1. Introduction to the Law of Kual Obligations 10

Contents 1. INTRODUCTION TO THE LAW OF KUAL OBLIGATIONS...... 10 What is an Obligation...... 10 Sources of Obligations...... 10 Contract and Social Ordering...... 10 Autonomy of wills theory (and will theory)...... 11 Sources of K L...... 12 Law of K...... 12 Imp of K L...... 12 ***MACAULAY QUESTIONS RELEVANCE OF K LAW...... 12 Contracts Across Legal Traditions...... 13 Dif about L of K b/w CML and CVL includes historical aspect...... 13 Transystemia...... 14 Standard Form and Adhesion Contracts as a Social Phenomenon...... 14 The Changing Conception of K L...... 14 Dell Computer Corporation c. Union des consommateurs [2007] SCC  CVL  adhesion K standard form K abusive  CCQ 1435 +...... 14 Indirect Control...... 15 Contract Law as System: Elements of Comparative Legal Traditions...... 15 Contract Theory and Ideology...... 15 Trad conceptions of K L...... 15 KENNEDY...... 15 THIBIERGE-GUELFUCCI...... 16 Modern conception of Ks=...... 16 Transition from trad perception of K to modern perception...... 16 2. RECOGNITION OF K BY THE STATE...... 16 3 requirements for recognition of K by state...... 16 A. The Moment of Responsibility...... 17 Intent to Create Legal Relations...... 17 Offer + Acceptance = K...... 17 - What can go wrong...... 17 o Intention to be bound...... 17 John D.R. Leonard v. Pepsico, inc.. [2000] – US  no intention to be bound puffery...... 17 Carlill v. Carbolic Smoke Ball Co., 1893  no intention to be bound construed as intention to be bound more than a puff  offer to the world  reliance protected underlying policy issues UNIL K created....18 Kleinwort Benson Ltd. v. Malaysia Mining Corp. BHD., 1989 CML comfort letters agreement not to agree and not to be bound no intention to be bound...... 19 Exchange of Consents...... 19 1 Offer and Acceptance...... 19 Unilateral K...... 20 Ambiguity, Incompleteness and Contradiction (in terms  so have already have intent, offer, and acceptance). 21 - Unjust enrichment (UJ = restitution)...... 21 Terrasse Holdings v. Saunders, 1989  ambiguity of K unjust enrichment (of Holdings)...... 21 Contradiction b/w Offer and acceptance...... 22 Mirror Image rule...... 22 C.U.Q. v. Construction Simard Beaudry, 1987 contradiction btw offer and acceptance  Battle of the Forms  Mirror Image rule...... 22 Matter of Doughboys Industries Inc. and Pantasote Co [1962] U.S.A. contradiction btw offer and acceptance Battle of the forms mirror image rule...... 23 Backing Out – Revocation and the Protection of Reliance...... 24 Contract Inter absentis / Remote Party K...... 24 Post Box (Mail)Rule...... 24 Reception Theory...... 24 Entores v. Miles Far East Corporation, 1955 2 QB 327 (C.A.). reception rule established (used across the board in CVL and in CML for non-mail communication)...... 25 Detrimental Reliance of the offeree...... 25 Errington v. Errington and another, 1952 1 KB 290 unil K revocation detrimental reliance promise not to revoke...... 25 Dawson v. Helicopter Exploration Co., 1955 S.C.R. 868.  unil K (turned into bilat K)  revocation  detrimental reliance PROMISSORY CONSTRUCTION...... 26 Agreements to Agree...... 26 Promise to K...... 27 Bilateral promises to K (civil)...... 27 Unilateral Promise to K (civil)...... 27 Cere v. Neely, 1980 C.S. 1160  unil promise to K expectation damages...... 28 **Promises vs Agreements to agree **...... 28 - Agreement to agree...... 28 Empress Towers v. Bank of Nova Scotia [1991] detrimental reliance  judiciary interpretation as solution to give K legal effect (b/c no unil promise to K in CML)...... 29 Brewer v. Chrysler Canada Ltd., 1977  detrimental reliance but no intention to be bound so no K  BUT (damages for) unjust enrichment...... 30 Offer and Acceptance as a Surrogate Debate...... 31 Invitation to treat...... 31 Pharmaceutical Soc. of Great Britain v. Boots Cash Chemists, Ltd., 1953  UK  communication of acceptance  invitation to treat (not offer) offer acceptance being used to forward public policy goals...... 31 Thornton v. Shoe Lane Parking Ltd., 1971 offer and acceptance surrogate  formation jimmied to adhere to policy considerations  opposite outcome to Boots...... 32 Civil Law on Shoelane Parking Case...... 32 2 B. Consideration and Formalities...... 32 Consideration...... 32 Quid Pro Quo...... 33 Promissory Estoppel...... 34 White (Executor) v. William Bluett (1853)  duress  *(no) CONSIDERATION...... 34 Hamer v. Sidway (1891)  reliance  (yes) CONSIDERATION...... 34 Dahl v. Hem Pharmaceuticals Corp., United States Court of Appeals, Ninth circuit, 7 F. (1993) unil K  (yes) CONSIDERATION...... 35 Consideration and Changing Agreements...... 36 Roscorla v. Thomas (1842) PAST CONSIDERATION isn’t consideration need fresh consideration for new promise...... 36 Harris v. Watson (1791)  (no) CONSIDERATION pre-existing duties  no quid pro quo as had already agreed to duties  danger of duress  fresh consideration needed...... 36 Stott v. Meritt Investment Corp. (1988) factual benefit or detriment can be consideration eg. forbearance (intentional delay) to sue...... 37 Gilbert Steel Ltd. v. University Construction Ltd (1976)  no (CONSIDERATION) need fresh consideration to modify K and pre-existing duty (promise to deliver) doesn’t constitute this  can’t use promissory estoppels b/c cannot be used as sword, only shield  no detrimental reliance...... 38 Consideration and Reliance...... 38 Central London Property Trust v. High Trees House, 1947  promissory estoppel  used as shield where promise to accept less w/out fresh consid can be enforced if promissee relied upon...... 38 - ESTOPPEL = INABILITY TO BACK OUT ON PROMISE  PROMISSORY ESTOPPEL CAN STOP IT39 Williams v. Roffey Bros and Nicholas Ltd., 1991  (yes) CONSIDERATION  even though for pre- existing duty  although no legal benefit  obviated dis-benefit, obtains benefit in practice, and no duress..39 Walton Stores (Interstate) Ltd. v. Maher [1988] reliance  promissory estoppel used as sword to enforce promise for which there was no valid consideration from the pre-existing duty...... 40 Remedies used to Protect Reliance:...... 41 The Civil Law Perspective...... 41 In re Ross [1932] CVL  promise of donation ’cause’ moral obligation changed to natural obligation then changed to civil obligation to  and thus in sphere of unil onerous K rather than gratuitous K...... 42 C. Public Policy and Community Values...... 43 Brasserie Labatt Ltd. v. Villa, 1995  contrary to public order (1373 CCQ) and Charter discriminatory. 44 Cameron v. Canadian Factors Corp., 1971  restrictive covenant  non-competition clause  contrary to public order...... 44 Syndicat Northcrest v. Amselem [2004] infringes on religious beliefsagainst directional public order...... 46 Bruker v. Marcovitz [2007]against public order?  freedoms...... 46 Comité des droits de l’homme, Constatations du Comité des droits de l’homme au titre du paragraphe 4, de l’article 5 du Protocole facultatif se rapportant au Pacte International relatif aux droits civils et politiques, Doc. Off. CCPR, 75e session, Communication NU 854/1999 (2002).  France Dwarf throwing case against public order (protective public order?)...... 47 3. Contract Drafting and Contract Interpretation...... 47

3 Drafting, Reading Contracts and Filling the Gaps...... 47 Explicit Terms - What was Said and What was Meant...... 47 Contra preferentem rule...... 47 Interpreting written terms...... 47 McCutcheon v. David MacBrayne, Ltd., 1964 previous dealings  written terms of previous dealings implied if parties aware and assented to those terms previously  equal bargaining power...... 48 British Crane Hire Corporation Ltd. v. Ipswich Plant Hire Ltd., 1975 oral agreements binding  if equal bargaining power  an ‘it goes w/out saying’ sit...... 48 Dick Bentley Productions Ltd. v. Harold Smith Motors Ltd., 1965  warranty oral agreement binding  One K Theory (complete written argument)...... 49 Implicit Terms and the Obligation of Good Faith...... 50 Implicit Obligations...... 50 Implied Obligations...... 50 Explicit Obligations...... 50 The Good Faith Trilogy...... 50 B.C.N. v. Soucisse, 1981 obligation to disclose obligatin of GF  fin de non-recevoir...... 50 McKinlay Motors Ltd. v. Honda Canada Inc. [1989]  breach of K  breach of GF requirements implied in K  unequal bargaining power...... 51 Houle v. CNB 1990  breach of Kual right is a breach of Kual obligation of GF  test with notion of ‘reasonableness’  where discretionary oblitation exists, must perform...... 52 Martel v. Canada, 2000 - CMLno obligaion of GF in context of negotiations in CML  other ways to protect both commercial parties = equal bargaining power (also later on -p. 65)...... 53 Provigo distribution v. Supermarché A.R.G., [1998 ]  Kual breach . Expectations  GF obligations...... 54 Transamerica Life Canada Inc. c. ING Canada Inc., [2004] GF  courts shouldn’t rewrite Ks under rubric of GF  equal bargaining power btw parties...... 55 SECOND TERM...... 55 Last term recap...... 55 When will the L enforce a K (1st term)...... 55 When will the L NOT enforce a K (2nd term)...... 55 4. THE SOCIAL CONTROL OF K...... 55 A. Regulatory Options and B. Policing the Negotiation and Formation of Ks...... 55 Judicial Review of a K...... 55 Scope of Judicial Review of a K...... 56 Origins...... 56 o Autonomy of the will...... 56 Alternative theories...... 57  = “The Autonomous Agreement”...... 57 Fairness in Process and Fairness in Outcome...... 58 Unconscionability...... 58

4 Lloyds Bank v. Bundy [1975]  unconsc as per Lord Denning  undue influence per majority inequality of bargaining powers...... 58 Impaired Consent...... 59 Capacity...... 59 Thibodeau c. Thibodeau [1961] – CVL impaired consent  capacity...... 60 Undue Influence...... 62 Barclays Bank plc v. O’Brien [1994]  undue influence (presumed)  constructive notice...... 62 3 Different Analyses of Barclays Bank v. O’Brian...... 63 (Impaired Consent due to Duress / Fear)...... 64 Judicial Intervention...... 64 Atlas Express Ltd. v. Kafko Ltd. [1989]  ec. duress...... 64 J.J. Joubert Ltd. v. Lapierre [1972] – CVL -  ec. duress...... 65 Martel Building Ltd. v. Canada [2000]  GF(?)  see this case under first semester...... 66 State of Necessity...... 66 Époux Strauss-Schillio c. Vve Goblet [1947] – France (not in CP but Jukier discussed in class)  State of Necessity eg...... 67 FAIRNESS AS A QUESTION OF INTERPRETATION...... 67 Scott v. Wawanesa Mutual Insurance Co, [1989] exoneration clauseunambiguous not abusive...... 67 Tilden Rent-A-Car v. Clendenning [1978] exoneration clause abusive  inequality in bargaining power ...... 68 1) True construction of the K (as related to fairness and interpretation)...... 70 2) Doctrine of Fundamental Breach...... 70 L'Estrange v F Graucob Ltd [1934] – in Tilden case  sign = binding  exemption clause...... 70 Photo Productions v. Securicor [1980] – UK  FB ‘laid to rest’exoneration clause...... 70 Hunter Engineering Co. v. Syncrude Canada Ltd. [1989]  FB doesn’t apply replaces it w/ unconsc but doesn’t actually apply it b/c no inequality  exoneration clause...... 71 RAW DEALS...... 73 3) Abuse clause in Quebec...... 73 Allendale Mutual Insurance Co. v. Hydro-Quebec ( 2001)  sweeping exoneration bylaw...... 74 Unconscionability / Lesion (again/cont’d)...... 74 - CML...... 74 Harry v. Kreutziger [1979] (B.C. C.Ap)  unconsc  inequality...... 74 Toker v. Westerman [1970] (US - New Jersey case)  unconsc, likely due to ‘shocking’ nature of case  unconsc being used as lifejacket?...... 75 - CVL...... 75 - Lesion...... 75 Roynat Ltée v. Restaurant Nouvelle-Orléans Inc. [1976] (in Gareau Auto v. B.C. Imperiale de Commerce) – C.Ap but SCC later affirme CVL no unconsc (or equiv)...... 76 - - Lesion in the Consumer Context...... 77 Gareau Auto v. B.C. Imperiale de Commerce [1989] lesion...... 78 5 Slush Puppie v. 153226 Canada [1994] CVL -abusive clause /adhesion K1437...... 80 Quebec (Procureur general) c. Kechichian [2000]  abusive under1437...... 80 FRAUD AND MISREPRESENTATION...... 81 Fraud...... 81 - CVL...... 81 - CML...... 82 Spectrum of Fraud and Deliberate Misrepresentation...... 82 Remedies...... 82 Creighton v. Grynspan [1987] – CVL  misrep (fraud)  reticence...... 83 Tremblay v. Les Petroles Inc. [1961]- CVL  overt deliberate misrep (fraud)...... 84 Esso Petroleum Co. Ltd. v. Mardon [1976] CMLnegligent misrep (mistake)...... 85 V.K. Mason Construction Ltd. v. Bank of Nova Scotia [1985] – CML negligent misrep  but actual K b/c missing requisite intention...... 85 Duty to Disclose...... 86 Poussin case...... 88 Bail c. Banque de Montreal [1992]  CVL  GF 1375  (last in GF Trilogy!)  duty to disclose...... 89 Dumoulin c. Rawleigh Co. Ltd [1925] – CVL GFduty to disclose no actual K b/c wasn’t signing what he thought was signing  no consent given...... 90 Sherwood v. Walker [1887] – SC of Michigan  mistake in the category (not quality) so no actual sale.....90 MISTAKE / ERROR...... 91 - CML and CML  diametrically opposed when it comes to mistake and error...... 91 o CVL – large nature of error...... 91 . Partly b/c of resistance to lesion  so lesion often masquerades as other things...... 91 . Also b/c of consensual nature of CVL and imp of aut of will...... 91 o CML – very restricted notion of mistake...... 91 . B/c of existence of doctrine of unconsc (??)...... 91 Smith v. Hughes – [1871]- UK - para. 7 of Levers Bros case  unil mistake so K not rescinded  Law of mistakes in CML only applies to mutual mistakes...... 91 Bell v. Lever Brothers Ltd. [1932] – UK no mutual mistake  it was actually mutual but didn’t meet second condition of changing K so radically that is no longer or same thing  and mistake existed bef severance K92 Solle v. Butcher  UK  mutual mistake (mistake in equity)a la Denning, changing things up  must only be common misapprehension to be fundamental change in K  only lasts until Great Peace Shipping...... 93 Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd. [2002]  no mutual mistake  K rendered more difficult but not fundamentally dif...... 94 McRae v. Commonwealth Disposals Commission [1951]  no mutual mistake although appears to meet Atkin’s test…inexcusable error  reliance damages (change of circumstances section maybe?)...... 94 Linking Mistake, Fairness and Exploitation...... 95 Huot v. Ouellette [1981]  CVL  unil error  K IMPOSSIBLE...... 95 Inexcusable error...... 95 Ec. error...... 96 6 Yoskovitch v. Tabor [1995]  CVL error  no inexcusable error subjective test  looks like ec. error  or lesion masquerading as error and error remedying unconsc...... 96 Faubert v. Poirier...... 97 Lepage c. Allard [2004] – CVL  Inexecusable Error  1401...... 98 K formation and the CVL Theory of Nullities...... 98 Error and duty to disclose/OBLIGATION OF GOOD FAITH...... 98 (DecisionOne) Confederation des caisses Populaires et d’economie Desjardins du Quebec c. Services Informatiques DecisionOne [2004]  lack of GF  K null  inexcusable error and gross negligence but going against GF 1375 is apparently worse...... 98 C. HARDSHIP...... 100 Allocating the Risks: Default Rules and Kual Clauses...... 100 CHANGED CIRCUMSTANCES  Frustration and Imprévision...... 100 Amalgamated Investment and Property v. John Walker & Sons Ltd. [1976] – CML  still possible  assuming risks inherent in buying property...... 100 Effects of changed circumstances...... 101 - Spectrum of events...... 101 IMPOSSIBILITY/FORCE MAJEURE...... 101 Taylor v. Caldwell [1863] – UK – cited in Krell v. Henry  excused form K  Implied condition rationale  impossibility (due to external event)...... 102 Otis Elevator Co. Ltd. c. A. Viglione & Bros. Inc., Mtl [] – CVL  not absolutely impossible could replacement employees and not that unforeseeable  but had a force majeure clause...... 102 FUTILITY (frustration of purpose as per text)...... 103 Krell v. Henry [1903] – UK  futile to perform K  this decision is an exception...... 104 IMPRATICABILITY...... 105 H.R. Sainsbury Ltd. Street [1970]  CML  implied condition  not complete exoneration  according to presumed intention of reas man...... 105 Canada Starch Company Ltd. v. Gill & Duffus (Canada) Ltd. [1983] – CVL not force majeure b/c isn’t absolutely impossible BUT they had a force majeure clause so not liable!...... 107 CATASTROPHIC PRICE INCREASES...... 109 Alcoa v. Essex Group [1980] mutual mistake of fact FRUSTRATION...... 109 Splitting the Dif.: Relief from Changed Circumstances / Remedies...... 110 Conclusion...... 111 5. BREACH AND REMEDIES...... 112 Summary of remedies for breach...... 112 Connecting Breach and Remedy...... 112 Has there been a breach...... 112 Determining the remedy...... 113 Hong Kong Fir v. Kawasaki Kisen Kaisha [1962] – UK  breach of K  damages (for wrongful repudiation of K)...... 115 Cehave N V v. Bremeer Handelgeselleschaft mbH [1975] breach  damages...... 116

7 Specific Performance...... 118 Warner Bros. Pictures v. Nelson [1937]  breach  injunctionnegative covenant  spec perf...... 119 Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd. [1997] CML  breach  no SP  too much hardship...... 120 Construction Belcourt Ltee. Golden Griddle Pancake House ltd. [1988]  CVL SP  CVL doesn’t really care if too much hardship...... 120 Analysis of SP across Legal trads...... 121 Practical Impediments...... 122 The Scope of Liability in K...... 122 Remoteness of Damage...... 122 Hadley v Baxendale [1854] – UK no recovery for loss of profit  type of damage not foreseeable...... 124 Victoria Laundry v. Newman Industries Ltd. [1949] – UK  damages for loss of profit but not for lost K  must be reas foreseeable loss...... 124 (The Heron II) Koufos v. C. Czarnikow [1969] – UK  damages for ‘market loss’ resulting from breach (delay)  reas foreseeable and would be likely to occur in maj of cases back to Hadley test...... 125 Ciment Quebec Inc. c. Stellaire Construction [2002]  damagages for redoing but not for lost work/Ks  lost profits not foreseeable...... 126 The Limits of Compensatory Damage...... 126 Expectation Damages...... 127 Cost of Cure and. Diminution in Value...... 127 Scenario 1...... 127 Peevyhouse v. Garland Coal & Mining Co. [1962 ] – US   expectation damages only and not restorative work (cost of cure)...... 127 Scenario 2...... 127 Ruxley Electronics v. Forsyth [1995] – UK  diminution in value but not reinstatement  and some moral damages for loss of amenity...... 127 Scenario 3...... 128 Tito v. Waddell - not in CP but talked about in class  diminution in value not cost of cure...... 128 Relation to underlying K principle...... 129 Non-Pecuniary Losses...... 130 Moral Damages...... 130 Addis  eg where(no mental distress damages in K - employment)...... 130 Jarvis v. Swan Tours [1973] – UK  non-pec damages  loss of enjoyment  b/c K specifically one to provide pleasure...... 131 Farley v. Skinner [2002] – UK  above exception for non-pec damages exteneded...... 131 Fidler v. Sun Life du Canada compagnie d’assurance-vie [2006] – CML mental distress  part of restoring victim  relation to GF...... 132 Punitive (exemplary) damages...... 133 Whiten v. Pilot Insurance [2002] – not in CP but mentioned in class and in Fidler  punitive damages awarded  independent actionable wrong...... 133 Honda Canada vs. Keays [2008] – not in CP but talked about in class  actionable???...... 134 8 Liquidated Damages and Penal Clauses...... 134 151276 Canada inc. c. Verville [1994] – CVL?  liquidated damages...... 137 Judicial review of penalty clauses...... 137 Wrap of Remedies...... 137 THE RELATIVE EFFECT OF Ks AND THIRD PARTIES...... 138 Privity/ Relativity How to Deal w/ Third Party Beneficiaries...... 138 Beswick v. Beswick [1966]  CML overturned next case (issue 2)...... 139 Beswick v. Beswick [1968] –House of Lords can still sue as administratix though...... 140 New Zealand Shipping Co. Ltd. V. A.M. Satterthwaite & Co. Ltd [1975] (agency)...... 141 Greenwood Shopping Plaza Ltd v. Beattie [1980] (insufficient evi of agency)  not in CP...... 142 London Drugs Inc. v. Khuehne &Nagel International Ltd. [1992] ( third party is employees)...... 142 Travelling Nature of Kual Rights...... 143 General Motors Products of Canada Ltd. v. Kravitz [1979] CVL (now codified  legal warranty against latent defects applies to all consumers)...... 144 The Interrelationship btw K and and Tort  Liability in K and Outside of K...... 145 Caisse Populaire de Charlesbourg v. Michaud [1990] – CVL (extra-K liability)  causal link to determine liability  foreseeability test...... 145 Postcript...... 145

9 1. INTRODUCTION TO THE LAW OF KUAL OBLIGATIONS

(NOTE: CML = promisor and promise, CVL = offerer and offeree)

What is an Obligation - Def’n (Baudouin) o = a juridical link b/w two or more persons where one of these people (debtor) is required under compulsion of law to do something or refrain from doing something in favour of the creditor (execute a prestation) - 3 characteristics (Jukier) o Link b/w persons (realm of personal rights) o Juridical link (obligation is enforced by L) o Pecuniary consequences to non-performance (damages or specific performance) CCQ 1371 It is of the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and, in the case of an obligation arising out of a juridical act, a cause which justifies its existence. - CVL – notion of obligation = UNITARY CONCEPT = simple single obligation for all obligations, see def’n above - CML – no notion of obligation

Sources of Obligations CCQ 1372 An obligation arises from a contract or from any act or fact to which the effects of an obligation are attached by law. An obligation may be pure and simple or subject to modalities - Note distinction b/w juridical acts and juridical facts 2 sources of obligations - Juridical Act = Manifestation of WILL – obligation has its source in the externalized will of the party ---will creates juridical effects voluntarily o Eg – . Contract (bilateral juridical act), . will, . offer (unilateral juridical acts) - Juridical Facts = no intent to create legal relations o a voluntary (delict) or involuntary (quasi-delict) act gives rise to obligation o legal consequences attached involuntarily o unjust enrichment [??] o in CML = dealt w/ as a tort ------in CVL = deal w/ as a civil wrong Obligations – ECO and K --- where both aspects are included in breach - can most advantageous solution sought? o CML – Yes o CVL – NO ---if there is a K must stick to this regime (1458 CCQ) . Obligations that appear to be ECO are IMPLICIT KUAL obligations (1434 CCQ) Contract and Social Ordering - WADDAMS – K = promise L will enforce CCQ 1378 A contract is an agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation. Contracts may be divided into contracts of adhesion and contracts by mutual agreement, synallagmatic and unilateral contracts, onerous and gratuitous contracts, commutative and aleatory contracts, and contracts of instantaneous performance or of successive performance; they may also be consumer contracts. - Theoretical underpinning = Aut of Will theory (CVL) and will theory (CML) - K’s centered around self-imposed promises + intention + will 10 o Also Ks have consensual element ( FULLER ) Autonomy of wills theory (and will theory) - Bases of theory o Laissez-faire ec theory(Adam Smith ) . Where if Ks freely entered into and following self-interest, would also be in best interest of society (in terms of market etc) (social utility) . can make own decisions w/out state interference . Freedom and equality ---means that you wouldn’t agree to something that wasn’t in your best interests o French Rev (Rousseau) . all men are free and equal . notion that Ks were inherently fair - Will thus lead to o Best interests of parties o Best interests of social utility of society o Therefore K is binding on parties, courts, and states - 2 Maxims = dictate that Objective state L provides juridicial enforceability that allows for the subjective L to be created b/w parties and lived up to o Qui dit contractuelle dit juste (Fouillé) (CVL) = « Free dealing is fair dealing » o PACTA SUNT SERVANDA . Pacts must be honoured . Parties and society are servants to K = BINDING nature

Primary reasons for questioning Will Theory - Unequal bargaining power of parties o Equality of info isn’t always there, or monopoly sit –so often inequality in bargaining - Proliferation of adhesion Ks (1379CCQ) (standard/mass Ks) ---and borrowed clauses ( FULLER) o Take it or leave it approach ----lack of freedom or will

Why do people enter into Ks - Ks as an instrument of social order (FULLER) o Best inventor so far that creates stable interactive expectations - ****Protection of expectation o Bring uncertainty of future into certainty of present

Law enforces the K - For predictability, certainty, deal w/ distrust - If K not fulfilled –L can force through or provide monetary equivalent –damages - K law delivers your expectation, or monetary value o Protection by courts (systemic) –for dealing w/ unfairness etc . Statutory w/ eg of Consumer Protection Act, protection of employees, borrowers etc etc . With breach –get reliance and expectation interest  Expectation interest [reliance vs expectation interest ??] o = Value of promise –and from relying o =GOLD STANDARD o Notion of protecting standard and expectation o **** Predicated on the promise . Policy decision to encourage people to enter in Ks by granting them expectation interest --facilitates reliance on agreements and protects social utility of a K ( ATIYAH AND SMITH ) . Deals w/ competing values 11  May be a reason why K is being breached etc –courts may recognize this = judicial control over sanctity of subjective L . Restitution interest  What was lost is returned . Reliance interest/damages  Other expenses incurred b/c of breach of K + money lost out on etc  Reliance interest given in ECO but not expectation interest . Compensation not punishment  Punitive damages only if Ks breach Charter of Human Rights (CML) or Rights of Consumer Protection Act (CVL) SMITH – K Theory - Distinction etc b/w promissory theory of K and theory of Kual obligations agreements o Promise binds only one person o Etc, p1 of reading notes

Sources of K L

Law of K - What makes finding the L of K dif than finding the L of ECO o Dif b/w Ks . FULLER – 2 types of law happening at same time  Parties’ own created L / statute – customary L (usually referred to as International L) – SUBJECTIVE o Always look at this first ---primary source that is applied ---when will objective L stop subjective L o Instrument of own self-gov  Enacted / declared L ----OJBECTIVE L of the state o Eg. Codes, statutes etc o Implied norms that go along w/ K (a ‘but of course’) o Used to interpret the subjective (also see 1432 CCQ) o Objective L will limit subjective L . Public order limits, public policy,  Found in imperative (public order) provisions (1411, 1413 CCQ) –cannot K out of --eg surrogacy ----cannot contravene statutory L

Imp of K L

***MACAULAY  QUESTIONS RELEVANCE OF K LAW o Notion of going beyond doctrinal –in terms of research o Suggests that K L in theory and academia is a lot different in practice ----eg b/c business men etc will use things like handshake or standardized Ks . Both on planning and enforcement side  On planning side BATTLE OF THE FORM o A wants to sell product to B, so I sends pre-drafted form to B, B accepts sends his form back and his form is also predrafted o Neither has read the form and don’t know what’s in it ----Ks can even be contradictory o Fine until something goes wrong

12  On enforcement side – most disagreements are signed extra-judicially ---(while suing may not be imp ---likely concerned about rep in marketplace  =so M is questioning relevance of K law ---esp in terms of business - BUT K L is relevant (while Macaulay says not so much) o K L does inform the planning that occurs . Eg of Frustration [CML??] o Enforceabilty . Although many avoid settling in court (kind of like choosing to use private health care) . (something is better than nothing w/ K law you have some sort of enforcing possibilities o K L is aspirational . Implicit norms of behavior come from K L o ***Marketplace itself hasn’t proven to be effective at controlling abuses . Macaulay presupposes business model works perfectly but it doesn’t as legislation has been needed to step in for protection etc Contracts Across Legal Traditions

Dif about L of K b/w CML and CVL includes historical aspect - CVL o Origin Roman L . Justinian’s digest 534 AD –first attempt at codification o Revival of Roman L 11-13th cent w/ creation of University –w/ L students studying ancient Roman texts o So Roman L serves as base for construction of Euro continental L o Imp of text (although some countries that are CVL like Scotland don’t have code) o Highly structured, taxonomic, very academic - CML o Decision making trad o King and deputes are o Procedurally based syste, o Jury system -- judge there to make sure case fitting case and facts into particular writs ----originally ---juries decide facts and judges decide law . Eventually evolved into substantive L (create, defines, and regulates the rights, duties, and powers of parties) o 1300s ---(universities teaching CVL as academia bought practicing CML) . -barristers in court –lawyers doing legal work o CML methodology . Foundations in case ---casuistic system –precedent (stare decisis) . Chaos on the side as opposed to org o Law and equity . (equity is) Move from just able to use King to using Chancellor as decisions didn’t apply across the board –wasn’t fair --so more common parallel system of L develops (more equitable) . Div b/w law and equity –eventually fusion - Note CVL – cases not binding, CML – cases (precedent) = binding - Doctrinal writing – not binding in either case –but great history of it in Quebec o (Role of Pothier  France doctrinal writerinfluential) - Legislation o Code . More general in terms of how people should live their life—puts forth

13 . Fundamental principles . Normative . Based on broad principles . Eg Civil Code of Quebec o Statute . More specific, direct treatment of a specific aspect of the L  So in certain cases can trump code  Like Consumer Act - Custom and usage o 1426, 1434 CCQ ---see Purolator Case

Transystemia - Instrumental reason o Globalization of law o Eg of Chunnel --- using both systems of L -- NASLIN o Choice of law clause ---where can chose what L want to base K in - Unification /harmonization reasons o GOLDSTAGN ---practice of int trade already demonstrates common thread . Eg of lex mercatoria ( BERGER )---law that exists b/w merchants  Principles of into L include unwritten laws and general principles . UNIDROIT – International Institute for the Unification of Private L  NGO of sorts  Develops uniform principles that int law based around  Practices taken form across legal systems –put together to come up w/ common principles –but not law yet b/c not adopted by a legislator = SOFT LAW (shows that it’s possible for CVL L to reconcile itself to Euro sit. ---- FONTAINE –also note that Unidroit is soft L o Principe de droit European –similar principals o Should there be a European Civil Code - Historical - Best solution to legal problems o Dif systems better for dif things o If don’t look at law comparatively or transnationally – won’t know which system is better –but need to go beyond comparative . Nouel’s article = need to know more than just facts -- need in depth learning (b/c no common principle) - Better understanding of each of the Legal System - ‘Learning about the other reason’ o De-emphasizing geographical /political solutions –learn about own system by looking at other How to approach law systemically - De-emphasis on rules - Concentration on ‘mentalities of legal trads - Integrated approach Standard Form and Adhesion Contracts as a Social Phenomenon

The Changing Conception of K L (K L as an Ideological Battleground)

Adhesion K’s = 1479, 1435, 1436, 1437 (abusive clause) CCQ

14 Dell Computer Corporation c. Union des consommateurs [2007] SCC  CVL  adhesion K standard form K abusive  CCQ 1435 + FActs - Customer entered into electronic K (adhesion K contained in terms of sale ) (browse wrap style) - Whole issue here has to do w/ customer taking advantage of an accidental deal on computers –but actually at issue is the adhesion clause –arbitration clause - that waves right to settle in court --- - Dell says shouldn’t be class action b/c of clause agreed to by customer that waves right to class action in favour of alternative dispute resolution – extra-judicial resolution Issue - Is the consumer subject to the arbitration clause in the adhesion K he entered into electronically w/ Dell - Should this class action be barred b/c the parties had supposedly agree to oust right to it, and instead agreed to use arbitration - Is arbitration clause valid (or is it an abusive clause) - Does an arbitration clause go against public order? Held - Clause is valid ---(not ABUSIVE CLAUSE –even though Quebec courts sided w/ Dumoulin Reasoning - DISSENT - Abusive clause, null in that it wasn’t explicit - Majority says hyperlink was sufficident - (class action = action taken up by rep on behalf of an entire group of people who need not be identified at the time of the action) - Dumoulin was an unsympathetic plaintiff (a bad plaintiff) (as in it was obvious he was a skeeze) - Dissent and Quebec court - Arbitration clause was on another page so WASN’T EXPLICIT - Problems a) no choice, if he wanted a Dell computer had to agree to go to arbitration b)no one (no part of site) drew his attention to it - 1435 CCQ ---SCC rules not applicable here b/c external clause was so accessible - 3 dif kinds of electronic Ks 1) click wrap (have to click bef gon on 2) browse wrap (hyperlink at bottom but attention not drawn to it) (Dell) 3)shrink wrap (when order something, terms and conditions pop up w/ product) - Browse wrap style – potentially unfair - Court approaches issue as if it were a paper K Comments - Our modern day K issues - Eg of standard form K (adhesion = type of standard form) (eg of ideological battleground) - Eg of INDIRECT CONTROL of adhesion, courts cannot control substance of K but controls process of entering into K (in order to protect consumer?) - Case is moot ?in terms of public order? –but not in terms of adhesion K

Indirect Control - Cannot control substance of K but controls process of entering into K –but then direct control after by legislator Contract Law as System: Elements of Comparative Legal Traditions

COLLINS - 19th cent vision of K law still permeates reality today - In terms of fundamental principles - Established some of significant relations of power in modern society - Basis for construction of many institutional arrangements operating in market

15 Contract Theory and Ideology

Trad conceptions of K L

KENNEDY Classical conceptions of K - Imp of Free Will - Freedom of K Classical focus on - Security of K individualistic nature of K law - Voluntariness -Doesn’t work in Dell case --- - Non-interventionist judiciary modern conceptions are dif - Concept of Self-determination

THIBIERGE-GUELFUCCI - eventual recognition of inequalities that freedom in Ks created (due to ec and social transformations) ---specifically created in adhesion Ks - bef (see Kennedy) –more interest in individual interests ---contemp = imp of collaboration b/w parties

Modern conception of Ks= - Contractual equality o Relates to formation stage o Extra protection for unequal parties . Provision of info for these parties as protection - Contractual equilibrium o Substance (substantive aspect of K o Fairness of terms reviewed by judicial - Contractual fraternity o Performance –fair in how performed . ‘Good faith’ (but antithetical to freedom of will)

Ideological battleground [ KENNEDY –in the brackets] - Certainty vs flexibility [paternalism vs self-determination?] - Individualistic vs altruistic (classic vs contemp [more regulatory]) [Community vs Autonomy] - Security of K vs ?(freedom to K?) [Regulation vs Facilitation]

Transition from trad perception of K to modern perception CML - Judges bound by precedent so hard to change in that sense - While judges should not be legislators they also need to ensure law adjusts to current society (remains contextually relevant) - Thus the changes must be incremental - Fine balance CVL - Code = compendium of norms of how people act ---taxonomic rules/general principles –not ordinary statute - Notion that harder for ev process to occur in CVL due to written, codified nature o But has proven itself to be very evolutionary ( FONTAINE ) - FONTAINE o PORTALIS = Main ‘codifier’ of code Nap o Code not ossified document . Up to judge to dissect application . Interpretation dependent on context 16 o Ultimately concludes that CVL code (France) hasn’t kept up w/ society =Both systems of L can change but change is slow

2. RECOGNITION OF K BY THE STATE Contract = promise law will enforce (so L will only enforce certain ones)/an agreement of wills/ sole exchange of consent (1385 CCQ) - If conditions are recognized by state as K –will enforce

3 requirements for recognition of K by state - The Moment of Responsibility - Requirements of Formalities, Consideration - Public Policy –is it ok in terms of this

A. The Moment of Responsibility Intent to Create Legal Relations - Parties manifest will – K --- MEETING OF WILLS FULLER – K there to ensure stable, interactive expectations Manifestation of wills 1386 CCQ The exchange of consents is accomplished by the express or tacit manifestation of the will of a person to accept an offer to contract made to him by another person. - Expression (also) = external will o written or express oral manifestation - Tacit / What’s really wanted (also) = internal will o conduct of a party o Eg taxi-cab –tacit offer = “I offer to transport you at the price displayed on meter” Tacit acceptance = opening door and climbing in - External vs internal = formalistic (objective?) vs subjective o Both needed/dealt w/ -- --eg TEST = what would a reasonable person think that the wills of these parties are (objective way of finding subjective will)

Offer + Acceptance = K

- What can go wrong o No offer (intention to create legal relations) o Offer and Acceptance don’t overlap (contradiction) o Offer or Acceptance is vague or ambiguous (ambiguity)

Counter-Offers Promise to K I.T.T. Revocation (CVL)

o Intention to be bound - Imp component of K - w/out willingness to be bound there is no offer 1388 CCQ An offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.

17 - Results in non-legal enforceability of o Comfort letters (Kleinwort) o Domestic agreement . Note feminist critique –relating to gender inequality ---trad puts women at disadvantage b/c usually man making financial commitment that isn’t enforceable o Puffery(!)

John D.R. Leonard v. Pepsico, inc.. [2000] – US  no intention to be bound puffery Facts - Plaintiff took ad to be factual and tried to buy Pepsi Points required for Harrier Jet Issue - Does ad constitute false advertising - Was commercial ‘evidently done in jest’ - Would reasonable person have taken commercial seriously - Did ad constitute an offer Held - No, yes, no, no Reasoning - Not false advertising b/c obviously done in jest - Use of reasonable person standard for judging how add was interpreted Ratio - Advertisements do not constitute offers (where reasonable person wouldn’t construe as offer) –Puffery is not an offer Comment - No intention to be bound

NOTE : REASONABLE PERSON TEST ---- to determine will or intent of ad – subjective is abandoned (objectification of subjective)

Carlill v. Carbolic Smoke Ball Co., 1893  no intention to be bound construed as intention to be bound more than a puff  offer to the world  reliance protected underlying policy issues UNIL K created Facts - Ad offers 100 pounds if Carbolic Smoke Ball taken as directed for 2 weeks and still contract influenza virus (prevention against) - 1000 pounds deposited in the bank (to show sincerity) - Mrs. Carlill contracts flu after using ball Issues - Was ad an offer (intention to create legal relation) - If it was an offer, is promisor required to pay even though there was no acceptance - Is promise too ambiguous to be binding Held - Yes, yes, no Reasoning - Money secured in bank meant add wasn’t a mere puff as per REASONABLE PERSON TEST (objective test) --- **intention to be bound*** - Terms of offer dictated the terms of acceptance ---the offer waived necessity of communication of acceptance and substituted it w/ the performance of the act PERFORMANCE = ACCEPTANCE (unilateral K—binding upon performance) - Offer doesn’t stipulate time period w/in which was valid. Once again REASONABLE PERSON would see time period as 1)flu contracted while using ball 2)if flu contracted w/in reasonable time after using ball = K SUFFICIENTLY CLEAR Ratio - Offer can determine method of acceptance (eg of unilateral K) 18 - There must be an intention to be bound legally and this intention must be ascertained objectively (reasonable person) - Terms of K might be vague if indeterminable as per reasonable person standard - OFFER TO THE WORLD Comments - Why is this a K case? Underlying policy –way to regulate dangerous/poisonous substances –quackery medicine ---K law used as a SURROGATE --has put K law in difficult place - Do we protect promise or reliance (here RELIANCE) - Problematic issues w/ offers and acceptances CVL - Can also K w/ anyone –offer to the world o 1390 CCQ - Offer can determine method of acceptance o 1394 CCQ = will of parties can provide that silence is acceptance of an offer o 1395 CCQ = offer of reward deemed to be accepted when act is performed even if performer doesn’t know of the offer - Unilateral Ks o Can =contract of adhesion  CVL CCQ 1397 (ISN’T IT 1435?)---K of adhesion is a K which the essential stipulations were imposed or drawn up by up one of the parties, on his behalf or upon his instructions, and not negotiable

Kleinwort Benson Ltd. v. Malaysia Mining Corp. BHD., 1989 CML comfort letters agreement not to agree and not to be bound no intention to be bound Facts - MMC has subsidiary company –it received money from bank - Ptf wanted Dft to guarantee its responsibility for repayment of funds lent - Dfts provided a comfort letter in exchange for paying a higher rate of commission: “It is our policy to ensure that the business of MMC metals is at all times in a position to meet its liabilities to you under the above arrangements.” - Collapse of tin market; subsidiary can’t repay loan; Ptf sues dft for repayment Issue: - Was the statement in the comfort letter a contractual promise to repay? Held: - No Reasoning  Comfort letter isn’t a promise  Contracts deal with future behaviour. The comfort letter is a statement of policy/fact and not a promise of future conduct. Only assuring moral responsibilities – not legal  The Dft did not intend to assume legal liability: The Ptf asked for a guarantee and the Dft refused and gave the comfort letter and a higher rate of commission instead; it is reasonable to assume that the Dft did not give a guarantee and that the bank did not think they were getting a guarantee. ----(Opposite of Carlill as NOT demonstrating intention to be bound)  Parties were of equal bargaining power and had equal access to legal information and resources. Ptf thus had the ability to demand a guarantee and not to settle for a comfort letter Ratio  Importance of context to the determination of intent to create legal relations. Comment  Plt relied on statement of the defendant – reliance not protected here  Unjust enrichment not applied b/c enrichment and impoverishment must be correlative –here parent company sued but subsidiary enriched --- also must have either broken promise or misrepresentation  Good faith – applicable?

19 Exchange of Consents

Offer and Acceptance  If intent to create legal relations exist – now in order to know if K is formed –need OFFER AND ACCEPTANCE  1378 – 1381, 1385 – 1386, 1388 – 1395 CCQ. 1386 CCQ The exchange of consents is accomplished by the express or tacit manifestation of the will of a person to accept an offer to contract made to him by another person. 1388 CCQ An offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted. 1390 CCQ An offer to contract may be made to a determinate or an indeterminate person, and a term for acceptance may or may not be attached to it. Where a term is attached, the offer may not be revoked before the term expires; if none is attached, the offer may be revoked at any time before acceptance is received by the offeror.

Elements of offer (in order to determine there is a K) - Description of goods and price - Intention to be bound - ((what if no stock left?? ---doesn’t affect unless there is a condition on offer ---limited quantities etc)) ------there are can be implied conditions Consumer Protection - Regulatory provisions/ devices like Consumer Protection Act o Dealing w/ false advertising etc Carlill issue ---more problems - Mrs. Carlill never actually agreed to the K - Bef Carlill there were EXECUTORY Ks o = explicit offer and communicated acceptance to offeror o Acceptance can also be tacit but it must usually be communicated . Carlill executed action but never communicated acceptance - Ad never said explicitly that there was necessity to formally accept - Waiver of need to communicate acceptance and the performance of the requested act o ***new type of K . =UNILATERAL K (created by Carlill and Carbollic smokeball)  Offer constitutes asking someone for a requested act ----not an exchange of bilateral promises béc no one is promising to complete requested act (so if Carlill didn’t want ball etc she wouldn’t have to keep using it)

Unilateral K 1380 CCQ A contract is synallagmatic, or bilateral, when the parties obligate themselves reciprocally, each to the other, so that the obligation of one party is correlative to the obligation of the other. When one party obligates himself to the other without any obligation on the part of the latter, the contract is unilateral. 1395CCQ The offer of a reward made to anyone who performs a particular act is deemed to be accepted and is binding on the offeror when the act is performed, even if the person who performs the act does not know of the offer, unless, in cases which admit of it, the offer was previously revoked expressly and adequately by the offeror. (note gratuitous K isn’t K law)

Acte de prévision = bringing uncertainty of future into certainty of present

CVL - Juridical acts ---all Ks are bilateral juridical acts –in that both parties must agree –but unilateral in sense that only one party must be obligated (will is bilateral but offer isn’t) 20 **Also, CVL – silence doesn’t imply acceptance (1394 CCQ)

Carlill - has left us w/ bilateral K vs bilateral juridical act (dif in who’s obligated – just one or both) - Problem = VAGUENESS – in terms of offer using --problem w/ essential elements of K o Offer has numerous plausible interpretations . Why wasn’t this an issue in Carlill?  =no effect on outcome –obiter –she caught flue while using ball –during strictest interpretation ---had it been opposite then it would have been ratio not obiter

FONTAINE - Théorie de la punctatio o A K can form over “couches successive” and not at a precise moment

Ambiguity, Incompleteness and Contradiction (in terms  so have already have intent, offer, and acceptance) - May have intent, offer and acceptance but be unclear on the terms of K - Ambiguity of terms = void K when it would be impossible for reasonable bystander to determine terms of K Article 1393 CCQ, 1387, 1388 CCQ

- Unjust enrichment (UJ = restitution) - Need to have correlative relationship b/w ENRICHMENT and IMPOVERISHMENT w/out justification (a K for eg o When court can’t award a Kual remedy (b/c no K exists for eg) –might award extra-Kual (quasi- Kual) restitutionary damages . Based on enrichment (amount) rather than impoverishment (amount) = the SMALLEST AMOUNT o K remedies protect expectation interest o UJ protects restitutionary interest only

Terrasse Holdings v. Saunders, 1989  ambiguity of K unjust enrichment (of Holdings) Facts  Les Terasses (D) was the rental agency for a shopping centre that was very badly laid out  D had a K with the PL. leasing agent (Saunders)  When building was about 60% leased, D made an offer to the agent of a bonus which “could be as much as $60,000 - $70,000” to continue to work hard to rent the rest of the space (which had become difficult to rent).  The PL accepted and gave up his other work to put energy into this job. (He relied on the offer).  Told no bonus as we never reached “break-even point” before certain date Issues  Ambiguity of K - Terms of promise  are they sufficiently defined such that the acceptance by Holdings crystallises a veritable K Held  NO K. Appeal Rejected (with expenses)  Money awarded as per judgement of first instance for New Reasons  Given $60,000 for unjust enrichment of defendant and unjust impoverishment of plaintiff Reasoning - The amount of the bonus was an essential element to the formation of the K. The amount of the bonus was not determined and there were no mechanism (such as “reasonable price” or “fair market value”) that the court could use to fix the bonus. The court cannot fix an essential element arbitrarily  Here, although has a range given, it is not considered a full-on contract b/c of ambiguity but  In final year of work, Saunders’ commission was very low (as there were very few units left in building – 21 none were very good) though he continued to work based on the promise of a bonus - Unjust Enrichment of Holdings and Unjust correlated impoverishment of Saunders $60,000 was value of Saunders’ work for the year (based on approx ave of previous 3 years) (for services rendered)- Coments - Vagueness –don’t necessarily need to set exact amount but need at least a formula to arrive at amount - quasi K = unjust enrichment -----K resembles Kual undertaking but isn’t an actual K - Don’t get expectation damages (K remedy) –but even when these are given can still get another sort of remedy --- compensation (damages) - Courts will go far to find a K ---but where absolutely no mechanism … -- this case prob enough surrounding circumstances (specified range, past business circumstances ) ----if court hadn’t been able to use UNJUST ENRICHMENT might have tried to find a K  This case not really consistent with Carlill (where it asks, not what parties intended but what reasonable man looking at this contract would determine they had agreed to) - Possible conclusions: Subjective test

Contradiction b/w Offer and acceptance - BATTLE OF THE FORMS (technically US term but UNIDROIT principles use this [2.122] o MACAULAY . PARTIES DON’T CARE ABOUT K OR K LAW ---DON’T READ FORMS ETC o Eg Simon Beaudry o = problem arrises due to parties’ preprinted forms MACNEIL - Critical of what trad K law would say to battle of forms probl - In discrete transaction = no room for ‘we accept, but do not accept’ - Relational K L provides freedom from the conceptual limitations of a discrete system - Contract law developed in the context of discrete transactions and we should thus adapt it to our reality. The parties should agree on the essential terms and have a contract on those only. - Flexibility = we agree but we don’t agree can form the basis of an agreement so that it can still be K (or could constitute a new offer) o How? – 1393, 1387, 1388 CCQ . Seemingly could have deception even w/ divergence as long elements agreed upon . Question of what is substantive

Mirror Image rule

- An offer must be accepted exactly without modifications. - offeror is the master of his own offer. - An attempt to accept the offer on different terms instead creates a counter-offer, - and this constitutes a rejection of the original offer. - In the United States, this rule has been altered with respect to merchants dealing in the sale of goods under the Uniform Commercial Code (UCC Section 2-207). In such situations, an acceptance that does not match the terms of the offer is nonetheless effective as long as the material terms are agreed upon. - The changed or additional terms in the acceptance will become part of an agreement between merchants unless o the offer limits acceptance to the terms of the offer (e.g.,'no substitutions'), o the terms materially alter the offer, o or the other party objects to the new terms within a reasonable time. - (This wouldn’t help for Beaudry bc it wasn’t a secondary term in question) - (Same in Doughboy case ---b/c settlement of terms isn’t a mirror issue

1393 CCQ Acceptance which does not correspond substantially to the offer or which is received by the offeror after the offer has lapsed does not 22 constitute acceptance. It may, however, constitute a new offer.

C.U.Q. v. Construction Simard Beaudry, 1987 contradiction btw offer and acceptance  Battle of the Forms  Mirror Image rule Facts  CUQ issued standard form for bids (offer) and stipulated that bidders were to use this form  Simard-Beaudry submitted bid on its own form and included limit on liability ($35,000) and 6-month prescription period  Simard-Beaudry was lowest bidder so CUQ accepted its bid  SB realized that it made a mistake ($200,000) in its bid b/c it forgot to include the price of certain materials  CUQ sued for the difference between SB’s bid and the next lowest bid. Issue: - Is there a valid K given that there was no subjective consensus ad idem(forms didn’t match)? According to whose form? Held - Yes, on SBs terms Reasoning - ****SB’s bid was counter-offer –CUQ didn’t have to accept but they did therefore they accepted the terms of the SB K which include Comments - Eg of Battle of the Forms – Mirror-Image rule - Related to Terrasse case b/c damages trying to be given - Note prescription period here is limited ----restricted public order provision

Matter of Doughboys Industries Inc. and Pantasote Co [1962] U.S.A. contradiction btw offer and acceptance Battle of the forms mirror image rule Facts: Decision:  Buyer (offeror) mails his form, which stipulates  There is a contract  buyer’s terms that any variation in terms must be consented to.  Contract was not on counter-offeror’s terms but on Form has no arbitration clause. original terms  buyer’s term  Buyer’s form makes it clear that no variant sellor’s  Arbitration is not a contract term acknowledgment is to be binding Ratio:  Seller gives oral acceptance and sends partial  Easy technical way out: When the seller’s form was sent, shipment with his own form with same elements the oral contract was already formed and he had except it has an arbitration clause. already consented (this is why it is not a counteroffer).  Sellers form provided that silence or failure to  (1) Subsection 2(c) of UCC – additional terms become part object in writing would be acceptance of the terms of the contract unless they materially alter it; an arbitration and conditions of its acknowledgment form clause is a material alteration thus was not added to the  Buyer never objected to the seller’s form (orally or contract. in writing)  (2) Subsection 2(a) of UCC – additional terms become part Issue: of the contract unless the offer expressly limits acceptance  Buyer’s order form and seller’s acknowledgement to the terms of the offer; there was a limitation contained form at issue in the offer (buyer’s purchase order) requiring explicit  Sellor’s form (sent after buyer’s form) calls for agreement on buyer’s part to variations proposed by arbitration rather than court litigation offeree, must be given effect  Agreement to arbitrate must be clear and direct and must not depend upon implication, inveiglement or subtlety Notes:  Acceptance can be tacit or express  By accepting goods, tacitly accepting conditions of sellor’s form  UCC: If there had not been an oral acceptance, the terms of the contract would have been on the seller’s terms.  UN Convention for International Sales of Good: If you reply with changes, they are valid as long as the offeror does not 23 object or as long as the terms are not material.

Resolve using traditional contract law: (this decision departs from traditional contract rules) - ****If oral agreement of seller is acceptance  seller’s form is too late to be counter-offer  contract is formed on buyer’s terms - If seller’s form is counter-offer (b/c not mirror image) 3 possibilities (insufficient facts) - (1) Seller’s counter-offer on top of box of goods  buyer accepted it when he opened goods  K on seller’s terms - (2) Seller’s form (counter-offer) inside box  shipping of goods was tacit acceptance  K on buyer’s terms - (3) No mirror image  no K Resolve using Quebec Civil Law and UN Convention: - UN Convention  the terms of the acceptance materially alter the offer, therefore the acceptance is a counter- offer. 19(1) and 19(2). Did the buyer accept the counter-offer? We don’t know. Not enough facts. - Civil Code  1388: the buyer’s offer contains all the essential elements; he is willing to be bound to it; 1393: the acceptance does not correspond substantially to the offer b/c it contains new essential elements (not in the offer) and therefore is a counter offer. Backing Out – Revocation and the Protection of Reliance When is offeror allowed to revoke his offer

Contract Inter absentis / Remote Party K 2 issues - When was K formed --- so when can offeror effectively revoke - Imp for revocation but also for prescriptive reason (time you have to sue/take action - Where was K formed ---what laws apply to the settlement of dispute (where K formed determines the jurisdiction - Conflict of law issue -- 3112 CCQ If no law is designated in the act or if the law designated invalidates the juridical act, the courts apply the law of the country with which the act is most closely connected, in view of its nature and the attendant circumstances.

Post Box (Mail)Rule

POST-BOX RULE/EXPEDITION THEORY (only applies to Ks concluded by mail) - K formed when acceptance is put into the mailbox. Later refined: This rule applies where reasonable to assume that the offeror wanted the post-office to be its agent, that is where (1) offeror expressly authorizes post-office as agent OR (2) Offeror sends the offer by mail. - Adams v. Lindsell [1818] established the rule - Rationale: protect the offeree (reception rule is unfair to offeree b/c puts risk of delay on him; no need to protect offeror b/c he is in stronger bargaining position and can dictate terms of acceptance). - Who bears the risk of delay?  OFFEROR Adams v. Lindsell (UK 1818) - Parties used mail to conclude K - Held = K formed upon mailing acceptance (expedition by offeree) - Why? = protect the offeree - Mail box/ postal system as agent for offeror

RECEPTION RULE (applies to instantaneous communications and other forms of communication)  When instantaneous communications are used, the K is formed where acceptance is received (no need to ask WHEN b/c is instantaneous). - Rule established in Entorres v. Miles Far East (a Denning decision) - Who bears the risk of delay?  OFFEREE

24 Quebec Civil Law:

OLD EXPEDITION THEORY in CVL (pre CCQ): Where the means of communications are identical, the rule is the same as the post box rule in principle. If parties used different modes of communication, reception theory is applied instead of expedition rule.

TODAY: Art 1387: provides for inter-absentee: Reception theory across the board. In the common law, post box rule still exist but reception theory applies for other means of communication.

Reception Theory 1387 CCQ –“the Reception rule” - A contract is formed when and where acceptance is received by the offeror, regardless of the method of communication used, and even though the parties have agreed to reserve agreement as to secondary terms. - Offeree bears risk - Established in

Entores v. Miles Far East Corporation, 1955 2 QB 327 (C.A.). reception rule established (used across the board in CVL and in CML for non-mail communication) Facts - One of first cases where instantaneous means of communication occurs - Ptfs (Entorres) in England; Dfts (Miles Far East) in Holland; Dfts make offer to sell by Telex; Ptfs make counter-offer by Telex; Dfts accept counter-offer by Telex (Holland  England) - There is a breach the parties need to know what law is applicable to resolution of this dispute. Issue: Where is contract made and therefore under what law is it governed? Holding: Formed in England where acceptance was RECEIVED Ratio: - For instantaneous forms of communication, contract is made where acceptance is received (contrast to post-box rule) - When contact is instantaneous, would be unfair to conclude contract before offeror received acceptance; must have communication of acceptance; is analogous to face-to-face contract – could not conceivably concluded if offeror didn’t hear acceptance; fairness to offeror - Reception theory applied for instantaneous means Rule: Rule of Reception when communications are instantaneous Comment - Eg of court using K law to forward non –Kual goal - Not so much concern where K is made but rather what substantive L would govern K - Jukier believes RECEPTION RULE is preferable as it is consistent w/ the notion that the offeree must communicate acceptance in order for there to be a K (also see Boot’s Cash Chemist)

Detrimental Reliance of the offeree ****(Revocation for Unilateral Ks = offer is revocable until performance is complete  the flagpole has been climbed) ---this is when K is complete - This applies to CML only - Problematic b/c doesn’t let us protect offeree’s reliance ---where partially performed or almost done requested act –offeree has acted to his detriment ---and rug pulled out from underneath him --- (NOTE –this is not going to be solved by GOOD FAITH –as offerror might have really good reason to revoke) Solution (CML) - Promissory construction o Construe promise as bilateral –and therefore turn bilateral K into unilateral K (which is irrevocable when formed)

25 o Dawson v. Helicopter, Carlill(couldn’t use it here b/c she never called up company to say she was going to use product –can’t make , Brewer v. Chrysler - Promise not to revoke o Imply collateral promise not to revoke once performance begins o Eg Errington v. Errington, (Houle and Soucisse although they’re not unilateral??)

Revocation often occurs when K it is transferred ---so so sit of estate or company bought out

CVL response to detrimental reliance = Bad faith revocation of offer - CML less likely to focus on good faith (6,7, 1375CCQ)

Errington v. Errington and another, 1952 1 KB 290 unil K revocation detrimental reliance promise not to revoke Facts: - Father buys house for son and daughter in law and promises that “house will be your prop when the mortgage is paid” (unilateral contract); before payments are complete, father dies and his estate tries to revoke promise and take possession of house Issue: - Can the promise be revoked? Holding: - Promise cannot be revoked; successor cannot get possession Ratio: - *****Implied promise not to revoke****. Father impliedly promised that, so long as the couple paid the installments, they should be allowed to remain in possession. Even though act is not complete (i.e. mortgage not paid off), father implied that he would not revoke once performance had started. - Courts Essentially rewriting father’s promise Comments - [couple never bound themselves to pay installments (never agreed) therefore cannot imply promissory construction] UNILATERAL K

Dawson v. Helicopter Exploration Co., 1955 S.C.R. 868.  unil K (turned into bilat K)  revocation  detrimental reliance PROMISSORY CONSTRUCTION Facts: - Dft (offeror) makes offer to Ptf: “If you take us in to the showings and we think that they warrant staking, we will stake all claims and give you a 10 percent interest.” - Ptf replied: “If you will inform me when you want to go…I will immediately take steps for a temp release [from army] in order to be on hand”. - Dft replied that they would not be going in that year. (Revocation) An exploration party sent by dft located claims and made plans to develop them. - Ptf commenced action for this share (10%) Issue: Is Dft’s revocation valid? Holding: Dft’s revocation is not valid; contract is binding – must give ptf his share (10%) Ratio: Implied promissory construction can be reasonably given. Dft’s offer, by promising Dawson that the co would cooperate, implied that the company would not, by its own act, prevent the complementary performance by Dawson. Dft. implied his promise to participate (his action was necessary) thus this offer called for bilateral and not unilateral action. Only a unilateral offer can be revoked up to the last minute before performance; (Jukier) can imply promissory construction and therefore bilateral contract: Dawson said “I accept and agree” and at this 26 point contract was formed and the company could no longer revoke. Promissory construction  reconstruction of K into bilateral so that revocation isn’t a prob Comment - NOT considered unilateral K - Can’t use implied promise not to revoke b/c already done - UNILATERAL K - (compare to Brewer v. Chrysler –where courts found no K but awarded damages in Unjust Enrichment

Agreements to Agree (-agreements not to agree ---not to be bound –eg Kleinwort ) RUDDEN – Gentlemen’s Agreement - In case of no deliberate no –law ---can have no-law ever or no-law yet - In case of contextual no-law

- CVL –well established notion of promise to K (1396-1397CCQ) –both unilateral and bilateral

Promise to K - Invitation to treat – (testing out the waters) - Offer –when enough in offer to constitute a K - (eg of Entorres ---where it changes from being invitation to treat to concrete enough to be a K) - Acceptance - Could be counter offer (eg Simon Beaudry) - But if yes - K or Unilateral/Bil promise to K –which can then turn into K

Bilateral promises to K (civil) OFFER + ACCEPTANCE  PROMISE TO K  K

- w/ immovable property---once agreements etc made –parties make date to go to notary and do the transfer – so = PROMISE TO K ----intermediate stage - but this is BINDING but not yet K of sale - proposed K transfers ownership, the promise to K binds the parties to transfer ownership later, so promise to K is binding (sue in K ) –might even be able to sue for specific performance - bilateral promise to K is called “Innominate K” 1396 CCQ An offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to the offeror that he intends to consider the offer and reply to it within a reasonable time or within the time stated therein. A mere promise is not equivalent to the proposed contract; however, where the beneficiary of the promise accepts the promise or takes up his option, both he and the promisor are bound to enter into the contract, unless the beneficiary decides to enter into the contract immediately.

Unilateral Promise to K (civil) - A and B agree (have a K) that A will be bound to enter into K if B activates the agreement

Dif b/w Unil Promise and Offer - Offer = no meeting of minds therefore not a K - Unil Promise = is a K, must be offer and acceptance - Jukier points out 1396 phrased awkwardly where not clear that unil promise requires agreement in order for it be binding ---but agreement (acceptance) is necessary to distinguish b/w unil promise and offer/ ((No such thing as a unil promise in CML)) - Offer = sue in extra-Kual - Unil Promise = sue in K Also 27 1397 CCQ A contract made in violation of a promise to contract may be set up against the beneficiary of the promise, but without affecting his remedy for damages against the promisor and the person having contracted in bad faith with the promisor. The same rule applies to a contract made in violation of a first refusal agreement. - Relates to BAD FAITH ---K would be in Transformation of the Unil Promise to K

B agrees to buy

B agrees to consider

B promises to buy A’s land for $X

Cere v. Neely, 1980 C.S. 1160  unil promise to K expectation damages Facts: - Defendant (Neeley) granted a 2-year option to plaintiff (Cere) to buy land for $4,000 - Once the plaintiff decided to exercise his option, he learned that the land had already been sold - The plaintiff, before coming aware of the fact that the land was sold, had already arranged to sell the land for $9,000 - Promise made by Neeley wans’t just an offer w/ a term b/c Cere paid $200 and they went to a notary to enter into an option agreement = this was an agreement , A MEETING OF THE MINDS ---therefore = K Issue: Is the defendant responsible to pay damages, was there a contract? What is the consequence for the breach? Held: The defendant must pay the plaintiff $5,000 Ratio: - Defendant made a unilateral promise to sell the land. (a. to determinate person; b. considered by promisee). - There are 2 types of promises of sale: - Synallagmatic (bilateral) promise: 2 people promise in reciprocation to sell and buy. - Unilateral promise: the person promises to sell and the recipient does not commit to buying. - During the fixed period, the object cannot be sold, if happens to be sold, it is not void, but the first recipient can claim for damages. - He secretly sold the land, and now owes the recipient the difference between what he was going to buy the land for and the price he was going to get (9000-4,000 = 5000) Comment - Cere only gets expectation damages and not specific performance b/c Neeley had already sold land to a 3rd party ---but this is now codified in 1396, 1397 CCQ

**Promises vs Agreements to agree ** (civil) (Common)

28 - Agreement to agree Bilateral - The concept of a “promise to contract” is foreign to the common law - Common law does recognize (though not under this name) if: o All essential elements of a contract are present o Intention to create legal relations o Offer and acceptance o Certainty of terms o Consideration - If so then there can be a K to enter into a K in the future  But is NOT called a “Bilateral Promise to K” - Common is more strict when the subject matter is an agreement to enter into an agreement - (See Brewer v. Chrysler, Walford v. Miles, Empress Towers Unilateral - There is no equivalent to the Unilateral Promise to Contract  WHY? o B/c promises without consideration are not enforced in the common law

- Agreement is essentially agreement to act in good faith ---CML doesn’t really due the ‘Good Faith” thing so agreements to agree aren’t big either - Most of the time agreements to agree aren’t a K -- so = non vague agreement is a promise to be enforced but vague agreement isn’t - Problem = DETRIMENTAL RELIANCE OF PROMISEE. - Solution = Judiciary uses interpretation tools to enforce agreements to agree - Eg Empress towers - Courts will still try whenever possible to support Ks intent to have legal effect - Rule of interpretation kick in whenever ambiguity exists or two possible interpretations - Sometimes no ambiguity - So no Kual solution despite device of court or detrimental reliance (eg of Terrasse) –legal remedy not given but found in terms of UE, (also see Brewer v. Chrysler) - Sometimes opposite is true where K L or offer and acceptance is used as surrogate

Empress Towers v. Bank of Nova Scotia [1991] detrimental reliance  judiciary interpretation as solution to give K legal effect (b/c no unil promise to K in CML) Facts: - Empress Towers (Landlord) brought a petition against the Bank of Nova Scotia (tenant) seeking to obtain a writ of possession - Lease between Empress Towers and Bank contained a renewal clause which said that the new rent shall be at “market rental as mutually agreed upon between the parties” with a lack of agreement creating an option for termination by either party - Bank wanted to renew the lease for another 5 years and told landlord they would pay $5,400 a month. - On the last possible day of renewal, the landlord said he’d accept $15,000 to be paid in advance and the $5,400 a month. - It was evident that leasor was trying to recoup money lost b/c of theft on part of an employee of leasee where insurance company had paid out $15000 but the leasor was still short another $15000 (this helped indicate wasn’t in GOOD FAITH) Issue: Was the renewal clause void for uncertainty? Was there an agreement to agree? Was there a K? Held: Appeal is dismissed – found for the bank Ratio: - Bank detrimentally relied on provision to renew - Agreement to renew cannot be intentionally withheld - Clause is not certain –vague - The effect of the requirement for mutual agreement must be that the landlord cannot be compelled to enter into a renewal tenancy at a rent which it has not accepted as the market rental. But in addition, mutual agreement implie s that the landlord will negotiate in good faith with the tenant with the objective of reaching an agreement

29 on the market rental rate, and that agreement on a market rental will not be unreasonably withheld. - These terms are implied under the officious bystander and business efficacy principles in order to permit the renewal clause, what was clearly intended to have legal effect, from being struck down as uncertain. [The court could decide market price applying principles: 1. Bystander principle: ask a third party what would be reasonable 2. Business efficacy principle: what has to be implied in a K for it to have commercial sense] Notes: - compare this to cases on ambiguity - AGREEMENTS TO AGREE as a misnomer….not really in the same category as promises to contract; should be considered in section on ambiguity - Question: what if Bank had not been occupying premises? Might the court still have found a contract? -Contract interpretation –to give legal effect (cvil law does this too 1428 CCQ)

Brewer v. Chrysler Canada Ltd., 1977  detrimental reliance but no intention to be bound so no K  BUT (damages for) unjust enrichment Facts: - Dft co. approached ptf and asked him to make an application for a dealership - Ptf agreed to apply and was sent a letter stating that the Dft was “prepared to enter into an Agreement…upon satisfactory resolution of…$55,000 capital investment” - Ptf quit his job and made preparations for dealership including hiring staff [reliance] - Delay in getting started and ptf had to live on the $55,000 he had raised - Dft learned that ptf didn’t have the requisite capital, refused to give him the dealership and secured someone else to take it over Issue: Was there a contract that was breached? Should some relief be awarded? Holding: There was no contract binding the dft to give the ptf the dealership. Ptf awarded damages through unjust enrichment. Ratio: - Dft made it appear that appointment of dealership would follow as a matter of course and that ptf was “in business - Ptf carried out his activities (quitting job, hiring employees) under this assumption; he relied on the dft’s “promise” - [there is no binding contract….court doesn’t explain why] - Courts tend to enforce promises when (1) promise made was intended to create legal relations and (2) to knowledge of promisor, promise was going to be acted on by promisee - Promisor did not intend to be bound but could not expect to benefit from efforts of ptf without some compensation – therefore, unjust enrichment Rule: - Courts will generally do everything possible to find a K (give a clause legal, binding effect), but if they cannot, and ptf has relied, court will look for an alternative remedy (restitution or extra-K) Comments Jukier on Brewer: - Decision like in Kleinwort – no intention to be bound (no “promise”) and none implied. ---like a Comfort Letter –but Kleinwort case –were equal partners and this case not so –Kleinwort had no correlation b/w enrichment and impoverishment - Decision could have been like Dawson - no explicit promise but imply one (courts like to imply promissory construction when situation is “instinct with obligation”) - [SH: Promissory Construction – look for correlative promise or action – doesn’t appear to be any…] - Here: unjust enrichment an option (b/c Dft. enriched and Ptf impoverished correlatively) – so court didn’t have to find a contract to protect reliance of ptf - We like to protect reliance but unjust enrichment doesn’t always work and not always appropriate to imply a promise/contract…so how about a new category of remedies? – Detrimental Reliance. = Common Thread ----uf 30 tiy gave relied on it then law should enforce this –Atiyah?? - ASK: why is this case in “agreements to agree”?  language is “prepared to enter into…” - What if court felt bound to award ptf expectation damages? Would it have found a contract? - ECO help!!!

Offer and Acceptance as a Surrogate Debate

Invitation to treat - Display of goods - Elements of K are all there ---but are you bound? - If yes then once you take object you can’t put it back - So no b/c haven’t COMMUNICATED acceptance - So Carlill problematic again b/c she never communicated acceptance to Smokeball company - We could add ‘condition to offer’ – subject to reasonable limitations/ circumstances

Pharmaceutical Soc. of Great Britain v. Boots Cash Chemists, Ltd., 1953  UK  communication of acceptance  invitation to treat (not offer) offer acceptance being used to forward public policy goals Facts: - Chemist’s self-service shop set out preparations on shelves and priced them; customers choose what they want, and bring the to the cash. - When they pay the registered pharmacist supervises the transaction. - The provisions of the Pharmacy and Poisons Act, 1933 s. 18 stated that it was unlawful to sell certain drugs, unless the sale is effected under the supervision of a registered pharmacist. - Ptf contends that proper supervision is not possible because display is offer and customer’s choice is acceptance. Thus, K is formed before pharmacist can supervise the sale. Issue: Does the display of goods on the shelf constitute an offer or an invitation to treat? When is the contract complete? Held: Appeal dismissed. The K is formed when money is exchanged (customer offers and pharmacist accepts). ***The display of goods is an invitation to treat and not an offer***. Ratio: If the display of goods were an offer, the customer would be bound to pay for all goods that he placed in his receptacle. Once chosen, he would not be able to substitute an article that he later saw and preferred. Rule: Display of goods in a store is an invitation to treat. K is formed when money is exchanged. [this is the traditional common law position] Comments Jukier on Boots Cash Chemist: - Jukier believes that the display of goods is an offer because all of the essential elements of the contract are there (price, description and quantity). This is consistent with the civil law position articulated in Art. 1388 (Note also article 1389 re. who an offer to contract derives from). The test should not be what is the mechanism of the offer but rather, has the offeror properly conveyed all the essential elements of the contract with the intent of entering into a legal relation? - Three major criticisms of the judge’s decision: - If display is an offer, customer is NOT bound when he chooses…b/c he has not yet communicated acceptance - *****Offer and acceptance being used to forward public policy goals: The judge’s choice of what constitutes an offer reflects public policy considerations. If display is offer, then pharmacist could not supervise transaction. - If customer is offeror, creates possibility for a merchant to discriminate (to refuse to sell based on race, gender, etc.) (also see Christie v. York – where discrimination against patron and bartender(or whatever) alleged freedom of commerce –that could choose not to accept offer ---Quebec charter overruled this) - Compare w/ Carlill –no meeting of the minds 31 - CVL would say display of goods = offer (1388CCQ)

Thornton v. Shoe Lane Parking Ltd., 1971 offer and acceptance surrogate  formation jimmied to adhere to policy considerations  opposite outcome to Boots Facts: - The plaintiff was injured in the defendant's parking garage. - There was a sign at the entrance indicating "All cars parked at Owner's risk". - The ticket was issued by a machine as the plaintiff entered the garage. - The plaintiff was later injured when he returned to pick up his car. - In small print on the ticket appeared the words "This ticket is issued subject to the conditions of issue as displayed on the premises." - The plaintiff entered the garage but did not notice the conditions, one of which exempted the garage from liability for personal injury Issue: Did the exempting condition form part of the K? [Judge decides by asking: When was the K formed? Held: S.C.: The trial judge found that fault lay partially with the defendant who was found liable. C.A.: Appeal dismissed. Exempting condition does not form part of the contract. Ratio: - The ticket machine was an offer. The ptf accepted the offer and thus the contract was formed when he drove up and took the ticket. - The condition of exemption of liability is not part of the K because it was not brought to the attention of the offeree at the time of the offer. Rather, it was introduced after the K was formed. ---can’t introduce exoneration clauses after K has been formed ---K has been formed bef ticket/ K has been read - Garages now have to clearly post exoneration bef ticket dispenses - SURROGATE Rule: - An exemption of liability clause (any clause?) only forms part of the K if the offeree was aware of it at the time of formation. (?) Comments Jukier on Shoelane Parking: - Judgement is inconsistent with Boots: here the “display of goods” is an offer. - Formation of contract rules used to “do justice”. This is not a K case per sé. The issue is whether the Dft is liable for the Ptf’s injuries. Denning has an outcome in mind and uses contract law to get there. “The exempting condition…is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way.” - There are better ways to limit a contractually unfair term: - Unconscionability (EXTREME UNFAIRNESS) (common law); Lesion (civil law) - Doctrine of Fundamental Breach

Civil Law on Shoelane Parking Case - Law of contract formation is the wrong way to solve this case. How could it be solved under Quebec civil code? (2 ways) 1474 CCQ and 1475 CCQ: - 1474: a person may not in any way exclude or limit his liability for bodily or moral injury caused to another - 1475: An exemption of liability clause only has effect if the party who invokes it can prove that the other party was aware of its existence at time contract was formed. (“The Red Ink Test”) (this is trumped by 1474). External Clauses wrt Adhesion Contracts (1379 and 1435 CCQ): - K in Shoelane case was an ADHESION CONTRACT (1379 CCQ) and had an external clause. - 1435: An external clause referred to in a contract is binding on the parties. In a consumer K or K of adhesion, an external clause is null if not expressly brought to attention of adhering party at time of formation.

32 B. Consideration and Formalities Consideration CVL - 3 types of K’s - Consensual (1385 – no formal requirements)  CONSENSUAL IS DEFAULT K IN CVL - Real (formality = delivery requirement) - Eg loan 2281 CCQ - Notion of ability to give gift ---Hammer and Sidway + ___---eg incompleted gifts - For evidentiary reasons - ****primary obligation is to give thing back at some point so make sense to get it first - Formal (requiring notarial deed) - Only 3 Ks require – {pre-nup}= Marriage K 440 CCQ, donations – if don’t deliver the movable property than K isn’t complete bUT if dealing w/ immovable property it needs to be under notarial deed, hypothec 2693 CCQ - Also a living will – mandate (given by person anticipating incapacitation) but just need witness not notary there is nothing like consideration in CVL FULLER - Reasons for formalities - Evidentiary function –easier for enforcement - Cautionary function – an antidote to impetuousness—people think more when it’s an actual action you have carry out, stimulates reflection and allows contemplation - Channeling function – allows court to limit cases that are relevant, give tools for enforceability ( ATIYAH ) *CML = has CONSIDERATION (some say CVL ‘cause’ is comparable) - Consideration = ‘motivating factor’ –to know if X is binding need to know why it was made ( SIMPSON ) --- **means something which is of : - 1)value in the eye of the law - 2)moving from the promise - 3)It may be some detriment to the promise or some benefit to the promisor (DAHL case)

1) ‘even a peppercorn is enough’ 2) end of year? –who is benefitting ***3)benefit/detriment analysis ---goes wrong in Hamer and Sidway - agreements must have consideration to be enforceable –unless takes place under seal - first defining case 1842 – Thomas and Thomas - Consideration seen in terms of benefit and detriment

Quid Pro Quo - Item or service has been traded for something of value - 2 broad arrangements o Mutual undertakings to do or not to do something ---exchange (typical executor K) o Undertakings conditional on performance of an act (where act has been performed) - Courts will not enforce NUDEM PACTUM (no bare promise) - White v. Bluett and Hammer v Sidway = building block cases o Both are intangible, moral non-pecuniary o Both are negative (won’t do something) o Promisor dies in both cases –so someone else dealing w/ estate o Unil K sits

33 o DIF = nominal consideration vs. illusionary consideration (promise to pay me so that I’ll stop doing something) (overtones of coercion????_ Purpose of consideration - (carlill –didn’t have notion of duress???) Problems of consideration - Past consideration = what’s wrong w/ Roscorla v. Thomas - Pre-existing duties (changing circumstance )—harris v.watson **NEED FRESH CONSIDERATION -1433 CCQ –can modify agreement as long as both parties agree - consideration must have legal and factual benefit  legal and factual causation?

Promissory Estoppel - Rather like awaiver effective defence to a claim by the promisor attempting to enforce the original Kual arrangements - used as shield (can’t be used as sword)  can’t be used to enforce a promise  just to shield oneself from attempted enforcement of an original promise o can be used as a defense against Kual breach - To keep people from reneging on word - Principle that a promise made w/out consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promise to rely on the promise and if the promise did actually rely on the promise to their detriment

White (Executor) v. William Bluett (1853)  duress  *(no) CONSIDERATION Facts: - Father, now dead had lent money to his son - Father’s executor tried to sue son for debt - Son’s defense was a promise made by father to son in a promissory note: I promise to forgive the debt if you stop complaining [that you have not been given as much as the other children] Issue: Was “I promise not to complain” sufficient consideration for the promise to forgive the debt? Holding: NO. Ratio: - The son’s abstaining from doing what he had no legal right to do [i.e. complain about his father’s distribution of his property] cannot be consideration. [***he didn’t have a legal right to complain so he couldn’t give up this legal right as consideration***] Rule: One cannot, in consideration of a promise, give up a legal right that he does not posess Ex-post facto explanations: Family Context and Duress

Hamer v. Sidway (1891)  reliance  (yes) CONSIDERATION Facts: - Uncle promised if kid did not drink, smoke, play cards for money till 21, he’d pay him $5000 (unilateral K) - Nephew performed the conditions of the promise and informed uncle. - Uncle informed nephew (via letter) that he had the money but wanted to keep it till he believed nephew would be responsible with it. The nephew agreed. - Uncle died (before paying money). Testator of uncle’s will refused to pay money. - Defendant contended that the K did not have consideration and is therefore invalid. There was no consideration b/c nephew (promisee) received benefit (not detriment) and uncle (promisor) received no benefit. Issue:

34 Was the uncle’s promise met with consideration and thus binding on his estate? Held: Uncle benefited in a legal sense and is therefore responsible to pay. Ratio: - Consideration Consists either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, to undertaken by the other. - Court does not ask if the thing, which forms consideration, benefits the promisee (nephew) or is of any substantial value. - Benefit to uncle: happiness from seeing nephew abstain from bad habits. - Detriment to nephew: abstaining from activities in which he had a legal right to partake. While uncle’s benefit is subjective, or thin, both parties performed as if they were bound. Rule: Consideration does not have to consist of strict benefit/detriment to promisor/promisee. It is enough that something is promised, done, forborne or suffered by the promisee. Ex-post facto explanation: Intention to create legal relations (evidenced by the letter). - 2 possible “considerations” (abstaining from complaining, abstaining from smoking, drinking, etc.)  court finds one to be valid consideration and the other not to be  How can we explain this?

Ex-post facto explanations of Hamer v. Sidway and White v. Bluett: - [1] Intention to Create Legal Relations - Family agreements presumed prima facie to be un-enforceable b/c promises in a family context are not usually made with the intention of being bound. - White v. Bluett  father-son relationship therefore presume absence of intention to create legal relations - Hamer v. Sidway  context (family) creates a presumption of absence of intention to create legal relations but this presumption is rebutted by evidence of intent (the letter written by uncle) - [2] Duress - Duress: spoken or unspoken threat which causes a party to promise something that they didn’t want to promise; promise is not made freely, does not reflect the will of the party (Note difference between Physical v. Economic duress) - Doctrine of duress did not exist at time of these two decisions. - White v. Bluett  Son’s complaining constituted duress; father only made the promise b/c he was annoyed by his son’s complaining and wanted him to stop. - Hamer v. Sidway  Uncle made promise freely; no situation of duress. - [3] Reliance (SH) - Hamer v. Sidway  Nephew relied on promise and acted to his detriment (gave up activities that he have wanted to partake in)  courts typically seek to protect reliance

- These ex-post facto reflect Atiyah’s contention that Consideration exists simply to perform a CHANNELING FUNCTION - It is nothing more than a means to enforce promises that we like and not enforce promises that we don’t like (for one reason or another) benefit/detriment analysis ---goes wrong in Hamer and Sidway ---the nephew is actually benefiting from non smoking drinking thing –so is this consideration?

Dahl v. Hem Pharmaceuticals Corp., United States Court of Appeals, Ninth circuit, 7 F. (1993) unil K  (yes) CONSIDERATION Facts - New med being tested for chronic fatigue syndrome - Patients submitted for blind test - “if you submit to our experiment we will five you a year’s supply of Ampligen at no charge’ - HEM ceased providing med to patients when test was over - Patients sued for injunction and other relief Issue 35 - Does HEC have to keep supplying med Held - Yes Reasoning - Unil K as formed and when patients completed double blind test HEC was bound to keep end of K Ratio - Upon completion of a promisee’s end of bargain, promisor must uphold their end Unilateral K - States that plaintiffs in K –K was detrimental to them - Where exchange of promise –is a bargain (Detriment) - Notion of quid pro quo (reciprocity –exchange) - Link to Carlill - -***patients incurred the detriment in exchange for testing ----so consideration!!---also upon completion K was binding

Contrast to Hammer --restrictions on smoking gambling etc were actually benefiting him

Consideration and Changing Agreements

Roscorla v. Thomas (1842) PAST CONSIDERATION isn’t consideration need fresh consideration for new promise Decision: K of sale of a horse. Subsequent promise that horse was sound (warranty) not met with consideration. (the promise to pay for the horse was coextensive with the transfer of ownership and not the with the warranty) Rule: Consideration must be coextensive with the promise  past consideration (for an earlier promise) is not consideration. Once an agreement is complete, a subsequent promise, to be enforceable, must be met with fresh consideration -link to thornton v. shoe lane parking case –any new promise has to have fresh consideration

Harris v. Watson (1791)  (no) CONSIDERATION pre-existing duties  no quid pro quo as had already agreed to duties  danger of duress  fresh consideration needed Facts: - Sailor had a fixed-price contract to work on a ship - During voyage, seas became dangerous - Ship captain makes promise: “I promise to pay you 5 guineas over and above normal wages” - Consideration for promise: Sailor will do more than the ordinary share of duty in navigating the ship - Sailor suing for promised extra wages Issue: Is this an enforceable promise? Holding: No Ratio: - To enforce this promise would be to violate a principle of policy because would give incentive to the sailors to let the ship sink unless they were promised extra wages. ------DANGER OF DURESS Rule: - A promise along the contract’s life to change a term of it will be unenforceable unless there is fresh consideration. Promising what you had a pre-existing duty to do is not consideration. there’s no new exchange  sailor had already agreed to do what the new promise required

Jukier on the ship cases: - This case is consistent with Stilk v. Myrick - In both cases: there were changing circumstances (dangerous seas, seamen deserting) and captain made promise: “I promise to pay you more if you continue to work on the ship.” The captain DID get a practical

36 benefit, b/c the seamen worked extra hard in extra seas/did not desert the ship. But court found  pre-existing duty is not consideration. - Underlying rationale for the rule? - Public policy: seamen shouldn’t be able to hold captain “over a barrell” - Modern articulation  Duress: when one party (by physical force or economic intimidation) EXTRACTS a promise out of the other (Duress cases  White v. Bluett, Gilbert Steel?, ship cases) - Problem with rule from ship cases: - The rule is too broad  it catches cases in which parties genuinely modify their K (no duress, no unfairness)

Stott v. Meritt Investment Corp. (1988) factual benefit or detriment can be consideration eg. forbearance (intentional delay) to sue Facts: - Stott and employer (Merit Investment) have employment contract - Fiasco with one of Stott’s clients  client owes money - Stott signs an agreement acknowledging his responsibility for the debt of his client and agreeing to pay in installments while in the employment of Merit Investment. [Court interprets this as : Stott  “I promise to pay you back what you say I owe you”. Merit  “In consideration, I promise not to sue you.” ] Issue: Was there valid consideration (on the part of Merit) for Stott’s promise to pay for his client's debt? Should the agreement be enforced? Holding: Forbearance to sue was valid consideration. The agreement should be enforced. Ratio: - Forbearance can only be consideration for a claim that exists or is deemed, in good faith, to exist - Here, Merit believed in good faith that it had a sound claim [esp given the fact that Stott seemed to acknowledge his liability by signing monthly statements that showed deductions for the debt] - A specific request for forbearance for a precise period of time is not necessary; here, there is clearly implied forbearance on the part of Merit to sue during the continuation of Stott's employment - Forbearance is not the only consideration: Merit also promised “not to fire Stott” if he paid back the debt through salary deductions. [Dissent]: - Stott was not liable under his contract of employment to indemnify Merit for the client's loss; thus Merit had no claim against Stott upon which it could assert forbearance to sue as consideration for the agreement signed by Stott - Merit's claim of Stott's liabilty could have been the basis of forbearance if it was made in good faith; however, it was not. It was made to shift responsibility for the actions of Douglas (and by extension Merit) to Stott - Promise not to fire cannot be consideration Rule: Factual benefit or detriment (such as forbearance to sue based on a belief that a valid claim exists), and not just legal benefit or detriment can be consideration. (See also, Fairgrief v. Ellis, Williams v. Roffey Bros.) Fairgrief and Ellis Court finds an IMPLIED promise not to sue (Cases w/ promissory construction: Errington and Errington (?) – family, not commercial Dawson and Helicopter Exploration Wood vs. Lucy Lady Not in Brewer or Kleinwort Jukier on Stott v. Merit: - Note the promissory construction: language of “forbearance” not used, but court implies promise in order to render K enforceable. (See Wood v. Lucy Lady, Dawson v. Helicopter) - Decision is inconsistent with the 2 ship cases (there, factual benefit was not found to be valid consideration)  but note two factual differences: - perhaps no issue of duress in this case (though note that dissenting judge believes there was unfairness  an abuse of bargaining power on the part of Merit). - This case is not in the context of pre-existing duty 37 - **** Forbearance: an intentional delay in collecting a debt or demanding performance on a K (or SUING), usually for a specific period of time. Can be consideration for a promise. Problem here: Giving up a legal right to sue cannot be forbearance if you have no right to sue. But, undecided claims are uncertain. Solution: Forberance to sue based on a real or plausible cause of action can be consideration.

Gilbert Steel Ltd. v. University Construction Ltd (1976)  no (CONSIDERATION) need fresh consideration to modify K and pre-existing duty (promise to deliver) doesn’t constitute this  can’t use promissory estoppels b/c cannot be used as sword, only shield  no detrimental reliance Facts: - Ptf entered into written contract to deliver steel to dft at a particular price and Ptf warned of a price increase to come - While building under construction, Ptf announced price increase and alleges that Dft orally agreed to pay new price for remaining steel [Dft: “I promise to pay higher price”] - Ptf submitted new written contract to Dft embodying new prices and two new clauses that were not discussed - Ptf RELIED on promise and delivered steel; Dft accepted deliveries of steel accompanied by invoices reflecting new price and remitted cheques in accordance (so there was express oral acceptance AND tacit acceptance) Issue: Was there consideration (from Ptf) for the Dft’s promise to pay more? Holding: No consideration therefore agreement not legally binding Ratio: - Oral agreement was a modification, not a recission, of the original contract. [so mutual agreement to abandon contract not consideration] - Cannot modify a contract without fresh consideration and the pre-existing duty to “deliver the steel” cannot be fresh consideration. - Ptf cannot claim promissory estoppel b/c (1) cannot be used as a sword and (2) Ptf cannot show that he relied to his detriment - There is no consideration in the possibility that the Ptf would give the Dft a “good price” on the steel for the second building if it went along with the increased prices on the first; Ptf fell far short of making a commitment in this regard - There is no consideration in the increased credit afforded by the Ptf to the Dft as a result of the increased price Rule: - Strong affirmation of the pre-existing duty rule (Gilbert Steel’s “promise to deliver” was a pre-existing duty and could not constitute fresh consideration) – 200 year old rule being used

Jukier on Gilbert Steel: - Two things the court overlooked  (1) possibility of duress; (2) factual benefit to promisor  they are related. - Promisor received factual benefit (sort of)  could finish building on time and avoid consequences of delay. - Why doesn’t the court construe this as consideration?  perhaps “economic duress” is underlying the court’s use of consideration  half a building has been built and if the dft doesn’t agree to the higher prices, he is screwed. His work will be delayed. So Gilbert can “extract” a promise to pay a higher price b/c he knows that University needs the steel. - What would Atiyah say? Let’s call a spade a spade…base a decision on DURESS and not on consideration. - In this case, recision could have been consideration: “In consideration for you paying the higher price, we will rid you of your obligations under this K and enter into a new one.” Parties don’t like to do this. - WHY IS THIS CASE DECIDED DIFFERENTLY THAN Williams v. Roffey? [sh: underlying duress thing]

Consideration and Reliance

Central London Property Trust v. High Trees House, 1947  promissory estoppel  used as shield where promise to accept less w/out fresh consid can be enforced if promissee relied upon Facts: - Landlords let an apartment building in 1937 at a ground rent of L 2,500 per year 38 - Because of outbreak of war, tenants had difficulty letting the flats, so in 1940 landlord agreed in writing to reduce the rent to L 1,250. No duration was specified, no consideration given. [Promise: I promise to accept less rental] - By early 1945, the whole block was let and the landlords asked that full rent plus arrears be paid by tenant Issue: Should promise to accept less be enforced, even without consid for it? If it is a binding promise, what is its scope? Holding: Promise is binding as covering period to early 1945. From that time, full rent is payable. (don’t have to pay arrears Ratio: - The promise, intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply. This is true even when there is no consideration for the promise - The promise was understood by all parties to apply only to conditions of partially let apartments. Thus, the promise to reduce rent applies until the end of 1944, at which point the prevailing conditions changed. Rule: Promissory Estoppel: If you made a promise that you intended to be binding and acted upon , and it was in fact acted upon, you will be estopped from going back on that promise, even if there is no consideration for it.

Jukier on High Trees : - First articulation of PROMISSORY ESTOPPEL: a promise to accept less (modification) with no fresh consideration is enforceable if the promisees relied on the promise. The promisor is estopped from asserting his/her prior legal right when there is detrimental reliance. (needed a doctrine to protect the reliance of promisee when no consideration) - The significance of this case in obiter (b/c ptfs only claimed higher rent for after war…and they got what they claimed) - Compare to finding in Brewer (same rationale as first point in ratio?) - Compare to Gilbert Steel – sword/shield distinction

- ESTOPPEL = INABILITY TO BACK OUT ON PROMISE  PROMISSORY ESTOPPEL CAN STOP IT

Williams v. Roffey Bros and Nicholas Ltd., 1991  (yes) CONSIDERATION  even though for pre- existing duty  although no legal benefit  obviated dis-benefit, obtains benefit in practice, and no duress Facts: - Ptf is a carpenter; Dft is general contractor; entered into sub-contract for carpentry work - Before completion of contract, Ptf was in financial difficulty and Dft was concerned work wouldn’t be completed [was penalty clause in contract w/ building owners] - SO…Dft modified contract by promising to pay more for a “pre-existing duty” - Ptf accepted the promise but didn’t finish work, Dft incurred penalty in main contract - Ptf suing Dft for extra money promised. Issue: Was there consideration for the Dft’s promise to pay more [(2) And even if consideration is otherwise good, did it move from the promisee?] Holding: YES, promise supported by valuable consideration. Promise enforceable. Ratio: - There was NO legal benefit b/c promisee only obligated to do what it was under pre-existing duty to do - BUT By promising to pay more, the Dfts obtained a benefit/obviated a dis-benefit in practice (work was completed on time, penalty was avoided) - Promise was not given as result of economic duress or fraud on part of Ptf - SO…The practical benefit is the consideration and it moves from the promisee b/c is provided by it [Concurring opinion]: - In commercial context, should look for mutual advantages. As a result of the agreement, the dfts secured their position commercially. Therefore, the agreement should be enforced. [Recall Dawson, Lady Duff] Rule: 39 - The promise to pay an additional payment WILL be consideration when “as a result of giving his promise, B obtains in practice a benefit or obviates a disbenefit AND B’s promise is not given as a result of economic duress.” Jukier on Williams v. Roffey : - Not clear what effects case will have on law of pre-existing duty  if Gilbert Steel case came to court again, would it be decided differently? (ONLY factual difference: in Gilbert, initiative for modification comes from Ptf and not Dft) - in Williams v. Roffey there could be no duress b/c you cannot create your own duress. - First case in which court finds that PRACTICAL/FACTUAL benefit can be fresh consideration for modification of pre-existing duty (does what Stott v. Merit does but in different context) - Court very careful not to overrule Stilck principle. Do they? NO…b/c in Stilck and Harris  concerns of public policy are equivalent to modern duress which the court here addresses - Jukier: modern doctrine of consideration  courts like to enforce commercial promises when there is mutual advantage (recall: Lucy Lady Duff and Dawson). [but ultimately, the decision in W v. R is not made for this reason…the court does not want to overrule Stilck so it FINDS consideration] “This case could potentially rewrite the law of consideration.” -WIDDENS NOTION OF CONSIDERATION

Walton Stores (Interstate) Ltd. v. Maher [1988] reliance  promissory estoppel used as sword to enforce promise for which there was no valid consideration from the pre-existing duty Facts:  Negotiation to lease land and have owner (Maher) demolish an existing building and build a new one for the company (leasee)  Possible lease contracts sent back and forth with negotiation speed encouraged by the owner so as to meet a construction date set by the company  Agreement on conditions of contract subject to exchange of contracts  Demolishing commenced which was known by the company  40% finished building new construction, without any communication from company to owner in over a month, company sent letter saying they did not wish to proceed  Reliance Issues  In the absence of valid consideration from a pre-existing duty, how can court protect reliance.  Can promissory estoppel be invoked as there was no pre-existing contract, indeed a “non-contractual promise”. Held - Yes, agreement is binding. Receive reliance interest (costs of preparing land) Reasoning:  Per Mason J and Wilson J:  1) take into consideration urgency of negotiation – told must start immediately – then agreed – then started  2) Assumption of agreement on terms and therefore assumption that exchange of K’s was only a formality  Unconscionable that appellant, “knowing that the respondents were exposing themselves to detriment by acting on the basis of a false assumption” adopted a course of action that encouraged them in the course they adopted  Had to choose to complete contract or warn respondents - not entitled to simply retain the counterpart deed and do nothing  Per Brennan J: Almost a 2 tier enforcement  not giving expectation interest  only given in a bargain with consideration  PE cannot take place of K or doc of consideration  Remedy is Reliance interest  loss suffered as result of preparing land for the lease but not full expectation interest Ratio: Here, PE being used as a sword as promisee taking action against someone with whom he has no prior relationship and using PE to create something akin to TORTOUS RESPONSIBILITY to protect reliance through reliance interest. Comments 40  Judge brave as is using PE with entirely new situation  no pre-existing duty - No logical distinction b/n PE as sword or shield according to Judge - subcontractor didn’t bid for enough money

Jukier on Walton v. Maher - What is different about the context in which PE is being used? - What is the court really giving through PE (expectation (effectively getting rid of consideration) or something else (such as reliance)) - Note difference b/n this case in Aus and Williams v. Roffey which is in England  In England protecting sword/shield distinction so as to protect the NOTION OF CONSIDERATION which remains a “cardinal necessity in the formation of a K”. - Should be same as all cases of Promise to Contract  Brewer v. Chrylser, Walford v. Miles - Does this obliterate consideration in Aus?: NO  consideration still exists. Would only give expectation interest in the case of a bargain (with consideration). Here will give reliance interest. Looking at consideration and Promisory Estopple in: Canada - Gilbert Steel maintains shield/sword distinction - From Tudale, Grange J. is protecting reliance Australia - Walton v. Maher showing fundamental difference  NO pre-existing relationship and attempting to modify - PE based on A Promise to Contract (or an agreement to agree)  Give only RELIANCE INTEREST  thus protecting bargain theory and doctrine of consideration England - Williams v. Roffey (which happens after Walton stores v. Maher) maintains sword/shield distinction US - Second restatement of Contracts  Not Binding. Is only an academic endeavor to try to restate in a codal form which is widely taught but not binding. - Promise modified on a pre-existing duty is binding if fair and equitable in view of the changing circumstance - View to protecting reliance in other parts of the restatement  different levels of protection  might only protect reliance interest  very similar to Denning’s words in this section 90 of restatement CONCLUSIONS from all this Consideration Business: - Reality  courts today aren’t happy with much of consideration; i.e. the limitations of: - Pre-existing duty rule [solution: factual/legal benefit] - Preventing legitimate/genuine K-ual modifications [solution: factual/legal benefit] - Sword/Shield distinction [solution: blurring distinction, action in detrimental reliance] - This is why we see cases like Williams (pre-existing duty), Tudale (Sword/shield distinction) which are not easily reconciled with the doctrine of consideration.

Remedies used to Protect Reliance: - Ptf has relied  Find a K or don’t find a K but award damages: Remedy Type Damages Awarded Case Promissory Contract Expectation Dawson v. Helicopter Construction Promissory Estoppel Contract Expectation High Tres Imply Promise not to Contract Expectation Errington v. Errington Revoke Unjust Enrichment Restitution Lesser of impoverishment/enrichment (maybe < Reliance) Torts? Detrimental Kleinwort Reliance Brewer

41 The Civil Law Perspective - No consideration in CVL  ask what is cause and object of K  necessary for there to be a K (1371, 1385 CCQ) o Cause  the reason  1410 CCQ . Subjective cause  cause of the K  this is the personal reason . Objective cause  cause of the obligation  1371 CCQ  pretty much the same for everyone  the sale /want to buy something o Object of an obligation  is its prestation (payment of money/rendering of a service) . So eg. to deliver the goods, and to pay debtor o Object of K  is the juridical operation . = transfer of ownership of goods - Natural obligation o Moralnatural civil(juridical) obligation . Moral  not enforceable except in the case of charitable donation . Natural  can be cause of enforceable civil obligation  (Re Ross) o Art.2630  if you lose bet payment is a natural obligation  if you pay, no getting it back Obligations in general 1371 CCQ It is of the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and, in the case of an obligation arising out of a juridical act, a cause which justifies its existence. Gratuitous K 1381 CCQ A contract is onerous when each party obtains an advantage in return for his obligation. When one party obligates himself to the other for the benefit of the latter without obtaining any advantage in return, the contract is gratuitous. Conditions of formation of K 1385 CCQ A contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties require the contract to take the form of a solemn agreement. It is also of the essence of a contract that it have a cause and an object. Cause of Ks 1410 CCQ The cause of a contract is the reason that determines each of the parties to enter into the contract. The cause need not be expressed. 1411 CCQ A contract whose cause is prohibited by law or contrary to public order is null. Nature and certain classes of Ks 1380 CCQ A contract is synallagmatic, or bilateral, when the parties obligate themselves reciprocally, each to the other, so that the obligation of one party is correlative to the obligation of the other. When one party obligates himself to the other without any obligation on the part of the latter, the contract is unilateral 1381 CCQ A contract is onerous when each party obtains an advantage in return for his obligation. When one party obligates himself to the other for the benefit of the latter without obtaining any advantage in return, the contract is gratuitous. Gaming and wagering 2630 CCQ Where gaming and wagering contracts are not expressly authorized by law, the winning party may not exact payment of the debt and the losing party may not recover the sum paid. The losing party may recover the sum paid, however, in cases of fraud or trickery or where the losing party is a minor or a person of full age who is protected or not endowed with reason. 42 In re Ross [1932] CVL  promise of donation ’cause’ moral obligation changed to natural obligation then changed to civil obligation to  and thus in sphere of unil onerous K rather than gratuitous K Facts:  Ross promised to pay McGill $150,000 as long as they built and named a building after him. War breaks out  mutually agree to release from obligations.  After the war, Ross promised the sum of $200,000 if previous amount included and, in exchange, McGill did not have to name the building after him anymore.  Ross then paid $100,000 and signed a promissory note for a three-year delay on the balance with interest.  Ross went bankrupted and syndicate does not want to pay.  McGill tries to be recgonised as a creditor Issue:  Is there a K  idea of “cause” and consideration Decision: There is a contract  Ross trustee in Bankruptcy is bound to pay Ratio: - Promissory Note  should be federal. Is there consideration (debate)  Not relevant as majority says should be under civil law  Needs Cause! - If it was a gratuitous contract, a formality would be required - Mutual rescission of the first contract would be considered consideration for the second (explicitly stated in promissory note) - Second contract: bare promise of liberality - The objective cause is not an intention libérale but a pre-existing natural oblg. (no formality required) Ross was deeply involved in the University (was governor, etc) and thus his moral obligation was bumped up to a natural obligation to honor his promise. Comments  Dissent: Bond  Common Law should be used. No consideration.  In Re. Ross, a moral obligation was bumped into a natural obligation…and then that natural obligation turned into a civil obligation when Ross promised (via promissory note) to execute it.  Where a person is promising making a donation is seen to be fulfilling a natural obligation  cause will be natural obligation and NOT intention libérale  therefore not in the sphere of gratuitous Ks  in the sphere of the UNILATERAL ONEROUS K Consider Errington v. Errington in the civil law context!

C. Public Policy and Community Values - K can’t go against normative values of society - Public order o Not a static notion o Context/location etc dependent - 2 notions of public order o Directional public order - Aimed at protection of general interests of states, common good  classic conception - K will be null if court rules against it o Protective public order - More narrow - Protection of indiv against larger entity  Eg. consumer legislation - 2 aspects to be focused on o Restrictive covenants - Eg. non-competition clauses - Eg. Cameron 43 o Intersection btw public and private law - Is a Charter or human rights code necessary? o You can always legislate - If no legislation can always use ‘public order’

9 CCQ In the exercise of civil rights, derogations may be made from those rules of this Code which supplement intention, but not from those of public order 1411 CCQ A contract whose cause is prohibited by law or contrary to public order is null

Brasserie Labatt Ltd. v. Villa, 1995  contrary to public order (1373 CCQ) and Charter discriminatory Facts: - Villa gets promoted to the position of vice-president Public Affairs with Labatt. (He is offered the promotion and accepts) - A condition of the promotion is that he must move himself and his family to Montreal. Villa was aware of this condition when he accepted. - His wife has teaching job in Quebec City and cannot move. - He does not move his family (violation of his contract) and consequently gets fired Issue: Is the clause requiring Villa’s family to move to Montreal valid? Is the firing valid? Held: No, the condition in the K is null. Firing was based on breach of a null K therefore firing is not valid. Damages awarded to Villa. Ratio: [Beaudouin J.]: - The condition (a contractual obligation) posed is contrary to public order (CCQ 1373), and contradicts the requirements in the Charter art. 10 (p. 1352 CCQ) which prohibits any discrimination based on (a person’s civil status). Marital status is one element of a person’s civil status. - The dismissal was based on marital status and the act was discriminatory since other employees with a different marital status would not be held to the same requirements. [Gendreau J.]: - Agrees with holding but for different reasons: - Does not feel that the dismissal was based on marital status or that the condition in the contract discriminates against the married employee. - He feels that the obligations imposed by the K are against the law and contrary to public order (1373) because the employer cannot impose on his employee a way of leading his own private life. - Moreover, the clause is a violation of the Quebec Charter of rights and freedom, article 5 – protection of privacy. - And therefore holds the K null. [Note: He uses this argument to make it more broad because say for example the K said that if you have a girlfriend she is required to move, this would kill Beaudouin’s argument]. Rule: Cannot discriminate in Ks. Cannot use K to impose on a person’s private life (i.e. dictate how it must be led). Judgement suggests that courts will intervene not only in Ks that violate charter, but also in Ks that violate some general notion of public order. Jukier on Labatt v. Villa: - It is possible to validly use a K to abrogate a right, but must be adequate compensation. E.G. Hamer v. Sidway and White v. Bluett. Perhaps clause would have been valid if Villa was given compensation besides salary. - Severance: Court might have severed the null clause in order to make the K of employment valid.

44 Cameron v. Canadian Factors Corp., 1971  restrictive covenant  non-competition clause  contrary to public order Facts: - Cameron, upon taking job at Canadian Factors singed non-competition clause (restrictive covenant). - K said that (1) he would not induce client to take their business elsewhere; (2) he would not take employment in Canada, for any other factoring concern or finance company or business with similar purposes for 5 years; and (3) if he did, he’d pay a $10,000 fine. - Cameron resigned and signed with another financial company before the termination of the K. - Canadian Factors alleged breach of (1) [Cameron induced former Canadian Factors clients into his new place of work] and (2), and sued to recover $10,000 fine. Cameron denied the breach of (1) and admitted the breach of (2) but claimed that it was invalid. Issue: Was the contract void (in whole) due to the invalidity of paragraph (2)? Held: The contract is invalid, contrary to public order (Dissent) Ratio: [Laskin J.]: - Employee restraint covenants may be held invalid because of their unreasonable duration or unreasonable territorial ambit. (this principle doesn’t derive from the CCQ but is recognized in the courts of Quebec and France.) - Both the duration and territorial ambit of the restraint covenants in the K are unreasonable and therefore contrary to public order. - 5- year duration: You must balance the interest of the employer for the protection of his business with the interest of the employee for the protection of economic mobility (i.e. right to run a business vs. right to earn a living) in light of a policy that discourages limitations on personal freedom, and specifically, on freedom of economic or employment opportunity. The 5 year prohibition is unreasonable, and is therefore contrary to public order. - Canada-wide scope : Paragraph (b) alone is also offensive to public order because it exceeds, in its Canada- wide ambit, any reasonable requirement of the plaintiff for the protection of its business interests, interests which are centred in Quebec. [Pigeon J. Dissent]: - Feels that it is possible to read down the scope of the contract, making it valid. - Does not think that Cameron could use the excessive portion of the contract as an excuse to rid himself of what is not excessive. - Judge believes that Cameron’s undertaking not to take employment with a competitor, a “finance company” or a similar business must be regarded as divisible, that the first part of this undertaking (“finance company”) is clearly valid, and that Cameron has admitted a breach of it. - Cameron was also in breach of paragraph (1) by inducing business from Canadian factors and cannot plead the excessive duration of this agreement as a defence to the charge of having broken it very shortly after leaving his employment. - [The K may be invalid, but is not invalid in respect of Cameron’s activities] - He thinks that it is crazy that the validity of the K is dependent on the validity of the paragraphs. Rule: Employee restraint covenants may be held invalid b/c of their unreasonable duration or territorial ambit. Reasonableness is determined by balancing the employer’s interest in protecting his business with the employee’s interest for the protection of economic mobility/employment opportunity. Jukier on Canadian Factors: - Decision now codified in 2089 CCQ: can have restraint covenants, must be limited in time and place, burden on employer to show it is reasonable. [2095  additional protection for employee: restraint doesn’t apply if employer resiliates K] - In order to avoid paying penalty  Cameron had to plead that entire clause was invalid  b/c at time could not challenge the reasonableness of penalty clause - Today  Cameron could attempt to have penalty reduced  Article 1623 CCQ: amount of stipulated penalty may be reduced if clause is abusive. 45 Re. restraint covenants in business context. - Such covenants will also be against public order if unreasonable in duration and/or territorial ambit - Rationale: protect society from monopoly/lack of competition - Test is stricter b/c business parties are assumed to be of = bargaining power - Jukier  Wrong to draw line between business sale context and employment context; line should be drawn based on bargaining power (businesses may be of unequal bargaining power OR an employer/employee may be of equal barg power) Re. severability or reading down - Dissenting judge in Cameron case wasn’t severing – he was trying to rewrite the clause to make it reasonable – it could then apply to Cameron (b/c even if clause was unreasonable  Cameron’s actions violated the reasonable part of it) - Ontario law reform proposed this possibility  courts should have the scope to go back in time to determine what a reasonable clause would have been…then give effect to the clause as modified. - Advantage  It would catch employees who violated the reasonable part of a clause that is unreasonable as a whole - Disadvantage  It would provide no incentive for employers to make clauses as reasonable as possible

Syndicat Northcrest v. Amselem [2004] infringes on religious beliefsagainst directional public order Facts:  PL signs K that will not decorate or erect construction on a balcony at Le Sanctuaire.  Says impinges on right to freedom of religion Issue: Is the K valid? Decision:  Claus of the K is not valid – infringes on religious beliefs. Ratio:  Not directly discriminatory provision but…indirectly limits freedom of religion. No mention of public order Comments Jukier on Amselem o Issue is waiver of rights to freedom of religion. o Return to Cataford and Moreau  Just b/c you consent to something doesn’t mean you can overcome its illicit nature. One cannot ratify something that is absolutely null (is ordre public de direction) o Jukier cannot say that fundamental rights are of public order b/c majority here left door open to a possibility of waiving rights. o Binnie referring to “inexcusable error”  don’t complain about not having read the K – too bad so sad.

Bruker v. Marcovitz [2007]against public order?  freedoms Facts: - Jewish divorce - issue of religious freedom - under jewish law a wife cannot remarry unless her husband agrees to give her a get (jewish bill of divorce) Issues: - Is this against public order? Held - Yes? - Court rules in favour of wife Reasoning - any impairment to the husband’s religious freedom is significantly outweighted by the harm both to the wife

46 personally and to the public’s interest in protecting fundamental values shcuh as equality rights and autonomous choice in marriage and divorce -reference to Amselem -moral vs civil obligations - 1) K law args (arg that it’s just a moral obligation, arg that it’s not a valid object for K –secular courts don’t generally mess w religious obligations 2) Public order aspect ---is it against public order to enforce a religious commitment 3)Fundamental freedoms (relation bw this and P.O.—courts don’t enforce religious things ---bc against public order ---does this mean that courts can’t enforce -----) –we’re back to the issue of WAIVER

Labelle, J –says husband’s claim—his ‘excuse’ is disingenuous ---courts see throughthese things Comments Note Object of Obligation and Object of K

Comité des droits de l’homme, Constatations du Comité des droits de l’homme au titre du paragraphe 4, de l’article 5 du Protocole facultatif se rapportant au Pacte International relatif aux droits civils et politiques, Doc. Off. CCPR, 75e session, Communication NU 854/1999 (2002).  France Dwarf throwing case against public order (protective public order?) Against human rights ---dwarf can’t let himself be thrown –against public order

3. Contract Drafting and Contract Interpretation Drafting, Reading Contracts and Filling the Gaps MACNEIL - Questions of interpretation arise particularly as Ks become less discrete transactios and more relational - ***Long-term relevance of relational aspect of K  has made Ks all the more complex - So contextual Explicit Terms - What was Said and What was Meant

Contra preferentem rule - K should be interpreted in favour of person who must adhere to it and against person who is in stronger bargaining etc position

Interpreting written terms - Signed Ks - Oral just as valid as written - Sign = bound  or would be against principal of estoppel  can’t go back on promise - Eg. L’Estrange - Unsigned Ks - Eg. Ipswitch Interpretation of Ks 1425 CCQ The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract. 1426 CCQ In interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account. 1427 CCQ Each clause of a contract is interpreted in light of the others so that each is given the meaning derived from the contract as a whole. 1428 CCQ A clause is given a meaning that gives it some effect rather than one that gives it no effect. 1429 CCQ 47 Words susceptible of two meanings shall be given the meaning that best conforms to the subject matter of the contract. 1430 CCQ A clause intended to eliminate doubt as to the application of the contract to a specific situation does not restrict the scope of a contract otherwise expressed in general terms. 1431 CCQ The clauses of a contract cover only what it appears that the parties intended to include, however general the terms used. 1432 CCQ In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer. Proof 2863 CCQ The parties to a juridical act set forth in a writing may not contradict or vary the terms of the writing by testimony unless there is a commencement of proof. 2864 CCQ Proof by testimony is admissible to interpret a writing, to complete a clearly incomplete writing or to impugn the validity of the juridical act which the writing sets for

McCutcheon v. David MacBrayne, Ltd., 1964 previous dealings  written terms of previous dealings implied if parties aware and assented to those terms previously  equal bargaining power Facts: - Appellant shipped car on Respondent’s carrier; R and A have had many previous dealings - The ship that car was on negligently sailed into a rock and sank; car was total loss - Shipping form has conditions which absolve Respondent of liability for negligence - Respondent was not given form and did not sign it Issue: Is Respondent liable for the car? [conversely, is the Appellant bound by conditions he did not expressly agree to?] Holding: Respondent is liable. Appeal allowed. Ratio: - There can be no conditions in any contract unless they are brought into it by expression, incorporation or implication. They are not brought in simply b/c one party has inserted them into similar transactions in the past and has not given the other party any reason to think that he will not want to insert them again. - Conditions can be brought in as result of previous dealings but the contracting party must be aware of the terms of previous dealings AND parties must be of equal bargaining power Rule: Written terms of previous dealings will only be implied if the parties were aware of and assented to those terms during those dealings and if parties are of equal bargaining power. Jukier on McCutcheon: - What if the car-owner had signed the conditions (though lengthy and unread)?  Written, signed K is pretty conclusive starting point; hard to get out of it. (Estoppel: you are estopped from going back on statements of fact). BUT…judge doesn’t like this  he thinks leg should intervene to ensure that consumer Ks MUST be made on terms that are clear, fair, and reasonable.  Civil law response: 1437 CCQ - Civil Law Solution: - This would be a K of adhesion (1379 CCQ) - Case would be decided under 1435 CCQ (External Clauses) - In a K of adhesion, external clause is null if not expressly brought to the attn of adhering party - Difference between McCutcheon and Ipswich  bargaining power: parties in same trade v. consumer and merchant with a monopoly. Previous Dealings How extensive? (Ipswich) Equality of Bargaining Power? (Ipswich and McCutcheon) Were parties aware of the terms of previous dealings? (McCutcheon) OR Are these usual terms in such dealings? (as in Ipswich)

48 British Crane Hire Corporation Ltd. v. Ipswich Plant Hire Ltd., 1975 oral agreements binding  if equal bargaining power  an ‘it goes w/out saying’ sit Facts: - Ptf agreed to rent a crane to Dft (who needed it urgently); all arrangements made by phone, conditions were not mentioned - Crane was delivered and followed by a printed form two days later to be signed by the Dft; form said that renting was subject to conditions on reverse; Dft did not sign the form - One of the conditions – stipulated that Dft would be “responsible for the recovery of the Crane from soft ground” - Mishap occurred: crane sank in the marsh. Cost much money to remove it Issue: Who is to bear the expense of recovering the machine from the marsh? [Are the conditions part of the contract, and therefore are the Dfts bound by them?] Holding: Dft is responsible for expense. Appeal dismissed. Ratio: Original judge: - Conditions were not incorporated in the contract b/c Dft did not sign it - BUT…there was an implied term that the hirer should return the chattel to the owner at the end of the hiring therefore dft is liable to do what is reasonable to restore the property to the owner (such as pay to get it out of the mud) C.A. - Court’s task is to come to a conclusion as to what each party was reasonably entitled to conclude from the attitude of the other (how would reasonable bystander construe the intentions?) - Given relationship of parties (same trade, equal bargaining power) and circumstances (fact that dfts requested crane urgently and it was supplied at once), Ptfs were entitled to conclude that the Dfts were accepting it on the terms of the Ptfs own printed conditions. - Evidence shows that Dft is familiar with standard conditions for hiring of cranes (Dft’s company imposes similar conditions); nature of Dft’s general knowledge is sufficient to establish Dft’s knowledge of relevant conditions (these are USUAL conditions in this trade). - Not a matter of prior dealings: i.e. extent of prior dealings not sufficient to establish Dft’s knowledge of relevant conditions - Conditions on the form should be incorporated into the contract and therefore Dft bound by conditions and liable to pay Rule: Oral agreement  Parties aren’t just bound to oral terms. Are bound to all terms that each party was reasonably entitled to conclude from the attitude of the other (given general knowledge and extensive prior dealings). BUT…only if equal bargaining power. [sh: only consider the latter two if = bargaining power?) Implying obligation that parties “meant” to be there all along (usual ones).

Dick Bentley Productions Ltd. v. Harold Smith Motors Ltd., 1965  warranty oral agreement binding  One K Theory (complete written argument) Facts: - Ptf bought a car from Dft - Dft told Ptf that he was in position to find out the history of the cars he sold and made certain statements about the car purchased by Dft - Car was great disappointment and Ptf brought action for breach of warranty Issue: Did Dft’s statements constitute innocent misrepresentation (which does not give rise to damages) or a warranty? 49 Holding: Dft’s statements constituted a warranty and he is therefore liable for damages. Appeal dismissed. Ratio: - Parties actual intents and thoughts are not important; Must determine what intelligent bystander would reasonably infer from statements made - If a representation is made in the course of dealings for a contract for the purpose of inducing the other party to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. Not necessary to speak of it as being collateral. - But the maker can rebut this inference if he can show that it was an innocent misrepresentation. - Here, inference is not rebutted: dealer was in a position to know or find out the history of the car…and he misrepresented the history (his statements were w/o foundation) Rule: An oral representation that induces a party to enter into a K is a term of that K. Thus, can sue for breach if it is a misrepresentation. Jukier on Bentley: - This is example of the One-K Theory (Incomplete Written Agreement) Technique.

Implicit Terms and the Obligation of Good Faith

Implicit Obligations

Implied Obligations - 1434 CCQ - “it goes without saying” (Ipswitch )

Explicit Obligations - Parole Evidence exception o Complete K arg. o Collateral K arg o Entire agreement clauses

6 CCQ Every person is bound to exercise his civil rights in good faith. 7 CCQ No right may be exercised with the intent of injuring another or in an excessive and unreasonable manner which is contrary to the requirements of good faith.

The Good Faith Trilogy

Soucisee  Houle Bail (1981) (1990) (1992)

1375 CCQ The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished. Binding force and context of Ks 1434 CCQ A contract validly formed binds the parties who have entered into it not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law.

B.C.N. v. Soucisse, 1981 obligation to disclose obligatin of GF  fin de non-recevoir Facts: - Respondents are the heirs of Dr. Groulx who signed one promissory note (for $1400) and 2 letters of 50 suretyship guaranteeing repayment to Appellant bank of Maurice Robitaille’s current and future debts - When Dr. G died, suretyship passed on to his heirs under Art. 1937 CCLC; Bank only informed heirs of promissory note obligation; heirs were not made aware of suretyship or possibility of revocation - Advances were made by bank to Maurice Robitaille’s company before ($15,000) and after ($107,000) the death of the surety. - Bank is suing heirs (under inherited suretyship) for these debts Issue: Should the heirs be made to repay advances made after the death by a creditor (the Bank) who was aware of the death when the heirs, who were completely unaware of the suretyship, were unable to revoke it? Holding: S.C.: Allowed Bank’s action in entirety (debts before and after death) C.A.: Reversed decision – allowed action only for debts after death S.C.C.: Appeal dismissed. Affirmed C.A. decision (different reasons) Ratio: - C.A. found that the “obligation of coverage” (ob to cover future debts) is not a true suretyship and so not passed to heirs under 1937 [SH: Obligation of coverage only originates when debt arises, therefore obligation arose after Dr. G’s death and is not transmitted to heirs?] [S.C.C.] - Bank had an obligation as soon as it learned of the death to disclose to the heirs of the surety that these suretyships existed and were revocable – this obligation results from the principle that agreements must be performed in good faith - Obligation of good faith is an implicit clause of the contract under 1024. IN this case, obligation of good faith translates into an obligation to disclose - Bank did not act in good faith because it failed to inform heirs and it gave them partial and misleading information. Therefore bank is at fault. - Because it was at fault, the Bank could not carry out its action. Respondents could plead a fin de non-recevoir based on the fact that “no complaint can be based on, nor advantage derived from, one’s own action, negligence, imprudence or incapacity, much less fault, to the detriment of another.” Rule: There is an obligation of good faith in all Ks. It is grounded in Article 1024 (equity). The obligation of good faith translates into a different in obligation in all cases. (here  the obligation to disclose). [Note that here K is silent…an obligation is ADDED] Jukier on Soucisse:  Where did judge come up with this implied obligation of “good faith”  Jeninne case from France  he then implied the obligation using the word “equity” in Article 1024.  In this case  Breaching ob of good faith = acting in bad faith (in Houle  becomes broader  Breach of ob of good faith = acting in bad faith OR acting unreasonably)  Judge doesn’t edit out express terms of K he ADDS implied obligations  this is clever b/c allows the decision to preserve autonomy of K-ing parties.  Remedy: Heirs don’t get to sue for damages; they just get a shield (defense) from the bank’s action. (a fin de non-recevoir)  Under new CCQ  Article 2361 (imperative provision): suretyships don’t pass down to heirs – death of surety terminates suretyship

McKinlay Motors Ltd. v. Honda Canada Inc. [1989]  breach of K  breach of GF requirements implied in K  unequal bargaining power Facts : - Honda and McKinlay dealership have long-standing relationship. MM has an excellent sales and service record. (highest sales compared to other dealers) - Honda is unhappy with the appearance of McKinlay’s premises and asks them to renovate. - McKinlay begins renovation, but it proceeds slowly b/c MM is unsure that allocation of cars would remain steady or increase to support expense of renovation - Honda changes method for allocating cars to one which favours discretion over the mathematical formula. 51 - MM’s allocation decreases. - As a result of reduced allocation, MM begins to suffer economic difficulties and does not move forward with the expansion. Eventually Honda terminates MM’s contract (primarily for failure to renovate) - McKinlay is suing on basis that reduced allocation of cars was an act of bad faith and constituted a breach of the dealership agreement. - [Note that Honda did have the right to terminate the K “at will”.] Issue: Did Honda breach its contract? Held: Honda is liable for breach of contract; breach of good faith requirement implied in K. Damages awarded for proven losses arising directly from the breach. Ratio There is obviously an implied term of any such agreement that the parties act towards each other in their business dealings in good faith. - Honda acted in bad faith by reducing the allocation of cars to MM Motors, therefore it breached the term of good faith. There was no justification for such reduced allocations given that MM’s sales were high, it was in a major market area and the number of cars entering the region did not decrease with import restrictions. If the car allocations had been in good faith, MM would have been able to finance the planned expansion, and there would have been no reason to terminate the agreement. Rule: Common law courts may speak of obligation of “good faith” in order to mitigate situation of unfairness. BUT…there is no consistent and coherent theory of good faith in the common law.

Jukier on McKinlay Motors: - This judgement feels “right”: is a K of adhesion (not negotiated); unequal bargaining power; formula involves lots of discretion; Honda doesn’t “like” MM. - BUT…judge speaks of “obvious implied obligation of good faith”  where does he get this?  He has no sources! - Common law: no consistent, coherent theory of good faith as in civil law. Just as many cases go the other way (i.e. implied obligations threaten certainty of Ks). But judges often speak of “good faith”  recall Empress Towers

Houle v. CNB 1990  breach of Kual right is a breach of Kual obligation of GF  test with notion of ‘reasonableness’  where discretionary oblitation exists, must perform Facts: - Respondent (Houle Bros.) were shareholders in their family company - Company had a credit line with Appellant Bank – security for loan consisted of letters of surety signed by Respondent shareholders and a trust deed on all the company’s assets. The loan was a DEMAND loan, thus bank had a K-ual right to recall with NO notice. - 20 days after signing of trust deed, Appellant bank decided to recall loan. It was aware of the impending negotiations of sale of the company to new shareholders. - Bank informed company of loan recall and took possession of the assets three hours later - Respondents closed sale of company but received $700,000 less than expected. They are claiming this amount from the Appellant bank. Issues: Did the bank abuse its contractual right? If so, can the Respondents as third parties to the contract, ground an action in contractual liability? Held: Recall of loan without a reasonable delay amounted to an abuse of bank’s contractual right to recall loan with no notice. Respondents must ground action in extra-contractual liability. There is fault, damage and causality therefore bank must compensate $700,000 plus interest Ratio:

52 - The doctrine of abuse of contractual rights is part of Quebec civil law. - The criteria for the abuse of contractual rights is not malice or bad faith. A contractual party has an implicit obligation to undertake the “reasonable exercise” of a contractual right. The support for this is 1053 (the standard for extra-contractual liability is “reasonableness”) and 1024 CCLC (an implicit obligation of contractual parties to exercise rights in accordance with rules of equity and fair play) - The abuse of a contractual right gives rise to contractual liability; but, third parties to the contract have no right of action in contractual liability. - The bank did not abuse its contractual right to recall the loan (it had reasonable explanation for doing so) however it abused its contractual right to realize securities after the demand for payment was not met. The contractual right was abused because the right was exercised unreasonably (without sufficient delay) when the bank knew of the impending sale of the company. - The Respondents are third parties to the contract. It is not appropriate to lift the corporate veil. The Respondents must make a claim in extra-contractual liability. The banks impulsive and detrimental repossession and sale of the company’s assets after such a short and unreasonable delay, while fully aware of the respondents’ imminent sale of their shares, was a fault entailing its liability for the ensuing direct and immediate damage caused to the shareholders. Rule: Abuse of a K-ual right is a breach of the implied K-ual obligation of good faith. Criteria for abuse of K-ual right is not malice or bad faith but “reasonableness”. Implied obligation to exercise K-ual right in a reasonable manner. Now codified in Article 7 CCQ.

What does Houle tell us? - [1] Entrenches doctrine of abuse of rights in CONTRACT  Even if there is an explicit right in the K, cannot be exercised in an abusive way  if it is, is a breach of the CONTRACT. (can sue contractually, third parties can sue delictually). - [2] Establishes that test of abusive exercise of a right is not malice but reasonableness. - [3] Acknowledges that this clashes with autonomy of the will. - [Note difference btwn Houle and Soucisse  Soucisse: court adds an obligation; Houle: court changes K – affects a right that a party has under its K.

Doctrine of Good Faith v. Autonomy of the Will - Civil law  starting point is the autonomy of the will - Until early 1970s  Ks were seen as creating absolute rights and obligations. “Abuse of right” an oxymoron. - 1970s  couldn’t exercise right in BAD FAITH (malice, intent to harm)  hard to prove malice - Houle [1990]  cannot exercise right in an “unreasonable” way. - Houle judgement: this doctrine may “represent a departure from the absolutist approach of previous decades [but] it inserts itself into today’s trend towards a just and fair approach to rights and obligations.” Doctrine of GF shatters 2 myths: - Civil law judges don’t create law (doctrines) - Doctrine of autonomy of will is the foundation of K-ual obligations in the civil law

Martel v. Canada, 2000 - CMLno obligaion of GF in context of negotiations in CML  other ways to protect both commercial parties = equal bargaining power (also later on -p. 65) Facts: - Gov’t leased space in Martel’s building - When lease was coming to an end, Gov’t expressed interest in renewing lease and asked for a proposed rental rate. Various meetings were held and Martel was made to understand that Gov’t wouldn’t proceed to tender if lease could be renegotiated with Martel. - Martel made strong effort to renegotiate lease to satisfy gov’ts request, but gov’t proceeded with tendering. - Martel bid on the project; its bid was the lowest but it was not awarded the K - Under the terms of the call for tenders, the Gov’t was not obligated to accept the lowest or any bid. Issue: [1] Is there a duty of care or general obligation of good faith in contractual negotiations? [2] Is there a 53 Held: [1] NO Ratio: [1] - There are deleterious consequences of extending a duty of care into the conduct of negotiations. - 2 of these reasons: (1) the very essence of negotiations suggests that there are good reasons NOT to disclose certain information (i.e. it allows a party to maintain a competitive advantage); (2) there are other causes of action available to provide rederess against bargains obtained (or not obtained) as a result of improper negotiation (e.g. undue influence, duress, unconscionability, negligent misrepresentation, fraud) - Martel’s claim resembles the assertion of a duty to bargain in good faith. A duty to bargain in good faith has not been recognized to date in Canadian law.

Rule: There is no obligation of good faith in the context of negotiations in the common law. There are many other ways to protect parties who suffer in the context of negotiations (undue influence, duress, unconscionability, negligent misrepresentation, fraud). Jukier on Martel: - Note that though there is no obligation of good faith in negotiations  judgement stresses that these are both commercial parties (= bargaining power).

Provigo distribution v. Supermarché A.R.G., [1998 ]  Kual breach . Expectations  GF obligations Facts: - -franchising - some coporately owned and others are franchises and operate under franchise banner - franchisee (Gagnon in this case ---had 4 stores) - had to buy products from designated provigo distribution – - -90% have to come from this source ---which means that provigo is setting the prices ----leeway for franchisee ---10% - -everything is fine until (for 10 years) Provigo can’t effect franchised stores but can change corporately owned stores (whjich are lagging) - so institutes ‘everyday low prices’ as marketing strategy - also starts running corporately owned stores under dif banner ---Heritage and Maxi ---so everyday low prices instead of weekly specials ---whch starts to attract a great deal of the business in area where franchises are owned --Gagnon’s profits start going down due to own franchiser - -but provigo hadn’t breached any explicit obligation of K ---(of not to enter into competition w its franchisees - so Gagnon sues provigo for lack of GF Provigo was supposed to provide franchisee w/ tools etc at its disposal to improve marketing etc - Doctrine of abuse of rights (see also Houle ) –court qualifies as implicit obligation which can result from the nature of a K or equity ------a Kual breach can arise from breach of implicit obligation of implied obligation of good faith - -court never says provigo can open competing stores or compete ---but has to provide marketing tools (this isn’t too clear) ----so new tools to deal w the franchisor’s competition and therefore deal w any ec prejudice that can result from competition of franchisor ----but court doesn’t specify tools (but say getting more goods from elsewhere –or having more competitive prices in goods being provided by provigo) - Franchise K - Not carved in stone—relational - Link back to Thibierge Bolfucci (from beg of course) ---she says we have to insert into K = 1)quality of performeance 2)______,3) K ual fraternity --- = needs to have a base de cooperation ----duty to K ---this is an about face in Ks bc of necessary element of conflict in Ks ---maximizing profits, minimizing expenditure --that the benefit or success of one party is dependent on impoverishment of the other (notion that K L is a conflictual scenario) ---see Martel Provigo is once again a ***it mplies good faith obligation in the sense that its ordering Provio to contract w it - This is a long-term relational K ---so have to deal w parties for long time **really takes Thiberge-Bigucci syas in theory and gigni -McCaulay would liekly say market would regulate 54 _note in all three cases we are dealing w a Kual breach ----dealing w expectations CORRECTIVE OR DISTRIBUTIVE JUSTICE

Transamerica Life Canada Inc. c. ING Canada Inc., [2004] GF  courts shouldn’t rewrite Ks under rubric of GF  equal bargaining power btw parties Facts: -sale of insureance company –transam buys from ING and latter alleges accounting errors -----and here IT’S THE VENDOR ARGUES A LA SOUCISSE GOOD FAITH ---- bc buyer knew about and didn’t disclose

Majority of court ---that while can court hasn’t implied good faith in Ks ---ti is inappropriate to deal w this case at this level ---Ont corut says this is a substantive court matter ---not sayiin gthat there is a breach but htat it should go to trial as a procedural issue

Laskin isn’t dissenting w’ maj on existence of good faith (?that there isn’t?) ---not expressing dif view on good faith than majority

Laskin – says that what party is asserting is implied duty of good faith “not just o police performance of an existing obligation but also to add a substantive term to the K ------Houle----where you have discretionary obligation you have to pefomr it -----Laskin said that good fiath is ok to have in policing performance but we’re not going so far as to add a substantive term to the K (so kind of like what happened in Houle)

In Can we have well established rule 1)customer usage 2) as legal incident –according to the nature of K 3) based onpresumed intention of the party in order to give ---a la Ipswitch -----***applied effect ---to go beyond that would be ---not for the courts under rubric of good faith to rewrite th eparties’ bargain for them ----**aut of will****(2004 Ont Corut ap)

-also says bw parties of equal bargaining power ---rparties put in obligation of good faith in 3 separate areas so can assume where didn’t put it in there wasn’t one

SECOND TERM

Last term recap When will the L enforce a K (1st term) - Offer With these = a prima - Acceptance that responds to offer facie enforceable K - Intention to create legal relations - Not enforceable One exception - Certainty of terms —not prima to this is (if - Formalities in some cases facie against) - Consideration (in CML) enforceable public order

When will the L NOT enforce a K (2nd term) - When can parties claim bef a court that despite a prima facie validly formed K, it shouldn’t be enforced

55 4. THE SOCIAL CONTROL OF K

A. Regulatory Options and B. Policing the Negotiation and Formation of Ks Judicial Review of a K - While before only reason to deviate from Autonomy of Wills theory was if K was against public order ---now - Reasons for not enforcing a K - No capacity - Duress - Notion of “Unfair” - Judicial review is contentious in 2 ways - That legal system should even include an ambit dealing w/ fairness or unconscionability - Judges use established categories (eg misrepresentation etc) in order to ‘sneak in’ unfairness when they feel it’s necessary Scope of Judicial Review of a K

Origins - GHESTIN o Autonomy of the will = notion of injustice as impossible when one has decided for one’s own self. - Presupposes notion of fairness o PACTA SUNT SERVANDA = Ks are bindng ---esp Quebec courts have been faithful to these principles. o CVL trad tied to aut of will theory o He rejects aut of will = - Parties aren’t equal  Both systematically in society and  in negotiability of K - The proliferation of adhesion Ks  Parties (one side) isn’t aware of clauses and harmful parts of K - Doesn’t support notion of SUBJECTIVITY OF WILL of parties as that which creates Ks nor idea that will of parties is what makes K function  INSTEAD says that it’s the OBJECTIVE WILL that says when a K will be enforced o Note Ghestin is a positivist = positive L of state that enforces K o Focuses on the notion of UTILITY (utile) and JUST = this is HIS vision of justice - Idea that Ks shouldn’t be enforced if don’t contain UTILITY and JUSTICE  The K is just b/c of it’s utility --- Public utility o The contract is only an instrument that the law sanctions b/c it permits operations that have social utility; the contract is subordinate to general interest. . Connection to FULLER --where his justification for expectation damages is similar ---esp to Ghestin’s ‘acte de prévision’  So that promise made today can be relied on tomorrow  To ensure social utility of K o Social utility of individual will . rather than morality  K should only be enforced if it is just o Corrective justice = seeks to retain imbalance of initial sit –not to redistribute wealth ----justice b/w two parties --- where K doesn’t disrupt balance

56 . Prestations –equivalence of prestations w/in the K where equilibrium of patrimonies not disrupted (see Art 1406 on Lesion – disproportion and exploitation b/n the prestations of the parties –see later) . ((Must be a balance between subjective and objective (price) factors ))? o Distributive justice = doesn’t seek to redistribute justice ---- sets a mandatory floor below which parties can’t go regardless of whether they bargain down lower or not - He says that courts may inject social justice in trad ways (public order etc??) –but rejects this w/ notion that the ‘interference’ should be explicit - Focusses on restoring (initial equilibrium) - Legislative and codal introductions for injecting social justice = Ghestin’s private model of social justice SUMMARY = aut of will – theory of justice where parties know what they value – Ghestin rejects this in favour of objective law –in terms of a positivist POV---where unfairness in Ks exist regardless of aut of will ----he focuses on UTILITY AND JUSTICE OF K o Also note that a lot of Ghestin’s theory is present in CML doctrine of unconsionability - Note that supporters of aut of will theory support o Expansion of exception of public order o And exceptions to aut of will (really?)

Alternative theories - (Jukier mentions THIBIERGE-G UELFUCCI wrote of this as well –beg of year  also see Provigo case) - COLLINS o Sees dealing w/ unfair etc Ks after the fact So people not - as burdensome and clogging court system (ex post fact review of unfairness) really able to use - uncertainty of outcome court system in - (Jukier adds) costly reality o His solution is more systemic (and mostly related to pan-European trade and Ks) - Each industry should have their own standard form K where K would be negotiated in advance for the entire industry by a rep and also a rep for consumers

 = “The Autonomous Agreement”  A lot like a treaty (or a unionization of consumers and unionizing of each industry)  Adv. = certainty and stability for consumers and industry o No need to go to court ex post facto o Interests of all parties taken into account o Using Ks to regulate Ks = self-regulation rather than judicial agreements  Args against = removal/undermining of competition o Collins args that regulation would be a ‘fine print’ which he argues that consumers don’t read anyways o Says that consumers actually look at MATERIAL TERMS and PRICE - which would remain competitive . (Eg Tilden Rent-A-Car case) o Also that it would freeze law-making powers . Basically says that this might be true but is current system really better o Jukier problem = enormity of the undertaking . Collins would answer that gov involvement could be kept to a min. as long as private actors had enough incentives to undertake --- eg certainty of legal enforceability of standard form Ks in cross-border

57 trade (this is more related to his mention of this theory in relation to pan-European trade) etc -- also good for smaller businesses . Jukier also counters her criticism w/ eg that Collins theory already exists in small pockets  Eg Quebec—standard form for offer to buy a house  Eg Consumer representation in class-action cases Fairness in Process and Fairness in Outcome

Unconscionability

Unconscionable Transaction: - A man is so placed as to be in need of special care and protection and yet his weakness is exploited by another far stronger than himself so as to get his property at a gross undervalue. - **Requisite for unconscionability = unequal bargaining power (and undue benefit/advantage resulting from this inequality - During formation of K - ***two requirements o Procedural unfairness o Substantive unfairness

Lloyds Bank v. Bundy [1975]  unconsc as per Lord Denning  undue influence per majority inequality of bargaining powers Facts - Bundy’s farm (only asset) was worth ₤10 000. - mortgaged his house to a total amount of ₤11 000 to guarantee his son’s company debts. - son’s business was going under and the bank knew it. - Yet, it went back to the father and asked for a mortgage over the property’s worth - father did not get independent advice on that occasion. - Bank foreclosed on the mortgage because the company went bankrupt. Issues - Is K null (unconscionability)? Held - Yes, bank isn’t allowed to forclose Reasoning - inequality of bargaining power. - Unfair terms - Lord Denning (in minority opinion) Therefore this is not considered binding. Majority based on undue influence: relationship of trust: the weaker party was influenced by the strong one, which created a duty on the part of the stronger party to make sure that the weaker party had an independent legal advice.] - Denning uses horizontal thinking techniques to pull threads through the various exceptions to freedom of contract. - 1) Unequal bargaining power: procedural unfairness; the way in which the contract was formed, negotiated and completed. Present case: undue influences or pressure by the bank; no possibility of independent advice. - 2 ) Unfairness of the contract: substantive unfairness in the terms of the actual bargaining. Here price of sale was grossly undervalued - Case at bar falls within these principles: (1) consideration moving from the bank was grossly inadequate (they reduced the overdraft!); (2) relationship of confidence btw bank and father; (3) relationship of trust/influence btw father and son; (4) conflict of interest btw bank and father (and yet they didn’t recommend that he seek independent advice). Ratio - General Principle : law gives relief to one who, w/o independent advice, enters into a K on terms which are

58 very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other. - Note that “undue” does not imply “wrongdoing”  K-ing party may be moved solely by his own self interest, unconscious of the distress he is bringing to the other. - Law gives relief for unfairness where there is both procedural (subjective) and substantive (objective) unfairness. - Procedural unfairness = impaired bargaining power - reasons: needs or desires; ignorance or infirmity; undue influences or pressures, nature of relationship (if = susceptibility to undue influence). -Substantive unfairness = unfair terms of K or grossly inadequate consideration. Requires no wrongdoing on the part of the other party. Comments - Case decided on basis of undue influence - Denning was obiter. He looked for a common thread uniting all the cases in which court gave relief for unfairness (thread = unequal bargaining power) - Why was there substantive unfairness in this case? Not disproportionate prestations BUT Mr. Bundy had high risk of losing a lot for small chance of gain for son's business. - Consideration vs. Unconc - consideration need not be adequate  but unconc looks at adequacy. Different levels of analysis - consideration is at level of formation; unconc is considered once have prima facie valid K. - Denning makes it clear that there must be BOTH procedural and substantive unfairness - Each may manifest itself in very different ways: - Procedural  can be caused by inequality of BP that result from undue pressure or not letting party have ind advice - Substantive  paying too much (Toker) VS. accepting large risk for small chance of gain (Lloyds) - Note – fear here is subset

Most like Barclay’s Bank v. O’Brian which deals with undue influence (other two decisions in Lloyds based on undue influence) Jukier on Lloyds Bank  Tilden is a great case to show how all factors are tied together with this thread of unconscionability (even though the word itself is not used).  Cannot work in Hunter b/c, as Dickson states, they are of equal bargain power.  Puts us on a slippery slope but Jukier still thinks it can be applied properly. Wilson J (dissenting) in Hunter v. Syncrude: unconscionability is less certain than the doctrine of fundamental breach, less certain than “the length of the Chancellor’s foot”. IMPACT of UNCONSCIONABILITY  Debate still rages  Some believe that this has created an anglo-canadian doctrine of unconscionability (such as Waddams).  There are those who have taken as a general concept, but, as in National Westminster Bank, not always the case. Why should we be afraid of Unconscionability? - Instability and uncertainty. Purpose of Ks is to bring uncertainty of the future into the certainty of the present (Fuller) - we don't want unconc to undermine this certainty and stability. - See this fear in Syncrude (Wilson J) and in QC (legislator rejected general lesion provision) If doctrine exists, should it be limited? - Denning himself believes it should be - "no bargain will be upset that is the result of the ordinary interplay of forces" - Jukier: Unconscionability shouldn't be used as a lifejacket to get out of a bad bargain (MUST have some element of exploitation, unfairness, abuse). Disproportion of prestations is not enough. Courts should not be "policemen of the marketplace" For unconscionability must have twin components: 1. Inequality of bargaining power (could be many situations – could be capacity or any other sit). 2. Exploitation or abuse of that unequal bargaining power. 59 Impaired Consent

Capacity Sits at the border of two areas of law  law of persons and law of K’s. Primarily the law of persons. Art A contract is formed by the sole exchange of consents between persons having capacity to contract, 1385 unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties require the contract to take the form of a solemn agreement. It is also of the essence of a contract that it have a cause and an object. Art Every person is fully able to exercise his civil rights. 4 In certain cases, the law provides for representation or assistance.  The CCLC used to outline which people were “incapable” to enter into K’s. Included Married Women until 1954. Types of Incapables: Includes the “incapable major”, minors. Two senses of incapable majors: o 1. Court orders that person is incapable o 2. Persons around incapable or doctor can testify as to the factually incapable. (Thibodeau)  Might make capable people incapable for certain reasons. As administrator of a property cannot buy property for yourself. As tutor to minor (who could enter into a K for a minor) cannot buy property from minor, etc…. Contract with a Minor  What happens when a minor enters into a K (eg used cars) – will only be annulled if it represents no benefit to the minor. If there is lesion but “simple lesion or subjective lesion” which is different from art 1406(1). Irrelevant if you showed fake ID or if it was a fair price – if it is useless to the minor. Art 1406(2) In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the general circumstances

Thibodeau c. Thibodeau [1961] – CVL impaired consent  capacity Facts - Contracts with brother in manner that is not favourable. - As “curatrice”, his wife wished to have two notarial acts nullified as, when they were signed, he was suffering from mental problems that did not allow him to give valid consent. - Ptf exchanged with defendant (his brother) a house for a grocery store. This was accomplished by two deeds of sale, both signed on 13 September 1955 - On October 13, 1955, ptf was interdicted (?) for dementia. His wife Anita became his curatrice and took action against dft to have the two deeds of sale annulled. Wife alleges that when her husband signed the deeds he had mental problems that prevented him from giving valid consent. (He didn’t have CAPACITY). - Superior court annulled the deeds. C.A. reversed the decision on the basis that ptf’s mental problems were insufficient to annul a synallagmatic contract. Issues - Were the mental problems suffered sufficient to nullify consent? Held - K is null – no valid consent – impaired due to incapacity Reasoning - Impaired consent - incapacity - If the one of the parties does not have capacity to understand the effect of his acts, does not have will to appreciate or to resist, if he can not weigh the acts he is binding himself to perform or the consequences that he may suffer, he does not have to capacity to consent or contract - Does not need to be totally insane. (factual incapacity) - This man showed signs of mental derangement and intellectual instability prior to the signing of the Ks. - This is not a question of capacity but one of consent Art 1385, 1398 - Courts reversed the presumption of capacity of Art 4 through testimonies and evidence 60 Ratio - A person doesn't have to be insane to be incapable. The relevant test - Does the person have control over his mind? Does THIS PARTICULAR PERSON have capacity to understand the implications of the act being entered into? The test is SUBJECTIVE - look at his behaviour. ---and his behavior in this case betrayed mental condition Comments - No sympathy for the co-contractant (brother) but there is no attribution of fault in the question of capacity (only in unconscionability). - CML = This would be decided under unconscionability and there the wrongdoing is relevant

1385 CCQ A contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties require the contract to take the form of a solemn agreement. It is also of the essence of a contract that it have a cause and an object. 1398 CCQ Consent may be given only by a person who, at the time of manifesting such consent, either expressly or tacitly, is capable of binding himself. - 1385CCQ – not all elements of K are there then in Tibodeau Lesion (CVL) - is the closest counterpart to unconscionability (CML) but it applies only to minors, incapacitated adults and particular situations as provided by law (1405CCQ) 1402CCQ Fear of serious injury to the person or property of one of the parties vitiates consent given by that party where the fear is induced by violence or threats exerted or made by or known to the other party. Apprehended injury may also relate to another person or his property and is appraised according to the circumstances. 1403CCQ Fear induced by the abusive exercise of a right or power or by the threat of such exercise vitiates consent. 1404CCQ Consent to a contract the object of which is to deliver the person making it from fear of serious injury is not vitiated where the other contracting party, although aware of the state of necessity, is acting in good faith. 1405 CCQ Except in the cases expressly provided by law, lesion vitiates consent only in respect of minors and persons of full age under protective supervision. 1406 CCQ Lesion results from the exploitation of one of the parties by the other, which creates a serious disproportion between the prestations of the parties; the fact that there is a serious disproportion creates a presumption of exploitation. In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the general circumstances. - note that para 2 of 1406 CCQ = subjective lesion - when a minor enters into a K (eg used cars) – will only be annulled if it represents no benefit to the minor. If there is lesion but “simple lesion or subjective lesion” which is different from art 1406(1). Irrelevant if you showed fake ID or if it was a fair price – if it is useless to the minor. 165 CCQ The mere declaration by a minor that he is of full age does not deprive him of his action in nullity or reduction of his obligations. - To get out of these contracts, the minor must prove subjective lesion 285CCQ The court institutes tutorship to a person of full age if it is established that the incapacity of that person to care for himself or to administer his property is partial or temporary and that he requires to be represented in the exercise of his civil rights. The court then appoints a tutor to the person and to property, or a tutor either to the person or to property. 291 CCQ

61 The court appoints an adviser to a person of full age who, although generally and habitually capable of caring for himself and of administering his property, requires, for certain acts or for a certain time, to be assisted or advised in the administration of his property.

281CCQ The court institutes curatorship to a person of full age if it is established that the incapacity of that person to care for himself and to administer his property is total and permanent and that he requires to be represented in the exercise of his civil rights. The court then appoints a curator. Relationship b/w Thibodeau and Bundy - Both operating under some form of impaired consent but for dif reasons

Undue Influence - ONLY A CML concept. No direct equivalent in the CVL - Undue influence can be presumed from the fact of a relationship of trust and confidence. - Burden then shifts to wrongdoer to show that K was entered into freely.  Similar to duress, if you are unduly influenced then your consent is not free – it is impaired (like in duress)  Different from duress –NO threat in undue influence. It’s all around a relationship.  Almost always occurs when people are guaranteeing the debts of another.

Barclays Bank plc v. O’Brien [1994]  undue influence (presumed)  constructive notice Facts - Husband was a shareholder in a co. which had a large overdraft with the Barclay’s bank - Husband agreed with bank that he would secure his liability by a second charge over the matrimonial home owned jointly by the husband and wife. - Husband and wife went to the bank and signed the documents without reading them. Contrary to the instructions of the bank manager, the bank staff did not advise either party of the content of the documents or recommend the wife to seek independent legal advice. - Co’s indebtedness increased beyond the agreed limit and bank brought possession proceedings against the husband and wife. - The wife claimed that (1) her husband put undue pressure on her to sign; and (2) that her husband misrepresented the effect of the legal charge (she thought the security was limited to L60,000). - Bank insists it didn’t do anything wrong Issues - Is the K null b/c of undue influence? Held - Not null  only enforceable to ₤60,000 Reasoning - There are two competing policy considerations at play in this case: (1) the fact that despite increasing equality of the sexes, men often have control over financial decisions (thus creating possibility of them having undue influence in decisions affecting jointly held wealth); (2) if loans on security of matrimonial homes are rendered vulnerable – may reduce flow of loan capital to business enterprises. - Undue Influence: A person who has been induced to enter into a transaction by the undue influence of another (the wrongdoer) is entitled to set that transaction aside as against the wrongdoer. Undue influence is either actual or presumed - Actual undue influence : claimant must prove actual exertion of undue pressure - Presumed Undue Influence : undue influence is presumed from the fact of a relationship of trust and confidence. Once a confidential relationship has been proved, burden shifts to wrongdoer to show that transaction was entered into freely. - There are two ways to establish a “confidential relationship”  (1) certain relationships are such as a matter of law (e.g. doctor-patient, lawyer-client); (2) claimant may prove the de facto existence of a relationship under which he/she generally reposed trust and confidence in wrongdoer. - Husband and wife relationship is not a confidential relationship as a matter of law; falls into class 2(?) - In the case such as this where the cohabitee has agreed to stand as surety for the debts of the other cohabitee

62 and the creditor is aware that they are cohabitees (1) surety obligation will be valid and enforceable unless there was undue influence or misrepresentation; (2) if there was UI or misresp, creidtor will be unable to enforce surety obligation unless he took reasonable steps to satisfy himself that surety entered into the obligation freely and with knowledge of all the facts; (3) reasonable steps = warn surety at a meeting not attended by principal debtor and advise her to seek independent legal advice. Ratio - A person who enters into K under UI can have it set aside. Undue influence can be presumed from the fact of a relationship of trust and confidence. Burden then shifts to wrongdoer to show that K was entered into freely. - Where UI exists and K is with a third party, third party must take reasonable steps to ensure that weaker party entered into agreement freely (inform and advise to seek independent advice) [CONSTRUCTIVE NOTICE] Comments - Interesting decision from a policy, legal and feminist point of view. - Jukier: husband-wife relationship = presumption of undue influence - Court has to go through mental gymnastics to get to this decision - b/c K was not btwn H and W - Court uses device of CONSTRUCTIVE NOTICE to carry out undue influence to the bank - bank is responsible for its results b/c it is put on notice for undue influence. - Civil law: no concept of undue influence. Case would have been decided on basis of Art 1375: Bank breached obligation of good faith (b/c ob of GF includes duty to inform - Bail)

Relationship b/w Bundy and O’Brian - Similar - Entering into K w/ bank - A guarantee/assurity - Unfair bargain - Different - Dif in who was ‘bad’ guy – Bundy – son is in collusion w/ bank –

3 Different Analyses of Barclays Bank v. O’Brian Critical Legal Studies Analysis of Undue Influence - Prof Richard Devlin (Dalhousie) - Contextual analysis of K law – beyond a system of abstract rules – imp of LARGER SOCIAL VALUES - Banks arg based on freedom of K and individualist position of K law - Bank did nothing directly - House of Lords decision demonstrates alternative to normative vision – legalistic encodeing of communitarian ideals - -locating on spectrum of community or indiv interests - Bank knows or SHOULD that wife is in position of vulnerability - Relates to THIBIEGE-GUELFUCCI - From beg of year - Inherent unfairness in K etc --- contrasts to Kennedy - Question of liberty vs. equality ---where equality seen as trumping - O’Brian can be seen as fundamental undermining of core values of classical L of K Feminist Analysis - Prof Louise Langevin (Laval) - Implications for women - Women need protection – paternalistic sense of courts intervening - But lack of intervention can allow proliferation of problematic sit of women in society - K L developed in context of business – from which women were excluded, thus = masculine institution based on men’s needs - Reality of refusing to sign even if she had sought legal advice – on home life etc. - Would wife know how / be able to attain legal advice - Places COSTS ON WEAKER PARTY 63 Law and Ec. Analysis - Prof. Tony Duggan (U of T) - Ec ramifications - While husband is faulty party bank is liable b/c functions as GATE-KEEPER – bank is BEST PLACED to deal w/ exploitation of wife - Increase of transaction costs and might discourage legitimate transactions of this nature - **BALANCE must be struck btw gate-keeping function of bank but not to extent where wife is protected from husband’s wrongdoing at cost of discouraging lending activity - Protection of vulnerable party balanced w/ protection of ec.

(Impaired Consent due to Duress / Fear) - Classical headings of fear/duress o Threats of physical injury or death o Threats to property o Threats of a moral or psychological kind . Eg threat to ruin rep etc. - Emerging headings – grey area o Threats of an ec nature or w/ ec consequences (ec duress) . Eg Atlas decision – CML – court actually terms it ec duress . Eg Joubert v. Lapierre

Judicial Intervention - Can be justified where consent is impaired due to incapacity and undue influence in CML - Also when consent isn’t freely given by reason of duress/fear 1399 CCQ Consent may be given only in a free and enlightened manner. It may be vitiated by error, fear or lesion - If there isn’t = defect of consent - Duress is related to the free nature of consent since it might be very well known what they are doing - CML – nothing explicitly like 1399CCQ – but similar concept in Atlas v. Kafko - “coercion of will to vitiate consent” - Judicial review/intervention often seen as violation of Aut of Will theory but Jukier says reinforces/protects b/c ensures it is in fact parties’ will

Atlas Express Ltd. v. Kafko Ltd. [1989]  ec. duress Facts - Kafko is a small company dealing in basketware. Kafko had to fulfill K with Woolworths and so entered into a K with Atlas, a road carrier, to deliver the goods. - Atlas’ depot manager estimated that one of its trailers could carry 400-600 baskets and thus that the charge would be $1.10 per basket delivered. - The quote was an underestimation and when Atlas sent a trailer to Kafko’s premises, it was accompanied with a written agreement specifying a minimum charge of 440 per trailer. [Threat: if you don’t pay me more to deliver these goods, we will take away these trucks and you will be screwed vis a vis Woolworth’s – baskets won’t be delivered to Woolworth’s and this will ruin you business] - It was essential to Kafko’s survival that it should be able to meet delivery dates and it would have been almost impossible to find an alternative carrier. Kafko signed the agreement and the goods were delivered. Issue - Is K null for ec duress? Held - Yes, no valid K at new price Reasoning

64 - In determining whether there was a coercion of will (sounds like 1399 – vitiated), it is material to inquire whether: - (1)the person coerced did or did not protest; - (2) at the time he was coerced, he did or did not have an alternative course open to him; - (3) he was independently advised; - (4) after entering the contract he took steps to avoid it. - The pressure must be such that the victim’s consent to the K was NOT VOLUNTARY. - Economic duress must be distinguished from commercial pressure. - Atlas signed the contract unwillingly and under compulsion. He had no bargaining power. NO consideration (See under comments) - Consent given under economic duress is vitiated consent and thus revocable…UNLESS it is approbated either expressly or by implication after the illegitimate pressure has ceased to operate. - In this case, the dft’s apparent consent was induced by illegitimate pressure and was not approbated. This pressure can be called economic duress and vitiated the apparent consent. - Regardless of economic duress, there was no consideration for the new agreement. - New K – sit of duress, modified K – then would have no consideration Comments  Civil law - End: get more money. Means: we will not deliver. Atlas has a right not to deliver. Its means were not illegitimate b/c it underestimated the original price (i.e. it wasn't trying to get more money just to increase profit margin). BUT  1403 CCQ: it exercised its right abusively (if we can show that Atlas knew that Kafko would not be able to find a carrier at the last minute). (????) - Case exemplifies fine line btwn legitimate commercial pressure and duress (compulsion and illegitimacy) Relates to Williams v. Roffey ---- Carpenter warns he is in rough times; Contractor promises more money b/c he needs to get work done b/c of penalty clause in another K. - Rule: If B promises more money to A in return for A to fulfill his existing obligations and B derives a benefit, the benefit to B will be consideration as B's promise was not given under duress. - Both cases  the "A" party quoted too low. Prima facie valid K which A realizes is not a good deal. Both Bs agree to pay more to get the work done. Good in Roffey but not in Atlas. (For rationalizations, see above)

J.J. Joubert Ltd. v. Lapierre [1972] – CVL -  ec. duress Facts - A milk company gave their milkmen a choice: either lose their jobs, or agree to the new contract which forced them to sell milk independently (i.e. they would purchase trucks and be given a specific delivery route). [THREAT = Sign this or I will fire you]. - They did so and ended up not making a lot of money and sued. - Lapierre invoked nullity of K, saying Joubert threatened him to enter into the K. - (this was to prevent unionizing) - Note also that you lose a lot of benefits as an independent contractor Issues - Is the K valid? Held - No, b/c of ec. duress Reasoning - He signed under fear according to Art 1402 (995 CCLC). The complaint is reasonable here b/c of the link of subordination b/n the parites. - Here the means to coerce signing (threatening to fire – it’s ok to fire people) were legitimate but the ends (union busting) were not. The purpose of the threat was to get rid of the collective bargaining agreement (the union). - You don’t necessarily need contractual injustice à la Ghestin. - It is not a question of unfairness but of autonomy, the only freedom left in contract law. You cannot force someone into a contract no matter how good a deal it is. - Joubert argued that the employees would get a better deal under the new agreement (i.e. that they would make more $). Court says that the advantageous nature of the K is not an "objective" one - it is up to the person to decide if the situation is worse or not. – loss of benefits etc as independent Ker 65 - Public order reasons as well.

- What L sees as fear/duress o Fear of a ‘serious injury’ (1402 CCQ) – subjective or objective? . 1402 CCQ lays out test 1402 CCQ (1)Fear (this is the subjective component) of serious (Baudouin says this is the objective component) injury to the person or property of one of the parties vitiates consent given by that party where the fear is induced by violence or threats exerted or made by or known to the other party. (2)Apprehended injury may also relate to another person or his property and is appraised according to the circumstances . Note that threat (under CCQ) has requirement of imputablity (culpability)  Where threat must come from co-contractor – they must be complicit in duress (they must know of threat) – so eg of Barclay’s Bank . Differentiation b/n the ends and the means. BOTH must be legitimate in order to have valid K free of duress.  Joubert says can’t have fear w/out some form of illegitimacy. . MEANS: Even if you have a right to sue, law will still not let you use illegitimate means to assert that right. Means can cause the K to be vitiated.  Suing itself is fine – and w/ end of receiving payment –problem is in using threat to break their legs or something . ENDS: The ends could also be illegitimate. - Imp of balance btw aut of will / freedom and fairness

Martel Building Ltd. v. Canada [2000]  GF(?)  see this case under first semester Facts - Martel owns buildings in which the Department leased. - The lease had an option for renewal. - No misrepresentation and no ‘undisclosed documents’ but the Department strung along the negotiations and lead Martel into thinking they would renew. - Martel is claiming that the appellant has breached an implied term to renew the lease. - Martel also has a claim in tort stating that the Department breached a duty to negotiate in good faith and acted negligently in the auction for tender. Issues - Is there a CML duty to negotiate in good faith Held - No duty to negotiate in good faith in the pre-contractual phase; no damages awarded Reasoning Iacobucci J. - ((True intention of the gov’t was to treat with casual contempt…just like Brewer, Walford. )) - Court finds that policy reasons (Anns, Kamloops) preclude them from finding a duty here: “it would defeat the essence of negotiating and hobble the marketplace” (Iacobucci) Would deter socially and economically useful conduct. - Gains are realized at the expense of the negotiating party. Note the focus on “commercial” situations. Possible way to distinguish from this case (if not in a commercial situation) - Would interject tort law as after-the-fact insurance against failures to act with due diligence or to hedge the risk of failed negotiations through the pursuit of alternative strategies or opportunities. - Conservative argument: Traditional doctrines (duress, misrepresentation, promissory estoppel, etc.) are enough in the pre-contractual stage

State of Necessity - In both CML and CVL - Typical example  drowning and somebody asks for huge amount money to save you. You agree to anything. - CML 66 o usually puts them in categories o There are just two different (duress and state of necessity) ways until unconscionability comes along with Lloyds Bank v. Bundy o called a salvage agreement where one is in dire straits and agreement. Courts have recognised that if situations allow for extortion, they should not be upheld. - CVL o Under heading of violence and fear in Art 1399. o ((However, states of necessity do not stem from the co-contractant and therefore are not imputable to him. Problem therefore arises as seen in case below.))  Why not lesion? (If price wasn’t fair). This is more under exploitation and unfairness and not Violence and Fear (as is needed in the civil code (C.N. 1109 or CCQ 1399) . NO historical tradition in French or Quebec law for lesion  It is restricted to incapacity. – see 1405 CCQ

Époux Strauss-Schillio c. Vve Goblet [1947] – France (not in CP but Jukier discussed in class)  State of Necessity eg. Facts - After WWII - jewish couple Strauss-Schillio, wish to have annulled the K of sale of their movables to Mme Goblet in 1940. - Anti-semetic legislation forced them to sell goods at low price for fear that the Vichy regime would take away her things. Issues - What legal arg is this under – state of necessity? - Is the K valid Held - K valid Reasoning - A simple state of necessity that a contracting party finds himself in is not violence or fear in and of itself unless something more precise and imputable to the co-contractant can be found. - In this case, it was not the result of violence but rather an efficient means to avoid future violence. The co- contractant was not the author of the violence. - Violence was only the exterior state of necessity  co-contractant must have something to do w/ or be the author of the state of necessity. - Also court didn’t find price of sale to be that unreasonable - Mme Goblet did not abuse her position and therefore K was not null Comments - Art 1404 - Notion of imputability is required -- also in Art 1401 & 1402. - Also eg under 1404 CCQ – if person lends money to another to pay off ransom in a kidnapping - can’t be liable unless eg lend money at exorbitant interest rate – IF CO-CONTRACTANT TAKES ADVANTAGE OF THE SIT o Co-contractant must . a) be aware of sit and . b) act unreasonably (not in good faith) o Can be vitiated by fraud etc, or fear or violence CML - Imputability goes further than just A and B – but does not extend to everyone FAIRNESS AS A QUESTION OF INTERPRETATION - Courts trying to inject fairness by using tools of interpretation - All cases have in common o Involve 1 person o Get out of owing other barely anything by virtue of an exoneration clause 67 . Also link to McCutcheon and Ipswich . Also note that some clauses have same effect as exoneration clauses but aren’t actually exoneration clauses – are abusive in general  Eg arbitration clauses, choice of forum . Not all exoneration clauses are abusive

Scott v. Wawanesa Mutual Insurance Co, [1989] exoneration clauseunambiguous not abusive Facts - Apllt had fire insurance policy with Rspdt. - Applt’s son deliberately set fire to their house. Apllts filed Proof of Loss and their insurance claim was denied. - Rspdt is relying on clause in K which denied insurance coverage in the event of “loss or damage caused by a criminal or wilful act or omission of the “Insured”. Insured is defined as including all the residents of his household and his spouse and relatives and anyone under 21 in his care. Issues - Is Apllt’s son included w/in def’n of “Insured”, such that loss would be excluded? - Is the insurer’s indemnification obligation joint or several (does exclusion of coverage for the wrongful act apply only to the insured responsible [several] or to all the insured [joint]?) Held - Majority (4:3): Clause valid (coverage denied). Appeal dismissed Reasoning Majority – L’HD] - When the wording of a K is unambiguous, courts should not give it a meaning different from that which is expressed by its clear terms, unless the K is unreasonable or has an effect contrary to the intention of the parties. - In this case, the wording of the exclusion clause and the definition of “insured” are perfectly clear and unambiguous. The policy does not cover the type of risk which occasioned this loss. - Even if the clause is interpreted as being several, it clearly bars recovery where the loss is caused by a wilful act of the insured. - “Insured” clearly includes the minor children living in the home; this likely reflects the intention of the Rspdts to avoid an obligation to pay for teenage delinquency. [SH: problem with this, court didn’t consider true intent of the insured party????] [Dissent] - This court has defined its approach wrt the interpretation of insurance Ks: adopt the interpretation that would promote the true intent of the parties at the time of entry into the K. Where the language bears 2 possible constructions, adopt the fair and reasonable one (this is the one that reflects true intent). Also, use the contra proferentum rule (construe language in manner favourable to the insured). Interpret K according to the reasonable person. - In an insurance K, a reasonable person would not expect to be unable to recover as the result of a willful and destructive act of the co-insured. The standard fair and reasonable interpretation of the indemnification obligation in an insurance K is that it is several. - If insurer wants its indemnification obligation to be joint, it must manifest this in very clear language b/c it is fundamentally at odds with the expectations of a reasonable person buying fire insurance. - Interpretation is not guided only by the words of the K but at the REASONABLE EXPECTATIONS that ordinary people entering these types of contracts have. Courts must be guided by the reasonable expectation and purpose of an ordinary person entering such a K. Must give language the meaning that an average policy-holder would attach to it. Commentary: - Father totally innocent - if he had conspired with son, would make situation totally different. - Case (majority judgement) shows severe limitation to interpretation as key to fairness  rule of strict construction and contra proferentum rules can only be used where there is AMBIGUITY. (Contrast with Art. 1432: Contra proferentum rule applies to consumers or adhering parties in ALL CASES, not just in cases of doubt). - Dissenting opinion: shows artificiality of using interpretation as a technique; can interpret K in any way you want. What dissenting opinion was REALLY doing - seeing if clause was reasonable in the circumstances. (Denning) 68 Rule: Majority: Interpretation as key to fairness can only be used where there is ambiguity in the text. When the wording of a K is unambiguous, courts should not give it a meaning different from that which is expressed by its clear terms, unless the K is unreasonable or has an effect contrary to the intention of the parties. Dissent: Interpretation should not be guided by the text only; also consider the reasonable expectations that ordinary people entering into these types of contracts have. Where ambiguity, interpret according to what is true intent of parties (true intent = what is reasonable and fair)

Tilden Rent-A-Car v. Clendenning [1978] exoneration clause abusive  inequality in bargaining power Facts - Dft rented a car from ptf at Vancouver airport. Dft chose to pay for “additional coverage” and signed box acknowledging that he had read the conditions of such coverage. He did not read the conditions nor did the clerk bring them to his attention. - He had an accident with the car and was found to be driving under the influence. - Tilden sued Clendenning relying on a clause in K that denied insurance coverage to driver when he had consumed alcohol. [Customer agrees that vehicle will not be operated by any person who has drunk ANY alcohol!] - Trial judge dismissed Tilden’s claim on the grounds that it misrepresented in terms of the K Issues - Is dft liable for damage caused to car given that clause denies coverage when alcohol consumed? Held - Not liable, clause is null Reasoning - No steps taken by Tilden to alert Clendenning to onerous provisions – not reasonable to assume that dft had read K -- - L’Estrange v. F. Graucob test used (where if sign = bound) - The clause is inconsistent with the express terms - Procedural unfairness in the formation of the contract: Given the circumstances, the employee should have taken reasonable measures to draw the terms to the attention of the other party (Thorton???). No steps were taken to alert the part. Staff told not to inform unless asked. - Substantive unfairness of the clause: The ambit of the clause was potentially unreasonable and limitless:  Clause would apply even if the driver had one glass of wine, or if drove into a parking lot (off a provincial or federal highway) would not be covered. (Canadian Factors???)

- Relationship between the parties: Inequality in bargaining power - The court does not apply the l’Estrange Rule blindly when to do so would be to enforce an exclusion clause in an unfair situation. - Objective theory of K: It is not inward intent that courts consider to be important. “If, whatever, a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the K with him, the man thus conducting himself would be equally bound AS IF he had intended to agree to the other party’s terms.” - In this case, it was not reasonable to assume that ptf had assented to the terms he had not read. The clauses relied on were inconsistent with the overall purpose for which the K was entered into. Dft would not likely have agreed to them given how unreasonable and unusual they are. - A party seeking to rely on unreasonable or unusual or unexpected clauses (those contrary to purpose of K) such as the one in this case must take reasonable measures to draw these terms to the attn of the other party. In the absence of such measures, party denying knowledge of the terms need not show fraud, misrepresentation or non est factum. - Dissent – doesn’t find terms of K to be unreasonable, if you sign something you’re bound by it --- = traditional mindset of aut of will - General rule: wrt standard-form contracts; In the absence of duress, fraud or misrepresentation, the party

69 who signed the K is bound by the printed conditions, even if he or she didn’t read them. - Judges should avoid the difficult task of deciding if a clause in a K in the marketplace is “reasonable”. The clause in this case is undoubtedly a strict one, but perhaps necessarily so. Maybe rental car market is such that these clauses are necessary in order to offer low rates. - Even if the clause was strict or unreasonable, the dft’s violation of it was not w/in the ambit of this “strictness.” His violation was significant. [compare to Cameron v. Canadian factors???] Comments - This is clearly an unconscionability case though this wording is not used. ---instead twin criteria of procedural and substantial - Case focuses less on the clause than on the circumstances in which K was formed. - What does case teach people like Tilden? Make exclusion clause reasonable or it will be struck down (court will not read it down when necessary - this would encourage ex clauses that were as strict as possible). - Cannot just say that clause is unreasonable  b/c bound by the L'Estrange rule (sign = bound) - so say that b/c of circumstances, rule doesn't apply. - JUKIER says = Tilden is actually a fundamental breach case that is being analyzed under unconsc --essentially what Dickson recommended in Hunter?

Ghestin – whether or not judge holds onto aut of wills theory will influence how open they are to this (?? – L’Estrange rule or protective interpretation???)

Tools available to the courts when faced w/ exoneration clause (when Ked for protection) - (when does L’Estrange v. Graucob apply)

1) True construction of the K (as related to fairness and interpretation) o Based on circumstances/facts of case courts decide what true interpretation is o Contra proferentem rule 1432 CCQ In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer. . Ambiguous term will be construed against the party that imposed its inclusion in K o Strict construction approach . Most pop approach . Courts only apply exoneration clause if it isn’t too general . Disadvantageous in that can lead to over-proliferation of specific exoneration clauses where Ks get longer and even less people read them --- double-edged sword . Can end up opposing “true construction of K” in that courts not interpreting clause’s natural meaning but actually interpreting artificially in order to achieve fairness  Eg of Denning in George Mitchell case (??- do summary of this –not in CP but Jukier mentions) o SO courts (CML) came up w/

2) Doctrine of Fundamental Breach Doctrine of Fundamental Breach - Became rule of law (rather than a rule of construction of K) (?) o So = mandatory rule and inflexible rule

L'Estrange v F Graucob Ltd [1934] – in Tilden case  sign = binding  exemption clause Facts - L’Estrange is proprietor of a café - 2 salesman of Graucob persuaded her to buy a cigarette machine - She signs order form w/out reading all of the terms 70 - Clause w/in said that any warranty not stated w/in was invalid – etc EXEMPTION CLAUSE - She alleged that machine was unfit for purposes for which it was sold and wants out of payments/K Issues - Is K binding ? Held - Yes Reasoning - Immaterial that she hadn’t read, - Sign = binding - Objective view of K used by courts rather than subjective which would look indiv intentions in K

Photo Productions v. Securicor [1980] – UK  FB ‘laid to rest’exoneration clause Facts - Securicor Ked to provide patrol (night watchman) on premises of Photo Production - K has extensive exoneration clause exempting Securicor from any damages which could occur to factory (“any injurious act or default by any employee of the company”)  note that Photo Productions was paying very little for service - One of watchmen lit match, threw into a pile of boxes, factory burns down (intentional I think?) Issue - Can Securicor rely on the exclusion clause to escape liability for their employee's conduct. (where breach of K so massive that invalidates entire K) Held - At Court of Ap Denning says FB applies and that SEcuricor is liable - House of Lords overturns = Securicor not liable = essentially laying FB to rest Reasoning - House of Lords -- Exemption clauses are to be interpreted the same as any other term regardless of whether a breach has occurred. The scope of the exclusion is determined by examining the construction of the contract. On the facts, Lord Wilberforce found that the exclusion clause precluded all liability even when harm was caused intentionally - Fundamental breach as a matter of K construction – so = procedural ---no longer part of rule of law (remember Devlin’s article where he says that FB isn’t actually dead) - Explicit rejection of doctrine of FB (essentially putting FB to rest)

Args in favour of rejecting FB - creates more UNCERTAINTY in Law o as to whether or not breach is fundamental or not . eg of controversy Hunter . so hard to predict outcome of K - skirting actual issue of reasonableness/fairness  of UNCONSIONABILITY - it is and UNDERINCLUSIVE doctrine o as only applies to exoneration clauses . so what about choice of form clauses / arbitration clauses etc - it is OVERINCLUSIVE o where exclusion captures ture intent of K . esp btw equal bargaining parties (where parties have allowed for the ‘issues’)  or where companies have factored in the economics of K o so eg. would be where you’re paying very little for a service (makes sense that you would get less since you’re paying for less) . eg of insurance – if you pay less you have a higher deductible  so this K has allowed for exclusion

71 . eg of Photo Productions – w/ watchmen  they were paying very little for the service - it is INFLEXIBLE (as a law) o knee-jerk reaction o if courts don’t want to apply it they won’t find FB  which leads to other probs (??)

Hunter Engineering Co. v. Syncrude Canada Ltd. [1989]  FB doesn’t apply replaces it w/ unconsc but doesn’t actually apply it b/c no inequality  exoneration clause Facts - Syncrude bought gearboxes from Hunter. - K provided for exclusion of liability for defective gearboxes after a certain period of time. - The gearboxes were defective. Syncrude sued Hunter for damages. Hunter said no b/c warranty period had expired. Issues - Is exclusion clause valid? [Is fundamental breach part of Cdn law and what is its effect on Hunter's liability?] Held - Hunter isn’t liable, exclusion clause is valid and fundamental breach doesn’t apply Reasoning Dickson J. – OBITER This is clearly a case of fundamental breach since the defect destroyed the workable character of the machine, but Dickson rejects this doctrine. Does not favour requiring the court to assess the reasonableness of the K terms. - ((((Justification from Suisse Atlantique: “If the parties clearly intended an exclusion clause to apply in the event of fundamental breach, the party in breach would be exempted from liability”. ))) - ((((Especially in commercial settings where there often equality of bargaining power, exclusion clauses are not always unreasonable and unfair according to Waddams. ))) - (((The doctrine of fundamental breach came down to a game of characterization of the breach instead of the exoneration clause. Needs to be contextual. “there is little value in cloaking the inquiry behind a construct that takes on its own idiosyncratic traits…”))) Dickson replaces the doctrine of fundamental breach with unconscionability but does not apply it here since there was no inequality of bargaining power. Dickson]: - Did not agree w/ Wilson's approach to fundamental breach. - Should replace the doctrine of fundamental breach with a rule that holds the parties to their agreements provided that agreements are not unconscionable. - Doctrine of FB has been confusing at the best of times. Lay it to rest and deal explicitly with unconscionability. - Better to address the protection of the weak from overreaching by the strong than to rely on artificial doctrine of FB. FB asks the wrong question. - Underlying FB doctrine was attempt to remedy situations of unfairness - explicitly addressing concerns of unconc and inequality of bar power allows courts to focus on the real grounds for refusing to enforce an "agreed-upon" K-ual term. - [Concludes that Hunter is not liable b/c there was no unconc - the parties were of EQUAL BARGAINING POWER] Wilson J. (dissent): - We should not dispense with doctrine of fundamental breach even though it is not a rule of law. - About the doctrine of unconscionability: it is less certain than the doctrine of fundamental breach, less certain than “the length of the Chancellor’s foot”. - We should apply fairness and reasonableness while taking into account fundamental breach. - Residual power residing in the court to make thinks fair and reasonable. Waddams says there is no different from unconscionable Wilson]: - Wilson does not think that this is the place for an exposition of the doctrine of unconscionability as it relates to inequality of bargaining power. Nor does she think that FB is a hard and fast rule - court should not just invalidate an exclusion clause where there is fundamental breach.

72 - BUT…there are circumstances in which an exclusion clause can be rendered inapplicable: - Where there are situations of inequality of bargaining power - ASK  in the circumstances that have happened (i.e. the nature of the breach), should the court lend its aid to A to hold B to this clause? Look at the breach and then at the clause  Does the nature of the breach make it fair and/or reasonable to enforce the clause? - In this case, even if the breach was a fundamental one, there would be nothing unfair about giving effect to the exclusion clause. Parties are of equal bargaining power and familiar and experienced w/ this type of K. Comments - Similar to Photo Production but in Canadian context - This case adds to debate on uconscionability. Supporters  unequivocal adoption of doctrine by Dickson. Detractors  only Dickson supports the doctrine AND his comments are in obiter (not necessary to the decision) AND it's a case about exclusion clauses anyway (not about the K generally). - Difference btwn Dickson and Wilson's approaches: - Dickson - look at clause at time of formation - look at all circumstances - was it entered into fairly? - can look at the context of the bargain (may be reasonable to have very restrictive exclusion clause if getting goods at low price)  Jukier: this asks the right Q  taking parties, K as a whole and circumstances, is the clause unfair? [SH: How does this differ from using interpretation? Can only use interpretation where there is ambiguity? (thanks to Scott v. Wawanesa case)] - Wilson - look at clause in context of the breach - Jukier: don't see how this is diff from fundamental breach; she is asking the wrong question.

Dif btw Dickson and Wilson Dickson Wilson - Tries to lay doctrine of FB to rest as says is a clock - Contradicts herself  FB shouldn’t be hard and fast and of unconscionability where should go back to true wants to get rid of it  but doesn’t want unconscionability construction of K by parties  except in cases of__?_ either - Advises forgetting this ‘discrete’ doctrine  similar - Arg for FB= weeds out unfair Ks where equality of parties to Denning who says exploitation of weaker party by isn’t an issue (so where unconsc wouldn’t work) and stronger party = unconsc so put FB to rest (???) - ***UNCONSC = EX ANTI EXAMINATION (concerns K - Wants to be able to deal w/ more than exoneration during formation) FB = EX POST EXAMINATION (deals clauses w/ K after formation and imp b/c Ks CAN BECOME - “double obiter” 1) in that wasn’t FB in facts 2) in UNFAIR DURING PERFORMANCE) that replacing FB w/ unconsc but doesn’t work b/c K - Arg for unconsc= looks at K bef and removes uncertainty is btw equal bargaining powers but ULTIMATELY  but then she says that unconsc wouldn’t really help either TRYING TO GET RID OF FB IN FAVOUR OF - Says that FB is uncertain but unconsc is even less certain UNCONSCIONABILITY or concrete and GIVES A LOT OF INTERPRETIVE POWER TO COURTS  unconsc means dif things to dif judges so is unpredictable (BUT COULD SAY THAT FB ALLOWS MORE CONTEXT BASED JUDGMENT[SR])

DEVLIN – “Return of the Undead: Fundamentally Desinterred” - article - As related to FUNDAMENTAL BREACH – he suggests that it’s not actually dead ((((((so does this mean that FB should apply beyond formation/procedural stage?? – see Photo Production case))))))) – is the same DEVLIN or the same article???? - For doctrine to apply, party must commit a FUNDAMENTAL breach - Doctrine becomes law, result = can’t invoke exculpatory clause – even if clearly drafted and natural meaning still stands (?) - would say that FB hasn’t really been rejected despite attempts  since it still appears in judgments

FB as about good faith - But is FB more about good faith where could use good faith instead o Since good faith looks at K during PERFORMANCE rather than formation - DEVLIN 73 o Says FB fits much better w/in good faith than uncons

o Back to Photo Production . Exoneration clause wasn’t really uncons but isn’t it BAD FAITH in the way it was PERFORMED (in terms of factory being burnt down) . But note 1989 case  NO DOCTRINE OF GOOD FAITH AT THE TIME since Houle came after (which is in CVL [??])  Soucisse came after RAW DEALS

3) Abuse clause in Quebec - FB not known to CVL 1437 CCQ An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced. An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause. . one of 3 articles that protects customers who have entered into adhesion Ks  can this be related to FB??? . Note use of words ‘good faith’ and ‘fundamental’ . 1437 seems like a combo of maybe unconsc but esp good faith and FB – but maybe that’s what FB essentially is?

Allendale Mutual Insurance Co. v. Hydro-Quebec ( 2001)  sweeping exoneration bylaw Facts - appellant suffers loss by fire - fire was caused by sparks from a transformer under the sole care and control of the respondent, Hydro-Quebec - company is paid most of insurance money by insurer Allendale and then is subrogated by Allendale (they step into company’s shoes) and sues Hydro-Quebec Issues - can Hydro-Quebec escape responsibility for Kruger's loss on the basis of the sweeping exoneration of liability stipulated in one of its bylaws? Held - no Reasoning - related to exoneration clause - if Hydro is responsible then what aren’t they responsible for --- floodgates - transfer from ex-anti to ex-post ---unconsc to FB ---what? - Abusive clause and null in light of art 1437 - it is plainly abusive for Hydro-Quebec, a company with market monopoly, to impose on the persons it was created to serve, as a condition for supplying them with electricity, the obligation to waive not only any claims they may have for damages incurred as a result of Hydro-Quebec's failure to supply electricity, but also any right to compensation for other damages caused to them by any fault, contractual or extra-contractual, attributable to Hydro-Quebec. Comment - how does this relate to good faith

Unconscionability / Lesion (again/cont’d)

Harry v. Kreutziger [1979] (B.C. C.Ap)  unconsc  inequality Facts - a member of the First Nations, inarticulate, uneducated - sale of his boat and fishing license for a nominal amount – wanted a new boat 74 - The boat was worthless but, unknown to the seller, his fishing license was worth a great deal of money, and could have been mortgaged to finance a new boat. Issue - Unconscionable? Held - Yes Reasoning - quintessential unconsc case from Can. - imp of facts for determining unconsc - allowed to rescind K - court ruled that the buyer was merely trying to take advantage of the seller's lack of knowledge of the value of the license and refused to allow the contract to be enforced. - Criteria set out for unconsc Ratio - Criteria for unconsc = There is - 1) unequal bargaining power/ exploitation  subjective unfairness in CVL - 2) proof of substantive unfairness of bargain  objective unfairness in CVL - 1) must come from 2) -unconsc can’t be used as a lifejacket for those who have entered into a K Comments - Jukier suggests reducing unconsc to one standard  commercial standard to reasonableness - Issue of if this should be a question of i ncapacit y (a la Thibodeau) but hard to prove incapacity b/c capacity assumed ---Thibodeau was clearly banging head on wall and talking to himself so easy to prove incapacity - Certain CML jurisdictions have statutes dealing w/ incapacity  often when this doesn’t exist unconsc is often used as remedy

Toker v. Westerman [1970] (US - New Jersey case)  unconsc, likely due to ‘shocking’ nature of case  unconsc being used as lifejacket? Facts - D bought a fridge for 2.5 times the value of the appliance from door-to-door salesman - D is refusing to pay the remaining $500 or so (the final payments of the fridge) claiming that the K clause was unconscionable. Issue - Is selling fridge for 2.5 times value unconscionable. - Does D have to pay remaining amount Held - Yes - No Reasoning - court finds case shocking  the sale of goods for approximately 21/2 times their reasonable retail value so = unconscionable - Reference to the K injuring the public in some way. Comments - Jukier :  One argument is that this is not seen this as a proper case to use unconscionability. Used as a life-jacket for people who enter into silly bargains. There was no unequal bargaining power and only an unfair price.  judge becoming police for those who don’t shop around how is it unconsc to pay too much for something  THERE IS ONLY SUBSTANTIVE UNFAIRNESS (as in the context as opposed to rules/enforcement in this case) so doesn’t fulfill Harry v. Kruetziger test  Another view of the case could be: o Unequal bargaining power stems from fact that people were on social assistance. Inequality in economic power is often seen as inequality in bargaining power. - Or, unequal bargaining power b/c door to door salesman (Itinerant vendor). This is considered particularly

75 susceptible of abuse  pressure. -NOTE This has been placed in the Consumer Protection Act in Quebec wherein you have 10 days to get out of itinerant sale - Bundy lense  should unconsc be looked at on case by case basis

1379 CCQ A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable. Any contract that is not a contract of adhesion is a contract by mutual agreement

- Lesion - Closest CVL notion to unconsc but dif starting point - Lesion = defect of consent  primarily protecting capacity 1399 CCQ Consent may be given only in a free and enlightened manner. It may be vitiated by error, fear or lesion. ****1406 CCQ Lesion results from the exploitation of one of the parties by the other, which creates a serious disproportion between the prestations of the parties; the fact that there is a serious disproportion creates a presumption of exploitation. In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the general circumstances.

- vs. unconsc which isn’t a defect of consent and protects Kual justice (Ghestin)  focus on substantive fairness - based on defect of consent b/c CVL focussed on consent b/c of CVL underpinning of aut of will theory (‘qui dit Kuel dit juste’) - Is limited by 1405 CCQ 1405 CCQ Except in the cases expressly provided by law, lesion vitiates consent only in respect of minors and persons of full age under protective supervision - History of Lesion  LAESIO ENORMIS o CCLC 1012  capable major cannot be relieved from K’s for cause of lesion only – precursor to 1405 CCQ (?) o French civil code has similar provision. As well, from the Roman law, the concept of Laesio Enormis where vendor sells for 7/12 too little, then can get out of sale. - 1040c CCLC  precursor to notion of lesion for K of loan (see Gareau Auto) o Took the article from Ontario statute . Didn’t bother to translate article into Civilian terminology (used the word unconscionability), didn’t bother to think about where to place the article, didn’t amend related articles (article 1012 CCLC) . Article went to the SCC for constitutionality as applies in part to interest rates (which is federal) . Survived in Quebec b/c Ks are prov  but limited and then struck down by Quebec C. Ap . Response to 1040c = interpret it narrowly  see Roynat

Roynat Ltée v. Restaurant Nouvelle-Orléans Inc. [1976] (in Gareau Auto v. B.C. Imperiale de Commerce) – C.Ap but SCC later affirme CVL no unconsc (or equiv) Facts - K of loan btwn Roynat and the restaurant - One (quite usual) clause in the K: a “pre-payment” clause - cannot pre-pay loan. [lender wouldn’t want you

76 to pre-pay loan b/c he doesn’t make money this way. Such a clause is fine in and of itself]. - The Restaurant wants to pre-pay the loan b/c it wants to sell to Ramada. Ramada says “no sale unless you get rid of the loan” - Restaurant goes to the lender and says it wants to pre-pay  Roynat says fine…but must pay “pre-payment penalty”. On $750,000 loan, demanded $150,000 penalty. - Trial judge reduced the penalty to $30,000 on the basis that it was abusive, exorbitant and excessive. [So penalty was 5x what would have been reasonable]. Issues - Can the penalty clause be reduced or annulled pursuant to art. 1040c (i.e. on the grounds that the cost of the loan is excessive, harsh, unconscionable)? Held - No Reasoning - A provision (such as Art. 1040c) that derogates from the autonomy of the will theory (freedom of K) must be interpreted strictly. "La liberté des conventions est la regle; la convention est la loi des parties. Les Tribunaux ne peuvent y deroger que dans la mesure ou une disposition specifique de Loi y autorise: une telle disposition en étant une d'exception devra quant a la portée de son application recevoir une interprétation stricte." - Art. 1040c applies to Ks of loan. The pre-payment penalty is not in the K of loan (i.e. it is not "une obligation monetair decoulant d'un pret d'argent"); rather the penalty flows from another K, distinct from the K of loan. - Thus, the pre-payment penalty cannot be annulled or reduced on the basis that it is harsh or unconscionable. It is not a K of loan. Comment - Nothing to do w/ defect of consent  closer to unconsc Commentary (Jukier): - Outcome of this case is just but reasoning and implications are horrendous. - Reasoning: Did the penalty clause K come from the K? NO. These are not two completely different Ks; the K in question is secondary to the principal one and would not have been entered into but for the principal one. Would have been more reasonable if judge looked at K as a whole - prepayment K was part of this whole and made the "operation" of the K of loan harsh and unconscionable. - Justice of outcome: Restaurant wasn't in position of weak bargaining power or state of necessity; it just wanted to sell the restaurant for a lot of money. If they wanted to avoid the high penalty they could have (1) not sold now (waited until expiry of penalty); or (2) reflected cost of penalty in the selling price. - Implications: - The strict/narrow interpretation of 1040c may have been just in this case but nullified its effect for the future. Art. 1040c "never really had a life" - Lawyers/lenders modified their practices to take acct of this decision (and avoid art. 1040c  would put excessive admin fees and other charges into a separate K (not the K of loan). [Eiffel Construction case: these excessive separate Ks were upheld by the C.A.] - What if there was a penalty clause provision in the K of loan?: Pre-1994, no chance for court to review a penalty clause…no such thing as an unfair penalty clause. Recall Canadian factors case  he was contesting the penalty clause…but couldn’t attack it directly…had to attack the whole K as he did. (Penalty clauses are accessory obligations that cannot live with a principal obligation). - BUT…CCQ has article 1623 which enables penalty clauses to be attacked: amt of stipulated penalty may be reduced if clause is abusive (look then to 1437 CCQ – notion of abusive clauses). THIS DECISION SHOWS WHAT CAN HAPPEN WHEN JUDGE REMAINS WEDDED TO THE AUTONOMY OF THE WILL THEORY (think GHESTIN)!

o Led to new codal article . For Ks OF LOAN 2332 CCQ In the case of a loan of a sum of money, the court may pronounce the nullity of the contract, order the reduction of the obligations arising from the contract or revise the terms and conditions of the performance of the obligations to the extent that it finds that, having regard to the risk and to all the circumstances, one of the parties has suffered lesion.

- How is 2332 different from 1040c? 77 - [1] Doesn't use the word unconscionable - [2] Is in the section on K of loan - provision now has its anchor (this is important symbolically) - [3] Mentions lesion  Defined in Art. 1406 CCQ (CCLC had no def'n) 1406 CCQ Lesion results from the exploitation of one of the parties by the other, which creates a serious disproportion between the prestations of the parties; the fact that there is a serious disproportion creates a presumption of exploitation. In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the general circumstances. - *EXPLOITATION  PROCEDURAL, subjective  Look at who parties are and circumstances in which they entered into K. - *PRESTATION DISPROPORTION  SUBSTANTIVE, objective  is this a fair deal. - *REBUTTABLE PRESUMPTION of exploitation

- - Lesion in the Consumer Context Consumer Protection Act (CVL)

Annulment of contract, reduction of obligations. 8. The consumer may demand the nullity of a contract or a reduction in his obligations thereunder where the disproportion between the respective obligations of the parties is so great as to amount to exploitation of the consumer or where the obligation of the consumer is excessive, harsh or unconscionable.

Degree of consumer's consent. 9. Where the court must determine whether a consumer consented to a contract, it shall consider the condition of the parties, the circumstances in which the contract was entered into and the benefits arising from the contract for the consumer. - Through Gareau Auto, sec 8 of CPA read as having TWO TYPES of lesion (rather than two requirements for lesion)  focus on the word ‘or’ in sec. 8: o 1st part reminiscent of 1406 CCQ and Ghestin’s notion of Kual justice . [1] Objective lesion - disproportion of prestations is so great as to amount to exploitation. [note…exploitation is here a fait accompli; it is not just a presumption as in art. 1406; not even rebuttable!]  Substantive unfairness   Arguments against objective lesion: Should the court have to be the smart shopper? This is not the place for the law it is the place of the market, how can judge say that only b/c it was twice the price that it is lesion. o 2nd part reminiscent of 1040c CCLC . [2] Subjective lesion - the obligation of the consumer is excessive, harsh, unconscionable.  (Compare this to 1406 which requires both disproportion of prestations AND exploitation of one party by another).  Reminiscent of art 1406 and incapable majors and minors by effectively giving consumers the tool of subjective lesion.  Is there an obligation for the co-contractant to check out the ability of the purchaser to pay? This seems nuts.

Gareau Auto v. B.C. Imperiale de Commerce [1989] lesion Facts: - Defendent bought a boat for about $11,174. [NOT an excessive price for boat!] - decided he didn’t want the boat anymore, regretted his decision almost immediately and he only used the boat once. - He doesn’t pay and is sued. Issue: Is K null for lesion?

78 Held: Yes. Appeal dismissed. Ratio: - Aplt argued that S. 8 and S. 9 should be interpreted restrictively b/c art. 1040c has been interpreted restrictively. - Court rejected this argument in saying that the old (though still respectable) concepts of Kual freedom founded on the autonomy of the will isn’t enough to satisfy the equally imperative notion of Kual justice - The principle enunciated in Roynat isn't exportable to this case. - The aplt also argued that the determination of whether the consumer's obligation was "harsh, excessive and exorbitant" should be an objective one. - The rspdt argued that it should be a subjective determination that takes into consideration the particular circumstances of the victim. - = S. 8 has two forms of lesion: - TYPE 1 - [1] Disproportion of prestations(objective): when determining this, court should not look at subjective nature but must just ask if (1) there is a disproportion and (2) if the disproportion is considerable. In this case, there was no disproportion of prestations b/c the boat was sold at a fair (commercial) price  MARKET PRICE/FAIR PRICE. - [2] Consumer must prove that obligations are excessive OR abusive OR exorbitant. Judge interprets this as subjective lesion (based on the words of s. 9).  depends on the MEANS of each consumer; must prove that it will be disastrous for THEIR patrimony = SUBJECTIVE DON’T have to show that the obligation is objectively exorbitant or excessive; consumer can be relieved even if the price is fair. - (so type 1 had both subjective and objective components but is overall objective???) - TYPE 2  must consider each of the elements in s. 9 in order to determine if obligations are excessive, abusive or exorbitant: - [1] Condition of the parties: look at the economic situation of the consumer - does it make the obligation excessive? - [2] The circumstances in which the K was concluded: look at the circumstances surrounding the negotiation and conclusion of the K (not to the personal circumstances of the consumer such as marital difficulties) - [3] The advantages of the K for the consumer: eg. Acceptable to court  a purchase by a consumer of an object that he absolutely needs even if the obligation he assumes is quite excessive. BUT ALSO same court might annul a K that includes obligations which are only relatively onerous if proven that the object is totally unneeded/ unuseful to the consumer. - The consumer in this case is on workers comp., married w/ 3 kids, has a mortgage and not much equity. The boat is of no use to him as he doesn't have a chalet and does not participate in water sports. [This looks like a Mr. Bundy] Obviously cannot afford the boat as he had to get his bro to pay the $500 deposit. The K will have detrimental consequences for the consumer and should be annulled. Rule: S. 8 of the CPA includes two separate types of lesion. Type [1], judge must determine if the price paid is fair and reasonable (is it the market price?) (TYPE1 – ABOUT THE PRICE – OBJECTIVE, NO?). Type [2], s. 9 mandates that the judge must make a subjective determination of whether the obligation is excessive or exorbitant or abusive - this will include a consideration of the three elements in s. 9 CPA. (TYPE 2 – ABOUT THE ACTUAL SIT – SUBJECTIVE)

Comments LESION IN THE CPA REQUIRES ONLY SUBJECTIVE LESION (NOT OBJECTIVE LESION) vs CCQ WHICH REQUIRES OBJECTIVE AND SUBJECTIVE LESION  . Odd as statutes are supposed to be interpreted restrictively and Code is supposed to have a very wide interpretation. Here, the opposite is happening. (same w/ Roynat)  So Lesion varies according to the quality/class of the K and the parties. Jukier  likes unconscionability but hates where people can get out of K’s where they are burdensome to the people or they enter into silly bargains. - She acknowledges imp of contextual circumstances (subjective) (eg. Tilden) but these circumstances shouldn’t include the ec position of the parties (as w/ this case), valid but not as only requirement (as it is here) why is oblig transferred to merchant to ensure finances of consumer

79 - Fully in favour departing from aut of will and inject contractual justice but (SO NOTE DIF/CONSTRAST BTW AUT OF WILL AND KUAL JUSTICE) cases eg Gareau Auto support args against unconscionability. - Lang used in sec. 8 and 9 reminiscent of lang in 1406(2) where consumer is being treated as a minor - Is there exploitation here - w/ salesman going to house? - = Jukier thinks we must look at both the objective AND subjective (substantive and procedural in unconscionability) so as to ensure that there is no abuse. Jukier on Roynat and Gareau: - overly restrictive and overly broad interpretations of lesion. - lesion provisions being read down = bad - BUT also shouldn’t be used to relieve someone from a bad bargain (as in Gareau). There should be a general lesion clause in the civil law which requires both SUBJECTIVE and OBJECTIVE elements. Draft civil code lesion provision: - (art 1449 [1]  led to 1406, art 1449[2] wasn’t kept, we use 1405 instead) - “Lesion vitiates consent for natural persons who may have entered into Ks in which there was serious disproportion of prestations as well as exploitation” - What would have happened if we had such a provision? Applying this to Gareau Auto  natural person, no considerable disproportion…therefore no lesion. Wouldn’t apply to Roynat either. - Would this provision have been better? Maybe not. Why only application to natural persons?…enterprises may be in position of unequal bargaining power. - Although would cover Kreutziger - So without draft bill  can’t use 2332 CCQ as is only for Ks of loan and consumer Ks  but could use 1437 CCQ (a la Allendale) 1437 CCQ An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced. An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.

Slush Puppie v. 153226 Canada [1994] CVL -abusive clause /adhesion K1437 Facts - K btw depanneur and slush puppie that gives ice machine for slushies to dep and obliges them to use the machine and all its products. - K also provided that ptf could conduct tests at the dft’s dep in order to ensure that the exclusive supplier clause was being respected. - clause 10b said that client would have faith in the results of such test; that the results would be uncontestable by the client; and that failure of the test would automatically engage the penalty clause and end the K. - random test reveals that the products were not from slush puppie - but the PL will not reveal the nature of the test (ie chemicals used). - Penalty of breach in K was set at $2500 and machine emptied and repossessed Issue - is clause abusive Held - Yes Reasoning - Yes, according to 1437 CCQ - K of adhesion - PL shows no proof that the test is valid manner of showing the use of other products and the breach of the K. - Doesn’t give the franchisee any rights to contest Comment - Remember this was used in Allendale against an exoneration/exclusion clause

80 Quebec (Procureur general) c. Kechichian [2000]  abusive under1437 Facts - Immigration sponsorship K signed btw sponsors and gov - signed declaration (guarant) that the person you are sponsoring is not going to accept any welfare from the state. - ((This is a contract for the benefit of a third party and even a contract of adhesion.)) - The province claims the welfare money that was given to the immigrants. Issue - Is clause abusive under 1437 CCQ Held - No Reasoning Obiter statements by Baudouin about the ambit of 1437  There must excessiveness in an unreasonable way for art. 1437 to apply.  both subjective and objective tests of this  There is a valid provincial objective for the clause: prevent sponsored immigrants from being looked after by the State. This permits the “guarantee” to have a family member come to Canada. It is of benefit to him and his economic difficulties are irrelevant since they were aware of the nature of their engagement before signing. (( = GOOD FAITH))  Says that it should not become an instrument of exploitation of the weaker by the stronger. This points to unconscionability. He is thus applying lesion and unconscionability in his rejection of article 1437. pretty clear that 1437 isn’t lesion by another name b/c other courts have emphasized lesion can’t ‘sneak in through the back door’  1405 CCQ is the front door - This isn’t an excessively unfair clause and it isn’t unconsc either Comments Jukier - This case is like the skeleton  other cases (eg. Tabor etc) flesh it out

1407 CCQ A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming. 1408 CCQ In the case of a demand for the annulment of a contract on the ground of lesion, the court may maintain the contract where the defendant offers a reduction of his claim or an equitable pecuniary supplement. lesion.

1384 CCQ A consumer contract is a contract whose field of application is delimited by legislation respecting consumer protection whereby one of the parties, being a natural person, the consumer, acquires, leases, borrows or obtains in any other manner, for personal, family or domestic purposes, property or services from the other party, who offers such property and services as part of an enterprise which he carries on.

1438 CCQ A clause which is null does not render the contract invalid in other respects, unless it is apparent that the contract may be considered only as an indivisible whole. The same applies to a clause without effect or deemed unwritten. In the case of a loan of a sum of money, the court may pronounce the nullity of the contract, order the reduction of the obligations arising from the contract or revise the terms and conditions of the performance of the obligations to the extent that it finds that, having regard to the risk and to all the circumstances, one of the parties has suffered

81 FRAUD AND MISREPRESENTATION

- CVL - Either negligent or deliberate - Consent may be vitiated by error (CCQ1399) - Fraud is a subset of error (CCQ1401) - Requirements for fraud o Imputability (committed by or known to other party)  fear/duress may be present o Determinative (in formation of K) (would not have either consented to Kor consented to specific terms of K) o BAD FAITH on part of other party Qualities and defects of consent 1399 CCQ Consent may be given only in a free and enlightened manner. It may be vitiated by error, fear or lesion. 1400 CCQ Error vitiates consent of the parties or of one of them where it relates to the nature of the contract, the object of the prestation or anything that was essential in determining that consent. An inexcusable error does not constitute a defect of consent. 1401 CCQ Error on the part of one party induced by fraud committed by the other party or with his knowledge vitiates consent whenever, but for that error, the party would not have contracted, or would have contracted on different terms. Fraud may result from silence or concealment.

1407 CCQ A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.

- CML - No cases  but where CVL finds fraud CML would find misrepresentation (deliberate or negligent)  party can choose btw either going with o Misrepresentation o or Imply Collateral warranty (Dick Bentley) (??)

82 Spectrum of Fraud and Deliberate Misrepresentation

o distinguish btw puff and lie . puff  good fraud  “this is the best horse” . lie  bad fraud  this horse has never lost a race . this is why Yaskovitch isn’t fraud  puffery . otherwise eg. all TV commercials would be fraud . see Tremblay

Remedies - nullity / rescission o CVL – Nullity . Get out of obligation and also get back what you’ve give b/c of FICTION OF RETROACTIVITY  like K was never entered into . Relative nullity vs absolute nullity  Relative private interests  have to act right away (3 years) b/c of prescription period  Absolute  when against public order, policy, law may be induced by any party or the court o CML – Rescission (No recognized concept of nullity ) . To abrogate or cancel a K unilaterally or by agreement . ((so it’s really a lot like nullifying a K???) o Dole principale  “I never would have entered into K if”

- quanti minoris – CVL o an action brought by a purchaser of an article to reduce the purchase price due to the article’s defects  o Keep the K but basically a reduction in obligations equivalent to ECO damages  see CCQ 1407)  applies in sits of fraud but not plain error o Get paid the difference btwn what you paid and what you should have paid 83 o New w/ CCQ b/c it’s like rewriting the K for parties  judicial rewrite  was seen as against aut of will . But paties would just do new K after left court basically same thing o Anti-divorce mentality of CVL  w/out wrongdoing in error there’s no right to damages which is equivalent of a reduction of obligation o Dole incident  “I would have entered into K but not for this much” give me dif. - Damages o In both CML and CVL o Only option in CML for fraud if don’t rescind K o Measured in same way as for an injury in tort but for RELIANCE DAMAGES . Not measuring money lost but injury/damage suffered . Eg Esso  No compensation for loss of bargain b/c no expectation damages but remedying for being fraudulently induced to inter a K . Eg. Mason  Courts give anticipated profit looks like expectation damages but no b/c courts make a mistake  but b/c loss incurred comprises lost opportunity what Mason would have made if hadn’t entered into K (??)

Creighton v. Grynspan [1987] – CVL  misrep (fraud)  reticence Facts - Offer to purchase of estate which was accepted. - PL claims that C (vendor) led them to believe that the sale included a strip of land (which is owned by the city) that they desired and without which they wouldn’t have contracted. - C. knew that the conclusion of this contract was dependant upon the inclusion this land and did not correct the misapprehension. - In the offer and acceptance, they omit the words dealing with that strip of property and then in K, they say “more or less” as to the dimensions of the property. Issues - Is K null b/c of misrepresentation (fraud) Held - Yes  damages awarded Reasoning McCarthy - Reticence: C. claims he has done nothing wrong as he described the property accurately. - Court: look at the context of the contract: (previous offers and counter offers). It was then incumbent upon the vendor to disclose to the buyer. - Civil law: concealment can be fraud Art 1401(2) - This is a tort as was in the pre-contractual phase: Grynspan can get his reliance interest - Note that the court is condemning of fraud. Even though they could have gone to the land registry and checked themselves….but we don’t want to sanction fraud. (like duress.) LeBel, concurring - Shocking that these people were led into this even though they were successful real estate promoter. In civil, we don’t let people out of foolish bargains. Hesitant to conclude…but….still for the PL despite this. - Could be a creeping in of inexcusable error into fraud. - Gives lesser damages Ratio - Silence or reticence (failure to draw information to party's attention when you KNOW that it will be determinative of their consent to the K or the terms of the K) is an artifice and constitutes FRAUD. [now codified in Art. 1401(2)]. Comments - Compare to Huot: if seller in that case had known of the buyer's phobia and failed to disclose the existence of

84 the gas lines, he would have been guilty of FRAUD.

Tremblay v. Les Petroles Inc. [1961]- CVL  overt deliberate misrep (fraud) Facts - Tremblay leased public garage from Les Petroles - Before entering into K of lease, representative of owner of garage stated that gross earnings were $350,000 per year for six or seven years and that lessee could earn approximately $20,000 to $25,000 per year. - In reality, the garage had shown a loss in each of these six or seven years. - Tremblay was told there were no financial statements he could see b/c they were consolidated with larger operations or destroyed by fire. - Plaintiff at a loss during lease but continued trying Issues - Should K and hypothec be null b/c of fraud despite time waited to take action after having possession of business Held - Yes  null for fraud  relative nullity return of prestations Reasoning - OVERT DELIBERATE MISREPRESENTATION - Relative nullity is for fraud, misrep etc, absolute nullity is for Ks against public order - Would have been easy for PL to check accuracy of statementsnaïve - BUT statement influenced PL to lease so Def’s statements not just permissible exaggerations  but = representations that induced PL to enter into K - FRAUDULENT STATEMENTS WERE DETERMINANT PL wouldn’t have entered lease if known that Def operated the garage at loss for 6-7 years - PL became aware of fraud in degrees  so delay in reaction  evi shows he instituted action soon after finding out garage had operated at a loss  even though operated at a loss for several months  likely attributed it to other facts eg. price war btw oil companies, fact that it takes a business time to settle into things  only reas to assume he would try to improve his operations bef seeking release from obliges - But NOTE prescription period (3 YEARS)  acted w/in period but still delayed - NOTE HOW ACTIONS CAN INDICATE RATIFICATION - Lease should be annulled and some of PL’s losses repaid (impossible to determine how much of loss was due to inexperience/bad management - Relative nullity  CCQ 1420 Bisset- Dissenting - It is fraud but GOOD fraud so don’t nullify everybody over-praises things when selling something basically puffery a la Carlill  all TV commercials would then be fraud - 2 elements of fraud 1) must be reprehensiblenot just an exaggeration or inexact statement (dolus bonus) 2)must be determinant  party wouldn’t have entered K if known truth - PL tacitly ratified the K by continuing to take advtage of it when aware that representations made to him were false - Other Dissent - Not fraud - Although given false info PL had info necessary to determine real revenues - PL victim of own lack of experience and own negligence - Behaviour of Def didn’t seem to be that of someone who wanted to mislead in order to obtain consent (relevance?) Ratio - Fraud requires element of bad faith  bonus dolus (exaggeration or inexact statement) is insufficient - Party may not be able to get remedy for fraud if he ratified the fraud (became aware of it and didn’t take steps to remedy it immediately Comment - Through the Bundy lense? unconsc?????

85 Esso Petroleum Co. Ltd. v. Mardon [1976] CMLnegligent misrep (mistake) Facts - Esso bought vacant site for new service station - calculated estimated Petrol throughput at 200,000 gallons per year. - Station was built - City required that it be built 'back to front' such that entrance was not on main road. Esso did not modify throughput calculation in light of this (innocently no fraudulent intention proven). - Mardon entered into tenancy with Esso – relied on estimates and they induced him to enter into tenancy agreement and was impt factor in assessing rent charge. - Mr. Mardon was an excellent tenant but throughput only =ed 78,000 after 15 months. - Mardon sued Esso on basis that (1) the rep of 200,000 gallons was a collateral warranty; (2) Rep was a negligent misrepresentation. Issues - Is Esso liable for negligent misrepresentation? Held - Yes damages Reasoning - It’s a mistake  not intentional - Denning But they had specialized knowledge  and intended to induce Mardon to enter K (then under duty to use reas care to see that the representation is correct) made the rep negligently AND Mardon suffered damages  so = negligent misrep - Only compensated for loss suffered  capital loss,overdraft incurred on running business, loss of earnings from another job  recovers damages only in amount he suffered Ratio - If you have specialized knowledge and are inducing party into K must exercise reas care to see representation is correct

V.K. Mason Construction Ltd. v. Bank of Nova Scotia [1985] – CML negligent misrep  but actual K b/c missing requisite intention Facts - Courtot was owner and developer of Courtot Centre shopping complex. Mason was general K-or for the project and the Bank provided bridge financing. - Mason signed a fixed price contract with Courtot but only because he was told by the Bank that Courtot was adequately financed to meet his payments. - Both Courtot and the bank knew that the bank’s loan would not meet the cost of completion, - the bank failed to inform Mason that they had not included the soft costs in their loan to Courtot. . - By 1974, it was apparent that Courtot had insufficient funds to cover construction; Bank would not lend more or extend due date. - Courtot defaulted on loan payments; Bank sold the project; sale provided insufficient funds to pay Mason in full. - Mason sued bank in K and tort (negligent misrepresentation) Issues - Is Bank liable to Mason in K - Is bank liable to Mason in tort (negligent misrep) Held - No - Yes  damages Reasoning - Possible to imply K in this case unilateralOFFER(bank’s letter) if Mason would sign fixed price K w/ Courtot, bank would supply sufficient interim financing ACCEPTANCE Mason signed  CONSIDERATIONMason obliged itself to Courtot= assured Bank project was sound and that money could be lent 86 - BUT NO K SHOULD BE IMPLIED IN THIS CASE B/C THERE ISN’T REQUISITE INTENTION reas business people wouldn’t have construed bank’s letter as an absolute and unqualified guarantee IMPLYING A K IN THIS CASE WOULD UNDERMINE CERTAINTY (a principle virtue of K) - We are in tort because the person misrepresenting is not the contracting party - All requirements for negligent misrepresentation are met in this case; 3 requirements for liability for neg misrep: (1) untrue statement; (2) statement must have been made negligently; (3) special relationship = duty of care; (4) reliance which is foreseeable. All the requirements are met in this case: [1] Falsity - Mason sought assurance over and above terms of loan; Bank gave assurance relying solely on terms of loan. [2] Negligence - b/c Bank made statement of assurance w/o revealing that it was based on loan arrangement which Mason had already said was not sufficient assurance. [3] Special Relationship - Bank was inducing Mason to sign K with Courtot (distinguish this from Bank merely making representations to third party about one of its clients) [4] Reliance - Mason relied on it and such reliance was foreseeable. Damages: - Must restore Mason to sit he would have been in if no neg. misrep made - Damages given for what Mason would have been making if hadn’t entered into K  looks like expectation damages Jukier says courts make a mistake w/ this (??) Reticence vs. duty to disclose : - Dif btwn o letting another party remain in error knowing of party’s misapprehension without correcting it o and not sharing information you have that might be relevant in the pre-contractual sphere and which would alter the other party’s position (Bail). Duty to Disclose - a CVL thing mostly - Note that the obligation to inform may be different depending on whether it arises in a pre-contractual or contractual relationship o 1) criteria used to determine whether information is a deciding factor in the pre-contractual phase differs from criteria used in contractual phase; o 2) violation of pre-contractual obligation to inform gives rise to delictual, not contractual liability - Duty to disclose  part of good faith 1375 CCQ The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished. o Remember Good Faith trilogy  now here’s Bail . Bail takes GF farther than Houle  where GF must exist in formation of K o Jukier sees this is as another attempt to protect fairness o Ghestin – criteria borrowed from him3 necessary element for a duty to disclose . 1) Presumed knowledge is that you are being wilfully blind or professional sellers are presumed to know of a defect in the thing as they ought to have the knowledge.  Knowledge of the information (actual or presumed) . Decisive importance  Can’t give unless it has some importance in leading them into the K.  Information has to be important . Duty to share info is a positive obligation in cases where one party is in a vulnerable position with regards to info (sounds like fairness, exploitation, unconscionability).  Impossible for the other party to get it or he has legitimately relied on it It includes a duty to self-inform to the extent that is reasonable.  Note that the duty to self-inform is just like inexcusable error 1401 CCQ Error on the part of one party induced by fraud committed by the other party or with his knowledge vitiates consent whenever, but for that error, the party would not have contracted, or would have contracted on different terms.

87 Fraud may result from silence or concealment. 1407 CCQ A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming. 1416 CCQ Any contract which does not meet the necessary conditions of its formation may be annulled. failure to disclose is actionable  QUESTION OF WHETHER DUTY TO DISCLOSE IS FRAUD OR GF - as fraud/misrepresentation? o As a further movement down the fraud spectrum . Actually have to prove fraud (?) - as lack of good faith o difference btwn fraud/misrep and GF is what you’re going to have to prove o GF just have to show unreasonable intention instead of proving fraud o CCQ1375  doesn’t mention remedy for breach of GF  o Does CCQ 1401(2) broaden fault? - Baudouin favours placement of duty to disclose under fraud in 5th ed of Les Obligations  but then in 6th he places under GF o b/c MORE REMEDIES AVAILABLE IF IN REALM OF GOOD FAITH Remedies available for failure to disclose if under….. GF Fraud - no limits on remedies/more available - must use CCQ1407 for remedies so 3 options - eg. Soucisse  fin de non-recevoirwhich can’t get - nullity under CCQ1407 - quanti minoris - CCQ1375  nullity solution not explicit - damages - ((could also look at 1416 CCQ??) Is the Duty to Inform really Good Faith in formation  As in Bail, the duty to disclose in the formation of a K is just a particular instance of good faith (like in Houle).  Court makes a general duty to disclose under good faith in the formation and performance of the K as shown by the Bail and Houle cases. These are just two instances – in other cases could manifest itself in other ways.

How far does the duty of good faith go?  Not unlimited o  see Bail limited by 3rd condition = duty to self-inform to reas extent o also see Creighton where dissent says that ‘sophisticated’ business people could easily have found out correct info o Also CCQ 1400(2) 1400 CCQ Error vitiates consent of the parties or of one of them where it relates to the nature of the contract, the object of the prestation or anything that was essential in determining that consent. An inexcusable error does not constitute a defect of consent Is this justified from an ec. perspective - CML particularly resistant to duty to disclose (says this in KRONMAN too)and doesn’t have it BUT see Martel (pre-K GF) and O’Brian (Barclay’s Bank vs) o O’Brian  notion of undue influence ends up being a duty to disclose o Alberta case (Opron) refers to BailAlb failed to give info which lead to significant econ losses. Alberta was found liable under Tort. Negligent misrepresentation. Here it is included in misrepresentation much like in Civil it falls under fraud. - SO CML has aspects of duty to disclose  just not specific doctrine but through misrep - Ec. reason for reluctance 88 o That isn’t ec efficient to have duty to disclose . Waste of time/money . Risk is taken when enter into K KRONMAN article  ALSO RELATES TO EC. EFFICIENCY  IS NOT EC. EFFICIENT TO SANCTION DUTY TO DISCLOSE - Not ec. efficient to sanction duty to disclose b/c should reward (not punish) people who go out and find info - It is an incentive for deliberate acquisition of knowledge (as opposed to casual/passive acquisition of knowledge) - imp b/c this is what gets info to the market ASAP - Imp of getting info to the market asap - Deliberate acquisition of knowledge - Although he sees that imposing duty to disclose on case-by-case basis might be good where imposition occurs where info has been acquired casually  and then not imposed where info has been deliberately acquired o But suggests this might be expensive . Solution= blanket rules across dif cats. of info (isn’t this sort of like some insurance sits?) FABRE-MAGNAN article on EC. EFFICIENCY OF DUTY TO DISCLOSE  IS EC. EFFICIENT TO SANCTION DUTY TO DISCLOSE - Quotes Kronman - “the law should maximize the production of ‘socially’ useful info’ by allowing those who discover it to benefit from their knowledge of it” Poussin case France - Painting - Deals w/ same issue as Sherwood - PLs wanted to sell antique painting long believed to have been painted by Poussing - Consulted well-known auctioneer and art expert - Painting assessed as not too valuable and sold - Reunion des Musees Nationaux stepped in and exercised legal right of pre-emption and acquired painting - Articles later ran about imp discovery of Poussin painting - PLs started action against Reunion des Musees to have K declared void on grounds of erreur - Eventually painting recovered and resold at higher price o Creighton would say no nullification o Sherwood would say  sure - Imp to distinguish btwn your own prestation and someone else’s prestation your own info and someone elses (prestation = the payment of money or the rendering of a service) o Poussin case is where a party (seller/offeror) is mistaken as to their own prestation . This is much less common than opposite where usually party is mistaken as to the prestation of the other  so where buyer/offeree mistakenly believes that the painting they’re buying is genuine  Where it’s reas that party who actually has item in possession would be best place to know its true value o Problematic b/c often buyer may have put work into eg. restoration of painting/determination of its authenticity  and when seller normally recovers the object of sale as is and the buyer simply receives purchase price as recovery . France has instituted sever schemes to mitigate this eg where K was rescinded, buyer was also allowed to recover damages on the grounds of unjust enrichment on the part of the seller - Also mentions Kronmnan’s notion of reward for getting info where it is most EC EFFICIENT for party’s to have knowledge of their own prestations o Where each party is subject to a duty of disclosure doesn’t see negative consequences o Disagrees w/ Kronman that duties of disclosure related to a party’s own prestation will entail negative ec. consequences Fabre-Magnan says no and that there is no reason either party will want to reduce their production of such info in the future

89 o Ec. efficient b/c reduces global cost of the search for info . if duty to disclose also applies to own prestation/ seller’s knowledge of object of sale they’re selling seller only needs to get/communitcate info/disclose once, whereas each buyer would have to . DUTIES OF DISCLOSURE = MOST EC. EFFICIENT WAY OF ALLOCATING THE TASK OF COLLECTING INFO - Note distinction btwen duty to disclose (related to seller) where value of prestation is increased and when it is diminished o Only areas where law might have to enforce is where value is diminished

Bail c. Banque de Montreal [1992]  CVL  GF 1375  (last in GF Trilogy!)  duty to disclose Facts - Hydro QC contracted with Bail to build James Bay substation. Bail contracted with a sub-contractor - Laprise. Laprise went bankrupt and bank stepped into Laprise's shoes. - Hydro QC had access to some geotechnical report (1977 report) and failed to inform Bail of the soil conditions therein outlined. Knowledge of the soil conditions would have resulted in Laprise renegotiating the K or changing the course of work. - As result of the work it had to do on the difficult soil conditions, Laprise went bankrupt. - Bank of Montreal administrated Laprise's bankruptcy and sued Hydro Quebec for its failure to disclose the information about the soil conditions. - [The breach is in K btwn Bail and Hydro QC…so Bank must sue extra-contractually] Issues - Duty to disclose info to Bail? - To the third party? Held - Yes  Kually to Bail - Yes  extra-K to Laprise Reasoning - Hydro took advantage of its position of strength to induce the continuance of the work. Farther along the spectrum of misrepresentations than mere silence. - Third case in the Soucisse-Houle-Bail trilogy that adds an obligation of good faith in the pre-contractual stage in the form of a duty to disclose. 3 necessary element for a duty to disclose: 1. Knowledge of the information (actual or presumed) 2. Information has to be important 3. Impossible for the other party to get it or he has legitimately relied on it - Parties to a K are extra-K’ually liable for the damage the may cause to 3rd parties in the context of their K’ual relationship. Standard of reasonableness: the duty to act reasonably encompasses a duty to disclose in certain circumstances otherwise you are in breach of Art 1375. - Expansion of the pre-contractual sphere of obligations that already contains duress, fear, misrepresentation etc. - Obligation to inform applies to a contract of enterprise. There are 3 factors unique to Ks of enterprise that have a bearing on the obligation to inform: - (1) allocation of risk; - (2) relative expertise of the parties; - (3) continuing formation of the K. - An onerous obligation to inform was imposed on HQ b/c it had assumed liability wrt accuracy of data; it had greater expertise than Bail and Laprise; the K was in continuing formation (there were a whole bunch of change orders issued). Ratio - There is a K-ual and pre K-ual obligation to inform which is part of the obligation of good faith in Art. 1375 CCQ. Where one party has knowledge which it knows is of decisive imptce to the other party and the other party cannot inform itself or legitimately relies on the informed party for that info, there is an obligation to inform. Comments*************************** - In Soucisse – court will imply an obligation of good faith in performance . Add an obligation. 90 - In Houle – Allows court to override a positive obligation for the reason of good faith in performance (recalling a loan) - Here, in Bail , extends concept of good faith to formation of the K. Translated into art 1375 Jukier  Emphasis on the fact that he is making new law. Gonthier J. is well aware of this. It is considered a move forward. Goes to the French doctrinal source (Ghestin) and transplants into this case.

Dumoulin c. Rawleigh Co. Ltd [1925] – CVL GFduty to disclose no actual K b/c wasn’t signing what he thought was signing  no consent given Facts - Signs what he thinks is a reference letter when it is really a guarantorship that was put in by a 3rd party and not by the co-contractor. - Neither of Defs speak French and document is in french top of document labelled “lettre de Reference” and co-contractant assures (in GF) that just a letter of ref for bank Issues - Is K null - Duty to disclose? Held - K is null - Yes I suppose? Reasoning - Fin de non-recevoir = stops a creditor’s recourse where his behaviour has been reprehensiblebased on GF and equityanalogous to estoppel in CML - Can’t get fin de non-recevoir b/c this case puts duty to disclose under fraud (although summary says under error) so not available(?) - Can’t claim fin de non-recevoir as there was no consent given (b/c info was at base faulty and didn’t consent to the actual K he was signing?)

Sherwood v. Walker [1887] – SC of Michigan  mistake in the category (not quality) so no actual sale Facts - Sale of cow - Defs (Walkerscattle breeders/importers) told PL (a banker)that cows were probably barren and wouldn’t breed - Defs make offer at certain price and PL accepts - Pl goes to get cow and Defs refuse money or to allow PL to get cow - b/c Pls had found out that the cow was w/ calf  didn’t want to sell it at price that was offered since barren cows are worth much less Issues - Can K be rescinded Held - Yes Reasoning - Mistake not in the quality of the item but in the category (cat of barren cow vs. cat. of non-barren cow) - So no K b/c actual sale isn’t what was agreed upon Dissent – Sherwood - Agrees that this isn’t fraud and that right to rescind occurs whenever thing actually received or delivered is dif in substance (dif cat) than that bargained for (where it doesn’t if dif is in quality or accident even if misapprehension is involved) - BUT  Defs had access to specialized knowledge where Pl didn’t so best placed to bear burden (reminds me of ec. arg) - Not duty of courts to destroy Ks when called upon to enforce them, after they have been legally made

91 MISTAKE / ERROR - CML and CML  diametrically opposed when it comes to mistake and error. o CVL – large nature of error . Partly b/c of resistance to lesion  so lesion often masquerades as other things . Also b/c of consensual nature of CVL and imp of aut of will o CML – very restricted notion of mistake . B/c of existence of doctrine of unconsc (??) 1399 CCQ Consent may be given only in a free and enlightened manner. It may be vitiated by error, fear or lesion. 1400 CCQ Error vitiates consent of the parties or of one of them where it relates to the nature of the contract, the object of the prestation or anything that was essential in determining that consent. An inexcusable error does not constitute a defect of consent.

- 3 types of error based on: o [1] Nature of K - e.g. Rawleigh; . Thought you were entering into one type of K but it’s actually a dif type of K altogether  Eg enter into a K of sale but turns out it’s actually a lease etc. o [2] Object of the prestation – . Eg. you think you're buying x but you're actually buying y . eg. shown a picture of a boat and told it could be sold to you for x amount, when you buy it you actually get the picture of the boat or another boat than what was shown o [3] Anything essential in determining consent - eg. Sherwood v. Walker . Issue of cats. being sold  barren cow cat. vs. non-barren cow cat.

CML - Distinction btwn Mutual vs. unilateral mistake Bell and lever bros o Law of mistakes only applies to mutual mistakes o Unil mistakes are considered formation of K issue - Requirement of complete, objective, mutual mistake

Smith v. Hughes – [1871]- UK - para. 7 of Levers Bros case  unil mistake so K not rescinded  Law of mistakes in CML only applies to mutual mistakes Facts - Purchaser wanted to buy oats from vendor for his horse - Agree on price and quantity - Purchaser realizes after buying that oats are new not old (horses old oats b/c can’t digest new) - PL tries to goto court and get K of sale rescinded saying he was mistaken about something that was essential in determining his consent - Buyer saw oats in bag  vendor knew they were new oats but didn’t have to tell purchaser unless specifically asked Issues - Should K be rescinded ? Held - No Reasoning - Not a mistake b/c is a unil mistake and won’t affect K issue in the formation of the K  LAW OF MISTAKES ONLY APPLIES TO MUTUAL MISTAKES Comments - Ec. Perspective  if you want old oats it’s up to you to ask for them transaction costs are lowest on the purchaser’s end  purchaser knows what they want - SO put what you want in the K and then it becomes a term of K - This not seen as satisfactory in Lever Bros b/c it seems like law of mistakes would never operate in any sit. 92 Bell v. Lever Brothers Ltd. [1932] – UK no mutual mistake  it was actually mutual but didn’t meet second condition of changing K so radically that is no longer or same thing  and mistake existed bef severance K Facts - Levers Bros. controlled Niger Co. - Lever Bros.  Bell and Snelling are employees, K of employment for 5 years - While employed, Bell had “sold cocoa short” and profited (profiteering due to insider info) – this was misconduct and a grave breach of duty to Levers and Niger Co. - Amalgamation of Niger with another co.--> Bell and Snelling laid off - Get severance K – 30,000 pounds - At which time don’t disclose insider trading - Lever Bros (PL) finds out about insider trading and - Levers claimed repayment of money on the grounds that it was paid under mistake of fact - Both parties didn’t know insider trading could lead to termination w/out pay Issues - Mutual mistake? Held - No K for severance is valid Reasoning - Usually if both parties mistaken about something (eg that insider trading leads to termination w/out pay)  then mistake shared - Mistake will only get a party out of a K when the truth actually destroys the identity of the subject matter as it was in the original state of facts. That is, mistake as to the quality of the subject matter of the thing K-ed for will not affect assent unless it is MUTUAL and is as to the existence of some quality which makes the thing essentially different from the thing as it was believed to be. ASK  did the mistaken parties get what they bargained for (more or less) or something fundamentally different? - Defn of Mistake: “The parties must be mistaken in the identity of the K’ing parties, or in the existence of the subject-matter of the K at the date of the K, or in the quality of the subject-matter of the K. - Note also that there is no Legal consideration for the severance  there was no reason to give him severance. But…there is factual consideration - had bonified belief that they owed severance like Stott v. Merick where no real obligation for Stott to actually pay back the money (??) - Test laid out (sometimes referred to Atkin’s test as this is Lord Atkin’s thing) 1)has to be mutual (both don’t know about mistake occurring 2) if mutual condition fulfilled, mistake must result in such a radical change that K is no longer the same (no longer for the same thing) - Mistake existed prior to the severance contract : both parties believed that they were entitled to severance.  employer b/c they didn’t know about short-selling/insider trading and employees b/c they didn’t know they could be terminated for it - The employers bargained for a severance k & got exactly what they bargained for. - In this case, the identity of the subject-matter was not destroyed by the mutual mistake even though it is a mutual mistake (although Jukier is suspicious that employees actually didn’t know/had forgotten about insider trading) Comments - Some justify this decision by saying that House of Lords didn’t want to overly punish two employees for a small mistake that yielded them only small profits they were otherwise great employees who had made the company lots of money - MacMillan article that Lever Bros case messed up law on mistake b.c didn’t want to overly punish employees - If case had been unil mistake see Smith v. Hughes w/ unil mistake = there is no mistake b.c law of mistake in CML only applies to mutual mistakes –instead IT’S AN ISSUE IN FORMATION OF K

Then nothing happens on this front until…..

93 Solle v. Butcher  UK  mutual mistake (mistake in equity)a la Denning, changing things up  must only be common misapprehension to be fundamental change in K  only lasts until Great Peace Shipping Facts - A flat had been let at a standard rent of £140 in 1939raised to 250 pounds - Before rent control legislation, landlord couldn’t raise rent while tenant still occupying building but could for next tenant - Rent control legislation made it mandatory for landlord to tell people what previous tenant was paying so that rental prices wouldn’t have sudden increases - Landlord reconstructed - So both parties thought wasn’t affected by rent controls - If it wasn’t rent controlled, then it could be let for £250 provided the increase was based on improvements and proper notice was given. - The lease was now at the rental of £250 - But turns out there was rent control - Tenant sues and wants to be compensated for overpaying - Lessor wants K to be rescinded Issues - Is there a mutual mistake Held - Yes Reasoning - Lord Denning is now on the scene - Similar to High Trees, he says that Lever Bros is good law but that it tests MISTAKE IN LAW whereas this is a case of MISTAKE IN EQUITY - Mistake in equity has much more liberal test court can intervene where mistake is considered fundamental and where party seeking K to be set aside when not themselves at fault/where is - unconscientious for other party to avail themselves of a mistake in law - Applying Atkin’s test would lead to saying subject matter hasn’t changed and therefore no mistake - Note how court of equity would often relieve party from the consequences of his own mistake as long as it could do so w/out injustice to third parties - ***NEW TEST that lasts until Great Peace Shipping: Common misapprehension must only be fundamental and that the party seeking to set it aside is not at fault. Ratio - Mistake in equity allows court to set aside a K that would not be set aside on the basis of mistake in law. A K is liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault. Comment - This creates debate b/n Lever Bros and Solle v. Butcher. Too difficult to reconcile the two tests. - Overturned by Great Piece Shipping

Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd. [2002]  no mutual mistake  K rendered more difficult but not fundamentally dif Facts - A ship had serious structural damage in the Indian Ocean. - T is in a salvage business and contracts with other vessels in the area to save the sinking ship for a price. - Both parties thought they were only 35 miles apart. In fact they were 410 miles apart. - Cancellation fee built into the K. - Salvage Company wants to cancel the contract and not pay anything  no longer ec. viable for them to go - Great Peace Shipping refused without a cancellation fee. Issues 94 - Claim based on mutual mistake Held - K not rescinded for mistake Reasoning - Reaffirms Bell and Lever Bros as the defining case for mistake for CML world Impossible to reconcile Bell with Solle v. Butcher. Sides with Bell v. Lever Bros. - If you applied the Bell test, even though the mistake rendered the k more difficult, it did not “turn it into something essentially different from that for which the companies bargained and the fact that the vessels were father apart did not mean that it was impossible to perform a contractual adventure”. - There is therefore no room for mistake in the present case. - Solle v. Butcher tries to deal with bad bargains. This is not for mistake (like ECONOMIC ERROR)  THERE’S NO SUCH THING AS A MISTAKE IN EQUITY  yeah Denning…. - The assumption of the parties must render K’ual adventure impossible to perform - To rescind K must be impossible to perform = ADDITION OF IMPOSSIBILITY ONTO ATKIN’S TEST FROM LEVER BROS

Point of this case?

McRae v. Commonwealth Disposals Commission [1951]  no mutual mistake although appears to meet Atkin’s test…inexcusable error  reliance damages (change of circumstances section maybe?) Facts - Another shipping salvage case - Relying on rumours the Commission sold to McRae the right to salvage an oil tanker thought to be marooned at a specified location. Unfortunately the tanker did not exist. - The Commission claimed that the contract was void because of a common mistake about the existence of the subject matter. Issues - K invalid b/c of mutual mistake? Held - No Reasoning - It was held that the Commission "took no steps to verify what they were asserting and any mistake that existed was induced by their own culpable conduct." - McRae wasted money searching for the non-existent wreck. - His claim for the loss of profits expected from a successful salvage was dismissed as too speculative, - however, reliance damages were awarded for wasted expenses B/C BREACH OF K - SO BREACH OF K B/C THERE WAS NO BOAT BUT K STILL VALID – so in performance? Comments Per SR - So mutual mistake but it appears as though condition 2 isn’t met of Atkin’s test where mistake results in such a radical change that K isn’t for the same thing, although this is definitely arguable  although it would seem that future addition of impossibility could have helped out in this case - Might this not fit better under ‘effect of change of circumstance section’? - Inexcusable error on part of employees –breach of K by Commission since there was no ship

CVL - Where mistake doesn’t in CMLError in CVL extends to subjective, defective consent as well CCQ 1400 Linking Mistake, Fairness and Exploitation

Huot v. Ouellette [1981]  CVL  unil error  K IMPOSSIBLE Facts 95 - Ptf and his wife went to view dft’s property; they fell in love with it and signed the “offer of purchase” (promise to K) - The offer mentioned the Hydro and Bell servitudes, both of which were apparent and visible. It did not mention the gas line that ran under the property. - Notary did title search and informed ptf of the gas line. Ptf refused to sign deed of sale b/c his wife had an uncontrollable fear of gas (psychologist confirmed) and he would not have signed the “offer to buy” if he had known of the line. - The evidence showed that neither party was aware of the gas line until the notary informed them of it. [therefore no issue of fraud] - Ptf is seeking annulment of the “offer of purchase” and reimbursement of his deposit. Dft is seeking damages. Issues - Is offer of K for sale of immovable null b/c of error? Held - Yes  unil error Reasoning - Look to purely subjective motives to nullify K. In visits to the house the gas line was not apparent and was not specifically mentioned in K of offer to buy. - Phobia is real (per psychologist) - Based on error (then CCLC 992) and CCLC 1519 which states that servitudes must be declared and, if such undeclared servitudes are of such importance that the buyer would not have entered into the K, the K can be annulled. - There was no consent as, at the time of formation there was a fact that, had the Pl known of that fact, the execution of the K would not have been possible K IMPOSSIBLE - Subjective error is sufficient to annul a K  proof showed that if he had known of the existence of the gas line, he wouldn’t have offered to buy the property. - The error was absolute (?) - No contract and no meeting of the wills occurred - therefore the K will be null. - Remedy is restitutio in integrum (put parties back in position they were in prior to signing the K)  K is annulled and ptf gets deposit returned. No damages awarded to dft. Comments - Should the ptf have been on guard (inexcusable error)? - There was no negligence or imprudence on the part of the ptf wrt obtaining info on the servitudes b/c the three servitudes mentioned in the “offer of purchase” were visible and apparent. [SH: might have been inexcusable error if gas lines were obvious or were part of the written servitudes] - **Ec. efficiency arg  PL best placed to assume risk of mistake since she knows her phobias so buyer should assume risk What limits error in CVL

Inexcusable error - If inexcusable then doesn’t qualify as defect of consent  CCQ 1400(2) 1400 CCQ Error vitiates consent of the parties or of one of them where it relates to the nature of the contract, the object of the prestation or anything that was essential in determining that consent. An inexcusable error does not constitute a defect of consent. What is inexcusable error o Not Dumoulin b/c he can’t read French - [1401(2)] - e.g. in Huot - court could have said that if she knew that she had a fear of gas, she should have looked into the presence of gas on the property  they didn’t though - BUT rarely does court find inexcusability  WHY?  b/c often a party arguing error is in a position of WEAK BARGAINING POWER  e.g. cannot read, is not in position to understand complex document (woman who signed insurance K but thought she was signing RRSP agreement). Can we fault Mrs. Tabor for not having read the K? - The court will use A SUBJECTIVE/IN CONCRETO test for inexcusability - thus, given the education, intelligence, age, etc. of the party  was the error he/she made inexcusable? If a businessman who cannot read

96 French signs a K written in French, he should not be excused - he had the resources to get a translation (Dumoulinbut this wasn’t inexcusable error…so?) - This shows that though error doesn't explicitly deal w/ unfairness  many error cases look like undue influence or unconscionability.

Ec. error - (as referred to in the Civil Law)  Aren’t all errors economic? - Where error is purely ec error = no remedy - = Subtle difference btw price and quality. - In all the cases (except maybe Huot) the basis is the quality which has major effects on economic value. It is ok to complain that I thought I was getting an antique and it is a copy. The fact that the error incidentally effects value is ok. - error as to the value of a thing does not vitiate consent [b/c = lets lesion through the back door] unless the mistake as to the value is the result of a mistake as to the qualitative nature of the thing K-ed for (Poussin). - Cannot go to court and say "I paid too much for the painting - I was in error as to the price" BUT…can go to court and say that you were mistaken as to an essential quality of the painting which thus determined how much you sold it for. This indirectly creates economic error. - Nature of the K, object of the prestation, anything essential in interpreting the K – even if affects value, so be it. NOT CLEAR WHERE YOU DRAW THE LINE! - the value is the result of a mistake as to the qualitative nature of the thing K-ed for (Poussin). - Cannot go to court and say "I paid too much for the painting - I was in error as to the price" BUT…can go to court and say that you were mistaken as to an essential quality of the painting which thus determined how much you sold it for. This indirectly creates economic error. - Differentiated from Lesion: Not actionable if your mistake relates to the value of the K or what you are getting from the K then that would be nothing more than lesion….which we can’t do unless minor or incapable major or a consumer or K of loan of money. - Poussin there is a difference b/n economic error and error. - Yoscovitch  Shouldn’t this be wrong!!!! She is complaining about economic error. She thought she was getting something that would make tons of money. Mistaken about nothing more than the value of the business she was buying. This case is not consistent. Says you can’t use 1437 (abusive clause) for price….but then uses it for error which is really economic error. - Yoscovitch passed the limit of Faubert case (not in case book but refered to in Yoscovitch) - - OVERALL, ERROR IS A BROAD REMEDY - UNILATERAL AND PURELY SUBJECTIVE ERROR IS SUFFICIENT and THE LIMITATIONS ON THE REMEDY ARE THEMSELVES LIMITED (INEXCUSABLE ERROR - see Huot  really b/c it wasn’t found in that case?, ECONOMIC ERROR - see Yaskovitch)

Yoskovitch v. Tabor [1995]  CVL error  no inexcusable error subjective test  looks like ec. error  or lesion masquerading as error and error remedying unconsc Facts - - Ptf had an “at-home” baking business that consisted of a small stove, some trays, a mixer, two recipes and a list of 12 customers. - Dft. was the ptf’s cleaning lady. She also helped out with the baking business. - Ptf and dft signed K by which baking business was sold to dft for $50,000. - After the agreement was signed, the dft’s son picked up the equipment and a copy of the K and delivered it to the dft’s house. She said that it did not represent her intentions and was her first knowledge of the K. She called up the ptf and said she would not accept the business b/c she was supposed to have a 3-month trial period. - Dft wants the K annulled on the basis that (1) there was no consideration for the sale, as the assets sold were worthless; (2) the agreement was signed erroneously b/c consent was obtained by fraud and artifice. Issues 97 - should K be annulled under error? Held -yes Reasoning - In concreto test used  subjective takes into account her personal sit ’what would reas person IN THIS SITUATION do’ - No inexcusable error so nullity awarded Inequality in the prestations (analogous to Tilden ): - It was not a consumer contract but there was objective (substantive unfairness) and subjective (procedural unfairness) lesion of the highest order - There is inequality between the parties. Mrs. Tabor does not read English, being Hungarian nor did she go to school. She trusted them and was in a position of subordination (see Barclays Bank) - They did not show or explain the contract to her before she signed.  no independent advice Error: -  “Her consent was vitiated by an error as to an essential element of the contract”, which was its value. - In light of Art. 1400, Mrs. Tabor was in error as to “anything that was essential in determining that consent” - “A price of $50,000 for these assets, payable in part at the rate of $500 per week, was unconscionable and abusive”. Mrs. Tabor’s error was excusable taking into account, inter alia, age, mental state, intelligence, financial or economic position of the parties. - Art. 1437: cannot be used although this is an adhesion k when the abusive clause has to do with price only (requirement of art. 1438). This would be a backdoor for lesion, which cannot apply . [But they use error as a backdoor for unconscionability and abusive clauses] Comments Jukier - Reads case as ec. error  - 1) b/c no error in nature of K, - 2)no error in terms of object of prestation - 3)BUT FUNDAMENTALLY MISTAKEN IN WHAT IT WAS WORTH - Can articulate distinction btw error in value (pure ec. value) and mistake in quality of thing (where value isn’t main reason but is just incidental) - Link btw this case and unconsc - back to Ghestin’s article - even though lesion not available in CVL (except for in case of minors or certain adults)still available in practice see CCQ 1400 LESION MASQUERADING AS ERROR AND ERROR REMEDY IS CORRECTING UNCONSC - Para 56  goes through all factors in terms of whether or not there is error - 1)inequality of bargaining power - 2)undue influence  wanted to keep job even after K signed (a la Joubert) - 3) duty to inform (wasn’t provided w/ the realistic financial info - Eg of case where judge doesn’t care how but is going to get woman out of K NOTE- Jukier says this case has all the elements of this course

Faubert v. Poirier [1995] – para 51 of Yoskovitch - Vendor was illiterate lead to error - Mistake = gets an unsecured debt for selling property - Thought debt on property was secured but wasn’t secured debt worth more - Experienced business man took advantage as purchaser - A sold something to B and in return B transferred a debt to A - Note Yaskovitch cites this case as support for the decision…BUT this case is very different. - different than Yoskovitch b/c the unsecured v. secured nature of the debt goes to the quality of the thing…and this quality happens to be related to economic value. Case did NOT say that there was error as to the price paid!

98 Lepage c. Allard [2004] – CVL  Inexecusable Error  1401 - Lepage buys property from Allard for $65000  making payments - In order to get ‘loan’ from Allard, Lepage sells property to Allard for $66800 - Allard is ready to sell back as long as pays in cash - Then they sign a rental agreement for Lepage to live in house - When comes time to sell back, Allard insists on cash and price asked for is much higher than that which is offered - Allard eventually announces intent to repossess house after Lepage’s rental agreement is done Issues - Annulment for defect of consent? Held - No Reasoning - CCQ 1401 inexcusable error does not constitute a defect of consent - Lepage had the obligation to inform himself of the way in which to ‘guarantee’ Allard’s promise - INEXCUSABLE ERROR

K formation and the CVL Theory of Nullities

Error and duty to disclose/OBLIGATION OF GOOD FAITH

1375 CCQ The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished.

(DecisionOne) Confederation des caisses Populaires et d’economie Desjardins du Quebec c. Services Informatiques DecisionOne [2004]  lack of GF  K null  inexcusable error and gross negligence but going against GF 1375 is apparently worse Facts - All bids are 7 million and DecisionOne bids 1.7 million - Low bid b/c was supposed to use Nortel, Nortel said no, but DecisionOne didn’t know this, BUT Desjardins did and they didn’t do anything about this information  let bid continue - Desjardins knew it was impossible for DecisionOne to carry out K at the price of the bid - Desjardins is suing for dif btw actual cost of job and price of K Issues - Is K null Held - Yes lack of good faith in formation so no K Reasoning - = INEXCUSABLE ERROR and also gross negligence BUT DecisionOne still isn’t held to bid - Bad faith on part of Desjardins b/c they knew DecisionOne wouldn’t be able to perform K at that price but kept info to themselves so that they could essentially sue for damages = K not formed in good faith - =AGAINST CCQ 1375 - But has created uncertainty amongst parties as to their rights and obligations in relation to bids Comments - Why isn’t DecisionOne responsible Lepage is held responsible b/c Desjardins knew about mistake and took advantage of bidder - A la Williams Roffey, Simard Baudry, Kafko - Note how we start out w/ broad notion of error and the reign in w/ inexcusable error and ec. Error Jukier - She says this is a good faith thing - Where good faith isn’t exercised (eg. party knows you’re in error and they don’t say anything) o It is either 99 . Courts give party fin de non-recevoir . Or nullify K - Back to Bail

o Remedies  . Annulment . Damages . Quanti minoris 1407 CCQ A person whose consent is vitiated has the right to apply for annulment of the contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition to annulment, also claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.

Esp. note CCQ1416  where nullification if K doesn’t meet conditions of formation

Nature of nullity 1416 CCQ Any contract which does not meet the necessary conditions of its formation may be annulled. 1417 CCQ A contract is absolutely null where the condition of formation sanctioned by its nullity is necessary for the protection of the general interest. 1418 CCQ The absolute nullity of a contract may be invoked by any person having a present and actual interest in doing so; it is invoked by the court of its own motion. A contract that is absolutely null may not be confirmed. 1419 CCQ A contract is relatively null where the condition of formation sanctioned by its nullity is necessary for the protection of an individual interest, such as where the consent of the parties or of one of them is vitiated. 1420 CCQ The relative nullity of a contract may be invoked only by the person in whose interest it is established or by the other contracting party, provided he is acting in good faith and sustains serious injury therefrom; it may not be invoked by the court of its own motion. A contract that is relatively null may be confirmed. 1421 CCQ Unless the nature of the nullity is clearly indicated in the law, a contract which does not meet the necessary conditions of its formation is presumed to be relatively null.

Effect of nullity 1422 CCQ A contract that is null is deemed never to have existed. In such a case, each party is bound to restore to the other the prestations he has received.

Confirmation of the K 1423 CCQ The confirmation of a contract results from the express or tacit will to renounce the invocation of its nullity. It results only if the will to confirm is certain and evident.

1438 CCQ A clause which is null does not render the contract invalid in other respects, unless it is apparent that the contract may be considered only as an indivisible whole. The same applies to a clause without effect or deemed unwritten.

100 C. HARDSHIP

Allocating the Risks: Default Rules and Kual Clauses CHANGED CIRCUMSTANCES  Frustration and Imprévision Pre vs Post K Formation - NOTE that frustration is a defence to a breach allegation and an excuse for non-performance. - To some, Mistake & frustration are two sides of same coin (Waddams). One at formation - one post formation. o Pre = MISTAKE o Post = FRUSTRATION

- Have a prima facie valid K w/ no reason for undoing BUT circumstances change during life of K and substantially affect the equilibrium of the K o External even makes performance impossible or difficult - Both CVL and CML call change in circumstances hardship - If K is supposed to bring uncertainty of future into certainty of present then how do we reconcile this idea - If valid K exists shouldn’t pacta sunt servanda apply? - Common Law generally draws the line after futility but the civil law stops at impossibility. The Common law will not always award damages for futility and hardship (case by case basis). As you move along the spectrum, increasingly difficult to justify intervention. . Possible explanation for this - civil law focus on the individual will and consensualism - no K if no true consent (error) but once K is formed, parties must adhere to it (pacta sunt servanda)

Amalgamated Investment and Property v. John Walker & Sons Ltd. [1976] – CML  still possible  assuming risks inherent in buying property Facts - Purchaser enter into K to buy warehouse for occupation or redevelopment at a price based on the assumption that this would prove to be possible - Day after transaction entered into Dept of Enviro notified the vendor that the building had been listed for preservation as a building of special architectural or historical interest - Development of such a property wasn’t necessarily precluded but would require special permission - So isn’t necessarily true that can’t make money off it? Issues - Can purchaser be relieved of Kual obligation to buy? Held - No Reasoning Buckley L.J. - Risk of property being listed as property of archi or historical interest is a risk which inheres in all ownership of buildings  may be an extremely remote risk or marginal risk or substantial depending on the case  but it is a risk attached to all buildings and every owner and purchaser of property must recognize that he is subject to - A purchaser who didn’t wish to assume such risks could put it in the K otherwise risk is assumed by purchaser - Trad approach of imposing risk generally on purchaser from moment of King Comments - Note that Canadian courts appear to be more willing to impose the risk of some supervening events on the vendor

101 Effects of changed circumstances

-  Spectrum of events

IMPOSSIBILITY/FORCE MAJEURE = Supervening event such as weather, fire, war seriously affects K and makes performance IMPOSSIBLE. Absent of risk allocation, and fault of debtor, these events are usually "frustrating events".  no fault of parties. - CL - YES. Civil L - YES but must also be unforeseeable

CML - Implied Condition Theory : Court finds that parties, in the K, impliedly agreed that they would be excused in case performance became impossible due to an exterior event. (this is an unwritten clause in every CML K). o Unforeseeable by nature o Eg. Taylor v. Caldwell - CML doesn’t have a problem w/ breach of K in this case UNLESS parties have EXPRESSLY ALLOWED for such a sit

102 Taylor v. Caldwell [1863] – UK – cited in Krell v. Henry  excused form K  Implied condition rationale  impossibility (due to external event) Facts - Pls rent a Music Hall for four nights to give a concert. The Music hall burns down on the day the first concert was to be given. Issues - Should owner (Def) be required to perform? Held - Parties are excused from K loss falls on Def (as in Pl wouldn’t have to pay for the nights not used?) Reasoning - Impossibility (due to an external event) - Existence of the Music hall was essential premise on which K is based. - Implied condition rationale:  Implied that the parties will be excused where, before breach, performance becomes impossible from the perishing of the thing without the fault of the contractor. The existence of the Hall was essential to the performance of the contract. - Pothier: the only thing that could alter this rule is if by some stipulation, a party has taken upon himself the risk of the particular misfortune which has occurred. Comments  This is the beginning of the doctrine of frustration, based on the notion of implied provisions. - Civil Law: would have been decided under force majeure Art. 1470(2) & 1693. Jukier  More recent cases (Great Peace Shipping) question the use of the implied condition device. Not clear that it would still be used.  Not like Ipswich where “but of course that goes without saying” are the kind of things that are within the contemplation of the parties. Frustration cannot be in the contemplation of the parties by definition.

CVL Force Majeure & Imprévision (exceptions mentioned in art. 1439) o Occurs after the formation of the contract and seeks to excuse a party from non performance and prevents him from being in breach. This is NOT breach. - CCQ 1479(2) and 1693

Exemption from liability  superior force is something that is unforeseeable and irresistible eg. impossibility 1470 CCQ A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it. A superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.

Impossibility of performance  superior force is something that is unforeseeable AND irresistible  eg. Impossibility 1693 CCQ A debtor is released where he cannot perform an obligation by reason of a superior force and before he is in default, or where, although he was in default, the creditor could not, in any case, benefit by the performance of the obligation by reason of that superior force, unless, in either case, the debtor has expressly assumed the risk of superior force. The burden of proof of superior force is on the debtor.

- Civil law test is more rigorous and difficult than common law test: Test of Impossibility of performance in CML vs test of Impossibility of performance AND Unforeseeability in CVL o (e.g. Canada Starch – drought is not a force majeure b/c did not lead to impossibility of execution o e.g. Otis Elevator - strike is not force majeure).

103 Otis Elevator Co. Ltd. c. A. Viglione & Bros. Inc., Mtl [] – CVL  not absolutely impossible could replacement employees and not that unforeseeable  but had a force majeure clause FActs  K b/n Otis (aplt) and A. Viglione & Bros.(rspdt) for installation of elevators.  Clause in K read that neither party would be liable to the other party for any loss, damage or delay due to any cause beyond the party's reasonable control, including but not limited to, strikes, lockouts…  Otis started work in January. In February, workers' productivity slowed. By late April, all elevator workers had gone on strike. - Viglione sued for damages suffered as result of non-execution Issues - Was strike a force majeure that excused Otis from performance? Held - C.S. No - C.A. yesNot a force majeure but explicit term of K deals w/ strikes and releases Otis from oblig Reasoning - C.S. found that Otis didn't prove the absolute impossibility of the execution of the K; thus, the Court did not liberate Otis from its obligations under the K. Damages were awarded for loss of rents and other expenses. - The lower court ignored the contractual allocation of risk. - The delay was the result of strike or lockout. Strikes and lockouts are not, in and of themselves, cases of force majeure. However, K in this case explicitly specified strikes and lockouts as causes outside of the reasonable control of the party. The aplt is thus not responsible to the rspdt for such the delay because it was a cause outside the reasonable control of the aplt. Rule: A strike doesn't constitute a case of force majeure. Parties may contractually specify that some event, though it doesn't render execution absolutely impossible, will be a case of force majeure. Commentary - In absence of force majeure clause  would have found against Otis - b/c strike is not a force majeure. - Why is strike not force majeure?  TEST: Impossibility - may be possible to get other employees (on K) to fulfill duties. BUT…even if not impossible  Unforeseeability - co. with unionized workers = foreseeable that they would go on strike.

FUTILITY (frustration of purpose as per text) = Performance of K is possible but principle purpose underlying K has become frustrated or impossible. The K is futile, not impossible - CVL - use interp to make K impossible. CML - only where frustrated event is sole purpose of K. - Usually lack of relevance of performing K doesn’t get you out of it  but there is Krell v. Henry…. - CML o Ways to looking at mistake sits  ask: . 1) On basis of interpretation of K (???)  Context o Eg Krell not actually dealing w/ lease of room but leasing a view . Puts you back into Caldwell sit where you’re paying for something that doesn’t exist . Like a purchase of a ticket o BUT-FOR (?) . 2) Allocation of risk  Have parties explicitly or implicitly allocated the risk in such a way that it is reas for leasor/sellor/etc. to bear burden eg. Very high price, lessor didn’t normally rent room etc  Rules of allocation of risk o Logical to put burden on person to stands to gain most  NO FRUSTRATION WHERE RISK HAS BEEN ALLOCATED 104  Or can allow for in K too right? . 3) Implied condition  Is the frustrated even the sole purpose or assumption upon which the parties Ked such that w/out it K would be something fundamentally dif in kind ( WADDAMS says you should be able to get out of it then)  IF UNDERLYING REASON DISAPPEARS - Futility is farther along the spectrum, the more judges are reluctant in applying the implied condition. It is an ex post facto rationalization by judges; it’s not favoured by courts anymore  it’s FICTION  you can’t know about unforeseeable, crazy possible future event o Idea that the parties should split the cost has been floated out of East Germany in a K for a printing press. Economic perspective, in cab example, cab driver would have lost opportunity cost. Mr. Krell would not have lost an opportunity cost as he was not in the business of renting the room for the day. In Krell, sole purpose of K was to rent out the room to watch the king's coronation. W/o king's coronation, would be something fundamentally different - K to let a room vs. balcony seat ticket to the procession.  so RISK ALLOCATION - implicit allocation of risk to lessor - b/c of high price. (note that normally risk falls on the shoulders of buyer/lessee/passenger, really?) - Also, who is in best position to absorb the risk or loss (Huot v. Oullette). CVL - Can only be excused from non-performance in situation of FUTILITY is force majeure.

Krell v. Henry [1903] – UK  futile to perform K  this decision is an exception Facts - Henri contracts with Krell to rent a room during the day (was not allowed to spend the night) of the procession coronation of the King. Because of appendicitis, this procession does not take place. Henry wants out of the contract. Issues - Are parties excused from K obligations as circumstances changed Held - Yes Reasoning - The view of the coronation was the foundation of the contract. The contract is not impossible but futile in the circumstances. - That the procession would be cancelled was unforeseeable and unpredictable.

- Characterization: Here, the contract is characterized not as a contract to rent a room but a contract to provide a view of the coronation. [not merely his motive but the contract itself] and both parties understood this.

- No loss of opportunity for the lessor since he was not operating a business. This goes to the court’s assessment of the parties’ assumption of risks.

- Court follows Taylor v. Caldwell Comments - Contrast it to taking a cab to an event that is suddenly cancelled  you’d still have to pay for cab  true that you wouldn’t otherwise have taken it but cabs are INTERCHANGEABLE  this case isn’t about K of lease of the room but for a balcony seat to see a particular procession Two types of ways to dismiss the contract: 1) legal interpretation of the contract 2) implied condition Jukier on Krell  One of the most fascinating decisions of the CL.  Seen as an exceptional decision. Most likely will not be repeated. 105 In Civil Law  Would not be a force majeure b/c, although unforeseen, it does not render the K impossible.  Cause has not changed but rather the motive of the K has changed - Would have to find that king's illness is unforeseeable and that performance is IMPOSSIBLE. It would be impossible if K was interpreted as "an obligation to provide a view of the procession".

IMPRATICABILITY = Still possible to perform but performance of the obligations has become overly onerous or difficult due to unforeseen events. - Compare this to catastrophic price increases - impracticability requires some supervening EVENT that leads to the increase in price (e.g. a drought). - CVL doesn’t have imprevision. CML - implied condition (presumed intention of reas pers) - To what extent should people be shielded from impracticable Ks o Esp relevant now w/ volatile market . More and more people will be thinking about getting out of Ks b/c of frustration

- CML o UCC: Where performance becomes impracticable by the occurrence of a contingency the nonoccurence of which was a basic assumption on which the K was made…a party can allocate production o Sainsbury v. Street - In order to relieve party from overly onerous or difficult obligation that is result of supervening event which is not his fault, . court can imply a condition which will give effect to the presumed intention of reasonable men.  (E.g., if D failed to produce stipulated tonnage, buyer will accept partial delivery OR buyer can discharge K). [Jukier: the supervening event would have to be an exceptional one]

H.R. Sainsbury Ltd. Street [1970]  CML  implied condition  not complete exoneration  according to presumed intention of reas man Facts - Dft farmer and Ptf grain dealer had K under which Dft would sell entire crop to ptf. - The estimated yield was 275 tons thus dft agreed to sell "about 275 tons" at the price of 20 pounds/ton. - That year, the weather in US and England was bad and barley harvest was poor. Dft's total crop came to only 140 tons. - Dft did not sell crop to ptf. He sold 100 tons to another dealer at 27.5 pounds/ton and kept 40 pounds for himself. - Ptf bought barley from another dealer at 30 pounds/ton and sued the dft for breach of K. Issues - Was ptf obligated to deliver 275 tons as agreed? Could ptf be relieved of all obligations under the K Held - NO - NO Reasoning In order to relieve party from overly onerous or difficult obligation that is result of supervening event which is not his fault, court can imply a condition which will give effect to the presumed intention of reasonable men. (E.g., if D failed to produce stipulated tonnage, buyer will accept partial delivery OR buyer can discharge K). [Jukier: the supervening event would have to be an exceptional one] . There was implied condition in the K that if the D, though no fault of his, failed to produce the stipulated tonnage of his growing crop, he should not be required to pay damages. . This implied condition is reasonable b/c of (1) the risks of agriculture; (2) the fact that crop was still growing when K was signed..

106 . Not exonerated completely because it create an imbalance in the market but excuses him from supplying the rest even though on the reasoning of Canada Starch it would not have been impossible for him to go into the market and buy the barley to sell it to its suppliers . There was no implied condition that if D failed to produce the whole, he would not have to deliver any. If parties had actually intended this, they would have estimated the output more carefully (and less optimistically) How to determine what condition should be implied: It should be a condition which will give effect to the presumed intention of reasonable men. (For example, may be unreasonable to compel buyer to accept the partial volume…condition should thus allow buyer to discharge K or accept part delivery). Commentary: - Sainsbury in QC  Would the crop failure be force majeure? execution not impossible (could buy grain from another dealer). Also, crop failure was foreseeable. = NOT force majeure. PLUS, no force majeure clause. , dft would have to deliver. (If force majeure clause, this event would likely be one outside the reasonable control of the dft). - What if farmer in Sainsbury had multiple customers? Would he have to allocate?  (sure, allocation of produced crop may give effect to the "presumed intention of reasonable men") - Compare to Canada Starch case: Would it be more/less reasonable to have an implied condition in the Canada Starch K? - The Big Question: On what basis do we imply the condition? The intent of the particular parties? OR not? Are we looking subjectively at the parties….or objectively (something that the court imposes b/c it is right to do so)? - The implied condition is a FICTION - it is illogical to talk about what parties "intended" - cannot put your mind to some crazy event that you haven't even thought of - Great Peace Shipping - the theory of implied condition is unrealistic

- CVL o Canada Starch: There is no "imprévision" in QC law. Parties can only be excused from their obligations in the event that they become impossible to perform (force majeure). . It is not sufficient that the obligations have become merely difficult and/or onerous. . However, parties may contravene the law in this regard by agreeing to a "force majeure" clause which allocates risk to either party. o Imprevision goes against pacta sunt servanda and aut of will theory  against the binding nature of a K o Good Faith ( Art. 1375 ): Could bring imprevision into civil law using GF (through the back door) - other party has obligation based on GF to be REASONABLE . (understanding, accommodating, mitigate damages  renegotiating Ks are there reasonable steps party could have taken?) when some supervening event makes the obligation very onerous or difficult. (Reasonable steps = renegotiate?). 1375 CCQ The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished. . France has doctrine suggesting use of imprevision through good faith  By not renegotiating K (in some cases) party isn’t acting in good faith . German Law  see article Ebke and Stenhauer ( CP 211)  S. 242 (provision of GF)  BASIS FOR REALLOCATING RISKS IN PRIVATE K DUE IN CASES OF UNFORESEEN CIRCUMSTANCES  Has been used to bring in doctrine of impracticability and frustration of purpose impossibility, ec. impossibility  Why Germany? o Particulary drastic hits to their ec. . Aftermath of WWII  Collapse of Third Reich debtors affected directly or indirectly by stoppage of payments by gov 107  Based on s. 242 no creditor could demand that the debtor alone was to carry the ec. burden of the collapse . Reunification of Germany  Eg. of printer delivery case printer import partly financed by loan from East German bank  bef. further payments made, no more East German currency b/c of union  to company in Austria? PL sues Def for rest of money but Def argues he’s not getting any more loan money so which he had reas relied on  LOSS SPLIT  K sits adjusted on basis of GF o (note German L is more statutory/modern than French code) . Jukier likes GF solution  GF is good b/c can split loss  more even allocation of risks btw parties gives courts more discretion (so ability to be more contextual  judicial creativity)

Canada Starch Company Ltd. v. Gill & Duffus (Canada) Ltd. [1983] – CVL not force majeure b/c isn’t absolutely impossible BUT they had a force majeure clause so not liable! Facts - Contract 1: The US shellers and Gill & Duffus [common law] (under UCC regulations) - Contract 2: Gill & Duffus (middlemen) and Canada Starch [civil law] Both contracts are to buy and sell peanuts. - A major crop failure occurs. - The US shellers are excused by the UCC frustration provision  UCC law codifies doctrine of impracticability. (UCC allows to be excused from entire obligation) - There was a drought - resulted in 55% reduction in peanut crop in the US (price rose to approx $.90/lb). - US shellers wrote letter to dft saying that the drought was a frustrating event that forced them to allocate supply of peanuts btwn all customers. (b/c under the U.C.C.  where performance becomes impracticable by the occurrence of a contingency the nonoccurence of which was a basic assumption on which the K was made…a party can allocate production). - The dft tried to do the same to the ptf. (supply only part of agreed upon sale) - Ptf refused to modify the K and demanded that the dft stick to K and supply all the peanuts that it promised. - Dft shipped the peanuts it was allocated (71.9 % of the K) and did not buy any more to make up the difference. - But Can. Starch sues G&D under QC law to honour its obligation IN FULL or pay damages (dif that it has to pay to replace peanuts Can. Starch would have to buy at higher market price) - Even though market price when up 3x, Canada Starch does not want to modify its contract - Dft pleads: (a) force majeure; (b) custom of the trade would exonerate it from any liability; (c) by purchasing peanuts in replacement for those which the df did not supply, the K had terminated, the df no longer has any obligations thereunder (court does not agree);(d) the pf’s damages are grossly exaggerated; (e) by increasing the price of peanut butter and by not reducing it after, the pfs would have mitigated, avoided, recovered and eliminated its alleged damages (court does not agree); (f) the df would have been bankrupted had it been obliged to buy peanuts to satisfy the pf (not good argument). Issues - Is the D liable to fulfill obligation or is he excused for force majeure? Held - Defendant not liable because force majeure clause by which they were not responsible for causes “beyond the reasonable control of the Seller” Reasoning NOT force majeure - QC civil code requires that, in order to be excused from obligations, such obligations must have become both unforeseeable and absolutely impossible, not just more difficult or onerous. Not the case. - The action taken by the shellers was not force majeure b/c it did not result in impossibility of execution of K. It was POSSIBLE for the D to supply peanuts…but at a price of $.90 per lb. (3x the original price). [Q: couldn't we say that it is impossible for the dft to pay for the peanuts? NO. ***Note that the payment of money is never seen to be IMPOSSIBLE…] - Foreseeable?  there hadn’t been a crop failure since 1954 but current one went FAR beyond  but still …… 108 (doesn’t matter though b/c it’s already possible for K to be carried out) - There is no theory of "imprévision" in QC civil law. However, parties may contravene the law in this regard (by agreement - a "force majeure clause") b/c it is not a matter of public order. - In this case, the parties' agreement had a force majeure clause which excluded the seller's responsibility for delays or non-shipment due to…"any cause beyond the reasonable control of the seller".

- However, the D are to have the benefit of the force majeure clause. The wording of the force majeure clause in the K is broad enough to cover the situation even though the specific event that occurred was not accounted for. The drought and the resulting allocation program imposed by the sellers were beyond the D’s reasonable control. The K should read as if it specifically included "an allocation program put into force by the shellers" in the Force Maj clause.

- Economically Can Starch is BEST PLACED TO ABSORB BURDEN OF COST b/c could (and did) increase cost of peanut butter - Court follows Otis Elevator with a “force majeure clause”.

Comments - NO IMPREVISION ALLOWANCE IN CCQ  - Parties can only be excused from their obligations in the event that they become impossible to perform (force majeure). It is not sufficient that the obligations have become merely difficult and/or onerous. - However, parties may contravene the law in this regard by agreeing to a "force majeure" clause which allocates risk to either party. - NOTE ****This is corroborated by the elimination of a possible imprévision article from the Draft Civil Code Jukier  Note that cannot have economic impossibility.  ALWAYS POSSIBLE TO PAY MONEY  DOESN’T MATTER IF WILL MAKE YOU BANKRUPT Keeps impossibility strict in definition of force majeure.  Cannot include imprevision as it would go against the traditional principle of pacta sunt servanda.

 Acceptance of the force majeure clause or Hardship clause is startling – unlike Otis does not refer directly to the cause (strike in that case). Here is is “any other clause beyond….”. This is VERY broad.  SO…at the end of the day, parties who need the least protection get it. If you go to an expensive lawyers and they draft such a clause, you will get out of the K. If not, too bad, so sad. GOOD FAITH  Argument that Art 1439 (ability to modify K) can be combined with Art 1375 to force Skippy to modify K in such an extreme case. - Could argue good faith, that the doctrine makes in incumbent upon K’ing party to perform in good faith… that Canada Starch not acting in accordance with good faith pursuant to Art. 1375 CCQ. All the other PB companies agreed to modify K. Also, ptf could (and did) mitigate damages by raising price of PB. . Frustration and Procedural Fairness - we feel sorry for the dft. even though he is not in a position of exploitation/unfairness. - Issues of fairness, bargaining power, exploitation, etc. - seem to be very important in the realm of formation….so why not in the realm of execution? Good faith and Can. Starch - Think of MCCAULAY - Where Ks aren’t really imp what’s imp is what happens btw business people (this always seems a bit utopian to me where a lot is assumed about the way things would work in reality when based on good faith negotiations egc) - So effects on other companies like Kraft, Nabob etc  influence towards SPLITTING LOSSES / REVISING KS / NEGOTIATION ETC  Essentially doing what McCaulay suggests - Can Starch is a bit unique in fact that they won’t change K - Provigo case would seem to say yes where good faith involves bargaining and compromise - So is there an obligation of good faith? - THIS WOULD BE BRINGING IMPREVISION IN THROUGH THE BACK DOOR THROUGH GOOD FAITH 109 - Which increases remedying action  fin de non-recevoir etc

CATASTROPHIC PRICE INCREASES - CVL = NO. CML - usually NO (but exceptions) - General tendency of law is not to grant discharge from K as a result of variations in prices which make K less profitable. - This would eliminate the utility of K-ing (See US case of Re Westinghouse Electric Co. - court held that changes in econ circumstances don't fall w/in frustration[???]). . This is only a general rule - some exceptional cases may justify court intervention  e.g. Alcoa . (NOTE from Error section  BUT courts accept error in quality of thing which effects its value ) . Alcoa: Must acknowledge this case. Court modified the K b/c the oil embargo was seen as a frustrating event. o Why would the court go against the general rule?  . (1) It's a US case; . (2) Court interpreted the allocation of risk clause VERY BROADLY so as to include such a circumstance. - Catastrophic price fluctuation in itself is not enough but there are circumstances in which there is a catastrophic price increase due to an unforeseen contingency which has the effect of a catastrophic price increase  and this would constitute exception

- Dif btw error and ec. Error catastrophic price increase  only way to use ec. error - For CVL Definitely too late to construe "impossibility" as including "economic impossibility" - too many cases have rejected this

Alcoa v. Essex Group [1980] mutual mistake of fact FRUSTRATION Facts Alcoa agrees to process aluminium for the defendant. - Contract: the contract price will vary according to: 1) hourly wage increases; 2) If the wholesale-price index goes up. (imp here that they allowed for TWO significant factors that could effect cost, so obviously conscientiously King) escalator clause - 20% of price was to vary with changes in Wholesale Price Index (WPI) - The OPEC oil embargo makes the price of electricity increase. - If carried out, ALCOA would lose 60,000,000.00. - Event falls outside their force majeure clause which provides for price escalation. - Ptf sought to have terms of K modified on basis of mistake or frustration. Issues - Should terms of K be modified on basis of mistake or frustration? Held - Yes Reasoning - The parties K-ed upon a mistake of fact (not simply a mistake as to prediction of future events) - that fact was the capacity of the chosen index (WPI) to work as the parties intended it to work (fact based on actuarial calculations). - To get relief for mistake - it must be mutual, relate to a basic assumption underlying the K and cause a severe imbalance in the agreed exchange. - The mistake in this case was as to the calculation of risk. Both parties consciously undertook a closely calculated risk rather than a limitless one. Both parties believed that the range of uncertainty would not exceed three cents per pound. This mistake was fundamental and mutual. - Alcoa is thus entitled to some form of relief due to mutual mistake of fact. - Alcoa is also entitled to relief due to frustration. The non-occurrence of an extreme deviation of the WPI- IC and Alcoa’s non-labor production costs was a basic assumption on which the K was made. (focus here is on 110 hardship) RULE: Economic circumstances may, in some exceptional circumstances, fall w/in frustration. Comments POLICY concerns - Since 1920s, theme in K law  development of body of law compatible with responsible commercial practices and understandings. - At stake in this suit is the future of a commercial device - the long term K. If law refuses remedy in a case like this, the risk attending such Ks would increase. - The new spirit of commercial law also demands principles to deal with RISK LIMITATION. - Attention to risk limitation is essential to the fiduciary duty of corporate mgrs. Courts must consider this duty and the established practice of risk limitation when interpreting and applying doctrines such as mistake, frustration and impracticability. - Courts should be alert to indications that parties to a commercial K sought to limit their risks, and should interpret the Ks and frame remedies to protect that purpose. - If the law refuses an appropriate remedy when a prudently drafted long term contract goes badly, people will refrain from entering into long term contracts.

- Turns the force majeure clause idea (or hardship clause as Jukier likes to call it) on its head saying it provided for certain increases…..but this one is so far beyond that that it must be included Business efficacy policy/test basically so that it works for business world - Jukier has problem that both parties are sophisticated business ‘entities’, no disadvantaged party - Included the two factors in the initial K that could effect price but courts read it as a list of examples/possibilities rather than simply 2 factors - Same result given as if had included this factor in their K - Many see this as an extreme case - Esp since many other cases where catastrophic price increase happened and pacta sunt servanda held - Churchill Falls, Gilbert Steel Random - Default rules in CVL and CML are vastly dif - Choice of law clauses could be helpful - Eg. Could also use choice of law using UNIDROIT principles - Fact that draft CVL code (pre- Projet de droit) had provision for imprevision (lesion) but then actually didn’t make it into the CCQ = unlike that it would ever be accepted as legislation

Splitting the Dif.: Relief from Changed Circumstances / Remedies - (Note that a lot of the last section dealt w/ this) - When court finds frustration or force majeure = a defense for breach o  primary effect is release from performance o otherwise will be in breach and have to pay damages. o Frustration does not annul or rescind the K; it releases (CVL) or discharges (CML) the debtor from performance.

o Problems: What if . (1) other party incurred expenses before K frustrated (e.g. paid $ for ticket or paid deposit)  Eg. Krell v. Henry  even though gets out of K DOESN’T GET DEPOSIT BACK . (2) Party who cannot perform used that $ for performance? (e.g. deposit used to buy materials)  so investment into performing already made even though can’t actually carry out . Looks like unjust enrichment  there is correlative impoverishment and enrichment  BUT

111 Some answers CML - Statutory mechanisms  e.g. Frustrated Ks Act makes sums paid "recoverable" - Frustrated Contracts Act, R.S.O. 1990, c. F.34, ss. 1-3(3) (p.223) - 2(1): The Act applies to any contract that has become impossible to perform and been otherwise frustrated and to the parties which for that reason have been discharged [Art. 1693] - 3(1)a In case of sums paid, they are recoverable. - but - 3(2): If, before the parties were discharged, the party to whom the sums were paid or payable incurred expenses in connection with the performance of the contract, the court, if it considers it just to do so having regard to all the circumstances, [allow restitution] [Like Art. 1694] CVL - Restitution is built into frustration

Restitution is owed where other party has performed 1693 CCQ A debtor is released where he cannot perform an obligation by reason of a superior force and before he is in default, or where, although he was in default, the creditor could not, in any case, benefit by the performance of the obligation by reason of that superior force, unless, in either case, the debtor has expressly assumed the risk of superior force. The burden of proof of superior force is on the debtor. 1694 CCQ A debtor released by impossibility of performance may not exact performance of the correlative obligation of the creditor; if the performance has already been rendered, restitution is owed. Where the debtor has performed part of his obligation, the creditor remains bound to perform his own obligation to the extent of his enrichment. Circumstances in which restitution takes place 1699 CCQ Restitution of prestations takes place where a person is bound by law to return to another person the property he has received, either unlawfully or by error, or under a juridical act which is subsequently annulled retroactively or under which the obligations become impossible to perform by reason of superior force. The court may, exceptionally, refuse restitution where it would have the effect of according an undue advantage to one party, whether the debtor or the creditor, unless it deems it sufficient, in that case, to modify the scope or mode of the restitution instead.

Better solution? - Good faith = split the dif. o See under impracticability section, under CVL, under GF

Conclusion - CVL o  compare error and imprevision . Error = broad, subjective . Imprevision = very narrow ability to escape form Ks  except in sit of force majeure o Focus on kind of consent given . Error occurring during formation  which much be looked at broadly b/c of aut of wills doctrine and pacta sunt servanda - CML o  compare mistake and frustration . Mistake = very narrow  eg. Lever Bros  except when prob in formation (?)  No mistake if party has allocated for mistake (eg. Great Peace shipping) o Vs. unforeseen event (in frustration) 112 . But eg. of Walker case  didn’t matter if it was mistake or frustration  still couldn’t get out of K . Frustration = broad - This is a very risky area of K law to rely on  More than other areas of course o Imp of legal council o Imp of INCLUDING A FORCE MAJEURE CLAUSE IN K . Eg. Can Starch, Otis Elevator (even though liberal interpretation of force majeure clause here)  Where inclusion of clause is what essentially got them out of K - CVL imprevision will never likely ever codified (less likely as not even included in avant projet de droit) o Maybe everyone should just get insurance.  (Jukier)

5. BREACH AND REMEDIES

Summary of remedies for breach a) Damages  considered by many as default remedy but there are many more creative remedies that are better/more satisfactory b) Specific Performance  c) Resolution/Resiliation/Termination of K - Quanti MinorisCVL only (1407)  K maintained but reduction of obligation equivalent to damages he would be justified in claiming d) Non adimpleti contractus (art.1591) withholding performance until other party performs CVL = right bef remedies  less of a divorce mentality Jukier asks whether pacta sunt servanda means working out K until bitter end CML = remedies bef. rights gives up more easily on K

Connecting Breach and Remedy - After determining the K has been formed properly and is valid - Note that we have been looking at excuses for non-performance. o Breach CAN be an excuse for non-performance where the breach is serious enough (i.e. you breached  I don't have to perform). o BUT…less serious breaches give rise to some remedy . S.P., damages, Quanti minoris or Exception for non-performance. Key Questions 1. Has there been a breach? 2. Is the breach such that the innocent party can be excused from performing (resolve/terminate the K) / effect of the breach? 3. What are the possible remedies available?

Has there been a breach - Mere non-performance does not necessarily constitute a breach - depends on nature of obligations o Or K law would be a regime of strict liability

- CVL  Assessment of breach and subsequent classification depends on intensity of obligations: - Obligation of means  only breached when debtor did not perform as would a reasonable person (fault based), or according to professional standards  can’t just be b/c of unsatisfactory results of performance - Obligation of result  breached when result not obtained (presumption of fault unless force -majeure) (guarantee of a certain result?? ) - Obligation of warranty breached if not performed (arguably strict liability) (so imposed by law??)

113 - CML  no classification system like CVL  but essentially does the same thing as CVL only that assess breach through Kual interpretion/interpretation of the obligation - Court will interpret an obligation as obligation to achieve result or obligation to take reasonable care  then determine if breach has taken place - Will see same outcome as in civil law - [e.g. lifeguard K  obligation to save swimmers  probably obligation to take reasonable care  if reasonable care not taken = breach]

Determining the remedy - what do the parties want as remedy  might not want damages - Ending K for innocent party should not always be the case. - Damages are not always best option. - Eg. Cehave  just wants out of K -  often party would rather be excused from performing

- Point of remedies is to re-enforce the institution of the K. - Entitles the innocent party to a remedy - Sometimes most effective remedy is for the innocent party to end the K and thereby not have to perform himself - If you decide that you have more obligations to perform, you are going to be interested in getting rid of the K. - factors that distinguish where innocent party can get out and cases where have to perform but can sue for damages. o Depends on the seriousness of the breach. . Cannot be excused from own performance for a trivial breach.CCQ 1604(2) o In Esso, K is over and therefore wants damages to RII o In Yoscovitch, there are still obligations ($50,000) and therefore she wants out of the K CVL

RESOLUTION / RESILIATION AFFIRM K In what Art. 1604: Notwithstanding any Party will affirm K IF the breach is of "minor circumstances stipulation to the contrary, he is not entitled importance" (art. 1604) to resolution or resiliation of the K if the OR default of the debtor is of minor IF party elects to affirm the K (even where importance. breach IS NOT of minor importance

If breach is NOT of minor importance (look at breach, not clause)  can resolve or resiliate. Remedies Art. 1606: Art. 1590: …where debtor fails to perform available Resolve = the K never existed  his obligation WITHOUT JUSTIFICATION restitution. [force majeure or reasonableness - depends on Resiliate = prospective setting aside; intensity], the creditor may ceases to exist but only for the future. [1] force specific performance of the obligation Resiliation is used for Ks of successive [2] obtain resolution or resiliation of the K or performance (e.g. lease). Resolution used the reduction of his own correlative obligation for Ks of instantaneous performance (e.g. [3] take any other measure provided by law K of sale) to enforce his right to the performance of the obligation** Resolution is akin to NULLITY (both = K OR never existed)…BUT, nullity is only Art. 1591(non adimpleti contractus)  available for defects of consent (Art. Where parties have dependent correlative

114 1407). Breach is met with resolution. obligations, you don't have to perform until the other guy does. (E.G. "you aren't delivering my goods…so I won't pay you") "Exception for Non-Performance"

Resolution or resiliation of Ks and reduction of obligations 1604 CCQ Where the creditor does not avail himself of the right to force the specific performance of the contractual obligation of the debtor in cases which admit of it, he is entitled either to the resolution of the contract, or to its resiliation in the case of a contract of successive performance. However and notwithstanding any stipulation to the contrary, he is not entitled to resolution or resiliation of the contract if the default of the debtor is of minor importance, unless, in the case of an obligation of successive performance, the default occurs repeatedly, but he is then entitled to a proportional reduction of his correlative obligation. All the relevant circumstances are taken into consideration in assessing the proportional reduction of the correlative obligation. If the obligation cannot be reduced, the creditor is entitled to damages only. 1605 CCQ A contract may be resolved or resiliated without judicial proceedings where the debtor is in default by operation of law or where he has failed to perform his obligation within the time allowed in the writing putting him in default. 1606 CCQ A contract which is resolved is deemed never to have existed; each party is, in such a case, bound to restore to the other the prestations he has already received. A contract which is resiliated ceases to exist, but only for the future.

Resolution of K - for Ks of instantaneous performance o Eg K of sale - Goes backwards and wipes out K from beg  same effects as nullity Resiliation of K - For a K of successive performance (that would continue on into future) o Eg. lease - Wipes out future ramifications of, doesn’t go backwards in time

Default = the breach is of minor imp (1604)

Quanti Minoris ** E.g. of "any other measure provided by law" = QUANTI MINORIS in Art. 1407. QM is a reduction of your obligations. Keep K alive but give party something back in damages. Only available for bad-faith type defects of consent (?). This remedy does NOT exist in the common law

Damages Provided by law at Art. 1607

Cannot stipulate that a breach of minor importance will lead to resolution or resiliation Art. 1604 is mandatory. This goes against the autonomy of the will. It is paternalistic.

CML - How to determine if breach is major or minor - 2 ways of assessing nature of breach o a priori . based on construction of K and the intention of the parties at the time of formation o ex post facto . based on the consequences of the breach 115 o initially courts favoured a priori approach but this was discredited in Hong Kong Fir and then really laid to rest in Cehave - default is that breach is of minor imp

Hong Kong Fir v. Kawasaki Kisen Kaisha [1962] – UK  breach of K  damages (for wrongful repudiation of K) Facts - Hong Kong Fir Shipping let out their ship under a two year charterparty to Kawasaki Kisen Kaisha. - A term in the charterparty (i.e. the shipping document, or charta partita) said the ship had "seaworthiness" and was to be "in every way fitted for ordinary cargo service." - However the crew were too few and did not know how to deal with her old fashioned machinery. - There was a breakdown and delay on the voyage from Liverpool to Osaka. - The ship was needed to be fixed for five weeks, and after even more repairs being needed, fifteen weeks had passed before the ship was "seaworthy". - Seventeen months remained for its use. - After the ship arrived in Osaka, freight rates happened to fall. - Kawasaki terminated the contract for Hong Kong's breach. - Hong Kong argued that by terminating, Kawasaki was the one in breach (they said the repudiation of the contract was wrongful). - At trial, it was held that Hong Kong Fir was in breach of the contract in delivering a seaworthy vessel, and also that it negligently failed to maintain the vessel in an efficient state. - However, the trial judge found that this breach was not substantial enough to entitle the charterer to repudiation of the contract. - Kawasaki appealed. - (Was seaworthiness a condition or a warranty) Issues - Plfs entitled to damages for breach of K (wrongful repudiation)? Held  Yes  The Court of Appeal held that the "seaworthiness" term was not sufficiently serious to entitle the charterer to terminate  so can’t terminate, just get damages - Reasoning  in what event will a party be relieved of his undertaking to do that which he has agreed to do but has not yet done?  does the occurrence of the event (where unclear if discharges one of the parties from further perf) deprive the party who still has to perform of the whole benefit of the expressed Kual intention of the parties that he would obtain as the consideration for performing those undertakings ?  some breaches will, and other will not, give rise to an event which will deprive the party not in default of substantially the whole benefit he was intended to receive from the K o cannot simply classify into conditions & warranties o legal consequence of such a breach depends on nature of the event to which the breach gives rise o looks like Denning’s “intermediate stipulations” o Plfs undertaking to “tender a seaworthy ship” = such a breach  Here, it was held that the meaning of the term "seaworthiness" has a very broad meaning ranging from trivial defects like a missing life preserver or a major flaw that would sink the ship. Accordingly, it is impossible to determine ahead of time what type of term it is  did occurrence of events (ie, events occurred as result of breach at time at which charterers purported to rescind the charterparty) deprive the charterers of substantially the whole benefit of K that the charterers should obtain from the further perf of their own Kual undertakings? No.  def charterers could ONLY have been deprived of substantial benefit if prove want of shipowner’s due diligence. due diligence clause 13 of K: “due diligence”: exempts shipowners from resp for delay/loss/damage due to want of due diligence on part of shipowners in making vessel seaworthy  charterer undertakes to continue to perform obligations notwithstanding ocurrence of such events if they fall short of frustration of the K, and even deprives himself of remedy in damages UNLESS such events are due to

116 want of shipowner’s due diligence.  the issue was not whether the unseaworthiness was "serious" or "minor"; rather the question was whether the undoubtedly serious unseaworthiness had had an effect sufficiently grave to allow the charterer to repudiate. On the facts, given that the charterer had had the "substantial benefit" of the contract for some 80% of the time period, the court held that the breach was adequately remedied by damages. - thus, b/c Plf’s mistakes did not deprive charterer of substantial benefit, the charterer’s wrongful repudiation of the K constitutes breach, and Plfs entitled to damages for breach of K

Cehave N V v. Bremeer Handelgeselleschaft mbH [1975] breach  damages Facts - Sellers agreed to sell buyers 12,000 tons of citrus pulp pellets for approx $74/ton. - Clause of K: "Shipment to be made in good condition" [unlike misrep cases, party actually put the term into the K…don't need to go into Dick Bentley type reasoning] - By the time shipment was made, mkt price had fallen greatly - When shipment received, some cargo was found to be damaged. - The buyers rejected the WHOLE shipment and demanded repayment. - A middleman bought the damaged cargo (at the new market price) and sold it to the buyer at a price considerably less than the K price (33% of K price). - The buyer used the entire cargo to manufacture cattle food. Fact it was damaged made no difference - Buyer obviously looking for way to get out of K Issue - Did the sellers' breach entitle the buyer to set aside the whole K? [or just entitle him to dmgs?] [In what circumstances can a party, who is in breach of a K-ual stipulation, call on the other side to perform his part or sue him for non-performance?] Held - No, buyer entitled to damages only - The contract is not terminated; the buyer gets damages for the difference in value between the damaged goods and the sound ones (rather than just being able to buy them at new market price) Reasoning - Question of what should constitute the bad condition of a product (which = major breach) - You have obligations or K-ual terms of two types  (1) CONDITION - serious enough that it goes to the root of the K . Breach of condition allows K to be set aside. (2) WARRANTY - not so serious that it goes to root of K. Breach of warranty will not allow K to be set aside. - How do we determine if breach is so serious that it "goes to the root of the K" such that can get rid of K altogether? [We saw "the root of the K" in the context of fundamental breach and exclusion clauses - fundamental breach has since been rejected]. Two ways to look at this: - [1] Make an AB INITIO determination that these terms are warranties and these are conditions - make this determination based on the construction of the K - based on intention of parties themselves. - [2] Make an EX POST FACTO determination of the consequences of the BREACH. - These are very different ways of answering the Q. One presupposes that it is a K formation issue…suggests that parties would intend that one particular term would ALWAYS be at the root of the K or not. Other way is to determine how serious the consequences of the breach are…and then determine if clause is breach or warranty. This is where the intermediate stipulations come in. - ([1] looks at the clause itself; [2] looks at the consequence of breach). - There may be some terms, the breach of which is always minor or always serious. BUT most terms are "intermediate terms". That is, depending on the breach, it can take on the characteristics of a condition or a warranty. 117 - [This allows the courts to apply a more logical test based on what ACTUALLY HAPPENED contextual. More realistic.] - The term "good condition" is not a condition strictly so called. It is an intermediate stipulation. If goods are shipped and are all rotten - not in good condition. If a few are damaged - are not in good condition. These are both "not in good condition" but are totally different. - Lord Denning says that must look at it from ex post facto point of view. Ask whether in circumstances of this particular breach, K should be set aside or maintained. See paragraph [11] and [10] of the Hong Kong Case. - Denning decided that buyer was not entitled to set the K aside. *****How could it be a serious breach if he was able to use the seeds for the very purpose that he K-ed for? Wouldn't allow party to use breach as a technicality or excuse where it not ought to. Ratio - Breach of one party will only excuse performance of the other party when a CONDITION (and not a warranty) is breached. - Some clauses are obviously conditions or warranties (breach is always serious or always minor). - Some clauses - breach may be minor or serious - these are "intermediate stipulations". - *****Breach of an intermediate stipulation will only excuse performance when the breach goes to the root of the K (i.e. breach is very serious). [Breach cannot be serious if party is able to meet needs that he K-ed for.]

Comments - In CVL this would probably be bad faith b/c of underlying intention  CCQ 1375 - Language reminds us of the “Fundemental Breach”. Probably not the exact same but it sounds very familiar.

- [This is your typical case of changing mkt conditions - frustration would not extend to this kind of situation] - [We've seen 'warranty' in two other contexts  Dick Bentley: if party makes a representation that induces you to enter - it can be treated as a misrep or a warranty (term of K for which you can sue for breach and get expectation damages). Also  civil law  highest intensity of obligations - "warranty"]

END K AFFIRM K In what - Parties stipulated that a clause is a - Party who suffers breach elects to affirm. circumstances "condition" & thus breach = end K. OR OR  Party is not entitled to affirm b/c court - Court has interpreted an "intermediate has interpreted the breached clause as a stipulation" (not obviously a warranty warranty, not a condition (Cehave) or a condition) as a condition = can end K OR elect to affirm K. Remedies [a] Damages – TERMINATION [a] Damages available OR OR [b] Restitution - RESCISSION [b] Specific Performance

Party elects the remedy. Court (not the parties) determine remedy Termination Damages - More appropriate for breach. (like CV resolution/resciliation)  party can sue for all the expectations which he has been deprived of (limited by mitigation and remoteness). - E.G. party could get damages for cost of buying pellets to replace damaged ones. Can also get reliance damages (?)

Rescission and Restitution - K ended at formation (nullity) party can get back what it paid  Why would a party choose restitution over damages? Either b/c - (1) didn't suffer any damages (Cehave); - (2) you cannot prove your damages. 118 For damages and specific performance  See following notes/sections

**Note that parties in the CML can stipulate whether an obligation will be a condition or warranty (and thus whether breach will entitle parties to end K or not). Parties in the CVL cannot stipulate (Art. 1604 is mandatory).

Jukier suggests that mediation often gives more satisfactory solution  quote from Otis, J - “adjudication is the blunt end of a hammer when what we really want is the fine end of a screwdriver”

Specific Performance - - SP = Party tries to get court order to compel the debtor to do the very thing that was promised under the K. The "ultimate expectation protection". Not damages equivalent to the expectations - the expectation itself. - Substantial remedy that is translated/enforced procedurally

1601 CCQ A creditor may, in cases which admit of it, demand that the debtor be forced to make specific performance of the obligation. 1602 CCQ In case of default, the creditor may perform the obligation or cause it to be performed at the expense of the debtor. A creditor wishing to avail himself of this right shall so notify the debtor in the judicial or extrajudicial demand by which he puts him in default, except in cases where the debtor is in default by operation of law or by the terms of the contract itself. 1603 CCQ The creditor may be authorized to destroy or remove, at the expense of the debtor, what has been made by the debtor in violation of an obligation not to do.

Relation to K Theory o Aut of wills, pacta sunt servanda o Historical aspect CML K theory o Fairness o Divorce mentality of CML (Lord Hoffman in Argyll Stores) vs work it out in CVL o See more below under CVL analysis Point of view o Looking at SP from pov of creditor / victim . We’ll tend to favour remedy of SP  CVL supports victim o From pov of debtor . Tend not to favour SP  CML SP is better than damages? o Often hard to show what K is worth . Damages don’t often truly compensate victims o CVL thinks is better o CML would disagree o Can be more costly to parties than damages o Clogging of court system issue + court supervision

Issues of personal liberty o Intrusion

119 o Forcing people to do things

Warner Bros. Pictures v. Nelson [1937]  breach  injunctionnegative covenant  spec perf Facts o Defendant (Betty Davis) agrees to perform solely and exclusively for Warner - ends up breaching K. o K has negative covenant: D agrees that during term of K she will not engage in any other work w/o the written consent of the producer. o Plaintiff asking for specific performance of the restrictive covenant not to act for another company. They didn’t ask for a mandatory injunction for her to fulfill her obligations to act for them. - PL claimed declaration that K valid and binding, injunction to restrain D from acting in breach of it and damages. Issues - Will an injunction be granted in favour of a negative covenant in a K  ie will specific performance of negative covenant be granted? Held - Injunction granted for three years and only in the jurisdiction of the court (ie England) Reasoning - Restrictive convenant / non-competition clause - General rule is that courts will not enforce specific performance of a positive covenant of personal service (or a positive covenant framed in negative terms). Should not grant an injunction if to do so would be tantamount to ordering the D to perform her K or remain idle OR unless damages would be a more appropriate remedy. o Cannot order mandatory injunction for positive covenant – Nemo Praecise cogi potest ad factum (intuitu personae)– cannot order someone to act as it would infringe their personal liberty o Court finds that it is reasonable here because it only restricts her from working for a motion picture company and it is the only effective remedy for the breach o Such an injunction would not force the D to perform her K (although it might tempt her to b/c she could not get as much $ in another occupation) [Jukier is critical of this - could she really wait tables?] - Damages are not a more appropriate remedy. The parties explicitly recognized (in the K) the appropriateness of an injunction over damages. Also, damages would be very hard to evaluate (b/c of the nature of her occupation - she is valuable b/c of who she is) [she is a "unique good" - damages cannot replace her]

- CML won't enforce obligations to do. o WHY?  nemo praecise cogi potest ad factum  no one can be forced to do something against their will if the only way to do that is by physical violence or constraint - Very critical of CML distinction btwn obligations to do and not to do. o It results in S.P. being a very limited remedy false dichotomy based on semantics . [1] Most obligations can be phrased in both ways (ob not to block lane vs. ob to remove impediments) . [2] Can be same degree of physical compulsion involved in forcing not to do as in forcing to do. . [3] Is not appropriate to apply to corporations - same level of compulsion not involved - Jukier: Rather than just blindly characterizing obligations as "to do" or "not to do"  o INTUITU PERSONAE: . Determine whether S.P. should be granted by asking whether or not the services of THIS debtor are absolutely necessary. . Award S.P. where K depends on the individual characteristics of the debtor (e.g. K with opera singer)  Use SP where irreplaceable debtor is unique o Also look at the particular facts and determine whether the nemo praecise rule would be violated by ordering the injunction. 120 o Or could make it a court order and then not doing it would be contempt of court/art.50 Civil Code of Procedure) and if guilty = criminal offense fine or jail - Positive covenant involving personal service vs service that can be performed by anyone - Distinction btw positive and negative obligations o Eg of positive oblig  real estate  seller lists house, gets offer, and the decides doesn’t want to sell, buyer can sue for damages or specific performance in order to get action de passation de titre = positive obligation to sell o Relate to Bruker v. Markowitz (?) o Negative restriction  enforced by injunction or an order enjoining to not do something o Enforce positive obligation through mandatory injunction as court doesn’t want to enforce positive thing . Related to injunctions  procedural issue  To make it happen right away  interlocutory injunction o =interim remedy for emergency where injunction useless if don’t get it right away  interim protection of what might be your right on a balance of probabilities

Handling issues of hardship - Where debtor just wants to pay b/c too much hardship involved - Notion of efficiency of breach (economically)  if you support this probably won’t be a fan of SP - See below for more on hardship issues

Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd. [1997] CML  breach  no SP  too much hardship Facts - Major tenant in shopping mall - 35 year lease - Supermarket operating at loss - Wants to close but landlord wants to them to at least stay open until can find a replacement tenant - Good/imp for mall to have supermarket - Supermarket closes and strips out fixtures and fittings - Wants damages and specific performance Issues - Can specific performance be ordered? Held - NO Reasoning - Can’t compensate synergy lost in mall by not having supermarket - Unique nature of person/thing can’t just replace with anything and unlikely another supermarket will move in considering the circumstances of why the other one closed analogy to wall buildercan get anyone to build a wall unless it’s an artisan wall builder Comments - Think about ramifications they could theoretically stay open but have eg. 5 cans on the shelf and one employee

Construction Belcourt Ltee. Golden Griddle Pancake House ltd. [1988]  CVL SP  CVL doesn’t really care if too much hardship Facts - Golden Griddle leased the LL’s premises, and franchised it out to a young entrepreneur. - Located in a mall 121 - The franchisee went bankrupt. - The lease contained a continuous operation clause and stated that in the event of a breach, the LL would have the right to an injunction forcing the tenant to remain open. - It was cheaper for them to pay damages for breach of K than stay open - Belcourt attempted to force Golden Griddle Burger to reopen the restaurant specific performance Issues - Can the landlord force them to stay open and keep operating b/c of continuous operating provision in K? (specific performance) Held - Yes (enthusiastically), ordered to reopen for business and run its business in a normal manner Reasoning - Advantageous for drawing business to the mall - Can’t compensate for synergy lost in mall - The economic inconvenience that will be suffered by Golden Griddle in this case is not sufficient to warrant the application of the balance of hardship principle. Comments - This was further than any court had gone before because it was the first time a court ordered an injunction requiring someone to move into and operate premises.

Pros and Cons of SP Pro’s to Specific Performance Con’s to Specific Performance Fairness Unfair o Consistent with the wills o Personal service K’s  obligation to do o Rights based approach  that there is an (this is a contract intuitu personae (you are individual right in each K. Rights in those the co-contractant precisely b/c of your parties to the K. personal characteristics –ie this particular o Hardship person) With respect to continuous operation clause – so - nemo praecise cogi potest ad factum (force that they do not lose an anchor tenant. - infringes on personal liberty by, basically, o Public interest argument – people should think physically constrains them. Enslave them is a that they are going to be held to perform so that possible analogy) they will rely on the institution of K’s – if not, o Hardship giving into the theory of efficient breach (do the Stuck in an economically unfair bargain. math and say its cheaper to breach and pay o Court supervision damages) o Waste of resources on certain occasions ( o Risk of under-compensation in giving damages. Good faith (acting reasonably) comes in as making sure that the person seeking specific performance is not doing so vindictively.

Analysis of SP across Legal trads Historical Perspective

CML - Remedy of specific performance comes from equity  remember separate branches of Law and Equity o Where SP is a secondary (equitable) remedy . b/c only steps in when dealing w/ unfair issues or . For when dealing with unique irreplaceable object - CML reluctant to use it o can for equitable reasons decide not to award it (discretionary) o Court’s reluctance: forces parties to work in an antagonistic relationship, which may compromise the quality of performance.

122 o Issue of the supervision of the court’s order.  court doesn’t want the issue to be drawn out where parties keep coming back to court (Jukier’s divorce analogy) - Procedural device through which court could grant order of SP = INJUNCTION

CVL - Has no historical impediment to application of SP (as opposed to CML) - Impact of legal transplantation o Borrowed the injunction (procedural aspect of SP) from the CML . So b/c borrowing injunction from CML, CVL decides to apply injunction in same way (restrictive) . And then eventually just took injunction remedy and adapted it to context  Jukier: better way to incorporate a foreign legal concept - integrate it into the borrowing system and harmonize it with the law  S.P. in CML developed as part of history of CML and equity and thus is secondary remedy. BUT - S.P. jives VERY well with the focus on the will of the parties and consent in the civilian tradition.

- Theoretical Justification for S.P. as primary remedy in the civil law: o will theory is the basis of obligation in CVL and the reason why it is enforced. Civil law of Ks is based on the parole donée and consent (vs. CML - focus on external ratification - consideration). Since the parties manifested their consent to perform this particular obligation = the obligation should actually be performed. aut of wills, pacta sunt servanda - Methodological Approach / links to foundational basis of legal text (?) o Effect of codification of SP  as opposed to just jurisprudence . CVL’s a priori / taxomic approach vs. CML’s ex post facto approach . Art. 1590 lists SP as first remedy so placement tells us imp . CVL EMPHASIZES THE CREDITOR/VICTIM (vs CML which focuses on debtor) . CVL focus on pacta sunt servanda and aut of will  = FOCUS ON PERFORMANCE RATHER THAN DAMAGES  RIGHTS BASED JUSTIFICATION / FOCUS ---and SP is more conducive to this - Approach to remedies in general o Art. 1590  CVL wants people to work it out  keep the K alive vs divorce mentality of CML

Practical Impediments - Imprecision and Court Supervision - While damages can be difficult and costly  so can SP (sometimes more costly than damages for party) o Reality of forcing a store etc to stay open . They could “stay open” and have 5 cans on the shelf with one light and one employee….. o Court system is already clogged w/out the continuance of the conflict btw parties where they would keep coming back  likely b/c of the one extremely dissatisfied party forced to perform - Hardship o Arg made in both Argyll and Golden Griddle Pancake . CML cares . CVL doesn’t and courts reject hardship arg  b/c debtor had foreseeability but still entered into continuous operation clause  nature of business endeavor  while they made little they could have made a lot courts aren’t going to let you out of a K just b/c your losing money since “judicial intervention is rarely needed to enforce a profitable K” (oh, snap!) - SP will not be enforced when vengeance (lack of good faith) is an issue

123 The Scope of Liability in K

Remoteness of Damage - How far can damages be from breach o Limit CCQ puts on damages . Art. 1607  Immediate and direct consequences of breach . Art. 1613  foreseeable at the time the oblig was Ked Performance by equivalence - General provisions 1607 CCQ The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor's default. Assessment of damages - Assessment in general 1611 CCQ The damages due to the creditor compensate for the amount of the loss he has sustained and the profit of which he has been deprived. Future injury which is certain and able to be assessed is taken into account in awarding damages. 1613 CCQ In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at the time the obligation was contracted, where the failure to perform the obligation does not proceed from intentional or gross fault on his part; even then, the damages include only what is an immediate and direct consequence of the nonperformance.

o Ciment Quebec c. Stellar Construction . One cannot compensate for the “cascade de malheurs” (Pothiers) - How to determine remoteness o Variety of descriptors probably result, ordinary course of events, great multitude of cases, not unlikely to occur . These divide into two parts(Hagley case) b/c parties in certain situations parties do not plan for breach. - [1] Arising naturally (i.e. according to the usual course of things, from such breach itself) (so particular knowledge that damages would or could arrive)or; - [2] Such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the K, as the probable result of the breach of it (HAD special knowledge) o NOTE in K law as opposed to torts  you choose your Ker and the terms and can SPECIFY special info/knowledge  have a certain amount of control over these things to avoid damages . Have to look at it through the lens of the special info being given . ((add in reas foreseeability after these two parts to test review the cases  a bit unsure how they structure the tests and how each is dif in terms of the test ??)) o Threshold of remoteness / damages is higher in K law b/c parties are more able to protect themselves - Ec. perspective o If assume risk should be placed on party w/ lowest transaction cost . Would place risk on PL/victim b/c they should know effects expect to suffer and should  A) disclose fear ( gas lines in house case )  B) get insurance Required probability? - CVL  Balance of probabilities (50% + 1) - CML  doesn't like to use mathematical formulas. Language used: more than even chance, not unlikely, likely, liable, very substantial probability of occurring.

Why a different test for torts than for Ks? (see Lord Reid in Heron II)

124 - Ks are made voluntarily btwn parties. Party can draw other party's attn to something foreseeable but unusual or base a K-ual term on it. Opportunity to allocate risk (not present in tort). - BUT, we can be critical of this: - [1] There is no "opportunity" in adhesion/consumer Ks to inform of special info.- e.g. Purolator case - could not do anything besides write special info on the envelope - this is not part of K - [2] In many cases, exact same fault could give rise to a K-ual action OR a tort action  Why should party who chooses tort have an easier time getting damages? (note that no choice in civil law)

Hadley v Baxendale [1854] – UK no recovery for loss of profit  type of damage not foreseeable Facts - Owner of Mill sent a broken shaft through a carrier to use as a mold for a new shaft. - PL told the courier to hasten its delivery. - Delivery was delayed for an unreasonable time and Mill was unable to operate. - Owner incurred loss of profits. - Delay of five days. Issues - Should the owner of the mill recover for lost profits? Held - No recovery for loss of profit: it was not a foreseeable type of damage for the carrier Reason Elaborates Remoteness test to determine the scope of the remedy – based on knowledge : 1. The damages which the other party ought to receive […] should be such as may fairly and reasonably be considered arising according to the normal course of things (naturally) with no particular knowledge. 2. Or such that may reasonably be supposed to have been in the contemplation of both parties [where the special circumstances are communicated] - Relates to the ability of the reasonable person to contemplate the type of damage not the extent. Application of the test: 1) a reasonable carrier could not contemplate that late delivery would result in the complete halt of the mill and loss of profit is not a consequence that flows naturally from delayed delivery – not likely to occur in the multitude of cases (could have a spare shaft) 2) No special knowledge communicated to the defendant as to the indispensability of the shaft Ratio - Victim of breach will be able to recover for losses that are FORESEEABLE (the probable result of the breach) and FORESEEN (losses that were in the reasonable contemplation of the parties given their knowledge). Do not look at the parties themselves. Look at the reasonable man (w/ special knowledge and w/o). [Note - it is the TYPE of damage (not the extent) which must be foreseeable] Comments - Remoteness/foreseeability evaluated at time of King not at time of breach - Civil Law equivalent of test: Art 1613. - Economic justification for the rule: ptf is in best position to prevent the loss  insure OR stipulate clearly the importance of the shaft. Hadley put the loss on the person in the best position to guard against it, though some unfairness b/c person who breached gets off with paying nothing. - Outcome would have changed if dft was TOLD that the shaft was the only one; but here, it was reasonable to think that there might be backup shaft etc.

Victoria Laundry v. Newman Industries Ltd. [1949] – UK  damages for loss of profit but not for lost K  must be reas foreseeable loss Facts - Dfts (engineers) and ptfs (laundrymen and dyers) had a contract for the sale of a boiler. - Ptf had conveyed to the dfts that they required the boiler immediately (“in the shortest possible space of time”). Dft knew the nature of the ptfs business but did not know exactly what role the boiler played in it (e.g. whether it was a “stand-by”) 125 - Dft breached the contract – delivery delay of 20 days. - Had delay not occurred, ptf would have been able to accept some highly lucrative contracts. - Ptf claimed (in part) as damages the loss of profits that they would have earned but for the late delivery. Issues - Are ptfs entitled to damages for loss of profits due to breach? Held - Damages for loss of profit awarded but not for lucrative contract lost. Reasoning - Reformulates/rephrases it into a test of reasonable foreseeability at the time of the contract: – this depends on the knowledge which is of two kinds: o Imputed: knowledge resulting from the natural course of things o Actual: Special circumstances that must be communicated to make additional losses recoverable - Here, it is enough that the defendant would foresee, that the damage could result.

- Application: Loss of profit was clearly foreseeable in this case: D knew more than the layman. Lucrative contracts: special knowledge of these was not communicated; not something that would arise in the natural course of events Ratio - Victim of breach entitled to recover loss that was at time of the K REASONABLY FORESEEABLE AS LIABLE TO RESULT FROM BREACH. Parties need not actually have foreseen. Ask what reasonable party in position of breacher would have foreseen. [SH: Case shows that commercial profits CAN be recovered under Hadley branch 1 - must consider knowledge of industry (engineer vs. courier)] Comment - Note new test used with reasonably foreseeable  Did not use reasonably likely as in Hadley. - Inherent difficulty and artificiality in differentiating between the type of damages and the extent of damages (lucrative k → also loss of profit). - Wrt the lucrative Ks, seems to be a Q of extent but is not - the damages flowing from the lucrative Ks are of a different type (not ordinarily foreseeable). - Appears to propose a looser test than Hadley - losses need only be reasonably foreseeable and not necessarily PROBABLE  See Lord Reid's response in the Heron. - When determining whether damages are reasonably foreseeable, take into consideration (in branch 1 of Hadley) the special knowledge held by the breaching party (e.g. knowledge of industry etc.)

(The Heron II) Koufos v. C. Czarnikow [1969] – UK  damages for ‘market loss’ resulting from breach (delay)  reas foreseeable and would be likely to occur in maj of cases back to Hadley test Facts - Rspdts chartered the aplt’s boat to transport sugar to Basrah. - The vessel had, in breach of contract, made deviations which resulted in 9-day delay - Aplt ship-owner knew there was a mkt for suger at Basrah but did not know that the rspdts planned to sell the sugar “promptly after arrival” - During delay, the mkt price of sugar fell considerably. - Rspdts claimed that they were entitled to recover the difference (btwn the mkt prices on day 1 and day 9) as damage for breach of contract. Issues - Can rspdt get damage for “market loss” that resulted from breach (delay)? Held - Yes Reasoning - Lord Reid: Difference between the Victoria and the Hadley test formulations: something can be reasonably foreseeable but only occur in a small minority of cases. - It is not enough that something be unlikely to occur but foreseeable: It should be a result which is likely because it would occur in the majority of cases

126 o Criticizes Lord Asquith in Victoria: to bring in reasonable foreseeability appears to be confusing damages in contract with tort o In contract, we should have a narrower test because parties can protect themselves. Tort imposes a much wider liability.

- Lord Pearce: there was no novel reformulation of the law in Victoria but simply a restatement/clarification. o Pearce preserves the two-branch test Finds that loss of market here arises naturally as a result of the breach and was therefore within the contemplation of the parties Ratio - It is not enough that the event which caused the damage was, on the information available to the dft at time of formation, "REASONABLY FORESEEABLE". - The losses must be reasonably foreseeable as a "likely result" (not unlikely, substantially probable, about even chance, foreseeable in a "great majority of cases"). Comments o *****Reid says there is a problem in Victoria Laundry – test used there is a tort test. Contract test must not be the same. o Note that Reid agrees with outcome in Victoria just not the reasoning. - Lord Reid doesn't like the test in Victoria Laundry - he doesn't think that the K and torts standard should be the same (his reason - b/c parties to a K have the opportunity to account for breaches before they happen). - Reasonable knowledge of dft must relate to all elements of the loss  here,the fact that ptf was going to sell immediately and that market prices are apt to fluctuate from day to day. - If prices had gone up, would there be damages award?  NO. Goal of damages is to compensate. There must be a LOSS.

Ciment Quebec Inc. c. Stellaire Construction [2002]  damagages for redoing but not for lost work/Ks  lost profits not foreseeable Facts - They were sent wrong cement by Ciment Quebec - Used wrong cement - Had to rebuild/redo - Want cost of redoing job again as well as the cost of other lost work/contracts while they were redoing Issues - Can Stellaire claim damages for both redoing costs as well as lost work/contracts Held - Yes, no Reasoning - Cost for redoing work is foreseeable - but lost profits isn’t  b/c isn’t direct and isn’t foreseeable (as per Hadley and stricter test) - lack of causal link for lost profits Comments - Dif from other cases - Koufos essentially goes back to Hadley

Reformation of test Hadley  recovery for foreseen and foreseeable losses Victoria  Hadley test but focuses on reas foreseeable aspect (very tort like is what they say in Heron II) Heron IIlosses must be reasonably foreseeable, “not unlikely” - test Ciment Quebec v. Stellaire Construction  strict direct and foreseeability and emphasis on establishing the causal link

127 The Limits of Compensatory Damage - General rule = put PL into position he would have been in had K been performed - 2 ways of doing this = 1) difference in value OR 2) cost of cure (cost of reinstatement) o Usually these are roughly equivalent (or at least close)  if not? (possibility of…see Ruxley)

((This is above too somewhere))  Compensation is through three types: 1. Restitution Interest: Goal is to prevent unjustified enrichment. Gives the lesser of the enrichment and impoverishement (Degelman, Brewer, Les Terrasse) 2. Reliance Interest: Puts you back in the situation had there not been a wrong. (Esso, Mason Contruction) 3. Expectation Interest: Question is asked  What would it take in the way of damages to put the PL in the position he would have been had the K been performed. . Supports the institution of K’s  Most effective way to: Stimulate economic activity,

Expectation Damages Cost of Cure and. Diminution in Value

Scenario 1

Peevyhouse v. Garland Coal & Mining Co. [1962 ] – US   expectation damages only and not restorative work (cost of cure) Facts - Lease part of their land to Garland Coal for stripmining on condition that Garland do restorative work - They ask for this instead of the $3000 advance cash payment for surface damages - Garland leaves w/out doing the restorative work - Peevyhouses sue for $25,000 which is estimated cost of perf - (they say this is expectation damages?) - Garland conceded breack of K  no excuse for nonperf Issues - What damages are Peevyhouses entitled to? Held - Expectation damages limited to diminution in value of land  $300 Reasoning - Where diminution to value of land $300 - Oklahoma Supreme court says where breach of K provision is ‘merely incidental’ to the main purpose’ and the ec. Benefit to the lessor from full performance is grossly disproportionate to the cost of perf damages are limited to the diminution in value of the land caused by the breach Ratio - where economic benefit to plf from full performance is grossly disproportionate to cost of performance, damages limited to diminution in value caused by the breach.

Scenario 2

Ruxley Electronics v. Forsyth [1995] – UK  diminution in value but not reinstatement  and some moral damages for loss of amenity Facts - Ruxley and Forsyth had a contract for construction of pool – to be 7 feet 6 inches. - Completed pool was only 6 feet 9 inches (still safe for diving; value of pool not less as a result of lesser depth) - Forsyth sued for damages for breach of contract. - The cost of building the right pool is £21,000, that’s what Forsythe wants in damags Issues

128 - is cost of rectifying defect recoverable cost of cure Held - Forsythe doesn’t get cost of cure, he gets diminution in value which is virtually nil but also gets some moral damages (loss of amenity) Reasoning - There was a breach b/c this was an obligation of result (but that’s CVL - General principle: use $ to put ptf in situation he would have been in if contract was performed. Doesn’t mean that ptf will always be able to obtain $ equiv of S.P. - Fundamental goal is compensation, thus no loss = no damages to be awarded - Building cases: pecuniary loss measured in 1 of 2 ways  difference in value of the work done or cost of reinstatement. Cost of reinstatement is the ordinary measure. - Cost of reinstatement must only be awarded if it is reasonable. If not reasonable, award is for diminuition of value (if no diminuition, no loss = no compensation) - Reinstatement is unreasonable if such an expenditure would be out of all proportion to the benefit obtained from reinstatement (as in this case). The fact that the diminuition in value of the works is nil (as in this case) does NOT make reinstatement any more reasonable. - Court doesn’t care about what the dft does with his award of damages BUT intention is relevant to the reasonableness of the particular damage award – the reasonableness of awarding reinstatement depends on the genuineness of the intention to actually carry out the reinstatement work. In this case, judge found as a fact that ptf had no intention to rebuild the pool. - Loss of amenity: when the contract is for the provision of a pleasurable amenity, the ptf is entitled to damages for loss of pleasure/amenity (for disappointed expectations). - If no intention to cure in this case then the PL has lost nothing except the difference in value b/n the pools (nominal) Ratio - Cost of cure (reinstatement) will only be awarded where it is reasonable. Reasonableness depends on - (1) if expenditure would be out of proportion to benefit obtained; and - (2) whether ptf intends to use damages to carry out reinstatement (and thus whether he actually has suffered a loss). - The fact that diminuition in value of the works is nil doesn't make reinstatement any more reasonable. Comments: - Court decided that to award cost of cure would be UNREASONABLE  but two meanings of unreasonable - Jauncey: meaning (2) above - Lloyd: meaning (1) above - BUT  these notions of reasonableness may not always be synonymous. May be that cost is out of proportion to advantage and difference in value is nil (or negative) BUT ptf still values performance E.G. folly built in backyard - Jukier: courts appear to be using Lloyd's objective test. - Should the intention of the party be relevant?  CML rarely cares about subjective intention; doesn't normally care what parties will do with their damages. Why here? Perhaps b/c don't care about intention per-sé, but intention goes to the existence of a loss  and we know that NO LOSS = NO COMPENSATION. Intention is just evidence and in this case it shows that COC is not the true loss. - Court gave L2,500. Why couldn’t it just give something in btwn COC and difference in value (nil)? B/c courts cannot rewrite the K. More Comments- Ruxley and Specific Performance - What if Forsyth had asked for S.P.?  court will generally not award S.P. where to do so would put great hardship on debtor (as in this case - work required would be significant) - Civil Law  Is this a case "that admits of" specific performance (pursuant to Art. 1601)? - Yes. Judges in CVL reject defense of hardship. But dft might be able to claim ptf's abuse of right. - Note that CML courts care about hardship wrt S.P, but not wrt damages (will award COC if reasonable, even if there is hardship). This seems inconsistent. (Jukier: should not consider hardship wrt S.P.).

129 Scenario 3

Tito v. Waddell - not in CP but talked about in class  diminution in value not cost of cure Facts - British Phosphate Co. wanted to mine island of Banabans and both parties agreed on K. - Clause: obligation on part of mining company to replant island. - WWII happens, Japanese invaded, and the island is rendered unliveable and entire population moved to another island. - The mining company never does replanting and are sued. Banabans want damages. - Cost of cure to replant is extremely expensive and yet there is no economic value to the co-contractant for the replant. Issues - Is company responsible for the replant (cure) despite fact that there is no ec. Value to co-contractant Held - Diminution in value of land allowed (but nominal)  cost of cure isn’t given Reasoning - The cost of replanting the island was enormous. But the diminution in value of a non replanted island was virtually nothing because they are not living there - Factors to take in consideration: - need to compensate the victim by putting him in the same place he would have been had the contract been performed - whether there is a monetary loss suffered - if the loss is the cost of doing work then there is a possibility to recover damages by equivalence - uncertainty about whether the money given will go towards the works. - In this case, they will not benefit from the replanting and there is no value in replanting. We should only give them the diminution in value, which would be nominal. Comments Jukier: - Question is why should we hold someone to this obligation when there is no value to it?  Smells of force majeur and frustration. Why wasn’t this argued. Just wasn’t argued.  Other solutions possible as to the remedy  - Restoring the contractual value (“Buy back the clause!” to prevent unjust enrichment; a restitutionary type interest but difficult to calculate in cases like Ruxley - Frustration because of the war iii) Disgorgement of profit (give back the profit made).

Relation to underlying K principle - Note Lloyd’s test of reasonableness in Ruxley o Is expenditure out of proportion to the benefit to be gained o (Is intent of parties actually to use money for the reasons stated  this is what Jauncy is more concerned with) - But why is it relevant what you choose to do w/ damages (an autonomy issue, no?) Cost of cure Pro --- Diminution of value Con Diminution of value --- Pro, Cost of cure Con Aut of will / Pacta sunt servanda  judges cannot Economic analysis  wasteful erase/change terms of K Otherwise Kual breach encouraged Windfall  unexpected/?parties couldn’t have predicted? (I wonder if detrimental reliance could fit in here someway) Might discourage fraud Ends up punishing the other party which isn’t the purpose of damages Property right

Indiv property rights - How can courts tell people what to do with the land (vs knowing people aren’t going to use money for the reason they’re asking for it 130 Ec. Analysis - Cost of cure = waste of money - Purpose of damages is repair and not make party better off than bef

Dif btw looking at object of K and the whole picture/K - Ec. Analysis is a bit simplistic

Does it matter whether the PL will use money to cure the defect

Link to SP - (but in money form?) - Court doesn’t force SP but then they can use cost of cure/diminution of value

Other possible lenses to consider in looking at this prob - Consider the profits made by Def  require the Def to disgorge the profits that were made o Eg. Don’t give Forsyth £21,000 but make Ruxley give any profit he made on the deal (restitutional type of claim) (??) - Consider kind of damages rather than amount of damages o So remoteness of damages - Eg. Hadley test  damages you get are for something that would happen in great multitude of situations (??)

Non-Pecuniary Losses Moral Damages - Controversial head of damage o Moral damages deal w/ extra-pat loss and intangeable loss - But attainable in ECO so why not K  Note DIF STARTING POINT IN CML AND CVL CVL - Has no problem w/ non-pecuniary damages  at least at policy level o As long as meet forseeability and remoteness conditions - Then can get 3 heads of damages  Bodily, moral, and material o Test laid out in Ciment Quebec Inc - Not as much of a distinction btw extra K and K sits o Creditor just ENTITLED period to 3 heads of damages as long as meet conditions of remoteness - Bodily, moral, material - 1607 allows and then limit through causation (1613?) 1607 CCQ The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor's default. 1613 CCQ In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at the time the obligation was contracted, where the failure to perform the obligation does not proceed from intentional or gross fault on his part; even then, the damages include only what is an immediate and direct consequence of the nonperformance.

CML - Moral damages  may end in same place as CVL but start out in completey dif way o See Quote from Watts v. Morrow in Farley v. Skinner 131 - Don’t get damages for stress/anxiety etc o Basic CML rule  damages for mental distress (moral) are awarded in cases in which the agreement breached will inevitably affect emotions -

Addis  eg where(no mental distress damages in K - employment) - Mental distress not compensable harm flowing from breach of K o House of Lords determined mental distress is not a usual, natural thing flowing from breach of K OR carved out an exception from Hadley (better to end inefficient work relationships) - *******Here, no mental distress damages in breach of employment K, read to mean in all Ks - Why is CML reluctant to award moral damages in K sit o Hard to quantify (lack of evidentiary proof) moral damages - Risk of overcompensation - Risk of damages more of a punishment/deterrent for doing something wrong  punishing Def where damages should compensate not punish o CML focus on K as ec . Exchangeec. Bargain - Follows that breach would have ec. consequences on pat., not emotional ones  Jukier brings up Bruker case  given damages for the K and for moral damage  demonstrates how a K sit can end in non-pec damages either partially or fully (also see Fidler) o Policy arg  could lead to floodgates (of claims) - Social cost (see Farley)  non-pec damages can eventually contribute to a litigious society) o Idea that it’s the job of tort law to deal w/ these types of damages  for all of above reasons - Dealing with these concerns

o Creation of an exception ?

Jarvis v. Swan Tours [1973] – UK  non-pec damages  loss of enjoyment  b/c K specifically one to provide pleasure Facts - Jarvis was laywer who only got 2 weeks vacation per year. Wanted to go on ski holiday in Switzerland - Made K with Swan Tours. Promised him a "wonderful little resort" with beautiful ski runs, warm welcome, owner who speaks English, house party, afternoon tea and cake, yodeller, etc. - Jarvis had horrible time. Promises made were untrue. The holiday was largely inferior to the one expected. - He sued for damages. Issues - Can Jarvis claim damages for disappointment and loss of enjoyment (non-pecuniary) in K. Held - Yes Reasoning - To what extent can we compensate Jarvis for what he really suffered? - Denning introduces recovery of non-pecuniary losses in common law: - He makes an exception  the peace of mind exception –where if K breached is a K which quintessentially provides enjoyment then you don’t get that enjoyment, then you can sue - Notwithstanding the rule barring recovery for non-pecuniary losses in the common law, “in a proper case, damages for mental distress can be recovered in contract” - Jarvis Rule: A proper case is one where the very object of the contract is to provide pleasure. It failed to de just that. Basis for the contract was enjoyment. - A contract to provide a vacation is the perfect example of the class of K that would quintessentially be for providing enjoyment Ratio - In a proper case, damages for mental distress can be recovered in K. 132 o Extend the exception?

Farley v. Skinner [2002] – UK  above exception for non-pec damages exteneded Facts - Buyer employed a surveyor to investigate whether the countryside property he wanted to purchase was affected by aircraft noise. - The surveyor negligently failed at his job. - The house was located under an aircraft spiral route / (flight path?). - PL’s enjoyment of the house was extremely compromised by the noise. - Still, the buyer has no intention of selling the house. - Claim for diminution of value of the property and non-pecuniary damages. Issues - House of Lords extends Jarvis exception by saying that JUST A MAJOR OR SOLE PART OF K HAS TO BE for deriving pleasure / peace of mind Comments - Test of Hadley of remoteness or foreseeability: Like in the civil law, all these cases can be analyzed under the rubric of remoteness and foreseeability without artificially categorizing them. Here, the non pecuniary injury was foreseeable. Jukier- - right result but wrong reason - she points to Ghestin should get rid of aut of will rather than having endless exceptions (????)

- why can’t all damages be united like under 1607 ---then Fidler

Fidler v. Sun Life du Canada compagnie d’assurance-vie [2006] – CML mental distress  part of restoring victim  relation to GF Facts - P: worked as bank receptionist and cov’d by group insurance policy - P: long-term disability benefits for 2 years (when is diagnosed w/ chronic depression and fibromyalgia) & after that only if unable to work - Insurer does own research and says, contrary to info provided by P that she is able to work so advise they are going to terminate payments - Do this despite valid medical evi that they’re wrong - P (fiddler) commences action against insurer and one week bef trial scheduled they offer to reinstate her benefits and pay all arrears w/ interest -so trial is only for damages Issues - Should P be able to claim damages for mental distress? Held Yes??? Reasoning - Damages for mental distress for breach of K may be recovered where they are established on the evi andshows to have been w/in the reas contemplation of the parties at the time K was made - No requirement for an independent actionable wrong - In order to prove loss and court must be satisfied w/ the degree of mental suffering caused by breach was of a degree sufficient to warrant compensation - Here it’s reas that mental distress flows from failure to pay required benefit

- Mental distress damages are part of general damages (general rule from Baxendale) in these type of contracts. Based on parties’ expectation at time of K formation. - May be aggravated damages in response to conduct, but mental distress here is part of making P whole: compensating P for pecuniary and non-pecuniary losses - Reducing importance of exception of mental distress. But does preserve the idea that ordinary Ks don’t call for mental distress damages. Hasn’t opened the field for mental distress.

133 - One rule for compensatory damages for breack of K: Baxendale - [55] Continue to hold idea of independent cause of action could call for aggravated damages \D: own investigation, found P able to work - IMP CML: Categories of cases where there IS duty of good faith (insurance if one of them) - Breach of the insurer‘s implied duty of good faith and fair dealing that requires the insurer to processclaims in a prompt and fiar manner - Mental distress part of general damages in insurance Ks - Peace of mind cases don’t have to be Ks which are EXCLUSIVELY about peace of mind - CML more comfortable with obvious physical harm - Diff understandings as to the seriousness of the disability Damages - Hadley makes no distinction btw the types of loss that are recoverable for breach of K  general principle of reas expectation is stated but subsequent cases rule out damages for mental distress for breach of K except in certain defined sits o General o Aggravated: . Compensation for mental distress? (Baxendale) OR . Compensation for harm for particularly bad conduct? => NOT Baxendale o Punitive: trial judge finds insurance co wasn’t acting well, but not bad enough for punitive damages - Mental distress damages are part of general damages (general rule from Baxendale) in these type of contracts. Based on parties’ expectation at time of K formation. - May be aggravated damages in response to conduct, but mental distress here is part of making P whole: compensating P for pecuniary and non-pecuniary losses - Reducing importance of exception of mental distress. But does preserve the idea that ordinary Ks don’t call for mental distress damages . Hasn’t opened the field for mental distress. - One rule for compensatory damages for breach of K: Baxendale - [55] Continue to hold idea of independent cause of action could call for aggravated damages

Punitive (exemplary) damages - Debate about its appropriateness in the private law sphere: public law should give punishment and private law should give compensation. - Often said that it is not the job of private law to punish. - This mindset has remained in the CML and CVL of K’s. Punitive damages are very rare. CVL - damages are generally compensatory not punitive, except whre provided by legislation/law o even then, goal is DETERRENCE NOT PUNISHMENT 1621 CCQ Where the awarding of punitive damages is provided for by law, the amount of such damages may not exceed what is sufficient to fulfil their preventive purpose. Punitive damages are assessed in the light of all the appropriate circumstances, in particular the gravity of the debtor's fault, his patrimonial situation, the extent of the reparation for which he is already liable to the creditor and, where such is the case, the fact that the payment of the damages is wholly or partly assumed by a third person. - Two major areas in which punitive damages are provided by law o Consumer protection act S.272 o The Quebec Charter of Human Rights and Freedoms s. 49(2) CML - doesn’t like punitive damages either 2 reasons why CML was historically reluctant to give punitive damages: - [1] Creates problem of overcompensation that goes beyond need for prevention - [2] Is punishment w/in the goals of the civil law? Punishment is in the domain of the criminal law

Whiten v. Pilot Insurance [2002] – not in CP but mentioned in class and in Fidler  punitive damages awarded  independent actionable wrong Facts

134 - Insurance contract for a home. - Fire was covered. - There was a fire in the home and the entire house was destroyed. - They were not a wealthy family and the insurance company refuses to pay because they say it is arson performed by the family even though they later retract this theory. - They do this to force fam into accepting small compensation Issues - Are Whiten’s entitled to punitive damages Held’ - Yes Reasoning - Punitive damages are only obtainable where there is an actionable wrong in addition to the breach of contract. Must be a separate/independent actionable wrong. Here: breach of the insurance company’s duty of good faith to the insured. - Awarded in cases where there is a marked departure from ordinary standards of decent behaviour. - Over compensation is given in this case also b/c of socially useful service. (Bringing this to the courts to show wrong of insurance co.) - Independent actionable wrong = o Anything from a tort committed at the same time as a breach of K - Eg of defamation at same time breaching K - Note that insurance Ks one of only in area that require good faith and lack of it is the independent actionable wrong

Honda Canada vs. Keays [2008] – not in CP but talked about in class  actionable??? Facts - Unjust dismissal and working under disability chain program at Honda so could miss more work - Fired him anyways Held - Actionable is discriminatory under human rights code - How are damages measured? - Also note punitive component of Fidler

Liquidated Damages and Penal Clauses - Compare to exoneration/exclusion clauses o Related to limitation clauses - Before the fact rather than after - PENALTY CLAUSE = PRE-ESTIMATION OF DAMAGES

Benefits of such clauses - Where courts often undercompensate  this solves that problem b/c parties include what they actually want/worth etc. - In accord w/ the parties’ aut - Adds predictability to the deal  cost of breach is predictablewhich is one of the points of Ks bringing uncertainty of future into certainty of preset - Adds efficiency o (See GOETZ AND SCOTT article) “Liquidated Damages, Penalties and the Just Compensation Principle,” (1977)  hypothesis: absent evidence of process unfairness in bargaining, efficiency will be enhanced by the enforcement of an agreed allocation of risks embodied in a liquidated damage clause.  existence of an overcompensation [or penalty] provision is never per se evidence of an efficiency impediment  “just compensation” formula gives all of the gains to the breacher  solutions indistinguishable, and differ only in terms of wealth transfers, the manner in which 135 the gains from non-performance are distributed b/t the parties  in assessing damages, two limiting assumptions (valuation and foreseeability) may operate to prevent the recovery of idiosyncratic value o value of a promised performance generally limited to the amount of money that can be obtained in exchange for it in some market o where exchange value conceded to be inadequate, and value to the owner substituted, any fanciful or sentimental value will be excluded on the grounds that such losses are too speculative and uncertain

o Eliminates the time and expense of proving loss in court

Problems w/ such clauses - Can provide an opportunity/way in for oppressive or unconsc bargains can facilitate one party taking advantage of the other (Clark v. Thermidaire) - Can be compared to a pre-nuptual agreement where already allowing for the dissolution of the relationship - Problems arise when stipulated sum can exceed amount of actual breach - Repugnant to the basic principle governing damages compensation

CML - Liquidated damages vs penal clauses o Liquidated damages clauses . Liquidated damages clauses are enforceable. . genuine pre-estimate of the value of damages that will be suffered. . Clause is based on some sort of formula (courts usually like provision of a formula) . Sounds like unconscionability but equal bargaining power o Penalty clauses . Equity intervened  Penalty clauses are unenforceable . stipulated sum unrelated to damage sustained . (seen to be punitive, a threat against breach) . Clause is based on a lump sum / fixed amount

- provisions are subject to court/judicial review if formed prior to K H.F. Clarke Ltd. V. Thermidaire Corporation Ltd [1976]  liquidated damages unenforceable Facts - PRINCIPAL OBLIGATION - exclusive distributorship clause. "I will only sell Thermidaire products and I will not sell competitive products during the K and for three years after termination". - SECONDARY OBLIGATION - was a formula. If Clarke breached, would have to pay Thermidaire gross profits realized from sale of competitive products. - Clarke breached - it sold competitive products. Value of the compensatory damages - $92,000. Applying the fixed formula from the K would have given Thermidaire $200,000 (more than twice as much). - The lower courts held the clause to be enforceable. - Lower Court.: this was a covenant which the parties entered into with their eyes open. There was a reason they based the formula on gross trading profits - net profits wouldn't have compensated Thermidaire for stuff like reputation, goodwill, advertising, etc. - May be more than damages actually suffered…but parties bargained for this. Issues - Was the provision for liquidated damages actually a penalty clause (and thus unenforceable)? Held - Yes Reasoning (Laskin) - This clause is a PC and not enforceable. Court has power to intervene and strike down penalty clauses on the basis of its equitable jurisdiction. - When is a clause a penalty clause? You have to look beyond the intention of the parties. Mutual consent of the 136 parties is not enough to support such a clause. [Jukier: We saw this wrt public order - doesn't matter what the parties actually intended…we aren't going to let them]. - The primary concern in breach of K cases is compensation and judicial interference with what the court regards as a PC just reflects concern of courts with reasonableness and fairness [we saw this in Syncrude!] - He moves away from notion in Dunlop Tire case that genuine attempts to estimate damages in advance would be LD clause - he says that this would not catch very many Penalty clauses [cannot privilege form over sub] - Parties may provide for LD clauses, but it is always up to the courts to determine their reasonableness in the circumstances. In order to be enforced, the clause must represent a reasonable approach to recoverable or actual loss. - In this case, the formula is a penalty clause b/c it is a "grossly excessive and punitive response to the problem to which it was addressed." The sum will be a penalty if it is extravagant and unconscionable in amount in comparison to the greatest loss that could conceivably be proved to have flowed from the breach. Ratio - Court may intervene, on the basis equity, to strike down a penalty clause. - Parties may provide for LD clauses (formula to fix damages), but court may interpret such a clause as a PC if it is unreasonable in the circumstances. - Unreasonable = grossly excessive and punitive response to the actual damage incurred.

- Laskin’s test of fairness and reasonableness was iterated by Wilson, J. in Hunter v Syncrude - They are using an unconsc lense back to the Bundy lense - Laskin compares actual loss to damages to see if unreas or not BUT THIS GOES AGASINT THE WHOLE POINT OF WHAT PENALTY CLAUSES SEEK TO AVOID OF NOT HAVING TO GO TO COURT - Also see Verville

CVL - Different starting point. - Under Art. 1135 CCLC, the court could not touch a "penal clause" except to reduce it by the amount of partial performance rendered by the breaching party. - B/c of autonomy of the will and pacta sunt servanda, penal clauses were binding. - They were used abundantly and could generally not be struck down. - Note the development of restrictive covenant cases such as Cameron - we saw that the test was quite broad (could be struck down due to unreasonable time, scope or geographical ambit). - Jukier suggests that these cases developed this way b/c courts couldn't do anything to the attached penalty clause. - But if restraint of trade clause (principal obligation) fell, so did the PC (secondary obligation). - Things have changed with the new CCQ. 1622 CCQ A penal clause is one by which the parties assess the anticipated damages by stipulating that the debtor will suffer a penalty if he fails to perform his obligation. A creditor has the right to avail himself of a penal clause instead of enforcing, in cases which admit of it, the specific performance of the obligation; but in no case may he exact both the performance and the penalty, unless the penalty has been stipulated for mere delay in the performance of the obligation. ***1623 CCQ A creditor who avails himself of a penal clause is entitled to the amount of the stipulated penalty without having to prove the injury he has suffered. However, the amount of the stipulated penalty may be reduced if the creditor has benefited from partial performance of the obligation or if the clause is abusive. - If last part is true then proceed to 1437 CCQ 1437 CCQ An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced. An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.

137 - Minister's commentaries: No requirement that penalty clause be in K of adhesion or consumer K to be characterized as abusive. - Test of "excessively and unreasonably detrimental" looks just like Laskin's in Clark v. Thermidaire. (flavours of unconsc) - Interpret meaning of 1437 using Slush Puppie, immigration case, Yoskovitch - Case decided based on 1623: - Jean Coutu v. Tremblay: 5 year commercial lease. Lessor claimed stipulated penalty ($150,000)…court held it to be unreasonable and abusive as it amounted to 51 months of rent. - THIS LOOKS LIKE LESION! IT IS EXACTLY WHAT THE JUDGE IN YOSKOVITCH WAS AFRAID OF DOING (BUT DID ANYWAY via error).

- Case below introduced judicial review of penalt clauses if they’re abusive (in Quebec)  but, again, doing this is to DEFEAT THE WHOLE PURPOSE OF PENALTY CLAUSES of not going to court

151276 Canada inc. c. Verville [1994] – CVL?  liquidated damages - Defs sign 5 year lease - Defs abandon their lease - Penal clause included in a commercial lease agreement where where leasing party has to pay out the remainder of their lease  liquidated damages - Ultimately the amount that the Pls want the Defs to pay in unreasonable considering they could find someone else to lease the space without too much effort - Courts reduce payment / judicial adjustment Comments - penal clause is valid in principle  other party must show that it’s against public order - abusive clause  judge can reduce

Judicial review of penalty clauses - Problems with Laskin’s approach o Goes against point of penalty clauses (not going to court) o Reasonableness  unconsc is now being looked at after the fact rather than where it’s supposed to be a factor  in formation!!  not post- breach . Same problem as fundamental breach b/c you want to take into account whole context (????) o Unequal bargaining power . Can clause really be reviewd w/out this? Dickson in Hunter would say no  Laskin in Clark says still have to weigh reas of clause even if equal bargaining power . ****in QUEBEC for 1437 show that CAN’T USE THIS UNLESS PASS THE TEST OF UNEQUAL BARGAINING POWER it’s for those who need protection from general aut of will doctrine  But 1623 doesn’t have this restriction . *****So in same way unconsc requires inequality in bargaining power  so does 1437, and in same way that fairness and reasonableness test doesn’t require unequal bargaining power  neither does 1623

Wrap of Remedies Fundamental distinction btw CML and CVL o CML remedies procede rights o CVL  rights procede remedies o (Jukier mentions that this would make harmonization of law in Europe difficult b/c it’s such a fundamental dif)

138 Why this distinction 1) CML developed through a series of writs of action o If your right didn’t fit into particular form of action, then you couldn’t claim the right 2) Shows mentality of CVL code . Set out normatively  Nap’s view  code is rights oriented, permissive, default position oriented . Focus on the indiv etc  but then fails on the remedies end where CML focuses on the remedies 3) “the practical explanation” . CML is more litigious than CVL although this is a overgeneralization  Procedurally adversarial system of law o Parties battling out  mostly outside context of public control . Where CVL (not Quebec b/c has inherited CML aspects)  Built on inquisitional system rather than pre-tiral discovery (in CML) o Judge has active inquisitory and filtering role (??)

THE RELATIVE EFFECT OF Ks AND THIRD PARTIES

Privity/ Relativity How to Deal w/ Third Party Beneficiaries

- Privity / relativity = basically that K only has effect btw the King parties  only affects 3rd parties when provided for by law o Privity (CML) Beswick v Beswick  “The general rule undoubtedly is that ‘no third person can sue, or be sued, on a K to which he is not party” o Relativity (CVL)  1440 CCQ 1440 CCQ A contract has effect only between the contracting parties; it does not affect third persons, except where provided by law. - Why? o CVL  aut of will theory

General 1441 CCQ Upon the death of one of the parties, the rights and obligations arising from a contract pass to his heirs, if the nature of the contract permits it. 1442 CCQ The rights of the parties to a contract pass to their successors by particular title if they are accessory to property which passes to them or are directly related to it. Promise to another 1443 CCQ No person may bind anyone but himself and his heirs by a contract made in his own name, but he may promise in his own name that a third person will undertake to perform an obligation, and in that case he is liable to reparation for injury to the other contracting party if the third person does not undertake to perform the obligation as promise Stipulation for another 1444 CCQ A person may make a stipulation in a contract for the benefit of a third person. The stipulation gives the third person beneficiary the right to exact performance of the promised obligation directly from the promisor. 1445 CCQ A third person beneficiary need not exist nor be determinate when the stipulation is made; he need only be determinable at that time and exist when the promisor is to perform the obligation for his benefit. 1446 CCQ The stipulation may be revoked as long as the third person beneficiary has not advised the stipulator or the promisor of his will 139 to accept it. 1447 CCQ Only the stipulator may revoke a stipulation; neither his heirs nor his creditors may do so. If the promisor has an interest in maintaining the stipulation, however, the stipulator may not revoke it without his consent. 1448 CCQ Revocation of the stipulation has effect as soon as it is made known to the promisor; if it is made by will, however, it has effect upon the opening of the succession. Where a new beneficiary is not designated, revocation benefits the stipulator or his heirs. 1449 CCQ A third person beneficiary or his heirs may validly accept the stipulation, even after the death of the stipulator or promisor. 1450 CCQ A promisor may set up against the third person beneficiary such defenses as he could have set up against the stipulator.

. TP beneficiary and you know about it best thing you can do is send a letter saying you accept the benefit and that crystallizes the benefit  w/ communication of assent (1446,1447) o CML  goes even further . Consideration (Thomas v. Thomas)  consideration must not only have value in the eyes of the law but must also move from the promise . Theoretically if A breaches K w/ C, B could bring an action against A but often B won’t have suffered real loss as a result of A’s non-perf. B might not even be around anymore either o How to deal w/ this general rule  (so that TPs can get benefits) . Beswick  simplified  A sells business to B, B promises to pay the purchase price to his wife C; A can sue B but C cannot sue A. If A sues B for breach of K with C, A will only get nominal damages b/c it is C who suffered the $1000 loss, not A . Express legislative exception  (eg. stipulations for “another”/autrui art. 1444 CCQ and UK K Act 1999) . CVL where 3rd parties are benefitting through a valid K btw A and B, if that is the intention, should be able to sue if they (3rd party) are prevented from benefitting . Canada’s mental gymnastics/legal hocus pocus (/????) - How to structure a Third Party benefit  limitations on and exceptions to privity rule o First instrument = TRUST . Beneficiary (C) will be allowed to sue the trustee (B) but must be set up in advance = will be applied where it’s clear that the parties actually intended to create a trust relationship . Law of trusts developed in courts of equity . Property being held a person, the trustee, subject to an obligation to deal w/ the property for the benefit of TPs, the beneficiaries of the turst  Eg. Parents . Right to enforce a Kual obligation is recognized under this o Second instrument = ASSIGNMENT . One K is btw new owner of shopping cntr (buyer) and his tenants; another K betw the buyer and the seller of the shopping cntr; but no K betw seller and tenantsthey are non-K’ing parties . If buyer fails to pay the seller it can trigger an assignment rental clause so tat gives seller the right to collect directly from tenant . Kual rights considered to be a species of property in this case . Eg. London Drugs o Third instrument = AGENCY . Principle authorizes an agent to enter into Ks on the principal’s behalf w/ third parties, which = the principal has a direct Kual relationship w/ the third party  Promisee B acting as an agent on behalf of C, TP beneficiary, in extracting a promise from A to confer a benefit on C thus avoiding TP beneficiary rule 140 . Application of agency principles rests normally on the finding of a genuine intention to create a relationship of agency  This can be problematic b/c can be vulnerable to charges that the parties in fact had no such intention . Eg. New Zealand shipping case - How courts get around the problem of privity see below o Note London Drugs case creates exception for employees but Assignment CAN ONLY BE USED AS A SHIELD NOT A SWORD (a la promissory estoppel???) can be used TO PROTECT NEGATIVE BENEFIT BUT NOT TO ENFORCE/SEEK POSITIVE BENEFIT - Other ways to transfer ‘negative benfit’ of exoneration or limitation clauses  New Zealand Shipping

Beswick v. Beswick [1966]  CML overturned next case (issue 2) Facts  coal merchant, Peter Beswick, leaves business to his son, John Joseph Beswick.  K stipulates that Peter remains consultant until his death and receive L 6 10s per week  after Peter’s death, his widow was to receive an annuity of L 5 per week, which was to come out of the business - son only paid one installment to the widow. - widow sues for specific performance in dual capacity: administratrix of Peter’s estate, and personal capacity as 3d party beneficiary Issues - i) administratrix of estate entitled to sue for specific performance? - ii) 3d party beneficiary entitled to sue for specific performance? Held - yes - yes Reasoning Lord Denning up to his old tricks, trying to judicially reform rules and overrule doctrine of privity: Common Law  3d party can sue?  K for benefit of a 3d person is binding  Dutton v Poole: i) father’s executrix could have sued for the benefit of the daughter; ii) “in the special circumstances of that case (when a party could not give evidence), the daughter herself could sue on the contract although she was not a party to it.”  Ks for benefit of 3d person: “although the 3d person cannot as a rule sue alone in his own name, nevertheless there is no difficulty whatever in the one K-ing party suing the other party for breach of the promise.”  “far better for the K-ing party and the third person to join as co-plaintiffs.”  general rule that “no 3d person can sue, or be sued, on a K to which he is not a party” is “only a rule of procedure”  third person has a right arising by way of K Equity  remedy of specific performance  K-ing party entitled, alone or jointly w/ 3d person, to have K performed according to terms and Court will decree specific performance Statute  s. 56 of Law of Property Act, 1925  “(1) A person may take an immediate or other interest in land or other property or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property although he may not be named as a party to the conveyance or other instrument.” Thus, here:  widow make valid joint claim as executrix of husband’s estate, and in her personal capacity (as 3d person). - orders specific performance Ratio - 3d party beneficiaries may validly sue for specific performance Comments - This is overturned in the House of Lords 141 Beswick v. Beswick [1968] –House of Lords can still sue as administratix though - Same as above but on second question court holds NO - So TP beneficiary isn’t entitled to sue for specific perf Reasoning

Lord Reid  commonly accepted view, contrary to Lord Denning, K for benefit of a 3d party confers no right on the 3d party, and the 3d party cannot sue for the monies promised  resp widow in her personal capacity has no right to sue, but she has a right as administratrix of her husband’s estate to require the appellant to perform his obligation under the agreement  Law of Property Act s. 56 invalid, b/c as consolidation Act, was not to make substantial change in the law. earlier Acts from which consolidated contained no provision like s. 56 specific performance should be ordered. Ratio *******only parties to the K have a right to sue. third party beneficiaries have no right to sue***

New Zealand Shipping Co. Ltd. V. A.M. Satterthwaite & Co. Ltd [1975] (agency) Facts - New Zealand Shipping (stevedore) carry out stevedoring work (manages operation of loading/unloading a ship). - stevedore act as agent, received bill of lading. - Satterthewaite (consignor: person sending a shipment to be delivered) send expensive drilling machine. - Stevedore negligent in unloading drill. - Bill of Lading, clause 1: no servant/agent of Carrier under any liability to Shipper, Consignee or Owner; every exemption, limitation, condition and liberty shall also be available and shall extend to protect every such servant/agent of Carrier. Issue - Stevedore cov’d by exclusion clause in Bill of Lading? Held - Yes Reasoning Lord Wilberforce  Doctrine of Privity of K: K between two parties cannot be sued on by a 3d person even though the K is expressed to be for his benefit. Agency Exception: (Strattons c Midland Silicones)  Lord Reid, in obiter, sets out 4 conditions: o i) bill of lading marks clearly that stevedore is intended to be protected by provisions in it which limit liability o ii) bill of lading makes it clear that the carrier, in addition to King for these provisions on his own behalf, is also K-ing as agent for the stevedore that these provisions should apply to the stevedore; o iii) carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, o iv) any difficulties about consideration moving from the stevedore were overcome. Applied to the Facts:  context of commercial reality: to describe one set of promises, in this context, as gratuitous (nudum pactum) seems paradoxical and is prima facie implausible.  GIVING EFFECT TO THE INTENTION:  exemption designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: 142 the performance attracts the exemption or immunity in favour of whoever the performer turns out to be  two types of unilateral Ks: whether one describes the shipper’s promise to exempt as an offer to be accepted by performance (Carlill v Carbolic) or as a promise in exchange for an act seems in the present context to be a matter of semantics.  consideration : an agreement to do an act which the promisor is under an existing obligation to a 3d party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce. - thus, give stevedore benefit of exemptions/limitations to give effect to “the clear intentions of a commercial document” - NOTE  Lord Wilberforce uses the notion of unil K where performance = acceptance  offer made to class of indivs  flagpole climbed = acceptance and consideration (a la Carlill) - So offer by shipper transmitted through agency of stevedores - Pre-existing duty - INTENTION OF PARTIES IS IMP TOO IN ESTABLISHMENT OF A RELATIONSHIP Comments Jukier asks if this is a good solution to privity problem w/ TPsartificial acceptance using legal gymnastics  she says it’s unpredictable and often insufficient evi of agency see Greenwood Shopping Plaza

Greenwood Shopping Plaza Ltd v. Beattie [1980] (insufficient evi of agency)  not in CP - bef London Drugs case - K of lease - careless conduct of employees - employer immune from liability b/c of limitation of liability clause - lessor had agreed to obtain fire insurance and not to seek compensation from the lessee in the event of a fire occurring in the premises - BUT lessor claims directly against the lesee’s employees who had caused the fire Issues - Can employees benefit from employer’s limitation of liability clause Held - No

London Drugs Inc. v. Khuehne &Nagel International Ltd. [1992] ( third party is employees) Facts  Appellant delivered a transformer to a warehouse company for storage pursuant to the terms and conditions of standard form K, incl limitation of liability clause limiting the warehouseman's liability on any one package to $40.  Respondent employees moved transformer using two forklifts contrary to safe practice, toppled, extensive damage - Appellant sued the warehouse company and the employees for damages for breach of contract and negligence. Issues  Employees owe a duty of care to employer’s customers? - Can employees benefit from their employer’s K-ual limitation of liability clause? Held - Yes and they breached, so they’re negligent - Yes (relaxation of privity of K) Reasoning Iacobucci J. Duty of Care?  yes, employees owe duty of care to employer’s customer.  manufacturerers’ liability, apply Donoghue test: reasonably foreseeable to employee’s that their negligence would result in damage to appellant’s property

143  close relationship b/t parties that employees had duty to exercise reasonable care  Here, they dropped the transformer, thus they breached the duty of care. Non-party employees benefit from limitation of liability? Yes, 3d party beneficiaries benefit from limitation of liability clause. Judicial Legal Reform:  limits on the power of the judiciary to change the law: major revisions of the law are best left to the legislature. yet, in appropriate circumstances, courts not only have the power but the duty to make incremental changes to the common law to see that it reflects emerging needs & values of society. Doctrine of privity of K should be relaxed  distinction: right for third party beneficiary to rely on limitation of liability clause, is DISTINCT FROM recognition of 3d party’s right to sue on a K.  doctrine of privity fails to appreciate “special circumstances” of employer-employee relationship  POLICY REASONS to relax the doctrine: o commercial sense in a comm’l K for storage: allow parties to allocate risk of damage to the goods & procure insurance accordingly o identity of interest: not make comm’l sense to hold that term “warehouseman” not intended to cover Resp employees o serious injustice: financial position of affected employees could vary o creates uncertainty: result would require excessive expenditures and defeat the allocations of risk specifically made by the parties GIVING EFFECT TO INTENTION:  if uphold strict doctrine privity of K, then allow appellant to circumvent or escape limitation of liability clause to which it explicitly consented.  would be “absurd” in circumstances to let appellant go around the limitation of liability clause by suing the Resps in tort.  identity of interest: employer & customer enter into K, and limit liability of employer “for damages arising from what will normally be conduct contemplated by the K-ing parties to be performed by the employer’s employees,” then no reason to deny employees the benefit of the clause THUS, INCREMENTAL CHANGE by creating exception to doctrine of privity of K:  Employees may obtain benefit of limitation of liability clause b/t their employer and Plf when: o i) limitation of liability clause expressly/impliedly extends its benefit to the employees seeking to rely on it (this implied or express stipulation is determined by the parties’ intention as stipulated in the K) o ii) employees seeking benefit of limitation of liability clause were acting in course of employment and performing the very services provided for in K when loss occurred  “doctrine of privity should not stand in the way of commercial reality and justice” McLachlin J  employees owe no duty of care to owner of the machine (relational view, would this be the same in cvl?) Ratio - relaxation of doctrine of privity of K where employees may benefit from limitation of liability clause  but need to establish proximity (employer/employee relationship)

Remaining Questions - limitations on use of exceptions by TPs  must use as shield, not sword - Iaccobucci creates exception for employees o And it brings us back to a derivative form of estoppels  b/c based on detrimental reliance - To what extent do King parties remain free to exchange their K and thus the benefit to the TP o Note need for fresh consideration o Errington and Errington o SEE ABOVE UNDER CVL

Up until now  dealing w/ K btw A and B where B gives C benefits NOW K btw and B  and then B Ks w/ CC wants to exercise K right w/ A

144 Travelling Nature of Kual Rights - To what extent can a TP enforce a Kual oblig in a K to which he isn’t a party but is a successor in title

1442 CCQ The rights of the parties to a contract pass to their successors by particular title if they are accessory to property which passes to them or are directly related to it.

1730 CCQ The manufacturer, any person who distributes the property under his name or as his own, and any supplier of the property, in particular the wholesaler and the importer, are also bound to warrant the buyer in the same manner as the seller.

- Some rights attach so closely to the thing as to be an accessory to the thing so that they can benefit owners, even if these owners are strangers to the original K = THE ACCESSORY THEORY(see property??)  so judge extends this notion to rights = TRAVELLING RIGHTS (TP benefits) - These rights “travel” to subsequent title holders w/ the thing - = Quasi –real right  where personal rights attach to person and real rights attach to thing - Codification = 1442 CCQ and sec. 53 Consumer Protection Act o Like Houle was codified too

General Motors Products of Canada Ltd. v. Kravitz [1979] CVL (now codified  legal warranty against latent defects applies to all consumers) Facts in Nov 1967, Kravitz purchased Oldsmobile from Plamondon. complained of defects. had repairs done w/ GM’s knowledge and at their expense. still unhappy, returned car in Oct 1968, and brought action to i) have tender of automobile be declared valid; ii) that sale of automobile to him by Plamondon be cancelled, and iii) that Plamondon and GM be jointly and severally liable to pay him purch price of auto ($3K) and damages ($2.5K) Issues - Extent to which auto manufacturer (GM) liable to the buyer (Kravitz) for the latent defects in such vehicle? Held - GM liable in K b/c legal warranties attached to the thing, and thus benefit subsequent purchasers Reasoning Pratte J.  Three problems: (1) no-warranty stipulation, (2) effect of GM’s conventional warranty, and (3) Kravitz relying on a right flowing from a K to which he was not a party.

 (1) No-warranty clause in K between Plamondon and Kravitz seeks to repudiate legal warranty of dealer and manufacturer against defects. This is not valid: both the professional seller and the manufacturer must notify the purchaser of the latent defects in the thg sold. The no-warranty stipulation cannot be a bar to Kravitz’ remedy against GM.

 (2) Conventional warranty. Plamondon, acting as GM’s agent, gave Kravitz two booklets containing GM’s conventional warranty. Any provisions in this conventional warranty the effect of which would be to relieve GM from its liability under the legal warranty must be held to be null & void.

 (3) Direct remedy by Kravitz against GM? o whether the legal warranty against latent defects from sale b/t GM and Plamondon has effect only b/t immediate parties, or whether it can also benefit a subsequent purchaser of the thg sold o privity of K (1023 CCLC) is not absolute. 145 o exceptions in 1028 to 1031 CCLC: some rights so closely related to a thg that they can benefit only its owner o transfer of rights that are identified with the thing or accessories thereto, it must be said that the warranty against latent defects is owed not only to the immediate purchaser, but also to any subsequent purchaser of the thing. o sub-purchaser may proceed directly against the first seller for cancellation (of first sale to Plamondon, which includes the warranty Kravitz wants to avail himself of) and damages. o price first seller must reimburse is that of the first sale, the price it received. o difference between the price of the first sale (GM to Plamondon) and the second sale (Plamondon to Kravitz) is included in the damages under 1527 CCLC. o GM must pay Kravitz the amount of the selling price which Kravitz paid Plamondon, and the damages from the latent defects - GM jointly and severally liable with Plamondon for payment in full of the sum owed to Kravitz, since this was a commercial transaction for GM and Plamondon Ratio - cannot contract out of legal warranty against latent defects - legal warranty attached to the thing, and thus benefits subsequent purchasers of the thing. Comments - Isn’t this a lot like Assignment  under privity limitation

The Interrelationship btw K and and Tort  Liability in K and Outside of K - C can commit a tort in inducing B to enter into K w/ A o Tort of interference w/ K o Tort of interference w/ ec. relations o Tort of inducing K 1458 CCQ Every person has a duty to honour his contractual undertakings. Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is liable to reparation for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them.

- When can K’ing party engage his extra-K resp to TPs o When perf of K or faulty perf of K constitutues a K - Unlimited liability of this extra-Kual liability? o CML  No K’ing party must have a duty of care to TP . Relationship of proximity must exist  Reliance damages  Need fault, damage, causality o CVL  No . (no duty of care so…..) . Sees it in terms of causality  Foreseeability test to determine causal link o This is why Michaud not liable to Caise Pop even though Caisse Pop shouldn’t have admitted thatat they would have given money anyway

Caisse Populaire de Charlesbourg v. Michaud [1990] – CVL (extra-K liability)  causal link to determine liability  foreseeability test Facts - Caisse pop gives loan to Lebel - He goes bankrupt - Michaud prepares statement of Lebels accounts etc  not so much incorrect as weren’t supposed to be used the 146 way Lebel used them  and Lebel gives to bank (?) - Caisse pop went after Lebel in K realm , and then Michaud in extra-K realm Issue - Is Michaud liable to Caisse Pop extra-Kually Held - No Reasoning - Establishment of causal link btw Michaud’s act and Caisse Pop’s loss is problematic  due to foreseeability (or non in this case)

Postcript

MCNEILL

- There’s such a thing as Ks such that it deserves to be a special course b/c: o Cooperation . A K isn’t an accident  Torts are but Ks aren’t o Ec. exchange . Beyond consideration . There’s some element of exchange . There’s still a cause o Future planning involved . Bringing uncertainty of future into certainty of present o Sanctions (legal and non) for non-compliance . See MCCAULAY  Loss of rep  No repeat Kual customers o ****Social K . Not totally w/in aut of parties, courts exercising some sort of control  All the way back to Carlill where this is an undercurrent  And Bundy where this becomes more explicit

- K is a significant enough social phenomenon to justify spending so much time on it in law school b/c: o Goals of Ks course (summarizing MCNEIL ) . General Legal pedagogy  General legal skills development in K course . Understanding the significance and limitations of Kual relations in our society  Ks as best way to exchange goods in this society o (despite what MACCAULAY says) o See Alcoa . Acquire knowledge etc of Needs of Specific Ks (consumer, long term, etc.) . Interplay w/ the legal system  w/ arbitration etc  (Damages always undercompensated) . Role of lawyer in Kual relationship  ***know default rules so well that you can adjust them so that client can get what they’re after

147 Dell Computer Corporation c. Union des consommateurs [2007] SCC  CVL  adhesion K standard form K abusive  CCQ 1435 +...... 14 John D.R. Leonard v. Pepsico, inc.. [2000] – US  no intention to be bound puffery...... 17 Carlill v. Carbolic Smoke Ball Co., 1893  no intention to be bound construed as intention to be bound more than a puff  offer to the world  reliance protected underlying policy issues UNIL K created....18 Kleinwort Benson Ltd. v. Malaysia Mining Corp. BHD., 1989 CML comfort letters agreement not to agree and not to be bound no intention to be bound...... 19 Terrasse Holdings v. Saunders, 1989  ambiguity of K unjust enrichment (of Holdings)...... 21 C.U.Q. v. Construction Simard Beaudry, 1987 contradiction btw offer and acceptance  Battle of the Forms  Mirror Image rule...... 22 Matter of Doughboys Industries Inc. and Pantasote Co [1962] U.S.A. contradiction btw offer and acceptance Battle of the forms mirror image rule...... 23 Entores v. Miles Far East Corporation, 1955 2 QB 327 (C.A.). reception rule established (used across the board in CVL and in CML for non-mail communication)...... 25 Errington v. Errington and another, 1952 1 KB 290 unil K revocation detrimental reliance promise not to revoke...... 25 Dawson v. Helicopter Exploration Co., 1955 S.C.R. 868.  unil K (turned into bilat K)  revocation  detrimental reliance PROMISSORY CONSTRUCTION...... 26 Cere v. Neely, 1980 C.S. 1160  unil promise to K expectation damages...... 28 Empress Towers v. Bank of Nova Scotia [1991] detrimental reliance  judiciary interpretation as solution to give K legal effect (b/c no unil promise to K in CML)...... 29 Brewer v. Chrysler Canada Ltd., 1977  detrimental reliance but no intention to be bound so no K  BUT (damages for) unjust enrichment...... 30 Pharmaceutical Soc. of Great Britain v. Boots Cash Chemists, Ltd., 1953  UK  communication of acceptance  invitation to treat (not offer) offer acceptance being used to forward public policy goals...... 31 148 Thornton v. Shoe Lane Parking Ltd., 1971 offer and acceptance surrogate  formation jimmied to adhere to policy considerations  opposite outcome to Boots...... 32 White (Executor) v. William Bluett (1853)  duress  *(no) CONSIDERATION...... 34 Hamer v. Sidway (1891)  reliance  (yes) CONSIDERATION...... 34 Dahl v. Hem Pharmaceuticals Corp., United States Court of Appeals, Ninth circuit, 7 F. (1993) unil K  (yes) CONSIDERATION...... 35 Roscorla v. Thomas (1842) PAST CONSIDERATION isn’t consideration need fresh consideration for new promise...... 36 Harris v. Watson (1791)  (no) CONSIDERATION pre-existing duties  no quid pro quo as had already agreed to duties  danger of duress  fresh consideration needed...... 36 Stott v. Meritt Investment Corp. (1988) factual benefit or detriment can be consideration eg. forbearance (intentional delay) to sue...... 37 Gilbert Steel Ltd. v. University Construction Ltd (1976)  no (CONSIDERATION) need fresh consideration to modify K and pre-existing duty (promise to deliver) doesn’t constitute this  can’t use promissory estoppels b/c cannot be used as sword, only shield  no detrimental reliance...... 38 Central London Property Trust v. High Trees House, 1947  promissory estoppel  used as shield where promise to accept less w/out fresh consid can be enforced if promissee relied upon...... 38 Williams v. Roffey Bros and Nicholas Ltd., 1991  (yes) CONSIDERATION  even though for pre- existing duty  although no legal benefit  obviated dis-benefit, obtains benefit in practice, and no duress..39 Walton Stores (Interstate) Ltd. v. Maher [1988] reliance  promissory estoppel used as sword to enforce promise for which there was no valid consideration from the pre-existing duty...... 40 In re Ross [1932] CVL  promise of donation ’cause’ moral obligation changed to natural obligation then changed to civil obligation to  and thus in sphere of unil onerous K rather than gratuitous K...... 42 Brasserie Labatt Ltd. v. Villa, 1995  contrary to public order (1373 CCQ) and Charter discriminatory. 44 Cameron v. Canadian Factors Corp., 1971  restrictive covenant  non-competition clause  contrary to public order...... 44 Syndicat Northcrest v. Amselem [2004] infringes on religious beliefsagainst directional public order...... 46 Bruker v. Marcovitz [2007]against public order?  freedoms...... 46 Comité des droits de l’homme, Constatations du Comité des droits de l’homme au titre du paragraphe 4, de l’article 5 du Protocole facultatif se rapportant au Pacte International relatif aux droits civils et politiques, Doc. Off. CCPR, 75e session, Communication NU 854/1999 (2002).  France Dwarf throwing case against public order (protective public order?)...... 47 McCutcheon v. David MacBrayne, Ltd., 1964 previous dealings  written terms of previous dealings implied if parties aware and assented to those terms previously  equal bargaining power...... 48 British Crane Hire Corporation Ltd. v. Ipswich Plant Hire Ltd., 1975 oral agreements binding  if equal bargaining power  an ‘it goes w/out saying’ sit...... 48 Dick Bentley Productions Ltd. v. Harold Smith Motors Ltd., 1965  warranty oral agreement binding  One K Theory (complete written argument)...... 49 B.C.N. v. Soucisse, 1981 obligation to disclose obligatin of GF  fin de non-recevoir...... 50 McKinlay Motors Ltd. v. Honda Canada Inc. [1989]  breach of K  breach of GF requirements implied in K  unequal bargaining power...... 51 Houle v. CNB 1990  breach of Kual right is a breach of Kual obligation of GF  test with notion of ‘reasonableness’  where discretionary oblitation exists, must perform...... 52 149 Martel v. Canada, 2000 - CMLno obligaion of GF in context of negotiations in CML  other ways to protect both commercial parties = equal bargaining power (also later on -p. 65)...... 53 Provigo distribution v. Supermarché A.R.G., [1998 ]  Kual breach . Expectations  GF obligations...... 54 Transamerica Life Canada Inc. c. ING Canada Inc., [2004] GF  courts shouldn’t rewrite Ks under rubric of GF  equal bargaining power btw parties...... 55 Lloyds Bank v. Bundy [1975]  unconsc as per Lord Denning  undue influence per majority inequality of bargaining powers...... 58 Thibodeau c. Thibodeau [1961] – CVL impaired consent  capacity...... 60 Barclays Bank plc v. O’Brien [1994]  undue influence (presumed)  constructive notice...... 62 Atlas Express Ltd. v. Kafko Ltd. [1989]  ec. duress...... 64 J.J. Joubert Ltd. v. Lapierre [1972] – CVL -  ec. duress...... 65 Martel Building Ltd. v. Canada [2000]  GF(?)  see this case under first semester...... 66 Époux Strauss-Schillio c. Vve Goblet [1947] – France (not in CP but Jukier discussed in class)  State of Necessity eg...... 67 Scott v. Wawanesa Mutual Insurance Co, [1989] exoneration clauseunambiguous not abusive...... 67 Tilden Rent-A-Car v. Clendenning [1978] exoneration clause abusive  inequality in bargaining power ...... 68 L'Estrange v F Graucob Ltd [1934] – in Tilden case  sign = binding  exemption clause...... 70 Photo Productions v. Securicor [1980] – UK  FB ‘laid to rest’exoneration clause...... 70 Hunter Engineering Co. v. Syncrude Canada Ltd. [1989]  FB doesn’t apply replaces it w/ unconsc but doesn’t actually apply it b/c no inequality  exoneration clause...... 71 Allendale Mutual Insurance Co. v. Hydro-Quebec ( 2001)  sweeping exoneration bylaw...... 74 Harry v. Kreutziger [1979] (B.C. C.Ap)  unconsc  inequality...... 74 Toker v. Westerman [1970] (US - New Jersey case)  unconsc, likely due to ‘shocking’ nature of case  unconsc being used as lifejacket?...... 75 Roynat Ltée v. Restaurant Nouvelle-Orléans Inc. [1976] (in Gareau Auto v. B.C. Imperiale de Commerce) – C.Ap but SCC later affirme CVL no unconsc (or equiv)...... 76 Gareau Auto v. B.C. Imperiale de Commerce [1989] lesion...... 78 Slush Puppie v. 153226 Canada [1994] CVL -abusive clause /adhesion K1437...... 80 Quebec (Procureur general) c. Kechichian [2000]  abusive under1437...... 80 Creighton v. Grynspan [1987] – CVL  misrep (fraud)  reticence...... 83 Tremblay v. Les Petroles Inc. [1961]- CVL  overt deliberate misrep (fraud)...... 84 Esso Petroleum Co. Ltd. v. Mardon [1976] CMLnegligent misrep (mistake)...... 85 V.K. Mason Construction Ltd. v. Bank of Nova Scotia [1985] – CML negligent misrep  but actual K b/c missing requisite intention...... 85 Poussin case...... 88 Bail c. Banque de Montreal [1992]  CVL  GF 1375  (last in GF Trilogy!)  duty to disclose...... 89 Dumoulin c. Rawleigh Co. Ltd [1925] – CVL GFduty to disclose no actual K b/c wasn’t signing what he thought was signing  no consent given...... 90 Sherwood v. Walker [1887] – SC of Michigan  mistake in the category (not quality) so no actual sale.....90

150 Smith v. Hughes – [1871]- UK - para. 7 of Levers Bros case  unil mistake so K not rescinded  Law of mistakes in CML only applies to mutual mistakes...... 91 Bell v. Lever Brothers Ltd. [1932] – UK no mutual mistake  it was actually mutual but didn’t meet second condition of changing K so radically that is no longer or same thing  and mistake existed bef severance K92 Solle v. Butcher  UK  mutual mistake (mistake in equity)a la Denning, changing things up  must only be common misapprehension to be fundamental change in K  only lasts until Great Peace Shipping...... 93 Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd. [2002]  no mutual mistake  K rendered more difficult but not fundamentally dif...... 94 McRae v. Commonwealth Disposals Commission [1951]  no mutual mistake although appears to meet Atkin’s test…inexcusable error  reliance damages (change of circumstances section maybe?)...... 94 Huot v. Ouellette [1981]  CVL  unil error  K IMPOSSIBLE...... 95 Yoskovitch v. Tabor [1995]  CVL error  no inexcusable error subjective test  looks like ec. error  or lesion masquerading as error and error remedying unconsc...... 96 Faubert v. Poirier...... 97 Lepage c. Allard [2004] – CVL  Inexecusable Error  1401...... 98 (DecisionOne) Confederation des caisses Populaires et d’economie Desjardins du Quebec c. Services Informatiques DecisionOne [2004]  lack of GF  K null  inexcusable error and gross negligence but going against GF 1375 is apparently worse...... 98 Amalgamated Investment and Property v. John Walker & Sons Ltd. [1976] – CML  still possible  assuming risks inherent in buying property...... 100 Taylor v. Caldwell [1863] – UK – cited in Krell v. Henry  excused form K  Implied condition rationale  impossibility (due to external event)...... 102 Otis Elevator Co. Ltd. c. A. Viglione & Bros. Inc., Mtl [] – CVL  not absolutely impossible could replacement employees and not that unforeseeable  but had a force majeure clause...... 102 Krell v. Henry [1903] – UK  futile to perform K  this decision is an exception...... 104 H.R. Sainsbury Ltd. Street [1970]  CML  implied condition  not complete exoneration  according to presumed intention of reas man...... 105 Canada Starch Company Ltd. v. Gill & Duffus (Canada) Ltd. [1983] – CVL not force majeure b/c isn’t absolutely impossible BUT they had a force majeure clause so not liable!...... 107 Alcoa v. Essex Group [1980] mutual mistake of fact FRUSTRATION...... 109 Hong Kong Fir v. Kawasaki Kisen Kaisha [1962] – UK  breach of K  damages (for wrongful repudiation of K)...... 115 Cehave N V v. Bremeer Handelgeselleschaft mbH [1975] breach  damages...... 116 Warner Bros. Pictures v. Nelson [1937]  breach  injunctionnegative covenant  spec perf...... 119 Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd. [1997] CML  breach  no SP  too much hardship...... 120 Construction Belcourt Ltee. Golden Griddle Pancake House ltd. [1988]  CVL SP  CVL doesn’t really care if too much hardship...... 120 Hadley v Baxendale [1854] – UK no recovery for loss of profit  type of damage not foreseeable...... 124 Victoria Laundry v. Newman Industries Ltd. [1949] – UK  damages for loss of profit but not for lost K  must be reas foreseeable loss...... 124 (The Heron II) Koufos v. C. Czarnikow [1969] – UK  damages for ‘market loss’ resulting from breach (delay)  reas foreseeable and would be likely to occur in maj of cases back to Hadley test...... 125 151 Ciment Quebec Inc. c. Stellaire Construction [2002]  damagages for redoing but not for lost work/Ks  lost profits not foreseeable...... 126 Peevyhouse v. Garland Coal & Mining Co. [1962 ] – US   expectation damages only and not restorative work (cost of cure)...... 127 Ruxley Electronics v. Forsyth [1995] – UK  diminution in value but not reinstatement  and some moral damages for loss of amenity...... 127 Tito v. Waddell - not in CP but talked about in class  diminution in value not cost of cure...... 128 Addis  eg where(no mental distress damages in K - employment)...... 130 Jarvis v. Swan Tours [1973] – UK  non-pec damages  loss of enjoyment  b/c K specifically one to provide pleasure...... 131 Farley v. Skinner [2002] – UK  above exception for non-pec damages exteneded...... 131 Fidler v. Sun Life du Canada compagnie d’assurance-vie [2006] – CML mental distress  part of restoring victim  relation to GF...... 132 Whiten v. Pilot Insurance [2002] – not in CP but mentioned in class and in Fidler  punitive damages awarded  independent actionable wrong...... 133 Honda Canada vs. Keays [2008] – not in CP but talked about in class  actionable???...... 134 151276 Canada inc. c. Verville [1994] – CVL?  liquidated damages...... 137 Beswick v. Beswick [1966]  CML overturned next case (issue 2)...... 139 Beswick v. Beswick [1968] –House of Lords can still sue as administratix though...... 140 New Zealand Shipping Co. Ltd. V. A.M. Satterthwaite & Co. Ltd [1975] (agency)...... 141 Greenwood Shopping Plaza Ltd v. Beattie [1980] (insufficient evi of agency)  not in CP...... 142 London Drugs Inc. v. Khuehne &Nagel International Ltd. [1992] ( third party is employees)...... 142 General Motors Products of Canada Ltd. v. Kravitz [1979] CVL (now codified  legal warranty against latent defects applies to all consumers)...... 144 Caisse Populaire de Charlesbourg v. Michaud [1990] – CVL (extra-K liability)  causal link to determine liability  foreseeability test...... 145