45

Bercovici v Palmer (1966) (CA)................................................................................................................ 45Subsequent actions can be considered when determining the intention of the k ........................................................ 45

Coderre (Wright) v Coderre [1975] (Alta. SC) .......................................................................................... 45Rectification of a unilateral mistake can take place if it can be proven beyond a reasonable doubt that the k was intended to contain the term, but the k was concluded w/o the term............................................................................ 45

EXCUSES FOR NON-PERFORMANCE OF THE K.........................................................................46

1. MISTAKE ..................................................................................................................................46Smith v Hughes (1871) (Div. Ct.) ............................................................................................................. 46

First case on mistake – lays out three different requirements for mistake .................................................................. 46Bell v Lever Brothers Ltd. [1932] (HL) .................................................................................................... 46

A mistake about the subject-matter of the k may affect the k........................................................................................ 46One party or all parties can be mistaken ........................................................................................................................... 46There are three areas in which mistake may occur ......................................................................................................... 46

Solle v Butcher [1950] (CA)..................................................................................................................... 46Mistake can operate in either CL or Equity...................................................................................................................... 46

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Lindsey v Heron & Co. (1921) (CA) ......................................................................................................... 47The outcome of an action in mistake is not predictable .................................................................................................. 47

A. Mistaken Terms ..................................................................................................................47McRae v Commonwealth Disposals Commission (1951) (Aust. HC) ......................................................... 47

Mistake cannot be used as a defence for non-performance of a k when what is argued to be a mistake is a term of the k.......................................................................................................................................................................................... 47

Glasner v Royal Lepage Real Estate Services Ltd. (1992) (BCSC) ............................................................ 47To use mistake in equity, the party seeking the remedy must come to court with clean hands ............................... 47

B. Mistaken Identity................................................................................................................47Lewis v Averay [1972] (CA) ..................................................................................................................... 47

A mistake in identity can only be remedied in equity ...................................................................................................... 47This mistake renders the k voidable as long as it does not affect 3rd parties rights. ................................................... 47

C. Non Est Factum ..................................................................................................................48Saunders v Anglia Building Society [1971] (HL)...................................................................................... 48

Non Est Factum...................................................................................................................................................................... 48Marvco Color Research Ltd. V Harris [1982] (SCC)................................................................................ 48

Non Est Factum...................................................................................................................................................................... 482. FRUSTRATION ...........................................................................................................................48

A. Development of the Doctrine: .............................................................................................49Paradine v Jane (1647) (KB).................................................................................................................... 49

CL historically did on allow frustration............................................................................................................................. 49Taylor v Caldwell (1863) (QB).................................................................................................................. 49

Frustration occurs when an item perishes and makes the performance of the k impossible, at no fault of the parties, as long as they did not provide for the circumstances in the k. ....................................................................... 49

Davis Contractors Ltd. v Fareham U.D.C. [1956] (HL)............................................................................ 49Doctrine of Frustration ......................................................................................................................................................... 49

B. Self Induced Frustration: ...................................................................................................49Maritime National Fish Ltd. v Ocean Trawlers Ltd. [1935] (PC) ............................................................. 49

Self-Induced Frustration does not lead to a frustrated k. ............................................................................................... 49C. The Application of the Doctrine: ........................................................................................49

Can. Govt. Merchant Marine Ltd. v Can. Trading Co. [1922] (SCC)........................................................ 49Normally, economic problems and labour issues will not cause a k to be frustrated ................................................. 50

Capital Quality Homes Ltd. v Colwyn Construction Ltd. (1975) (CA) ....................................................... 50A change in legislation can cause frustration .................................................................................................................... 50

Victoria Wood Development Corp. v Ondrey (1977)(HC) ......................................................................... 50Change in legislation will may cause frustration, but may not ...................................................................................... 50

D. Frustrated Contract Act:....................................................................................................50E. Formula for Application of the Frustrated Contract Act: .................................................53

Does the Act apply? ................................................................................................................................. 53If the act applies, what will be awarded when the k is frustrated?............................................................. 55

3. PROTECTION OF WEAKER PARTIES ..........................................................................................55A. Duress..................................................................................................................................55

Pao On v Lau Yiu Long [1980] (PC)........................................................................................................ 56Economic duress is a valid cause of action in equity........................................................................................................ 56First test to succeed at economic duress............................................................................................................................. 56

Gordon v Roebuck (1992) (CA) ................................................................................................................ 56REAL TEST for economic duress....................................................................................................................................... 56Economic duress defences are rarely successful ............................................................................................................... 56

B. Undue Influence ..................................................................................................................57Geffen v Goodman [1991] (SCC) ............................................................................................................. 57

Presumption of undue influence.......................................................................................................................................... 57Test to determine undue influence ...................................................................................................................................... 57Burden of proof ...................................................................................................................................................................... 57

C. Unconscionability................................................................................................................57Morrison v Coast Finance Ltd. (1965) (BCCA) ........................................................................................ 58Created doctrine of unconscionability ...................................................................................................... 58

Test to determine unconscionability ................................................................................................................................... 58Harry v Kreutiziger (1978) (CA)............................................................................................................... 58

There are two tests for unconscionability .......................................................................................................................... 58Lloyds Bank v Bundy [1975] (CA) ........................................................................................................... 58

Denning groups all mechanisms of protecting weaker parties together ....................................................................... 58Shows that one cannot pigeon hole anything into one category of protection – they all overlap ............................. 58

4. ILLEGALITY ..............................................................................................................................59

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1. Statutory Illegality ..............................................................................................................592. Common Law Illegality ......................................................................................................59

JG Collins v Elsley [1978] (SCC)............................................................................................................. 59Restraint of trade clauses – illegality it determined by weighing public interests for freedom of k and promoting competition. ............................................................................................................................................................................ 59

Still v Minister of National Revenue [1998] (CA) (Statutory Illegality but the CL illegality approach is similar) .................................................................................................................................................... 60

Approach for determining if the illegality defence is available ...................................................................................... 60

REMEDIES...........................................................................................................................................61

1. DAMAGES .................................................................................................................................61Characterization of Damages: .....................................................................................................61

1. Interest Protected........................................................................................................................... 612. Overarching................................................................................................................................... 613. Heads of Damage .......................................................................................................................... 61Fuller and Perdue.................................................................................................................................... 61

Reasons for awarding damages ........................................................................................................................................... 61AVG Management Science Ltd. v Barwell Dev Ltd. [1979] (SCC)............................................................ 62

Expectation interests should be used. ................................................................................................................................. 62McRae v Commonwealth Disposals Comm (1951) (Aust HC) ................................................................... 62

When expectation interests cannot be determined, reliance interests should be awarded ........................................ 62Sunshine Vacation Villas v The Bay (1984) (CA) ..................................................................................... 62

Both reliance and expectation damages cannot be awarded unless it will not over compensate.............................. 622. QUANTIFICATION .....................................................................................................................62

Chaplin v Hicks [1911] (CA).................................................................................................................... 63If there is a breach of k, the P has a right to damages even if they are impossible to calculate................................ 63

Nu-West Homes v Thunderbird Petroleums (1975) (Alb. CA)................................................................... 63The P is required to act reasonably to mitigate the effects of the breached k ............................................................. 63

Groves v John Wunder Co. (1939) (Minn. CA) ......................................................................................... 63Very good judges can come to profoundly different conclusions for damages on the same facts ............................ 63

Damages for Non-Quantifiable Harm: ........................................................................................63Jarvis v Swans Tours [1973] (CA) ***MIGHT NOT BE GOOD LAW*** ............................................... 63

Damages can be awarded for mental distress due to a breached k ............................................................................... 63Newell v CP Airlines (1976) (Ontario Trial Court).................................................................................... 64

Supports Dennings finding in Jarvis .................................................................................................................................. 643. REMOTENESS............................................................................................................................64

Hadley v Baxendale (1854) ***VERY IMPORTANT CASE*** = TEST FOR DAMAGES...................... 64Test for awarding damages .................................................................................................................................................. 64

Victoria Laundry v Newman Industr. Ltd. [1949] (CA) ............................................................................ 64Made the test for remoteness very broad (more like the torts test) ............................................................................... 64

Koufos v Czarnikow (The Heron II) [1969] (HL)..................................................................................... 65Overrules the broad definition of remoteness in Victoria, for a much narrow definition......................................... 65

4. LIMITS ON RECOVERABILITY ...................................................................................................65Vorvis v ICBC [1989] (SCC)................................................................................................................... 65

Punitive damages will rarely be awarded Aggravated damages can be awarded for mental distress in employment contracts and if there is an actionable wrong............................................................................................. 65

Wallace v United Grain Growers Ltd. [1997] (SCC)................................................................................. 65Reaffirms Vorvis .................................................................................................................................................................... 65If someone is fired in a demeaning way the notice period is longer and therefore there has to be more compensation .......................................................................................................................................................................... 65

5. MITIGATION .............................................................................................................................65The party claiming damages has an obligation to mitigate the harm caused by the breach of k ............................. 65

6. TIME OF MEASUREMENT OF DAMAGES ....................................................................................66Semelhago v Paramadevan [1996] (SCC) ................................................................................................ 66

When dealing with the market value of land, damages are measured at the time of the judgement Whenever damages are awarded instead of specific performance, they are calculated at the time of judgement ................... 66

7. LIQUIDATION DAMAGES, DEPOSITS AND FORFEITURES............................................................66Shatilla v Feinsten [1923] (CA) ............................................................................................................... 66H.F. Clarke Ltd v Thermidaire [1976] (SCC)........................................................................................... 66JG Collins Insurance v Elsley [1978] (SCC) ............................................................................................ 66Stockloser v Johnson [1954] (CA)............................................................................................................ 66Law and Equity Act, s. 24 ........................................................................................................................ 66

8. EQUITABLE REMEDIES .............................................................................................................67

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Mennonite Land Sales v Friesen [1921] (Sask. KB) ................................................................................. 67Warner Bros. v Nelson [1937] (KB) ......................................................................................................... 67Zipper Transportation v Korstrom............................................................................................................ 67

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BASICS

CONTRACT = a legal creation in which promises about the future can be made enforceable.

There are 3 types of contracts:1. Executory Contract = a contract where the obligations are not enforceable

immediately2. Executed Contract = a contract that is immediately fulfilled when the contract is

entered.3. Partly Executed Contract = a contract in which some of the obligations are

performed and some are yet to be fulfilled.

Common Law requirements for the formation of a contract:1. offer2. acceptance of offer3. certainty of terms→ if one of these is missing, there is no contract.→ Other elements may be required depending on the judge:

a. Intention to create legal relationsb. Considerationc. Consensus (required in civil law, but not in common law)

EXAM QUESTION: ***Have an opinion about what should be required for a k to be formed – out of the above 6 options ***

Avoided Contract = There was a contract in place and it is brought to an end.

Voided Contract = A contract that lacks validity and therefore has no legal force (k never existed)- Common Law Concept

Voidable Contract = The contract is set aside by the innocent party (it did exist)- Equity Concept

Common Law – remedy = $$$$Equity – remedy = injunctions and specific performance

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OFFER and ACCEPTANCE

To determine whether an agreement has actually been concluded, it is normally necessary to inquire whether in the negotiations which have taken place between the parties there has been a definite offer by one party, and an equally definite acceptance of that offer by another.

→ This can be inferred from conduct of each of the parties→ These can also be inferred from inactivity

1. OFFER:

= an intimation, by words or conduct, of a willingness to enter into a legally binding contract, and which expressly or impliedly indicates that it is to become binding on the offeror as soon as it has been accepted by an act, forbearance, or return promise on the part of the person to whom it is addressed.→ All terms of the contract are in the offer.

Test for offer = INTENTION→ Usually subjective rather than objective (that is, the person’s conduct

bears more weight than that which was in the person’s mind)→ This can be determined by:

i. Evidence (witnesses or subsequent actions)ii. Reasonable Person Test (what would a reasonable person

that was there say about the intention)EXAM QUESTION: ** Is the reasonable person in the shoes of the person who made the statement or in the shoes of the person who interpreted the offer? **

a. Offer v Invitation to Treat:- distinguished by an intention to be bound or create legal relations- can be distinguished from an offer by certainty of terms- an offer must have the elements listed above

Canadian Dyers Association Ltd. v. Burton (1920), 47 O.L.R. 259 (H.C.)Must be offer and acceptance for a kPrice quotation is usually an invitation to treatFacts: P offers to sell house. D. asks for lower price. P replies “lowest prepared to accept.” D. accepts,

sends chq. P keeps chq., sends draft of deed & date of closure → later returns chq. & claims no K.Ratio: mere quotation of price does not constitute an offer

but here P‘s subsequent actions show him to have understood a K to have been made. “Whether a proposal is to be construed as an invitation to treat or as an offer depends on language used and circumstances of particular case”

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Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. [1953] 1 All E.R. 482 (C.A.)Must have offer and acceptance for a kA display of price or goods is an invitation to treatFacts: Boots is a self-service store, smaller scale.Ratio: Display of price is only an invitation to treat.

Offer = customer placing item on counter. Acceptance by owner or cashier, as agent. Owner has final say, power to refuse.

R. v. Dawood [1976] 1 W.W.R. 262 (Alta C.A.)A display of goods is usually an invitation to treat unless cashier has no authorityFacts: D. switched prices on blouse and jumper set and brought it to counter thereby avoiding payment

f/blouse.Ratio: in a self-service store customer makes offer to buy,

cashier’s acceptance makes binding K. Display of price merely invitation to treat and not offer to sell only at that price. [dissent] cashier only had authority to accept offer on the company’s terms (correct price tag). K is voidable, D guilty of theft.HOWEVER: SCC says that a K is not an acceptable defence for theft

Carhill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (C.A.)Ads are generally an invitation to treat, unless language interpreted as offer by reasonable personFacts: Unilateral offer of 100₤ to anyone who contracts flu after using smoke ball as prescribedRatio: Offer to all world but K only w/those who accept and perform conditions.

Acceptance is conveyed by performanceExtravagance no defence. “Reasonable person test.”D. waived notice of acceptance since unilateral K binding when performance complete. Ads generally invitation to treat, unless language interpreted as offer by reasonable person

Goldthorpe v. Logan [1943] O.W.N. 215 (C.A.)Ad with all components of an offer is an offer not an invitation to treatIt is easier to find liability in k than in tortsFacts: Ad for electrolysis guaranteed results. Verbally confirmed with D. Results not as promised.Ratio: Valid offer since explicit language and guarantee in advert, but usually ads not considered valid

offers. Seller cannot refuse acceptance because open offer, not invitation to treat. (note: no exemption/qualification)

Com: easier to find liability in K than tort. Proof of fault is required in the tort, not in K -- strict liability.

Puff = an offer that no reasonable person would take seriously

ADVERTISEMENTS – not an offer unless interpreted as so by reasonable personAdvertisements, catalogues, price lists, window displays – strictly speaking are NOT offers because otherwise the shopkeeper would be obliged to sell to every person that accepted, even when supplies ran out.Displays on shelves – if this was an offer, then as soon as the customer put it in his basket, he would be obliged to buy it because he would have already accepted the offer.

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Also is the display was on offer, then the shopkeeper might be obliged to make a contract with his worst enemy.

TRANSACTIONS BY MACHINE – are offers, because the product cannot be easily retrieved from the buyer’s property.

AUCTION – “with out reserve” (= the bid of the highest bona fide bidder will be accepted” = offer, advertisement of an action = invitation to treat

CARRIAGE OF PERSONS – a schedule saying that a certain train will run at a certain time has been said to be an offer, although regulations in effect provide no contractual liability.

b. Communication of the Offer:→ An offer is not effective until it is communicated to the offeree.→ There can be no acceptance in ignorance of the offer→ There does not have to be an intention to accept the offer, just

knowledge of the offer at the time of acceptance.

Blair v. Western Mutual Benefits Assn. [1972] 4 W.W.R. 284 (B.C.C.A.)Offer must be formally communicated and must have intent to create legal relationsFacts: P. heard about retirement pay by indirect means -- typed minutes from meetings.Ratio: An offer must be communicated with the intention of making an offer.

Williams v. Carwardine (1833), 110 E.R. 590 (K.B.)Knowledge of the offer is required in order to acceptIntention of acceptance is not requiredFacts: D. made offer for info. leading to discovery of murderer of her brother. P., because she was scared,

gave info.Ratio: In order to accept an offer:

- don’t have to have the intention of accepting- BUT must know about the offer.

R. v. Clarke (1927), 40 C.L.R. 227 (Aust.H.C.)Both knowledge of offer and intention to accept are requiredFacts: D. gives evidence for a murder case without knowledge of a reward for the information.Ratio: Both knowledge of offer and intent to accept the offer must be present when the conditions of the

offer are performed (in acceptance by conduct).Ignorance of the offer at the time of acceptance does not constitute knowledge of the offer.

2. ACCEPTANCE:

a. Acceptance:

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= an expression by words or conduct of assent to the terms of the offer in the manner prescribed or indicated by the offeror.→ Acceptance must be communicated, absolute and correspond to all the terms of the

offer.→ If the acceptance changes the offer in any way then it is a COUNTER-OFFER not

an acceptance.

In determining whether an acceptance is conclusive, it must be distinguished from:1. A rejection and counter-offer (a counter offer is a rejection of the original

offer – once a counter offer is made, the original offer is revoked)2. An acceptance with some variation or addition of terms = a counter-offer.3. An acceptance which is equivocal, or which is qualified by reference to

the subsequent arrangement of terms – the acceptance must not qualify the terms of the offer and must be a clear acceptance.

Carhill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (C.A.)Acceptance must have meeting of minds.Facts: Unilateral offer of 100₤ to anyone who contracts flu after using smoke ball as prescribedRatio: Offer to all world but K only w/those who accept and perform conditions.

Acceptance is conveyed by performanceExtravagance no defence. “Reasonable person test.”D. waived notice of acceptance since unilateral K binding when performance complete. Ads generally invitation to treat, unless language interpreted as offer by reasonable person

Livingstone v. Evans [1925] 4 D.L.R. 769 (Alta.S.C.)Counter-offer kills original offerAn inquiry about the offer does not kill itFacts: D. offer land for 1800. P. counteroffer 1600. D. said “cannot reduce price.” P. sends 1800. D.

refuses to sell.Ratio: Counter-offer kills the original offer

A statement that the offer cannot be reduced resurrects the original offer.Obit: an inquiry about the offer does not kill it.

EXCEPTION TO THE ABOVE RULES:Butler Machine Tool Co. v. Ex-Cell-O-Corp [1979] 1 All E.R. 965 (C.A.)Battle of the Forms – terms should be taken as a whole and reconciled when possibleIf they cannot be reconciled then the k is concludedFacts: ‘Battle of the forms’ – P. quoted cost of machinery on a form that contained the term that the P.

could charge the cost of the machinery at the time of delivery. D. accepted the offer on paper with different terms. P. wants higher price to be paid.

Ratio: “last blow” rule: usually in battle of forms, terms on the last form win. However, this is an exception → the terms of the k consist of the terms in the offer subject to modifications contained in the acceptance.

Implications: after a counter-offer, the original offer may still have impactThe terms of the agreement are not necessarily in the offer

TO CLARIFY:

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The terms of the k exist in the offer. If the acceptance contains new terms – it is up to the offeror to communicate satisfaction of the new terms verbally or through conduct (ie: fulfilling his requirements within the offer). If he does not, then the terms are not accepted and the k does not exist.

b. Communication of Acceptance:

Exceptions: waiver of communication, the performance is the acceptance, postal acceptance rule

Requirements for acceptance to be valid:

a. Must have conscious knowledge that you are accepting the offer.(ex: R. v. Clarke)b. Acceptor must have conscious knowledge of the offer (ex: Williams v Carwardine)c. Acceptance must be communicated to the offeree

EXCEPTIONS:- waiver of communication will occur when: (ex: Carbolic Smoke Ball )

→ there is an express or implied intimation from the offeror that a particular mode of acceptance will suffice.

→ There must be some overt act or conduct on the part of the offeree which is evidence of an intention to accept and which conforms to the mode of acceptance indicated by the offeror.

- Promise for an act – performance is the acceptance- Postal Acceptance Rule (ex: Household Fire & Carriage Accident Insurance

Co. v. Grant)→ If the offer requires that there must be notice = actual

communication of the acceptance must be received by the offeror, then postal acceptance rule does not apply. (ex: Holwell Securities v. Hughes)

- Acceptance by silence – the offeror may stipulate that silence is an appropriate acceptance of the offer. (ex: Felthouse)

Postal Acceptance Rule:(ex: Household Fire & Carriage Accident Insurance Co. v. Grant)- applies to government post office and telegrams only- post office is treated as a agent of the offeror- offer is accepted when the acceptance is handed to the postal office- offeror is bound at the time it is handed to the post office although the acceptance has

not yet been delivered and may never be delivered.- the contract is formed where the letter is posted- where there is silence and no stipulation that the postal acceptance rule does not apply

– the rule can be applied.

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PROBLEMS WITH THE RULE:- post office is treated as an agent of the offeror but the post office is clearly not an

agent to whom acceptance is or could be communicated.- Post office is acting as an agent for both parties – conflict of interest- With respect to the offeror, there is a period when you are unaware that you are party

to a contract – though you are bound by it.- Posting the acceptance puts it irretrievably out of the offeree’s control. One may not

know if the acceptance is ever conveyed to the offeror.- Mail may be delayed – so how does the offeror know how long to wait for the

acceptance?- This rule gets very complicated with technology – e-mail,

WAYS TO GET AROUND THE RULE:→ state in the offer that the offer cannot be accepted through the post office→ show that the application of the rule would be absurd. (ex: Holwell Securities v. Hughes)→ do not use government post office

Jurisdiction of Law that applied to the Contract:- the contract was made where acceptance took place (ex: Brinkibon)- can state in the contract which jurisdictional laws apply to the k.

Felthouse v. Bindley (1862), 142 E.R. 1037 (Ex. Ch.)Silence does not constitute acceptance (even if it ok in the offer)Facts: P offered to buy horse w/statement that “If I hear no more about him, I consider the horse mine.”

Nephew intended to sell, sent no reply. Auctioneer (D) accidentally sold horse. Ratio:Acceptance of offer must be communicated to offeror, though offeror may waive that right.

If the offeror dispenses of the need to communicate, it cannot result in a burden being placed on the offeree.

Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (C.A.)Silence can constitute acceptance if offerer makes it clear than performance is acceptance and that notice is not requiredFacts: supraRatio: Offeror can waive right to notice of acceptance. Perfomance of terms can constitute acceptance.

Brinkibon Ltd. v. Stahag Stahl Und [1982] 1 All E.R. 293 (H.L.)K is made where acceptance was received = Brinkibon RuleFacts: Series of negotiations. Telex sent from London to Vienna accepting seller’s offer.Ratio: With instantaneous methods of communication, k is made where and when the acceptance was

received. = BRINKIBON RULE

Household Fire & Carriage Accident Insurance Co. v. Grant (1879), 4 Ex. D. 216 (C.A.)Postal acceptance ruleFacts: D. offered to buy shares. Company’s acceptance by post. Notice never reached D. Company

bankrupt, liquidator (P) sues f/cost of shares not paid for.Ratio: postal acceptance rule: k is made as soon as acceptance posted. (post-office as common agent)

Holwell Securities v. Hughes, [1974] 1 All E.R. 161 (C.A.)Postal acceptance does not apply if terms of offer stipulate otherwise

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Facts: D. stipulated that “notice in writing” must be given to exercise option. P’s posted letter of acceptance to D → never received.

Ratio:postal rule does not apply if (a) terms of offer stipulate otherwise(b) its application would produce absurdity and inconvenience.

Actual communication of the acceptance must be communicated by the offeror.

3. TERMINATION OF OFFER:

3 ways an offer can be terminated:1. Revocation – offeror cancelling offer2. Rejection – offeree rejects offer (can do with a counter-offer)3. Lapse of Time

a. Revocation:= offeror communicates that the offer is not longer open.- Offers open to the world should be revoked by the same means that the

offers were made.- Revocation is not effective unless it is communicated (does not have to

be direct) (ex: Dickinson v. Dodds)- If the offeree has knowledge of the revocation before acceptance, then

he has no remedy (ex: Dickinson v. Dodds)- Postal Rule does NOT apply- revocation of an offer is effective upon

receipt of the revocation. (ex: Byrne v. Van Tienhoven)

There are 2 main rules with respect to revocation:a. an offer may be revoked at any time before acceptanceb. an offer is made irrevocable by acceptance.

Byrne v. Van Tienhoven (1880), 5 C.P.D. 344Postal rule does not apply to revocation – revocation is effective upon receiptFacts: P. accepted offer on Oct.11. D mailed revocation Oct.8 but doesn’t reach P until Oct.20.Ratio:Revocation of offer is effective upon receipt, even if mailed.

Postal Rule does not apply to revocation of offers

Dickinson v. Dodds (1876), 2 Ch.D. 463 (C.A.)Revocation must be communicated before acceptance If there is knowledge of revocation then the offeree has no remedy

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Offeree is not legally bound by a promise to keep an offer open unless there is consideration for that promise.Facts: P gives open offer to buy property within time limit. D sells to 3rd party before time up. P

indirectly learns of this and sends formal acceptance.Ratio: In order to revoke an offer, you must communicate it to the offeree (does not have to be

communicated directly – agent is sufficient)If the offeree is notified of the revocation of the offer prior to acceptance of the offer, then the offeree has no remedy.An offeror who has promised a certain time period in which to accept the offer is not legally bound by this promise.Offer can be terminated w/o formal notice. (P can sue for damages but not specific performance)

b. Unilateral Contracts: offeree accepts by completing the obligation and offeror still has obligations to fulfill (consideration = the act in uni k)

= an act is done in return for a promise- Only 1 party is required to do something- Typically occurs in reward or competition type situations. (ex: Carhill v Carbolic

Smoke Ball Co)- Acceptance requires fulfilling an requirement for an action- The k comes into existence after the requirements have been fulfilled- The offeror CAN revoke the offer before the act has been completed

→ But there is a way that the unilateral k can be kept open for the offeree to accept after the offerree has started to accept but has not quite finished. = LAW OF RESTITUTION

There are 3 ways you can address a revocation of an offer after the actions for acceptance have started in a unilateral contract:

a. Law of Restitution= until acceptance occurs, you accept the offer staying open by starting to perform the conditions of the unilateral k.

- Where the offeree starts performing the actions required in a unilateral k – the offer cannot be revoked - This is a DUTY

- The offeree can sue in the law of restitution/unjust enrichment/quasi-k→ This covers situations where a formal k has not yet been entered but it is

like a k situation→ If a person has promised or agreed to pay for some benefit, his liability is

contractual, but if he has not done so and has still been enriched by the benefit, his liability is restitutionary

- HAVE TO SHOW THAT THE OFFEROR WAS UNJUSTLY ENRICHED

b. Preliminary Contract

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= Can argue that when the offeree starts to perform the conditions for the k, a preliminary k comes into existence which governs the performance required for acceptance.

- If the offeror breaches the preliminary k you can file an action.- EXAMPLE: an invitation to treat could be seen as the offer for the preliminary k, the

acceptance of the preliminary k offer occurs when the offeree starts to perform the actions.

c. Make the unilateral k bilateral (ex: Errington v Errington & Woods)- This is much easier than a. and b.

Errington v. Errington & Woods [1952] 1 All E.R. 149 (C.A.)Generally can revoke offer prior to completion in a unilateral k, sometimes not once performance has begun Facts: Father put down payment on house for son & daughter-in-law, mortgage to be paid by couple.

Promise if couple paid off mortgage → get title to house. Made some but not all parymentRatio: Unilateral K binding once performance of conditions begins depending on circumstances, not

revocable upon commencement.- This could be a unilateral k: offer = promise to transfer property

acceptance = making mortgage paymentsTherefore acceptance only occurs when payments are finished.

- This could be a bilateral k: offer = promise to transfer propertyacceptance = yesAcceptor would be in breach of k if payments not made and therefore the offeror could sue for damages

Carlill v. Carbolic Smoke Ball Co., [1893] 1 Q.B. 256 (C.A.)Generally can revoke offer prior to completion in a unilateral k, sometimes not once performance has begun Com: Courts always endeavour to make K bilateral b/c of the revocation provision.

Problem: if unilateral offeror revokes K, may interrupt work already completed by offeree.Bilateral: at moment of creation of K, both parties have future obligations (fully executory)Unilateral: only 1 party has remaining obligations, other party done all requested. (partially executory)

*** Can avoid the above situations by making an option-k keeping the offer open while the actions are being performed***

c. Rejection and Counter-Offer:

- can only be done by the offeree and it need not be express, provided that the offeror is justified in inferring that the offerree does not intend to accept the offer.

- can be accomplished by counter-offer

Livingstone v. Evans [1925] 3 W.W.R. 453 (Alta S.C.)Counter offer = rejection of original offer

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Facts: D. offer land for 1800. P. counteroffer 1600. D. said “cannot reduce price.” P. sends 1800. D. refuses to sell.

Ratio:Counteroffer is rejection of orig. offer. Once rejected, only offeror can revive original offer (P renewed)

d. Lapse of Time:

(i) Offer for a fixed time:- the parties may expressly fix a time within which an offer is to remain open- A promise to keep an offer open is not binding unless there is

consideration for the promise

(ii) No fixed time:- time may end the offer- the time depends of the surrounding circumstances- There are 2 options of how you can consider reasonable lapse of time: (ex:

Manchester Diocesan Council v. Commercial and General Investments)a. Look at the offer – what is a reasonable period of time to expect the

offer to remain open?b. Look at the purported time of acceptance – Would a reasonable

person say that too much time had passed?** Have to determine which point to use to determine what evidence is admissible**

Barrick v. Clarke [1950] S.C.R. 177Acceptance must be communicated within time limit or if no time limit, within reasonable timeLook at time of offerFacts: P sent offer to sell to D by letter. D absent hunting, wife asks P to keep offer open. P sells land to

3rd party. D returns and accepts offer too late. Sues for specific performance. Held for P.Ratio: Offeree must respond in reasonable time according to circumstances of business.Com: #1 → note time at which offer was made and determine what is reasonable → if it passes, offer

lapses.Note: Can you use evidence after the fact to prove a k earlier?

U.K.. → no, too easy to manufacture evidence. Cdn. → admissible, but doesn’t carry much weight

Manchester Diocesan Council v. Commercial and General Investments [1969] 3 All E.R. 1593 (Ch.D)If no time limit for acceptance is expressed, reasonable time will be determined. If not accepted within reasonable time = implied revocationLook at time of acceptance and intervening events = CAN VIEWFacts: D sends formal acceptance 6 months after tender submissions with some intervening informal

acceptances awaiting formal approval. P revokes offer before formal acceptance given. Held for P.Ratio: Look to time of purported acceptance and consider intervening events to determine if time

reasonable. Some evidence after offer may be relevant. (Canadian view)

Dickinson v. Dodds (1876), 2 Ch.D. 463 (C.A.)Offeror is not legally bound to keep offer open unless there is consideration

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CERTAINTY OF TERMS

MUST EXIST AT TIME OF ACCEPTANCE

There can be 2 sources of uncertainty of terms:1. the offer does not contain an important element that would be required for a k

- k will fail2. an aspect of the offer is unclear

- strike-out clause- interpret clause- can cause the k to fail

** This would be straight forward if it was not for May & Butcher**

Cannons of Constructions = clarify what parties are taken legally to mean in a k.

RULES:→ When ever possible a contract will be upheld (ex: Foley v Classique Coaches Ltd.)→ Meaningless clauses will simply be eliminated from the agreement without

effect to the rest of the agreement (ex: Nicolene Ltd. v Simmonds)→ There is no contract if there is an absent agreement on price (unless there is a

statute (Sales of Goods Act) but this still may not apply) (ex: May & Butcher v R)→ BUT in Foley v Classique Coaches Ltd. it was found that that the absence of a price

would not cause the k to be avoided.→ Uncertain terms may be determined by reference to the original agreements or

normal practice (ex: Hillas and Co. v Arcos Ltd.)→ Parties must agree on the terms – if not the agreement is an “agreement to

agree” and this fails on lack of certainty – the k is VOID (ex: Courtney andFairbairn)

→ A clause for an agreement to renew is void for lack of certainty (ex: Mannpar Enterprises v Canada)

→ BUT in Empress Towers Ltd. v Bank of Nova Scotia it was found that an agreement to renew implies that: one must negotiate in good faith and that one must not withhold the agreement unreasonably

**Common Law will not allow a mechanism to decide the price after the k is made.However statutes might (ex: Sale of Goods Act)**

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SALE OF GOODS ACT:

Ascertainment of Price12(1) - The price in a contract of sale may be fixed by the contract, or may be left to be

fixed in manner thereby agreed, or may be determined by the course of dealing between parties.The price can be set by:

a. the contractb. parties agree on a method

- This could be:i. agree later

ii. reference to market priceiii. 3rd party sets the priceiv. reference to price in another k

c. s. 12(2)

Reasonable Price12(2) - Where the price is not determined in accordance with the foregoing provisions the

buyer shall pay a reasonable price. What is a reasonable price is a question of fact dependant on the circumstances of each particular case.

Agreement to sell at Valuation13 - Where there is an agreement to sell good on the terms that the price is to be fixed by

the valuation of a third party, and the third party cannot or does not make the valuation, the agreement is avoided: provided that if the goods or any part thereof have been delivered to and appropriated by the buyer he shall pay a reasonable price therefore.

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Nicolene Ltd. v Simmonds [1953] 1 Q.B. 543, [1953] 1 All E.R. 822 (C.A.)Look at importance of the disputed clause to the transaction as a whole: if not fundamental, can be ignored/severed; if important – implies k is repealedFacts: The P. ordered steel from the D. The D. confirmed the agreement with the clause written on the agreement that “usual conditions of acceptance apply”. The D. failed to fill the order.Ratio: Meaningless clauses are eliminated from the k without effect to the validity of the k.

VERY IMPORTANT – COMPLICATES SIGNIFICANTLYMay and Butcher Ltd. v R [1934] 2 K.B. 17 (H.L.) (COMPLICATES)If crucial term is undetermined = no k at allFacts: The P. and the D. entered into an arrangement for the D. to purchase surplus tentage. The parties did not agree on a price, they agreed that if they could not agree they would go to arbitration.Ratio: If s.12(1)b of Sales of Goods Act does not apply, the k is avoided.

An agreement in which some critical part if the k is left undetermined in not a k at all.

Why didn’t they go to arbitration to figure out the price?→ The arbitration clause could not be used because it is only effective when the k is effective and since

the k did not come into existence, it would not go to arbitration.Why didn’t the court use s.12(1), 12(2) of the Sale of Goods Act?→ The Court understood s. 12(1) to mean that you only are able to get the reasonable price if the parties

did not use any option from s. 12(1) in the k to determine price: ie: did not set a price at all.→ Court felt this was followed the idea of s.13 (ie: s.13 says that if one of the options in 12(1)b fails then

the agreement is avoided – court felt that this presumable extended to all the option of s12(1)b.)

→ Problem = the statute specifically mentioned only one option – so they did not mean it to apply to all the options – the presumption should be the agreement wasn’t avoided.

The logical thought is that: if one of the methods in 12(1)b fails then you resort to 12(2).

Hillas and Co. Ltd. v Arcos Ltd. (1932), 40 Lloyd’s Rep. 307 (C.A.)Affirmed May v ButcherFacts: The D. agreed to sell an entire production of wood to the P. The D. later agreed to sell the wood to

someone else.Ratio: Reaffirmation of the May and Butcher judgement

Hillas and Co. Ltd. v Arcos Ltd. (1932), 147 L.T. 503 (H.L.)Business k are often not complete/precise – courts must look at intention and uphold where possibleFacts: see supraRatio: The principles of construction laid down by May and Butcher are not laid down, each case must be

decided on the construction of the particular document.

Foley v Classique Coaches Ltd. [1934] 2 K.B. 1 (C.A.)Look to intention – strong presumption in business k’s that courts will fill in detailsFacts: The D. purchased land and entered into agreement with the P. to buy all petrol required for business

from the P. After 3 years, D. tried to renounce the agreement.Ratio: Contracts will be upheld when ever possible

Contracts will not be avoided simply due to an ambiguity in price

Courtney and Faribairn Ltd. v Tolaini Brothers Ltd. [1975] 1 All E.R. 716, [1975] 1 W.L.R. 297 (C.A.)If essential term is missing, and no mechanism = no k = basic CL principleException = May v ButcherFacts:The P. sent a letter promising to find funding for the D.’s project as long as the D hired the P to work

on the project. The P. found the funding, but the D. did not hire his to do the work.

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Ratio:No price = no contractA contract to negotiate, like a contract to make a contract, is not a legal contract.

Com: This is the basic common law position – May & Butcher is the exception.

Empress Towers Ltd. v Bank of Nova Scotia [1991] 1 W.W.R. 537, 50 B.C.L.R. (2d) 126, 48 B.L.R. 212, 14 R.P.R. (2d) 115, 73 D.L.R. (4th) 400 (C.A.) leave to appeal to S.C.C. refused 79 D.L.R. (4th) viiCan’t enforce an agreement to agree, but there is an obligation to negotiate in good faithAgreement to agree = no kFacts: The D. was the tenant of the P., there was an agreement to renew the lease with a mutually agreeable

rent based on market value. They failed to agree before the lease expired and then the P. offered a non market value price.

Ratio:An agreement to renew has 2 contractual obligations:1. to negotiate in good faith2. to not withhold agreement unreasonably

Mannpar Enterprises v Canada (1999) 173 D.L.R. (4th) 243There is no obligation to negotiate in good faith in an agreement to agreeAn agreement to agree = no kDistinguished from Empress b/c a mechanism for determining price is not expressedFacts: The P. was granted a permit with a renewal clause by the D. for extraction of gravel. The D. was not

prepared to renew the permit.Ratio: A renewal clause if void for uncertainty

→ Empress and Mannpar are 2 extremes: they send conflicting arguments• Mannpar does not distinguish from Empress – therefore there is no

explanation for the difference between the outcomes.• But can be distinguished on the basis that a mechanism for

determining the price is expressed in Empress k but not in Mannpar

• Therefore in some cases, the courts will impose a duty to negotiate in good faith on parties.

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INTENTION TO CREATE LEGAL RELATIONS

Determining Intention:- this is an objective test: if the reasonable person would consider there was

an intention to make a legally binding k, then the promisor is bound

Situations where there is no intention to create legal relations:- Arrangements might fall into a class where legal contracts are not

normally made – ex: Social engagements and family arrangements cannot be k’s because there is no intention to create legal relations (ex: Balfour v. Balfour)

- Business transactions where the parties explicitly state that they do not intend to enter into legal obligations (ex: Rose & Frank v. JR Crompton & Bros)

**Look at questions in notes – there are exam ones**

Balfour v. Balfour [1919] 2 K.B. 571 (C.A.)Family agreements are not legally enforceable – this hurts the weaker partyFacts: Husband, D, promised wife, P, allowance. Couple divorced. Husband failed to continue payments.Ratio: Overburdened courts shouldn’t consider family obligations as k’s as they did not intend legal

consequences.Com: This was a public policy decision

Criticism → this hurts weaker party. Can sue for non-performance of support though.

Rose & Frank v. JR Crompton & Bros [1923] 2 K.B. 261 (affirmed in H.L.)If parties explicitly state that they have no intention to create legal relations, then the k is not bound by the courtFacts: Prior legal relations between D and P. Parties then make written agreement w/ “good faith” clause

excluding legal relations. D refused orders and terminated relations. Ratio:Parties’ express intentions should stand without interference by courts.

If parties make it clear in the k, they may include a clause that does not male the k legally binding in the Court of Law.

Com: This decision is so old as not to be relevant.This clause not likely to be effective today, however arbitrations could be used if parties so desire.

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CONSIDERATION

DEEDS – do not require consideration because the ‘seals’ provide all consideration needed.

*** CANNOT HAVE CONSIDERATION FOR K’S – CONSIDERATION ONLY EXISTS FOR EACH OF THE PROMISES WITHIN A K ***

Consideration = a benefit moving from the promisee to the promisor or to a 3rd party OR it is a detriment incurred by the promisee. - in either case, it is the agreed price of the promisor’s promise.

RULES:- Consideration is only required for informal k’s (a seal acts as consideration

in formal k’s)- {Informal k’s – the promise is binding if the promisor seals the promise}- If consideration for one of the promises is missing, then only that promise is

not enforceable- There must be consideration for each promise within a k- Consideration must be present at the time of acceptance

What can be consideration?1. An act other than a promise (ex: swimming the English Channel)2. A forbearance = not doing something3. The creation, modification, or destruction of a legal relationship4. A promise

The existence of consideration must be distinguished from:1. Motive (ex: Thomas v Thomas) – the reason why someone

enters into the k is not consideration2. Adequacy of consideration 3. Failure of Consideration (one of the parties failed to

perform any of what he promised to do – ie: breach of the k)

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1. Nature of Consideration and Seals

Thomas v. Thomas (1842), 114 E.R. 330Consideration must be something of value in the eyes of the law moving from the promisee to the promisorMotive (love & affection) is not the same as considerationFacts: P‘s husband dies verbally wishing her to have house. P makes agreement w/executors to pay ₤1/year

rent and keep in good repair. D executor later evicts P contrary to agreement.Ratio:Any consideration, as long as it’s not incidental to the gift, can be construed as consideration, no

matter how small.Motive is not the same thing as consideration.

Com: 3 arguments were brought up in this case:1. pious regards for wishes – D argued that it was motive and not in writing2. P promised to make repairs – D argued this was incidental to getting the house3. P promised to pay rent – D argued it is incidental aspect of getting the land – the rent would have to be paid anyway by anyone who had the land

Royal Bank v. Kiska [1967] 2 O.R. 379 (C.A.)When sealed with awareness of what a seal means = sufficient considerationFacts: P bank brought action on guarantee signed by D. D used no wafer seal but “seal” printed in place of.Ratio:A formal seal can make a guarantee absolutely binding even without consideration.

A pre-printed seal on a document by the promisee is not sufficient for consideration of the promise (promisor MUST affix the seal)The person affixing the seal must be aware that what they are doing is making the agreement legally binding.

2. Adequacy of Consideration

The size of the consideration does not matter in Common Law – as long as some consideration exists, that is all you need.

3. Past Consideration

= make a promise for an action that is already completed.- not acceptable consideration-

≠ consideration EXCEPT Lampleigh, statutes and under age

EXCEPTIONS:1. **Lampleigh v. Brathwait**- this usually arises in emergency situations, but the

application of this exception is unclear.2. There are also statutes that allow for past consideration in certain contexts.

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3. If you make a promise when you do not have the capacity (ie: under age) and you repeat the promise when you do have the capacity – and the actions have already been completed, the promise is binding. (ex: a chills makes a promise, the actions are carried out, when the child reached maturity she repeats the promise, it is now binding even though the consideration was in the past).

Eastwood v. Kenyon (1840) 113 All E.R. 482 (Q.B.)Past consideration is no considerationFacts: P borrowed and spent $ on ward. Ward promised to repay amount when she came of age, and in fact

paid 1yrs. interest. Married D who also promised to repay, but did not. (The P offered the fact that he incurred expenses earlier as consideration, this is past consideration and is not valid)

Ratio:Past consideration is not good consideration.

Lampleigh v. Brathwait (1615) 80 E.R. 255 (K.B.)Past consideration may be consideration if one party agrees to give the other party something in exchange for an action. The action is completed. Then the reward is made explicit. The k is binding.Facts: D requested P to get pardon for murder from King. P laboured to get pardon. Afterwards, in

consideration of such, D promised to give P ₤100. The pardon was obtained before the promise was made.

Ratio:When a promise is made, if it is a mere voluntary courtesy, then it is not binding. But if it is coupled with an expectation – then it is valid.

Lampleigh v Brathwait explained: If parties enter into an agreement and one party promises to do something (unexplicit) in exchange for the action, the action is then done and the thing given in exchange then becomes explicit, then it is not past consideration.- usually occurs in emergency situationsBUT – the terms must become explicit to ensure certainty of terms – otherwise the k will fail.

4. Forbearance

= a promise not to do something- not acceptable consideration in some circumstances- almost always acceptable consideration

= good consideration except Arkin

EXCEPTION:1. Promise to forbear from suing is not acceptable consideration when: the person

threatening to sue knows that there is no merit to their legal claim (ie: they know that an action would not be successful)- if you think you have good action, forbearance from suing is good consideration

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B. (D.C.) v Arkin [1996] 8 W.W.R. 100 (Man. Q.B.; affirmed [1996] 10 W.W.R. 689 (Man. C.A)Forbearance from suing is good consideration as long as the person threatening to sue believes that he has a chance to win.Facts: The P. was trying to sue the D. for money she paid the P as compensation for damaged the D.

sustained resulting from thefts committed by her son. The D. made an agreement with the P. that the P would forbear from suing.

Ratio: Forbearance from suing is not good consideration when the person threatening to sue knows that there is not merit to their legal action (ie: knows their claim will fail)

5. Pre-Existing Legal Duty

= promising to do what you are already bound to do for the:1. Public – promise to do what you are already bound to do by

public duty2. 3rd Party – promise to do what you are already bound to do for a

3rd party (eliminated by Pao On v Lou Yiu Long)3. Promisor – promise to do what you already promised to the

promisor

= NOT good consideration except for below exceptions

a. Public Duty– you could argue that you are doing something beyond your public duty (ex:

at a particular time, place, etc)

b. 3rd Party– Historically not good consideration in common law for a promise, but Pao On v

Lou Yiu Long says that a promise to perform a pre-existing legal duty to a 3rd party can be valid consideration.

Pao On v. Lau Yiu Long [1980] A.C. 64 (P.C.)Promise to perform, or the performance of a pre-existing k obligation to a 3rd party can be valid consideration as long as the promise has not been fulfilled (past consideration)Facts: Main K = F.C. & P → F.C. buying majority of Shingon (owned by P) shares w/F.C. shares. Subsid.

K = P & D → P not to sell shares f/1yr. after which D would buy back at $2.50 regardless of market value. Ps wanted benefit if value rose → New subsid. K = Ds to indemnify Ps if shares lost value and P affirms main K. Shares drop, P brings action to enforce new subsid. K.

Ratio:Performance of a pre-existing legal duty to a third party can be valid consideration.If the new promise was foreseen at time of main K, there is no issue of new promise being past

consideration. If new K replaces old K, and old K o.k. w/past consideration., then new K alright too. Note: F.C. could have argued economic duress → forced to make new sub. K → unconscionable.

HOWEVER – a problem may arise if the duty is already fulfilled before you enter into the k because this is past consideration.Just because there is a pre-existing legal duty does not mean the consideration is past – the legal duty may not have been fulfilled yet.

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c. Promisor

2 Situations:1. The same promise for more2. The same promise for less

This may occur in two situations:a. Replacing the k with a new oneb. Replacing a term in the k – but this can only be accomplished by

creating a new kAccord in Satisfaction = an agreement in which there is consideration that replaces an old prior agreement – the law says this is enforceable as long as there are new promises that change the existing promises.

1. The Same Promise for More:- a promise to do more is not enforceable if what is being received in return does not change.

Gilbert Steel v. University Construction (1976), 12 O.R. (2d) 19 (C.A.)Promise to do more than original promise made in pre-existing k cannot be sufficient consideration unless what is being received is changed.Mutual abandonment of agreements ≠ considerationCANNOT USE EQUITY STATUTEFacts: P & D had existing K. Then P supplier increased the price of steel bars. D orally agreed to the

increase. Written K drawn up but never executed. P sues for breach of oral K.Ratio:Promise or performance of pre-existing duty to the promisor is not new consideration, nor is

forbearance from breaking the K. Consideration is not found in mutual abandonment of old obligations.A promise to do more is not enforceable is what is being received in return does not change.

Obit: Cannot use estoppel as cause of action → eg. shield not sword.

2. The Same Promise for Less:- a promise to accept less in exchange for the same promise is not enforceable

OVERRIDDEN BY STATUTE IN BCFoakes v. Beer (1884), 9 App. Cas. 605 (H.L.)A promise to do less in exchange for the same promise is not good consideration = OVERRIDDEN BY STATUTE IN BCFacts: D owed P money. P agreed to accept less. No mention of interest. P claims interest after debt paid. Ratio:Payment of smaller sum cannot satisfy larger debt (Pinnel’s case).

A promise to do less for the same promise in exchange is not good consideration.Both parties must do something different.Partial payment to creditor is not consideration for creditor’s promise to accept less.

RE Selectmove Ltd. [1995] 2 All E.R. 531 (C.A.)Reiterated Foakes v BeerCan’t just be an agreement for less

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Facts: The D. wanted to make a new arrangement with the Crown to pay back taxes owed. The D proposed the new arrangement and only slightly fulfilled its side of the bargain – but Crown never agreed.

Ratio: Reiterates Foakes v Beer: If you want to make a new arrangement, it can’t just be an agreement to less. There must be something else in addition.

4 ways around Foakes v Beer:A. Put the agreement under sealB. Statute – some statutes outline situations in which Foakes v Beer is eliminated (ex:

Law and Equity Act)C. Structure the new arrangement so that not only are the parties paying less but

something else is different (ex: different time, place, method of payment, anything additional) – then the new arrangement is binding (ex: Foot v. Rawlings)ACCORD IN SATISFACTION = replacing the earlier duties with new duties

D. Estoppel – in certain circumstances you cannot go back on your word- even if the k is binding, estoppel can enforce a promise

Statute:LAW AND EQUITY ACT:

Rule in Cumber v Wane abrogated43 - Part performance of an obligation either before or after a breach of it, when expressly accepted by

the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation.

→ The statute does not make the 2nd k binding, it simply extinguished the first obligation (thereby possibly not making it a pre-existing legal duty)

→ Statute only applies when money has been PAID in FULL, not when the 2nd

k is entered into.→ Foot v Rawlings – this wouldn’t work because parties did not extinguish

their first obligation.→ Foakes v Beer – could use in that case because statute applies to ‘same for

less’ situation.→ Gilbert v Steel – could not use in that case because statute does not apply to

‘same for more’ situation.

Accord in Satisfaction:

Foot v. Rawlings [1963] S.C.R. 197A difference in the agreement in addition to a chance in what is promised is good consideration for a kFacts: Agreed that P to charge less interest on debt if regular payments made on paid cheques. Agreement

kept for 2 years. P sues for balance.Ratio:Modification of payment (form, place or time) exempts K from the rule that a smaller sum can’t

satisfy a larger debt.A difference in the agreement in addition to a change in what is promised is good consideration for a k.

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Equitable or Promissory Estoppel: (EQUITY NOT K-LAW)*** in an exam, this is persuasive but not a strong argument because it is in law of

equity***= where someone says something, and another person relies on that statement, the person making the statement cannot go back on it.- this is not contract law, the is equity.

Estoppel requires:1. Must be a statement – can be a statement about the past or the future, BUT must

be a fact2. There must be reliance on the statement3. (There had to be some detriment suffered by the person relying on the statement)

NOT ALWAYS REQUIRED

Promissory Estoppel Restrictions:1. Waving rights in the past does not constitute a promise to wave rights in the future

(ex; John Burrows Ltd. v Subsurface Surveys Ltd.)2. it must be fair to enforce the promise (ex: D. & C. Builders Ltd. v Rees)3. it can only be used as a defence – not as a cause of action (ie: can only be used to

modify an existing relation – cannot be used to create a relation (shield not a sword) (ex: Combe v Combe) CONTRARY TO (ex: Walton Stores Pty Ltd. v Maher) QUALIFIED BY (ex: Robichaud v Caisse Populaire De Pokemouche Ltee)

Central London Property Trust Ltd. v High Trees House Ltd. [1947] (King’s Bench) –Beginning of Equitable EstoppelFacts:The P gave the D a break on their rent while occupancy of the building was down, but when it

increased the D wanted to enforce the lower rent even though the contract was for more.Ratio:A promise to accept a smaller amount in discharge of a larger, if acted upon, is binding despite the

absence of considerationA promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply (ie: the conditions that caused the promise to be made still exist)

Dec: Denning – Find for the P. Found that the court of equity would recognize promises.

John Burrows Ltd. v Subsurface Surveys Ltd. [1968] (SCC)Waving rights in the past does not constitute a promise to wave rights in the future – cannot use promissory estoppelFacts:The D was consistently late with his payments and finally the P decided to sue based on a k that they

had saying that if the D was ever more than 10 days late with payments he could sue for the entire amount. The D claims that because the P has not taken action wrt to late payments in the past – that he can use promissory estoppel as a defence.

Ratio:Waving the rights in the past does not constitute a promise to wave rights in the future (choosing to wave rights and promising to wave rights are different)

Dec: Find for the P.

D. & C. Builders Ltd. v Rees [1966] (Queen’s Bench)promissory estoppel – it must be fair to enforce the promise

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Facts:The P reluctantly accepted a smaller amount for his work than was owed because he needed to money and the D knew this and used it against him.

Ratio:Qualification on Central London Property Trust = the creditor is barred from his legal rights only when it would be inequitable for him to insist to them but he is not bound unless there is a true accord between them.

Dec: Find for the P. Denning – promissory estoppel is equitable – therefore depends on fairness.

Combe v Combe [1951] (CA)Estoppel is a shield not a swordDefinition of EstoppelFacts:The D and P were divorced – the husband agreed to pay the wife 100l per year, he never did. The

wife wants the money (there was no pre-existing relationship involving payments)Ratio:Estoppel can never stand alone as the cause of action (ca n be used as a shield not a sword)

Estoppel can be used to modify an existing legal relations but not to create a relationshipDec: Find for the husband. Denning- “Estoppel = “where one party has, by his words or conduct, made to

the other a promise which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise cannot afterwards be allowed to revert to the previous legal relations as it no such promise has been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration but only his word.”

Walton Stores Pty Ltd. v Maher (1988) (High Court of Australia) PERSUASIVE ONLY IN CANADA Estoppel is a sword and a shieldAllows Gibert Steel situation to use promissory estoppel but does not mean outcome would have been differentFacts:There was a verbal agreement to amend the lease but they were awaiting formalization. Demolition

of the building started and there was no objection by the P. The P now claims there was no intention to proceed.

Ratio:Equitable estoppel can be used as both a cause of action and where there is no pre-existing legal relationship

Dec: Find for the D.Note: The court merges promissory and proprietary estoppel together.

This type of estoppel will only work on grounds of unconscionability (therefore cannot be said to undermine the Gilbert Steel situation very often)

Robichaud v Caisse Populaire De Pokemouche Ltee (1990) (NBCA)Although estoppel cannot be used as a sword, you can be the P if you care seeking the right to usepromissory estoppel.Facts:The Debtor (P) went to court to seek a declaration by way of judgement of legal rights to say that if

he was taken to court and was the D he could use promissory estoppel as a defence.Ratio:In cases involving promissory estoppel, you do not have to the D you can be the P.Dec: Find for the P.

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PRIVITY→ Contractual obligations can only be imposed on those that were party to the k→ The only parties that can enforce the k are those that are party to the k

2 FORMS OF PRIVITY:

1. Horizontal = (k made by A & B for the benefit of C)2. Vertical = (A & B have a k, B & C have a k, but A & C do not have a k)

1. Third Party Beneficiaries:

Tweddle v. Atkinson (1861) (QB) (Horizontal Privity)Third party cannot enforce k since provided no considerationFacts: P was son of John Tweddle, who made agreement with son’s wife’s father (Guy) that both would

give to P some $. Guy died without giving P money. Clause in contract says P “has full power to sue the said parties”. P and wife ratified and assented to the agreement. Brought suit against Guy’s estate (D).

Ratio:Consideration must more from the party entitled to sue upon the contract: therefore third party beneficiary who did not provide consideration cannot enforce the contract

Dec: P cannot enforce the k (Find for D)

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. (1915) (HL) – (Vertical Privity)Only parties to the k can sue on the k.Facts: P sold tires to Dew, wholesalers, on terms that Dew would not sell that tires below P’s list prices

except to customers legitimately engaged in the motor trade, to whom they were allowed to sell at 10% below list price. Condition was that the customers would then have to sell at P’s list prices. Dew hasn’t broken any promises because all they did was promise to put clause in contract with buyers that they would not sell below certain price and if they did, the buyer would have to pay damages to Dunlop. D (department store) obtained tires from Dew and signed agreement to sell at list price, then agreed to sell tires to two customers at below list price.P claim injunction and damages in respect of D’s breach of their agreement with Dew.

Ratio: (i) Only a person who is party to a contract can sue on it: even if the contract explicitly says that the third party has rights under the contract, those rights are not enforceable.(ii) Consideration must have been given by promisee to promisor or to some other person at promisor’s request (agent)(iii) Principal not named in the contract can sue on it if the promisee was contracted as his agent; he must have given consideration through agent.

Beswick v Beswick [1966] (CA) (Horizontal Privity) OVERRULED BELOWA third party who has a legitimate interest in enforcing the k may do so in the name of the contracting party.Facts:In a k with his uncle, the D promised to pay the P ₤5/week. The D paid until the uncle died, then

refused to pay.Ratio:Where a k is made for the benefit of a third party ,who has a legitimate interest to enforce it, it can be

enforced by that third party in the name of the contracting party.The general rule is: no third person can sue, or be sued, on a k to which he is not party.

Dec: Find for the P. HOWEVER OVERRULED BY HL

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Beswick v Beswick [1968] (HL)A third party CANNOT enforce a kRatio:Where a k by its express terms purports to confer a benefit directly on a third party, it shall NOT be

enforceable by the third party.

2. Circumventing Privity:

Ways of Dealing with Privity Doctrine so a non-Party can Benefit from the k:

1. Abolish the situation by statute (ie: say that in ______ situation, a party can sue even if they were not party to the k)

2. Use Civil Law Vertical Privity Rule: when A sells to B, A sells a guarantee. When B sells to C, B sells the guarantee as well. Therefore, C can bring an action for breach of k with A

→ Ie: turns personal obligations into real obligations→ Persuasive only in common law

3. Constructive Trust (Horizontal Privity): When A requires B to act for the benefit of C – the k can be converted into a trust. Thus there would be a fiduciary duty between B and C (this is a very strong duty – much stronger than a k)

4. Agency (vertical privity): A is the principal. A enters into an agency k with B. B acts as the agent for A. When B makes a k with C, the k is effectively between C and A and there is no k between B and C.

→ The interests of A and B must NOT conflict (ex: Dunlop)5. Specific Performance: parties to the k can go to court to require specific

performance (cannot be damages because the parties to the k have no incurred any harm). But C cannot bring this action (ex: Beswick)

London Drugs Exception to Privity: - this exception can only be used as a defence

1. London Drugs Ltd. v Khuehne & Nagel International Ltd. [1992] (SCC)→ Narrow exception= in an employment k between A and B, if the employee is acting on behalf of one of the employer (one of the parties), then the k can be extended to the employee if:1. the limitation of liability clause explicitly or impliedly extends to the

employees2. the employee was acting in the course of employment and undertaking to

requirements of the k.

Edgeworth Construction Ltd. v ND Lea & Ass. Ltd. (1993) (SCC)To use the London Drugs exception: the clause in the k must have been intended to extend to the 3rd

party.Facts:There was a k between the P and the province. The P is sewing the D. The D wants to utilize the

liability clause in the province’s k.

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Ratio:To use the London Drugs exception: the clause in the k must have been intended to extend to the 3rd

party.Dec: Find for the P.

Fraser River Pile & Dredge v Can-Dive Services (SCC)London Drugs Exception does not only apply to employment k’s.Ratio: The London Drugs exception does not only apply to employments ks

If a 3rd party benefits from a provision – the provision must exist at the point the 3rd party can utilize it – in order to guarantee entitlement (ie: cancellation of waiver after the incident does not affect the situation).

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THE CONTENT OF THE CONTRACT

1. The Requirement of Writing:

Law and Equity Act, s. 5959(3)(a) – a contract for the disposition of land is not enforceable unless it is in writing signed by the party charged or the party’s agent.59(5) – If a court decides that a contract cannot be enforced then it may order restitution and/or compensation for money spent on reliance of the contract.59(6)(a) – a guarantee is not enforceable unless it is evidenced in writing signed by the guarantor

2. Misrepresentation and Rescission: Representations and Terms

Statements that do not make it into the offer but are part of the negotiations are:a. mere puffsb. representations

A. Misrepresentation and Rescission:

Ideally – try to argue breach of k before misrepresentation.

Misrepresentation = representations that are not true- those that have legal significance are called operative misrepresentations- not in law of k, in law of torts

In order to be an Operative Misrepresentation:i. Have to be a misrepresentation of fact:

ð Statements about the future, the law or opinion are not statements of fact

ð Ignorance of the law is no excuse, thus statements about the law cannot be basis for misrep.

ii. There has to be something said that is falseð silence can constitute a misrep. when:

a. if there is a fiduciary dutyb. when a question is asked but there is whole or partial silence in responsec. when statutes state that there is a duty to disclose information.

iii. The statement must be addressed to the party misledð Must be one of the reasons why the person entered into the kð Ways around this:

- look at who the parties are (ex: if you are selling a car to a car dealer, they should know more about cars than you)

- if a person has done investigations to verify the statement, then they did not rely on your statement (Redgrave v Hurd)

iv. The representation must induce the kð Must be a statement about something significant.

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REMEDIES:There are 3 types of operative misrepresentations:A. innocent = operative misrep but not negligent or fraudulent (did not know it was

false)B. negligent = should have knownC. fraudulent = knew but did not tell

Common Law

(Damages)Equity

(Rescission)Innocent X þ

Negligent þ þ

Fraudulent þ þ

Rescission = undoing of the k - both parties will be put back to the position which they were in before the k

existed- if you cannot obtain the conditions that occurred before the k existed, then

rescission is not an option (though Kupchak says something contrary)- Therefore, there is no remedy for an innocent misrep unless you can

acquire the conditions before the k came into existence.

Bars to Rescission:(but nothing in equity is absolute – courts may ignore the bars to rescission because it is fair to do so)

A. Rescission would adversely affect a 3rd party rights ð would upset 3rd party entitlements

B. The impossibility of complete restitutionð Some things are fungible (ie: money- can give back different

notes but add up to same amount)C. Affirmation = the innocent party may lose an equitable remedy because they

are taken to have affirmed the k.ð When a person discovers the misrepresentation, they must chose

to use the equitable remedy or to continue with the k– when they decide not to pursue an equitable remedy, they are seen to have affirmed the k and are no longer eligible for an equitable remedy

ð LACHES = a delay in seeking remedy that caused affirmationD. Execution of the k

ð Highly arguable – may not be lawð If both parties have completed the obligations in the k – then the

k is finished and there is no k – therefore there is nothing to rescind.

ð Very weak argument

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Redgrave v Hurd, (1881) (CA)If a person investigates a statement, he does not rely on the statement made and there can be no misrepFacts:The P entered into a k with the D to start a practice that had a specified income. When researching

the P found the income was not correct, but the D assured him that the difference would be made up. Later, the P found the business was worthless and sued for misrep.

Ratio:If a person investigated a statement, he does not rely on the statement made by the other party and therefore cannot claim for operative misrepresentation.Providing someone with the opportunity to investigate does not necessarily mean there is no operative misrep.- they might not be able to understand or accurately investigate with the means given.Court of Equity = in order to set aside a k due to misrep, it is not necessary to prove that the D knew at the time that the representation was false.Common Law = a k may be set aside even if the person did not know the statement to be false but only if the statement was made recklessly and without care.

Dec: Find for the D.

Smith v Land and House Property Corp. (1884) (CA)A statement of opinion is a statement of fact when the facts are not equally known by both partiesFacts:The P sold a hotel to the D stating that there was one tenant that was ‘a most desirable tenant’.

Shortly after the D agreed to buy the hotel, the tenant went bankrupt.Ratio:When the facts are not known equally on both sides, a statement of opinion that implies the

statement is based on fact is usually a material fact.

Kupchak v Dayson Holdings Ltd. (1965) (BCCA)Rescission of a k is an option even when complete restitution cannot be reached.Facts:The P purchased share of a motel company from the D. Later it was discovered that the earnings of

the hotel were falsely misrepresented by an agent of the D. The D sold an interest in the properties that were given in exchange for the shares.

Ratio:Rescission is an option even when complete restitution cannot be reached – when compensation can be awarded to make up the difference (only for v. bad cases of misrep.)

Dec: Rescission of what can be restored and compensation (not damages b/c is in equity) for the rest Problem: calculation of compensation is not addressed.

E. What is a term and what is a representation?:

Term = a statement made for which that party intended to give an absolute guarantee.

TEST OF INTENTION = a term was intended to be guaranteed strictly.

Heilbut, Symons & Co. v Buckleton [1913] (HL)The term is a statement made for which the party intended to give an absolute guaranteeFacts:The D purchased shares in the P’s company understanding that it was a rubber company. The

company was not properly described because it was not solely a rubber company.Ratio:The test for whether a statement is a term or a mere representation is the intention. A term in a k is a

statement made where the party intended the statement to be an absolute guarantee.Dec: The statement was a representation

Dick Bentley Productions Ltd. v Harold Smith (Motors) Ltd. [1965] (CA)Anything said to induce a party to enter into a k becomes a term in the k (this approach has not been adopted)

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Facts:The P sold a car to the D stating that it had only done 20,000 miles on the new engine, but it broke down constantly.

Ratio:If a representation is made in the course of dealings for a k for the purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the k, that is a prima facie ground for inferring that the representation was intended as a term

Dec: Find for the DProblems with judgement:

1. Using tort concepts to see if someone is contractually liable2. This redefines what a term of a k is (supposed to be in the offer)3. Eliminates the law on misrepresentation.

3. Classification of Terms

Conditions, Warranties and Intermediate Terms:

Terms in a k are characterized at the time of acceptance and can be subdivided into 3 types of terms which determine what the consequences of breach of the term will be:

1. Condition = statement of fact which forms an essential term in the kð Remedy = damages and the innocent party can treat the k as

repudiated = the k comes to an end, the 1° obligations are terminated, but the 2° obligations remain

2. Intermediate Term (Innominate)ð Remedy = determined after the breach occurs based on the seriousness

of the consequences of the breach not the breach itself and uses either of the remedies for condition or warranty. (Hong Kong Fir Shipping)

3. Warranty = a term which is not essential to the k and is collateral to the main purpose of the k

ð Remedy = unless stipulated otherwise in k, only remedy is damages(therefore must prove harm was done)

NOTE: These labels are put on the terms at the time the k comes into existence and CANNOT be changed.

Putting labels on the terms in a k is not absolute (the court makes the decision), thus it is better to specify the 2° obligations in the k to illustrate the types of terms.

Hong Kong Fir Shipping Co. v Kawasaki Kisen Kaisha Ltd. [1962] (CA)Introduced the Intermediate TermSale of Goods Act can include an intermediate termFacts:The P hired a ship from the D. The ship was not equipped with competent engine room employees

therefore significant time was lost during the voyage for repairs and damages caused by employees. Ratio: Breach of a Condition = gives rise to an event which relieves the party not in default of further

performance of primary obligationsBreach of Intermediate Term = remedies determined after the breach occurs based on the seriousness of the consequences not the breach and uses either of the remedies for a condition or warrantyBreach of a Warranty = party cannot treat himself as discharged from the k

Dec: Reaffirms the trial judge’s decision

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Krawchuk v Ulrychova (1996) (Prov. Ct)Reaffirmation of Hong Kong’s ratio of importation of intermediate terms into SoG ActFacts:The P bought a horse from the D when the D assured that the horse was in good heath. The P later

noticed the horse was cribbing.Ratio:The courts have adopted Denning’s ruling that the Sale of Goods Act can include intermediate termsDec: Damages awarded.

Wickman Machine Tool Sales Ltd. v Schuler A.G. [1974] (HL)Placing labels on terms in a k does not imply the legal definition of the label onto the term Facts:The P entered into a k with the D to be the sole seller of the D’s products. In order to ensure

aggressive sale tactics, the k contained provisions that the P would use very specific sale tactics. The P failed to comply strictly.

Ratio:Using the word ‘condition’ in a k does not imply the legal definition of a condition into the k. The surrounding clauses will the k will be examined to determine what definition of ‘condition’ was implied.

Dec: ‘Condition’ was not the legal definition.

Rescission versus Repudiation:

Rescission RepudiationRemedy for: Misrepresentation Breach of kType of Remedy:

Equitable - therefore no right to the remedy

Common Law - therefore there is a right to the remedy

Action: Ends the k, restores situation to conditions before the k

Ends the k – the innocent party has the right to terminate the primary obligations

Comments:

- this remedy is easily lost if it is not acted in right away (in some cases it is lost as soon as the k is entered into) - therefore would only be able to claim damages

Leaf v International Galleries [1950] (CA)There is a bar to rescission when an argument for repudiation is rejectedFacts:The P bought a painting from the D advertised as a ‘Constable’. 5 years later, the P was told it was

not a ‘Constable’ and tried to take it back to the D to get his money back.Ratio:If the k cannot be ended through breach of k, then it cannot be argued that a term is

misrepresentation and should be ended in rescission (there is a bar to rescission when an argument for repudiation if rejected.

Dec: Find for the D.

Entire versus Severable Contracts:

Severable K or Obligation = can be cut up into smaller obligations or ksEntire Obligations = cannot be broken down

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ð Courts are reluctant to severe contracts (Blue Pen Test = if the judge cannot draw a blue line through obligations in the k, then the k cannot be severed)

Qualifications on concept:a. In order to say that an obligation is performed, it simply needs to be

substantially performed (Fairbanks v Sheppard)b. Restitution may allow a party to receive value for the goods or services

performed even if the obligations of the k have not been fulfilled (Sumpter v Hedges, Cutter v Powell)

Fairbanks v Sheppard [1953] (SCC)Substantial Performance Doctrine = an obligation is completed when it is substantially completedFacts:The D contracted to build a machine for the P for a price. The P paid a small amount on the account

but when the machine was nearly complete the D refused to finish it until he received further payment.

Ratio: Substantial Performance Doctrine = an obligation is completed when it is substantially completed (for entire or severable contracts)

Dec: Appeal allowed, k cancelled.

Sumpter v Hedges [1898] (CA)Quantum Meruit = If the innocent party of an abandoned k takes the benefit of the work done, he can be liable for the cost of that work.Facts:The P contracted with the D to construct buildings for a lump sum. When the work was partly done,

the P said that he could not continue and abandoned the k. The D then finished the buildings himself.Ratio: When a k is not completed, it is treated as abandoned. The innocent party has the option to treat the

k as repudiated (which would end the k). BUT if the party takes the benefit of the work done, then he is creating a new k in which he is liable for the cost of that work.

Dec: Find for the D – P is not entitled to recover for the work done.

Cutter v PowellQuantum Meruit = restitution remedy allowing a party to receive value for the goods or services performed (even if obligations within the k have not been fulfilledFacts:A guy worked on a ship and then died. The court found that his obligation to work was an entire

obligation and therefore the employer did not have to pay for his workRatio:Quantum Meruit = restitution remedy allowing a party to receive value for the goods or services

performed (even if obligations within the k have not been fulfilled).

4. Excluding and Limiting Liability

Contractual Interpretations:

Machtinger v Hoj Industries [1992] (SCC)Terms can be implied into a k based on custom or usage, business efficiency or presumed intention and terms implied by law.

Scott v Wawanesa Mutual Insurance Co. [1989] (SCC)Terms in the k can make k interpretation very difficult.Facts:The P was insured by the D for fire. The P’s son was also covered by the insurance, but caused the

fire. The D refused to pay insurance compensation on the basis of a clause that stated damage caused by the insured will bar recovery.

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Ratio:In some cases, there will be a term in a k and it will be very difficult to give a definite answerDec: Find for the D.

Clauses Limiting Liability:

CL Provisions used to limit liability:1. Exclusion = excludes liability2. Limitation = limits liability3. Procedural = imposes a procedure that the law does not impose on someone

seeking compensation

Techniques used to control and reduce the use of the above provisions (because Courts do not like limiting liability:

1. Notice Requirementð In order to be bound by a clause, there needs to be an awareness of the

clause – do not need to know exactly what it says, just know that it is there (Parker v Se Ry Co.)(Thorton v Shoe Land) (Tilden v Clendenning)

ð Simply signing of the document does not constitute noticeð If the notice requirement is met, then the exclusion/limitation clause is

part of the k.2. Doctrine of Fundamental Breach

ð If there is a fundamental breach then an exclusion/limitation clause cannot apply (Karsales v Wallis) (

ð There is now legislation in England governing certain types of exclusion/limitation clauses

§ However, the problem is that the jurisprudence in England applies, but not the legislation and there is no comparable legislation in Canada

ð Doctrine no longer exists in Canada (Hunter Engineering v Syncrude) (Photo Production v Securicor)

3. Doctrine of Unconscionabilityð If there is inequality in the bargaining power at the time of acceptance

then the limitation/exclusion clause does not apply(Hunter Engineering v Syncrude)

ð Developed in response to Canada’s lack of legislation on the doctrine of fundamental breach

Parker v SE Ry Co. (1877) (CA)A person is not bound by Limitation of liability clauses unless they saw or knew of their existence.Facts:The P left their bags in the D’s storage room and received a claim tag that had a clause that excluded

liability on the back. The P states that they did not see the clause.Ratio:If a person did not see or know about the limitation of liability clause, he is not bound by it

If a person knew about the writing, he is bound by it (whether be believed that it contained conditions or not).If the ticket is delivered in such a way so that the writing is visible, then there is reasonable notice of the condition.

Dec: New trial ordered.

Thorton v Shoe Land Parking Ltd [1971] (CA)

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A limitation of liability clause is only binding if the customer had reasonable notice of the clause before entering into the agreement.Facts:The P parked in the D’s parking lot and was involved in an accident that was partially the D’s fault.

The D state that the ticket should exempt the D from liability since it stated that the ticket was issued subject to the conditions posted in the parking lot

Ratio:The customer is only bound by the terms on a ticket if the terms were sufficiently brought to his notice beforehand, but not otherwise (ie: as long as the customer can get his money back if he does not agree with the terms).Reasonable notice requires that the person must have a chance to read the conditions.

Dec: Find for the P.

McCutcheon v David MacBrayne Ltd [1964] (HL)A statement can be imported into a k if previous dealings show that a party knew or agreed to the term in previous dealings.Facts:The P asked a friend to have the D deliver his car. The friend took the car to the D, received a receipt

and gave the car to the D. The ship sank on its way. The P sues for its valueRatio: Previous dealings are relevant if they prove knowledge of the terms, actual and not constructive, and

assent to themIf previous dealings show that a party knew or agreed to a term, there is a basis for arguing that it can be imported into the k without an express statement, but it depends on the circumstances.If a term is not expressed in a k, then it can only be put into the k by implication. No implication can be made against a party that was unknown

Dec: Find for the P.

Tilden Rent-A-Car Co. v Clendenning (1978) (CA)Unless reasonable measures are taken to draw a party’s attention to terms in a standard form document, the terms are not enforceable.Facts:When the D rented a car from the P he signed the agreement without reading it, which was obvious

to the clerk helping him. The D alleges that if he knew about the terms of the k he would not have entered into it.

Ratio:A party seeking to rely on standard form documents cannot unless they have taken reasonable measures to draw the party’s attention to the terms, a signature will not suffice.Absent of such reasonable measures, it is not necessary for the party denying knowledge of such terms to prove fraud, misrepresentation or non est factum

Dec: Find for the D.

Delaney v Cascade River Holidays Ltd (1983) (CA)Not an important caseFacts:Delaney signed a liability release form and was then killed on the white water rafting trip. The

family is suing for compensationDec: Find for the DDissent: It is not practical to impose an obligation on a person after they have entered into a k.

Karsales (Harrow) Ltd. v Wallis [1956] (CA) Adopted in CanadaDoctrine of Fundamental Breach applies to all fundamental breachesFacts:The D inspected the car. The P bought the car and then leased it to the D for financing. Upon

receiving the car, it was not in the same condition as when the D inspected it. The D told the P he would not accept the car.

Ratio:Doctrine of Fundamental Breach = a breach which goes to the very root of the k disentitles the party from relying on the exempting clause.Exempting clauses cannot be relied on if there is a breach of the obligations imposed on a party

Dec: Find for the D.Problem: The doctrine is a very blunt instrument, and is applied to parties that didn’t need it.

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Photo Production Ltd. v Securicor Transport Ltd. [1980] (HL)Doctrine of Fundamental Breach no longer exists, but fundamental breaches doFacts:The D was in a k with the P to patrol the P’s business. The D’s employee purposely set fire to the P’s

business.Ratio:The Doctrine of Fundamental Breach no longer exists.

It is simply a matter of whether the parties intended the exclusion clause to apply.Dec: Find for the D.

TEST IN CANADA TODAY FOR DETERMINING APPLICATION OF EXCLUSION/LIABILITY CLAUSES

Hunter Engineering Co. Inc. v Syncrude Canada Ltd. [1989] (SCC)No doctrine of fundamental breach in CanadaTest for determining if an exclusion or limitation clause appliesFacts:Hunter was found to be liable for defective merchandise after the expiry of the contractual warranty.Ratio:There is no doctrine of fundamental breach in Canada.

The Test in Canada for determining if an exclusion or limitation clause applies is:1. Is the clause part of the secondary obligations or is it characterizing the primary obligations?2. Is there a statute that prohibits or regulates this clause?3. Was there notice of it?4. Construe it – what does it mean?5. If having construed it, you can still say that it was intended to apply then: i) unconscionability test (Wilson, Dickson), ii) Unfairness Test (Wilson)

Unconscionability Test = if there was an inequality in bargaining power at the time of ACCEPTANCE, then the clause does not apply. If not, considered Unfairness Test;

Unfairness Test = the court should consider what occurred subsequent to the k and decide whether, in the context of the exclusion clause, it can be said that it would be unfair to apply the exclusion clause to the particular situation.

PROBLEM with this test = there is no distinction between the types of k – the test has not been received well because it treats commercial ks the same as every k.

Sale of Goods Act, ss. 15-20For retail sale of new goods, cannot contract out of protection

5. Parol Evidence

RULE OF PAROL EVIDENCE: If a k has been reduced to writing and the writing appears to be complete, then the court will not hear parol evidence outside the written k

→ Application of this rule may be unfair in some cases→ Thus, lower courts tend to ignore the rule but upper courts tend to

affirm the rule

Gallen v Butterley (1984) (CA)Parol Evidence RuleFacts:Contrary to oral assurances the buckwheat sold to the P by the D did not act as a blanket and smother

weedsRatio:Parol Evidence Rule = there are 7 principles:

1. Rule of evidence – evidence can be introduced to establish an oral agreement separate from the written agreement. But in the case of two agreements made at the same time that contradict each other, the written one is stronger evidence.

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2. This is not an absolute principle3. There are exceptions4. The rationale of the principle does not apply with equal force where the oral representation adds to, subtracts from, or varies the agreement recorded in the document, as it does when the oral agreement contradicts the document.5. There is a presumption in law that a document that looks like a k is treated like a whole k. Therefore, it is very difficult to get around this presumption when what is oral is in total contradiction with what is written6. A unique document forms a stronger presumption than a standard form, though both have a strong presumption.7. The presumption would be less strong where the contradiction was between a specific oral representation and a general exemption clause that excludes liability for any oral representation than it would in a case where a specific oral representation was contradictory to an equally specific clause in the document.

Dec: Find for the P

6. Rectification

Rectification = written k is changed by order of the court

ð What is in writing is not the k, it is evidence of the k.ð When arguing for rectification, you are asking the court to rectify the written

evidence to follow the actual k (Bercovici v Palmer)ð There is a clear reluctance to rectify a k because if parties are reduced to putting a l in

writing, they were probably very careful about it. (Coderre v Coderre – P must prove beyond a reasonable doubt – very hard)

Bercovici v Palmer (1966) (CA)Subsequent actions can be considered when determining the intention of the kFacts:The D agreed to buy the P’s store. A misunderstanding took place and another piece of property was

transferred as well. The D claims the transfer was the intention of the k.Ratio:After a k is entered into, the subsequent actions of the parties can be considered to determine what

the intention of the k was.Dec: Find for the P.

Coderre (Wright) v Coderre [1975] (Alta. SC)Rectification of a unilateral mistake can take place if it can be proven beyond a reasonable doubtthat the k was intended to contain the term, but the k was concluded w/o the termFacts:The P and the D were involved in a divorce. They orally agreed that everything should be split in

half. The P then has her solicitor, at the request of the D, draw up the documents. She told the solicitor that they had agreed that the children should live in the house.

Ratio:On order to obtain a rectification on the ground of unilateral mistake, it must be shown that the mistake was of such a character that it would be obvious to the other party, and that in his taking advantage of it would amount to fraud or misrepresentation amounting to fraud.

Dec: Find for the D.

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EXCUSES FOR NON-PERFORMANCE OF THE K

1. Mistake

Mistake = one of the parties argues that he did not think that the k did what the other party says it did.→ Consequences = k is void (never came into existence) or k is voidable (k is

brought to an end)ð There is no absolute law on mistake.ð Mistake is almost always used as an alternative to misrepresentation. The

difference is that misrepresentation requires fault to be proven.ð An argument cannot just be made under mistake, some other doctrine must be

introduced

Smith v Hughes (1871) (Div. Ct.)First case on mistake – lays out three different requirements for mistakeFacts:The P agreed to buy old oats from the D, the oats tendered by the P were from the last crop.Ratio: 3 different opinions:

Cockburn: Assumptions outside the k are irrelevant. It does not matter what the parties thought, it is a matter of what the k was. This is a simple offer and acceptance. Mistake does not exist.Blackburn: In an action for mistake, the P must show that he was mistaken about what the D was promising. What is important is the mind of the P, it does not matter what the D thought.Hannen: In an action for mistake, the P must show what he was mistaken, the D knew about the mistake and knew that the P was mistaken.

Dec: New trial ordered.

Bell v Lever Brothers Ltd. [1932] (HL)A mistake about the subject-matter of the k may affect the kOne party or all parties can be mistakenThere are three areas in which mistake may occurFacts:The P hired the D. During employment, the P used the company to his private advantage. Later,

there was no need for the D anymore so P paid severance to the D. Later, P found out about the D’s private advantage and argued that had he known earlier he could have fired the P and not had to pay severance.

Ratio:A mistake made about something that is a term of the k can affect the k.A mistake can be made by one party, or by both

Areas where parties can be mistaken:a. the identity of contracting partiesb. the existence of subject-matter of the k at the date of the kc. the quality of the subject-matter of the k

Dec: Agreements void due to mistake.

VERY IMPORTANT CASE ON MISTAKESolle v Butcher [1950] (CA)Mistake can operate in either CL or EquityFacts:The P leased an apartment from the D at a rate that was higher than that allowed by legislation

because they agreed that it was worth it. Later the D sued the P for the amount paid above the legislation.

Ratio:There are two kinds of mistake: - even if the k is good in CL, it can be set aside in equity1. CL- Mistake that renders the k void – interpretation of the k determines if a mistake operates

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2. Equity - Mistake that renders the k voidable – mistake may occur if: a) a party was induced by a material representation b) if one party, knowing that the other party is mistaken lets him remain under the delusion c) the parties were under a common misapprehension that is fundamental – not necessarily in the k

Dec: Find for the D. Rescission granted.

Lindsey v Heron & Co. (1921) (CA)The outcome of an action in mistake is not predictableFacts:The D offered to buy shares of Eastern Caf. From the P. When the k was complete, the D stated that

he meant to buy Eastern Caf. Ltd, not the company he bought.Ratio:Different approaches in interpreting the k will result in different judgementsDec: Find for the P.

A. Mistaken Terms

→ Usually resolved under certainty of terms→ Unilateral mistakes ten to seek equitable remedy (but must come to court with

clean hands) (Glasner v Royal Lepage)

McRae v Commonwealth Disposals Commission (1951) (Aust. HC)Mistake cannot be used as a defence for non-performance of a k when what is argued to be a mistake is a term of the kFacts:The P bought an oil tanker from the D that was allegedly wrecked on a reef. When the P went to

salvage the wreck, it was not there. Ratio:In most cases, the parties have dealt with what is to be carried out by whom and it is a term of the k.

Therefore mistake is not an excuse for non performance.Dec: The D cannot use mistake as a defence.

Glasner v Royal Lepage Real Estate Services Ltd. (1992) (BCSC)To use mistake in equity, the party seeking the remedy must come to court with clean handsFacts:The D offered to buy the P’s home in an interim agreement that the house never did and does not

have UFFI insulation. The P knew that he could not sign such an agreement, and drew up a new one stating that the house does not have UFFI. The P then instructed the real estate agent not to tell the D that there had been UFFI and the agent went against the P’s wishes.

Ratio:To use mistake in equity, the party seeking the remedy must be innocent (ie: come to the court with clean hands).

Dec: Find for the D

B. Mistaken Identity

→ If a 3rd party’s legitimate expectation would be adversely affected, the court or equity will not grant a remedy (Lewis v Averay)

Lewis v Averay [1972] (CA)A mistake in identity can only be remedied in equityThis mistake renders the k voidable as long as it does not affect 3rd parties rights.Facts:The P sold a care to a man who presented the P with a cheque that bounced. The man then sold the

car to the D pretending to the P. The man is suing the D because he claims that the car is his.Ratio: Mistake in identity can only be remedied in equity

For an equitable remedy, a mistake of identity of one of the parties to the k does not render the k

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void. It means that the k is voidable, so long as he does so before 3rd parties have in good faith acquired right under it.

Dec: Find for the D

C. Non Est Factum= it is not my deed

→ Occurs if someone deliberately misled another into entering into a k – but the innocent party cannot be negligent

→ Remedy = void k

Saunders v Anglia Building Society [1971] (HL)Non Est FactumRatio: A person who signs a document differing fundamentally from what he believed it to be is disentitled

from successfully pleading non est factum if is signing of the document is due to his own negligence.The test for determining this is the reasonable person test: would a reasonable person have taken thesame actions as the party pleading it?

Marvco Color Research Ltd. V Harris [1982] (SCC)Non Est FactumFacts:The D thought that they were signing an amendment to their mortgage. However, their daughter’s

boyfriend got them to sign a new mortgage to another party. The D did not know what they were signing.

Ratio:same as in SaundersDec: Find for the P.

2. Frustration

***Always argue both frustration and non-frustration in an exam***

Frustration = Frustration occurs when then law recognizes that without default of either party a contractual obligation has become incapable of being performedbecause the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the k. (Davis v Fareham)§ Event must be unforeseen§ Cannot be self-induced

→ K can contain a specific clause which allocated the risk in the event of frustration, if no clause exists…….

→ Brings the k to an end.§ Both primary and secondary obligations are ended at the time of

the frustrating act§ Therefore, if the k is ended before one party has performed any

obligations, then the other party shoulders the entire burden of the frustration.

→ If a k is frustrated – it is likely that k’s that depend on the frustrated k will also be frustrated (though there is no guarantee)

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A. Development of the Doctrine:

Paradine v Jane (1647) (KB)CL historically did on allow frustrationFacts:The D leased the land from the P but was forced off the land during the civil war. The P is suing for

unpaid rent.Ratio:There is no such thing as frustration – if you make a promise then you must fulfill itDec: Find for the P

Taylor v Caldwell (1863) (QB)Frustration occurs when an item perishes and makes the performance of the k impossible, at no fault of the parties, as long as they did not provide for the circumstances in the k.Facts:The D entered into a k with the P to supply a concert hall for the performances. The hall burnt down.Ratio: When an item perishes, and makes the performance of the k impossible, at no fault of the parties,

then the parties are excused from the performance, unless they have expressly provided for the circumstances in the k.Frustration is based on an implied term in the k.

Dec: parties are excused from the k.

Davis Contractors Ltd. v Fareham U.D.C. [1956] (HL)Doctrine of FrustrationFacts: The P agreed with the D to build 78 houses in 8 months for a sum of money. Due to the post war

market – there was not enough labour available and the work took longer.Ratio:Frustration occurs when then law recognizes that without default of either party a contractual

obligation has become incapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the k.Frustration cannot occur if:1. the thing that prevents the k from being fulfilled could reasonably foreseen (a reasonable person would have foreseen it)2. the reason for seeking frustration of the k is of equal significance to both parties (ie: both parties would have thought to include it)Frustration is not based on an implied term (b/c then it could have been foreseen). It is a doctrine.

Dec: Find for the D.

B. Self Induced Frustration:= one party is at fault for the event that occurred

→ The courts are unlikely to find the k frustrated unless the innocent party brings the action for frustration

Maritime National Fish Ltd. v Ocean Trawlers Ltd. [1935] (PC)Self-Induced Frustration does not lead to a frustrated k.Facts:The P chartered a trawler from the D knowing that there was legislation that limited the number of

licenses granted for the trawler type. The P had five trawlers but was granted only three licenses. They allowed the licenses to apply to the trawlers that the P did not charter from the D.

Ratio:If the contract cannot be performed due to an act or election of one party, then the k cannot be frustrated and the party is responsible for the k.

Dec: Find for the D

C. The Application of the Doctrine:

Can. Govt. Merchant Marine Ltd. v Can. Trading Co. [1922] (SCC)

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Normally, economic problems and labour issues will not cause a k to be frustratedFacts:The D hired the P to transport lumber. Both parties knew at the time of the k that the ships were

under construction. Due to a dispute caused by the P, the ships were not ready on time.Ratio:Normally, economic problems and labour issues will not cause a k to be frustrated.

Only an unforeseen event can relieve a party from performing a k on the ground of frustration.Dec: Find for the D.

Capital Quality Homes Ltd. v Colwyn Construction Ltd. (1975) (CA)A change in legislation can cause frustration Facts:The P agreed to buy 26 lots from the P with the intention to convey them. New legislation was

enacted restricting the ability to convey. The D asked for his deposit money back.Ratio:Change in law can cause frustration

The doctrine of frustration can be applied to a lease of landAn intervening act can only cause frustration of it effects the fundamental nature of the kThere can be no frustration if: 1. one of the parties caused the act 2. the possibility of such an event was contemplated by the parties or provided for in the k.

Dec: Find for the D

Victoria Wood Development Corp. v Ondrey (1977)(HC)Change in legislation will may cause frustration, but may not Facts:The P agreed to purchase land from the D to subdivide. Before completion of the k, new legislation

was introduced that precluded subdivision.Ratio:Change in law does not necessarily mean there is frustration of a kDec: Find for the D

D. Frustrated Contract Act:

ð Outlines what occurs if a k is frustratedð The intention is to divide loss of frustration equally between the

parties

Application of Act1 (1) Subject to subsection (2), this Act applies to every contract

(a) from which the parties to it are discharged by reason of the application of the doctrine of frustration, or

→ The statute applies only if the k has been frustrated→ It does not define frustration – that is decided by the courts

(b) that is avoided under section 11 of the Sale of Goods Act.

(2) This Act does not apply to(a) a charter party or a contract for the carriage of goods by sea, except a time charter party or a charter party by demise,(b) a contract of insurance, or(c) contracts entered into before May 3, 1974.

Application of Act

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2 This Act applies to a contract referred to in section 1 (1) only to the extent that, on the true construction of that contract, it contains no provision for the consequences of frustration or avoidance.→ The act only applied if there is no clause in the k that deals with the act of

frustration (ie: no force majeure)

Government bound3 The government and its agencies are bound by this Act.

Act applicable to part of contract4 If a part of any contract to which this Act applies is wholly performed

(a) before the parties are discharged, or(b) except for the payment in respect of that part of the contract of sums that are or can be ascertained under the contract,

and that part may be severed from the remainder of the contract, that part must, for this Act, be treated as a separate contract that has not been frustrated or avoided, and this Act, excepting this section, is applicable only to the remainder of the contract.→ If the k can be severed into a k that has been completely performed and a not

performed part, then the performed part becomes a separate k and the obligations still exist and only the non performed part of the k is treated as frustrated

Adjustment of rights and liabilities5 (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.

→ Essentially anything done under the k even without delivery

Heart of the Statute:(2) Subject to section 6, every party to a contract to which this Act applies is entitled to restitution (see s. 7 and 8) from the other party or parties to the contract for benefits (see s. 5(1)) created by the party's performance or part performance of the contract.

→ You are entitled to get restitution for benefits created by your performance→ Party who partially performed an obligation is entitled to restitution

(3) Every party to a contract to which this Act applies is relieved from fulfilling obligations under the contract that were required to be performed before the frustration or avoidance but were not performed, except in so far as some other party to the contract has become entitled to damages for consequential loss as a result of the failure to fulfill those obligations.

→ Frustration allows all primary obligations to end (even if they were supposed to be completed before the frustrating act) BUT secondary obligations survive if a damages claim is already initiated

(4) 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

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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.

→ If the circumstances giving rise to the frustration reduce the value of the claimed benefits then the restitution amount will be reduced so that the lost value if split equally between the parties. (But it MUST be the frustrating event that reduced the value)

→ Complication – a person who has performed is not entitled to restitution if… see s. 6

Exception (situations not covered by the statute)6 (1) A person who has performed or partly performed a contractual obligation is not

entitled to restitution under section 5 in respect of a loss in value, caused by the circumstances giving rise to the frustration or avoidance, of a benefit within the meaning of section 5 if there is

(a) a course of dealing between the parties to the contract,(b) a custom or a common understanding in the trade, business or profession of the party so performing, or(c) an implied term of the contract,

to the effect that the party performing should bear the risk of the loss in value.→ If there is an implied term, custom or usage that states that one of the parties

was supposed to bear the loss of the frustration, then the statute does not apply.

(2) The fact that the party performing the obligation has in respect of previous similar contracts between the parties effected insurance against the kind of event that caused the loss in value is evidence of a course of dealing under subsection (1).

→ If one of the parties has insured against this loss in the past, then the statute does not apply BUT see s. 8(b)

(3) The fact that persons in the same trade, business, or profession as the party performing the obligations, on entering into similar contracts, generally effect insurance against the kind of event that caused the loss in value is evidence of a custom or common understanding under subsection (1).

→ Even if parties have never taken out insurance nor heard of it, if they areworking in an industry in which it is expected that insurance is taken out, then the statute does not apply. But see s. 8(b)

Calculation of restitution7 (1) If restitution is claimed for the performance or part performance of an

obligation under the contract, other than an obligation to pay money, in so far as the claim is based on expenditures incurred in performing the contract, the amount recoverable must include only reasonable expenditures.

→ Can only get reasonable expenditures, not actual expenditures

(2) If performance under subsection (1) consisted of or included delivery of property that could be and is returned to the performer within a reasonable time

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after the frustration or avoidance, the amount of the claim must be reduced by the value of the property returned.

→ If a benefit or cost is returned, then it’s value is not included in the restitution.

Calculation of restitution8 In determining the amount to which a party is entitled by way of restitution or

apportionment under section 5, account must not be taken of(a) loss of profits, or(b) insurance money that becomes payable because of the circumstances

that give rise to the frustration or avoidance, § Therefore if you do have insurance but weren’t expected to,

then the other party cannot benefit from it. Having insurance does not stop the operation of the act, therefore double compensation is possible

but account must be taken of any benefits which remain in the hands of the party claiming restitution. (same as s.7(2))

→ Court cannot consider loss of profits or insurance in the restitution amount.

Limitations9 (1) An action or proceeding under this Act must not be commenced after the

period determined under subsection (2).

(2) For the purposes of subsection (1), a claim under this Act must be a claim for a breach of the contract arising at the time of frustration or avoidance, and the limitation period applicable to that contract applies.

E. Formula for Application of the Frustrated Contract Act:

Does the Act apply?- see over

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Act does not apply

Act does not apply

Act does not apply

Act does not apply

Act does not apply

Act does not applyAct does not apply

Is the k frustrated?Yes (s. 1) No

STOPIs it an insurance k or made prior to 1974?Yes (s. 1(2)) No

STOP

Does the k specify what would occur in the case of frustration?Yes (s.2) NoSTOP

Is there an implied term, custom or usage that the party performing was supposed to bear the loss of the frustration?Yes (s.6(1)) No

Has the party performing the benefit insured against this type of loss in the past?Yes (s.6(2)) No

Does the industry in which the performing party is working expect insurance to be taken out for this kind of loss? Yes (s.6(3)) No

STOP

The act applies. But it only applies to certain parts of the k. Therefore, can the k be divided into a set of obligations that were completely performed and a set that were not? If so, then the obligations that were completely performed become a separate k in which the obligations still exist and only the non-performed part of the k is treated as frustrated.

(s. 4)

Is the limitation period on the k expired?Yes (s.9) No

STOP

DOES THE ACT APPLY?

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If the act applies, what will be awarded when the k is frustrated?1. Each party is entitled to get restitution for the benefits (something done in the

fulfillment of contractual obligations, whether or not the person for whose benefit it was done received the benefit) created by the performance – whether or not the benefit has been delivered or obligations are partially fulfilled. (s. 5(1) and 5(2))

2. If the act causing the frustration caused a reduction in the value of the benefits, then the restitution awarded will be reduced so that the lost value is split equally between the parties - however, the person performing is not entitled to restitution if anything in s.6 applies (s.5(4))

3. Only reasonable value for the expenditures will be awarded – not actual expenditures. There is no award for lost profits – just unjust enrichment (s. 7(1))

4. Any benefits have been returned, then it’s value is subtracted from the restitution amount (s. 7(2))

5. Loss of profits and any insurance money that results due to the frustrating act are NOT considered in the restitution amount. (s. 8)

The Presence of Insurance Arguments:- if a party has insurance – can argue that the k was not frustrated in the first

place because it was a foreseeable event- BUT if the presence of insurance means that the k is not frustrated at all,

why would the Frustrated Contracts Act address the issue of insurance?- COUNTERED: s. 6 deals with insurance in a very specific context

(contemplation of this insurance is a very narrow contemplation- therefore this section cannot be extrapolated to apply to all insurance) That is, this section states that s.5 does not apply is a very specific situation occurs.

- COUNTERED – s. 6 does not convey the above argument. It is much narrower. It is about having insurance for a specific event. Thus s. 1 and 2 still apply. There is not en expectation of insurance to cover the act of frustration, the expectation is that there is insurance to cover the damage (there are 2 types of insurance under the act – one that would cover the whole claim of a frustrating act which would go to s. 1 and 2, but the other is just to cover the loss)

3. Protection of Weaker Parties

→ The following doctrine are equitable doctrines, although duress has possible consequences in CL

A. Duress

→ Looks at a particular event – the duress must exist at the time the k was entered

Duress = Before – coercion of the will so as to vitiate consent (Poa On)Now – the compulsion under which a person, at the time of making the k

(Brooks v Alker – Henry J.), acts through fear of economic interests or personal

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suffering (of a spouse or a relative – just not a stranger (Brooks v Alker – Henry J.)) of injury to the body, or from confinement, actual or threatened so as to vitiate consent (Pao – Scarman J.) and make the k voidable.

→ If the CL recognizes the duress then the k will be void→ However, it is usually dealt with as an equitable doctrine and therefore it would

find the k voidable or that some of the obligations are not enforceable

Duress to the Person = threats to injury of the body or that of a another (not a stranger)Duress to Goods = threats to economic position (not claimable under CL) – originally

not claimable under equity until Pao On extended duress to cover economic duress.

→ It must be more than commercial pressure (Pao On)→ How to determine what is economic pressure and economic coercion is

unknown→ Economic duress is rarely successful (Gordon v Roebuck)

Pao On v Lau Yiu Long [1980] (PC)Economic duress is a valid cause of action in equityFirst test to succeed at economic duressFacts:Main K = F.C. & P → F.C. buying majority of Shingon (owned by P) shares w/F.C. shares. Subsid.

K = P & D → P not to sell shares f/1yr. after which D would buy back at $2.50 regardless of market value. Ps wanted benefit if value rose → New subsid. K = Ds to indemnify Ps if shares lost value and P affirms main K. Shares drop, P brings action to enforce new subsid. K.

Ratio:Economic duress is a cause of action that always operated in equityTo succeed on the ground of economic duress, the P must prove that his will was coerced and that the pressure exerted to do that was legitimate. There are 4 factors to consider in determining if a party has been coerced:1. Did he protest?2. Was there an alternative course open to him?3. Was he independently advised?4. After entering the k did he take steps to avoid it?

Dec: There was no economic duress in this case. Find for the P

Gordon v Roebuck (1992) (CA)REAL TEST for economic duressEconomic duress defences are rarely successfulFacts:The P and the D were both solicitors each acting as trustee for different investors in a joint

development of two apartment buildings. The P needed the D to execute documents for sale of a building. The P and D negotiated and agreed to a settlement in exchange for the execution. After execution of the sale, the P refused to honour the promissory notes and commenced action to have the k voidable by reason of economic duress.

Ratio:The test for economic duress is:1. Did he protest?2. Was there an alternative course open to him?3. Was he independently advised?4. After entering the k did he take steps to avoid it?5. Was the coercion legitimate? (rarely the actions are successful because usually economic duress is legitimate.

Dec: Judgment for the P. No duress.

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B. Undue Influence

= the influence which disables a person influenced from acting spontaneously of rom exercising an independent will.

→ Related to duress – but considers the nature of the relationship over time rather than the particular event at the time the k was entered.

→ Makes the k voidable

Key = the nature of the relationship of the parties (because of who the parties care, the stronger party is able to assert too much influence over the other party for them to have truly agreed to the k), influence one party has over another at the time of entering into the k not at the moment of creation of the relationship.

Geffen v Goodman [1991] (SCC)Presumption of undue influenceTest to determine undue influenceBurden of proofFacts:The Supreme Court of Canada reviewed a case from Alberta where a trust was set up by a "manic

depressive and immature" woman. She went to see a lawyer recommended by her brothers to set up a trust. After her death, her son was not happy with the trust and tried to have it set it aside arguing that his mother was unduly influenced by either the brothers or the lawyer.

Ratio: When a defence of undue influence is utilized, there is a burden in the influence person to show that they were incapable of acting spontaneously or had no independent will. (There is a presumption of undue influence can arise in certain relationships: (essentially those relationships in which there is a presumption of a fiduciary obligation) parent – child, guardian – ward, solicitor – client, trustee –beneficiary, physician – patient, religious advisor – advisee)

The test to establish undue influence is:a. establish there was undue influence between the parties (examine the relationship between the parties – is there a potential for self-determination?)b. then examine the actual k to see whether the influence lead to an unfair k (only applies in context of commercial transactions – but can be argued to be obiter since this case was not a commercial transaction)

Once this presumption is established, it must be rebutted by with evidence that the transaction was entered into “as a result of his own free will and informed thought”

Dec: The trust was allowed to stand

C. Unconscionability

= invokes relief against unfair advantage gained by an inconscientious use of power by a stronger party against a weaker one.

→ Determines whether the k is unconscionable - does not focus on the parties, focuses on the transaction.

§ The result is: courts are more apt to tinkering with the k and finding part of the k unconscionable

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Morrison v Coast Finance Ltd. (1965) (BCCA)Created doctrine of unconscionabilityTest to determine unconscionabilityFacts: A 79-year old widow was induced into mortgaging her home to allow two men to buy cars.Ratio:Created the doctrine of unconscionability

The test to determine unconscionability:1. proof of inequality arising out of the weaker party’s ignorance, distress, or need which left him in power of the stronger party.2. Proof of substantial unfairness obtained by the stronger party3. The stronger party must repel this by proving the bargain was fair, just and reasonable.

Dec: Find for the P – the k was unconscionable

Harry v Kreutiziger (1978) (CA)There are two tests for unconscionabilityFacts:A fishing boat was sold in a high pressured bid by the defendant.Ratio:McIntyre – basically reiterates the Morrison test for unconsciouability (Where a claim is made that a

bargain is unconscionable, it must be shown for success that there was inequality in the position of the parties due to ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown, a presumption of fraud is raised, and the stronger must show, in order to preserve his bargain, that it was fair and reasonable)

Lambert – sets out a new test for unconscionability – he tried to take the focus away from the individual and more on the k.The test = Did the transaction, seen as a whole, diverge significantly enough from community standards of morality so that it should be rescinded?Problem = what is the community? What is morality? What is immoral?

Dec: Find for the P

Lloyds Bank v Bundy [1975] (CA)Denning groups all mechanisms of protecting weaker parties togetherShows that one cannot pigeon hole anything into one category of protection – they all overlapFacts:The D owns a farm that was in the family for 100 years. He mortgaged it for his son to maintain his

business and the bank foreclosed.Ratio:Contracts can be set aside by the courts when the parties have not met on equal term under the

following categories:1. Duress of goods = in equality in bargaining power (renders the transaction voidable)2. Unconscionable transaction = unfair advantage has been gained by an unconscientious use of power by a stronger party against the weaker.3. Undue Influence4. Undue pressure = a k should be based upon free and voluntary agency of the individual who enters into it.Denning thinks that all the mechanisms to protect weaker parties should be considered together.(“All of the above have a common thread. English law gives relief to one who, without independent advice, enters into a k upon 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 pressure bought to bear on him or for the benefit of another”). THEREFORE UNCONSCIONABILITY MUST EXIST AT TIME K IS CREATED, IT CANNOT OCCUR LATER (Lambert was trying to avoid this is Harry) This statement has been specifically overruled by the HL but has been picked up in Canada (Wilson in Hunter v Syncrude) as having some merit.

Dec: Find for the D. Unconscionability existed.

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4. Illegality

= the parties are trying to accomplish something in the k that they ought not to do according to the law.

There are 2 categories of illegality:1. Statutory Illegality

= the making of the k is expressly or impliedly prohibited by statute.- the question is always one of legislative intent- 2 types:

a. direct = the formulation of the k is illegal – the k becomes voidb. indirect = the formulation of the k itself is not illegal, but the direct

consequences of the k are – the k is not void but it can be argued that the k is not enforceable.

2. Common Law Illegality= k can be rendered unenforceable on grounds that it is contrary to public authority

- The contracts that would fall into this category are:a. a k to commit a legal wrongb. the k is injurious to public life or foreign relationsc. a k purporting to oust the jurisdiction of the court (ex: an agreement

not to go to court – therefore must always have a statutory basis for arbitration, mediation etc.)

d. if it is prejudicial to the administration of justice (ex: a k to stifle a prosecution)

§ maintenance = giving assistance to someone to encourage them to litigate when you have no interest in the case (ie: there is no motive for interfering)

§ champerty = the maintenance of an action where the maintainer will be given a share of the proceeds of the action.

e. Restraint of trade contracts = a k between parties to restrict free trade (ex: Collins v Elsley)

f. Immoral ks and ks prejudicial to the status of marriage (typically ks about sex)

= ex turpi causa non oritur action – the court will nto hear an immoral action

§ also cannot have a k with somebody by which they agreed not to marry and ks that undermine existing marriages (prenuptials, separation ks etc)

JG Collins v Elsley [1978] (SCC)Restraint of trade clauses – illegality it determined by weighing public interests for freedom of k and promoting competition.

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Facts: The P bought a company from the D. D stayed on as an employee. They made a k whereby the D could not set up a competing business for a period of time. When the P left, he set of his own business. The P is suing for breach of k. The D is using the defence of illegality of a clause.

Ratio:A covenant in restraint of trade is enforceable only it is reasonable between the parties and with reference to the public interest – competing demands must be weighed between public interest in freedom of k and promoting competition.Generally courts will allow freedom of k over the restrictive covenant causing restraint of trade unless public interest is severely affected.The longer the restrictive covenant lasts and the larger the geographic area the more likely it will be found to be in restraint of trade.

Dec: The clause is valid and enforceable.

Still v Minister of National Revenue [1998] (CA) (Statutory Illegality but the CL illegality approach is similar)Approach for determining if the illegality defence is availableFacts:The P thought the document she received after applying for permanent resident status entitled her to

work. She worked and paid into an unemployment plan. When she was laid off she tried to claim under the plan and was told that she was working illegally and could not receive the benefits.

Ratio:The law has developed a complex method of dealing with illegality.OLD APPROACH = If the formulation or making of the k is illegal then the k is void. However, if the consequences of the k are illegal then the k is not void, but it can be argued that the k is not enforceable (intention and policy are considered)Unenforceable means the k will not be enforced by the courts – however courts may find a way around an unenforceable k though restitution or:1. where the party claiming for return of property is less at fault2. where the claimant ‘repents’ before the illegal k is performed3. where the claimant has an independent right to recover (ex: where recovery in tort might be possible)NEW APPROACH = Whether the illegality is direct or indirect one can argue that the k is not void. – the purpose of the law is considered and how it is best served in a specific purpose (therefore very unpredictable)(must go to court)

The choices for remedy are = void, voidable, unenforceable or a combination of those.Dec: Find for the P

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REMEDIES→ depend on the nature of the 1° obligations that have been broken→ sometimes the 2° obligations will be explicit within the k, but if they are not, the

following cases will help determine the remedies for breaking the 1° obligations.

→ there is a right to CL remedies (damages), but must argue for equitable (specific performance, injunction) remedies (there is no right to them)

1. Damages

§ As soon as an obligation is breached – there is a right to damages

§ CL remedy

§ Damages in torts = the court looks backwards and awards money that is meant to restore the party to the position he was in.

§ Damages in contracts = the court looks to the future and awards money that puts the party is the position that it would have been had the promises been fulfilled.

Characterization of Damages:

1. Interest Protecteda. expectation = the money expected to get or save from the k (ex: profits) b. reliance = the expense incurred because the innocent party relied on the k

(ex: expenses)c. restitution = tend to be a debt owed by the innocent party (ex: owe money)→ expectation and reliance damages tend not to both be awarded – it is

usually only 1 or the other (Sunshine v the Bay)

2. Overarchinga. general b. special

3. Heads of Damagea. loss of profitb. wasted expenditurec. interestd. etce. etc

Fuller and PerdueReasons for awarding damages

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Expectation Interest = puts the P is as good a position as he would have been had the D performed what he promised (AVG Management, McRae)

→ MAIN REASON FOR AWARDING DAMAGES – but there are some instances where damages in k will not protect an expectation interest because it is hard to value the expectation monetarily. Thus, sometimes money will be awarded for reliance interests (McRae)

→ These interests are profits and are therefore hard to quantify (McRae)Reliance Interest = puts the P in as good a position as he was before the promise was made

AVG Management Science Ltd. v Barwell Dev Ltd. [1979] (SCC)Expectation interests should be used.Facts:A vendor sold the same land twice believing that the first deal had fallen through. The error was

done in good faith; there was no attempt at fraud.Ratio:Expectation interest should be used, even in an interest for landDec: Damages increased.

McRae v Commonwealth Disposals Comm (1951) (Aust HC)When expectation interests cannot be determined, reliance interests should be awardedFacts:The P bought an oil tanker from the D that was allegedly wrecked on a reef. When the P went to

salvage the wreck, it was not there.Ratio:The purpose of awarded damages in contracts is to put the innocent party in the position that the

party would have been had the k been performed, to the extent that money can do that (“expectation interest”)

When expectation cannot be quantified the court will award damages for reliance

IF as a party to a k a person suffers loss of expenses as a result of the other party failing to fulfill their obligations (costs incurred in reliance of the other party’s obligation) the innocent party may (can always theoretically but not practically) be able to claim damages for those wasted expenditures.

Because the expenses must truly be wasted the court will examine the expenses to determine whether or not they could be used elsewhere or sold etc.

Dec: Since there was no way to determine what the tanker would have been worth if it were found –reliance costs were awarded.

Sunshine Vacation Villas v The Bay (1984) (CA)Both reliance and expectation damages cannot be awarded unless it will not over compensateFacts:The Bay reneged on a deal to allow the P to become the exclusive travel agency in several of its

western Canada stores.Ratio:Damages cannot be awarded for both reliance and for expectation because it would result in double

compensation (therefore one can only receive both reliance and expectation damages if it would not overcompensate the innocent party)

2. Quantification

It is easy to put damages into categories, but it is very difficult to quantify them

General Damages = (market value of what was supposed to be delivered) – (the market value of what was delivered)

OR

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= (market price that innocent party paid) – (contract price that innocent party was supposed to pay)

When a k is broken, the P is an innocent party and the court will assist the P wherever possible – but the burden of proof is on the P

Chaplin v Hicks [1911] (CA)If there is a breach of k, the P has a right to damages even if they are impossible to calculateFacts: A contestant in a beauty contest complained that although she was one of fifty finalists, the final

selection appointment was given on such short notice that she did not receive the letter on time to make the appointment. In defence, the argument was that the chances of the contestant to win, in any case, were impossible to assess. (There was a breach of k and the P has a right to damages)

Ratio:The fact that the expectation damages are almost impossible to calculate does not relieve the wrongdoer of the necessity to pay damages for breach of k

Dec: Find for the PReas: When a k is breached, the P has a right to damages even if they are near impossible to calculate.

It may be very difficult to come up with a figure for damages, but the court is required to award something and must do the best it can.

Nu-West Homes v Thunderbird Petroleums (1975) (Alb. CA)The P is required to act reasonably to mitigate the effects of the breached kFacts:Nu-West failed miserably at constructing a house for Thunderbird, causing serious dispute between

the two parties (the defendant complaining about serious deviations), to the point where Nu-West stopped construction. The evidence showed that Thunderbird then hired another contractor to finish the job and was advised that even the concrete foundation would have to be removed and redone to correct some deficiencies. The D argued the P removed more than it needed to.

Ratio:The P is not expected to behave perfectly to mitigate the effect of the breached k. The P is required to act reasonably to mitigate the effects of the breached k.

Dec: Find for the P.

Groves v John Wunder Co. (1939) (Minn. CA)Very good judges can come to profoundly different conclusions for damages on the same factsFacts: Land was leased to a competitor on the condition that he leave the ground on "uniform grade." The

contract was breached "deliberately." The value of the land was about $15,000 but the cost of grading the land as had been promised was $60,000.

Ratio:Very good judges can look at the same facts and can come to profoundly different conclusionsReas: Making the property uniform grade would not increase the property value very much at all (and it

would cost more than the property itself is worth)Dissent: It is not about how much the property value will be increased. The D agreed to make the property

uniform grade regardless of the price it was to him.

Damages for Non-Quantifiable Harm:

Jarvis v Swans Tours [1973] (CA) ***MIGHT NOT BE GOOD LAW***Damages can be awarded for mental distress due to a breached kFacts:The P bought a holiday from the D based on a brochure that provided various assurances about the

holiday. The holiday did not live up to the brochure by a long-stretch and the P is suing the D for damages.

Ratio:Damages can be awarded for mental distress due to a breached kBut this is only really successful in an action if the k includes a state of mental contentment (ex: holiday)

Dec: Find for the D

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Problem: What damages do you get and what proof is required?

Newell v CP Airlines (1976) (Ontario Trial Court)Supports Dennings finding in JarvisFacts:The P is suing the D for breach of k when the P hired the D to carry their two dogs in a ‘safe

manner’ to Mexico City from Toronto. The P are seeking special damages which they submit were incurred from the anguish, loss of enjoyment of life and sadness when one dog died and the other became severely ill

Ratio: Sometimes damages will be awarded for things that are very difficult to quanitifyThe P can recover damaged for reasonably foreseeable consequences of the D’s breach of k

Dec: Find for the P

3. Remoteness

Any claims for damages first go to Hadley v Baxendale and then to the following cases for the gloss.

Hadley v Baxendale (1854) ***VERY IMPORTANT CASE*** = TEST FOR DAMAGESTest for awarding damagesFacts:A broken shaft was given to a carrier to bring to a repair shop. The carrier was not told that the

absence of the shaft meant complete work stoppage for the owner. The carrier was in breach of contract by being several days late in delivery. Admitting to damages, the defendant nevertheless argued that the loss of profit damages were too remote.

Ratio:Damages will be awarded for losses that:a. General Damages = occurred naturally from the breach (anyone else that would have suffered the breach would suffer the same losses) (“may fairly and reasonably be considered arising naturally, according to the usual course of things, from the breach itself”)b. Special Damages = were contemplated by the parties as a probable result of the breach of k (ie: will flow from a breach of k from what the parties know but not what is in the k) (“anything that that may reasonably be supposed to have been in the contemplation of both parties at the time they made the k, as the probable result of the breach”)

Dec: New Trial

Victoria Laundry v Newman Industr. Ltd. [1949] (CA)Made the test for remoteness very broad (more like the torts test)Facts:The P bought a boiler from the D who agreed to deliver it by a certain day. The boiler was broken

during the dismantling process on the D’s property and therefore had to be fixed. Thus, the boiler was delivered to the P late.

Ratio:The court found 6 propositions:1. The rule that damages try to put the innocent party in the same position as it his contractual right has been fulfilled, can be too harsh at times because some damages are too unpredictable or improbable.2. Only damages which are “reasonably foreseeable” from the breach are recoverable.3. What was ‘reasonable’ depends on the knowledge of the party that commits the breach4. Knowledge can be imputed or pf special circumstances outside the ordinary course of things of such a king that a breach would be liable for more loss5. It is not necessary to prove that the wrongdoer contemplated the loss. “Parties at the time of contracting contemplate not the breach of the k, but its performance. It suffices that, if he had considered the questions, he would as a reasonable man have concluded that the loss in question was liable to result”.6. It is not necessary to foresee “that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough if the loss is a serious possibility, real danger or in the cards”

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Dec: Appeal allowed

Koufos v Czarnikow (The Heron II) [1969] (HL)Overrules the broad definition of remoteness in Victoria, for a much narrow definitionFacts:A ship delivering sugar breached its k to deliver the sugar on time. The sugar arrived 9 days late and

the price for sugar had dramatically decreased in this time.Ratio:The test for remoteness in contracts should be more difficult than the test for remoteness in tortsDec: The loss of profit was too remoteReas: Liability is easier to establish jn contracts: at the outset of the k the parties decide to make a

relationship and determine the obligations of that relationship. Therefore damages should be less in contracts than in torts because it is harder to establish liability but once it is established the remoteness is easier to fulfill.

4. Limits on Recoverability

Vorvis v ICBC [1989] (SCC)Punitive damages will rarely be awardedAggravated damages can be awarded for mental distress in employment contracts and if there is an actionable wrongFacts:A lawyer was dismissed in a heavy-handed way from a BC Crown CorporationRatio:Aggravated damages can be awarded for mental distress but it has to be in the context of

employment contracts and there must be an actionable wrong (ie: a claim that can be brought in tort, but has been brought in ks)Punitive damages (ie damages to punish the D) will rarely be awarded – there must be harsh, vindictive, reprehensible and malicious nature (courts are very reluctant to award punitive damages in contracts claims – there usually has to be something close to defamation)

Dec: Find for the D

Wallace v United Grain Growers Ltd. [1997] (SCC)Reaffirms VorvisIf someone is fired in a demeaning way the notice period is longer and therefore there has to be more compensation Facts: The D hired the P with assurances of job security and remuneration. The P was the top salesperson

in the D’s business and without any explanation the D fired the P.Ratio:Damages for mental distress are not recoverable for wrongful dismissal unless there was a separately

actionable course of conductVorvis was right, but is someone is fired in a demeaning way the notice period is longer and therefore there has to be more compensation

5. Mitigation

White and Carter v MacGregor [1962] (HL)The party claiming damages has an obligation to mitigate the harm caused by the breach of kFacts: An employee executed a 3-year contract with a local waste disposal firm for the rental of advertising

space on receptacles. The contract had a clause that if any payment was late, the whole 156 weeks worth was immediately payable. When he discovered it, the business owner was furious with the contract and repudiated it, refusing to pay

Ratio:The party claiming the damages has an obligation to mitigate the harm caused by the breach of k.Therefore, in situations where accepting the anticipatory breach would reduce the amount of harm from a breach of the k, a legitimate interest must be shown in order not to accept the anticipatory breach and receive full damages for the breach of k (including the extra harm caused by not accepting the breach)

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6. Time of Measurement of Damages

Damages could be calculated at:- the time of the breach (usually used)- the time of the judgement- the time of payment of the judgement

Semelhago v Paramadevan [1996] (SCC)When dealing with the market value of land, damages are measured at the time of the judgementWhenever damages are awarded instead of specific performance, they are calculated at the time of judgementFacts:The P agreed to buy a house from the D. To finance the purchase, the P mortgaged his current house.

Before the closing of the deal, the D reneged on the k and the P remained in his old houseRatio:When dealing with the market value of land, damages are measured at the time of the judgement,

which is an exception to the general rule of when to calculated damagesReas: This is because the standard remedy for land is specific performance and you only get damages if

specific performance is not available. Therefore the innocent party is only entitled to damages when the court finds that specific performance is not available. Therefore, the market value is determined on the date of judgement not the date of breachWhenever damages are being awarded instead of specific performance, they are usually calculated on the date of judgement not the date of breach

7. Liquidation Damages, Deposits and Forfeitures

Shatilla v Feinsten [1923] (CA)

Facts:Ratio:Dec:

H.F. Clarke Ltd v Thermidaire [1976] (SCC)

Facts:Ratio:Dec:

JG Collins Insurance v Elsley [1978] (SCC)

Facts:Ratio:Dec:

Stockloser v Johnson [1954] (CA)

Facts:Ratio:Dec:

Law and Equity Act, s. 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 the court thinks fit.

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8. Equitable Remedies

Mennonite Land Sales v Friesen [1921] (Sask. KB)

Facts:Ratio:Dec:

Warner Bros. v Nelson [1937] (KB)

Facts:Ratio:Dec:

Zipper Transportation v Korstrom

Facts:Ratio:Dec: