Promissory Estoppel

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					                             CONTRACT SUMMARY (FALL 2006)
                                   Stephanie Ben-Ishai

Damages: The Interest Protected
General
 The basic rule is expectation damages; rarely is specific performance required
             o Compensatory (substitutional) – monetary compensation for breach
             o Coercive (specific) – specific performance or injunction against action (garnish wages)
 Compensation is the goal, not punishment
 Interest: what they are trying to protect
 Measure: what they should get back

Holmes: The Path of the Law
 Not interested in why people breach or morality arguments
 A party should be able to choose between performance of the K or payment of the compensatory
  damages depending on whichever is most efficient

Posner: Economic Analysis of the Law
 Economic perspective – the law is designed to encourage efficient flow of resources to more highly
  valued uses
 Supports Holmes via premise of encouraging pareto superior breaches (efficient breach)
 Law supports economically efficient behavior and facilitates "value maximizing exchanges between
  parties"
 Mitigation of Damages: No damages for costs incurred after notice of termination (be proactive in
  avoiding losses)

Fuller and Perdue: the Reliance Interest in Contract Damages
 K remedies promote market activity
 K remedies should protect Restitution, Reliance and Expectancy Interest <= Expectancy measure of D
  protects

Basis for damage awards:
 Restitution Interest: Unjust enrichment of defendant
 Reliance Interest:
            o Plaintiff‟s reliance on the defendant‟s promise
 Expectancy Interest:
            o Plaintiff put in position as if K was not breached
            o Promotes market activity by allowing parties to rely on Ks

Methods of compensation
 Restitution
            o Prevent unjust enrichment – only exchanges between P and D
 Reliance (looks backwards)
            o Includes Restitution - not just exchanges between the 2 parties (anything expended in
                pursuit of contract)
            o Under compensates, Unfair and Drag on market activity
            o Difficult/Costly to prove and assess
            o Does not take into consideration opportunity cost (chance to enter into other contacts)
            o Encourages breach but not efficient breach (plaintiff may not undertake activity again)
 Expectancy (looks forwards)
            o Standard remedy for breach (includes reliance and restitution)

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             o   Gains Prevented + Losses Caused
             o   Damages are assessed at the time of the breach
             o   Opportunity Cost accounted for
             o   Easier to apply/administer (avoids uncertainty)
             o   Promotes economic activity – people will freely enter into contracts if they know they will
                 end up where they wanted to be when the contract is over
             o   It is not possible to make the expectation interest synonymous with gains prevented <=
                 why? Uncertainty in calculations?


The Expectation Measure of Damages

AVG Mgmt. Science Ltd. v. Barwell Devs Ltd.
F      Jordan = purchaser-1
       AVG = purchaser-2 - Appellant
       Barwell – vendor - Respondent

        D agreed to terms and accepted deposit from Purchaser-1
        Mistakenly believing terms to be unmet, Vendor accepted offer from Purchaser-2 (P)
        Purchaser-1 registered lis pendens (freeze on title) against the property and proved that terms of
          contract met
        Purchaser-2 sues Vendor (appeal earlier court decision of Reliance Damages)
I      Is the limiting principal for awarding damages in Bain v. Forthergill (Bain) relevant in today‟s
       conditions whereby a vendor in good faith breaches a contract and is unable to provide title to a
       purchaser?
A                 P - AVG (wants Expectancy)                           D – Barwell (only Reliance)
        Bain rule does not apply – Vendor had ability  Bain should be applied - no fraud or bad faith
          to protect title                                 Made a mistake and should be protected -- not
        Done in bad faith (knew there was another           exposed to full expectancy damages
          buyer)                                           Stability in law relating to land transactions is
        Bain created in different context. New Land         very important
          Registration system makes the rule
          unnecessary

RA      A precedent in Bain which limited expectance damage awards - “purchaser was held disentitled
         to recover damages for the loss of his bargain if the sale fell through because of the vendor‟s
         inability, absent fraud or bad faith, to give a good title”
R       Bain does not apply because of an exception to the rule -- there was a conveyance problem and
         the vendor voluntarily disabled himself – not something beyond their control - from being able to
         give good title by selling the land to two purchasers. Bain applies only for innocent mistakes.
D       Appellant was awarded Expectancy damages (Bain rule not applied).
N       Justice Laskin - reason for the Bain rule has vanished- should not be followed for land
         transactions in provinces with a Torrens system of title regitration or similar systems (note: Bain
         still in common law. Just notrelevant in this case)
        Law Reform Commission report – Bain not needed in today‟s context

Bain
How can Bain be defended?
    Ordinary house vendors do not intend to undertake liability ensuing from breach of promise to
      show good title
    Drag on market activity if innocent errors not protected
    Registration may not be enough of a check – there may be other errors
    Mandatory registration not in effect on First Nation reserves
    Vendor merely agrees that good title is condition of the purchaser‟s obligation

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The Reliance Measure of Damages
 where plaintiffs are not able to definitively prove a loss according to expectation measure
 where plaintiffs seeks a greater reward if they file for reliance damages (rare)

McRae v. Commonwealth Disposals Comm.
F     Commonwealth sold McRae rights to salvage a sunken tanker which was not found at location
       specified
      P paid for the “oil tanker” and had expenses in preparing for the recovery
      The contracted item has no known market value and expected profit or loss was difficult to
       ascertain
I    How to compensate P in a contract breach when expected profit is difficult to calculate?
A                       P - McRae                                      D - Commonwealth
      Mere difficulty in assessing damages does       Did not contract to deliver tanker of any
       not negate need for compensation                  particular value
      Want Capital expenses, Reconditioning           Contract could still have been useless if tanker
       boat, Loss of Revenue                             was not salvageable

RA   Only when three conditions met can Reliance apply:
                 1. Expectancy is impossible to prove with the requisite certainty
                 2. D is unable to show that P‟s expenses would have been lost in any case
                 3. Impossibility of proof results from the nature of the D‟s breach
R     Reliance Measure should be used when P cannot prove expected loss from contract breach
D     Awarded expenditures incurred based on reliance of contract - specific to the salvage operation
      Awarded lost opportunity associated with K instead of pursuing something else (unusual in
       Reliance)
      Not awarded any Capital Expenses
N    

Bowlay Logging Ltd. v. Domtar Ltd
F     D was to haul logs, breached contract by failing to provide enough trucks
      Evidence that preventing the breach would not have prevented the business from operating at a
       loss
      P argued for reliance damages
      Appealing initial judgment which awarded nominal damages
I    Can Reliance damages be awarded if the breach prevents further losses the P would have incurred
     had the K been completed? (Expectancy measure shows greater losses would have occurred)
A             P – Bowlay (wants Reliance)                                   D - Domtar
      Put in position had not entered contract        Loss not b/c of breach
      Unprofitable venture should not be              Did not prevent from ability to enter into other
       excluded from collecting breach damages           contracts
      Costs incurred b/c of breach                    P shifting risk of bad bargain to the D
      Would be hard to enter a contract with high  Contrary to the normal expectations of
       start-up costs and with deferred profits          commerce
      Why would enter into K where losses             Would reward inefficiency
       inevitable?                                     Cannot choose to pursue reliance just because it
      Public policy issue of encouraging low            is more profitable than expectancy
       bidding for K‟s with the “option” of finding    Party suffering breach should take all
       breaches                                          reasonable steps to mitigate losses suffered

RA    Reliance Damages compensate for damages resulting from the K breach; not from making a bad
       bargain
      P did not suffer losses as a consequence of the breach
R     If a K would have resulted in a loss, damages for the breach cannot award reliance
      As long as Expectancy can be calculated with reasonable certainty, it trumps Reliance measure

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      P cannot be put in a better position than he would have been in had the contract been performed
D    Appeal dismissed. Nominal damages awarded. The breach saved the P from incurring further loses.
N    

Sunshine Vacation Villas Ltd. v. Governor and Company of Adventurers
F     Bay (D) breached on its contract to make available 4 outlets, and as a result, Sunshine
       terminated its contract
      D appealing Trial court decision which awarded both Reliance [loss of capital] and Expectancy
       [loss of profit]
I    Can damages be rewarded based on both expectancy and reliance interests?
A                       P – Sunshine                                        D - Bay
      Should get both Loss of capital and           Only nominal damages b/c loss of capital wrong
       expected profits                                in principal and loss of profits not proven
                                                     Cannot award both damages
                                                     Experts claimed that P would have had a loss
                                                       with K

RA    Use McRae‟s Test to prove that Reliance is the proper method
      D unable to demonstrate that P would have had greater loss had the contract been completed
R     Mixing of expectancy and Reliance damages is inappropriate
      Reliance (loss of capital) is an alternative to Expectancy (loss of profit) and they cannot both be
       awarded.
      Since profitability could not be sufficiently demonstrated, only capital (reliance costs) were
       awarded.
D     Only Reliance Awarded
N    

Attorney-General v. Blake
F       Blake was a double agent, disclosed information in breach of contract and made a profit
        Concerns royalties owed by publisher to Blake, who published book without the authorization
        Publisher already paid some amount to Blake
        AG is claiming restitution damages against Blake for doing exactly what he promised not to do
I       How are damages for a K breach to be awarded when it is difficult to put a price on the contract
         being fulfilled (expectancy) and it is equally difficult to put the P back in the position they would
         have been in before the K (reliance)?
A                           P - AG                                                D - Blake
        Exceptional set of facts                           Adds a moral element to the claim
        D enriched by doing very thing he                  Little harm since most information already
         contracted not to do                                 divulged
        Damages not always confined the                    There was no financial loss to the Crown
         recoupment of financial loss                       If it was a commercial K, it would be spent
        Cannot reward breach of contract                     already
                                                            Allowing for disgorgement of profits may
                                                              preclude efficient breach
                                                            No precedent for full account of profits
                                                            No certainty when to award account of profits
                                                              (certainty important for commerce)

RA    While the remedy of restitution is available, it is unlikely to ever by made available beyond a
       major breach in conflict with social values (like national security)
      The purpose for this remedy is akin to fiduciary duties – the facilitation and protection of
       relationships of trusts and confidence
      None of these facts alone would be enough to ask for a full accounting of profits (this is not a rule)
             1. breach was cynical and deliberate

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               2. breach enabled the defendant to enter into a more profitable contract elsewhere
               3. by entering a new and more profitable contract the D put it out of his power to fulfill his
                   contract with the Plaintiff
R       Award Restitution Damages to prevent unjust enrichment
D       Disgorgement of profits in this case is the proper award b/c of the exceptional circumstances
N       Dissenting – if K had been commercial, the passage of time would have deemed it spent
        This deviation from principle may open a new door for litigation

Chaplin v. Hicks
F     P was selected as one of fifty a finalists in a contest
      Notice was sent while she was away from home and she missed her appointment
      D refused to make alternate arrangements and winners were selected from the remaining
        finalists.
      P sued defendant for breach of contract and was awarded a substantial sum at trial; defendant
        appealed.
I    Can a P win substantial damages for the loss of an opportunity to win a benefit, or does the difficulty
     of assessing damages for such a loss preclude substantial compensation?
A                       P - Chaplin                                           D - Hicks
      Even if surety of win is unproven, she             Damages were too remote, could not be
          should be compensated for loss of                quantified, and thus should be nominal
          opportunity to win
      Taking away the opportunity of
          competition deprived P of something that
          had monetary value
      Just b/c damages were difficult to assess
          does not absolve the D from having to
          pay them
      Always an element of subjectivity in
          analysis of Expectancy

RA    P in a claim for expectancy damages has burden of proving with some degree of certainty that
       she would have made some money. Burden is met by ¼ chance of winning beauty contest
R     Just b/c damages cannot be assessed in certainty does not mean that the wrongdoer is relieved
       from paying damages for breach of contract. The exception is when the contingency is too
       numerous.
D     Appeal dismissed. P damages upheld.
N     If courts feel there is very little downside risk they may award minimal expectancy damages for
       loss of chance

Groves v. John Wunder
F     D fails to level land as per contract (other terms of contract met). P sued for breach of contract
      P was awarded the difference in value of the land (after full contract – after breach) --- this was
       less than the cost of completing work.
      P appealing the award.
I     When assessing expectancy damages for construction contract breaches, should the P be
       awarded the Cost of Performance of the contract or the difference in market value of the land?
A                        P - Groves                                        D - J.Wunder
      Entitled to the reasonable cost of K              Cost of Performance would place P in a better
       completion                                         position than had the contract been performed
      Owner‟s right to improve his land in any          [see dissent]
       way is not covered by small value
      D acted in bad faith, cannot be rewarded
      Award what was promised, the work


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RA    Problems of quantification are different where the contract is breached by a party‟s failure to
       complete the work specified and the value of the asset is affected as a result.
      3 reasons to award Cost of Performance measure:
                  1. To permit the D to deliberately breach contract and save costs of work would
                       reward bad faith and undermine the sanctity of contract.
                  2. To award less than the cost of performance would fail to give the P what was
                       promised and would undermine the freedom of the owner to contract for work to be
                       done on his property (whether the work in uneconomic is irrelevant)
                  3. To award the lower amount would enrich the D b/c they had full payment for the
                       promised performance but sought to escape the cost of doing the work promised.
R     Appropriate measure of damages is Cost of Performance
D     Cost of Performance awarded
N    Dissent:
      Result violates Posner‟s economic basis for law (efficient breach)
      If party wants the cost of performance, they should agree to it up front
      if a party Ks for something that has no marketable value and wants to be compensated for value
       of performance need to K for the ex ante

     Posner:
      If D knew about measure of damages, would not have breached. As it stood, efficiency
       demanded a breach
      Cost of performance rewards bad bargaining and overcompensates P who may not get the work
       completed
      Since P, as land owner, would have enjoyed benefit of any increase in the value of the land, the
       parties could have written the contract so the P would bear the burden of any unexpected fall in
       land value as well

Peevyhouse v. Garland
 Facts similar to Groves, different judgment
 Facts: Mining company that failed to restore land
 Awarded only the diminution in value – would have cost $29,000 to carry out performance, but increase
  in value would only have $300
 Majority: Reasonable cost of performance is the norm except where the economic benefit which
  would result is grossly disproportionate to the change in value.
 Dissent: Restoration was a very important promise to the D and P knew this – the breach was willful
  and in bad faith – D should do what it has promised or pay for it to be done.

Two ways to calculate expectancy
          o Cost of performance (cost to accomplish what was desired)
                   More than economic agreement - encouragement of completion of contracts
                   Un-just enrichment is discouraged
                   Assure that P gets expected profits
                   Encourage freedom and protects interest of eccentrics
                   May overcompensate, condones economically wasteful activity and rewards bad
                      bargaining
                   Gives D money to get work done elsewhere
          o Diminution of value – difference value due to breach
                   Allows for efficient breaches
                   Non-monetary factors are not considered with diminution of value
                   Sharing of risk/return - in this case if there had been an upside swing in the value
                      of the land, the benefit would have accrued to the plaintiff, not the defendant.
                      Thus the award for damages should consider this inequitable distribution of
                      risk/return
                   Purpose of damages is to compensate, not punish



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Nu-West Homes v. Thunderbird
F     TB contracted NW to build a house. TB complained about serious deviations in the specifications
      TB arranged for completion through another company, work at issue was done for $16,000
      NW sued and TB counter-sued.
      Trial judge awarded TB only $4,238 b/c demolition of the basement considered unnecessary
      Argument regarding reasonableness re: “minor” defects
I     How are damages to be awarded when the defect caused by the K breach has been rectified by
       the plaintiff?
      What role does the intent of the defendant, scope of the breach and the measures to rectify the
       defect play in awarding damages?
A                     P – Nu-West                                       D - Thunderbird
      not in case book                               The cost to fix is proper – unless it is unjustifiable
                                                      Unless changes replace „trivial and innocent‟
                                                       deviations from the K, they are compensable
                                                      NW had no intention to perform its contract
                                                      NW committed several clear and serious
                                                       violations of the specifications
                                                      No unjust enrichment possible, since work
                                                       already done (money spent)

RA    Owner is entitled to recover damages to put him in a position to have the building he contracted
       for, unless the cost of completion is grossly out of proportion to the nature of defect
      The law is satisfied if the party effected by breach of K acted reasonably in the adoption of
       remedial measures. Therefore, aggrieved party will not be disentitled from damages b/c
       breaching party suggests less costly measures were available
      If the omission or defect is trivial and innocent or affects the value of the building only slightly, but
       the cost of rectifying the defect or omission is large, the courts will not enforce the completion of
       the contract
R     If the P who is victim to a breach acts reasonably in the adoption of alternative measures, the P
       will be able to recover full cost of performance
D     Appeal allowed. Appellant should receive the cost of completion of the contract
N     Economic waste argument – you will not be given cost of performance of breach was very minor
       deviation from the contract – eg. Different pipes


Certainty, Causation and Remoteness
All three play role in claims based on plaintiff‟s reliance interest
     i.      Certainty – Plaintiffs must prove with a reasonable certainty (on balance of probabilities) that
             they would have made profits in the amount claimed if the defendant had performed K
             (McRae failed to do this). This was watered down in Chaplin where loss of chance to make
             profits was considered.
     ii.     Causation – That the loss was caused by the defendant‟s breach
     iii.    Remoteness – it was sufficiently within the range of the defendant‟s contemplation at the time
             of entry into the contract. Significant policy issues must be weighed by courts when deciding
             this.

Hadley v. Baxendale
F     P were millers whose mill shut down b/c of a broken crank. They contracted with D to transport
       for repair.
      The D‟s clerk assured the P‟s servant that a special note would be made to hasten the return of
       the shaft.
      Return of the shaft was delayed and consequently several days‟ profits were lost.
      P‟s sued for lost profits, won; D‟s appealing
I     Are damages for loss of profit justified in this case based on information communicated?

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A                      P – Hadley                                         D - Baxendale
                                                       Not liable for damages b/c they were too remote

RA   Two part rule:
        1. D is only liable for those damages that naturally or reasonably flowed from the breach
            (probable) OR were reasonably supposed to be in the contemplation of both parties at the
            time of the breach
        2. If special circumstances were communicated before the breach, the P is entitled to those
            damages that naturally flowed from those special circumstances - special circumstances
            need to be known and communicated and should be a probable result of the breach

      “Probable” requires is a high threshold of proof
      The onus is on the promisee to communicate all they can to the promisor. P could easily insure
       against the loss based on foreseeability when the D is not aware of the circumstances
      Conscious risk allocation (who is in a better position to measure and insure against risk)
R     Damages for Loss of Profit not justified since circumstances about mill being shutdown b/c of the
       item being transported were not communicated.
D     Appeal allowed; new trial ordered
      Damages are too remote if there are special circumstances which are unknown to the D
N     Having information to be able to predict the result of the breach flows well into Posner‟s argument
       regarding an economic breach; being able to predict results allows breachers to know when
       breach is advantageous

Victoria Laundry v. Newman
F     P ordered boiler from D to extend their laundering and dyeing business
      The boiler was delayed by several months
      P sues for lost profits. Trial judge found for P but disallowed claims for loss of profit under Hadley
       principle that the defendants were not aware of “special circumstances”. P appealed.
I     To what extent is a D liable for a breach of contract if under normal circumstances, no information
       was communicated, but the P because of a high level of imputed knowledge is able foresee the
       breach?
A                       P – Victoria                                        D - Newman
      Damages = Loss of Profit + Expenses b/c            Importance of boiler not communicated
       of new boiler (staff) + Special Contracts

RA    Rule from Hadley applied in this case after modifications:
              In Step 1, when determining damages arising from natural consequences of the breach, it
                is reasonable to “impute knowledge” to the parties based on who they are and the
                relationship. (eg: courier-limited knowledge, manufacturer-high knowledge)
              In Step 2, special circumstances or “actual knowledge” is taken into account
              A lower standard of foreseeability is applied as compared to Hadley. Words like “in the
                cards, liable to result, reasonably foreseeable” are applied, making it easier for the P
      Since D was manufacturer should have known importance of boiler to P (who were using it for its
       normal, obvious intended use)
R     The aggrieved party is entitled to recover losses which at the time of the K were reasonably
       foreseeable to result from the breach.
D     Appeal allowed. Rule 1 satisfied.
      P could recover for loss of profits from losing customers and hiring extra staff, but could not
       recover for lucrative contracts (no actual knowledge communicated to D).
N     Distinction difficult in cases where its hard to tell the difference between
       manufacturer/seller/carrier




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Proportionality
 Should the courts be concerned with the extent of the promisor‟s information and the proportionality
  between the risk asked to undertake and the benefit expected?
 How much information needs to be communicated. Communication allows for parties to see future
  damages?
 Parties that have more money may be in a better position to bargain ex ante (based on assumption or
  prediction)
 How do we mitigate against parties that do not have resources?
 Knowledge should be balanced to help allocate risk (increase price, decrease liability in contract)

Scyrup v. Economy Tractor
F     P entered into a contract with D to provide dozer attachment for the plaintiff‟s tractor in
       anticipation of contract with another company
      D delivered attachments which were defective and P work-contract was cancelled
      The D was informed that the parts were required for a contract
      Trial held that D was liable for loss of profit and loss of parts. D appeals
I     How much knowledge of the special circumstances needs to be communicated to apply the
       Hadley and Victoria rules?
A                      P – Scyrup                                            D - Economy
                                                         [see Dissent below]

RA    Hadley and Victoria applied
      D had imputed knowledge (he was the supplier) -- losing profits from breach was foreseeable
      D also had actual knowledge of the special circumstances because he was aware of the P‟s
       work-contract
R     D is liable for the damages from a lost contract when there is both reasonably imputed knowledge
       and direct information from the plaintiff
D     Appeal dismissed. Decision was held and award of loss of profits stood.
N     Dissent:
      Disputes the level of awareness or the scope of knowledge (a contract vs. value of contract) and
       proportionality of the damages
                                                                                          nd
      D was not informed fully about the responsibilities that would be assumed by the 2 hand
       equipment and should not be saddled with a claim unless it was indicated in K (type of work, and
       magnitude of the operation)
      There was no opportunity for the D to contract out of liability
      D was not put into a position where he could reasonably anticipate loss of profit

Munroe Equipment v. Can. Forest Prod.
F     P claims damages from failure to remove timber after product leased from D broke down
I     When assessing damages for a broken contract, to what extent should a promisor‟s information
       and the proportionality between the risk he is being asked to undertake for the benefit expected
       be considered?
A                        P – Munroe                                     D - Can. Forest
      Use Scyrup as precedent                          [see RA]
      Failed to fulfill K b/c equipment not good
       enough

RA    Proportionality issue: cannot make promisors of products guarantors of work (disproportionate
       risk)
      Imposing a significant amount of liability where the amount of liability was not stated in the
       contract
R     Failure to remove the timber was not a natural consequence of the D‟s breach and that the lessor
       could not be expected to have virtually ensured the removal of the timber
D     Failure to remove timber was not reasonably foreseeable by D

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N    

Koufos v. Czar.. (The Heron II)
F     Late delivery of sugar results in a loss of profits due to market shift
      Lower court awarded nominal damages, On Appeal Full Amount awarded
I     Can plaintiff recover damages for an eventuality that the defendant was „not unlikely‟ to know
       could arise?
A                       P – Koufos                                             D - Heron
      Difference in market price                         Liable for interest for days late
      want to use the Victoria test – low threshold  want to use the Hadley test – high threshold

RA    What is “probable/likely” is what would happen in the majority of cases; what is “unlikely” is what
       would happen in the minority of cases (interpretation of Hadley)
      Results that occur in the minority of cases cannot be seen as occurring naturally from the breach
       or to be in the contemplation of both parties
R     A D is liable for damages which they ought to know is “not unlikely” to result from a breach in the
       K.
D     Damages can only be awarded for probable damages (i.e. on the balance of probabilities)
      Held for P. Price fluctuation was not unlikely.
N     Using “not unlikely”, a medium ground is reached between the “probable” standard in
       Hadley and the “in the cards, liable to result” standard in Victoria.
      Criticism of Victoria, where Lord Read says that we are confusing torts with contracts: In torts,
       there is no opportunity to indemnify (insure) yourself against a foreseeable liability while in
       contracts there is this opportunity.




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Enforcement of Promises
Functions of Formality
 Evidentiary function – objective and permanent record, no debate over intent
 Cautionary function – provides parties with period of reflection and deliberation
 Channeling function – limits the range of enforceable contracts (provides a test of enforceability)

Against having formal requirements
 does not account for situations not confined by it (verbal agreements)
 could be cultural implications
 very restrictive…may not meet expectations

Seriously intended promises
 As a matter of basic morality, we expect promises to be kept. However, promises do not create legal
  obligations
 Not all promises should be legally binding but those seriously intended and made for good reason
  should be
 Cause - must be a valid purpose, a reason for, an end to be pursued in the contract

Why would a contract be enforced?
 If we assume there was reliance to the party‟s detriment, then moral consideration should allow the
  contract to be enforceable to provide certainty and consistency
 Decision made about enforcement comment on our values as a society
 Parties involved in long term relationships don‟t act impulsively and promises are well thought out

Why would a contact not be enforced?
 minors do not have the capacity to understand terms of an agreement
 when consideration doesn‟t go both ways
 would flood the courts with too many cases
 when there is no evidence of detrimental reliance
 don‟t want gifts to be considered as a contract (enforcing moral consideration as biding)
 by enforcing and interfering with promises, we may devalue their worth socially

Reliance
 Might enforce promises because of reliance on the part of the promisee (one party might bind the other
  without their knowledge)
 Legal obligation in the reliance theory results not from the fact of the promise or its serious intention,
  but from its effect on the promise. Reliance interest may encourage economic waste

Consideration
 is an act (or service), forbearance (not doing something) or a promise thereof which carries value
 must flow both ways for K to be enforceable
 its objective is to avoid giving sanction to inconsiderate engagements
 courts not concerned with the equivalency of consideration exchange (Peppercorn Theory).
  Consideration need not be adequate, but must be sufficient
 Bargain theory is that what was given is beneficial to the promissee or detrimental to the promisor and
  is enforceable

Nominal Consideration:
 Often used as a drafting technique in real estate, eg. Sale of land for $1
 Amount of money makes no difference, just creates appearance of a contract that the courts will
  enforce
 In these cases the contract is binding even where nominal consideration is mere formality

Exceptions to Consideration                    Arguments when Analyzing a Promise’s Enforceability
                                               - Party‟s Intention - Long-term relationship - Reliance to detriment
                                                                                                11 | P Promises
                                               - Consideration (Past, Pre-Existing) - Doct. Of Mutual a g e
                                               - Moral Consideration - Consistency and Stability - Public Policy
                                               - Business Efficacy - Duress
     1) Contracts under seal
     2) Waiver/Promissory Estoppel
     3) Statutory changes

Courts concern with Promises
 Administrative concern: courts not concerned with cases that create problems with burden of proof.
  The courts would be flooded with these cases
 Substantial Concern: courts concerned with cases with substantial injury, to further social policies,
  protect the operation of the economy and prevent unjust enrichment

Consideration

Governors of Dalhousie College v. Estate of Arthur Boutilier
F      P trying to raise funds to increase the general resources and usefulness of a college
       D promises to pay $5000, but did not pay. He dies without making payment
       P sues his estate for the pledge.
I      Was the D‟s promise a gift or an enforceable promise (was there consideration)?
A                      P – Dalhousie                                        D - Boutilier
       Argue reliance on the promise – spent            Promise should not be enforced b/c it was too
        monies                                            vague and there was nothing given to D in return
       Doctrine of mutual promises: implied              - no consideration flowing back to estate
        request by D to apply the subscription, and  No reliance by P on money
        an acceptance of that request by the P           Not right to enforce promise to charity after
                                                          someone is deceased

RA     If D agreed said it would use the money to a specific purpose (i.e. buy books), then the promise
        would be an enforceable unilateral contract, as there was an exchange (an act performed for the
        money).
       Promise involves no act advantageous to the D or detrimental to the P and therefore is not a case
        of mutual promises. The duty of the D would arise from trusteeship rather than a contractual
        promise
       The contract could be enforced out of moral consideration and to provide certainty and
        consistency, if we assume that there was reliance to their detriment
R      Gratuitous (unwarranted) gifts are not good consideration and are not supported by consideration
       A voluntary promise cannot be converted into a binding legal contract by the subsequent action of
        the promisee alone without the consent, express or implied, of the promisor.
       Must be more than the expenditure of money or the incurring of liability, a request must be made
        accompanying the subscription which would not otherwise be honored except for the subscription
D      There is no consideration flowing to D.
N      Policy arguments:
       Might deter people from donating
       Flood the courts
       Don‟t want gifts to be considered contracts

Wood v. Lucy, Lady Duff-Gordon
F      D granted P exclusive right to use her endorsement on clothing in exchange for % of profits
       D broke this agreement by giving her endorsement to others
       P sues for breach
I      Did the D‟s promise have consideration in the form of an exclusive licensing agreement in
        exchange for % of the profits of sales even though the P was not compelled to sell anything?
A                       P – Wood                                              D - Lucy
       Implied consideration -- business sense         % of profits is not consideration b/c possibility of
        implied a promise to take reasonable             getting nothing if no sales made
        efforts to market

                                                                                                 12 | P a g e
RA    By determining the intention of the parties, the promise has some value – this value helps enforce
       that the P has some duties
      The agreement is „instinct with obligation‟ imperfectly expressed. In short, there is an implied
       (both parties forged agreement for commercial reasons) term that P will work to generate
       revenues.
R     The promise to pay half the profits and render accounts monthly was an implied promise to bring
       revenues and profits into existence, thus making the promise enforceable.
D     Promise is enforceable.
N     This is more typical of a commercial situation, to promote business efficacy
      Promises in private relationships are not enforced just b/c of these relationships (pre-existing
       duty). Good consideration is still required,

Past Consideration

Eastwood v. Kenyon
F     P was guardian of heiress and provided her with necessities at personal expense
      Child promised to pay back when she came of age, but got married
      Husband promised to pay off the loan, but didn‟t.
      P is suing Husband (D) because women were unable to own property at that time
I     Is there consideration if P‟s action done long before D‟s promise?
A                    P – Eastwood                                         D - Kenyon
      Significant moral consideration to enforce       D was not connected with the P when the money
       promise                                           was expended

RA    Consideration for D‟s promise was in the past and not at the request of the D or his wife.
      Act was voluntarily conferred by P to D
      D promised to pay money, but he did not get anything from it, so the consideration was not
       flowing both ways
R     Past Consideration is not enough to create a valid contract (not good consideration)
D     Promise is not enforceable
N     Policy:
      Generally speaking when you are taking care of a minor, you are not expecting the child to pay
       you back
      To enforce such promises would encourage guardians and others to make voluntary agreements
       for debts. This could force payment of gratuitous undertakings

Lampleigh v. Brathwait
F     D promised to pay P money after pardon obtained
      P worked to obtain pardon
      D does not pay. P sues.
I     Was there sufficient consideration to legally enforcement, even though consideration was
       promised after the act?
A                    P – Lampleigh                                        D - Brathwait
      Did not do it out of the goodness of his        Promise made in the past. Hence, it should be
       heart                                             past consideration and no good.

RA   
R     Past Consideration is good consideration and the promise enforceable if:
              Action done at request (implicit or explicit) of P
              D does action with reasonable expectation to be compensated
D     Promise is enforceable.
N     This is distinguished from Eastwood, b/c no specific request from Wife, and one cannot
       reasonably expect a child to pay back money expended.

                                                                                            13 | P a g e
Thomas v. Thomas
F     On deathbed, P‟s husband promises her his house
      Executor of Estate (P‟s brother-in-laws) have her pay 1 pound per year as ground rent and
       repairs
      This arrangement kept up for sometime, until D tried to evict her
      P suing to enforce the contract
I     Was the husband‟s promise given for good consideration and therefore enforceable or was it a
       gift with incidental “burdens”?
A                      P – Thomas                                          D - Thomas
      $1 was the consideration, and it was given      This is really a gift with nominal duties attached
       to the D (Executor), not the landlord.           (repairs)
      Ground Rent was paid. Amount of                 Money given by the P too small to be
       consideration should not matter.                 consideration
                                                       Was not expressed in the will

RA    Motive immaterial; it is not a basis for consideration
      Peppercorn theory: as long as something comes back the other way then there is consideration.
       Courts generally don‟t consider adequacy (although they may)
R     Nominal consideration is good consideration (peppercorn theory)
      There is good consideration as there is something being given in exchange for the promise
D     Defendant‟s promise was enforceable because there was consideration on the part of the plaintiff
       where 1 pound/year was being paid for ground rent.
N     Policy:
      Widow would have no means to live if contract not enforced

Forbearance As Consideration

B.(D.C.) v. Arkin
F     Zeller‟s through D sends letter to P agreeing to not initiate a Civil Restitution against her son for
       shoplifting in exchange for $$$
      P agreed w/o contacting council and paid the amount.
      After contacting counsel, P sues D for money she paid and damages
I     Is a forbearance to sue good consideration if there is no basis for the suit?
A                       P – B.DC                                          D - Arkin/Zellers
      P was not negligent and did not commit a        P voluntarily paid
       tort                                            Consideration both ways (money for promise not
      Law should not enforce K, b/c D not               to sue)
       entitled to get any money for P in first        Established fact that forbearance to sue is good
       place.                                            consideration
      Invalid claim even though P honestly
       believed it was enforceable

RA    No general rule that parents are liable for the torts of their children unless it was b/c of their
       negligence.
R     A forbearance to sue is good consideration and monies paid in exchange for it is valid and
       enforceable. Exceptions to this general rule include:
             a) Claims that are invalid and the forbearing part knows this
             b) Claims that are doubtful or not known to be invalid, unless (these could make it
             good consideration):
                     i) forbearer in good faith believes claim has reasonable chance of success
                     ii) forbearer does not conceal facts from the promisor that would help defeat
                     the claim
                     iii) forbearer must seriously intent to pursue the claim.
D     Appeal Allowed. P allowed interests and costs

                                                                                               14 | P a g e
N     In summary, Forbearance can be good consideration if Party believed it had a valid claim and
       intended to pursue this claim.

Pre-existing Legal Duties

Public Duty
 No consideration for Public Duty unless something extra, beyond the public duty is performed
 Consideration is something of value. No value for something you would do anyway

Duty owed to a third party
 The performance of a duty to a third party is good consideration

Pao On v. Lau Yin Long
F     P sell their company in exchange for 4.2m share of Fu-chip, of which D are majority shareholders.
       P agrees to hold onto 60% shares for 1 year (to avoid depressing the market).
      Realizing no protecting against downturn of price for 60% of their shares, P reach subsidiary
       agreement with D who promise to buy back 60% shares held at $2.5
      Again realizing that they would not get any benefit from upturn of price, P reach NEW subsidiary
       agreement with D, which obliges them to buy back at $2.5 or market price whichever is higher.
      Fu-Chip stock fell to $0.36 and D refused to honour K (pay $2.5 for 60% shares).
      P sues for D for enforcement of K
I     Was there good consideration for the promise given by the D or is this a case of past
       consideration or pre-existing legal duty canceling K enforcement?
A                      P – Pao On                                            D - Lau
      Consideration comes from first agreement         It was Past Consideration
      Not only was there a promise to sell all         No consideration flowing to D. Pre-existing legal
       shares of Shin-On, there was a promise not        duty of D to Fu-Chip, a third party (not to sell).
       to sell all Fu Chip shares (forbearance)          Sub-agreement reached with D, the majority
                                                         shareholders in Fu-Ship (different legal entity)
                                                        They were under economic duress

RA    Past Consideration argument
      Apply Lampleigh (request and expectation for compensation)
              o D made a request in to P to not sell shares
              o P obviously expected to be compensated for holding shares
      Pre-Existing Legal Duty argument
      The pre-existing legal duty of P to Fu-Ship, even though it is a third party amounts to good
       consideration, since there was no duress by P on D.
      There was commercial pressure, but no coercion/duress.
R     A promise to perform a pre-existing duty to a third party is valid consideration subject to no
       duress existing
D     Agreement to guarantee the value of shares is enforceable.
N     Duress is a coercion that will corrupt consent in a K. In determining whether there was a coercion
       of will such that there was no true consent, the following must all apply:
         1. Whether the person alleging to have been coerced did or did not protest?
         2. Was there an alternative course of action open to him?
         3. Was he independently advised?
         4. After entering into the contract, did he take steps to protest?

Gilbert Steel v. University Const. Ltd.
F       D orally promises to pay P for an increased price in steel
        P sends D new contract for increased prices agreed verbally. D does not signed.
        D does not pay new price
I       Is a promise to perform a pre-existing duty to the promisor good consideration? (2 party scenario)

                                                                                              15 | P a g e
A                      P – Gilbert                                          D - Univ.
      Consideration was a good price in future         P had pre-existing duty to supply steel, thus no
       and increased credit                              consideration
      Agreed to mutually abandon old K and             Past consideration to supply steel. Not good
       create new one (not change to terms of old        consideration.
       K)
      By not rejecting the new written K, the D
       had accepted it implicitly.
      P argues promissory estoppel

RA    Stronger evidence required for implied rescission of old K – just verbally agreeing to price not
       enough. Also, new K was not signed.
      P must do something more than what he is legally bound to do- if they changed shipment method
       when they upped the price, that might have been good consideration
      Promissory estoppel can‟t be used as a cause of action (sword), but only as a shield.
      This was Past Consideration
R     A promise to perform a pre-exiting legal duty does not constitute consideration (and is not
       enforceable), nor does forbearance from breaking the contract. There has to be something new.
      A pre-existing duty owed to another party cannot be good consideration for a new agreement
       unless they mutually agree to rescind old agreement.
      Duress is the underlying concern with the above, however it is not explicitly mention in the
       decision. Therefore, regardless of if duress is proven or not, pre-existing agreements b/w 2
       parties is not good consideration.
D     Court agrees with D that P was already obliged to deliver steel, thus oral agreement is only a
       variation of written K and therefore, did not constitute good consideration.
N     Much criticized judgment
      Policy Issue - In two party K, it is very easy for duress to occur. P could have held D hostage to
       delivery to steel. How valid are K‟s if they can be renegotiated at anytime?

Williams v. Roffey Bros
F     D is a contractor who hired P as a subcontractor.
      P had financial problems b/c agreed upon price was too low.
      D was liable if the work was not complete, so offered to pay extra to P.
      D made only one payment under this new price but then reneged on his promise.
I     Can good consideration be found in subsequent oral agreement between two parties where P is
       performing a pre-existing duty? [same issue as Gilbert]
A                       P – Gilbert                                         D - Univ.
      New agreement benefits both parties            No consideration for promise since pre-existing
      Did not ask D to pay extra money. D              duty to do work.
       volunteered, hence no duress                   Apply Gilbert Steele – this is not good
      There was valuable consideration (getting        consideration
       the work done, not being liable for undone     Adds inefficiency and uncertainty to market
       construction, not having to hire another         place. If you do not make your costs estimates
       contractor …)                                    well, you can simply suggest underestimated
                                                        costs, and coax other party to promise more
                                                        money.

RA    Limits Stilk by bringing in Pao On
              o Stilk too rigid, nowadays we should find consideration in the intentions of the parties
              o Stilk still good but finding of consideration should be relaxed unless duress
      Traditional view is that promise to perform pre-existing duty does not constitute consideration nor
       does forbearance – the P must do something more. Here that more is defined as the additional
       benefit of peace of mind (D obtains a benefit or obviates a disbenefit -- knowing they wont be held
       liable for incomplete construction)
      Courts need to see that both parties benefit, no finding of fraud or duress (intention of the parties

                                                                                               16 | P a g e
       to the contract, equality of bargaining powers, benefits derived from each party)
R     Pre-existing duty can still be good consideration so long as there is no economic duress
       and additional practical benefits (there does not have to be a detriment to the promisor)
      Where a party undertakes to make a payment because by doing so it will gain an advantage
       arising out of the continuing relationship with the promisee, the new bargain will not fail for want
       of consideration.
      Where a higher price then originally agreed upon is promised for performance of a pre-existing
       contractual duty as between two parties, the contract is enforceable subject to avoidance of
       economic duress.
D     K is enforceable. Courts ruled that D required to pay extra money because he had received a
       benefit (some flats were completed). There was good consideration.
N     Exception to the Gilbert rule because: (1) D volunteered to pay more, whereas in Gilbert there
       was implied coercion (if you don‟t pay, I won‟t deliver); and (2) D benefits from paying P more
       money as he avoids having to pay a late penalty.
      Policy Issues:
      People may underbid on contracts, win them, and demand more money to make up for losses –
       but in this case was contractor, not subcontractor who first broached the idea
      Almost always practical benefits to a party. Also, it is very subjective.

Foakes v. Beer
F     P owed D money and entered into agreement so P could pay in installments
      Agreement implied that there was no interest on the debt
      P pays debt but D wants interest too
I     Is partial payment of a pre-existing debt in return for a discharge of the debt good consideration if
       it is agreed to by both parties?
A                       P – Foakes                                             D - Beer
      The consideration was the certainty of            Pre-existing duty.
       receiving the debt

RA    P gave nothing in return when he accepted to pay the lesser amount so there is no element of
       exchange.
R     Partial payment is not good consideration unless under seal.
      The promise to discharge debt in return for a lesser amount is not good consideration because
       there is a pre-existing duty to perform the full contract.
D     New K not enforced. Must pay interest.
N     Based on Williams you could argue D had obviated a disbenefit by not having to resort to a
       judicial remedy
      Many people want their money ASAP and so agree to a lesser amount paid right away and
       according to common law, this is not binding (created statutes).
      Policy Issues
      If lesser amount is acceptable for greater amount that how do you judge what constitutes a lesser
       amount?
      Could de-stabilize lending environment
      If lesser amount is acceptable for greater amount then debtors might place creditors under duress

Re: Selectmove Ltd.
F     P held back payments to D (Rev. Canada)
      D allegedly agreed to new terms
      P trying to enforce new terms
I     Is promise to perform a pre-existing duty good consideration?
A                    P – Selectmove                                   D - Govt.
      D gets more via payment plan than they         No new agreement
       would have had they forced P into              Apply Foakes
       bankruptcy


                                                                                                17 | P a g e
       Practical benefits to D by new agreement
        (apply Williams)

RA       If Williams principal extended into an obligation to make payments, it would negate Foakes.
         Foaks was around, however it was not used in Williams.
R        Promise to pay the debt partially is not consideration
D        New K not enforced. Must pay in full.
N        Consistent with Foakes in that partial payment is not to be good consideration.
         Practical benefit for a partial payment is not good consideration

Foot v. Rawlings
F      P owed D through promissory note
       D offered P a better deal (lower monthly payments and lower interest)
       P complies, D reclaims old terms
I      Did the D receive consideration under the new agreement to make it an enforceable K?
A                       P – Foot                                         D -Rawling
       Post-dated cheques are consideration          Use Foaks
                                                      No consideration and pre-existing duty.

RA     Different than Foakes b/c post-dated cheques given whereas in Foaks, only word of P.
R      There is consideration because cheques were used. Any alteration in the mode of payment is
        good consideration
       Agreement between the P creditor and the D debtor is binding since there was good
        consideration - there was a switch from 2-party instrument (promissory notes) to a 3-party
        instrument (post-dated cheques). The post-dated cheque is more valuable than a Promissory
        note.
       So long as the appellant continued to fulfill his obligations under the agreement the post-dated
        cheques he gave were sufficient consideration
D      New K enforced.
N     



Judicature Act
   1. Part performance of an obligation either before or after the breach thereof shall be held to
       extinguish the obligation
           a. When expressly accepted by a creditor in satisfaction, or
                       When creditor accepts part payment immediately
           b. When rendered pursuant to an agreement for the purpose though without any new
               consideration
                       When promise of part payment is accepted and then atleast the first installment
                          is accepted by the creditor. Until the first installment is accepted, the creditor
                          could revoke the agreement and Foakes would apply.




II.       THE ENFORCEMENT OF PROMISES CONT’D
5.        Waiver and Promissory Estoppel


                                                                                               18 | P a g e
Basic requirements for Estoppel:
 A legal relationship
 The making of a representation intended to affect the relationship; and
 An action by the representee on the basis of the representation

Where a promise is made which is intended to create legal relations and which to the
knowledge of the person making the promise is going to be acted on by the person to whom it
is made, and which is in effect so acted on, that promise must be honoured

Purpose:
  The general purpose is that a person is not allowed to invoke their strict legal rights to avoid
    liability when he or she induced someone else to act on the basis of those beliefs.
  PE is intended to mitigate the potential harshness of the strict application of the doctrine of
    consideration through the exercise of judicial discretion to compensate innocent parties for
    losses that would otherwise be suffered under the strict application of the rules.

Doctrinal Difficulties:
 Can promissory estoppel be used as a cause of action?
 What kind of representation will give rise to an estoppel?
 Must the promisor intend to induce reliance?
 What must the promisee do in reliance on the promise before the promisor will be estopped?

Analysis:
1. Look for promise implied or actual
2. Is there consideration? If no,
3. Is the party estopped from asserting strict legal rights.
Consider equities, notice, reliance, sword v shield, cause of action v proprietary estoppel.

Equitable Estoppel
   - more fluid then the strict doctrine of PE; all the necessary requirements are not needed to
       invoke EE.
   - Invoked when there was a reasonable expectation of a legal relationship, expressly or
       implied through silence. .
   - A development of propriety estoppel
Proprietary estoppel – estoppel by acquiescence or encouragement
   - before Walton, proprietary estoppel was only used in transfer of land cases.
   - Encouragement is enough there doesn‟t have to be a legal relationship(an independent
       cause of action)
   -

Canadian                                       American
- common law                                     - Contract law is codified
- Equitable doctrine focused on remedying        - Focused on enforcing promises.
detriment                                        - Emphasis is on the promisor‟s
- Judges have to make more of a judgment             reasonable expectation that his
call on which promises are enforceable and           promise will induce action or

                                                                                        19 | P a g e
which promises aren‟t.                                      forbearance, not on the fact that he
                                                            created or encouraged an
                                                            expectation in the promisee of
                                                            performance of the promise.
                                                       -    Less judicial intervention
                                                       -    US P.E. has become an equivalent
                                                            or substitute for consideration

Policy Reasons for a legal relationship:
(1) In business type relationship it limits the sphere of enforceable promises; w/o this
requirement, may lead to enforcing gratuitous promises.
(2) Counters the consideration doctrine which was very formulastic

International Knitwear v Kabob Investments
F    
I    
A                           P                                                     D
                                                      

RA   
R    
D    
N

Notice

Saskatchewan River v Maritime Life Insurance
F     P(SRB) has an insurance policy with D (Maritime)
      P pays irregularly; last occasion D accepted late payment without evidence of insurability.
      3 letters from Maritime (1) Late payment offer in August 1984 (2)November letter – policy is
       technically out of force and will require a immediate payment (3) Notice of lapse in February 1985
      P becomes aware of these letters in April and sends cheque in July
      Cheques are refused, policy not re-instated because Michael is sick therefore uninsurable.
      Michael dies, Maritime rejects the benefit claim
      P is suing for the life insurance payable
I     Is notice required by the promisor to the promisee that the promise has ended? If so, what‟s the
         appropriate amount of notice.
      Did the November letter serve as a waiver?
      Did SRB rely on the promise, one element needed to make the promise enforceable.?
A                             P                                                  D
      M through its conduct, waived their right to     The policy issued expired after the grace period.
       timely payment.                                  If the Nov letter served as a waiver, the waiver
      Non of D‟s acts were sufficient to retract its    expired by the time payment was submitted.
       waiver and thus policy was still in force at
       the time of death.

RA    P was not aware of the letter until April, therefore they had not relied on it, so reasonable notice is
       not necessary.
      Even if reasonable notice was required, it would have been adequately met by P‟s failure to act
       between April to June.
R     Waiver will be found where the party waiving had: (1) Full knowledge of rights and (2) an
       unequivocal and conscious intention to abandon them.

                                                                                                 20 | P a g e
       The overriding consideration for a waiver is whether one party communicated a clear intention to
        waive a right to another party
       A waiver can be retracted if reasonable notice is given.
       Reasonable notice requirement protects reliance by the person in whose favour the waiver
        operates; a notice requirement should not be imposed when there is no reliance.
      
D      D waived its rights of timely payment in the November letter, but the waiver was not in effect
        when P tried to make payment; Appeal allowed
N




International Knitwear v Kabob Investments
F      P tenant leased commercial premises from D landlord for a 5 year term (1987-1992)
       Landlord agreed to reduced rent from May 1989
       In Dec 1991, payment was 2 weeks late and landlord demanded basic rent in arrears; 1.5 weeks
        later Landlord demanded arrears, interest and full payment(notice) starting Jan 1.
       Tenant didn‟t pay, landlord took over claiming distress.
       Tenant suing for illegal distress; Landlord counterclaiming for rent and other moneys owing under
        the lease for the whole term.
I      How much notice is sufficient to retract the waiver/promise?
A                            P                                                    D
       Reasonable notice was not given                  Reasonable notice was given to claim full
                                                          obligation starting from Jan1, 1992.

RA    
R      The reasonable period of notice depends on the facts, the nature of the relationship between the
        parties, how the notice was given and how it was given in the past.
       There is no fixed period, but notice can be given to cease the support of promissory estoppel.
D      PE prevents Landlord from collecting full rent during the period when the promise was in effect.
       The date that notice was given is sufficient to revive the full obligation starting January 1.
N      Similar to High Trees


Letter of Credit
Used in international trade- is a document issued by a bank guaranteeing the payment of a customer’s draft
up to a stated amount for a specified period of time- it substitute’s the bank’s credit for the buyer’s credit and
eliminates the seller’s risk- it is irrevocable in that it cannot be legally undone.

RELIANCE

W.J. Alan & Co. v EL Nasr Export & Import Co.
F      Buyers contracted with sellers to purchase coffee in 2 installments
       The terms of the contract was in Kenyan Shillings but the letter of credit given by the bank was in
        Sterling
       Sellers accepted the LoC in Sterling (representation), but when Sterling devalued the sellers
        prepared an invoice for the difference; the buyers contended that nothing more was owed.
       The sellers brought an action for the invoiced amount.
I      Does the promisee have to detrimentally act on or rely on the representation in order to invoke
          the doctrine of PE?
A                           P                                                    D
       Entitled to make use of the non-conforming  There was a waiver (promise) that the sellers did
        LOC w/o impairing their rights for the future    not properly revoke , therefore PE should apply:

                                                                                                     21 | P a g e
       under the original terms of the contract         There was a legal relationship (the contract to
      The acting on by D was not detrimental,           buy/sell)
       thus PE should not apply.                        There was a representation made that sellers
                                                         would not insist on their strict legal rights to
                                                         accept shillings.
                                                        The representation was acted on; we relied on
                                                         the change in the terms of the agreement from
                                                         shilling to sterling; it would be inequitable now to
                                                         deprive us of it.

RA    Reliance is the change in the way one has conducted his affairs as a consequence of the
       promise. The buyers relied on the change in terms of the agreement from shilling to sterling.
R     Denning: Detrimental reliance is not required for the doctrine of PE to take effect, all that is
       required was that one should have “acted on the belief”.
D     P is estopped from insisting on their right to receive the difference between the value.
N     Weak argument for consideration here
      Trial Judge didn‟t use PE doctrine, and found in favour of the plaintiff
      This ratio is a concern for the following situations: date of delivery, timing, issue of subsequent
       events.
      Stephenson was able to find estopple through detriment in these facts.
      Distinguished from Burrows (Indulgence for late payment); depends on the extent to which the
       representation was acted on and how inequitable it might be for the representing party to be
       allowed to insist on their strict legal rights.


Post Chaser
F     Declaration of ship sailing was not given to D by P until one month after ship sailed (instead of
       immediately after as stipulated by the contract)
      There was no objection from buyers, (although there was objection from sub-buyers), buyers
       requested documents which p gave just one day later.
      Sub-buyers rejected documents, therefore buyers did as well, seller (P) was forced to sell the oil
       elsewhere at a loss.
      Sellers claim damages
I     Was the „acting on‟ sufficient to invoke the doctrine of PE
A                            P                                                  D
      There was a legal relationship (buyer/seller)  There wasn‟t sufficient reliance to invoke the
      A representation was made by requesting           doctrine of PE
       the documents
      The buyer did not insist on its strict legal
       rights for 1-2 days, therefore PE should
       apply
      The presentation of the documents was an
       acting on

RA    The extremely short time span between the request and presentation of the documents and the
       rejection of the documents does not constitute sufficient reliance which would render it inequitable
       for the buyers to thereafter enforce their strict legal rights.
R     Not dispensing the notion of detriment but the important part is whether inequities would result
       from not invoking the doctrine of PE.
      The amount of time depends on the facts of the case (eg. stock trading – one day would be a
       long time but here there was no reliance), there must be some form of reliance.
D     The courts found that there was no inequity in not invoking the doctrine of PE.
      There wasn‟t sufficient „acting on‟/reliance to invoke the doctrine of PE.
N     Compare to WJ Alan; it would be questionable whether or not applying the ratio from WJ Alan
       would render a different result. (It is questionable whether doing something as little as

                                                                                                22 | P a g e
       presentation of documents counts as reliance)




Legal Relationship

Combe v Combe
F     After a divorce, the husband agreed to give his wife 100l per year.
      The wife made more than her husband
      The husband never made in payment. The wife pressed for payment but made no application to
       the Divorce Court for maintenance
      The wife brought an action against her husband, claiming 675l being in arrears of payment.
I        Does a legal relationship have to exist, on which basis a cause of action may be found, in order
         to invoke the doctrine of promissory estoppel.
A                        P – Wife                                          D -Husband
      The husband made a representation               An element required for promissory estoppel, a
       intended for it to be acted on, and there         legal relationship, does not exist.
       was an acting on so it would be inequitable  Promissory Estoppel is being used as a sword.
       now for the husband to not follow through
       on his promise.
     

RA    Principle of promissory estoppel does not create a cause of action where none existed before
R     Lord Denning: The principal of promissory estoppel cannot be used as a cause of action in itself
       because this would render consideration null and void, and every gratuitous promise would be
       enforceable.

D     Promissory estoppel can not be used by the wife as a separate cause of action to enforce the
       husband‟s promise.
      The promise can only be enforced if there was consideration – and the courts found to be no
       consideration.
N     Forbearance to sue could potentially be an argument for consideration, but the courts did not find
       consideration
      Promissory estoppel is being used as a sword.


Petridis v Shabinsky
F     Tenant(restaurant ownder) required to give defendant (landlord) 6 months notice in writing before
       the expiry of the lease if they intended to renew.
      D voiced his intention to enter discussion at a later date, when approached by P.
      P entered into negotiations but no agreement was made
      D gave notice to P to vacate in less than one month, and two days later accepted another tenant.
      P sued for injunction and a declaration that the lease had been validly renewed
I     Can the doctrine of promissory estoppel be used a sword, to establish a claim, instead as the
         traditional use, as a shield to defend a claim.
      Can P estop D from enforcing strict legal rights, when D promised to discuss terms at a later
         date. (promise at issue: extension of the time to renew the lease)
A                       P – Tenant                                          D -Mallowner
      The option had been exercised                      The option had expired, there isn‟t a legal
      (1)Representation: The negotiations implied         relationship to base the claim.
       D would not enforce the terms of the lease
       concerning the expiration of the option.


                                                                                             23 | P a g e
       (Burrows)
      (2) The representation was acted on to his
       detriment: He didn‟t look for another unit, he
       recently spent $ on the restaurant.

RA    The option to renew had expired at the time of the representation thus there is no legal
       relationship to base the claim on, thus there was no possibility of promissory estoppel
R     There must be a legal relationship of some sort, (not just contractual) to invoke the principal of
       promissory estoppel.
D     Courts hold that promissory estoppel is not available but that waiver is available (doesn‟t require
       a legal relationship) because the landlord waived the right to refuse to renew the contract.
N     The legal cause of action in this case was the option to renew, which expired
      The distinction between waiver and PE is simply semantics and it was the court‟s way of getting
       around the view that there must be a legal relationship.

Sword or Shield?

Robichaud v Caisse Populaire
F     P Robichaud owes D $3,800 and D agrees to accept $1000(along with other creditors) to
       discharge the debt.
      D refuses to accept payment
      P sues D to enforce the promise of accepting $1000 as full payment
I     Can the P, Robichaud, use promissory estoppel as a sword, to enforce D to stay true to its
          promise.
A                     P – Robichaud                                 D -Caisse Populaire
      All 3 elements of PE exist:                   According to case law, PE can only be used as
      A legal relationship, a representation         a shield and not as a sword
       intended to be acted on, that was indeed     
       acted on to his detriment.
      It would be inequitable to allow him to
       retract on his promise

RA   
R     If the principle can be applied successfully as a ground of defence (shield) then it would not be
       equitable to not allow P to use the PE argument (sword).
      Bottom line, PE is to promote equity, and it should not matter whether P or D is invoking it.
D     Promissory estoppel can be used as a sword as long as there exists a legal relationship to base a
       cause of action. Appeal allowed (in favour of P)
N     This decision may open the floodgates to the enforcement of all sorts of gratuitous promises.
      There has to be a legal relationship that the representation is based on; PE cannot BE the cause
       of action.


Return to Gilbert Steel
F     The judge found no consideration because pre-existing legal duty between two parties is not
       good consideration because there is a large possibility of duress.
     
I     Can the Doctrine of Promissory Estoppel be invoked in this case?
A                  Wrongly Decided                                     Rightly Decided
      PE is an equitable doctrine and it would be  If PE is used as a sword, too many promises
       inequitable to be able to use it as a part of   would be enforceable; it would lead to gratuitous
       a defence but not as a part of cause of         promises being enforced
       action                                        


                                                                                              24 | P a g e
      Dickson, in AJ Allan, stated that
       detrimental reliance is not required, an
       „acting on‟ is sufficient
      Lord Denning in Post Chaser in orbiter
       says that the detrimental reliance is not
       important, as long as there was an inequity
      The Canadian position is that the focus
       should be on the inequity of the result
      You could still argue inequity even if there
       wasn‟t a detriment

RA    The judge found no PE because:
      (1) It cannot be used as a sword (but now we know in Robichaud that it can)
      (2) There has to be a detrimental reliance on the part of the reprisentee
R    
D    
N

Equitable Estoppel


Equitable Estoppel


Waltons Stores (Interstate) Ltd. v Maher
F     Maher(respondent) negotiated with Waltons (appellant) to lease their land whereby the existing
       building would have to be demolished and a new one erected immediately in order for Walton to
       meet their target date.
      Maher sent a new contract with proposed amendments, at which time Waltons‟ lawyer said there
       were verbal instructions to accept the amendments.
      Maher did not hear back from Waltons, but started demolition and began erecting the next day.
      Weeks later, the new contract was returned and Waltons‟ lawyer said they did not wish to
       proceed
      Maher sued for a declaration that a binding contract existed, specific performance, or damages in
       the alternative.
I     Can the promise be enforced without a legal relationship?
      Promise at issue is that Walton would take over the lease from Maher.
A                       P (Maher)                                         D (Waltons)
      PE: There was a promise made, and a             There is no legal relationship, the legal
       detrimental reliance (demolition of building).   relationship would have been signing the lease;
      Binding contract existed                        Therefore, P is using PE as a sword; PE can‟t be
      The principle of equity should come into         used as a cause of action.
       play because it would be unconscionable
       conduct on the part of the other party to
       ignore the promise.

RA    Waltons silence is reasonably construed by Maher that there would be a legal relationship in the
       future.
      There is no legal relationship so the doctrine of PE cannot be applied

R     The courts created the doctrine of equitable estoppel to move away from the strict doctrine
       requirements of PE.
      Equitable estoppel can be invoked if there is a reasonable expectation of a legal relationship on
       the part of the promisee by the promisor‟s encouragement or silence.

                                                                                             25 | P a g e
     
D     Waltons was estopped from denying the existence of a legal contract.
N      the courts did not find consideration for the promise
       enforcement of a right did not previously exist where the D has encouraged the P, and the has
        acquiesced in action taken by P on that belief  cause of action is allowed on this basis.


M.(N) v A.(AT)
F     Mr. M promised to pay the balance outstanding on Ms. A‟s mortgage on her home in England if
        she would come to live with him with the view to marriage.
      Ms. A, in reliance to that promise, quite her permanent job and moved to Vancouver.
      Mr. M did not pay her mortgage but loaned her $100,000 on a promissory note which Ms. A
        applied to her mortgage.
      A week later Mr. M evicted Ms. A from his house; she has not been able to find a permanent job
        since
I     Whether Mr.M‟s promise can be enforced which Ms. A relied to her detriment, despite the
          absence of a legal relationship
      Can Equitable estoppel be invoked?
               o Was there a reasonable expectation of a legal relationship?
A                            P                                                   D
      The doctrine of PE should be extended to         There is no legal relationship
        right a wrong that had been done to Ms. A,      There was no reasonable expectation of a legal
        having suffered from reliance on the             relationship
        promise.
      Equity estoppel should be invoked because
        there was a reasonable expectation of a
        legal relationship
     (marriage); the promisor stood by knowingly
     and silently while the promise acted to tis
     detriment on an assumption of existing fact
     induced by the promisor.

RA    No evidence to support the finding that Mr. M intended for his promise to be binding or that Ms. A
       thought the promise was binding.
      Court found that she believed he would follow through on his promise and took the risk of his not
       doing so.
      There was a lack of mutuality because Ms. A was under no enforceable obligation to stay with Mr.
       M if he fulfilled his promise
R    
D     Appeal dismissed because there was not a reasonable expectation of a legal relationship.
N     Trial court held that the promise was not enforceable
      Not a commercial application of Equitable estoppel
      Ms. A is using PE as a sword
     American position would likely find the promise enforceable

Promise Under Seal

Less developed legal systems required a degree of formality in order to determine which
promises were binding. The seal consisted of a blob of wax which the promisor impressed his
seal. A modern court should enforce a promise simply because of the seal because it addresses
the concerns with consideration or PE; either there is a seal or there isn‟t, the courts don‟t need to
get involved.


                                                                                            26 | P a g e
Royal Bank v Kiska
F       The plaintiff brought an action on a guarantee which had been signed by the defendant
        At the time of signature, no wafer seal was attached to the guarantee, but the word seal was
         printed on the document next to the space where the defendant wrote his signature.
        Majority found the guarantee binding because there was consideration
        Laskin thought there was no consideration thus discussed the formality requirements for a Seal
         sufficient for the modern day standards.
I      
A                             P                                                  D
                                                       

RA      Formal doctrine is required to protect vulnerable parties.
R       Formality still serves a purpose and some semblance of it must be preserved.

D       This case did not meet the formality requirements for a seal.
N


III.     PRIVITY OF CONTRACT
Doctrine of Privity applies to two types of persons:
(1) A person who is a complete stranger to the contract has no legal right to enforce the
contract(uncontroversial)
(2) Third party beneficiary to the contract, the person identified and intended by the promisor
and the promisee to receive all or part of the benefit of the agreed upon performance.

Canada is the only remaining common law jurisdiction that has retained the formal general
prohibition on enforcement of contract by third party beneficiaries.

Exceptions to the Rule of Privity:
(1) Agency
 One company acts as an agent for another company in a transaction. Therefore you can tie two
  parties together and thus there are essentially only two actors to the contract.
(2) Trusts
(3) Common law exception for employees
(4) (not really an exception) procedural device that could circumvent the rule.

(2) Trusts

Two ways to form a trust:
(1)A trust is created when a person who gratuitously or for consideration transfers property or
rights to a trustee to be held or managed for the benefit of a third party.

(2) Alternatively, a person gratuitously or for consideration may declare himself or herself to
hold property or rights as trustee for the benefit of a specified third party beneficiary.

Notes:
 Once the trust is created the beneficiary is entitled to enforce the trust obligation directly.
 Trusts are generally invoked in strict terms; they have strict technicalities.

                                                                                             27 | P a g e
(3) Common law exceptions for employees
Common law exception for employees
Employees are entitled to benefit from the limit of liability clause found in a contract between
their employer and the customer (plaintiff) when:
(1) The limitation of liability clause must, expressly or impliedly, extend its benefit to the
employees seeking to rely on it.
(2) The employees seeking the benefit must have been acting in the course of employment and
while performing the very services provided for in the contract between their employer and the
customer (plaintiff)

Employee as third party Issues:
(a) Employees have a hard time protecting their interests
    - they likely don‟t have the ability to negotiate with the customer.
(b) Employees generally don‟t turn their minds around the liability clause
(c) Employees ( in this case that don‟t have high income) are not planning to be liable to a high
extent and it would be unfair not to apply the limitation of liability clause to them.


History

Provender v Wood
F     Wood (father of the bride) promised Provender „s (groom) father that he would pay Provendor
       L20 if he married his daughter.
I     Can a third party beneficiary enforce a contract?
A                          P                                                  D
                                                   

RA   
R     No third party privity rule
D     The son-in-law has the right to seek action
N     Valid consideration:
                 o flowing to Wood  marrying Wood‟s daughter
                 o flowing to Provendor‟s father  paying provender


Tweddle v Atkinson
F     Father-in-laws contract to pay son upon marriage and both die
      P (son in law) sues D (father-in-law) to enforce D‟s promise to pay P a sum of money
      Promise at issue is the L200 that was supposed to flow from father of the bride to son-in-law.
     
I     Can a third party beneficiary enforce a contract?
A                          P                                                    D
                                                      A beneficiary isn‟t a complete stranger to the
                                                        contract therefore they should be able to enforce
                                                        it.

RA   

                                                                                             28 | P a g e
R     Emergence of the third party privity rule
      Third parties cannot enforce contracts
D    
N     1861 - Time of the development of the doctrine of consideration (and the formalistic requirements
       of the doctrine).
                 o Time where promises were difficult to be upheld.
        rd
      3 parties are strangers to consideration therefore cannot attempt to enforce a contract


Dunlop v Selfridge
F     Dunlop (tire manufacturers) sold tires to Dew (wholesale merchants) on the terms that Dew would
       not sell below Dunlop‟s list prices; exception – Dew was entitled to sell at 10% below list price if
       the customer promised them to observe the list prices.
      Dew then sold the tires to Selfridge at the lower prices specified and Selfridge signed an
       agreement which they promised not to sell below the listed prices.
      Selfridge sold tires to one customer below the list price
      Dunlop is suing Selfridge for an injunction and damages in respect to the agreement Selfridge
       made with Dew.
      Dunlop is trying to enforce a promise that Selfridge made to Dew; Dunlop is not a party to the
       contract
I     Can Dunlop, a third party, enforce the contract?
A                            P                                                   D
      Dew is both an agent and a separate              Dew is not an agent; there is no consideration
       entitiy; therefore only two parties to this       flowing from Dunlop to Selfridge.
       contract

RA    If Dew was an agent then there wouldn‟t have been an earlier transaction of the sale of goods
       from Dunlop to Dew.
      There was no consideration flowing from Dunlop to Selfridge therefore Dunlop does not have a
       cause of action.
R     One cannot be both an agent and an individual actor under the doctrine of privity.
D     Dunlop is not an agent for the reasons outlined above, and thus, as a third party, cannot enforce
       the contract.
N     Agency is an exception to the doctrine of privity
      In order to apply the agency rule, there must be consideration flowing from Dunlop.
      Agency creates the situation where there is not a third party
      This case applies the Tweddle rule and offers an exception (agency).

Ways in which a third party may acquire the benefit Specific Performance

Beswick v Beswick (Court of Appeal)
F     Uncle sells business to D nephew and part of the agreement is that P would employ Uncle
       services until death, and pays his wife a weekly sum
      Uncle died, D made only the first payment to his aunt
      Aunt is suing D to enforce the promise of payment of a weekly sum made by P to deceased uncle
      Aunt is executor of her husband‟s estate
I     What right of action does the aunt have as the executor of her husband‟s estate and also in her
        own personal capacity?
A                          P                                                     D
                                                     Privity rule – Aunt is a third party beneficiary
                                                        therefore she is unable to enforce the contract.

RA    The Aunt has a legitimate interest to enforce it, unlike Dunlop who was seeking to enforce the
       maintenance of prices to the public disadvantage

                                                                                              29 | P a g e
      Denning extracts a moral element – it would be diporable and unjust for the nephew to keep the
       business and at the same time repudiate his promise to pay the widow.
      There is a public interest in protecting the widow
R     Lord Denning :Procedural device – where a third party beneficiary has a legitimate interest in
       enforcing the contract, it can force the party of the contract to enforce it, or it can „jump in the
       shoes‟ of the contracting party and enforce it.
      Where a third party has a legitimate interest they may enforce a contract in their own capacity.
     
D     Aunt has the right to sue in her own capacity; specific performance is awarded,
N     This is a unique situation where the administrator of the estate is also the third party beneficiary
                                                                                                            rd
      Denning‟s rule is uncertain and is not the most effective vehicle for protecting the interests of 3
        party beneficiaries
                                                               rd
      The problem with Lord Denning‟s approach when 3 party is offering no consideration:
      If parties were alive, Dennings approach would give the widow the right to prevent the contract
        from ending because she has a legitimate interest.
      The courts would be flooded with third party beneficiaries who were not privy to the contract
        trying to enforce it.


Beswick v Beswick (House of Lords)
F    
I      Whether the widow has the right to enforce the contract as both the executor and in her own
        personal capacity.
A                           P                                                D
      Widow is entitled in the capacity of the       The widow has no rights, therefore issuing
       executor to enforce the benefit to herself by   damages of specific damages, is essentially
       way of specific performance.                    enforcing her rights

RA    The equitable remedy of specific performance is appropriate because of mutuality (D could have
       obtained specific performance if Uncle or executor had defaulted) and partial performance (D
       received the whole benefit of the contract, therefore it is simply just for the court to ensure that he
       performs his part of it).
      The estate, not the widow, is able to enforce the contract.
R     Third party beneficiaries do not have the right to enforce contracts (rejected Lord Denning‟s
       ruling)
     
D     The plaintiff as the executor is entitled to a decree of specific performance.
N     Specific performance is an equitable remedy that is awarded when it would be necessary to do
         justice to a situation; it was the key to getting around this case
      The procedural device suggested by Denning may still be valid because the HOL did not
         explicitly over rule it.
      After Beswick the law in England of privity is:
         Third party beneficiaries are unable to enforce a contract, except in the case of an existence of
                                                                                                 rd
         an agency relationship and there may be a procedural advice that might assist a 3 party
         beneficiary that they can push or attempt to push the actual parties to enforce.

Ways in which a third party may acquire the benefit Employment


London Drugs Ltd v K&N International Ltd.
F     London Drugs contracted with K&N to store a generator.
      The contract contained a limitation of liability clause of $40, and LD chose not to obtain further
       insurance with K&N.
      K&N‟s employees negligently damaged the generator

                                                                                                 30 | P a g e
       LD is suing the employees for the damage
I      What is the extent in which employees may benefit from their employer‟s contractual limitation
          clause.
A                              P                                              D
       Limitation of liability clause does not extend  Employees are included under the limitation of
        to the employees because they are a third        liability clause.
        party to the contract.

RA     “Warehousemen” is reasonably implied to include the employees
       The employees were acting in course of employment, and the damage was done while moving
        the generator.
R      See note above on circumstances where employees may benefit from employer‟s limitation of
        liability clause.
D      Relaxation of the privity doctrine is appropriate therefore employees may benefit under its
        employer‟s limitation of liability clause
N      May be circumstances where you may not meet the requirements of the test, but may argue
           agency.
       Should there be different rules for “ordinary life needs” and commercial practice (Beswick v
           London Drugs)?
                     - should protection extend to the vulnerable third party?
                     - This change in the common law is consistent with the notion of commercial reality
                        and justice.
       London Drugs gives a very specific exception to the privity rule. This is different from agency
           and trusts where there is in effect only two parties, in this exception there are indeed three
           parties.



IV.     OFFER AND ACCEPTANCE
Classical law breaks down a contract into:
(1) Offer
(2) Acceptance

Issues that flow from this are:
(1) Is there an offer?
(2) Has it been accepted?

In order to move from no liability to full liability you still need
(3) Consideration
(4) Seal or
(5) promissory estoppel~

The right communication is necessary for a contract to be created:

Invitation to treat – people talking to each other, inviting each other to bargain, negotiate
(distinguished from an offer).
Offer – a form of communication which creates in another party the ability to create a contract.
Acceptance – communication that excepts offer and thus creates a binding contract.
 Counter-offer – orginal offer returned with terms changed (“return the above offer which I
  accept but I will pay you $5”)

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 Consensus ad idem – meeting of the minds, the single moment where the minds of the parties
  to the agreement are in exact convergence. (both parties have the same deal in mind)

Struggles with the doctrine of offer and acceptance:
 developing the principals to be applicable in a variety of situations
 The doctrine needs to be refined over time


Unilateral Contract – an act in exchange for a promise
 Consideration:
           o Flowing to customer  promise (eg. of a reward)
           o Flowing to vendor  an act (eg. using the carbolic ball)
 Types of Unilateral Contracts
           o Reward situations (lost cat rewards, crime stoppers)
           o Contract A in Tendering process
           o “Cut my lawn and I will give you $10.”


Invitation for Tenders

Traditional approach:
a) Call for Tenders = invitation to make an offer
b) Tender = offer to owner
c) Contract formed when the owner accepted the tender.

2 Problems with this approach ( a period of uncertainty between offer and acceptance):
1) Since the tender was merely an offer, it could be withdrawn at any time prior to acceptance.
2) Call for tenders imposed no obligation on owners, and no recourse for unsuccessful bidders.
Because it is a costly endeavour for both parties it is economical to have a more certain process.

Modern Approach

Contract A
a) Call for Tenders = offer for contract A
b) Tender = acceptance of contract A

The contract made with each bidder, who essentially has the potential of entering into Contract
B. The tender would be considered on the rules of the tendering process set out by the owner.
Contract A comes with a set of obligations that differ depending on the terms and conditions of
the contract (eg. privity clause, accept only compliant bids, etc..)

Contract B – the contract to perform the work that was bid for.
a) Offer : Owner offers contract to one of the tenderers (usually lowest bidder)
b) Acceptance : Contractor accepts offer to perform the work.

Communications of Acceptance

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Postal Acceptance Rule – Acceptance is effective when it is put in the mail; the contract takes
place where the acceptance is dropped in the mail box. (e-mail)
General Rule – Instantaneous Communication – Acceptance is effective when the acceptance is
heard by the offeror, and thus the contract takes place where the offeror hears the acceptance.
(Telephone, fax)

American Restatement – acceptance given by telephone or other medium of substantially
instantaneous two-way communication is governed by the principles applicable to acceptances
where the parties are in the presence of each other.

Why are these rules important?
(1) Allocation of risk between the parties – Who is in the best position to bear the risk?
(2) Jurisdiction

Jurisdiction
Reasons for specifying the jurisdiction where proceedings should be held:
(1) Streamlining and certainty of the future
 lawyers are familiar with the law in the jurisdiction,
 a jurisdiction may be supportive of your cause more than others
 Company has built some good-will in the court system
 Not susceptable to injurious international laws.

Policy Benefits/Concerns
 Including clauses the specify the jurisdiction where actions may be held or the acceptable
  method of communication of acceptance reduces the ambiguity created in Brinkbon and allows
  the parties to allocate the risk as they see fit.
 However, some companies are including „arbitration‟ clauses in their consumer contracts,
  which upon signing, the consumer gives up their right of litigation. Consumers are generally
  not aware that they are giving up this right. So perhaps that there should be a default rule that
  parties can‟t include arbitration clauses, with a view to protect consumers.

2. Offer and Invitation to Treat

Harvey v Facey
F     A telegram was sent asking if they would sell a product and also what the lowest price would be.
      The defendant replied to the second question only and gave his lowest price
     
I     Can the defendant‟s telegram be considered an offer?
A                          P                                                  D
      The answer was an unconditional offer to        The answer was not offer, it was merely a
       sell them the product at that price quoted.      quotation of a price

RA   The mere statement of the lowest price of which the party would sell contains no implied contract to
     sell at the price to the persons making the inquire
R     The mere quotation of price does not constitute an offer to sell to the person to whom the
       quotation is addressed.
D     The defendant made no offer to sell, merely stated his price, therefore there is no contract.


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N


Canadian Dyers Association v Burton
F     Company (P) owns property next the house of woman (D). P wrote a letter to D asking her to
       state her lowest price for the house. She writes back saying her lowest price is $16,050.
      8 months later P writes again, and D writes back (Oct 21) that her previous price is the lowest she
       is willing to accept and if it was anyone else she would ask for more.
      Company sent cheque for $500 and asks for deed, which D accepted, and sent the preliminary
       deed.
      D later returned the cheque stating there is no contract.
I     Whether, upon correspondence discussed, a contract had been made out.

A                             P                                                  D
                           st
      D‟s letter of Oct 21 was an offer to sell       My letter was merely a quotation of price, it was
       which we accepted communicated by the            not an offer to sell. (Harvey).
       cheque of $500.

RA    The terminology used in D‟s second later indicates a willingness to sell.
R     A valid offer requires both a quotation of price and a willingness to sell.
D     There was both valid offer and acceptance.
N     Look at the terminology used to determine whether the intention was one of a quotation of price
       or an offer.
      Distinguished from the Harvey case because of the terminology used.
      The classic model considers only the particular point of time when there is a meeting of the
       minds. However, the judge overtly looked at the actions of the defendant after there was
       consensus and idem, namely that D drafted a deed and sent letters to P, to determine whether
       there was a “willingness to sell”.
                  o There already has been an offer and acceptance, looking at actions in the past is
                      problematic (eg. people may change their minds)




Pharmaceutical Society of Great Britain v Boots
F     P (Pharmaceutical Society) allege that D (owner of a self-service/presentation display drugstore)
       was selling drug/medicine without the proper supervision of a pharmacist
I     In a self service store when does the offer and acceptance take place?
A                             P                                               D
      The display of goods is an offer by the        The display of goods is an invitation to treat.
       retailer to sell to the public, the customer   The customer offers to purchase the goods when
       accepts the offer when he puts the item in      he takes them to the cashier, and the cashier
       his basket.                                     accepts the offer when she accepts payment.

RA   
R     In a self service store situation the contract occurs when the customer brings the goods to the
       cashier (offer) and the cashier accepts payment for the goods(acceptance).
D     The sale of drugs/medicine was properly supervised by the pharmacist because the idem
       occurred at the cash register.
N     Problems with this ratio?
                  o Invites discrimination – storekeeper has the right to refuse sale; eg. has the
                      opportunity to decide who can purchase a sparse product.




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Carlill v Carbolic Smoke Ball Co.
F     D (Carbolic) made a promise that they would pay 100L to every person who catches influenza
       after using the ball as instructed
      P contracted influenza during the use of the ball
      P is suing D for the 100L
I     Whether the ad is a valid offer or just a “puff”? Was there an acceptance of the offer and does it
       need to be communicated?
A                           P                                                      D
      The ad was intended offer, which P                The contract is too vague to be enforced (there is
       accepted by doing the act requested                no limit of time, vagueness as to whom the
                                                          contract was intended to be made)
                                                         It is unreasonable to suppose that it to be a
                                                          definite offer.
                                                         It is a contract to the world, you cannot contract
                                                          with everybody
                                                         There is no communication of acceptance
                                                          therefore no meeting of the minds.
                                                         There isn‟t sufficient consideration

RA    A unilateral contract
      The ad was intended to be understood by the public as an offer which was to be acted upon.
      Notification/Meeting of the minds- The nature of the offer and the wording was such that it
       dispensed of the traditional requirement of communication of condition of acceptance.
      Consideration - The performance of the act (using the ball 3 times daily) was sufficient
       consideration flowing back to the vendor, but further benefit of the act was the circulation of the
       carbolic ball and thus fostering of its brand.
      Vagueness – if D makes a foolish offer, there is no reason in law why it shouldn‟t be binding.
R     The person who makes the offer shows by his language and from the nature of the transaction
       that he does not expect or require notice of acceptance.

D     There was an offer and acceptance (a unilateral enforceable contract).
N     The formation of the contract occurred once the customer started using the carbolic ball.


R v Ron Engineering
F     The contractor submitted a tender, and in accordance with the information for Tenderers,
       submitted a tender deposit of $150,000.
      The Information for Tenderers states that if a tender was withdrawn, or the commission did not
       receive executed agreement in time, the owner could retain the tender deposit.
      The contractor after learning that he was the lowest bidder, realized that he made amistake and
       attempted to modify its bid after the bidding had closed.
      Contractor did not sign the contract, owner retained deposit, and proceeded to award contract to
       another tenderer.
      The contractor sues for the deposit.
I     The term of the contract (A) at issue was whether the owner could keep the deposit.
A                          P                                                    D
                                                      

RA    The revocability of the deposit must be determined in accordance with the “General Conditions”
       and the “Information of Tenderers”
      The role of the deposit under Contract A was required in order to ensure performance by the
       contract-tenderer of its obligations under contract A (which is the obligation to enter into a
       contract (contract B)), it was recoverable by the contractor under certain conditions, none of
       which were met.

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R     Contract A/B analysis.
D     The term was violated, therefore the owner is able to retain the deposit.
N     If traditional analysis was used to render the judgment then the owner would have likely had to
       render its deposit.




MJB Enterprises Ltd v Defence Construction
F     P(contractor) is suing D(owner) for not selecting its tender/bid which was the second lowest,
       when the lowest was non-compliant with the terms and conditions. The owner has a “privilege
       clause”.
I     Whether the inclusion of a “privilege clause” in the tender documents allows the owner to
         disregard the lowest bid in favour of any other tender, including a non-compliant one.
A                           P                                                   D
                                                      

RA    MJB breached its contract because they accepted a bid that was non-compliant with the terms
       and conditions of Contract A.
      Industry practice is to contract with the lower bidder, therefore it was likely that P would have
       received the contract.
R     The privilege clause must be used with respect to the rest of the terms and conditions of Contract
       A, which implies that only valid tenders would be entertained.
      In the world of Tenders, the owners can only consider the compliant ones and within the
       compliant ones they are free to contract with whomever they want.
D     P is entitled to expectancy measure of damages because MJB breached the contract and as the
       second lowest bidder, P would have likely received the damages.
N     Damages were already pre-determined
      Possibility of suit to arise out of loss of chance for the other bidders



3. Communication of Offer
Williams v Cawardine
F     D offered a reward of 20L for information regarding a murder, P comes forward but isn‟t induced
       by the offer, but instead wanted to clear her conscience.
I      Is motive a factor when determining whether an effective acceptance takes place?
A                            P                                                  D
      There was a meeting of the minds; she was  There was no valid acceptance because her
       aware of the offer, and it was in her mind at     motive was to free her conscience not obtain the
       the time of acceptance.                           reward.

RA    For there to be a “Meeting of the minds” it is irrelevant if the motive of the parties are different.
R     Motive is not a factor in determining whether an effective acceptance takes place as long as the
       offer was in the mind of the accused at the time of acceptance.
D     There was valid acceptance, thus the defendant should pay the reward to the plaintiff.
N      Refers back to the issue that morality isn‟t a factor in contract law,


R v Clarke
F     P gives information leading to conviction and attempts to obtain reward
      The award was known to the P but was not in his mind when he offered the information
I     Can there be said to be a valid acceptance of the offer if the offer wasn‟t in his mind when he


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         performed the act of the unilateral contract.
A                          P                                                     D
      He had knowledge of the offer, and he            There was no consensus or idem because the
       performed the act of acceptance (the              offer wasn‟t operating in his mind at the time of
       statement).                                       acceptance.

RA    The acceptance isn‟t valid because he didn‟t have the offer operating in his mind at the time he
       made the statement.
R     Motive is irrelevant for a valid acceptance but the offer has to be operating in the mind of the
       person who is accepting at the time of acceptance.
D     P Is not entitled to the reward.
N      P did not fulfill what was requested in the offer (his statement did not lead to the arrest before the
        information was given)
       Applied the motive reasoning in Williams

4. Acceptance

Felthouse v Bindley
F     P (uncle) sent letter to his nephew offering to buy a horse, and stated that if there was no reply he
       would assume that the nephew accepted.
      Auctioneer (D) accidentally sold horse despite the instructions of nephew to hold the horse.
I     Was there a valid contract? Did the nephew‟s silence function as an acceptance of the offer?
        Can offerors deem inaction as acceptance?
A                            P                                                     D
      The offer specifically stated that silence        There was no contract because the nephew
       constituted acceptance                             didn‟t accept the offer.

RA   
R     Silence does not constitute acceptance; in order for an offer to be accepted there must be some
       sort of affirmative action.
      Offeror cannot stipulate what constitutes acceptance without contractual consent (eg. “if you stay
       in law school the offer is accepted”)
D     No contract because there was no acceptance.
N      The court is creating default rules that may apply in a broader context to future cases; careful not
        to focus too strictly on the facts of the particular case when making rules.

5. Communication of Acceptance

Brinkibon Ltd. v Stahag
F     Acceptance sent by Telex from the buyers(P) in London to the sellers (D) in Vienna
I     Whether Telex communication should fall under the instantaneous rule or the postal
         acceptance rule? What jurisdiction was the contract made in?
A                         P                                              D
      Instantaneous rule should apply             The postal acceptance rule should apply
       because the allocation of risk should be     because the allocation of risk should be on
       on the sender; only the sender knows if      the offeror. The telex machine may be in an
       the Telex did not go through.                office and the sender may not know if the
                                                    offeror actually saw the document.

RA   
R     Telex falls under the instantaneous rule of communication.
D     The contract was made in London, therefore the contract is governed by the rules
       applicable in London.

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N    Note: these are default rules which the parties may contract out of.
      Instantaneous rule have to be cognizant if received


Rudder v Microsoft Corp.
F     P alleging that the clause that specified Washington to be the jurisdiction where
       proceedings will be held should be declared invalid.
I     Should the clause be declared invalid?
A                         P                                               D
      The clause should be treated as „fine       The plaintiff accepted the terms of the
       print‟ because it was not on the first       agreement by clicking the „I accept‟ button,
       screen of the terms of agreement             and the agreement was readily viewable.
                                                   Not giving affect to this provision would
                                                    create chaos in the market place

RA    The plaintiffs are trying to declare some provisions invalid, while at the same time trying
       to enforce others; it would lead to an anomalous result.
      Policy reasons: giving effect to the plaintiff‟s argument would create commercial absurdity
       becaue it would creat uncertainy in the market place, render ineffectual electronic
       commerce and undermine the integrity of the agreements.
R     The default rules in regards to the communication of acceptance may be overridden by
       certain provisions in the contract.
D     The action is stayed
N    Why specify the jurisdiction?
     -

Holwell Securities v Hughes
F         P buyer sends acceptance of offer by mail in response to a clause stating that “…option shall be
           exercisable by notice in writing…”
          letter not received by D vendor
         P sues stating that the postal acceptance rule applies
I         Did the plaintiffs exercise an option to purchase a house?
          Whether acceptance by way of mailing the letter was contemplated by the parties in entering
           into the contract – does the postal acceptance rule apply if there was a clause that specified the
           option is exercisable upon „notice in writing‟
A                                P                                                       D
        The postal acceptance rule applies, „notice  The term „notice‟ implies that the postal
         in writing‟ simply meant that they were to              acceptance rule does not apply; it would lead to
         receive the acceptance in a document.                   an absurd result.

RA    The contract said ‟notice‟ which removed it from postal rule and didn‟t allow for acceptance
       merely from putting it in the mail – notice is not helpful to anyone if it doesn‟t reach their mind
R     The postal rule can be negated by a particular clause in a contract; the term doesn‟t have to be
       specific, it can be implied so an absurd result wont follow.
D    
N



6. Termination of Offer
Dickson v Dodds
F     D offers to sell property to P and gives a deadline to which the offer is valid.
      D sells property to another party, P finds out, and subsequently tries to accept the offer before the

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       deadline
I      If the offeror is bound by his promise that he will keep the offer open until a certain deadline.
A                           P                                                   D
                                                      This is analogous to the situation where someone
                                                        makes an offer and dies – there is no consensus
                                                        or idem.

RA    Basis of the doctrine is that there must be a meeting of the minds, in this case there is no meeting
       of the minds
      This promise to keep the offer open is a unilateral contract, if there is no act, there is no
       consideration.
R     The traditional analysis is that there is nothing (in law) forcing the person to keep his offer open
       until Friday.
      Once you are aware that an offer is withdrawn, even if it is not communicated to you, you cannot
       accept because there is no consensus and idem – no meeting of the minds.
D     It was too late for P to accept the offer therefore the elements of an enforceable contract are not
       present.
N      Problem with Dickson:
       (1) Difficulty and certainty with transactions – it seems unfair that someone is relying on the
        promise – preparing for the contract – how does one get knowledge that someone else has
        accepted.


Errington v Errington and Woods
F     Father promised to give his son and daughter-in-law a house if they made the mortgage
       payments
      Father died before all the mortgage payments were made.
I     Can the unilateral contract been enforced, when the offeror died, and the act has been started
         but not completed.
      Flagpole problem – a series of actions are required in exchange for the promise; but it is
         inequitable if a person begins the actions and the offeror rescinds the offer before the persons
         completes the actions.
A                            P                                                     D
      Dickson – there is nothing (legally) holding    There was an implied promise that the offer
       the offeror to keep the offer open up to the      would be held open as long as the person
       promised deadline.                                continues to fulfill the action.

RA    Denning gets around the holding in Dickson by finding an implied promise. The expressed offer
       was the house in exchange for making mortgage payments, the implied promise was that the
       offer would be held open as long as they continue to make the necessary payments
R     In the context of unilateral contracts, there is an express promise where there is an offer and an
       acceptance by full completion – you might confer an implicit promise to keep an offer open while
       one is doing the act towards full completion (“while someone is going up the flagpole”)
D     Since the son and daughter-in-law acted on the promise, and there was the implied promise that
       the offer would be held open as long as they continue to make the necessary payments, neither
       the father, or his widow (the successor of the title) can eject them.
N      The implied promise is a mechanism to get around strict rules.
       Note: this is a special kind of family relationship, and at issue was a family house therefore this
        ratio may not extend to commercial transactions/offers.
       The implied promise addresses the inequity issue (similar to the contract A/contract B )




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VI.     THE PROTECTION OF WEAKER PARTIES
Regulating the Bargaining Process
Promises are enforceable only if they are made voluntary by informed, competent adults. Various contract
doctrines have evolved to ensure that only such promises will be enforced.

Jurisdiction
Court has an equitable jurisdiction in contracts

1. Duress
The duress doctrine renders unenforceable any promise that is not sufficiently voluntary (deals with
threats). Historically, duress applied to situations involving physical duress by has been expanded to
include economic duress.
  Do not need to show manifest disadvantage

Pao On Test for economic duress:
1. Did the person alleged to be coerced protest?
2. Was there alternative options available to him such as a legal remedy?
3. Was he independently advised?
4. After entering the contract he took steps to avoid it.

*However a weaker party is less likely to protest, more likely not be aware of alternative courses of action
and independent legal advice may likely not make the other party truly independent, and doctrine also
ignores the private/public dichotomy – it is too formulastic to be applied to personal relationships.

2. Undue Influence
More generous doctrine than duress. Undue influence is found when there is an ability to exercise
exceptional power in relation to another person‟s choices. (attacks the sufficiency of consent).

2 Types: (1) Actual and (2) Special Relationships

Actual – actual pressure relating to the transaction or a general relationship of trust between the parties of
which the stronger party took advantage. (sounds like duress but includes the type of threats found in
common law – eg. threat to your family member not to you)

Special Relationships – proof of the required relationship raises the presumption that undue influence
was exercised. Once this presumption is raised the claim of undue influence is made out unless the other
party is able to rebut the presumption.

What is the nature of the relationship that must exist in order to give rise to a presumption of undue
influence? (Geffen)
 there are many confidential relationships that do not give rise to the presumption of undue influence
 Examine the relationship between the parties:
             -    The potential for dominations in the nature of the relationship itself (the ability of one
                 person to dominate the will of another; potentional to exert a persuasive influence)
Equity has already recognized relationships as giving rise to presumptions:
 Solicitor and client
 Parent and child
 Guardian and ward
 Relationships of dependency

Defence: Onus on defendant to show that the plaintiff entered into the contract on their own free will.
How?:

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 Showing that no actual influence was deployed in the particular transaction
 The plaintiff had independent advice
 Magnitude of the disadvantage or benefit is cogent evidence as to whether influence was excercised.

Q.Is the nature of the transaction relevant?
Wilson – Commercial Transactions require manifest disadvantage. (Gifts are inherently disadvantage in a
material sense so the requirement would be superfluous)
LaForest – Disagrees with Wilson regarding that commercial transaction require a manifest disadvantage.

Disagreement results over different views of what the doctrine of undue influence is designed to protect.
1. It should protect against abuses of trust, confidence and power. (then manifest disadvantage is not an
issue)
2. The law should not interefere with reasonable bargains, the doctrine should only address abuses of
trust and confidence resulting in a significant and demonstrable disadvantage to the person influenced.

3. Unconscionability

Invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party
against a weaker

Requires Two elements: (Marshall)
(1) Improvident bargain (proof of substantial unfairness of the bargain obtained by the stronger)
(2) Inequality in the position of the parties (need or distress of the weaker which left in the power of the
stronger)
* creates presumption of fraud

Defence: The bargain was fair, just and reasonable.

“Inequality of Bargaining Power” (Lloyds Bank)
 Denning amalgamated the three weaker party doctrines into one doctrine; he concludes that all the
  doctrines have a common thread which is enunciated under unequal bargaining power – where one
  enters into a contract where the terms are unfair and the bargaining power is grievously impaired.
 English law gives relief to one who:
            o Without independent advice
            o Enters into a contract whose terms are unfair or
            o Transfers property for a consideration which is grossly inadequate
            o When his bargaining power is grossly impaired
            o By reasons of his own needs or desires,
            o Or by his own ignorance or infirmity
            o Coupled with undue influence
            o Or pressures brought to bear on him
            o by or for the benefit of the other
 The purpose is to create a doctrine of equality, and therefore can dispose of the formality of the other
  tests; his main concern is maintaining equity.

Single Question (Harry)
 “whether the transaction, seen as a whole, is sufficiently divergent from community standards of
   commercial morality that it should be rescinded” (Combining Morrison and Lloyd’s Bank)

2. Duress




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Pao On v Lau Yiu Long
F     P promised D that they will withhold from selling 2.5 million shares for one year if D
       indemnifies any downside risk
      D says that the subsequent contract was made under duress because P threatened not
       to uphold the promise, unless D agreed to the contract.
I     Was the agreement made under duress?
A                        P                                                D
                                                 

RA    The D did not protest, there were alternative options available, and D did not take steps
       to avoid the contract after entering it; D didn‟t think the share prices would go down.
     
R    
D     There was no duress. The contract is enforceable (commercial pressure but no duress)
N

Gordon v Roebuck
F     Gordon refused to honour the promissory note and commenced an action to have the contract
       declared voidable by reason of economic duress.
I     Was there economic duress? Is the contract enforceable?
A                         P                                              D
                                                  

RA    Was there protest? Yes – Gordon‟s son was a lawyer and protested
      Alternative course of action? Yes – but unrealistic within the time constraint
      Independent advice? Yes – one does not really have an alternative
      Steps to avoid contract? Yes – he commenced this action soon after.
      The judge wasn‟t certain whether the duress was legitimate, therefore the plaintiff didn‟t meet its
       burden.
R     There are certain commercial situations where economic duress may be justified.
      The burden is on the plaintiff to show that duress wasn‟t legitimate.
D     There was duress, but it was legitimate, therefore the contract is enforceable.
N

3. Undue Influence


Greffen v Goodman Estate
F     Mentally-ill sister agrees with her brothers on a certain disposition of property inherited from their mother.
       Mother changed will to leave most of her estate to mentally ill daughter so she would be taken care of. The
       other children were successful businesspeople.
      The trust property was conveyed to the trustees (brothers) such that upon the deceased death it would be
       divided equally among the surviving children, nephews, and nieces (the brothers wanted to see their mothers
       money split equally amongst all the grandchildren upon the death of their mentally ill sister, as their mother had
       wished).
      After sister died, she left the estate of her mother to her children only; her executor applied to have the
       arrangement set aside trial judge: for brothers- CA: reversed- brothers are appealing to SCC

I      What is necessary to create a special relationship to trigger the presumption of undue
        influence?
A                          P                                                   D
      Special relationship – potential for           No special relationship – she agreed to the
       domination: she sought assistance from          trustee relationship out of her own free will.

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       her brothers through the emotional crisis of     There was very little contract between the
       her mother; the brothers knew that the            brothers and the deceased at the relevant time,
       sister reposed her trust and confidence in        therefore the deceased was not relying on her
       them, and that she was vulnerable.                brother‟s advice
      They had interests which did not coincide        She received independent legal advice (she
                                                         continued on her own initiative to seek Mr.
                                                         Pearce‟s advice)
                                                        The prime motivation was to advance her sister‟s
                                                         welfare.

RA    Particular Transaction we are concerned with: preparation of a trustee
      The relationship between the parties was such that a potential existed for the brothers to exercise
       a persuasive influence over their sister.
R     Potential for domination of will in the nature of the relationship itself may create a special
       relationship where undue influence is presumed.
D     There was no undue influence: the presumption (through the special relationship) was
       successfully rebutted by the D.
N     Look at notes above for more detailed explanations.

4. Unconscionability


Morrison v Coast Finance Ltd.
F   Facts: P (elderly widow) was persuaded to borrow money from finance company and give mortgage on
    her home for two fraud artists who were to make the payments on the mortgage- the two young men
    wanted to use the money to purchase automobiles and the company that is responsible for lending out
    money is affiliated with the company that is selling automobiles-They essentially had the old lady
    guarantee the borrowing for the young men - fraud artists left the mortgage in default- payments falling
    behind- P sued to rescind the mortgage- finance company counterclaimed for the money lent
     Trial judge dismissed widow’s action- granted finance company’s counterclaim- widow appealed
     
I          Can the mortgage be set aside as having been procured as an unconscionable bargain
A                              P                                              D
        It was an unconscionable transaction          The transaction was fair, just and reasonable.
        She received no benefit, and assuming full
         responsibility for the debt.
        It was an improvident bargain, and there
         was an imbalance of power
        She had no independent advice

RA    The respondent companies knew the essential facts and undertook the preparation of the
       documents for the transaction and took advantage of her obvious ignorance and inexperience.
      The whole transaction was not fair, just or reasonable.
R     Two elements to an unconscionable bargain: (1) improvident bargain (2) and inequality in the
       positions of the parties.
D     The mortgage is set aside, finance company on the hook.
N     The automobile company loses nothing
      Trial Court found that undue influence did not apply because there wasn‟t a special relationship
       that created a presumption of undue influence, and none was proven.




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Marshall v Can. Permanent Trust Co.
F    Elderly patient in rest home agreed o sell farm for less than its value to an intelligent business man-
      Marshall was aware of Walsh’s incapacity

I       Can the doctrine of unconscionability apply when the stronger party was not aware of the
         incapacity of the other party, and also did not behave improperly in obtaining th bargain.
A                           P                                                    D
      Unconscionability does not apply because          The two elements of the unconscionability test
       he was not aware of the incapacity of the          are present: (1) Inequality of the bargaining
       defendant.                                         positions. (2) Improvident contract.
      The agreement was fair, just and
       reasonable.

RA    On the basis of the medical evidence, the D was incapable of protecting his interests.
      The price agreed upon for the land was well below the actual value of the land
R     Unconscionable doctrine applies even if the party gaining the advantage need not know nor
       behave improperly in obtaining the bargain.
D     Contract rescinded without costs.
N    Argument to counter act this case: This is a scenario where the stronger party knew or ought to
     have known about the incapacity of the weaker party.


Lloyds Bank v Bundy
F    
I       Should the P be bound to the contract, or are the circumstances such that it would be
         inequitable to bind him.
A                           P                                                 D
      The plaintiff entered into the contract out of  Undue Influence – there was a relationship of
       his own free will.                               trust and confidence

RA    The consideration moving from the bank was grossly inadequate.
      The relationship between the bank and the father was one of trust and confidence.
      The relationship between the father and son was one where the father‟s natural affection had
       much influence on him.
      There was a conflict of interest between the bank and the father
R     “Inequality of Bargaining power” – see above
D     The contract is unenforceable because it falls within the principles of “inequality of bargaining
       power” There was such a relationship of trust and confidence between the bank and the plaintiff
       that the bank ought not to have swept up his sole remaining asset into its hands – for-nothing
       without his having independent legal advice
      If the principle is wrong, the case would fall under undue influence.
N      Denning found that the bank employee acted in good faith and was straightforward and genuine


Harry v Kreutziger
F    
I       Is it equitable for the courts to hold the P bound to the contract
A                             P                                                   D
      The contract should not be enforced due to  Enforceable contract
       unconscionability: (1) improvident bargain         The conract was fair, just and reasonable.
       (2) unequal bargaining power between the
       parties
      The appellant‟s ignorance coupled with the

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       pressure exerted upon him by the
       respondent caused the inequality of the
       bargaining position

RA    The appellant (P) by education, physical infirmity and economic circumstances was clearly not
       the equal of the respondent(D)
      D persuaded the appellant to enter a bargain after making assurances which were untrue
      The appellant was so dominated and overborn by the respondent that he was within the power of
       the respondent in these dealings.
R     Single question approach: Whether the transaction, as a whole, is sufficiently divergent from
       community standards of commercial morality that it should be rescinded.
D     Appeal allowed; contract rescinded.
N      Dissent (Lambert): Trying to import Dennings encompassing doctrine.




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