OFFER AND ACCEPTANCE - DOC

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CONTRACT FORMATION
OFFER AND ACCEPTANCE

Traditional Rules
Offer
Invitations to treat are not offers
Offeror is “master of the acceptance”
All offers can be revoked at any time unless there is consideration (or a deed) to keep it
open (Dickinson v. Dodds)
Objective standard to determine offer and acceptance (reasonably believe other party
intends to be bound)- does offer/acceptance reasonably indicate intention to be bound

Smith v. Hughes
    Seller under no obligation to tell buyer oats were old

Pharmaceutical Society of Great Britain v. Boots
    display of goods in a store are not offers, but merely invitations to treat
         o same with ads- although some ads could be unilateral offers (Lefkowitz v.
             Great Minneapolis Surplus Store)- usually when they are offers there is
             detrimental reliance

Acceptance
Acceptance must be communicated to offeror for it to be valid
Exception is that sometimes courts say you can execute, then communicate ASAP
Faxes are acceptable ways to form contracts (Rolling v. Willann Investment)

Schiller v. Fisher
    Acceptance not communicated (but is executed) by date
    But is valid because plaintiff trying to get out on technicality
    Assumed changes would be accepted, changes were insignificant
    All essential terms were agreed upon

Felthouse v. Bindley
     One party can’t force another to respond or to be in a binding contractual relation
       by saying “if I don’t hear from you we have a binding contractual relation on my
       terms”- offeror cannot stipulate that silence = acceptance

Adams v. Lindsell
    Postal Rule- acceptance valid because it occurs when acceptance put in mail, and
      offeror accepted terms of postal rule
          o Postal rule = if acceptance mailed before revocation is received acceptance
              is valid

Revocation of Offer
You can revoke ongoing offers (i.e. to supply for 12 months but then only do it for 6)
Offers can be held open under consideration
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Discrete Contract- only relation between parties is a single transaction (i.e. sale of a
business)
Relational Contract- Long-term economic relation such as between franchisor and
franchisee

Great Northern Railway v. Witham
    Offer can be revoked because purchaser only paid month by month
    In this case order for a certain supply (that had not been withdrawn in advance)
       was sufficient consideration for the delivery

Unilateral Contracts
Unilateral Contracts- only promise on one side- “$50 for walking my dog”
Accepted by performance, not saying “I accept”
Sometimes held that offer can be revoked any time before completion

Bilateral Contracts- mutually binding promises, binding from moment there is mutual
acceptance

Dawson v. Helicopter
   HE says there was a unilateral contract (if you show site to us we will give you
     10%)
   Dawson says it was bilateral- he promises to show them, they promise to take him
     and give him 10%
   ”instinct with obligation”- courts say Dawson made implicit promise to show HE
     the site- so contract was bilateral
   Court may have based decision on fact that HE might be acting dishonestly

Errington v. Errington
    Widow says gift of house is unilateral contract- not fully performed (mortgage not
       paid off) so she can revoke offer
    No consideration for offer to stay open
    Denning alters common law rule to achieve equitable end- says it was unilateral,
       but implied that as long as they continued performance the contract stayed open

Tender Contracts
Tendering- 2 contract process
Contract A = offer from owner – if you submit bid (which is unilateral offer to go into
Contract B if selected), I will give it due consideration, and if you win I will go into
contract B with you
Contract B = actual contract

Northern Construction v. Gloge
    Uses same analysis as Ron to conclude that sub-contractors bound to contractor in
       same way that general contractor bound to owner

Naylor Group v. Ellis-Don Construction
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General Contractor used sub-contractors low bid win the contract, then “shopped” its low
bid to get work done at favourable price
     E-D claims fact that Naylor belongs to wrong union “frustrated” contract
            o Frustrated = intervening cause of third party (i.e. hurricane) that prevents
               completion of contract
     E-D behaving very immorally- always knew Naylor was of wrong union
     Violated Contract A (promise to go into contract B if selected)

M.J.B. Enterprises v. Defence Construction
    Non-conforming bidder awarded contract (only cheapest because they bid on five
       floors instead of ten; perhaps they were friends with owner)
    Next lowest sues successfully- despite clause stating they don’t have to choose
       lowest bidder, owner under obligation to choose fairly

Martel Building v. Canada
   After bids submitted, Feds added “fit up” costs to each bid- added same costs so
       each bid
   As a result, lowest bidder became second-lowest
   Courts decided it was reasonable for Feds to do this

Limits to Traditional Rules
Consensus ad Idem
This means “Agreement of the same thing”, or “meeting of the minds”
If there is no meeting of the minds (perhaps due to mistake, unclear terms) there is no
contract
Key yardstick is: “what would a reasonable person have thought?”

Raffles v. Wichelhaus
Two ships named Peerless, buyer won’t pay because ship arrived too late
    No contract because no consensus ad idem
    Not unfair because it was seller’s obligation to notify buyer when it would be
        arriving (seller must bear costs and risks of delivery)
    No contract because a reasonable bystander (and the court) would have no idea
        whether the manifest intention was towards the October “Peerless” or the
        December “Peerless”

Hobbs v. Esquimalt
    Railway says they only sold Hobbs surface of land, kept rights to minerals for
      themselves
    Said Land Commisioner acted outside his authority by conveying minerals
    Courts says he did, but railway “ratified” his actions by letting him put their
      stamp on the contract
    Railway gave commissioner “ostensible authority” by allowing to act as though
      he had the authority
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      Ostensible authority = allow agent to behave in such a manner that a third party
       would reasonably believe they had the authority to do what they did)
           o Only one of either ratification or ostensible authority is needed, although
               in this case both exist
      there is a contract because a reasonable person would have believed that the
       company did not intend to reserve rights to the sub-surface
      In evidence it was revealed that railway did not intend to keep mineral rights,
       because if they did they would have used a different form

Staiman Steel v. Commercial
Bidder bids on “all the steel in the lot” in an auction, but this obviously doesn’t refer to a
separate, untagged pile of new steel that had previously been sold
     Case is one of mutual mistake so there may be no contract
     But there is a binding contract to sell the old steel because a reasonable bystander
       would infer the existence of a contract to sell only the old steel
     Staiman acted so that the auctioneer reasonably believed he intended to buy only
       the old steel

Construction of Missing Terms / Agreements to Agree
“agreements in principle”- the parties have more or less agreed, but still need to work out
the terms

“agreements to agree”- courts will not enforce these, will not “make an agreement” for
the parties- they can only enforce contracts
But there are many exceptions

Distinction between agreements that omit an essential term (i.e. forget to put in the price)
and agreements where parties “agree to agree” on a term later
Courts will fill in agreement where a term is missing, but not where it is “agreed to be
agreed upon”
     To read meaning into a term, court will attempt to determine what a reasonable
       party would think was intended by the term
Although basic rule is that contracts that are missing an essential term are unenforceable
Sometimes court will void a certain term, but the rest of the contract still stands

May & Butcher v. The King
   An agreement said one party would supply “tentage” to another party, some key
      terms not identified
   Lord Buckmaster says contracts where the parties “agree to agree” on an essential
      term are void
   Although now agreements where the price is not set out, but there is an agreed
      upon method of determining it, are valid, as per Ontario Sales of Goods Act

Hillas v. Arcos
     Soviets supplying lumber to UK- some key terms not agreed upon
     Court upholds agreement, even though key terms had not been identified
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      Behaved for years as if contract was valid

Foley v. Classique Coaches
Plaintiff sold land to defendants, who agreed to buy gas from him- no price agreed upon,
after three years they decide to buy gas elsewhere
     Court rules for plaintiff because defendant behaved for three years as if contract
        was valid
     Implied term that gas will be of reasonable price and quality- judge reads this in
     There was also an arbitration clause

Courtney & Fairbain v. Tolaini Brothers
    Builder tells owner “I’ll introduce you to financier if you give me a job”- they
      will “negotiate fair and reasonable prices later”- they could not agree on a price,
      owner finds someone else
    contract to negotiate is not a contract because there is no meeting of the minds
    no law forcing people to negotiate “in good faith”

Walford v. Miles
Respondents promise not to negotiate with other parties while they are negotiating with
appellants- eventually sell to another party because they are concerned about appellants
firing their staff
      Appellant’s offer was “subject to contract”- nothing final until the contract signed
      Promise to not deal with other parties after receiving comfort letter from bank
         called “lock-out agreement”
      Not determined how long “lock out” (collateral) agreement would last
      Condition was there that respondents could cancel negotiations for a “proper
         reason” (staff concerns is probably a proper reason)
      Court finds there were many other terms to be agreed upon- contracts to negotiate
         cannot be recognized

Letters of Intent
Letters of Intent (“Agreements in Principle”)- sets out the fundamental terms that have
been agreed upon
Under these, often points that protect the negotiation process are binding, while those that
have to do with the ultimate agreement are not

Term Sheets- companies create a term sheet that outlines the nature of the business deal,
what both sides want- then give it to the lawyers, whose job it is to put it into writing, to
create a legal contract

Canada Square v. Versafoods
    Defendant sends letter to plaintiff to “confirm our verbal understandings”,
      indicating that letter “constitutes the general principles of our agreement”
    Later tries to back out, says there was no binding agreement because there were
      significant terms to be determined
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      Court held that a reasonable interpretation of the letter was that it provided for
       rental of top floor, and that the uncertainties were not fatal to the enforceability of
       contract

L.C.D.H. Audio Visual Ltd v. I.S.T.S. Verbatim Ltd

I.S.T.S given contract on terms that they would negotiate towards entering into a sub-
contract with one of the other two companies
Plaintiff withdrew as bidder in order to accept potential sub-contract
Defendant only gave plaintiff a one-year sub-contract, and entered into a contract with its
own newly created subsidiary to provide audio-visual services
     Courts hold that defendant did not negotiate “in good faith”, but nevertheless had
        no liability
     because the parties had not agreed on essential terms, such as duration of the
        contract
     Defendant was going to get job anyway, and government simply came up with the
        sub-contract idea to get other parties off of shortlist

Verbal Agreements
Penzoil v. Texaco
    Getty Oil agrees to shell shares to Pennzoil, they shook on it and sent out a press
       release announcing an “agreement in principle”
    Getty then accepts offer to sell to Texaco instead
    Pennzoil sues Texaco for inducing a breach of contract, they win
    Because the parties intended to be bound orally, so the mere intention to put
       contract to writing does not invalidate contract formation

To determine if parties intended to only be bound by a formal, signed writing:
    whether a part expressly reserved right to only be bound by written agreement
    whether there was any partial performance by one company disclaiming the
       contract accepted
    whether all essential terms had been agreed upon
    whether complexity or magnitude of the transaction was such that a formal,
       executed writing would normally be expected
Protection of Expectations Arising From Negotiations
Duty to Bargain in Good Faith

Martel Building Ltd. v. Canada
   Martel discussed public works agency renewing its lease
   The Department did not notify Martel that it was conducting a tendering process
   Martel could not settle remaining terms before tendering process
   They then participate in tendering process but lose despite offering lowest bid
   Martel claims defendant (appellant) was negligent in not providing them with
       adequate information regarding its bargaining process and readiness to conclude a
       renewal, lose
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Courts do not recognize duty to “bargain in good faith”
    because hard bargaining is necessary to properly allocate resources in a
       competitive liberal society
    torts: extending a duty of care to negotiation process would make it ineffectual,
       and would place upon the courts an unwanted regulatory function

Big Quill Resources v. Potash Corp of Saskatchewan
Plaintiff buys feed-stock from defendant at a price that was average of defendant’s costs
Defendant removed word “sales” from “sales tax” without bringing it to attention of
plaintiff, thereby increasing their costs, and consequently raising the buyer’s price
     courts relieves buyer of their more onerous burden by finding a “unilateral
        mistake”
     surreptitious changes not allowed

978011 Ontario Ltd. v. Cornell Engineering
Standard form was modified and submitted to other side
Other side signed it without reading it
    party has obligation to read document and are assumed to have done so
    not a situation where documents were going back and forth between parties, and
       there was a surreptitious change

Le Mesurier v. Andrus
    Example of how judges find a way to find favourable decision, if they don’t like
      one party’s behaviour (didn’t happen in Audio Visual)
    don’t like people trying to seek relief from a contract based on a technicality

GATX Corp v. Hawker Siddelely Canada Inc.
   Parties have no duty to bargain in good faith
   But they do have duty to act in good faith once contract is completed

Restitution and Reliance
Brewer Street Investment v. Barclay
Prospective tenant requested renovations as part of negotiating process for lease
Work mostly finished, but tenant did not take possession because negotiations broke
down
There was no contract, because negotiations were “subject to contract”
    In this case there are two essentially innocent parties
    Judges uses restitution remedy
    Decides loss should fall on tenant
    Because restitution occurs when one party has benefited (in this case only
       potential benefit) to detriment of other

Brewer v. Chrysler
Car dealership led plaintiff to believe he would be awarded dealership rights
They tell him because he no longer has $50K, he can’t have dealership
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But he did have the money, but then spent it on things they told him to do
    Plaintiff gets restitution damages
           o Legal rules (especially restitution) a way of softening hard bargaining
              world
    Defendant “kept plaintiff on a string”, shouldn’t benefit from his work without
       compentsation
           o Detrimental Reliance- defendant created an expectation on part of the
              plaintiff, which he relied on to his detriment

      Plaintiff lodged a quantum meruit (as much as he deserves) claim
      in quantum meruit claims, services must have been rendered in circumstances
       which disclose an intention that they should be paid for

Normally you cannot lodge a claim for expenses in negotiating or bidding
    but there are exceptions- if person’s work goes beyond work normally expected in
      a proposal, etc, and there is mutual understanding that work is not being done
      gratuitously

Confidentiality
Duty of Confidentiality-occurs when there are fiduciary obligations (a moral concept-
when one party has power over another party and must protect their interests)
    i.e. teacher/student, parent/child, trustee/beneficiary, director/corporation, etc.

duty of confidence = using or disclosing confidential information

fiduciary obligation = obliged not to act to other’s detriment

Lac Minerals v. Corona
Lac is senior, Corona is junior mining company
Lac bought neighbouring property based on info received in the course of negotiations of
possible joint venture, Corona sues
    some judges found that Lac breached both fiduciary obligations and duty of
        confidence, some found that they only breached duty of confidence
    Difference affects remedies- transferring the mine to Corona (fiduciary) or
        damages (duty of confidence)
    constructive trust- goal of imposition of fiduciary obligations is to promote and
        preserve desired social behaviour and institutions- social utility/deterrence
        viewpoint
            o courts are essentially invoking a duty to bargain in good faith

Battle of the Forms

usually occurs when both sides did not read all the forms and conditions, and as a result
there a conflicting terms in the contract
not fair to say that there is no contract at all
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“last shot” rule- battle is won by person who fires the last shot, and puts forward the latest
terms and conditions

“First blow” rule- “a definite expression of acceptance operates as an acceptance even
though it states terms different from those offered”- (“unless consent is expressly made
conditional on consent to the different terms”)

Middle ground is “knock-out” rule

Butler Machine Tool v. EX-CELL-O
    Sellers (Butler) made offer and on back of form said that their terms to prevail
       over any terms and condition’s in the buyer’s order
    Their terms included a price escalation clause
    Buyer’s order said that they accepted “on terms and conditions therein”, some of
       which were different from seller’s terms
    Buyer’s form contained an acknowledgement slip
    Sellers completed and returned the acknowledgment slip with a letter saying that
       the contract was being entered into in accordance with the seller’s offer of May 23

      Denning says the documents must be considered as a whole (so perhaps he is
       using knock-out rule), and taken as such the acknowledgement of June 5 is the
       decisive document
      This document was not a counter-offer but simply and identification of subject
       matter
      It made it clear that contract was on buyer’s terms, which did not include price
       variation
      maybe he is using last shot rule because last set of rules (those without price
       escalation clause) prevailed
      case illustrates that “battle of the form” rules are very arbitrary

Tywood Industries v. St. Anne-Nackawic
St Anne (buyer) stopped buying after alleged deficiencies
St. Anne wants arbitration, Tywood wants resolution from court
No reference to arbitration in initial documents
Arbitration clause stipulated St. Anne on back of purchase order
     Judge finds the arbitration clause was not “clearly established”, as neither party
       indicated that they found any terms other than those on the face of the documents
       (i.e. specifications and price) to be important
            o plaintiff never acknowledged supremacy of defendant’s term, defendant
                never drew particular attention to arbitration clause
            o defendant (St. Anne) did not complain when plaintiff failed to
                acknowledge terms sought to be imposed
     He is considering documents as a whole, using knock-out rule

PROMISES THE LAW WILL ENFORCE
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The Writing Requirement
Statute of Frauds- There are certain contracts that must be in writing in order to be
enforceable
Other than those that fall under Statute of Frauds, most oral contracts are enforceable

In some cases, court will enforce a promise even though it is inside the Statute of Frauds
by invoking concepts such as unjust enrichment

Surety- occurs in K of debt between debtor and creditor
    sometimes creditor will say they want to give debtor money but they don’t like
       the risk involved
    to minimize risk they look for guarantor
           o enter into a K of suretyship with guarantor (a guarantee
           o this can only be triggered if the debt is not paid by debtor
           o if debtor fails to pay, creditor can get money from guarantor
           o i.e. insurance is a form of suretyship
           o Performance bond- a party will pay to get a job completed if another party
               fails to complete a certain task
    all suretyships must be in writing, in accordance with s. 4 of Statute of Frauds

Mountstephen v. Lakeman
A third party told the builder “I will see you paid” if he did job
The board who wanted sewers built did not pay, so Mountstephen asked the third party to
pay
Third party says oral promise was unenforceable under Statute of Frauds
     courts said this was not a contract of suretyship, but rather a direct contract
        between two parties (because there was no official debtor they were covering for,
        as the board never officially authorized the work)
     defendant trying to use a technicality to justify non-payment- court bends the
        rules to prevent this from happening

Unjust Enrichment
Deglman v. Guaranty Trust Co
    Aunt promises to give nephew a house after her death if he helps her with various
      chores while she is alive- he does this
    Dies without a will- when this happens it’s called “dying in testate”
    Nephew claims he deserves her house because of her promise, even though he is
      not first in line under “dying in testate” rules
    Estate (who stand in trust of deceased’s property) claim that contract is
      unenforceable under s.4 of Statute of Frauds- it is a contract for land and there
      was no written contract

Court recognizes that there was a contract, as evidenced by respondent’s services
    if the contract is for land it falls under Statute of Frauds, and respondent gets
       nothing
           o if the contract was for something else it falls outside Statute of Frauds
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      court reads it as contract for performance of services, and thus gives him money
       instead of land (courts can decide “reasonable” price)
           o award him the sum based on “unjust enrichment”, an equitable remedy
      court created a major term (or even a new contract) in order to achieve equitable
       remedy
           o courts don’t like to make unfair decisions based on technicalities

Promises that will be Denied

The Port Caledonia
A tugboat demands that a ship caught in a storm pay him $1000 to tow him in- Captain
has no choice but to agree- court finds this is “unreasonable” and thus unenforceable
     Today we would deny this contract under doctrine of unconscionability or duress
           o “freedom of contract- contract is not voluntary- no meeting of the minds,
               no agreement

Promises Under Seal
Formal Contracts- The Promise Under Seal evidences deliberation
Contracts under Seal don’t need consideration
    there is an element of formality that suggests you knew what you were getting
       into
    Promises under Seal create a deed
They evidence the intention of the party to be bound

Re/Max Garden City Realty v. 828294 Ontario
Commission to plaintiff was to be made upon proceeds of sale, but 828 President told his
solicitor not to pay
     No consideration, but court decides that the bargain was made under seal and was
        thus enforceable

CONSIDERATION
Basic Concept
1st method of transferring property is a contract- consideration required
Consideration is anything of value in eyes of the law
Required to make a promise enforceable
Passes from promisee to promisor (cannot come from third party)
     can be of detriment to promisee or value to promisor
Consideration is evidence you intended to be bound
     “buys promise” of promisor

Consideration can be act of performance
Consideration can be another promise
Question of what constitutes consideration is very flexible
Nominal consideration is also sufficient

Guarantor’s do not have to receive consideration in order to be bound
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      the loan from creditor to debtor also acts as consideration to enforce guarantor’s
       duty

2nd method is a promise under seal (a deed)- no consideration needed

3rd method is a gift (no consideration needed)
     Can’t enforce it before transference of property
     Possible to enforce after transference of property

Thomas v. Thomas
Late husband promises his widow his house after his death
House not given to wife in will
After a while his executors want to evict, say she never gave consideration that she could
remain in house for life
    She pays nominal ground rent to executors each year- this counts as consideration
    executors claim she would have to pay this rent anyway (to state who ultimately
        owns the property)
           o But in fact it is the executors who would have to pay the dollar, because
               property is in their name (despite fact that husband mandated that wife be
               allowed to live there)
    She also gave consideration through upkeep, ground rent, etc

White v. Bluett
Son (defendant) claims his father promised to forgive his debt because he had not been
given as much as the other children
Father promised to forgive his debt if he promised not to complain anymore
     Court decides that son’s promise is not consideration because he was simply
       abstaining from doing what he had no right to do anyway
     decision may have been influenced by problem of proof of promise and by
       possibility of duress- father may have only made promise to avoid confrontation

Hamer v. Sidway
Uncle promises his nephew $5K if he doesn’t smoke, drink, etc. until he is 21
Nephew does this, uncle says the money is set aside, nephew tries to claim when he dies
    Defendant says nephew gave no consideration because it was to his benefit to do
       those things anyway
    But court rules he did give consideration because he restricted he lawful freedom
       of action in faith of his uncle’s promise
           o gave up something at his uncle’s request

Past Consideration
Past Consideration is no consideration
If after an act is performed the promisor promises to pay for it, the promise is
unenforceable because consideration (performance) is in the past- promise not part of the
bargain or exchange and is too much like a gift to be legally enforceable
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v. Kenyon
plaintiff (Sarah’s guardian) spent $140 of his own money (borrowed from Blackburn)
looking after her estate
Sarah promises she will repay loan, when she marries the husband promises plaintiff he
will pay
He doesn’t, plaintiff has to use own money to repay loan
1st issue: was oral promise covered by statute of frauds?
      court says no, because it was a promise to the debtor (plaintiff) not the creditor
         (Blackburn)- so not a suretyship
      plaintiff is not a creditor, he merely chose to pay Sarah’s debt for her- he became
         debtor instead of her
 nd
2 issue: was there consideration?
      there was no consideration, because any consideration was executed in the past,
         and not at the request of the defendant
             o there was no new consideration for the promise
      promise is nothing more than a benefit voluntarily conferred by the plaintiff

courts cannot enforce “moral obligations”
    then they would have to force debtors to pay their just debts to one creditor, to the
        detriment of other creditors (this is called “preference”, and it’s not allowed)
    although sometimes courts arguably do enforce moral obligation, they just don’t
        usually explicitly admit they are doing so

Roscorla v. Thomas
Man buys horse, laters asks seller if horse is sound
Seller says yes, but the horse dies soon after
Plaintiff sues on the promise that horse was sound
     But he is unsuccessful because the contract was over (selling of horse)- promise
        made after sale cannot be enforced
     consideration was given for a horse, not a horse that was sound

Exception to past consideration: minors
    contracts of a minor are voidable
    but when they reach age of majority they can ratify contract, even though
       consideration was in the past
    but ratification must be in writing, as determined by Statute of Frauds

Another exception- Bankruptcy- When you go bankrupt, after some of your property is
seized, etc.- your debts are “discharged”-
     but if after discharge you agree to repay former debt to creditor, this can be
        enforced

Limitations Act
    must bring your action within a certain time limit

Mutuality
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Mutual Promises: either both parties are bound or none
promise of one party is consideration for the promise of the other party

Great Northern Railway v. Witham
GNR advertised for supply of stores, Witham made a tender promising to supply for 12
months
One order given by GNR was not executed by Witham
Defendant claims there was no consideration
    Court rules that the order itself was sufficient consideration

Bernstein v. W.B. Manufacturing
Plaintiff’s form had an exception clause, stating that order was subject to credit approval
AND could be cancelled at any time by the plaintiff
Defendant refused to accept delivery - sought to justify refusal on the grounds of lack of
mutuality
     court rules for defendant, says there was no consideration on part of Plaintiff in
        that they were not bound to deliver

Wood v. Lucy, Lady Duff-Gordon
Defendant gave plaintiff exclusive right to place her endorsement on designs of others
She placed endorsement on fabrics herself

Defendant claims plaintiff did not bind himself to anything
However, court believes plaintiff’s promise to use reasonable efforts to market
defendant’s endorsements was implied
     i.e. because if he didn’t he would have no income, he took sufficient steps
       towards placing her endorsement, etc.
     implied promise (“instinct with obligation”) was sufficient consideration

Going Transaction Adjustments
When you change terms of existing partially executed transaction
You need new consideration for the new promise

Harris v. Watson
Sailors demand extra pay in order for navigation
     promise to do so not enforceable under public policy reasons
blackmail, extortion, etc.- today we would call this duress

Stilk v. Myrick
Sailors demand extra pay for doing work of other sailors who jumped ship
     same result as above case, but court uses concept of “no consideration” rather
         than “public policy”
     no consideration because sailors were already bound to work hard enough to get
         the ship back to shore- so they were not giving up anything in exchange for more
         money
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Raggow v. Scougall
Defendant mantle sellers had employee mantle-designers agree to accept smaller wages
during the war (WW1)
But after a while the plaintiff demanded payment in full under the old agreement

Defendant mantle sellers had employee mantle-designers agree to accept smaller wages
during the war (WW1)
But after a while the plaintiff demanded payment in full under the old agreement

Court says there was a wholly new agreement until the war ended, so lack of
consideration cannot annul the plaintiff’s promise- this was not a going transaction
adjustment
     consideration was regular one of paying employees- court says plaintiff was being
       very dishonest

Stott v. Merit Investment Corporation
Stott is a broker whose company subtracts the amount of money he lost on an account
from his paycheque
Stott claims he shouldn’t have to pay because the loss was his manager’s (Douglas) fault
Claims there was no consideration for his acknowledgement of indebtedness and
consequent promise to pay it back to Merit
     Court finds for Merit because Stott signed a November statement saying he
         accepted responsibility notwithstanding Douglas’ actions
             o if you make a bad deal that’s your problem
     Also: Forbearance (not suing when you have a right to) in good faith is valid
         consideration
     Also Merit gave Stott certain benefits (money to spend on the stock market) as an
         incentive to sign acknowledgement of indebtedness

      Blair (dissenting) states that Stott was compelled to sign the November agreement
       because of his dire financial straits
           o he didn’t want to lose his job- duress
      also says that the agreement’s slight manipulation of employee benefits that were
       due to Stott anyway were not valid consideration, and the November agreement
       was thus void
      believes Merit’s offer of forbearance was not made “in good faith”- i.e. they
       didn’t truly believe they had a good case
           o court assesses “forbearance in good faith” objectively- would a reasonable
               person have thought they had a good case?


Gilbert Steel Ltd. v. University Construction Ltd
Steel supplier asked defendant construction contractor to pay more for their steel because
steel mill owners were now charging more for their steel
Defendant orally agreed to pay the higher prices, but did not actually do so
                                                                                          16


Plaintiff claims consideration (for defendant’s promise to pay more) was the mutual
agreement to abandon previous written contract and assume new (oral) contract
     court does not agree with this, as the only thing modified was the price- this does
        not indicate a whole new contract
     Court also says that defendant did not conduct itself as though it gave up right to
        initial price, and plaintiff did not rely on defendant’s conduct to its detriment
     Plaintiff attempting to use estoppel as a sword- i.e. to create a new contract

Williams v. Roffey and Nichols
Plaintiff (carpenter) discovered that agreed price was too low to operate at a profit
Defendants (building contractors) agreed to pay plaintiffs more (per completed flat)
Plaintiffs complete a few more flats than cease work, demand payment for the completed
flats

Defendants claim there was no consideration to pay additional money per flat
Defence claims there must instead be full performance for payment
    but court finds there was “substantial performance”, and this was enough
    Court finds that there was consideration because the agreement to pay additional
      money was beneficial to both parties
    Plaintiffs could also maybe have claimed promissory estoppel- a shield because it
      would have been used to enforce modified promise (to pay more per flat) under
      going transaction adjustment

Foakes v. Beer
Beer asked for time to pay
Foakes promised not to sue provided immediate payment of $500, plus specified
instalments until the whole was satisfied
After whole paid, Foakes sued for interest
Court finds for Foakes because she only intended to give time to pay, not to forgive
interest
     “Payment of a Lesser Sum” Rule- payment of a lesser sum in satisfaction of
         whole is not sufficient unless there is consideration for the new promise to accept
         lesser amount
             o promise to pay part of the debt (or any contract) is no consideration-
                 because that is merely a promise to perform an existing duty
             o this rule only applies to fixed sums of money, not “unliquidated” claims
                 such as damages or disputed sums

This case has been overruled by the Mercantile Amendment Act
    this says that part performance of an obligation is acceptable when expressly
       accepted by the creditor (or whoever)

Contracts with a Third Party
Scotson v. Pegg
                                                                                          17


      if you promise a third party that you will fulfill your promise to another party, this
       is enforceable (i.e. C promises to pay A if he fulfills his promise to B, A promises
       C he will fulfill his promise to C)

RELIANCE AS THE BASIS FOR THE ENFORCEMENT OF PROMISES
Reliance in the Commercial Context

Central London Property Trust Ltd v. High Trees House Ltd
Plaintiffs grant a lease under seal to defendants at $2500/ year
Then send letter confirming arrangement as $1250/year
Realize the lease allowed for $2500, demand arrears from defendant, who refuses pay

Denning rules for plaintiffs
    the promise of a lower rent was intended to be applied only until the block of flats
      was substantially or fully met, which it was by September 1945
    so after that date plaintiffs are entitled to arrears

Hughes v. Metropolitan Railway
Doctrine of Waiver: If by words or conduct, one party leads another party to believe that
the strict rights of the contract will not be enforced, then the parties seeking to enforce
would not be able to do so where it would be inequitable.

Combe v. Combe
Divorced wife claims “maintenance” from her husband, who promised her via exchange
of letters $100 a year

Court dismisses wife’s claim- says she gave no consideration
          o forbearance (in good faith) to sue is no consideration because a reasonable
              person would not have thought she had a good case

D. & C. Builders Ltd v. Reese
Builders do work for defendant
Defendant does not complain about the bill, but does not pay full fee
When asked to pay full fee, claims she is dissatisfied with work and offered $300 in
settlement
Plaintiffs in dire financial straits and thus accept settlement
Defendant forces them to write on receipt “in completion of the account”
Plaintiffs sue for balance of account

Court rules for plaintiff- the modified promise is invalid because it was made under
duress

Promissory Estoppel
    this is exception to concept of consideration
                                                                                            18


      occurs when an adjustment is made to an already-existing contract, and the party
       who makes it intends that the other party will act upon it, and promisee does
       indeed act on it to their detriment
      then promisor cannot later say “no consideration, so no deal”
      “Sword not shield”- cannot be used to enforce original contracts, only modified
       ones

Re Tudale Explorations Ltd. and Bruce
Tudale (defendant) was a mining company who agreed to extend time period for option
to explore and develop claims on its ground to defendant
It then repudiated this extension, said time had expired
Defendant had acted upon the initial representation to its detriment
Promissory Estoppel- Court finds for plaintiff
      the promise was intended to be binding and was acted on to plaintiff’s detriment
      estoppel is being used as a “shield, not a sword” here- used to protect a modified
         promise (extension of exploration option) under a going transaction agreement

Waltons Stores Ltd. v. Maher
Walton (defendant) negotiated to lease some land owned by Mahers
Intended that Mahers would demolish a building on the land, then erect a new one
Defendants back out when demolition is 40% complete
Defendants never actually signed draft lease, but supposedly did give solicitor verbal
instructions to proceed

Judge says respondent reasonably inferred that appellant agreed to contract, especially
since appellant never formally denied existence of contract
     Court determines that appellant had obligation to notify respondent that it did not
        intend to proceed with the matter, especially as it knew that demolition had begun
        on the site
            o unconscionable for them to allow respondents to act on basis of false
                presumption
            o Matter of unconscionability- so the equitable remedy being enforced is
                specific performance (force defendants to sign lease, stick to contract)

Baxter v. Jones
Defendant tells plaintiff that he will give necessary notices to other insurers to raise their
rates
He does not, as a result the plaintiff don’t have coverage when a fire occurs

Defendant loses on grounds of negligence- tort concept
    only liable for omission if you commenced performance, as in this case
      (gratuitous undertaking and reliance)

Sloan v. Union Oil of Canada
This is a sale of assets- so employees cease employment with old employer, have an
entirely new contract, new employer
                                                                                          19


Sloan did not get termination pay from Union Oil, as he was promised under the contract
B.A. Oil (the new company) discouraged him from suing Union Oil while her worked for
them (five years)
After he leaves, Sloan sues Union Oil
Union Oil says he gave no consideration for promise of termination pay

Termination allowance is a Unilateral Contract- if you continue with us we will pay
termination allowance if you are discharged with cause
     although court also found consideration in Sloan’s continued employment with
       Union Oil

McCunn Estate v. CIBC
McCunn’s life insurance supposed to be terminated upon reaching age 70
Premiums continue to be paid beyond that, although insured did not appear to be aware of
the continuing premium deductions
Later her estate seeks to claim increased payment appropriate to her continued deposits

Majority rules for defendant
    case of mutual mistake- so no contract
           o no “meeting of the minds”
    no detrimental reliance
    cannot take advantage of another’s mistake- i.e. if bank accidentally deposited $1
       million into your account you would have to give it back

Dissent’s reasoning make more sense
    unilateral mistake on behalf of bank
    bank’s offer = the continued deductions
    McCunn’s acceptance = not complaining about the deduction
           o McCunn had 30 days to object- if she doesn’t, she is impliedly accepting
               the deductions (“instinct with obligation”- implied acceptance)
           o No need for detrimental reliance, in cases of clear offer and acceptance-
               this is mostly important for restitution and promissory estoppel
    a reasonable bystander would have assumed there was both offer and acceptance

Reliance in a Non-Commercial Context
Skidmore v. Bradford
Testator buys a house as gift for his nephew, partially pays it off, dies
Nephew demands rest of payment from his estate

Court rules for plaintiff- reliance a sufficient basis for enforcement of gift promises

Dalhousie v. Boutilier
Boutilier promises to make a donation to Dalhousie, fails to do so
Plaintiff demands payment from his estate

Gift not enforceable- no consideration (obviously because it’s a gift), and no reliance
                                                                                             20



INTENTION TO CREATE LEGAL RELATIONS
Non-Commercial Context
Jones v. Padavatton
Mother (plaintiff) tells her daughter she will pay her $200/month to study for the bar
Later gives daughter a house and lets her keep the rental income instead of playing $200
monthly
Daughter make poor progress in her studies, it take her 5 years instead of 3 to pass her
exams
Mother tries to recover possession of house

Court of Appeal rules for mother
    contracts between family members are usually unenforceable (primarily because
       such contracts are never intended to be legally binding)
          o promises made by government also not usually enforceable
    neither mother nor daughter intended to create a legally binding agreement

Commercial Context- Letters of Comfort
TD Bank v. Leigh Instruments Ltd.
Letter of Comfort- deliberately designed not to create enforceable legal relations, but is
intended to provide some “comfort” that something will be done

Plessy Company (which took over Leigh Instruments) sent five letters of comfort to TD
saying they would manage Leigh in such a way that it would always be able to meet its
obligations to the bank- They don’t
Court rules for Leigh (defendants)

Court finds the letters created no reliance on the part of the bank, as seen by the words
“(this) does not constitute a legally binding agreement”
     letter of comfort format means promises were not intended to be legally binding

THIRD PARTY BENEFICIARIES AND PRIVITY OF CONTRACT
Doctrine of Privity (Dunlop v. Selfridge)
    only someone who is “party” to the contract can enforce it
    “third party beneficiary rule”- “stranger” to contract cannot enforce a promise-
       whether contracts benefits them directly or indirectly
    contracts cannot impose rights or obligations to anyone other than those who are
       party to it
           o in terms of company loan defaults, the creditor (bank) cannot pursue these
               debts from the personal funds of the owner- owner not a guarantor
                    rules different for partnerships
    the third party received no consideration for the promise

Scruttons v. Midlands
A “bill of lading” (between shipper and carrier) limited the liability of carriers of the
goods to $500
                                                                                            21


Carrier employed stevedores to unload ship, a contract between carriers and stevedores
said stevedores would be responsible for negligence on their part, but would have “such
protection as is afforded by the bill of lading”

Court rules stevedores (who damaged the goods) could not have the protection of the bill
of lading due to the doctrine of privity

Exceptions to the Doctrine of Privity
4 Exceptions to Privity
    Agency- Agent can work on behalf of principal, negotiate on their behalf
           o The contract formed only binds the principal and the third party
    Assignment- A creditor can assign a debtor’s debt to an assignee- then subject to
       certain restrictions, the assignee can sue the debtor for the amount of the debt
           o the assignment is not allowed to work to the debtor’s disadvantage in any
               way
    Trust- A trustee holds an asset in trust for another party (the beneficiary)
           o the trustee can enforce a promise that was made by a third party to the
               beneficiary
           o the beneficiary can compel the trustee to bring the action whether the
               trustee wants to or not
    Employment- as in London Drugs

New Zealand Shipping v. A.M. Satterthwaite
In this case the stevedores did receive the benefit of the bill of lading
     There was an implied agency of behalf of the stevedores when carrier was
         negotiating the contract
     Carrier is agent for communicating unilateral offer (of terms of bill of lading) to
         stevedores, who accept by performance

Greenwood v. Beattie
Landlord sues welders for damages caused by fires in shopping centre
Welders employed by Canadian Tire (a tenant), who were protected by terms of lease
    Court ruled that welders were not protected under lease due to doctrine of privity

The ruling is arguably unfair because it exposes to personal bankruptcy, the only people
who had no likelihood of being protected by indemnity and who would never have
thought to obtain insurance
    when strictly applied, the doctrine of privity, like the doctrine of consideration,
       only catches those who have not had the opportunity to obtain competent legal
       advice

London Drugs v. Kuerne and Nagel International
SCC- London Drugs (plaintiff) delivered a transformer to Kuerne
Employees of Kuerne break transformer while moving it
                                                                                         22


Court rules for defendant- There is a liability clause limiting Kuerne to no more than $40
in any sort of damages
     but court says the liability clause should apply to Kuerne’s employees too

Court says contracts made for (or partly for) the benefit of third parties should sometimes
be enforceable
     doctrine of privity must consider “special considerations which arise from the
       relationships of employer-employee and employee-customer”- this is the extent of
       the court’s modification of the doctrine of privity
     crucial test: limitation of liability clause must, either expressly or impliedly,
       extend to benefit of employees seeking to rely on it
     and- the employees seeking the benefit of the limitation of liability clause must
       have been acting in the course of their employment and must have been
       performing the very services provided for in the contract between the employer
       and customer when the loss occurred
           o respondents are (impliedly) third party beneficiaries under liability clause-
           o and they were acting in the course of their employment and performing the
               very services provided for in the contract between their employer and
               London Drugs

Laing Property Corp. v. All Seasons Display Inc.
Fire occurs in shopping mall owned by Laing
All seasons manufactured the display that started the fire

Are the employees themselves liable, as they were not privy to the lease agreements?
    no, because they were impliedly protected by the contractual protection provided
       to the landlord
    and they were performing the services provided for under the contract
    so they’ve met both parts of the London Drug test


INTERPRETATION OF CONTRACTS

BASIC RULES
Federal Commerce v. Tradax Export
Question: which party is to bear the costs of delay arising from congestion of the port of
discharge?
     who did parties intend to allocate loss to in negotiation of contract?

Scott v. Wawanesa Mutual Insurance
Plaintiffs holder of an insurance policy
Their son deliberately set fire to insured premises
Their insurance was denied, because policy did not cover losses covered by wilful acts of
the insured or people whose property is insured here under (insured includes the son)

Majority says terms are clear and unambiguous- rules for insurance company
                                                                                            23


      policy has clause that clearly covered the situation
      courts should not give contract a different meaning, unless it is unreasonable and
       has an affect contrary to the intentions of the parties
      no contrary intention or ambiguity here

contra proferentum rule- if there is ambiguity in a clause, it will be construed strictly
against the party at whose instigation the clause was included in the contract, and who
now seeks to rely on it
    this rule is particularly important in exclusion clauses

PAROLE EVIDENCE RULE
Parole Evidence Rule (Eli Lilly v. Novopharm)- Where there is a written document
evidencing the contract, then extrinsic evidence (i.e. other oral promises) will not usually
override the clear, plain and unambiguous meaning of the words of the written document
Courts must consider three main things
     is there a contract?
     Did parties assent to particular writing as complete and accurate expression of
       their agreement?
     Is contract affected by mistake, fraud or illegality?

Bauer v. Bank of Montreal
Owner has sold business to which he was guarantor, but bank would not release him from
his guarantee despite ownership change
Business subsequently goes bankrupt
The bank has made (innocent) mistake that has rendered it impossible for guarantor to
cover debtor’s debt
     court rules for Bank- strict interpretation of parole evidence rule

MISREPRESENTATIONS AND WARRANTIES
Representations, Conditions and Warranties
Classifications of contractual statements:
    puff = sales talk- no consequence for this “exaggeration”
    representation = statement of fact
            o A statement of fact meant to induce you into a contract, and indeed does
                so, is actually a warranty
    warranty = promise of performance
            o may be a term, or may be collateral
            o remedy for breached warranty is expectation damages
            o in case of breach, innocent party cannot terminate the contract
    condition = an essential term, goes to heart of document
            o in case of breach, innocent party may terminate contract and obtain
                expectation damages
    innominate term = term that is not expressly a condition or warranty, but could be
        treated as either in that occurrence (or lack thereof) of the event may provide one
        party with an excuse for non-performance, or may only give rise to damages,
        depending on severity of consequences of breach
                                                                                         24


           o if something is expressly a condition courts will usually not change this
             into an innominate term

Warranties, conditions, and innominate terms are all promises of future performance

To determine if something is condition or warranty, court objectively assesses they
intentions of the parties when they made the contract
     dependent promises (conditions)
            o main consideration for your main promise is the other party’s main
                promise, and vice versa
     independent promises (warranties)
            o the main consideration for your promise from the other party is
                somewhere else
            o
Hongkong Fir v. Kawasaki
Breach of term that ship was supposed to be “seaworthy”
Was “seaworthiness” a condition or warranty?

Court creates a third term other than condition or warranty
    it’s an innominate term
    result-related concept, unlike condition or warranty
    created because the other categories could lead to inappropriate remedies

Misrepresentations
Misrepresentations- was it innocent or fraudulent?
    in innocent cases, the general remedy is rescission of the contract, but no damages
          o Although these can be negligent- in such cases, usually tort damages, but
              this might amount to same thing as expectation damages
    Fraudulent- expectation damages, rescission, and sometimes a criminal charge too

Redgrave v. Hurd
Solicitor selling business and house
Oral statement to the effect that practice brought in about £300 per year
Post agreement, Purchaser discovered practice only brought in about £200 per year

Purchaser refused to complete the deal
    Held: innocent misrepresentation, leading to rescission
    Not negligent representation, because plaintiff did not do his “due diligence”- he
       may have had opportunity to verify representation, but did not do so

Collateral Contracts
Heilbut, Symons & Co. v. Buckleton
Defendant was a stock underwriter (i.e. promoter) who was selling shares in a rubber
company when there was a rubber boom
Tells purchasers “we are bringing it out”, which purchasers takes to mean the company is
good
                                                                                            25


Later it’s discovered there’s a large deficiency in the rubber trees on the company’s
plantations, the shares fall in value

Plaintiff claims there was a warranty that the company was a good company
But court says if this is a warranty the plaintiff must show a contract collateral to the
main contract
     very hard to prove there was a warranty (collateral contract), unless courts
        specifically look for one to achieve just result
     court says that collateral contracts are from their very nature rare
     Court rules for defendant- says there was an innocent misrepresentation at most
     case precedent for the rule that an innocent misrepresentation gives no right to
        damages

Dick Bentley v. Harold Smith Motors
Plaintiff buys car from defendant car dealership
Car was disappointment to plaintiff, turns it out it had more mileage on it than he was
told
     Court rules for plaintiff, says there was a warranty
     says defendant made statement of mileage without any foundation, and this
        statement induced plaintiff to buy

Murray v. Sperry Rand
Doctrine of Privity problem- No problem finding dealer liable
    Plaintiff needs to show a side-contract between manufacturer and purchaser
           o So here the collateral contract is with a third party
    So claims the statements made by the manufacturer on its “highly promotional”
       brochure were contract-inducing representations
    Court agrees with plaintiff, says there was a breach of warranty

Fraser-Reid v. Droumtsekas
Plaintiffs buy a house, later serious basement flooding occurs

Is the builder’s statement that he “built good houses and this is a good house” an express
warranty or a mere puff?
      Court says yes, it was not a puff or even a representation- it was a promise as to a
        certain state of affairs and was collateral to the main purpose of the contract
        (transfer of property)

Ontario Sales of Goods s. 13-16 contains a number of provisions that delineate implied
conditions in all sales of goods (for instance, now all houses built by a builder are
impliedly “good houses”)
    however, s. 53 says that parties are free to contract out of all the conditions of this
       act
    but s. 9 of Consumer Protection Act that sellers cannot benefit from s. 53 for
       backing out of implied conditions and warranties when dealing with customers
                                                                                        26


Warranties and the Doctrine of Privity
McMorran v. Dominion Store
Plaintiff open bottle, it explodes, injuring his eye
Tort of negligence
     vertical privity means manufacturer owes noduty to consumer
     but contract is invoked to find manufacturer liable (contractual chain)

Sigurdson v. Hillcrest Service
Plaintiffs injured because their break hose didn’t work
Not negligent- latent defect
     but breach of implied condition of Ontario Sale of Goods Act

Winnipeg Condominium Corp. v. Bird Construction
Extension of tort liability to circumvent protection created by doctrine of privity
    so duty extends beyond first purchaser – this may happen only in extreme cases
       (i.e. dangerous defects)

Boundaries of Tort and Contract: Concurrent Liability
Bow Valley v. Saint John Shipbuilding
HOOL and BVI want an oil rig built
Don’t directly contract with builder (SJSL)
Instead they incorporate a new company that owns the oil rig, this company leases the oil
rig to HOOL and BVI
Supplier of specialized equipment (Ray Chem) doesn’t notify owner of special piece
needed for oil rig, as a result the rig catches on fire

Were SJSL and Ray Chem negligent? Yes
Did they owe a duty to HOOL and BVI?- in torts yes
    but in their contract there is an exclusion clause preventing them from being liable
       for damages caused by negligence
    majority says limitation and exclusion clauses are strictly construed against the
       party seeking to invoke the clause- this is important
           o in this case, the clause did not cover a “duty to warn”, so can be liable

HOOL and BVI are essentially suing for economic loss caused by negligence that did
damage to a third party (the owner of subsidiary- it was their rig that was damaged, and
this made HOOL and BVI lose money)
     Parties especially cannot sue for loss caused by damage to third party in cases of
       pure economic loss- spread liability too far

Negligent Misrepresentation
Esso Petroleum v. Mardon
This case introduces concept of negligent misprepresentation
    if a person who professes to have professional knowledge or skill makes a
       representation thereof to another with the intention of inducing him into a contract
                                                                                           27


       with him, he is under a duty to use reasonable care to see that representation is
       correct

V.K. Mason Construction v. Bank of Nova Scotia
Bank assures Mason (general contractor) that the owner of building under construction
will be able to meet payments, although owner had told bank their loan was insufficient
Mason would not have entered into contract without these assurances
It became apparent that Bank’s loan would not cover costs, but bank doesn’t lend more
money
Bank doesn’t tell Mason of the problems

Court concludes there was no contractual relationship between Bank and Mason
    but Mason can still sue on basis of negligent misrepresentation
Was bank’s assertion that owner would be able to meet payments a negligent
misrepresentation?
    court says yes, and there was a “special relationship” between the parties because
       representation was made with the specific intention of inducing Mason into
       contract with the owner
    plaintiffs relied on misrepresentation to their detriment, and this reliance was
       foreseeable by the bank
    The basis for liability for negligent misrepresentation is tortious, and expectation
       damages are often similar to tort damages (they get expectation damages here)

Keith Plumbing v. Newport City
Defendants were the only source of information to the plaintiff
Because the plaintiff did not have the choice to obtain information elsewhere, the
exclusion clause is found not to apply
    Defendants liable for their negligence

Negligent Misrepresentation and Contractual Allocation of Risk
J. Nunes Diamonds v. Dominion Electric Protection
Employee of alarm system (after sale of system) tells plaintiff that the system is safe,
despite fact it had been circumvented elsewhere

For tort liability to occur, it must be independent to the contract
    i.e. the duty owed by the defendant must have been unaffected by the contract
            o i.e. not covered by an exclusion clause
            o In this case the tort was covered by an exclusion clause
            o Courts will not interfere with contractual allocation of risk
    In cases where the plaintiff should probably have bought insurance, the court is
        more likely to find that the tort is covered under the contract

Queen v. Cognos Inc.
Defendant leads plaintiff to believe that the job they are hiring him for would last at least
two years, but fail to tell him that the project had not been approved by its Board of
Directors
                                                                                            28


Contract gets cancelled, plaintiff eventually gets fired because there is no work for him

Court holds that the negligent misrepresentation was a tort that lay outside of the
contract, and thus was not limited by an exclusion clause in the contract- so plaintiff gets
tort damages
     The statement that “we have a two year job for you” lies outside the contract, and
        thus is not covered by the exclusion clause
            o Plaintiff relied on the misrepresentation to his detriment, and this reliance
                 was foreseeable by the defendant
     This plaintiff gets more damages than plaintiff in Brewer v. Chrysler because in
        the latter case the actual contract was never created

Central Trust v. Rafuse
Client of a negligent lawyer can sue in contract or tort, and have longer limitation period
     in any case where both contract and tort actions are available, plaintiff can choose
        either method, but cannot sue under both contracts and torts (unless there is a
        clause excluding tort liability, like in Bow Valley)
     although usually both are not available
     basically, I just need to know that if representation is not embodied in the
        contract, the plaintiff can being a separate action in tort

Hercules Management v. Ernst & Young
Tort damages can be obtained for negligent misrepresentation when one party owes the
other a duty of care
    In this case the duty was denied for public policy reasons (stage 2 of the Anns
        test)


In many of the above cases, the representation induced the plaintiff into the contract, so it
is actually a warranty
But the plaintiff doesn’t claim it’s a warranty, because then it would be contractual
statement covered by the exclusion clause
But if it’s a representation made outside of the contract, then it can be covered by tort
damages

TECHNIQUES OF CONTROL
Contracts of Adhesion and Inequality of Bargaining Power
Contracts of Adhesion- “take it or leave it” contracts where there is some imbalance of
power
    i.e. a dry cleaner’s receipt says “we are not liable if we destroy your clothes”

Parker v. South Eastern Railway Co.
Railway loses Parker’s bag
Ticket had clauses that stated it could not be held liable for bags over $10
Plaintiff claims he never read this notice, did not know there were conditions on the ticket
                                                                                              29


Question that must be answered:
    Did plaintiff know of the condition, or know the writing likely contained
       conditions?
    If no: did railway company give plaintiff sufficient notice of the condition?
           o Is railway company entitled to assume that a recipient would reasonably
               assume that the ticket contained conditions?
           o For degree of notice required, test is whether railway company took
               reasonable steps to bring the conditions to the attention of the recipient

Heffron v. Imperial Parking Co. Ltd.
Bailment = contract- bailee responsible to return goods (in the same condition) to bailor
at end of bailment
License = permission to do something which would otherwise constitute a trespass- not a
contractual relationship

So in this case: was there a contract of bailment (in which bailee is responsible to
returning car in good condition)?
     or was there a mere license to park his car in the garage (in which case garage not
        responsible)?

Thornton v. Shoe Lane Parking Ltd.
Plaintiff parks car in parking lot owned by defendants
At entrance was a sign saying, “all cars parked at owner’s risk”
Ticket says it’s subject to conditions posted on premises
There are a few places in the garages that post the condition that garage is not liable for
any damage to the car or injury to the plaintiff
Plaintiff injured in accident found to be 50% the fault of the garage employees

Defendants liable- steps (i.e. reasonable measures) taken to notify plaintiff of exemption
clause must be given before or at time of contracting
     plaintiff did not know of the conditions when the ticket was issued and he drove
       in to park his car

Signed Contracts and the Doctrine of Fundamental Breach
Photo Production v. Securicor Transport
Defendants provides security services to plaintiff’s factory
Fire damages factory- fire was caused deliberately by a Securicor employee (although he
didn’t intend to burn down factory)
     Securicor was not negligent in employing the person
Clause states that Securicor is not liable for damages caused by employees, unless such
damage was foreseeable by the company

Court rules in favour of Securicor
Court definitely rejects “fundamental breach” as a rule of law
    “fundamental breach” occurs when extreme unfairness would result from the
       operation of an exclusion clause
                                                                                             30


      This case states that “fundamental breach” does not apply when the contract
       clearly intends to exclude liability for fundamental breach
           o If a specific breach is covered by an exclusion clause, then the party
               cannot be held liable for that breach
           o “rule of construction”- fundamental breach is found only be examining the
               reasonable intentions of the party at the time of the contract
                    a fundamental breach is that which is contrary to the intentions of
                       the parties

Hunter Engineering v. Syncrude Canada
Hunter (defendants) supplied gears to plaintiff
Contract had a warranty which stated “no other warranty, statutory or otherwise, is
implied”

Court rules that the warranty does not exclude the Sales of Goods Act
    the warranty must use explicit and direct language if they wish to do this
This is the Canadian Case which affirms Photo treatment of “fundamental breach”
    courts should only interfere where a contract is unconscionable (usually occurs
       when a party abuses the inequality of bargaining power)

Signed Standard Form Contracts and Inequality of Bargaining Power
McCutcheon v. David MacBrayne
Plaintiff/appellant ships car with defendant
Defendant’s boat sinks
Defendant’s shipping contract has exclusion clause
But this day they did not get the plaintiff to sign the conditions, although plaintiff has
signed an identical document on past occasions

Plaintiff not liable
     plaintiff had never read conditions, defendant never tried to draw them to his
        attention- this is a valid defence
            o plaintiff only has general knowledge that there are conditions- defendant
                 must communicate these conditions to the plaintiff
            o not plaintiff’s fault he didn’t read conditions
     like in many of the ticket cases, no consensus ad idem
            o defendant would not reasonably infer there was a meeting of the minds
     judge puts burden on contract-creator (in this case defendant) to show that the
        other party did understand the conditions

Tilden Rent-A-Car v. Clendenning
Defendant has accident with rented car
Clause that the defendant did not read said Tilden was not responsible for damages if
driver had consumed any alcohol
Clerk knew defendant had not read contract
                                                                                         31


Court rules for defendant because Tilden took no steps to alert Clendenning of the
onerous provisions of the contact
    if defendant had known of the provisions, he wouldn’t have signed the contract
       (no consensus ad idem)
           o not defendant’s fault he didn’t read conditions

978011 Ontario Ltd v. Cornell Engineering
One party signed document without reading it, claims they trusted other party

If one party relies on another to bring information to their attention, there are some
factors that will justify using this reliance as a defence:
     past course of dealing in which reliance for advice, etc. has been an accepted
        feature
     explicit assumption by one party of advisory responsibilities
     relative ability of the parties to acquire the information
     manner in which parties were brought together, and the expectation that could
        create in the relying party
     presence of just one of the factors will not necessarily suffice

Party has obligation to read document and are assumed to have done so
     they knew the parts of the document they didn’t read contained conditions
     the aforementioned factors were not met

REMEDIES
General Principles: damages are compensatory (expectation damages are the typical
reward)

Three levels of damages: Expectation highest level of degree, restitution the lowest
“Expectation damages”- put claimant in as good a (net) position as they would have been
had contract been performed
     formula = (value of gains prevented by breach + losses created by breach) – (costs
        which plaintiff has avoided + any gains made possible by breach)
“Reliance Damages”- Give plaintiff that which they have lost for changing their position
based on their reliance that defendant would fulfill their promise
“Restitution Damages”- Equitable remedy- plaintiff recoups benefits unjustly incurred on
defendant
     guilty party was “unjustly enriched” and now must give money back
     often occurs when there is a lack of consideration
Reliance and Restitution damages allow judges to award damages despite the “no duty to
bargain in good faith” rule
Plaintiffs can only sue for one type of damage

Equitable remedies often called “specific performance”- as opposed to legal remedies
(damages)
Equitable remedies based on morality
                                                                                        32


Quantification of Value
Peevyhouse v. Garland Coal & Mining
Plaintiffs own farm containing coal deposits, lease premises to defendants
Defendant doesn’t do the restorative and remedial work they had agreed to do

Court awards the plaintiffs not the amount of money that would be required to pay for the
unperformed work (cost of performance), but rather the smaller sum of the decrease in
value to the premises as a result of the non-performance (diminution of value)
     these are compensation/expectation damages- place parties in same position as if
        contract had been performed
            o if the plaintiff was likely to pay for performance by another party (with
                good reason), then courts would have awarded cost of performance
     this case demonstrates courts’ reluctance to award non-economic losses
     general rule of this case: damages are to be measured by the cost of completing
        performance, unless that cost is vastly disproportionate to the value to be derived
        thereof (as was the case here)
            o courts don’t want to unjustly enrich plaintiff or waste economic resources

2 instances in which courts almost always prefer cost of performance, even if it is
substantially higher than the “difference in value”:
     whenever the defendant’s conduct renders the subject matter (i.e. property)
        unusable by plaintiff
     courts don’t want to encourage future breaches by awarding the lower sum of
        “difference in value”

When performance is not payment of money, “value” of contract is the amount plaintiff
would have to pay to another person to obtain identical performance
    can be hypothetical “other person”- courts use a “reasonably certain” estimate of
      value

Ruxley Electronics and Construction v. Forsyth
Plaintiffs build a swimming pool for defendant
Pool is 7 inches less deep than it was supposed to be, defendant refuses to pay

Court rules for plaintiff
    the defendant did not suffer any loss due to the slightly shallower pool
    damages are meant to be compensatory, not punitive
    awards defendant $2500 (i.e. he would have to pay this much less) for “loss of an
       amenity”

Victory Motors v. Bayda
Defendant contracted to buy car from plaintiff
Defendant later refuses to accept car
Plaintiff later sells car to a third party
                                                                                             33


Plaintiff awarded damages due to loss of opportunity to sell one additional car
(compensation damages)
     In cases involving failure to deliver/refusal to pay, awards are prima facie the
        difference between the price of the contract and the price the plaintiff would have
        got by selling/buying the goods elsewhere (at the time the performance was
        scheduled to take place)
If supply had exceeded demand of the car in question, the plaintiff would not have
ultimately sold one less car
     they would have received no award of damages

The Scope of a Damages Award: Reasonable Contemplation
Hadley v. Baxendale
Shaft in a mill owned by the plaintiffs breaks, they order a new one from defendant
Due to negligence delivery of the replacement is delayed, and thus the working of the mil
is delayed
Plaintiffs lose profit because of the delay

Rule 1 of compensation damages- damages must be a reasonably foreseeable
consequence of the breach
     In this case, the loss of profits was not reasonably foreseeable because most mill
       owners keep spare shafts
Rule 2- Special circumstances must be communicated to defendant- they were not in this
case
     so for the above reasons, in this case when awarding damages the jury must not
       take loss of profits into account

Victoria Laundry v. Newman Industries
Plaintiffs order boiler from defendant
Boiler damaged by contractors who were dismantling it in preparation for shipping, not
repaired for twenty days despite the promise to deliver it “in the shortest possible space
of time”

Plaintiffs demand loss of profits
     defendants are liable for loss or profits that would reasonably be expected to
        occur
     but they are not liable for the loss in profits resulting from the particularly
        lucrative dyeing contracts the defendants had no knowledge of
            o the defendants would have been liable for these had the plaintiff made
                them aware of these contracts before the time of the breach

Koufos v. C. Czarnikow (“The Heron II”)
Plaintiff/respondent charters defendant’s ship
But defendant in breach of contract causes delay in voyage
Defendant did not know of plaintiff’s intention to sell sugar immediately after delivery,
although he did know there was a market for sugar in Basrah
Price of sugar falls during period of delay
                                                                                          34



Plaintiffs are awarded loss of profits
     the loss was not too remote
            o the loss was “within reasonable consideration”- can be less than 50%
                probable, as long as it’s a “real danger”

All of the cases in this section are awards of expectation damages

The Appropriate Measure of Damages
Anglia Television v. Reed
Defendant is liable for plaintiff’s wasted expenditures (reliance damages)
    rather than loss of profits (expectation damages)
    if plaintiff cannot prove value of expectations, only reliance damages are
       available
    subsequent cases have held you shouldn’t be able to get more from reliance
       damages than you would from expectation damages

Bowlay Logging v. Domtar
Plaintiff would have lost even more money had there been no breach because business
was doing poorly
Plaintiff’s wasted expenditures at the date of breach were less than the expected net loss,
so he is entitled to nominal damages only

Horne v. Midland Railway Company
Defendant only liable for ordinary losses
    Defendant was not made aware that the contract between the plaintiff and the
      third party was exceptionally profitable, and that any delay would be therefore
      exceptionally harmful
          o Not made aware of the “special circumstances”

Cornwall Gravel v. Purolator Courier
The defendant knew the importance of the document, and that if delivered late the tender
would be worthless and the (very lucrative) contract lost
    the plaintiff communicated the special circumstances to the defendant
    so the plaintiff is entitled to recover the full amount of profit lost

This case states that “special circumstances” is not just a factual question about what the
defendant knew
     court must ask what amount of liability if “fair” in the given circumstances- i.e.
       what was the extent of the allocation of risk “reasonably contemplated by the
       parties”?

Canlin v. Thiokol Fibre Canada
Defendants supply material for swimming pool covers for plaintiff who is entering U.S.
market
The material is horrible, plaintiffs forced to withdraw from market
                                                                                           35



Defendants liable for the losses on the covers actually manufactured
Defendants also liable for loss of future profits, as this was a reasonably foreseeable
result of the breach

Lost Enjoyment and Non-economic Interests
Jarvis v. Swan’s Tours
Disappointed tourist compensated not just for sum paid for the holiday, but also for the
“loss of entertainment and enjoyment”
This case was very influential in the increasing willingness of courts to award non-
economic damages

      it’s difficult to determine what amount to award in damages in lost enjoyment
       cases
            o same problem applies to mental distress and punitive damages cases
            o another problem is that this begins to encroach on domain of tort law

Employment Contracts and Aggravated Damages
Vorvis v. Insurance Corporation of British Columbia
Solicitor dismissed, following period of harassment and humiliation by senior
This case says that both the following types of damages may be awarded in appropriate
(very rare) circumstances, usually (but still very rarely) wrongful dismissal cases
     aggravated damages: compensatory in nature, taking into account non-economic
        loss
     punitive damages: imposed as form of punishment, when court completely
        disapproves of defendant’s conduct

This is not a case where aggravated damages should be awarded
    no “independently actionable wrong”
    Punitive damages not available because termination of employment was
        permissible in law- reasonable notice was given

Wallace v. United Grain Growers
Employee claims he was dismissed without cause
    when dismissed without cause, employee entitled to notice or severance
    employees on fixed term contract cannot be dismissed without cause

Any award of damages beyond compensation for breach of contract for failure to give
reasonable notice of termination “must be founded on a separately actionable course of
conduct”
     there is no separately actionable course of conduct here, so the plaintiff cannot
       recover damages for mental distress

However, the damages for failure to give notice ought to be at the high end of the scale in
this case (24 month’s salary)
     courts extend period of reasonable notice
                                                                                            36


      this is a way to compensate for a “bad faith” dismissal, and to partially
       compensate for the mental distress that accompanies being fired, even if the
       damages are not explicitly termed “non-economic damages”
           o courts recognise imbalance of power between employer and employee
           o courts may also feel sympathetic because plaintiff was induced to leave
                previous secure employment

Punitive Damages
Whiten v. Pilot Insurance
Defendant engaged in misconduct during the trial, i.e. in its trumped up attempts to prove
arson and in its tactics to force the financially strapped plaintiff to settle
Its initial refusal to pay insurance claim was unjustified

In addition to compensatory damages the court also awards punitive damages
     defendant engaged in “malicious, oppressive, high-handed tactics” that offended
        the courts “sense of decency”
     the defendant’s breach of duty to act in good faith was an independently
        actionable wrong from the claim for the insurance owed to the plaintiffs by
        contract
     punitive damages are proportionate to the nature of the act (blameworthiness,
        need for deterrent, vulnerability of plaintiff, other penalties likely to be imposed,
        advantage wrongfully gained, etc)

Punitive damages, like doctrine of unconscionability, is an equitable concept


POLICY
Courts attempt to achieve equitable remedy
    use a rule as “peg to hang their hat on”
    attempt to respect intentions of parties

Liberalism
Greater good is served- Adam Smith’s “invisible hand” concept
    Through exchanges made by rational actors the market determines how society
       should invest its resources
    classic liberalism rejects paternalism because rational individuals know their own
       interests better than the government could know them
    Government’s role limited to ensuring contracts will be kept
    hard bargaining is necessary to properly allocate resources in a competitive liberal
       society
    stare decisis injects a measure of predictability into the bargaining process

This is reinforced by:
    Egoism- humans by nature seek self-preservation
    Intellectualism- Humans are basically rational
                                                                                       37


      Quietism-humans are essentially passive- activities must be induced, i.e. work for
       money

Everyone trades in own best interest, so this private system based on voluntary
agreements of exchange (enforced by government)- because then everyone will be better
off if contract is kept
     this is why goal of damages is usually expectation damages, and role of
         enforcement is compensatory not punitive or deterrent
     this is why courts examine intent of parties- their own intention is in their best
         interest

So:
Talk about No Duty to Bargain in Good Faith (Martel, L.C.D.H.)
     Dawson, Deglman, Lac Minerals,
Talk about No agreements to agree (Mays)
     Brewer, Foley
Intent is important (Hunter)
     (Queen)
Talk about Expectation Damages (Ruxley)
     (Whiten, Wallace)

				
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