REMEDIES FOR BREACH OF CONTRACT
Common Law Remedies: most common type is damages
Equitable Remedies: specific performance (infrequent)

Rational behind damage rewards:
-find balance between protecting the ptfs interests while not unduly burdening the def

                              The Compensation Principle

Common Law Remedies:
Interest        Purpose                       $$ Measure           Justice

Restitution            prevent unjust         benefit to def       corrective
                       enrichment                                  (status quo)

Reliance               prevent harm           loss to ptf          restorative
                       to ptf                                      (status quo)

Expectation            fulfill promise        expected benefit     (re)distributive
                       of k to ptf            to ptf

Awarding Damages:

General Purpose: put π in same position would have been in had K been performed
       Authority: Wertheim v Chicoutimi Pulp (Lord Atkinson)

Default Measure: expectation interest

$$ Measure: cost of performance
      -cost to restore status quo (reliance) + lost profits
                      PROBLEMS IN AWARDING DAMAGES

               1.     Cost of performance exceeds value gained
               2.     Lost volume
               3.     Exp. Damages too speculative to calculate
               4.     π would have lost money on the K

1: Cost of Performance exceeds value gained

Big pple: the price of consideration may limit the damages awarded if it is way out of
proportion with the cost of performance
       -wedding photographer: cost to re-perform reception is $8000, but price of
       consideration was only $400 – grossly disproportionate!

How damages are awarded in this circumstance:
  1. cost of performance
             -Radford: awarded $ to build fence
  2. value added/lost
             -Peevyhouse: awarded the amount of money that the property value would
             have been increased if k performed
  3. value added/lost + consumer surplus/psychic reward
             -Ruxley: no economic loss for pool being 9” too shallow, but awarded
             money for his disappoinment (consumer surplus/psychic satisfaction)
             -wedding photographer: couple given cash for dissatisfaction

Factors judges consider when awarding damges in this circumstance:

Doctrinal considerations:
-size of disparity between cost of performance and value gained
-was performance the essence of the k, or ancillary?
        -Peevyhouse: restorative work was essence of k, but court said ancillary
        -Radford: essence of k was to build fence
-was the purpose monetary or non-monitary (ie psychic satisfaction)
        -Radford: fence for privacy, not property value
        -Spice Girls Statue: purely for enjoyment, not monetary value
-does ptf intend to use reward money to perform the k?
        -Peevyhouse: court said no, they‟d buy 9 more farms, not fix this one
        -Radford: court said yes, he‟d build the fence

Policy considerations:
-sanctity of k: importance of certainty/predicability and dependability on k‟s
-economic waste: was it an efficient breach?
        -Jacob v Young: inefficent to award cost of performance and rip down building to
        replace one brand of pipes with another identical brand
        -Bowlay Logging: ptf was losing $ on k, def breached – best thing for ptf!
-unjust enrichment: of def where already paid for breached promise
                    of ptf where no intent to devote damages to performance
-unfair surprise: was def aware at time of k of his extent of liability? (or ought have been)
        -Peevyhouse: Garland Mining knew terms of k, so no surprise that liable

#2: Lost Volume

-usually occurs with commercial/retail k‟s
-rule: as long as vendor‟s supply exceeds demand, can claim lost volume  lost profit
-case: Victory Motors v Bayda
        -customer breached k to buy car; dealer sold that car to other customer
        -BUT dealership‟s supply exceeded demand, so had customer performed the k,
        would have made TWO sales instead of ONE

#3: Expectation Damages too speculative to calculate

Principle: one has the option to claim different measures of damages

Problem: if you have no idea what profits would have been, can‟t claim for lost profits
       -or if it would be too expensive to predict profits and gather supporting evidence

Solution: claim reliance damages instead (wasted expenditures)
       -reliance damages include pre-k and post-k expenditures
               -Anglia TV v Reed: Reed breached k and held liable for pre-k expenses

Problems with liability for pre-k reliance damages:
(so problematic, the USA doesn‟t give pre-k reliance damages!)

Conceptual problem:
-how can we call pre-k expenses „reliance‟ damages, when there was no k to rely on?

Fairness problem:
-if def hadn‟t signed the k, the pft would have been totally responsible for its
expenditures. How can this responsibility be shifted to the def when he signs?
-it just doesn‟t seem right!

Time Lapse problem:
-is there a difference in liability if def breaches k after 3 weeks – 3 days – 3 minutes –

Solution: today someone would probably only be found liable for pre-k expenses if there
was a specific clause in k wherein they accepted responsibility for them.
 #4: Damages are Uncertain
- no absence of evidence like with speculative damages – just uncertain
- ie if the π only lost a chance to profit?
          - ie Anglia TV v Reed: π lost a chance at a profitable movie
          - just because damages can‟t be assessed with certainty doesn‟t preclude award!
- must be “reasonable probability that π would have gained “an advantage of some real
substantial monetary value”
          - Kinkel v Hyman: no chance? no damages!
- formula: expected loss = (amount of damage award) x (probability of success)
          - Multi-Malls Inc v Tex Mex Properties: 80% chance of getting k, so given 80%
          of potential profts

#5: If Δ proves π would have lost money had k been performed, no compensation

-principle: court will not put π in a better position than if k had been performed
        -don‟t compensate for stupidity and entering into bad k‟s

-onus is on the Δ to prove that π would have lost money, had k been performed
        -Anglia v Reed: Reed could not prove that movie would have lost money (exp
        damages were too speculative)  therefore π was able to claim damages
        -Bowlay Logging v Domtar: Δ did breach, but was able to prove that π would
        have lost money, had k been performed  therefore no claim for damages

-policy rationale: awarding reasonable compensation to π without imposing unfair
surprise on Δ

Rationale behind limiting liability:
-in Hadley, judges give selves the ability to review damages awarded by juries
-context of industrial revolution: must provide legal context in which business can grow
       -stability, uniformity, protection against floodgates opening on liability
       -Winterbottom v Wright: carriage driver injured by faulty carriage manuf.

Hadley v Baxendale (1854)
Test to determine Remoteness:
Damages are recoverable for the following types of consequences:
        1. consequences arising naturally from the breach, or that could have been in the
            parties‟ contemplation as a natural result of breach
        2. special circumstances communicated to Δ at time of k

Test for recoverable damage:
   1. no – shut down of mill not naturally occurring from delay of shaft delivery
   2. no – cmxd thru employees only – principles not resp for agents

Why must special circumstances be cmxd to def?
1. Δ must know they‟re taking on extra risk so can adjust charge
2. Δ must know how careful to be, req‟d std of care
3. Δ must accept the extra risk to be liable for it (ie must have option to refuse) (Horne)

Victoria Laundry v Newman Industries (1949)
Test: 1. yes – recovery for loss of normal profits
        2. no – no cmx of lucratic K‟s
Diff from Hadley:
        1. Δ had expert knowledge of product vs just a carrier
        2. Δ had knowledge of π business, importance of product
        3. retailer offered to take on resp for delivery (carriers had to take resp)
        4. proportionality of consideration: Hadley 25:1, Vic 2:1
        5. cmx between employees, but diff era – now principles resp for agents

Heron II (Koufos v C Czarnikow) (1969)
- Leading contemporary english case on remoteness
1. replaces old doctrinal test: whether damages are reas foreseeable as likely to result
        - new doctrinal test: “within reas contemplation”
        - old test is tort std: too broad, allows too much remoteness for K
2. collapses 2 part test from Hadley into 1 rule:
        “were damages within the reas contemplation of parties at time of K”
        - Δ knowledge NB: - actual cmxd knowledge
                                   - imputed knowledge of reas person
Horne v Midland Railway Co. (1873)
- lucrative K to sell shoes to french army
- Remoteness test:
         - insufficient cmx of special circumstance of lucrative k
         - Δ is common carrier – unfair to have extra liability without extra consideration
         - no expressed acceptance of liability
- mere cmx of special circumstances not enough – Δ must expressly accept extra risk
         - ct promotes „risk assignment bargaining‟ which leads to econ efficiency
         - institutional benefit: easier to decide cases

Cornwall Gravel v Purolator Courier (1978)
- tender delivered late for K worth $70,000 profit (assume would have gotten K)
- test: special circs were cmxd (employee cmx is valid now)
- discussing special circs and then accepting goods is acceptance of risk
- purolator created own misfortune – promised on time!
- liability clause in K only for loss, not delay – therefore inapplicable
- note changes thru req‟d cmx and acceptance stds (Hadley  Horne  Cornwall)
         - reflects chg social and economic circumstances

Remoteness Summary
- policy rationale: balancing π‟s reas expectations with Δ‟s unfair surprise
- is there an express provision in K about liability?
- factors to consider in remoteness:
         - how probable was it that the loss would occur
         - cmx: what was said, and how clearly
         - Δ knowledge: general and specific to business
         - nature of Δs business (ie transport companies won‟t be experts in π‟s businesses)
         - commercial sophistication: more soph Δ, Δ more liable; most s. π, Δ less liable
         - customary understandings of the trade: how things are done
         - proportionality between consideration and damages
                     NON-PECUNIARY DAMAGES:

RULE: no compensation for intangible harm in contracts
      - k is about money and the pursuit of self-interest; hurt feelings don‟t matter
      - different than tort (public welfare); k = private interests

EXCEPTION: Peace of Mind K‟s
- essence of k is to provide psychic satisfaction, peace of mind
- ie Radford: privacy fence; Ruxley: pool depth; Sooter Studios: wedding photos
        1. holiday k‟s
        2. deceased remains k‟s
        3. disability insurance k‟s
        4. pets
        5. employment k‟s

1. Holiday K‟s
- leading case: Jarvis v Swan’s Tours
- essence of k isn‟t for the events that will occur, but for the intangible enjoyment derived
- Rule: damages for mental distress are recoverable if contract‟s purpose is to provide a
specifically non-financial benefit of entertainment / enjoyment, such as lost enjoyment /
disappointment after breach of holiday contract
- promise to provide this enjoyment is breach of k
- awards either exp or reliance damages – unsure (probably reliance)

2. Deceased Remains K‟s
- bodies lost in funeral homes, or ashes lost by crematoriums
- psych benefits more NB than services themselves

3. Disability Insurance K‟s
- wage indemnification plans
- peace of mind: if I ever get disabled and can‟t work, will have money

4. Pets
 Newell v Canadian Pacific Airlines (1976)
- 1 dog sick, 1 dog died from CO poisoning in cargo hold of plane
- Δ liable for value of dog, medical treatment, mental distress
- Δ should have known that psychic loss would result from harm to pets
- weird decision:
        - relies on Hadley v Baxendale’s foreseeability:
                 - a remoteness case used to extend damages?
                 - suspect doctrinal validity
                 - not liable unless there is a duty
        - use of foreseeability: floodgates for responsibility for intangible harm!
        - could have gotten way more money if sued in negligence
5. Employment K‟s

- employment k‟s are sui generis – a type unto themselves
       - we don‟t apply general k principles here

- aggravated damages:
       - get extra damages if the manner of breach aggravates the harm done by
       imposing mental distress/intangible harm
       - test: 1. k was for peace of mind (Jarvis)
               2. an indep actionable wrong occurred (Vorvis)
               (π must prove one or the other)

- common law context:
      - an employer can fire an employee at any time for any reason
      - cause to dismiss: can be fired without notice
      - no cause: must give reasonable notice, or pay in lieu of notice
      - wrongful dismissal: no cause, no notice or unreas notice
      - fired employee has duty to mitigate damages by seeking new employment

Vorvis v ICBC (1989)
- rule for aggravated damages: mental stress must be caused by the dismissal (ie anything
prior to dismissal is irrelevant); possibly requires independent actionable wrong (unclear)
- rule for punitive damages: only for extreme misconduct; requires indep act‟ble wrong
- here, no award for mental distress
- dissent: notes vulnerablility of employees; no indep actionable wrong should be req‟d

- establishes calculation for reas notice
        1. length of service
        2. availability of comparable employment
        3. age
        4. character/level of employment

Wallace v United Grain Growers (1997 – SCC)
- long time employee fired without reas notice
- can only recover for mental distress with an indep actionable wrong (Vorvis)
- no implied „good faith‟ term in employment k‟s
- if manner of bad faith dismissal causes mental distress, can extend notice period
- “Wallace Extension” causes:
        - if treated like a suspect without reason
        - not explicitly fired, but find out they‟re hiring for your position
        - severe misconduct
- extension capped at 6 months
- extension based on salary because extends notice period
- here, doubled notice period from 12-24 months on a Wallace Extension
- dissent: should have made a new tort OR created an implied contractual obligation to
fire in good faith (this would have made much more sense!)

- Criticisms of Wallace Extension:
         - doctrinal inconsistency: gives indirect compensation for non-pecuniary losses
         after saying that not entitled to non-pec without indep wrong
         - the breach was not from firing, but from not giving reas notice; but this allows
         you to disguise mental distress as the breach and collect despite reas notice
         - duty to mitigate: can‟t collect wallace extension if find new job
         - calculation of damages: tied to salary – thus ppl who earn more will get more
         compensation for same amount of mental distress as those who earn less
                                 PUNITIVE DAMAGES

GENERAL RULE: all damages are compensatory

EXCEPTION: Punitive Damages: fine and deterrence of scummy behaviour

- must establish and independent actionable wrong (tort or K)
- k claims:     1. insurance companies must pay valid claims
                2. implied obligation to good faith (bad faith is indep actionable wrong)

- punishment, deterrence, denunciation
- amount must be rational: must be least required to achieve objectives

- floodgates concern
- judges can review awards to reign in wacko juries
- license: cts must do cost-benefit analysis and make it sting enough so doesn‟t give
companies license to keep screwing people because its financially worth it
- ratio: consider awards for compensatory damages, awards for legal costs, other
penalities visited, etc… then make punitive damages proportional (2:1? 3:1?)

Whiten v Pilot Insurance (2002 SCC)
- ins company tries to push poor family into settling for less than claim on burnt house by
trying to prove they arson‟ed own house
- really scummy behaviour: awarded big punitive damages $1M

Comments: professional misconduct of Pilot‟s lawyer
     - mislead the court
     - bring profession and admin of justice into disrepute
     - wasn‟t serving client‟s best interests
     - misconduct towards witness

GENERAL RULE: π has duty to take reasonable steps to mitigate losses from a k breach
     - π cannot recover for avoidable losses

     1. Continued Dealings
     2. Anticipatory Breach / Doctrine of Election
     3. Impecuniocity

Complication: at what time do we calculate damages?

     1. Avoid harshness and unfairness to Δ
            - breach of k is not a crime
            - often breach is inadvertant, inavoidable
     2. Avoid economic waste (peevyhouse v garland)

     1. reasonable, not extraordinary
     2. assessment of what is reasonable will be fact-specific
     3. overall standard of reasonable is fairly low – rarely punish π for unreas efforts

1. Continued Dealings
       - the “suck it up, princess” doctrine of mitigation:
       - if Δ breaches the k, but its still economically efficient for π to re-enter
       dealings with Δ on different terms, rather than turn to the market…. the π
       is expected to mitigate losses by continued dealing with Δ
       - BUT in some cases it may be unreasonable and unfair to expect π to
       mitigate losses by continued dealing with the Δ
       - k‟s for personal services are the exception because require close,
       interpersonal interaction
                - employment
                - independent contractual relationship
       - k‟s aren‟t about hurt feelings, they‟re about money and maximizing profits!

Payzu v Saunders (1919)
Facts: - Δ had k with π to provide silk with 1 month credit
       - Δ freaks, says it will only provide silk at k‟d price if paid up front
       - π refuses, insulted
       - market values of silk have increased
       - π claims difference between market price and k price
Issue: - how would a reasonable person have mitigated losses?
       - did π have a duty to mitigate losses thru continued dealing with Δ?
Held: - YES – π should have mitigated losses by accepting Δ‟s second offer
Ratio: - π must mitigate thru continued dealings as long as:
              - it‟s a bona fide offer – not meant to force π into diff k
              - its not a personal services k
       - damages will be loss sustained despite mitigation of losses

2. Anticipatory Breach (Doctrine of Election)
- in cases of executory k‟s: where we k today to do something on some day in the future
- if one party give notice that it will not perform the k, that is an anticipatory breach:
cannot actually breach the k until the time when it is to be performed
- doctrine of election: if one party gives an anticipatory breach, other party has 2 options:
         1. accept breach, and sue for damages
         2. insist on performance – keep continuing to perform as if k was in full force,
         until the breach technically occurs
                  - only #2 if k can be unilaterally performed by one party (Finelli)
                  - only #2 if π can show a substantial benefit in seeking performance rather
                  than damages (Asamera)

White and Carter v McGregor (1962)
- bonehead decision – huge econ waste – unreas expenditure – bad faith, to stiff McG
Facts: - π had k to provide city with garbage cans, and could place ads on the bins
       - McG had a k with π to put his ads on bins. When 3 yr k expired, someone in his
       office rolls it over for 3 more years; he then calls π and says no, don‟t extend k. π
       proceeds as if no breach, places ads on bins, demands full 3 yr payment.
Issue: - did π have duty to mitigate damages?
Held: - ct invokes doctrine of election, saying π had a right to ignore anticipatory breach
       and continue with the k
       - π awarded recovery for lost profits and reliance damages
Comment: what about possible additional benefit to π by virtue of having ads on trash
       cans, thereby alerting other potential customers to their business?
       - Response: factor these potential lost profits into compensation, rather than
       allowing performance!

Finelli v Dee (1968)
Facts: - executory k to pave driveway
        - owner Δ makes anticipatory breach
        - π paves driveway anyway on day of k, sues for damages
Issue: - did π have duty to mitigate damages?
Held: - yes – doctrine of election does not apply here because k could not be unilaterlly
        completed without help of Δ – π needed Δ‟s permission to come on his property
Ratio: - upholds White and Carter, but adds new unilateral requirement to election
        - does slam WC as a stupid decision but doesn‟t overturn – judicial conservatism
Asamera Oil Corp v Sea Oil & General Corp. (1979)
- says rule from White and Carter is only good where π can show a substantial benefit in
seeking specific performance rather than damages
- theoretically, there is nothing we can‟t compensate with enough money
- severely limits doctrine of election… now has 2 qualifications:
        1. must have unilateral completion (Finelli)
        2. must have really good reason to want spec perf rather than damages (asamera)

3. Impecuniocity
- what if the π doesn‟t have the money to go into the market and mitigate losses?
- particularly in cases of rapid escalation of market price
         - damages would escalate over time as the market value of the good escalates
- so from what point in time are damages calculated?
         - general rule: damages calculated at date of breach
         - Asamera: judges can determine date to calculate breach
- issue: is it fair in the circumstances, where the price was increasing and the π did not
have enough money to go into the market and mitigate, to say that it was the breacher‟s
(Δ‟s) risk and liability?
- in commerical transactions, impecuniocity is generally not accepted – assume unlimited
resources to go into market
- in consumer k‟s, impecuniocity is generally accepted – acknowledge limited resources

Wroth v Tyler (1973)
Facts: - had executory k to purchase house at future date for £6000
       - on date of k, Δ (owner) breaches – market value that day: £7500
       - on date of trial, market value: £11500
       - π did not go to market and buy another £7500 house because not enough money
               - impecuniocity!
Claims:- π claims £5500 (diff between k price and market value at trial date)
       - Δ says £1500 (diff between k price and market value at breach date)
Issue: - is impecuniocity an acceptable reason for not mitigating losses?
Held: - yes – Δ liable for £5500 (calc‟d damages at date of trial)
Ratio: - impecuniocity is an acceptable reason for not mitigating losses
       - if damages are awarded in lieu of specific performance, must put π in as good a
       position as if the k had been performed, even if that requires calculating damages
       at a time other than the date of breach – “equitable damages”
       - π wanted specific performance because house was infungible (ie unique)
       - ct doesn‟t award SP because of legal conflict with Δ‟s wife as part owner
       - this was a consumer k – unlikely result for commercial k‟s
       - today, because of cookie cutter houses, not likely to get specific performance
       because houses are not unique or infungible
       - equitable damages: allow π to go into the market after trial and buy property of
       equivalent value
Semelhago v Paramadevan (1996)
- dilutes the pple that specific performance will always be the remedy in land k‟s
- says that to get s.p., must actually prove that the land/house is unique

Date for Assessing Damages
- general rule: damages measured and calculated at date of breach
- exceptions: court has flexibility to pick any date to calculate damages
        - Wroth v Tyler: picked date of trial
        - Asamera: picked date between date of breach and date of trial

- Δ says damages should be calculated on date of breach, as per usual
         - π should have gone into market to mitigate
- π says due to special circumstances, can‟t be expected to mitigate
         - π wanted spec perf – silly for them to go to market too
         - impact of mitigating would have inflated share price – unnecessarily costly
         - too risky – the company and its stock were controlled by Δ
- π claims that since unreas to mitigate, should calculate damages at trial date
- HELD: yes, unreas to expect π to mitigate at date of breach
         - but to calculate damages on date of trial would be unfair to Δ
         - π‟s shouldn‟t be allowed to wait for spec perf, thus speculating on share price
         - recognize that Δ was hostile party controlling shares
- calculated damages at random time when ct says π should have started buying shares to
- critique: since the K had a built in clause that shares could be kept at $2 each, should
have awarded the π exp damages based on this: # of shares x $2 per share
         - π shouldn‟t have waited 7 years to bring case – speculating!
         - π should have mitigated: impecuniosity no excuse in corporate world
                              EQUITABLE REMEDIES

2 Kinds of Equitable Remedies
1. Specific Performance – order to do something to perform k
2. Injunction – order not to do something – prevent someone from doing something that
would prevent them from performing the k

- rarely granted – appropriate remedy is usually damages
- spec perf actually makes a lot of sense as a remedy
        - best way to fulfill expectations
        - removes problems of under/overcompensation in calculating damages
        - removes problems of speculative damages like consumer surplus, remoteness
- case against spec perf
        - historical hangover, secondary to CL remedies
        - ideological reluctance to have law enforce moral obligations
                 - duty isn‟t to complete k; its to pay damages in case of breach
        - damages are generally practical and sufficient
                 - often don‟t want spec perf – too late by time of trial
                 - nobody wants to deal with a hostile party
        - administrative efficiency
                 - courts don‟t want supervisory role over court orders
        - if spec perf was norm, there would be no motivation for π to mitigate (asamera)
        - avoidance of hardship – could be unfair to Δ
        - extortion – would give π undue power to extort advantages, bargaining leverage
- will grant spec perf for unique goods
        - if damages inadequate (ie you K‟s to buy the mona lisa)
        - if damages are too speculative
- will never grant spec perf in k‟s for personal services (employment)
        - philosophical objection: loss of individual autonomy; like slavery
        - employment requires trust, close interpersonal relations
                 - court doesn‟t want to have to supervise!

- court order preventing someone from doing something they promised not to do in the K
- often, it‟s a „non-competition clause‟
         - one party promises not to compete with the other (ie small business sales)
- employment
         - exclusivity clauses operate during currency of employment
         - also extend to after employment is terminated – can‟t go share secrets with
         competitor (ie I can‟t quit microsoft and go apply my skills and secrets for IBM)
- threshhold test to get injunction granted: is there restraint of trade?
         - can‟t totally restrain somebody‟s ability to earn a living
         - π must convince court that the injunction is not a restraint of trade
         - effects of injunction must have temporal and geographic limitations
- doctrinal requirements to get an injunction granted
       - there must be a negative covenant (expressed or implied)
       - damages must be inadequate
       - the injunction can‟t be tantamount to an order for spec perf
                - ie if order not to work for other person forces Δ to work for π
                - would injunction prevent person from pursuing their trade/occupation,
                not just prevent them from doing any old thing

Lumley v Wagner (1852)
- opera singer wagner k‟d to sing for lumley, breaches k, goes to sing for the only other
major opera house in london
- lumley gets injunction for 3 months
- ct rules that an injunction is not tantamount to an order to spec perf
         - it may tempt her to work for lumley, but won‟t compel her to do so

Warner Brothers v Nelson (1937) (the betty davis case)
- davis k‟s to make movies exclusively for WB
- k has 2 negative covenants:
        - won‟t work for any other movie company during time of k
        - won‟t work at any other occupation without WB‟s consent
- WB requested an injunction to keep Davis from working for other movie company
- WB showed damages were inadequate
        - too speculative to calc how much $ they‟ll lose, and lose to competitors
                - a competitive and monetary interest in her
- ct says injunction is not tantamount to spec perf
        - tempting, not compelling
- WB argues it would be unfair to let her off
        - they invested big money in her up front
        - floodgates concern

Ideology: assumptions of classic k law
1. freedom to k and freedom not to k
2. formal equality: parties have equal bargaining power
3. motivation for k‟s is exclusively self interest
4. monetary interest is all that matters

Critiques of ideological view in k law and society
1. critical race theory
         - b/c of freedom on k, anyone can discriminate on any grounds for any reason
2. non-economic interests not recognized
3. feminist critiques
         - particularly about surrogacy k‟s and matrimonial/separation k‟s
         - women don‟t appear in foundational k doctrine decisions
                  - coverture: women became part of husband, in law
                  - not too prevalent in economic deals
         - but in law of injunctions, all cases are about women: why?
                  - cts less likely to view women as free contractors
               - women deviating from social norms is threatening
               - can‟t let women out of legal obligations
               - in public sphere, employer analogous to husband – women lack legal

- Kilcoyne‟s reply: why ct changed rules for Lumley v. Wagner
               - 1847 – the exact same circumstance occurred, but Lumley was the one
               who stole the singer, and got away with it, made huge profits
               - legal community was disgusted with the lack of justice
               - π awarded very low damages by jury, and it was pre- Hadley, so judges
               couldn‟t review the jury awards yet
               - so 5 years later when same case occurs, court nails the Δ with injunction
                      FORMATION OF CONTRACT

Issue: when does a k arise? Which communications give rise to legal obligations?

- spectrum: preliminary negotiations  offer
- preliminary negotiations: preceed offers: bargaining, back and forth
- offer: creates legal obligations

POLICY Grounds behind determination of whether offer or prelim negos
1. protect reasonable expectations by enforcing promised
        - protect reliance interests
        - business efficacy and efficiency
        - private ordering – allow parties to set their own deal

2. protect against unfair surprise by not imposing unanticipated liabilities
        - avoid undue hardship
        - allow flexibility of bargaining
        - social expectations (of what a cmx means)

DOCTRINAL Rules: What is an offer, what is acceptance
- for a k to be made, must have an offer, acceptance, and consideration ($$)
- the further away from the classic commerical context, the more tricky this becomes
- question: is there a good reason to enforce the promise?
- objective standard: what would a reasonable person think the cmx meant?
         - would a reasonable person think a k had been made?

     -determine which cmxs are legal offers
     - the recipient of a legal offer has power to accept and thus create a binding k

1. offeror must have intent to be bound by the offer: “was the offer made seriously?”
        - an invitation to treat is not a binding offer: invitation to negotiate
                ie. Most kinds of advertisements, price tags
                - some exceptions exist: on factual basis, not doctrinal
                - leading exception: Lefkowitz (fur coats for $1) – held to the offer

2. offer must be specific and comprehensive – not uncertain terms
        - k cannot be incomplete: missing an essential term
                - ct may refuse to enforce the k, or (rarely) insert a „reasonable term‟
        - terms cannot be vague / ambiguous
                - cts use this as an excuse not to enfore the k for other policy reasons
                - cts can read a „reasonable interpretation‟
       - agreements to agree
              - cts will generally not enforce an agreement to agree
              (see exceptions below)

3. offers can expire: in stated amount of time, or „reasonable time‟ if not stated
        - offerors can offer an „option k‟: puts a hold on the k for an interested party
                - really 2 ks: one to hold the k open, one for the transaction itself

4. offers can be revoked any time before they are accepted
        - revocation may require notice of revocation

5. offers are unequivocally binding once accepted



1. promise: produces a bilateral k

2. performance/action: produces a unilateral k
        - ie: I offer a $20 reward for lost dog; acceptance = you bringing me fluffy
        - remember, offer can be revoked any time before acceptance
        - ie you offer me $20 to swim across lake, revoke when 10ft from done
        - problematic: big reliance by the acceptor (expend huge $/effort up front)
                 - contrary to reas exps if revoked after I‟ve invested in the k
                 - unjust enrichment – offeror can get benefits without paying up
                 - business efficacy: not stable, predictable, reliable
        - cts often get around this not by overruling right to revoke, but by reading
        in an implied non-revocation clause


1. must be clear intent to be bound by the k

2. must correspond to the given offer; an altered offer is an entirely new offer

3. must cmx acceptance to offeror before expiry or revocation
       - method of cmx may be stipulated by the offeror
       - silence is not acceptance

4. k is made when acceptance is received by the offeror
        - exception: postal acceptance rule: k is made when acceptance is mailed
                           UNCERTAINTY IN FORMATION

Agreements to Agree
- generally, cts will not enforce these: don‟t want to write the k for the parties
- 2 doctrinal rules used to enforce agreements to agree

1. Mechanism / Formula
- a mechanism or formula exists that will result in a precise determination of the term
        - ie use an index like CPI, COLA, WPI to set cost/profit margins
- case: Foley v Classique Coaches
        - π sells land to Δ; part of k is for Δ to purchase gas exclusively from π at a price
        that is to be agreed upon
        - policy probs with allowing Δ to pull out:
                 - business efficacy and efficiency
                 - reliance: sold land as part of deal
                 - unfair surprise
                 - unjust enrichment: would have charged more for land, w/o gas k
        - ct finds just solution: agreement has an arbitration clause so not uncertain
                 - uses mechanism of market value to find fair and reas gas price
        - wrongful application of arbitration clause
                 - it was a „rights-dispute arbitration‟ that looks for a business mediator to
                 hash through the problem quick and dirty with the parties
                 - ct treats it like an „interest arbitration‟ where arbitrator can set
                 substantive terms

2. Implied Obligation to Negotiate in Good Faith
- this is not widely recognized by courts
- case: Courtney and Fairbairn v Tolaini Brothers Hotels
         - π introduces Δ to financial backers; in return, π is to get the construction k
         - k clause: parties to negotiate fair and reas terms for k price; doesn‟t happen
         - π args: market value is a mechanism to determine the price
                  - this was a good faith obligation and Δ breached
         - cts response:
                  - „fair and reas‟ is too uncertain: ridiculous – ct could easily decide
                  - no recognition of good faith obligation
                           - too imprecise
                           - no way to calculate damages
         - response to cts arg: its crap.
                  - we define good faith in other areas of law – we‟re capable
                  - an agreement to agree has value: gives a chance to get k and make profit
                           - we recognize value of opportunities elsewhere: ie option k‟s
                           - Chatman v Hicks: value of chance to win talent contest
                           - MultiMalls v TexMex Properties: given 80% of potential profits
                  - cts calculate messy damages all the time – we‟re capable
- Empress Towers v Bank of Nova Scotia (1975)
      - only cdn case recognizing duty to negotiate in good faith
      - k says: tenant has right to renew; rate is market price, mutually agreed upon
      - here, breached duty to nego in good faith
      - policy reasons why court recognized duty to nego in good faith
              - business efficacy
              - k coherency: tenant had right to renew
              - reliance by bank: didn‟t look for other space; spent $ researching rates
              - punishment: empress waited until last minute to pitch offer: like ransom
                       - tried to stick bank with $15000 insurance shortfall: stupid!
      - policy reasons not to recognize: could limit freedom to profit maximize
      - minority: accepts duty to nego in good faith, but finds no breach
              1. just hard bargaining – ct shouldn‟t limit profit maximization
              2. not role of ct to say what the k said
              3. bank author of own misfortune: drafted a stupid k (removed arbitration
              clause, added in „mutually agreed‟ clause)
      - maj / min have diff views on business, capitalism
              maj: modern, relational, regard for other party helps business
              min: classical, ruthless, hardball, profit max

4 factors that will lead to enforcement of promise:
        - promise arises out of a commercial exchange
        - one party has already performed its part of the exchange
        - strong evidence the promise was made with deliberation
        - one party has relied upon the other‟s promise

DOCTRINAL requirements for enforcement of k‟s:

1. offer
2. acceptance
3. consideration
4. writing (for some kinds of k‟s – in Statute of Frauds)

Promises that will be denied enforcement

- ct will deny enforcement if k is objectionable
         - fundamentally unfair, unconscionable, product of economic duress

CASE: The Port Caledonia (1903)
      - in a storm, one ship blowing into another, needs a tug, tug charges insane $
      - ct did not enforce because inequitable, unjust, unreasonable, reprehensible

2 kinds of k‟s with 2 diff requirements for enforcement
       1. formal k‟s: deed – requires seal
       2. informal k‟s: oral of written – requires consideration


- “deeds”: a k under seal
- 3 requirements: k in writing, signed, sealed
- a deed will be absolutely enforced – even without consideration
        - parties have made intent unmistakable: no substantive concerns (below)
        - satisfies the strategic factors (below)
- modern use: to make a gift enforceable, put it under seal
- case: ReMax v Ontario: k enforced with seal but no consideration

- oral and written k‟s will be enforceable if there is CONSIDERATION
- oral and written k‟s are equally valid
        Exception: BC Law and Equity Act Statute:
        - informal k‟s about sale/purchase of land, and guarantees, must be in writing
        - also must have consideration

RULE: we will only enforce a promise when it is given in exchange for consideration

     1. protect reasonable expectations of π
     2. don‟t visit unfair surprise of Δ

COROLARY: we will not enforce promises to make gifts
    - law is not to enforce moral obligations
    - must protect autonomy to change your mind, revoke gift before its made
    - k law is for commercial situations

How courts decide whether there was consideration:
* huge dissonance between doctrinal pples and policy rationales!*

Strategic Factors:
        1. evidentiary function
        2. cautionary function (deliberation)
        3. channelling function

Substantive Factors:
       1. unjust enrichment
       2. reliance
       3. private ordering / social utility

What will be considered consideration?
      1. benefit to promisor
      2. forebearance to promisee
      3. performance
      4. mutual promise (most NB, most common)

Thomas v Thomas (1842)
- on deathbed, hubby tells 2 executors to let wife live in house until she dies
- 1 executor dies, other gives wife the boot
- court says there was a binding k
        - executor promise: I will let wife live there for life
        - consideration: $1 per year plus upkeep
        - court says $1 is inconsequential so must represent consideration
        - ct equates the $1 with a legal seal: deliberation, intent, channelling
                              White v Bluett                      Hamer v Sidway
Doctrinal           no rt to whine – no forebearance,   right to swear – therefore assumes
                    no consideration. Phony!            a forebearance, proper considtn.
Evidence            -son‟s claim that dad promised      -uncle wrote confirming letter
                    -fraud concern                      -promise made in public – witness
                    - weak evidence!                    - strong evidence!
Deliberation        informal context – no witnesses     letter; public promise, formal
                    assume dad was at wits end          announcement; bank acct est‟d
Channelling         no.                                 no.
Unjust Enrich.      no.                                 no.
Reliance            no evidence he didn‟t whine         strong evidence, uncle didn‟t
                                                        challenge his compliance;
                                                        assigned $ to a debtor
Social Ordering     don‟t want to reward a whiner       abstaining from these activities is
                    for soft extortion of ol‟ dad       good, socially useful

** clearly, these cases were decided on policy factors, not doctrinal! The doctrinal test of
whether or not there was forebearance was manipulated and weak. The other factors
show how the court really considered this case BUT at that time couldn‟t talk about
policy – you can today, to an increasing degree.


RULE: past consideration is no consideration
      - consid must be given in exchange for a promise, so can‟t pre-date the promise
      - too much like a gift, or gratuitous promise


1. Evidence – don‟t want fraudulent claims, esp if promisor is dead
2. deliberation – don‟t want to enforce gratuitous promises
3. no reliance – if the act is already done, not relying on any kind of promise
4. no unjust enrichment – the act wasn‟t asked for, it was provided without request

EXCEPTIONS: past consideration will be good iff:

1. there was a request for the benefit to be provided

2. expectation of a reward/compensation for providing benefit (reas. person)
- authority: Lampleigh v Brathwait
CASE: Eastwood v Kenyon (1840)
- π was executor of dad‟s will and guardian of daughter, sarah
- will said not to use any $ to pay for sarah‟s educ, so π takes $140 loan to pay himself
- at age of legal majority, she promises to pay him back
         - k not enforced because past consid is no consid – was just an offer to make a gift
- she marries the Δ, he promises to pay back π
         - again, k not enforced because no consid whatsoever
- ct gives rationale for not enforcing gifts: would make real creditors (ie banks) suffer
because people wouldn‟t have money left to pay their debts
         - classic view of stoking the fire under capitalism
- but this case fulfills all the policy objectives!
         - evidence: undisputed that they promised
         - deliberation: made promise twice
         - reliance: she‟d paid interest for a year
- so why isn‟t it decided that this was an enforceable promise?
         - legal positivism: must follow doctrine like an automaton even if absurd result


Matheson Hospital v Smiley
- man attempts and fails suicide, is unconscious at hospital, doc fixes him up, then he
won‟t pay up
- ct finds implied request to be fixed because suicide attempt failed, and expectation of
payment because everyone knows docs don‟t work for free
                                  MUTUAL PROMISES

- mutual promise is an acceptable form of consideration
       - promise to confer a benefit OR to assume a detriment
       - if doing something would be good consideration, then promising to do it is also
       good consideration
       - mutual promises make executory k‟s – agreement for something in future
       - mutuality: both must be bound or neither is bound

     1. normal / standing offer
             - can be revoked at any time before acceptance
     2. firm offer / options k
             - really 2 k‟s – one is a promise to leave the k open to someone for a time
             - the option k must have consideration
             - then it‟s a „firm offer‟ because promised not to revoke offer
             - so what if there is no consideration? GNR, Berstein

Great Northern Railway Company v Witham
- held for Δ
- Δ enters k to supply π with any rwy spikes they order for 1 yr at a set price
- Δ refuses to fill the 3rd order, claims not bound b/c k is unilateral and π gave no consid
- conceptually, 2 k‟s here
        1. framework agreement for Δ to fill π‟s orders for a year
                - Witham made a standing offer with no consideration – revokable
                - rule: promises of firm offers not enforceable without consideration
        2. order #3
                - GNR‟s order was acceptance and consideration on the standing offer
                - now it‟s a binding k – can only revoke before acceptance

Bernstein v. W.B. Mfg. Co.
- Δ places order with π for boys bathing suits
- 2 k‟s: 1. 5 samples sent to Δ by π, Δ pays for them
         2. Δ orders 174 suits, π sends, Δ recieves; Δ sends back, refuses to pay
- prima facie, an executory k with exchange of mutual promises
- ct says π‟s promise was not absolute – was conditional because bill of sale had a note
saying π can terminate k at any its discretion
         - no mutuality of binding promises
         - silly – the suits were sent, so π clearly waived his rights to terminate
- held for Δ
- bad decision: both policy and doctrine say it is enforceable promise
- what should court have done?
         - applied analysis from GNR and called it a unilateral k
         - looked on its face, called it a mutual promise
GNR (and Bernstein) are both BAD law
- applies the consideration doctrine against its own rationales
- consid intended to distinguish between gifts and bargains, and enfore only bargains
- these cases use consid to NOT enforce unmistakeable bargains!
- got both the doctrine and the policy concerns wrong: ie GNR policy considerations:
        - protect reas expectations while avoiding unfair surprise
                 - GNR had reas exps – W bid for tender, agreed to arrangement
                 - W not unfair surprise – they bid for it, agreed
        - evidence: yes, undisputed that agreement was made
        - deliberation: yes, made formal tender
        - reliance: yes, picked W out of all other suppliers
        - unjust enrichment: W got reputational benefit b/c was chosen – has $ value
        - utility: this is kind of business k efficacy we should enforce
- decision transforms the terms of the agreement: read in a clause that W will only supply
spikes until they decide not to anymore: this wasn‟t the terms of the tender!!
- applied legal positivism: blind adherence to rules, not pples


1. Prevention by the parties (outside of court)

        - pay consideration to make formal option k‟s: firm offers
        - put option k under seal
        - possible consid: minimum purchase offer on agreement (benefit to supplier)
        - possible consid: make it an exclusive deal (detriment to the orderer)

2. Frame it as a bilateral k

GNR: - W got benefit by virtue of being selected as tenderer
     - benefit is return consideration, making a bilateral k

Dawson v Helicopter
     - Δ claims unilateral k, revokable until completion/acceptance
     - ct says there was a mutual promise by π to help Δ – consid for bilateral k

3. Frame it as an implied promise

Wood v Lucy
      - Lucy promised to give half of profits to Wood that he solicits for her
      - consideration: wood‟s implied promise to make best reas efforts to solicit profits
      - policy rationales behind enforcement of promise here:
              - wood had reas exp of ½ of profits; no unfair surprise on lucy
              - evidence, deliberation: clear, undisputed
              - reliance: he‟s spending time and $ to solicit profits for her
              - utility: big time – standard marketing agreement – we want good faith
Errington v Errington
- dad pays downpayment, gives house to daughter if she pays mortgage
- skunk executors try to take house – says its unilateral k, can revoke before acceptance
and here acceptance is completion of mortgage payment
- policy condsiderations:
        - reas exps: big time. Unfair surprise: nope
        - evidence, delib: undisputed – bought house, gave her manual, helped payments
        - reliance – HUGE – paid mortgage for 15 years
        - unjust enrichment – tried to snatch house for estate after daughter paid mortgage
        - utility – not a std business agreemt – definitely a gift. Altruism, not profit max
- ct doesn‟t make it a bilateral k – concerned with having k enforceable both ways
- ct implies promise not to revoke offer, as long as daughter continues to pay mortgage
        - transforms standing offer to a firm offer
        - says mortgage payments are consideration for the promise not to revoke and the
        promise to pay the mortgage on the house

** of all the policy factors, reliance has become the most important**

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