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									              Contracts – Professor John D. McCamus – Section D – Fall 2007

Form of private law dealing with the enforcement of promises and/or undertakings

Basic principle of contract law: fundamental goal is to place the non-breaching party in the same
position they would have been had the contract been fulfilled according to its terms by the
breaching party


Fuller and Purdue, “The Reliance Interest in Contract Damages”:
   - Identify three measures of relief for damages: the restitution, reliance and expectancy
   - Expectancy Interest: put the P in as a good a position as they would have been if the K
        had been fulfilled
   - The expectancy interest is valuable as it encourages reliance on Ks by a penalization of
        breach for damages

    1. Restitution Interest:
          a. Return of any money rendered for an unfilled promise
          b. Prevents the unjust enrichment of the party which breaches the contract

    2. Reliance Interest:
           a. Put the plaintiff in as good a position he would have been in before the promise
              was made
           b. Entitled to all costs incurred in anticipation of the broken promise

    3. Expectation Interest:
          a. Put the plaintiff in as good a position he would have been in had the contract
              been performed
          b. Entitled to the promise being fulfilled, either through specific performance
              (action) or usually damages (lost profits).
          c. Law gives protection to expectancy to encourage K to be performed, to
              encourage reliance on the K. The stricter the penalty, the more confidence people
              will have in Ks.

Wertheim v. Chicoutimi Pulp – summation of the ruling principle of contract

It is the general intention of the law that, in giving damages for breach of contract, the party
complaining should, so far as it can be done by money, be placed in the same position as he
would have been in if the contract had been performed

Bowlay Logging – where the P can demonstrate a D was involved in losing contract

Where a contract can be shown to have been a losing proposition for the P, there are no
expectancy damages

P is losing $ on K. D breaches K with P. P sues for damages.
No cause of action because D can demonstrate expectancy loss, P profited from breach.

Anglia TV v Reed – suit for reliance damages including pre-contract expenditure
Where a P is unable to demonstrate a profitable contract and the D is unable to show the claim
would have been a losing venture, reliance damages can be given in place of expectancy; Pre-
Contract expenditures are recoverable in certain circumstances

Anglia was going to shoot a movie, hired Reed at last second to be the lead, and he breached

Could not demonstrate expectancy. Onus on P to prove profit shifts to D to prove loss. If neither
can prove, then expectancy is assumed to be ZERO.
Sued instead for reliance, including pre-contract expenditure (costs incurred before he was hired)
Ogus – in the US (and Canada), must show causation, did his breach cause the loss? This case
may have been decided differently.

Reliance as an alternative measure to the expectancy principle:
    - As an alternative to relief in the expectancy measure, a victim of a BoC who has incurred
       expenditures or other losses in reliance on the K but who cannot establish that a profit
       would have been made as a result of full performance of the K may seek reliance
            o Example in McCrae v. Commonwealth Disposals Commission (Aus. HC)
    - Thus, in a case where it is the nature of the defendant‟s breach that has prevented the P
       from being able to establish that the K would have been profitable, the P is relieved of the
       normal burden to establish profitability and the onus shifts to the D to show the K would
       not have been profitable – where the D cannot do so, P can recover reliance damages

Pitcher v. Shoebottom – methods for the calculation of damages

Damages are equal to the loss of bargain cost (i.e. expectancy damages)

A K to sell land with a down payment. Breach by D, sold land to someone else. P sues for

Judge awards damages for breach, but wrong calculation. 2 methods:
   - Lost profit (current price of land – original price) + reliance loss (costs incurred before
       and after K, ex: land survey); or
   - Gross profit (current land price including surveys, those add to value) – avoided expenses
       (paying rest of the pymts.)

Hawkins v McGee – Calculation of damages does not involve tort measures

Damages for expectancy are the difference between the old hand and the new one – no
compensation for pain and/or suffering in contract

Doctor operated on Ps hand. Promised his a hand as good as new. Hand was worse than before.

Damages for expectancy, difference between current hand and a new hand.
Ex: Law of chattels, If you sell me a broken machine, exp. is dif between the broken machine and
a working one.

Not difference between old hand and new hand. Torts looks to make the person whole again,
reliance (i.e. restore to original, broken hand). Contracts looks to fulfilling the contract.
Problems in Measuring Damages

Key debate: Cost of performance versus economic value

Carson v. Willets – damages are equal to the economic value

Oil well drilling problem – contract to drill wells breached – is expectancy loss of oil profits
(possible) or cost of holes not drilled

Expectancy damages can be determined by an estimation of loss of economic value rather than
cost of performance

Just because a determination of possible economic value of a expectancy damages calculation is
difficult does not mean that the courts should not make an attempt in appropriate circumstances

Groves v John Wunder – damages are equal to the performance value

The cost of performance should be used as the measure of expectancy damages when the
breaching party is unjustly profiting form their breach

Lease contract to use land. D would have to level ground after use. Breached k. P
       Sued for performance value, i.e. cost to level the land, even though the land itself
       Was worth much less (economic value)

        Court found for performance expectancy.
            D‟s breach was willful, unjust enrichment, surely D should not benefit
            Law aims to give P what he was promised, i.e. performance.
            P has a right to improve his property even if it is not worth much

        Strong Dissent for economic expectancy
             Damages should not be punitive in nature
             Contrary to economics to pay so much to revive a property
             Damages should be limited to the actual value of the property

The problem is that it amounts to overcompensation to P or to D.
    Easier to decide for P if he actually does, or will do the work, ex: repair his old but
       favorite car.
    Decide for D if it would be unreasonable to do the work, ex: rebuild a pool with a slight
       defect; rebuild a house because a slightly different material was used in construction.

Tito v. Waddell – cost of performance not awarded where unlikely to be done

Pacific islanders‟ case where the mining companies ruined their island with a series of peaks

The expectancy damages should be diminution of value in cases where the substitute performance
will probably not be done

Swimming pool case: if the pool is too shallow, the cost of the difference between the pools
should be the measure, rather than the cost of changing the whole pool (which would be vastly
prohibitive and costly)
Thompson v Robinson – Lost Volume

Contract to buy a car. D breached contract. P sent car back to manufacturer, but sues for lost
profit on the sale

In determining damages for lost volume one must consider the specific market in question

The price of the car is set by the market. Damages depend on demand
    If demand is high, seller can sell the car to someone else at the same price, therefore no
        damages. (Charter v. Sullivan – 47)
    If demand is low then effectively the sale is lost, and he can sue for the lost profits.
        (Thompson v. Robinson)

Charter v. Sullivan – loss of volume can be replaced easily

Contract to buy a very popular car that the dealer could (and did) sell if not to the D

Where loss of profits is claimed but there is an existence of demand to replace the lost sale, the
burden is on the plaintiff to demonstrate not only what the actual loss would have been, but that
the profits in question have actually been lost

Decision for the D as there was no loss of profit since the P was able to sell the car for the same
price to someone else

Chaplain v Hicks – Lost Chance (beauty pageant)

There can be an award for expectancy damages on the grounds for loss of chance

P was wrongfully excluded from a beauty pageant, where she had a 1/5 chance of winning. She
was awarded 20% of the value of the damages.

MultiMall v. TexMall – Lost chance

Expectancy damages can be an award of loss of chance even if there was no definite chance of
the potential profit occurring

D sold property to P, who was going to lobby the city to rezone so that they could build a mall. D
then built their own mall, making it impossible for P to get rezoning.

Folland v. Reardon (2005) Ontario CA:
    - P must establish on a BoP that but for the D‟s wrongful conduct, the P had a chance of
       receiving a benefit or avoiding loss
    - P must show the chance was significantly real and significant
    - P must show that the outcome depended on more than themselves
    - P must show that the lost chance had some practical value

Can sue for loss of chance if:
    Causation: but-for D‟s breach, P would have had an opportunity
    P must demonstrate chance is material
    Chance relied on an external force, not P
       Chance must have some practical value?
       No downside risk, i.e. no chance of losing!
           o Ex McCrae the boat salvager, had a 1/5 chance of profit, 4/5 chance of a loss.
               Can not sue for loss of chance.

Found that there was 1/5 chance of rezoning, X expectancy = damages


Reasons why a courier should not be held responsible for lost profits due to breach of contract

BC Saw Mills v. Nettleship – metaphorical example of the rationale behind remoteness doctrine

“It is hardly necessary to observe that the man of the anvil, even with notice of his customer‟s
errand, could hardly have apprehended in the bride an animus numbendi so imperious and

Damages far too remote from the contemplation at the time of the contract are, on a common
sense basis, perhaps too remote to justify settlement

Hadley v Baxendale – Remoteness

Where two parties make a contract, the damages should be those fairly and reasonably considered
as arising naturally from the breach itself or as may reasonable to be supposed in the
contemplation of the minds of the parties at the time they made the contract

A mill shaft was broken. Coy sent it by courier to be fixed. The courier was late, causing the mill
to be idle. Mill sued for damages.

Damages considered too remote. Only damages for
   1. Fairly and reasonably result naturally from the breach, or
   2. May reasonably be supposed to have been in the contemplation of both parties (details of
      special circumstances)

These special circumstances were not communicated, therefore not reasonable to hold D liable for

Horne v. Midland Railroad Co – written notice required for remoteness doctrine?

The special obligation to repay profits, per Hadley, needs to be in a written contract

Courier was late delivering shoes, which resulted in a loss of profit for P.
Details of sale were communicated to D. P sues for loss of profit.

Held that even though special circumstances were communicated, there is no precedent that states
this must result in special damages
Courier not liable unless expressly mentioned in the contract.

There is no second contract, courier contemplates his own performance. (Hydraulic
        Engineering (56))
Carrier has no discretion to decline a contract (Rivers)
Too large a liability for too small a remuneration (Kinghorne).

Victoria Laundry v. Newman – Late delivery will result in damages for lost profit

The “reasonably foreseeable” provision that forms the basis of Hadley v. Baxendale is subjective
depending on the nature of the person making that decision; special knowledge increases
responsibility proportionally along reasonable lines

D delivered a boiler late
Victoria laundry sued for lost profits of regular business, and an especially lucrative contract.

- Although the specific use of the boiler or contracts were not communicated, D did know that the
principle business of Vic laundry was the dying business.
- Further, D were engineers and knew the uses for boilers (their own knowledge)

Held that they are liable for regular lost profits, because they were foreseeable, especially given
the knowledge of the engineers about boilers and the business of Vic Laundry
- Not awarded damages for lucrative contract because this was not foreseeable.

Historical Note:
     Hadley v Baxendale occurred when corporations (Ltd Liability) was less common, and
        there was less insurance
     Victoria Laundry happened later, and the standard for foreseeablity was lessened

Reasonable foreseeability test
   1. Knowledge of contract breaker
            Their own knowledge on the subject (engineers)
            Special circumstances (dying business, but not the lucrative K)
   2. Whatever is in the contemplation of both parties when forming the contract

Munroe Equipment v. Canada forest Products – type of work not specified

Claims of lost profits cannot succeed unless there is evidence of full disclosure of the complete
nature of the special circumstances to the defendants and their acknowledgement of the urgency

An old tractor was rented by D to be used for snow removal for a logging operation
Tractor broke down, and the operation was compromised.
D refused to pay for tractor, is sued rental, and counter-sues for lost profits.

P knew the tractor was to be used for snow removal, but did not know it was the only tractor to be
used, or the extent of the logging to be done.

Held the type of damages do not ordinarily flow from the tractor breaking down. Further, if they
knew the entire operation hinged on an old tractor, surely they would have contracted out of
liability, or refused to rent.

Scyrup v. Economy tractor – type of work specified
The test of reasonable foreseeability set out first in Hadley and further refined in Victoria
Laundry applies and illustrates that the defendants should have realized the consequences of their
breach of contract when they entered into their contract to supply the attachment

D sold a malfunctioning tractor to P.
P made it clear that he needed the tractor quickly, in working condition, for a contract that he
already had

Majority found that enough special circumstances had been communicated. The knowledge of D
was enough to foresee the type of lost profit, even though the specific price of the contract was
not specified.

Dissent found that not enough special circumstances had been communicated. They didn‟t know
the price of the contract.
Further, it is not reasonable for D to assume that P would hold him liable for lost profits, only for
the malfunctioning machine.

Koufos v. Czarnikow – examination of what should constitute the correct remoteness principle

Under the imputed knowledge branch of the remoteness principle, plaintiff may recover for losses
of a kind which the defendant ought to have realized at the time of contracting are not unlikely to
result from late delivery that amounts to a breach of contract

What does reasonable foreseeability mean?
   Hadley v Baxendale = Very likely, probable to happen
   Vic Laundry = Possible to foresee, not unlikely, not necessarily probable
   Tort = remote but still foreseeable
           o In K, it has to be more that a possibility, „or on the cards‟

Cornwall v. Purolator – modern law for couriers

Per Hadley v. Baxendale, the special circumstantial knowledge imparted to the courier meant that
the damaged flowed after their reasonable contemplation of the damages in the case of a breach

Purolator was late delivering a tender. They were informed it was a tender and of deadline to

Found liable for damages of lost profits from not receiving the construction contract. Puro knew
enough about the package, that it was a tender, so the types of damages flowing from the breach
were foreseeable, even thought the specific amount was not specified

This has changed the courier industry, were now they would stipulate a max am‟t of liability, and
offer insurance for a premium as well.


Against unjust enrichment in the case where there is no K, or it is unenforceable

Deglman v. Guarantee Trust – recover unjust enrichment when K is unenforceable
In the case of services rendered, not gratuitously but on the footing of contractual relation, it
would be unjust enrichment not to allow the plaintiff to recover what they have “paid” or worked

Nephew provided services for aunt in return for consideration in her will (house)
She died intestate, and according to the statute of frauds, land transfer must be made in writing.
Because it was not in writing he has no legal claim for the land.

Instead he was granted restitution, a money amount for the services rendered because the verbal
K could not be enforced and thus the estate was unjustly enriched.
Did not receive expectancy, which would have been the house or the value of the house.

Boone v. Coe – can‟t recover expenses to a 3rd party, no unjust enrichment

Family sold house, traveled to Texas in anticipation of a farming contract. The contract was not
enforceable due to that statute of frauds.

They were not entitled to recover expenses because they were spent on 3rd parties, and P was not
unjustly enriched by them traveling to Texas.

Hunt v. Silk – contract can not be partially rescinded (i.e. no partial restitution)

You cannot recover for unjust enrichment if you have already received/used the goods

P signed lease for flat, which included a deposit of 10$, and some repairs to be performed by

P moved in for a few weeks, but repairs were never made.
He moved out, and wanted the K rescinded and deposit back (restitution)

Held because he used the flat for a few days he received some benefit, so K could not be
rescinded. He could not recover deposit, because there is not a total failure of consideration.

However, it is commented that this rule is harsh and archaic.
    Partial restitution could be possible (refund some of the deposit)
    The benefit conferred could be considered negligible, thus full recovery would be

Attorney General v. Blake – Unjust enrichment to disgorge profits

In a breach of trust scenario where one is being unjustly enriched by the breach and injunction is
not possible, disgorgement of future profits is an appropriate remedy

Blake was a spy who defected.
Contrary to a confidentiality agreement, he wrote a book about the secret service.
British gov‟t sues for disgorgement of profits.

    1. Not really a breach of contract, more like a breach of trust.
    2. Not really an argument that all profits made due to a breach are recoverable
           Ex: efficient breach were one breaches a contract and sells to someone else for
           A better price. Can pay damages to the first party and still make and keep
           Profits from second contract.
    3. Is an argument of unjust enrichment, because he is making profits by breaching a
       contract, but the state is not really losing money (no detriment)
    4. However, the state does have a legitimate interest in preventing the publication. If they
       were able to act sooner, they would have received an injunction.
    5. Because at this point an injunction is not possible (the book is already published) coupled
       with unjust enrichment, the state is able to disgorge profits as a remedy.

The Enforceability of Contracts


McC believes Pollock‟s definition of consideration to be definitive:

An act or forebearance, or the promise thereof, is the price for which the promise of the
other is bought, and the promise thus given for value is enforceable

White v. Bluett – not complaining is not good consideration with which to bind a contract

In order for a contract to be binding, there must be consideration, that is, some positive act or
forbearance on the part of the contracting parties

Son complained to his father that he treats him unfairly. The father then promised “if you will
stop complaining then I will cancel your debt”

Son sues for performance
Held that the promise is not enforceable, the son gave no consideration. Refraining from
complaining is not a „real‟ forbearance because he had not „right‟ to complain to the father in the
first place.

Hamer v. Sidway - marginal consideration by the nephew by way of detrimental forbearance

Consideration can be detriment to the promisee sustained by virtue of the promise in question

Uncle promised nephew “if you give up drinking and smoking I will pay you 5000$
Nephew gave up drinking and smoking and sues for the promise to pay.

Held that he did have a legal right to drink and smoke, and giving that up was a real forbearance.
This is consideration and thus the promise is enforceable.

Distinguish from White
    1. In White son was complaining to father, so removing the complaint is trivial
    2. Courts have difficulty with close family relationships. Ex: A broken promise relating to
        doing the dishes (domestic work) is hardly grounds to sue.)

Thomas v. Thomas – Consideration is independent of motive

The motive for entering into a contract is irrelevant; a contract existed even thought the
motivation for entering into the contract on the part of the executors was not their own intention,
but that of the late husband
Late husband wanted his wife taken care of, but did not mention this in his will.
Executors arranged for her to have a house, as long as she paid 1$/yr towards the ground rent.
They eventually broke this contract, and Widow sues.

Held that there was consideration, even though very small, flowing from the widow to the
executors (1$/yr).
For the same reason, the house was not considered a gift, which is a voluntary giving in the
absence of consideration, and thus is revocable.
Contract existed even thought the motivation for entering into the contract on the part of the
executors was not their own intention, but that of the late husband.
     Motive is irrelevant.

Mutual Promises

Where doing a thing is good consideration, a promise to do so is also good consideration.
(Unilateral contracts)

“If you do X, I promise Y”

Great Northern Railway v. Witham – promise to supply goods

Once an order within a unilateral contract is placed, a contract replete with consideration is

Witham submitted a tender to sell as much steel as needed to a RY coy at a certain price.
After an order was received he refused to supply it. RY coy sues.

D claims that there is no consideration from RY coy, no guarantee to buy any steel, no guarantee
to only buy steel from Witham.
Held that once they place an order, they do promise to pay $ for steel, this is good consideration
once an order is placed. (I placed an order, therefore you must fulfill order)
Between orders, there is no contract to maintain the price list.

Tobias v. Dick – Exclusive purchase agreement with no consideration in return

In order to be considered a valid contract, there must be mutuality or consideration flowing from
both parties

Contract to be sole purchaser and distributor of machines from manufacturer.
Manufacturer then sold his own machines himself

Held not a valid contract because there was no consideration from the distributor. He did not limit
his own freedom by promising to buy (and sell) a given number of machines, or any machines at
In the absence of an order there is no contract, and the manufacturer can sell to whomever he
Further, P was a bad salesman, and effectively would control the entire output of machines

Wood v. Lucy – implied promise of constitutes good consideration
A promise may be implied in a contract through an “instinct with an obligation,” that is to say the
reasonable expectation of expectancy flowing from the P to the D is good consideration

Lady Duff Gordon granted exclusive licensing of her brand for 50% of all profits.
She then sold some of her merchandise herself.
P sued for damages, D argued no consideration from licensing agent.

Held that there was an implied promise that he would license the merchandise effectively
Without such a promise there would be no business efficacy, and the K would make no sense.
Further, the terms of the contract, 50% of profits, accounting practices, obtaining trademarks, all
point to the intention that P was to be the licensed distributor, as said in the contract.
The implied promise to sell is good consideration; therefore Lady Duff is liable for damages.

Pre-Existing Duty

A promise to perform a pre-existing duty is not good consideration

Harris v. Watson – pre-existing duty is not good consideration, it is extortion

A contract can not be made to perform the same preexisting duty already arranged and agreed
upon in a previous contract

A ship was in danger; captain offered a raise to motivate workers to do extra work

Held contract is not enforceable because seamen were already under a duty to do all work
necessary to ensure the safety of the ship. No consideration for more wages.
Otherwise they could hold the captain at ransom anytime the ship was in danger.

Stilk v Myrick - pre-existing duty is not good consideration, it is extortion

A contract to do what a preexisting duty under contract already states has no consideration

2 seamen deserted, captain promised to pay extra wages for the remaining seamen.

Held contract is not enforceable because seamen were already under a duty to do all work
necessary to ensure the safety of the ship. No consideration for more wages.

Hartley v. Ponsonby - if duty is materially altered, then it is good consideration

The crew was so reduced in number that it was life threatening to work on the ship. Then a
promise to work is good consideration for extra wages.

Oliver Wendell Holmes, “The Common Law”:

Idea that entering a contract is an agreement to perform, or abandon and pay damages.
If the party agrees to not to abandon, then he is giving up a right and this is good consideration.
Not adopted in Canada of the UK
      Circular argument, and opens the door to extortion

Smith v. Dawson – promise not to abandon is not good consideration
The performance of an existing contract by one of the parties is no consideration for a new
promise by the other party

Builders were to build a house for a price.
Halfway through the house burned down, and they had no insurance.
Owner insisted on the house being built, and they asked for more money or they would not do it.

Not an enforceable contract. They had a pre-existing duty to build the house for a price. No
consideration given for extra money (unilateral variation on a contract)

Raggow v. Scouggall – agree to abandon old contract, use a new contract

In cases where a clear delineated end to a contract is made by the consent of all parties and
intended as such and new contracts entered into, there is no issue of preexisting duty such that
would invalidate a new contract for lack of consideration

Due to the war a design company asked its employees if they would take a pay cut. Employees
agreed to take less money. Later sued for full wages.

Court considered it a temporary suspension of the contract, a mutual agreement to abandon the
contract in favor of a new one, to be reviewed after the war, not a unilateral variation on a
contract which would be unenforceable.
Done for a specific reason (the war) for a specific amount of time (until it ends).

Gilbert Steel v. University Construction – same steel for more money is not good consideration

In an oral contract effected for price of materials already agreed upon in preexisting written
contracts, there still must be consideration flowing from the P to the D to make the oral contract
legally enforceable

Gilbert steel wanted to renegotiate the price of steel supplied to University. The price was agreed
to in principle, but never accepted in writing. Gilbert steel sues for increased price

Tried to demonstrate consideration in three ways, each failed
    1. Offered a „good price‟ in the future. This is too vague to be considered real consideration
        by Gilbert
    2. Increased credit as a result of increased price, poor argument, the increase of credit is a
        function of higher billing, not more leniency
    3. They mutually agreed to abandon the initial contract (Raggow V Scougall). That is not
        the case as is evidenced by the refusal of University to assent to new contract.

Court interprets Raggow v. Scouggall narrowly, even though the consideration rule here seems a
bit stupid, because in the business world people renegotiate contracts all the time (unilateral
variations), and technically they are not binding, even though they intend them to be binding.

Williams v. Roffey – same product, more money, offered freely by owner is binding.

If A enters into a contract with B in return for payment, and at some stage before A has
completely performed his obligations under the contract B has reason to doubt whether A will, or
will be able to, complete his side of the bargain, and B thereupon promises A an additional
payment in return for A‟s promise to perform his contractual obligation on time, and as a result of
giving the promise to B obtains in practice a benefit or obviates a disbenefit and B‟s promise is
not given as a result of economic duress of fraud on the part of A, then the benefit to B is capable
of being consideration for B‟s promise, so that the promise will be legally binding

In a case where a person promises something new for something dealt with under a preexisting
contract but where that person receives a benefit and the promise is not made under economic
duress or fraud, the benefit is capable of serving as consideration

Sub-contractor (P) is loosing money. Contractor (D) realizes this, and of his own will to ensure
the project continues smoothly, offers more money for the same job.

Contrary to Gilbert steel, court enforces More $ for the same job.
It is considered a benefit to “obviate a disbenefit,” essentially; continuing to work is good

Pao On v. Lau Yiu Long – possible four conditions for determining coercion

Duress, whatever form it takes, is a coercion of the will so as to vitiate consent…commercial
pressure is not enough.

Factors to determine whether or not there was coercion of will:
    - whether the person protested
    - whether at the time of the alleged coercion they had an alternative course such as an
        adequate legal remedy
    - whether they were independently advised
    - whether after encountering the contract, they took steps to avoid it

Lord Scarman: “There is nothing contrary to the principle in recognizing economic duress as a
factor which may render a contract voidable, provided always that the basis of such recognition is
that it must amount to a coercion of will, which vitiates consent. It must be shown that the
payment made or the contract entered into was not a voluntary act.”

Foakes v. Beer – less money is no substitute for more money.

In the common law involving a case of forgiving debt interest, the forbearance on claiming
interest by one party in return for a lump sum payment of some of the debt is not good

Agreement to pay back money with no interest. P then sues D for the interest.

Held, paying less money is not good consideration, therefore the new contract is not enforceable,
P is entitled to the interest.
     1. P accepted that it would be satisfactory to receive payment now, that it was as valuable as
         more money but later. Courts disagree; you can‟t substitute less money for more money.
     2. D also argued Accord and satisfaction. Court held that this does not circumvent pre-
This is again stupid law because it happens all the time in commerce, but is not legally binding.

Mercantile Law Amendment Act - statutory provision, only applies in narrow situations
S.16: Part performance of an obligation, either before or after a breach thereof, when expressly
accepted by the creditor in satisfaction, or rendered in pursuance of an agreement for that
purpose, though without any new consideration, shall be held to extinguish the obligation

If a creditor agrees to a lesser sum, and that sum is delivered, then the initial obligation is
Only applies if the full sum is paid. If not, then creditor has the right to sue for the initial amount.
Doesn‟t cover partial payment, or revocation. Doesn‟t cover Gilbert steel where the price is


Contracts made with to avoid a lawsuit are enforceable. Good for the court system to encourage
dispute resolution outside of court.
    1. Not bringing a claim is only good consideration, but only when it is reasonable that they
        would intend to bring a lawsuit
    2. Doesn‟t necessarily have to be a winning claim, only a reasonable one

Cook v. Wright

An agreement not to sue an individual in return for the acceptance of promissory notes is good
consideration even though there was no grounds for a suit because of the saved detriment by the
promisor in this case

D occupied a house. Told he would be sued for taxes. Even thought he expected that he could not
be sued, he decided to pay in exchange for not being sued. He defaulted on his 2nc and 3rd
installment, and the city works sued.

Held that the contract was binding, not suing was good consideration for the payments, even
though they did not have a right of action because he was not the homeowner. However, the
public works did intend to sue, thinking they had a claim.

Fairgrief v. Ellis

Releasing oneself from an obligation by entering into a new compromise is good consideration to
support the second promise

Fairgrief did work for Ellis in return for his house upon death.
Ellis changed his mind and asked her to leave. He offered her 1000$ to leave.

Even though the 1st contract for the house was not enforceable (anti-trust), the second contract is
enforceable. Leaving the house was good consideration for the $$.

Charitable Subscriptions – in general gifts are not binding, there is no consideration given for
them so they can be revoked. Only if they are given for a specific purpose, ex donating money to
build a wing named after them, is a pledge binding.

Dalhousie College v. Boutilier Estate – charitable gift not binding
In cases of charitable donations, the promise to donate money is not in of itself good
consideration unless agreed upon in for specific pre-delineated purposes which return a tangible
benefit to the donator

D made a charitable subscription, but did not pay. School sued for payment
   1. claim that his money was already spent
   2. Other donors give on the premise that he would give. In essence he enters into a K with
       all donors is good consideration.

Held this is not a bargain. The school did not perform an act or forebearance in exchange for his
promise to donate. This would be different is they built a structure specifically on reliance of his
There is no other contact with the other donors.
It is a gift and not enforceable contract.


Do the parties intend to enter into a legal contract? Not a subjective, but objective reasonableness
standard of intention.

Balfour v. Balfour – social/domestic cases are usual not contractual

In order for a contract to be binding, there must be intention on the part of both parties to enter
into a legally binding agreement

Husband promised to pay wife 30$/month while he was away. She sues for damages.

Held that the two parties did not intend to enter into legal obligations.
Further, there is no consideration flowing from the wife to enforce the promise.
Courts view love as the consideration for cohabitation contracts, to enforce them would be

Simpkin v. Pays – lottery ticket, intention established

Granddaughter/mother bought a lottery ticket together every week. Grandmother claimed the
entire prize.

Court held that it is an enforceable contract to split the winnings, as they both contributed equally
every week for the purchase. Intention is established.

Merritt v. Merritt – contract out of wedlock, intention established

In determining intention one examines whether a reasonable person would regard the agreement
as intending to be binding

While separated, husband agreed to pay wife a certain amount if she would continue paying the
mortgage on the house and raise the children. When fully paid he would transfer the house to her
name. He did not transfer the house and she sued.
Court held that the contract was intended to be legally binding, as it was made regarding the
separation of their assets.
Wife paid off the mortgage and this was good consideration on her part.
Family Law Act, R.S.O. 1990 - statutory provision that affects contracts btw husband and wife

S.55(1): “A domestic contract (such as a marriage contract, separation agreement or cohabitation
agreement) and an agreement to amend or rescind a domestic contract are unenforceable unless
made in writing, signed by the parties and witnessed”

Illustration of the fact that most support obligations between family members in Canada are now
dealt with through statutes and legislation rather than common contract law

Jones v. Padavatton – seriousness of reliance supercedes intention

Further application of the objective test for intention for entering contractual relations

Mother persuaded daughter to leave her job in the US, come to England and study for the bar. In
exchange, she would support her and her child.
The daughter did so, but was slow progressing through school and the mother cut her off.
Daughter sues for damages.

Clearly they are family; usually domestic contract are not enforced, intention not established
However, there is a great deal of forebearance by the daughter.
Court held the contract is binding despite intentional difficulties.

Rose & Frank Co v. Crompton - Intent expressly denied in the contract

Clear intention by the parties that their arrangement or agreement shall not be subject to legal
relations makes a contract non-enforceable in law

Two parties drew up a very formal agreement with all the aspects of a K, but with the words this
is not intended to be a legally binding K, only an expression of intention to pursue business given
mutual respect…

TJ held it was a contract. Why would they go through such lengths to draw up an agreement if
they didn‟t want it to be binding?
C.A. held not contract, although it has all the hallmarks, it expressly denies intention for legal

Non-Bargain Promises

The Seal

Formal legal seal has many implications
   1. Evidentiary function – evidence that it is a contract and legally binding, even in the
        absence of consideration.
   2. Cautionary function – that it is not to be entered into lightly because it is legally binding.
   3. Channeling function – external test for enforceability.
   4. Extension of the statute of limitations
   5. can only sue parties named on the sealed document, not 3rd parties, silent investors
What is the meaning of the modern seal?
   1. Historically it was a seal with wax, equivalent to a royal signature.
    2. Is a corporate seal a SEAL? Corporations put their seal on everything, it doesn‟t mean
       they intend them to be contracts.
    3. If we must consider when a seal is intended to be a seal then the objectivity aspect is lost.
    4. Financial institutions still use the seal for loans, to ensure that the contract is valid even
       without consideration.

Past Consideration

Usually past consideration is no consideration. An act or forebearance must be done in exchange
for a promise, they must be linked, it must be a bargain.
             However, if an act or forebearance is done at the request of the other party, then
                 it can be considered good consideration.

Lampleigh v. Brathwait - an act done by request can be past consideration for a promise in the

While voluntary courtesy will not have a consideration to uphold a contract, if that courtesy was
moved by suit or request of the party that gives the assumpsit, it will be binding as the promise
couples with the suit before and the merits of the party which procured the suit

D killed a man, and asked P to petition the king for a pardon.
P did so, and D was pardoned. Grateful, he promised to give money. P sues for the money.

Act was done at the request of D. It is therefore good consideration for a promise made in the
future. The promise, though it follows, is not nadum pactum, but couples itself to the act
performed before.

Pao On v. Lau Yiu Long – case also comments on the application of past consideration:

Lord Scarman: “The act must have been done at the promisors‟ request: the parties must have
understood that the act was to be remunerated either by a payment or the conferment of some
other benefit; and payment, or the conferment of a benefit, must have been legally enforceable
had it been promised in advance.”

Roscorla v. Thomas – ask before you buy a horse I tell ya!

Past consideration can not ground a later promise

Man bought a horse without a warranty
After the purchase, the seller promised that it was a good horse; turned out it was not
P sued but court held that the later comment was gratuitous and therefore not binding to the
previous contract, which was a simple bargain of money in return for horse

Webb v. McGowin - an act not done by request is not good consideration

P saved D‟s life, and while doing so was seriously injured.
In gratitude, D promised to pay him for the rest of his life. After a while he stopped paying and P
sues for payment

Held saving the life is not good past consideration because D did not request that it be done, not
an act done in exchange for the promise.
Restatement of Contracts (Second)

Past consideration is binding unless:
    1. it is a gift, but D above would argue gift and P would argue not, so not much help
    2. Promisor is not unjustly enriched
         Ex: call the plumber, don‟t discuss price. His work is good consideration to demand
             payment because you have been unjustly enriched by his services
         Ex: If you call the neighbor, who usually is not paid for plumbing, then you haven‟t
             been unjustly enriched, only helped.

Subsequent Reliance

Gratuitous Undertakings: Failure of consideration. People rely on the word of someone like a
contract when in fact there is none. They then try and cook up consideration when there is none.
Sometimes these cases would be better suited for torts, because the person has been wronged, not

Baxter v. Jones – tort not contract
             D was to get insurance for P, then abandoned this task. When a fire broke out P
                was not covered.
             Sued D in contract, when really it would be better for tort

Jorden v. Money

Case where Ms. Jorden said to Mr. Money that his father owed her money, you inherited the debt,
it‟s your wedding, and you don‟t have to pay me anything
     - Is the agreement to treat the debt as discharged binding?
            o No: there is nothing done on Money‟s part; no partial performance
            o At common law, Jorden v. Money is not binding because there is no
                consideration to treat the debt as discharged
            o Plainly establishes that a promise with respect to the future is not made effective
                by a doctrine of estoppel (which applies to statements of fact)

    -   reviewed by Lord Denning: Jorden says to Money that his father owed her money; upon
        Money‟s wedding, she says he can forget about the debt
             o then Money was sued for recovery of the debt
    -   the lawyer for the D argued that there was a representation that this wouldn‟t happen and
        the D relied on it
             o court said that estoppel only dealt with statements of facts (concerning the world
                around us)
             o remember the example of the widow in the car dealership, supra
    -   estoppel by representation in this interpretation is almost like a rule of evidence
    -   estoppel is a doctrine that applies to representations of fact and not promises
             o slippery slope because a statement can flit back and forth between a statement of
                fact and a promise


By law one can not deny existence
Estoppel by representation
        If A represents to B that something is a fact, and B acts on it, then A is bound by that fact
and can not later deny it.

Hughes v. Metropolitan Railway – Doctrine of waiver wave insistence on strict rights

If parties who have entered into definite and distinct legal terms afterwards by their own act and
consent enter into negotiations leading one party to reasonable believe that the original terms no
longer apply, the person who would have enforced those rights may not when it would be
inequitable with regards to the dealings between the parties

Tennant was to fix up property within 6 months. However, the tenant and owner entered into
negotiations during this time. Negotiations eventually failed, and owner demanded tried to eject
tenant on the grounds that he did not do the repairs within 6 months.

Courts relied on equitable doctrine of waiver.
Upon entering negotiation one waives the right to insist on strict enforcement.
Insisting on strict rights would amount to eviction. This is an example of detrimental reliance by
P on the implied promise that he would not insist on strict rights while bargaining.

Central London Property v. High Trees – Promissory estoppel

Representations as to the future in contradiction to an earlier contract can be held binding (though
not strictly estoppel) in cases where there was clear intention to enter into legal relations and that
the promises were meant to be binding

Original leased amount for X$.
Landlord agreed to accept less during the war, and/or until business improved (Foakes v. Beer,
less money for same product, unilateral variation, no consideration).

Usually not binding for want of consideration. However:
   1. If the person making the promise intends it to be legal.
   2. The person expects it to be acted on
   3. It is acted on
Then the promise is binding on the party giving it.

       No cause of action for breach, promise can‟t sue for performance. Example can‟t recover
        profits based on lower rent, only on higher rent.
       Promise can be rescinded once conditions change or upon notice.
       More consistent with law reform, and overrules Foakes v. Beer.
       Different from waiver because P is not in a terrible position, they are enjoying the
        advantage of lower rent.
            o No detrimental reliance, just a general reliance.

Combe v. Combe - promissory estoppel does not overrule consideration

Where one party intended to affect the legal relations between them and to be acted on
accordingly, once the other party has taken him at word and acted on it, the one who gave the
promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if
no promise or assurance had been made

Husband and wife are divorced. Husband promises to pay an amount and doesn‟t.
Wife sues for performance of the promise.

No consideration flowing from the wife. No contract.
Even if she relied on the promise, promissory estopel is a shield, not a sword, and is not a cause
of action in itself. To do so would be to overrule consideration entirely.

John Burrows v. Subsurface Surveys - laxness or indulgence is not estopel

Estoppel cannot be invoked unless there is evidence of negotiation which had the effect of
leading the other to suppose that the contract would not be enforced; thus evidence that the first
party intended legal relations to be affected is required

Promissory note between two mutual businesses. Payments often paid late, but allowed because
they were on good terms. They had a falling out.
Upon further late payment, the note was recalled, as was the right of the party upon late payment.
D claims promissory estoppel implied by actions.

SCC held that estopel must be the result of some negotiation
     Strictly speaking this is wrong, estopel can arise from conduct which gives rise to a belief
         of D that strict rights will not be enforced.
Intent to waive legal rights was not inferred on the part of P.
Laxness or indulgence in accepting late payments is not grounds for estoppel.

D.C. Builders v. Rees - no estoppel when there is coercion, not equitable

Where there has been a true accord under which a creditor voluntarily agrees to part payment in
satisfaction and the debtor acts on that accord by paying and the creditor accepts, it is inequitable
for the creditor to afterwards insist on payment

DC builders (P) performed some renovations. Rees (D)refused to pay. Knowing they were on the
verge of bankruptcy, Rees offered half the money. DC grudgingly accepted and then sought legal
council and sued for the rest.

Usually less $ is not a substitute for more money (Foakes and Beer)
However, if estoppel applies the lesser sum would stand
    However, no reliance on the part of Rees
    Further, it was made under duress, therefore it is not inequitable to insist on the full
        contract price.

Proprietary Estoppel

Crabb v. Arun District Council

Proprietary estoppel can give rise to an action where by reason of conduct one leads another to
believe (even if not intended) in the rights and interest created therein – these new rights and
interests thus created can be enforced
D agreed to let P use his road to access his land. In reliance on that promise, P disposed of other
means of accessing the land. D then revoked the right and demanded significant payment for the
right, rendering P‟s land useless.

Although there is no agreement, although P was open to paying a reasonable price, there was as
yet no consideration.
     However, D acted as though they had an agreement, and P relied on it
     Insisting on strict rights would amount to detrimental reliance by P, and this would be
Proprietary estoppel – can be used as a cause of action.
Injunction against D, ordered to restore access rights.
In such a case, P would have been ordered to pay a fair price for such access, but as a punitive
measure to D for acting highhanded, such a measure was not invoked.

N.M. v. A.T.A. – man induces woman to move from overseas then gives her the boot

Promissory estoppel cannot be used to enforce decisions part of a relationship that are not by
nature unconscionable conduct or injustice to allow

Come to BC my darling and I will pay off your mortgage…then loans her some money and kicks
her house; nice guy, says McC

Can‟t we now apply the Walton‟s case and s.90 of the Restatement?
BC case does not say that it‟s crazy – we could possibly use those arguments
The argument failed in this case because there was no intention to create legal relations
Perfectly plausible argument even if a cop out

Walton Stores v. Mahar – damages for proprietary estoppel are reliance, not expectancy

Promise to enter into a K. Relying on that promise the man destroyed his building in preparation
for a new building. Finally the contract was not completed and he sues in proprietary estoppel.

Damages awarded = re-building the demolished store, not lost profits from the expected Contract.

Privity of Contract

3rd Party beneficiary problem
     - 2 Types
              3rd party sues to obtain benefits provided for in K (obtain a benefit)
              3rd party relies on K not to be sued, as provided for in contract (obviate

Tweddle v. Atkinson - 3rd party beneficiaries can‟t sue for performance of the K.

Third party individuals cannot sue for damages or performance of a contract they were not made
a party to

Contract entered into by A + B. They both agree to give money to C (the son/son-in-law). B does
not perform the contract and C sues for performance.
C is not a party to the contract. There is no consideration coming from C
He therefore can not sue for damages. In turn, he can not be sued for a breach of K either.

Drive Yourself Hire Co. Ltd v. Strutt – reiteration of 3rd party rule by Lord Denning

Lord Denning articulated the rule as “no stranger could take advantage of a contract though made
for his benefit”

Beswick v. Beswick – Can‟t bring a joint claim of 1st and 3rd party to solve the problem.

Contracts conferring benefits on third parties may be enforced by a trustee of the original parties
to the contract

Nephew promised an uncle he would take care of his aunt. Aunt dies and the nephew does not
take care of the aunt. Aunt sues as for damages

Denning: 2 problems overcome by allowing a joint claim. (not good law, overruled)
   1. A 3rd party can‟t sue: considers this a mere procedural problem. He allows the aunt to
       bring a claim in the name of the husband.
   2. The damages to the husband are zero, he has suffered no loss. He allows her to claim her

Lord Reid (HOL): One can not bring a claim in the name of the 1st party.
            However, in his case she can sue as administratrix of his estate.
            The claim for specific performance is good, so she can recover damages even
              though the estate has suffered no loss.

Dunlop v. Selfridge - 3rd parties can‟t sue for performance.

Contracts conferring benefits on third parties may be enforced by a trustee of the original parties
to the contract

Dunlop entered into a K with Dew, a wholesaler. A clause in the K was that when selling tires to
a dealer, Dew must make them sign a K to sell tires at a minimum price set by Dunlop. Dew sells
tires to a retailer, with the stipulation. Retailer sells tires at a low price, breaking K with Dew, and
Dunlop sues for performance.

Held the 3rd party can‟t enforce the K because they gave no consideration.
Agency argument, that Dew was an agent of Dunlop, fails.
    Clearly Dew acted independently and not as an agent.
    Second, there still is no consideration from Dunlop to retailer.
McCamus disagrees.
    Consideration is given in exchange for a promise, once exchanged the bargain is a legal
    Once legal, why should it matter from whom the consideration came from, as long as
        there is consideration?
    Courts don‟t agree.

The Santanita – Attempt to use agency concept to get around 3rd party beneficiary problem
A contract entered into with an agent of another allows a third party for whom the agent was
acting to enforce the agreement

Boat race organized by a yacht club. One stipulation was that any damage to a boat during the
race would be paid for by the boat at fault. There was an accident and a boat sank. Owner sues for

3rd party problem, the owner was not party to K between yacht club and other owner.
However the court held that by entering the race, they each entered an agreement with each other
to abide by the rules of the race.
In effect the yacht club was acting as an agent for all the boat owners. They were all in one big K
together, thus getting around 3rd party rule.
     Even though this was not mentioned in the K, the court read it in.

Trusts – law of equity, circumvents the 3rd party rule.

Trustee enters into an agreement with the Settlor. Trustee is to manage assets on behalf of a 3rd
party beneficiary.
Under Equity, the 3rd party beneficiaries can sue the trustee for non-performance of the

Mulholland v. Merriam – trusts utilized to circumvent the 3rd party rule.

A person whom the court finds to be the beneficiary of a trust where the D is in the position of a
trustee can bring a suit as a third party for enforcement of a contract between two others

Mulholland transferred his assets to Merriam to control. Merriam was to pay him a certain amt
per week, and after he died was to distribute it among his survivors. Upon death Merriam refused
to distribute the money. Beneficiaries sued.

Court found that the agreement resembled a trust agreement, and therefore the 3rd party
beneficiaries are allowed to sue for performance of the K.

Jackson v. Horizon holidays - 1st party can sue to recover damages of a 3rd party

A person with their own cause of action can claim the damages of third parties if the person
contracted on their behalf when the contract was entered into

Jackson planned a family vacation. He was very specific about his requests. Once he arrived at
the destination the accommodation were quite unsatisfactory. He sued for damages.

Problem: most of the damages (lack of comfort) were incurred by the rest of his family, who were
not privy to the contract.
Denning allows 1st party to sue and to personally recover damages of 3rd parties.

New Zealand Shipping v. Satterthwaite – privity is extended when contract expressly mentions
that employer is acting as agent for employees

Privity of contract is extended when the contract makes explicit mention that the employer or
contractor is acting as agent for its employees
Same facts as above, except the contract contained the terms that the employer is acting also as an
agent for all employees and subcontractors.

Lord Reid suggests agency argument can succeed if
    1. Bill of lading (k) makes it clear stevedores are intended to be protected
    2. Bill of lading makes it clear that the carrier is contracting on behalf of stevedores
    3. Carrier has the authority of stevedores
    4. There is consideration for the agreement.
The K had all of these aspects. Further, unloading the goods is good consideration flowing from
stevedore to carrier, despite a pre-existing duty to unload arising from K between stevedores and
carrier (Pao On).

London Drugs v. Kuehne

Privity of contract can be extended to the employees of one of the contracting parties if the
negligence falls within the scope of the contract and the employees are acting in their capacity for
the employer

London Drugs buys a transformer, and signs an agreement that it won‟t hold company or its
employees responsible if it gets damaged in transit. The transformer is damaged and they sue the
employees directly.

London Drugs claims that the employees are not privy to the contract, and thus are not entitled to
benefits of the contract and can be sued.

SCC makes an exception to the rule. #rd party benefits extent to employees if
    1. A clause in the contract explicitly of implicitly extends to employees
    2. The employees were acting in the course of employment and providing the very services
        provided for in the contract.
This relaxes privity law, but is necessary to maintain justice in an evolving marketplace.

Midland Silicones v. Scruttons – privity not relaxed where carrier is not expressly mentioned as
an agent for employees.

Shipper ships goods through a carrier. Carrier employs stevedores at port to unload cargo.
Stevedores cause damage, and the shipper sues them directly.

Even thought they were mentioned I the K to be protected from liability, they are not privy to the
contract and thus are not entitled to its protection. They can be sued

Fraser River Pile v. Can Dive – privity relaxed for all K‟s intending to protect 3rd parties

The doctrine of privity of contract can be relaxed where a contract specifies protection for third
party beneficiaries

Insurance co waived right to sue boat charterers in ins K.
Insurance co then sued chatterers, claiming they are 3rd party beneficiaries, not entitled to the
protection of the K.

SCC expanded thinking in London Drugs. 3rd parties are protected under K if:
   1. The contract intended to cover 3rd parties
     2. Activities engaged in by the 3rd parties are the very ones envisaged when drawing up the
3rd parties are now covered “wherever commercial common sense requires”

Thus privity is no longer an issue when the issue is being protected by clauses in a contract to not
be sued, a shield.
However one can still not sue as a third party to enforce a benefit conferred by a contract, a
sword, Greenwood v. Beatie is not yet over ruled (try to sue ins company to pay for damages
caused by fire).

Formation of the Agreement

Offers and Preliminary Negotiations

When does an agreement exist?
   Offer must contain all of the terms, and a willingness to enter into the agreement
   Acceptance must be made to the offer with all terms
   Any variation on terms is a counteroffer, and nullifies the original offer

Denton v. Great Northern Railway - debate what is the offer and acceptance

If one makes a representation as to the validity of the terms of a contract along with an assurance
that the underlying premise is valid, that contract can subsequently be formed

Railway advertised a train, but is had been discontinued for a month.
P tried to buy a ticket, and sued for breach of contract.

Court held that the advertisement was an offer, and by him presenting himself wit money he is
accepting the offer. Presenting himself is good consideration.

Dissent: that the advertisement is a price list only. Going to the station is the offer, and the train
station declined to accept it. They can decline for a number of reasons, ex, all full, weather delay,
etc. Therefore there is no K.

Johnston Bros v. Rogers Bros – Price list: offer must include willingness to sell.

When making an offer, the language of the agreement must include a willingness to sell over and
above a quotation of possible prices

D quoted a price for a certain good. P answered back by saying I‟ll take 2. D never delivered and
P sues for damages.

Held that a price list is not a K, there is no indication of a willingness to sell.
Once P offers to take a quantity at the price, D must accept this offer to create a K.

Limited Supply problem: why a price list is not a K
    What if they don‟t have enough in stock? What if it‟s a rare collector‟s item, there is only
       1 to sell
    If every acceptance would be a K the supplier would be overwhelmed.
Harvey v. Facey – willingness to sell

There must be a clear willingness to sell in order to properly ground a legitimate offer to enter
into a contractual relationship

P asks 2 questions: are you willing to sell? How much would you sell for?
D answers back: $700.

Not a contract, there is no indication of willingness to sell on the part of D.
Answering a question about price, or providing a price list is not a contract

Ex: How much would you sell your house for? $300 000. I‟ll take it! Wait a minute, I have to talk
to my wife, make arrangements, I don‟t even know if I want to sell it…

Lefkowitz v. Great Minneapolis Surplus Store – advertisement with clear stipulations

Where an offer is clear, definitive and leaves nothing open for negotiation, fulfillment of that on
the part of the other binds the offeree to the contract and its stated terms

Advertisement for a fur coat for 1$, first come, first served.
P was the first one there, but D did not want to sell.

Held that P is entitled to damages. The advertisement contained sufficient conditions to make it
an offer. Once fulfilled P has performed the terms of acceptance and there is a K.

Pharmacists Association v. Boots - Items on display at a store are price lists

Items on display in a store are like price lists and thus subsequently to be treated as not binding
offers pending something else to bind the contract

Govt claims an item on display at a store is an offer; the person putting it in a receptacle is an
acceptance. This overcomes the limited supply problem.

Pharmacy claimed a sale was only made once the cashier accepts money. Thus the person
presenting an item at the cash with money is the offer, and acceptance is made by the cashier.

Storer v. Macnchester City Council – formality not required

The firm acceptance of an offer constitutes a contractual exchange, not the exchange of physical

City offered to sell some property to Storer. They sent an agreement to Storer, which he signed
and sent back to them. They were to sign it and return it. However, they changed their minds and
didn‟t sign the contract.

Two arguments:
   1. Offer was sending the agreement to Storer. By signing it he accepted the offer
   2. The offer is Storer sending the city a signed contract. By them countersigning that is the
       acceptance. Contract must be formally ratified.
Denning found held #1, there was a contract. Even though the agreement was informal and did
not have the signatures of both parties.

The Power of Acceptance

Shatford v. BC Wine Grower – acceptance must be within a reasonable time

An offer must be accepted within a reasonable time that will be dependent on the circumstances
of the offer

Offer to buy grapes accepted after a few weeks.

Although no deadline was stipulated in the K, it was not reasonable to infer such an extended
offer given the nature of the goods
     Grapes are perishable and must be sold promptly
     A strict timeline may not apply to other goods, but must always be reasonable.

Manchester Council v. Commercial & General Investments

“It has long been recognized as being the law that where an offer is made in terms which fix no
time limit for acceptance, the offer must be accepted within a reasonable time to make a contract”

Larkin v Gardiner – Must communicate acceptance to offeror

In acceptance of a contract, clear communication must be given to the other party to bind the

Acceptance of an offer to purchase land was communicated to the offeree‟s agent only.

Held there is no contract because acceptance was not communicated to offeror.

Dominion Building v. The King - exception to communicating acceptance

Offer from the King to enter a K. Must be decided upon by Parliament. The terms specified “if
accepted by the governor general”, waived the right to have acceptance communicated directly.

Held the K was binding because P had fulfilled the terms of acceptance, and D had waived the
right to be notified of acceptance.

Dickson v. Dodds – Notice of Retraction is valid notice, even if delivered by a 3rd party

Communication of an unwillingness to bargain can be communicated through actions and one is
no bound to communicate the withdrawal of an offer

There was a firm offer to sell land, open until Friday.
When P submitted an acceptance, he was informed by the agent of the offeror that he was too
late, the land was sold. The offeror himself later affirmed the land was sold.

Held that the offer was withdrawn prior to acceptance. Prior to acceptance there is no
consideration, therefore the offer can be withdrawn.
Held that notice of withdrawal was sufficient, even though communicated minimally by a 3rd

Felthouse v. Bindley – Silence is not acceptance (one must communicate acceptance).

Acceptance of a contract sufficient to render an agreement binding must be communicated

Uncle told Nephew “if I don‟t hear from you, I consider the horse sold to me”.
Nephew never replied, although he intended that the horse be sold to his uncle.

Held that this is not a good K. In general Silence is not acceptance. One can not impose the
condition that silence is acceptance. However, one can waive the right to receive notice of
acceptance (Dominion Bldg v. The King)

Wheeler v. Klaholt – Silence coupled to refusing to send back goods is acceptance

Where one has the choice of keeping merchandise and paying for it or returning it within a certain
time, neglect of the duty to return merchandise can import acceptance

Agreement in principle between P and D. Shoes sent to D.
Eventually they could not agree on the terms of he contract.
After a long time, D finally sent back the shoes in bad condition.

Held that D had two options, either to assent to the K or the send back the shoes.
Because they kept the shoes and used them, silence on the part of D concerning acceptance of the
offer is held to be agreement.
Therefore they are responsible for the shoes.

Eliason v. Henshaw – the offeror is master of the offer

The offeror of a contract‟s expression of specific terms of acceptance must be followed to render
the acceptance of the contract binding

P stipulated in the offer that acceptance must be received in Herper‟s Ferry.
D communicated acceptance to Georgetown.

Held the offeror is master of the terms of the contract and can specify how acceptance is to be
delivered. By delivering to the wrong place (although to the same company), the acceptance is no
good. No K.

Hyde v. Wrench – in general a counter offer extinguishes the initial offer

Where an offer exists and a counteroffer is made, the counteroffer is held to extinguish the first

Cowan v. Boyd – Initial offer is not extinguished if something keeps the offer open.
    No substantial counteroffer
    Initial refusal of the offer, but it is left open and still being considered

Butler Machine Tool v. Ex-Cell-O – Battle of the forms
In determining which contract is valid, one must look at all of the documents passing between the
parties and glean from that and the parties conduct what the material agreement is

An agreement is reached in principle between two parties, with the major terms of the K, (price,
Quantity, delivery) agreed to. However there is disagreement on more specific terms (usually
liability) with buyer sending a contract insisting on liability for defective product, and seller
countering with no liability for defect.

Denning states 3 approaches to the problem:
   1. Last blow: whoever sends the last form wins, because each form represents a counter-
       offer, and extinguishes the original. The one who sent the last form has listed all the
       conditions of the K.
   2. First blow: The first document prevails; subsequent offers are mere proposals to amend
       the initial offer which was accepted. If the difference were so important then they would
       change the price and be specifically brought to the attention of the other. If they are not
       so material, then the first agreement is accepted.
   3. Combined the two contracts, which is usually not possible because the types of terms not
       agreed on are exact opposites.

Problems: most contracts are drafted to state that it is an offer, and not an acceptance with
suggested proposals. They state clearly that in order to contract it must be accepted by the other

BCS Bread v. Maggs – major amendment to the K amounts to a counteroffer

In determining which contract is valid, one must look at all of the documents passing between the
parties and glean from that and the parties conduct what the material agreement is

Bristoll and Maggs agreed to a K in principle regarding the lease of his store. However, when
sent the K for signing, Bristol inserted a no-competition clause. Maggs declined the counteroffer,
and Bristol sues for damages.

Held that they were clearly still in a state of negotiation, the clause was a major alteration to the
Policy decision, courts are less likely to find a K given that it was Bristol who wanted to insert the
clause, and it is also Bristol who wants to enforce the contract.

The Tendering Process

       Common in the public sector
       Protection against government fraud, awarding lucrative contracts to buddies

Ron Engineering – Breach by tenderer = loss of deposit.

In a tendering process, the call for tenders is an offer which forms Contract A when a tender is
submitted, while the actual tendering acceptance Contract B is separate

Ron engineering provided a tender, and was selected to do the work. However, they misquoted
their price and defaulted, and requested the deposit back because they withdraw.
Held that by submitting an non-compliant offer they breached the 1st K, and are liable for
damages (loss of deposit).

MJB v. Defence Construction – Tender is actually 2 contracts. Breach by offeror = expectancy
damages for tenderer.

In a tendering process there are two contracts, one that governs the tendering process itself and
one subsequently awarded for a building contract

Call for tenders for a construction contract. One of the tenders was non-compliant (a small
oversight), however, that was the tender that was selected. P sues for damages, claiming that had
the offeror abided by the rules it would have been awarded the contract.

SCC held that in tendering there are two contracts.
   1. Regarding the tendering process there is a K where tenderers submit a tender, as well as a
       deposit in exchange for the offeror reviewing the tenders in accordance with the rules.
           a. Although one of the rules is that the offeror need not select the lowest bid, it must
                reject non-compliant bids in return for consideration of tenderers. This term is
                implied by the fact that there are rules at all.
   2. Once a company is selected there is a second contract, the actual construction contract.

Held that the offeror breached K1 by selecting an incompliant tender.
Demonstrated on a balance of probabilities that P would have been awarded the contract is D did
not breach. P is awarded expectancy damages for lost profits.

Formalization and Certainty

Enough terms must be included

British American Timber v. Elk River – contract w/o formal agreement

Where terms have been agreed upon, the fact parties stipulated that a formal contract be prepared
embodying those same terms does not by itself mean a contract has not been entered into

Agreement stated terms and conditions (Quantity, price, delivery)
Clause that once a survey was completed a formal agreement would be drawn up. After the
survey the agreement was not executed, and P sues for enforcement of the K.

Held that the agreement contained enough provisions and was a K even thought formal agreement
was not executed.
A formal contract would just be a written record of an agreement already reached.

May and Butcher v. The King – contract with a vague reference to price is no K.

An agreement to enter into a contract where critical aspects of the agreement are left
undetermined is no contract at all

The agreement was to buy entire output of tents. Price to be agreed upon in the future, as tents
became available for sale.
Held this is not a contract. For Sale of goods price is an essential aspect of the contract. Court
refused to infer a reasonable price. Only infer a price when the K is silent on the issue, but here
the K is not silent.

Foley v. Classique Coaches - Uncertainty overcome when D is enjoying benefits of the K.

Contract to sell land to D. One of the clauses was that D would buy all of his petrol from P‟s gas
station, located adjacent to the land. D breached K and purchased elsewhere.

D argued that the terms of the contract were too uncertain, thus unenforceable.
Policy decision: Court held that D is enjoying the benefit of the land. Buying the petrol was a part
of the purchase price. Injunction against D, forced to purchase the petrol. Reasonable purchase
price inferred by court.

Hillas v. Arcos – More uncertainty permitted in resource contracts

Contract to buy timber for one year, renewable the second year.
No specific quantity agreed to, but a rough idea is available. Price not set, but specified as the
market price, as it varies considerably.

Held that a contract did exist. Distinguished from Butcher for a number of reasons.
   1. socially useful contract, compared to Butcher where P was trying to enforce a monopoly
   2. Uncertainty is standard in the natural resources industry; contracts would never be
        completed if terms had to be so certain. Thus the contract is enforceable because there is
        no other way to conduct business
   3. The contract terms of the contract worked for the first year, so why claim they are too
        vague for the second year?

Scammel v. Ouston – For sale of goods with specific stipulations, these and price must be agreed

For an agreement to be binding it is a necessary requirement that the contract be sufficiently
definite to enable the court to give it a practical meaning

Ouston agreed to buy a car subject to a hire-purchase agreement (lease?). However the terms of
this agreement were never agreed upon (incl price, repairs, insurance, time).

Held, even though the parties agreed that a hire-purchase agreement would be used, the terms of
the agreement were not specified. The terms were too vague for the court to infer them, as
opposed to Foley, thus there is no contract.

Empress Towers v. Bank of Nova Scotia – potential requirement to negotiate in good faith

If a contract clause sets out machinery for dealing with an uncertain part of the contract, parties
have a good faith duty to negotiate on the basis of that agreement

Only case that says something like the above requirement to act in good faith in situations where
there is an agreement to agreement

There was an existing contract – not starting with two people starting to negotiate an initial
agreement subject to a renewal option
Renewal option stipulated the renewal rate would be the market rate “as mutually agreed between
landlord and tenant” - Looks as thought they have to agree to it rather than just an insertion of a
market price by the court

Obligation to negotiate in good faith means not turning down reasonable offers – this means not
thus booting them out per the suit

Contracts by negotiated by correspondence

General rule about acceptance: acceptances must be communicated (consensus ad idem required)
Postal acceptance rule: exception to the general rule
- the acceptance is effective when it is mailed (not when it arrives in the hands of the offeror)
        o consequence: if the mail gets lots, sometimes these acceptances will be lost -> if the
            postal acceptance rule is true, the acceptance is valid even if it never arrives
        o another consequence is that acceptance is effective even if the offeror suddenly
            decides they do not want a contract or want to withdraw their offer

Household Insurance v. Grant - Acceptance lost in the mail is still acceptance, binding once it is
sent in the mail.

Acceptance, regardless of whether or not it is lost in the mail, is binding upon posting; majority
and dissent disagree whether the post office can function as the agent for the parties

D offered to buy some shares by mail. Acceptance of the offer, and the shares were sent by mail.
D never received them.

Held: Postal acceptance rule applies, once posted the acceptance is binding.
   1. Post can be considered an agent of the offerror. By implying mail is an adequate form of
       delivery, the offeror authorizes the post as an agent, thus delivery to the post is delivery
       to the offeror.
        This is a poor argument because there is really no indication that the post is acting as
            an agent.
   2. Offeror is the „Master of the K‟ and sets the terms of acceptance. If he implies delivery
       by post is acceptable, then he assumes the risk that acceptance may be lost in the mail.
   3. Offeror knows that he hasn‟t heard back, thus it is incumbent on him to inquire about the
       acceptance if it is late.
   4. Postal acceptance rule offers peace of mind to the offeree, and he may begin to rely on
       the K immediately. W/o it, he would have to wait to confirm that the offeror has received
       the acceptance.
   5. Discourages fraudulent behavior where the offeror may claim to have not received the
       acceptance if he changes his mind.

Henthorn v. Fraser – postal acceptance rule does not apply to a withdrawal of offer

Offer sent by post, and is received by B. Meanwhile, decides to withdraw the offer, and sends
another letter. While in the post, B accepts and posts the acceptance. After posting, B then
receives the withdrawal.

Acceptance is binding because B did not receive notice of withdrawal before accepting;
withdrawal is only effective upon delivery.
           Agent: B did not authorize post to be an agent for him, thus delivery to the post is not
            regarded as delivery to offeree.
           Again, this would discourage reliance by B, because he would have to wait to make
            sure that the offer wasn‟t withdrawn, even after he accepted it.
           An Offer is continuous until withdrawn, this implies notice of withdrawal
           Offeror creates the risk of detrimental reliance; therefore the onus is on him to
            communicate effectively.

Byrne v. Leon Van Tienhoven – Notification of withdrawal is required

In these circumstances, we are required to reject the revocation premise because it would affect
the general structure of the postal acceptance rule

P bought plates though offer was revoked by mail. Has already resold plates when D refused to

A state of mind not notified can not be construed as a meeting of minds.
Encourage reliance on K by offerees

Holwell Securities v. Hughes - K emphasizing „notice to be received in writing‟ shift onus on
offeree to ensure delivery of acceptance.

Postal acceptance rule does not apply every time: must examine the circumstances generally and
see if the result is absurd or greatly inconvenient to the parties

Acceptance was posted, however not delivered.
Clause stating „Notice of acceptance must be received in writing‟

Held offeror is master of the terms of the contract, and has expressly mentioned that he must
receive acceptance for it to be binding.
Onus on Offeree to ensure delivery of acceptance.

Eastern Power v. Azienda – For instantaneous communication, postal acceptance rule does not
apply. Regular rule is that acceptance is delivered to Offeror, thus the K is formed in his office.

In the context of instantaneous communications, you do not have the postal problem

Eastern Power faxed an acceptance to Azienda. Deemed to be an instantaneous form of
communication, akin to delivery, not akin to mail.

Held, the contract was formed in Italy and subject to Italian jurisdiction.

Electronic Commerce Act – defines electronic transactions; little clarity on offer and acceptance

Defines sent as when the acceptance enters an information system outside the sender‟s control,
ex: e-mail server.

Defines receipt as when information enters addressee‟s information system and becomes capable
of being received.
Does not solve the problem of lost mail.

Unilateral Contracts

The flagpole problem: If you climb the flagpole (X), I promise 100$ (Y). However, one is free to
withdraw the offer any time before X is completed, ex. When someone is already halfway up the

An offer of a unilateral contract -> we can tell because one is asking for an act in return for the
promise (as opposed to a bilateral contract which is a promise for a promise)

However, the doing of the act is both the consideration for the promise and the acceptance of the

Williams v. Carwardine – Must be aware of the reward, not necessarily motivated by the reward

The P, by having given information which led to the conviction of the murdered, has brought
herself within the terms of the advertisement, and therefore is entitled to recover

P had information regarding the murder of D‟s brother. D posted a reward for information, and P
knew about the reward. However, out of fear for her own safety, not motivated by the award, she
gave information leading to the arrest of the murderer. She then claimed the reward.

Held: she is entitled to the reward, even though she did was not motivated by the reward, because
she was within the terms of the K.

Crown v. Clarke – not entitled to reward if one didn‟t know about it.

The controlling principle is that to establishing the consensus ad idem, acceptance is as essential
as offer even in the case of unilateral contracts and therefore must involve that the person
accepting and performing must act on the offer in question

Clark was a co-conspirator, and gave information to police regarding arrest of a criminal to clear
his own name of the murder charge.

Held, a person must exercise acceptance and performance on the offer. If one is unaware it is
impossible to be party to the contract and to act on it.

Carlill v. Carbolic Smoke Ball - Acceptance need not be delivered before performance,
performance is acceptance

Notification of the acceptance need not precede the performance; if notice of acceptance is
required, the person who makes the offeror gets the notice of acceptance contemporaneously with
their notice of the performance of the condition

Carlill bought a Carbolic Smoke ball and smoked herself for two weeks. Afterwards she still got
the flu. Coy offered a reward for consumers if they used the smoke ball and still got the flu, they
would be entitled to 100$. Carlill sues for the 100$.

Coy claims no K on two grounds
    1. An offer can not be made to the whole world. It is not an offer in the contractual sense,
       but a policy
        Dismissed because clearly it is an offer by the wording. Further, there exists no
           problem of Limited supply because they control the number of smoke balls sold,
           therefore the number of potential awards
    2. there was no acceptance by Carlill

Court held that the form of acceptance is stipulated by the terms of the offer, and it is clear that in
this case performance is acceptance. Acceptance need not precede performance

Two views on when the contract is formed:
       1. Once you buy the smoke ball there is a K to extend the guarantee. Therefore the
          guarantee can not be withdrawn once the smoke ball is bought.
       2. There is a unilateral K to offer the reward. Once all aspects of the K are performed it
          is accepted. Offer is able to be withdrawn prior to performance of acceptance.

Errington v. Errington – situation where the act (x for the y) takes long period of time

Where the act of acceptance takes time, there is an implied contract that the offer will remain
valid throughout the period of performance

Father promised daughter that if he makes the rest of the payments on the house, the father will
give him the house. Father dies with payments left.

Lord Denning held that there is an implied 2nd contract. The second contract is to keep open the
1st K once the daughter starts giving payments (climbing the pole). If they quit, then there is no
obligation to give them the house. However, until they quit the offer is to remain open.
         To allow the father‟s estate to withdraw the promise would be inequitable because
             they relied on the promise

Dawson v. Helicopter Exploration Co –bilateral contract instead of a unilateral contract

Notwithstanding the D‟s arguments, that it was not a unilateral contract but a bilateral one, a
promise for a promise; SCC says it was inclined to the view that if you can do so in similar
circumstances, the courts will try to treat agreements as bilateral contracts

P and D were involved in negotiations concerning mining claims. D offered, If you help us stake
the claim, we will give you 10%. P replied when you get a helicopter, I will help you stake the
claim. D then abandoned the contract

D claims it is a unilateral contract, and that it is enforceable only upon the action of P, which
never occurred.

SCC held that there is actually a bilateral K, a promise for a promise. It was then implied that D
would participate and provide the helicopter. This is required for business efficacy.

Protection of Weaker Parties

Unconscionability, Undue Influence and Duress

Vitiating doctrines that either render a contract void or voidable in the case of equitable measures
    1. Duress – Common Law concept. A little harsh and unforgiving, expectation and
       restitution as damages
    2. Undue influence – Equitable doctrine relating to reliance relationships, of threats of
       adverse consequences in the absence of violence
    3. Unconscionability – Equitable protection of weak, old, sick, etc. –
             Remedies for equity include rescission, injunction, specific performance.

Duress – K is not entered into of a free will, unenforceable
   1. Duress to the person – physical threats to the person
   2. Duress of goods – threaten to withhold goods from original owner, or someone in
       desperate need, a means of extorting a better price.

Undue Influence – K has been entered into in a situation of unfair pressure
        Remedy is to rescind the contract, only when possible to actually put the parties into
           the same position they would have been in
        Special equitable defenses:
           1. Undue delay – one can‟t wait too long before bringing such a claim
           2. Actual restitution is impossible because the product is gone, or consumed
           3. Intervention of a 3rd party, ex: its already sold and shipped to a 3rd party, it is not
               possible to return it.

Actual undue influence: threats of adverse consequences that do not amount to common law
                   Ex: threat of you is wife leaving you, not a threat of violence.
                   Often occurs with weak or dependent parties, where P is sick and dependent
                     on D for care, and D threatens to leave.
Economic Duress: threat to breach a K (Pao On). Grows out of equity, but developed under the
common law doctrine.
     Lord Scarmon in Pao On: Duress, whatever form it takes, is coercion which vitiates
         consent to enter into the contract, making it not enforceable.
     Suggests a four point test for economic duress:
         1. Did the party protest?
         2. Were there any alternatives open? Ex court, which is usually open
         3. Was he independently advised?
         4. Did he take steps to avoid the contract after entering into it?
Concludes that pre-existing duty is good consideration unless there is duress (at least for a 3rd
party, later extended to 1st party)

Relationship undue influence: almost everytime you run into will be where a situation of undue
influence is presumed
- If the P wants out of a transaction on these grounds, the burden of proof shifts to the other
    side to prove that the transaction was voluntary
- On what basis will courts presume that a relationship of undue influence exists?
        o Relationships recognized by the law for other purposes that are assumed to involve
             inequalities in bargaining power (where undue influence will be presence)
                  Parents and children -> assumed that child cannot act voluntarily
                  Trustee and beneficiary
                  Solicitor and client (where it is an unfair transaction)
                  Doctor and patient; religious leader and follower
        o   Relationships that provide the circumstances of trust and confidence based on
            specific evidence
                 Almost always where there is a history of dealings that shows that one
                     typically follows the other (agreement of trust and confidence) -> advise
                     being given and taken

Royal Bank of Scotland PLC v. Etridge – Relationship Undue Influence, 3rd party‟s Constructive

The court said that in order to give rise to a relationship of undue influence, it had to be an
improvident transaction -> probably the law in Canada, but who knows what a Canadian court
would say

The court also said that you could establish a relationship without a presumption if you could
show what happened on that occasion (the presumption exists because you can‟t show on that
particular occasion that the contract was signed under a relationship of undue influence)

Undue influence is shown by
   1. Proof that the complainant was in a relationship of trust
   2. An unequal, unfair or suspicious transaction

Relationship of trust:
             A relationship of trust is presumed irrebuttably from recognized categories of
                 relationships (615): Doctor-Patient, Client-Solicitor, Parent-Child
             A relationship of trust can also be presumed, however rebuttable, from the nature
                 of the particular relationship, or the actual circumstances. (Byrch, Lloyds Bank).
                 Ex: relationship with a bank manager where one trusts and accepts his advice
                 without question

Burden then shifts to D to either rebut the relationship of trust when possible, or to show that
influence was not abused to obtain the deal
     Importance of 3rd party advice, usually from a lawyer.
     In cases of direct undue influence, a letter from a lawyer is used only as evidence, but
        does not automatically absolve to influencer.
     In the case of a 3rd party, ex: a loan agreement with bank, however the undue influence is
        exerted by the husband to the wife, the bank is entitled to rely on the lawyer‟s statement.

Constructive Notice of Undue Influence – where a 3rd party should suspect undue influence
    The bank, or any other 3rd party, has constructive notice whenever there is a non-
       commercial transaction, ex: whenever a wife guarantees a husband‟s loan.
            o Bank has a duty to inquire about undue influence
            o Duty to make sure that they receive independent advice, usually legal
            o They then have a right to rely on this advice, it should be enough for them to
               discharge their duty.
                     As opposed to situations where the K is entered into with the influencer
                        directly (Bundy)

A third type of undue influence is also mentioned, where neither a trust relationship nor an unfair
bargain must be shown.
     Instead must demonstrate undue pressure to contract
Credit Lyonnais Bank Nederland v. Burch - undue influence of employer

Employer-employee relationship -> she had to come forward and demonstrate the relationship
based on past history that could give rise to a presumption that there was not a voluntary contract
entered into and that undue relationship influence arose

How do you go about showing that? The general rule is that the P has the burden of proof on the
civil standard of a BoP; if you want to avoid these problems, send people for independent legal
advice before entering into a contract to ascertain that a person knows the consequences of
entering into the transaction
         o Get a “certificate of independent legal advice” of such meeting in terms of a letter
             that can be entered into evidence afterwards

Employer suggested an employee personally guarantee a loan for the bank.
Burden of constructive notice placed on bank. They did not enquire as to the nature of the
relationship between the parties or if Burch had received legal advice.

Held the agreement is not enforceable

Lloyds Bank v. Bundy – Undue influence through relationship with the bank

Case of an agreement of trust and confidence where advise was given and taken; history that
gives rise to a presumption, not a list relationship

Bundy mortgaged his house against a line of credit for his son‟s business. At the request of the
bank he increased to mortgage to the point of foreclosure, even though the bank knew it was his
only asset and the business was not doing well.

Denning tried to unite all aspects of inequality of bargaining power, aspects of
    1. duress of goods
    2. unconscionable transactions
    3. Undue influence between a stronger and weaker party
    4. Undue pressure to accept an agreement
Also found that the case falls within the established 2nd category of Relationship undue influence.
This view was accepted by the court, his theory of unification was dismissed.

Unconscionability – usually to protect physically weaker parties (sick, uneducated, old)
    No previous relationship of trust required
    A little like undue influence #3, because no relationship is required, however it requires
      more proof of an unfair deal.

Marshall v. Canada Permanent Trust – rescission for weaker party

Evidence of unconscionability: the court said that the person maybe did not understand how frail
the man was (stroke victim) -> elderly person with a problem, classic type of case; Entered into
an improvident transaction -> the doctrine thus applies

Young Mr. Marshall made a deal to by land from Walsh, an elderly man in a nursing home, under
market price.
Entitled to rescission if:
    1. Walsh was incapable of protecting his interests
    2. It was an unfair (improvident) transaction for Walsh
Held the contract is to be rescinded

Usually unconscionability claims are made by physically weak parties, elderly, sick.
      This is a source of criticism because it assumes these parties can‟t defend themselves, and
         doesn‟t protect other types of parties. Could be discriminatory if it decided a particular
         minority group, or race, or immigrants can‟t protect their interest.
Usually requires some proof of taking advantage of the weakness by the stronger party. However,
in this case, Marshall did not know he had had a stroke, but he did know he was in a nursing

Mundinger v. Mundinger – stronger party knowingly took advantage of weaker party.

Normal person in abnormal circumstances – not a normal commercial situation but rather
someone in extreme circumstances who was unable therefore to effectively bargain in protection
of her own interests

Husband took advantage of wife who was in a state of nervous breakdown; induced her into
signing away considerable property and the right to alimony

Courts held that the husband was acting unconscionably and issued a decree that all of the
contracts she was forced into entered were voidable

Macaulay v. A. Schroeder Music Publishing – Are equity doctrines merely about procedural
issues or the substantive content of contracts?

Virtually the only case in England or Canada that appears to apply a substantive doctrine of

Publisher was given almost no commitment to do anything; there was only an initial deposit of a
few pounds (providing consideration)

Imposed numerous obligations without any commitments; HoL applied the doctrine of

Representation and Terms

Vitiating situation: agreements or contracts entered into on the basis of misrepresentation

Has to be a statement of fact uttered by the representor with a view to inducing a person to enter
into a contract that is material to the decision for entering into the contract and have that effect (is
relied upon)

Heilbut, Symons & Co v. Buckleton – notion of collateral unilateral contract

False material statement of fact – induced into entering the contract
       o A rescission claim could therefore be had in equity
       o Wait a minute: with the purchase and sale of shares, once the shares are delivered, it
            is too late
If you do x, I promise y
    - What does the broker say: If you buy shares, I promise rubber company
    - When you buy shares, you enter into both the main and the collateral contracts

Bentley (Dick) Productions v. Smith Motors – used to contradict Buckleton

The unilateral collateral contract cannot be a fiction -> it must be true, otherwise there is no

If someone makes a statement of fact, is it likely they think they‟re entering into a contract ->
possible, but not likely

Redgrave v. Hurd – what constitutes a material issue in misrepresentation?

Court does not say it has to be the one and only reason the contract was entered into -> just has to
be material to the decision

What are you buying when you purchase a legal practice? Essentially a list of clients who may or
may not stay with you; want to know what the volume of business is -> thus it is an important
statement of fact

Remember the key distinction between a promise and a statement of fact (which is a statement
about the real world)

Kupchak v. Dayson Holdings – means of getting around defences to rescission in equity

Though the general rule is you must give back what you‟ve got, in unusual circumstances (can‟t
give back a part) you can figure out a monetary equivalent for the missing part and award that

Transaction being induced by a fraudulent misstatement; problem: one of the victims cannot give
back one of the properties

The court came to the sensible conclusion that the person could just pay for one of the properties
that could not be restored (market value)

Court claimed this was not the same as damages -> on the recession decree part of the giving
back was in monetary form as opposed to restitution in property

Esso v. Martin – negligent misrepresentation and expectancy damages as a result

Statement was made not merely as a statement but also as an undertaking (unilateral collateral
contract) -> thus a warranty for a contractual promise

Implicitly they‟re saying the study was carefully done; So, survey was not carefully done -> false
statement that induced the contract -> was it material? -> Yes it was

Two ways “of skinning the cat”: start with rescission (but if too late) you turn to tort law
(fraudulent or negligent, whether or not it was a tort); can argue it was part of a collateral
unilateral contract
Performance and Breach

Bettini v. Gye – when the opera singer is a jerk can you terminate the contract

Is the stipulation a condition or warranty? Important terms are referred to as conditions, which if
breached (no matter how or how severe) the other party is entitled to terminate the relationship

Less important terms are referred to as warranties – consequence of such is that you cannot
terminate when those terms are broken and the breach “sounds only in damages”

“Horse sense” about the case is that you should look at the consequences of breach of the
particular provision within the context of the whole case to determine whether or not is was a
central provision to the case

Cehave N.V. v. Bremer – Lord Denning‟s rule formulation of the principle inherent in Bettini

Where the breach of the provision in question goes to the fundamental essence of the entire
contract, then it can be terminated; otherwise, there can only be damages as per the expectancy

Takes the rule from Hong Kong Fur – three categories of provisions in a contract including
conditions, warranties and innominant conditions; makes the categories smaller

Remedies (Continued)

Intangible Injuries

Jarvis v. Swans Tours Ltd – Lord Denning‟s rule on intangible injuries

Breakthrough case that says that foreseeable mental distress or anxiety stemming from a breach
of contract is compensable for damages

HoL interpreted it strictly as a “peace of mind” contract or a vacation/pleasure contract only -> if
you have a bad time, we‟ll look after it if people do not look after their undertakings if it is a
foreseeable result

Vorvis v. ICBC – Canadian rule on intangible injuries

Where unusual distress is a foreseeable consequence, it is recoverable -> seems to have to be
distress to an unreasonable degree, but we are not sure

For jobs of indefinite duration, the law of contracts says you can be terminated upon reasonable

Employment contracts are not ones to undertake in supervision or to provide with fun – not part
of the contract

Ruxley Electronics (swimming pool case) -> award of damages for disappointment that the pool
is too shallow
Punitive Damages

Whiten v. Pilot Insurance Co – punitive damages can be awarded purely in contract

Awarded for pure breach of contract where the behaviour on the part of the breaching party was
fraudulent, reckless, wildly unreasonable, etc.

Judgements should be proportional; Judges have to give good instructions to the jury; damages
must be inadequate; relevant to look at whether there are criminal proceedings that would
function as the deterrence aspect; or where the breaching party made money off of their breach

Mitigation of Loss

Payzu Limited v. Saunders – onus on breached party to take reasonable steps to mitigate

One has to take reasonable steps to mitigate the injury and any losses that stem from one‟s failure
to do so are not compensable

         o Causation: if you fail to take reasonable steps, it is reasonable to say that you caused
             the injury
         o Only foreseeable losses – reasonable to foresee that a victim of a breach will take
             reasonable steps to mitigate loss – failure to do so is not foreseeable

Specific Performance

Cohen v. Roche – specific performance will be issued where damages would not suffice

Court of equity will apply the equitable remedy for specific performance and make it available
only where damages at common law are inadequate

Case for irreplaceable historical art work – cannot put the damages into money or replace them on
the market with a substitute

Same would go for other similar example (controlling shares of company, antiques, etc)

Warner Brothers Pictures v. Nelson – no injunction if it would operate like specific performance

A decree of the equitable remedy of injunction cannot be issued where it would operate to the
same effect as a decree of specific performance that would force someone to work for someone

Specific performance does not apply to employment contracts – principle that you cannot force
someone to work for something who they do not want to work for

In this case, an injunction preventing Davis from working with other studios would have the
effect of forcing her to work with Warner Brothers and as such the courts refuse to intervene

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