CONTRACTS CAN WINTER 2015

Sabrina Avery T00524374

Thompson Rivers University Faculty of Law

IV. CONTENT OF THE CONTRACT 5 (1) MISREPRESENTATION AND RESCISSION 5 Contractual Misrepresentation 5 Redgrave v. Hurd (1881, CA) 5 Smith v. Land and House Property Corp. (1884, CA) 6 Misrepresentation by Silence 6 Bank of British Columbia v. Wren Developments Ltd. (1973, BCSC) 7 BARS TO RECISSION 7 BAR #1: Restitution ad integrum bar 7 BAR #2: Affirmation Bar: You elect to affirm notwithstanding the defect 7 BAR #3: “Latches (Delay)” Bar 7 Kupchak v. Dayson Holdings Ltd. (1965, BCCA) 8 (2) DISTINGUISHING BETWEEN REPRESENTATIONS AND TERMS 8 Heilbut, Symons & Co. v. Buckleton (1913, HL) 9 Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. (1965, CA) 9 Leaf v. International Galleries (1950 CA) 9 (3) CONCURRENT LIABILITY IN CONTRACT AND TORT 10 BG Checo International Ltd. v. B. C. Hydro & Power Authority 10 Sodd Corp. v. N. Tessis (1977) 10 (4) PAROL EVIDENCE RULE 10 What is Parol Evidence? 10 Where it Still Applies 10 Exceptions 10 Policy Reasons for the Rule 11 Hawrish v. Bank of Montreal (1969) 11 The Collateral Contract 11 Bauer v. Bank of Montreal (1980) 12 Gallen v. Allstate Grain Co. (1984) 12 Business Practices and Consumer Protection Act ss.187 12 (5) CLASSIFICATION OF TERMS 12 General 12 (1) Conditions 13 (2) Warranties 13 (3) Innominate Terms 13 Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. 14 Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. 14 (6) DISCHARGE BY PERFORMANCE OR BREACH 15 ENTIRE CONTRACTS/AGREEMENTS 15 Policy Tensions 15 Sumpter v. Hedges (1898) 15 Fairbanks Soap Co. v. Sheppard 16 Doctrine of Substantial Performance/Completion (Fairbanks v Sheppard) 16 Money vs Goods 16 Money/Advance Payments 17 Howe v. Smith (1884) 17 Stevenson v. Colonial Homes Ltd. (1961) 17 (7) STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES 17 IMPLYING TERMS (Machtinger v Hoj) 17 Machtinger v. Hoj Industries Ltd. (1992) 18 INCORPORATION 18 Standard Form Contracts 18 Exclusion Clauses 19 Exclusion Clauses: Binding/Valid? 19 Thornton v. Shoe Lane Parking Ltd. (1973) 19 McCutcheon v. David Macbrayne Ltd. (1964) 20

L’Etsrange v Graucob 20 Tilden Rent A Car Co. v. Clendenning (1978) 20 Karroll v. Silver Star Mountain Resorts Ltd. (1988) 20 STRIKING OUT 21 Step Three of the Exclusion Clause Analysis 21 English Approach 21 Canadian Approach 21 Hunter Engineering Co. v. Syncrude Canada Ltd. (1989) 22 Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) 22 Loychuk v. Cougar Mountain Adventures Ltd., (2012) 22 Niedermeyer v Charlton (2014) 23

V. AVOIDING PERFORMANCE: MISTAKES AND FRUSTRATION 24 (1) UNILATERAL MISTAKE AS TO TERMS 24 ASSUMPTIONS 24 Smith v. Hughes (QB 1871) 24 TERMS 24 Hartog v. Colin & Shields (1939) 24 UNILATERAL MISTAKE AS TO TERMS IN TENDERS 25 R. v. Ron Engineering & Construction (Eastern) Canada Ltd. (1981) 25 (2) AGREEMENTS MADE UNDER MISTAKEN ASSUMPTIONS 25 History 25 Denning’s Policy Reasons for Equitable Common Mistake 26 Common Mistake: England 26 Common Mistake: Canada 26 Bell v. Lever Brothers Ltd. (HL 1932) 26 McRae v. Commonwealth Disposals Commission (1951) 27 Solle v. Butcher (1949) 27 Great Peace Shipping v. Tsavliris Salvage (2002 Eng CA) - “Test for Common Law Common Mistake” 28 Miller Paving Ltd. v. B. Gottardo Construction Ltd. (2007) 28 Lee v. 1435375 Ontario Ltd. (2013 ONCA) 29 (3) MISTAKES AS TO IDENTITY 29 How it Operates 29 History 30 TEST (Shogun) 30 Shogun Finance Ltd. v. Hudson (2003 UKHL) 30 (4) NON EST FACTUM 31 Saunders v. Anglia Building Society (HL 1971 AC) 31 Marvco Color Research Ltd. v. Harris (SCC 1982) 31 (5) RECTIFICATION OF MISTAKE 31 Sylvan Lake Golf and Tennis Club Ltd. v. Performance Industries Ltd. (2002) 31 Bercovici v. Palmer (1966) 32 (6) FRUSTRATION 33 Remedies 33 Distinguishing from Mistaken Assumptions 33 Paradine v. Jane (1647) 33 Taylor v. Caldwell (1863) 33 Davis Contractors Ltd. v. Fareham UDC (1956) 34 Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975) 34 The Sea Angel (2007) 35 SELF- INDUCED 35 Maritime National Fish Ltd. v. Ocean Trawlers Ltd. (1935) 35

VI. RELIEF FOR WEAKER PARTIES TO THE CONTRACT 36 (1) UNDUE INFLUENCE 36 General 36

Bars to Rescission 36 Actual Undue Influence (Type 1) 36 Presumed Undue Influence (Type 2) 37 Geffen v Goodman Estate (SCC 1991) 37 Royal Bank of Scotland Plc v Etridge (No.2)(2001) 38 Rebutting the Presumption of Undue Influence 38 (2) UNCONSCIONABILITY 39 General 39 Relationship Between Unconscionability and Undue Influence 39 Policy Considerations 39 Remedies 39 Unconscionability and Exculpatory Clauses 40 Morrison v. Coast finance Ltd. (1965) 40 Marshall v. Can. Permanent Trust Co. (ABSC 1968) 40 Contemplating a Wider Doctrine 41 Lloyds Bank v. Bundy (1975) - Denning 41 Harry v. Kreutziger (1978) - Lambert 41 Business Practices and Consumer Protection Act (S.B.C.2004, c.2) 42

VII. REMEDIES 43 (1) THE BASIC INTEREST PROTECTED BY LAW 43 Expectation Interest 43 Reliance Measures 43 Restitutionary Measures 43 McCrae v. Commonwealth Disposal Comm. (1951 Aus HC) 44 Bowlay Logging Ltd. v. Domtar (1992 BCCA) 44 Sunshine Vacation Villas Ltd. v. Governor and Company of Adventurers of England Trading into Hudson’s Bay 45 Attorney General v. Blake (2001 UKHL) 45 (2) SPECIAL ISSUES 45 QUANTIFICATION 45 Chaplin v. Hicks (1911) 45 COST OF COMPLETION 46 General 46 Groves v. John Wunder Co. (1939) 46 Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (ABCA 1975) 46 LOSS OF ENJOYMENT AND OTHER INTANGIBLE LOSSES CONSEQUENT TO A CONTRACT 47 General 47 Jarvis v Swans Tours (1973) 47 PUNITIVE DAMAGES 47 Whitten v. Pilot Insurance Co. (SCC 2002) 48 PENALTY CLAUSES vs LIQUIDATED DAMAGES 48 General 48 Shatilla v. Feinstein (1993 SKCA) 49 Super Save Disposal Ltd v Blazin Auto Ltd. (BCSC 2011) 49 (3) BOUNDARIES TO RECOVERY 50 CERTAINTY AND CAUSATION 50 General 50 Hodgkinson v. Simms 50 REMOTENESS 50 General 50 Hadley v. Baxendale (1854) 51 Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd. (1949) 51 Scyrup v. Economy Tractor Parts Ltd. (1963 MBCA) 52 Koufos v. Czarnikow (C)(The Heron II) (1969) 52 MITIGATION 52 Asamera Oil Corp. v. Sea Oil & General Corp. (SCC 1979) 52

IV. CONTENT OF THE CONTRACT

(1) MISREPRESENTATION AND RESCISSION

Definitions

Misrepresentation: Statements made about the contract, outside of the contract, but can have contractual implications even if they are not part of the dealRescission: Remedy of recission means to rescind or unwind a contract and to go back as if there never was one

Not Concerned with…

Tort of deceit: which is equivalent to fraudulent misrepresentation (telling someone something of which they rely upon and sue you for loss in tort)Tort of negligent misrepresentation: assuming when the advice was given there was a breach of duty

Contractual Misrepresentation

1. Fraudulent misrepresentation in contract: - Dairy v Peak tells us that fraud is “statements made without any belief in their truth” or “there is

discordance between what a man says and what he believes”- You need to be able to prove that there is

1. A statement of fact (not an opinion)2. The statement of fact must be false3. That the statement was fraudulently made and 4. That statement induced the other party into the contract

- Remedies: Recision/equitable damages: any loss suffered as a result of relying on the lie, puts you in position you would have been if there was rescission

2. Innocent misrepresentation in contract: - Sometimes referred to as negligent misrepresentation but this is not correct because there is no such thing in

contract law. It means honest misrepresentation, but in tort they do not care because of strict liability- For innocent misrepresentation you need to prove that there is;

1. A statement of fact (not an opinion)2. The statement of fact must be false3. That statement induced the other party into the contract

- Remedies: Rescission- It matters whether or not a representation is characterized as fraudulent or innocent in terms of

remedies once bars to recission are proven

Redgrave v. Hurd (1881, CA)

F: R advertised law practice generated $300-400/year but this was false. Hurd was induced a purchased a house in the area because he thought the practice was generating money. The practice was actually useless

I/C: Innocent misrepresentation (no question of fraudulent misrepresentation. Was framed as innocent)

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A: Presumption of inducement operated in this case? Yes, the statement was material because it mattered to the guy, it was important to the young lawyer (ex. of why it is important in this case he asked him about it, he needs a client base, moving to a town with no client base, asking about the practice and receipts, obviously something that was important). So it was up to the solicitor to rebut this which he could not do in this situation. Another argument here that says he should of known better (his way of trying to rebut the presumption). Going forward you cannot rebut the assumption by referring to the other parties foolishness (Greenshield’s Case)

R: Developed the test for innocent misrepresentation; if the maker of the representation intended that the statement induce the other party to enter into the contract then the court will assume that the party was in fact induced; to determine whether the party intended to induce you look to how material the statement was (whether a statement is material depends on the circumstances); if material, assume was made to induce); to rebut, look for evidence that the statement was not relied on (express representation; evidence suggesting impliedly that the person did not care about the statement; relier suspected that the statement was untrue; or that they would have entered into the contract anyways [all examples from the case])

Smith v. Land and House Property Corp. (1884, CA)

F: P offered for a sale of a hotel stating that it was already leased to a “most desirable tenant.” D agreed to buy the property but shortly after tenant went into bankruptcy. D refused to complete the transactions and P sued for specific performance. D said tenants virtues amounted to a misrepresentation. P argued that the reference to tenant was an opinion and not a statement of fact

I/C: Misrepresentation? YES A: In circumstances where there is not equal access to the facts you are impliedly inserting fact when you are

offering an opinion. Landlord knows the relations between him and his tenant whereas the purchaser did not know them at all or equally as well. Was not a true assertion b/c payment had been missed at one point in time .Therefore tenant was undesirable. “Most desirable" is a fact even though it looks like an opinion.

R: Where the party making the statement has a monopoly on information, what looks like an opinion can actually be characterized as fact (because the other party is not privy to that information); very contextual; case by case determination

Misrepresentation by Silence

- Not on the exam- Law is not clear on this- Can you make a representation of false fact w/o saying anything? - Situation #1:

- Concealment cases such as when you are selling a house and “put a mirror over a crack in the foundation;” almost straightforward in BC that this would count as fraudulent misrepresentation if you fraudulently conceal a defect

- Situation #2: - Saying something but finding out that it is false before it is relied upon; is there a duty to positively correct?

Could this be fraud? - The answer is sometimes ye- This would constitute conversion of innocent misrepresentation to fraudulent by the commission to say

something - Situation #3:

- Knowing that your house has mould

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- You are not concealing it not failing to correct it, just not mentioning it- Is there a duty to disclose things that you know would materially effect the deal? Where does it end? - Other Courts have said it will be different when the defect is very significant in the end that it would effect

someones health

Bank of British Columbia v. Wren Developments Ltd. (1973, BCSC)

F: Smith and Allan were directors of Wren. They wanted a loan, so they put up shares in another company that Wren owned as collateral with the Bank. S had the bank cash in shares without A knowing, who thought that the shares were still in place. A went to the bank to ask about them and they said they would "get back to you later on the details.” Bank claimed the balance owing in place of the collateral from A

R: It is theoretically possible to have misrepresentation by silence/omission where omission is related to the material aspects of the contract

BARS TO RECISSION

***Act as defences and prevent recission

BAR #1: Restitution ad integrum bar

- Must restore people to their full equality: the party gives back the consideration in the contract and they restore back to the pre-contractual condition

- Need to give restitution to the full integrity of the pre-contract; sometimes you cannot, so this works as a bar to that

- If this is an innocent misrepresentation claim and it is barred then you get nothing- BUT if this is fraud and the bar operates, then you would get equitable damages (not recission b/c of restitutio ad

integrum)- In fraud, if the person who made the changes is the “fraudster,” the court is not going to be inclined to erect the

bar in the circumstances- The bar is easier to put up in innocent misrepresentation than in the fraudulent misrepresentation situation (the

test for this is that if it is totally unjust)

BAR #2: Affirmation Bar: You elect to affirm notwithstanding the defect

- Must prove (1) That the victim had knowledge of the defect(2) They decided to affirm the contract expressly or impliedly (for implying it, there must be clear and

unequivocal evidence)- Innocent or fraudulent, you get nothing either way! (you affirmed to it)- Delay can also matter under affirmation; if once you find out about the defect and you do nothing to protest for a

long time, it can be clear and unequivocal evidence for implied affirmation

BAR #3: “Latches (Delay)” Bar

- If after learning of the defect, the innocent party starts delaying to protest and as a result of that delay the fraudster or innocent misrepresenter relies on that delay, it would be unfair to him to unwind the contract

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- The whole focus is on fairness, so it rarely applies in the fraudster situation; in all actuality it really only applies to the innocent misrepresenter

- If this bar arises, there is no recision for innocent or fraudulent; but in the fraud situation you could get equitable damages

Kupchak v. Dayson Holdings Ltd. (1965, BCCA)

F: P purchased shares of a motel company from D in return for two properties. Two months later, learning that the representations made by D about the earnings of the hotel were false, P stopped making payments on the mortgage. D sold an undivided half interest on one of the properties, tore down the existing building and erected an apartment building.

I/C: Can K claim recission? YES, though part of it was in the form of compensation b/c of the altered nature of the property

A: Must be flexible remedies to attempt to restore parties to their original positions. In innocent misrep courts will not be as interventionist as the parties are not at fault, however in fraudulent misrep the courts will exercise their jurisdiction to order recission to the fullest unless it would be impractical or unjust. Restitutio ad Integrum: Unwinding is impossible because property/situation has changed (ie cannot give back item because item destroyed; property sold to 3rd party). Courts slow to apply to fraudulent misrepresentation; had he just made changes without selling, Court may not have let the bar operate. Election/Affirmation: The court said that they had no other choice but to keep running it. Continuing to run the hotel would mean you elect to affirm but in this case they have no other choice. Does not arise to unequivocal affirmation. Latches: Did not apply because their change of position came after they already knew that the other party was protesting. The point is that you change your position in light of someones delay. But in this case they protested nearly right away and then they changed their position.

R: Three bars to rescission. Monetary compensation may be granted under recission where it is impossible or inequitable to restore the original property.

(2) DISTINGUISHING BETWEEN REPRESENTATIONS AND TERMS

Background

- A representation is a statement made that is not part of the contract (about of, peripheral to, outside of) - If a representation is outside the contract then the remedy makes sense because the representation induced

you into the deal and you now want out of it (recission) - In those circumstances you are not suing for breach of contract because it is not part of the contract

- A term is part of the contract, it is a promise within the contract - If a term is untrue then the contract has been breached and you are suing for breach of contract the remedy

of which is expectation damages (put in the position they would be in as if the contract had been performed)- May help to look at a problem backwards and look to the remedy first to see the cause of action which will get

you the remedy your client wants (ex. if they want recision and you know its not possible because you see a bar to recission applying then you may want equitable damages. However, if you foresee the affirmation bar applying then you cannot get damages so you may want to characterize it as a term in order to get expectation damages)

- Is it a term? If it is not a term it becomes a representation by default. If it is false it becomes a misrepresentation

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Heilbut, Symons & Co. v. Buckleton (1913, HL)

F: In a conversation, D said “I understand you are bringing out a rubber company,” P responded “we are.” As a result of the conversation D purchased a large number of shares. It was implied to D that the company was a rubber company but there was a large deficiency in rubber trees and the value of the shares in F fell.

I/C: Term? NO.A: Was a short, flippant, un-detailed statement (which militates in favour of it not being a term). Oral statement

followed by written contract that did not contain the statement (the parties would not intend for something to be a part of the deal and then not write it down). There is no suggestion throughout the whole of the evidence that he regarded it as anything other than representation. The statement was made to answer an inquiry for information. There is no evidence of an intention of either party that there should be contractual liability in respect to the accuracy of the statement.

R: Test for whether it is a representation or a term: depends on the intentions of the parties. Would ORP say parties intended it to be a term or a representation? The more serious the statement, more likely it is a term.

Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. (1965, CA)

F: P wanted to purchase a Bentley. D was a car dealer. D told P that the car had received a replacement engine and gearbox and had only done 20 thousand kms since then but there was only 20,000 km on the car. P purchased the car but it was a considerable disappointment to him.

I/C: Term? YES.A: Heilbut v. Symons tells us that “an affirmation at the time of sale is a term, provided it be on evidence to be so

intended.” You can tell if it is intended if an intelligent bystander would reasonably infer that it was. If a representation is made in the course of dealings of a contract for the very purpose of inducing the other party to act on it, and it does actually induce him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended to be a term. Can rebut the inference if he can show that it really was an innocent misrepresentation and that he was in fact innocent of fault in making it. In this case: inference not rebutted. D was in a position to know, or at least to find out, the history of the car.

R: Implicit factors to help distinguish what is a term: (1) a statement about mileage is very important regarding the subject matter (look to how important the statement is to what the contract is made over), (2) statement about mileage was intended to induce him into buying the car, and (3) it was within the sellers relative expertise (in negotiations, where one party has expertise in it, then you imply that it is part of the deal). However it is all very fluid. It is possible to say no one all three of these grounds and it could still be a term.

Leaf v. International Galleries (1950 CA)

F: Whether painting being a constable was term of the contractI/C: Term? YES.A: It was considered a term because a reasonable person would have assumed so. Very important to the buyer of

the painting because it impacts value. Seller had a monopoly of knowledge and therefore should have known. The word “constable” was written into the contract and therefore shows that it was an essential part of the deal (why would it be written in if it was not intended to be part of the contract?

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(3) CONCURRENT LIABILITY IN CONTRACT AND TORT

BG Checo International Ltd. v. B. C. Hydro & Power Authority

F: D contracts with P to lay hydro lines. Alleged that as part of the contact D will clear the forest and bush for P so they can come in and lay the cable and that is that. Go to do the work and was not cleared. In order for P to do the job they have to spend a lot of money and time clearing the forest. Sue for breach of contract and tort of deceit, and negligent misrepresentation.

I/C: You can pursue whatever is more beneficial: you can proceed under both causes of action in most situations

A: There are different remedies for both actions because the law should allow wronged plaintiffs to recover in any way possible

R: Changes the law and says you can pursue both in most situations BUT you cannot if it is explicitly stated in the contract that no tort action could be pursued; you can also do it impliedly by looking at the intentions of the party and whether they impliedly determined to exclude liability in tort.

Sodd Corp. v. N. Tessis (1977)

F: Not particularly important for this class. It is a tort case of negligent misrepresentation.I/C: Court found that they could have potentially sued under contract as well (main case is still BC Checo)

(4) PAROL EVIDENCE RULE

***ONLY APPLIES TO TERMS AND NOT REPRESENTATIONS

What is Parol Evidence?

- Parol means oral as opposed to written; a parol promise is an oral contract- Parol evidence would be something that the parties orally promised to each other prior to or contemporaneous

with a written contract but was not written down- Only arises when there is a written contract and there is an oral contract that wants to modify- An essential question is whether you can introduce oral evidence- The old rule was that no you cannot (as per the parol evidence rule); if you have a written contract, it is a rule of

contract law that you cannot introduce oral statements to change the meaning of the written contract- Over time however, many exception developed and the parol evidence rule has become almost no rule at all

because it has been “swallowed up” by exceptions

Where it Still Applies

- Statements made that are prior to or contemporaneous with a written contract are not admissible if they contradict the terms of the written contract

- As long as you can prove that the two do not contradict, then it is admissible (it may be an elaboration on the contract)

Exceptions

1. Does NOT capture misrepresentations it only covers terms

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2. There is a common law rule that you can always introduce oral evidence to clarify if there is ambiguity in the written contract

- If you can find a factual ambiguity, in those circumstances you can turn to the oral representations part of the negotiations to colour the contract but it can never go so far as to contradict it

- It is essentially varying it in the sense that you are filling it out, but not to the degree that contradicts it3. There is a statutory exception (Business Practices and Consumer Protection Act s.187) that says you can look to

evidence of the other party to try to explain what the written contract says- This applies only in the context of consumer transactions- It is essentially the same as the common law rule except there does not need to be ambiguity

Policy Reasons for the Rule

- Promotes certainty: if the parties sit down and write a contract, it is nice from a commercial perspective to be able to rely on the written contract and not have to entertain oral evidence (finality to a deal)

- Best evidence rule: if the parties are quarrelling, it is presumed that the written contract is superior to the oral contract as it is set in stone (best evidence rule is the thing that is written down)

- Freedom of contract: if the parties sit down and write up a deal, it defies logic that they would sit down and write a contract and then make a bunch of oral promises to each other with the intention of them to be binding as well

Hawrish v. Bank of Montreal (1969)

F: D brings action against P on a guarantee P had signed for indebtedness of a new company. P said when signing that he had oral assurance from the manager that he would be released when the bank obtained a joint guarantee from someone else. P believes that it is only meant to cover up to $6000 with a time constraint, whereas the document says he will guarantee the company’s debts up to $6000 indefinitely.

I/C: Parol evidence rule? YES, clearly contradicts.A: Written guarantee said that it was to cover existing and future indebtedness AND was to be binding

regardless of other guarantees that might be given. Oral assurance was only to cover existing debts AND H would be released upon joint guarantee. The two directly contradict each other so one cannot be true and the oral statements were inadmissible. If it contradicts, you may want to frame it as a misrepresentation (does not apply in this case because the clause is an exclusion clause which says that all representations are excluded)

R: Parol evidence rule: An oral statement made prior to or at the time of signing a written contract is not admissible if you are trying to introduce it to contradict the written contract (i.e. it cannot be introduced as a contractual term). Applies to the one contract and two contract/collateral contract rule

The Collateral Contract

- A way to get around the parole evidence rule in circumstances where you do not like its application- You create a collateral contract; there is one contract that is written, and the oral contract that lies beside it- You are therefore not introducing the oral contract to modify the written contract, but you are saying that the oral

contract (collateral) is a subsequent separate contract you want to use because it came later- You are not attempting to modify the written (technically, though this is a Denning principle)- For our purposes it does not really matter because in Hawrish they say that the parole evidence rule will apply to

the one contract and two contract rule

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Bauer v. Bank of Montreal (1980)

F: P gave guarantee to D who did not register book debts like they were supposed to (under appropriate legislation) and as the manager orally said they would. As a matter of bankruptcy law, if they do not register the debts then they cannot ‘go after’ the other party. In this case they do not register so they cannot sue him on the guarantee.

I/C: Parol evidence rule? YES. Oral statement inadmissible because it directly contradicts written statement in the contract which said that they did not have to register

A: No distinction between this case and Hawrish (an example of the parole evidence rule).

Gallen v. Allstate Grain Co. (1984)

F: Oral assurances that buckwheat would act as a blanket and smother weeds. Experienced farmers entered into a contract for the purchase of buckwheat seed as a result. Contrary to the assurances, weeds smothered and destroyed the crop.

I/C: Parole evidence rule does not apply: Oral evidence is permissible because the oral representation was a term before the contract was signed

A: Lambert (Canadian Denning) casts doubt on the parole evidence rule. Says what is really going on here is that if the parties have written a contract then the court should assume that's is the final deal. The more contradictory the less they would presume they were part of the deal and the least contradictory the more they would presume they are (this is not the law only his perception; he cannot overturn the SCC). Lambert also says that in the circumstances where the oral evidence caries or subtracts from a written contract, it is not captured by the rule (Hunt says this is not necessarily true and says it would take an analysis of cases)(to subtract from something you promise is recognized by a lot of judges as contradicting what you have promised). He further adds that the parol evidence rule is not a rule but a presumption (though this is clearly wrong as the rule is set out in Harwish and Bauer).

R: (Lambert) Parole evidence rule does not apply to innocent and fraudulent misrepresentations used to induce a signer. Parole evidence rule applies whether you argue the one or two contract theory. Parole evidence rule is confined to excluding oral statements that contradict the written statement (so if oral statement adds to the contract then both can be true; therefore the parole evidence rule would not apply).

Business Practices and Consumer Protection Act ss.187

Admissibility of Parole Evidence187: In a proceeding in respect of a consumer transaction, a provision in a contract or a rule of law respecting parole or extrinsic evidence does not operate to exclude or limit the admissibility of evidence relating to the understanding of the parties as to the consumer transaction or as to a particular provision of the contract.

***Has to be a consumer transaction. Essentially enumerates the common law exception that you can look to the parties negotiations to help ascertain the intent of the contract. The only thing that differs is that you do not have to find ambiguity as in the common law rule; this always applies.

(5) CLASSIFICATION OF TERMS

General

- Three kinds of terms

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(1) Conditions(2) Warranties(3) Innominate terms

- Distinguishing between them - Determine what remedy the parties intended to have- Look to the intentions of the parties at the time the contract was formed- The essential question is what effect did the parties intend to follow for the breach of this term? Did the parties

intend the breach of this term to generate the right to repudiate?- Assessed objectively

(1) Conditions

- Most important terms as they are defined in case law as “going to the root of the contract”- The breach of a condition substantially deprives the innocent party of the entire benefit of the contract; thus that

party can repudiate- If a contract impliedly confers a right of repudiation in the event of a breach, it will be a condition

- Look to how vital the term is to the contract- Look to the parties’ intentions

(2) Warranties

- Subsidiary terms; not vital; least serious type of terms- A breach would not deprive the innocent party of the whole contract- There can still be sense in performing the contract even if the warranty is not true- Generates a right to sue and be compensated for expectation damages but not to repudiate- Parties would not have intended for the innocent party to be able to just walk away

(3) Innominate Terms

- Hong Kong Fir v Kawasaki created this third category because they wanted to enhance flexibility and control over contracts (policy reasons)

- Problem = it created more uncertainty- Nameless until they become named- Lies somewhere between conditions and warranties, and may be treated as either- Look to the time of the breach (and not the time of formation) because we cannot know at the time the contract

was formed how serious the term is- Important: timing distinguishes innominate terms

- To determine the seriousness of the breach, determine whether the breach went to the root of the contract- If so, it will be a condition and confer a right to repudiation

Repudiation Rescission

- Innocent party can terminate contract because there was a breach of a condition or innominate term

- Forward looking: cancels future obligations - No bars

- Unwinding (undoing) contract: put in pre-contract position

- Is a right generated from the act of misrepresentation - Bars may apply

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- If not, it will be warranty and only confer a right to damages- Divorced from the parties intent; it is a matter of judicial policy whereby they cannot tell what the parties intend

and need to wait and see (when the parties have expressed themselves imperfectly)

Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd.

F: P chartered a vessel to D and promised it to be “seaworthy.” However, due to the fact that the engine room staff was inefficient and the engines were very old, the ship was held up for 5 weeks, and then needed 15 more weeks worth of repairs after the deal had been made. D repudiated the contract, and P sued for wrongful repudiation

I/C: INNOMINATE; WARRANTYA: Seaworthiness is an innominate term because it is a complicated term which promises a lot of things. Thus it

can be breached in various ways (some minor and some serious). Converted into a warranty here: K not substantially deprived of contract because he still has 80% of 24 month contract left. Furthermore, there was a limitation of liability clause as a result of unseaworthiness. Therefore, the court determined that the parties had actually contemplated the idea so as a result, if they wanted the breach to a generate a right to repudiate, then why would they have not included it.

R: Test for conditions/warranties. Defines condition: “where the occurrence of the event deprives the party who has further undertaking of substantial benefit which it was the intentions of the parties as expressed in their contract that he should obtain as the consideration for performing those undertakings.” Creates third category of innominate terms. Test for innominate terms is that if a contract expressly confers the right to repudiate then it is a condition but if it is silent, look to the nature of the term and whether it is complex (then if breach is significant it is a condition, if not it is a warranty). Only the innocent party can repudiate because man should not be allowed to take advantage of his own wrong.

Wickman Machine Tool Sales Ltd. v. L. Schuler A.G.

F: D was a manufacturing company and they granted P the sole right to sell their products in the UK. In the terms of the agreement, P was to visit six of D’s major clients each week for the duration of the contract (4 years), which he failed to do. It said in the contract that this was a "condition" of the agreement.

I/C: WARRANTYA: Despite express “condition” this was in fact a warranty: out of 1,400 required visits at least a few would be

impossible. Thus it was impossible the parties meant it to be a condition (not reasonable to call it a condition)R: Explicit use of word “condition” not a magic word. Must also look to whether parties intended it to be

a condition (right to repudiation) in respect of the overall document. How do we know if the parties intended a right to repudiate?; if they have contemplated the breach and have stipulated other remedies for it, the reasonableness of the result of calling it a condition (idea that the parties intended sensible things), or look at plain language (use of ‘condition’ a strong indication they intended it to be a condition but is not determinative). Look at intentions > how they use it > reasonableness of the result.

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(6) DISCHARGE BY PERFORMANCE OR BREACH

ENTIRE CONTRACTS/AGREEMENTS

***Another way to generate a right to repudiate

- In circumstances where you promise to pay a lump sum for a specific job or task, the Courts will presume that this is an entire contract/agreement

- The idea is that if you are giving someone a lump sum of money for a specific thing/act, you do not have to pay unless it is completed

- In a breach of an “entire contract,” the innocent party can walk away (Sumpter v Hedges)- Except where the doctrine of substantial completion will prevent the innocent party from doing so

(Fairbanks)- This presumption is related to the intentions of the parties therefore if there is clear evidence that the parties did

not intend that, then the presumption will not apply

Policy Tensions

Advantages- It incentivizes performance and protects the innocent party- Makes sense from a freedom of contract perspective; it honours the deals that parties make- Prophylactic purpose to prevent duress

Disadvantages- It allocates all the risk on the builder; if he does not complete to the satisfaction of the other party and then he gets

nothing- What if the other party is completely innocent in the fact that they cannot complete the promise?- What is the difference between finishing badly and not finishing at all?- Unjust enrichment to the innocent party; if I pay someone to build half of a shed and they don’t, the innocent

party is left with that half a shed which is a benefit they did not pay for

How the Common Law tried to Ameliorate these problems:- The unfairness to the builders (unjust enrichment); in the event that you have a Sumpter v Hedges scenario where

he is receiving a benefit for which he has paid nothing- The doctrine of unjust enrichment provides that as a matter of contract law, once the contract ended you

would then plead unjust enrichment (when there is enrichment and correspondent deprivation)- According to unjust enrichment, the “half of the shed” would be returned or compensated for

- Problem: the guilty party accepts all the risk- The doctrine of substantial performance (contract doctrine) is a doctrine that essentially allows the guilty

party to say “no, even though I have not completed I have almost completed” and therefore the innocent party cannot repudiate/walk away

Sumpter v. Hedges (1898)

F: P contracted to erect certain buildings for a lump sum but only completed part of the work and abandoned the contract. D found his land with unfinished building on it, and thereupon completed the work.

I/C: Entire contract? YES.A: Entire agreement and therefore H does not have to pay. There are cases in which, though the plaintiff has

abandoned the performance of a contract, it is possible for him to raise the inference of a new contract to pay

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for the work done on a quantum meruit from the defendants having taken the benefit of the work. But in order that that may be done, the circumstances must be such as to give an option to the defendant to take or not to take the benefit of the work done (unjust enrichment issues). As in the case of work done on land, the circumstances are such as to give the defendant no option whether he will take the benefit of the work or not.

R: In a breach of an “entire contract,” the innocent party can walk away

Fairbanks Soap Co. v. Sheppard

F: D promised to build P a soap machine. P paid $1000 on account but when the machine was nearly finished D refused to do more unless he was paid a further $3000. P sued to recover the $1000 and for other consequential losses

I/C: Entire contract? YES.A: Court endorses Sumpter v Hedges and brings the entire agreement rule into Canada. Contract was not

substantially completed. Machine was “nearly complete” but not good enough because it did not function/produce soap chips (the purpose is an important factor). Sophisticated engineering left to be done and would need to be done by S. Introduces the idea of substantial performance which seems to relax the rule.

R: Endorses Sumpter as the starting point: if there is an “entire contract” the innocent party can walk away and may refuse to pay anything. The doctrine of ‘substantial completion’ qualifies this: rejects Sumpter where there is only something trivial left undone. Creates new test that the guilty party can invoke to prevent the innocent party from walking away: if a job is substantially completed but there are only little bits left undone, the contract remains in force and the innocent party cannot repudiate, he must pay (helps mitigate the problem of putting all of the risks on the builder). However, innocent party may still sue for breach of contract for the small amount not done.

Doctrine of Substantial Performance/Completion (Fairbanks v Sheppard)

To assess whether there was substantial completion:(1) Has the work been substantially performed as a matter of empirical fact?

- Empirical matter = what percentage has been completed or what has not(2) If it is substantially complete, why has it been left undone?

- More normative view in questioning why the agreement has not been completed

Note on Abandonment:- If the guilty party is able to avail themselves of substantial performance the innocent party can still prevent

them from claiming substantial performance if they can say that the reason that it has been left undone is because the guilty party has abandoned it

- Not entirely clear whether proving abandonment will prevent the guilty party from invoking substantial performance, however according to Hunt and this case, it appears so

- Bhasin v Hynrew could be brought in here because if the opposite of good faith is bad faith, and abandonment and extortion can be described as bad faith, then it would support the inference that the guilty party should get nothing

- Court says is you “substantially complete it then you should get substantially the money,” unless the guilty party is a quitter and guilty of abandonment, extortion, or just quitting (can be determined by looking at motives of the party)

Money vs Goods

- Assuming the innocent party can walk away, can the guilty party get something back?- Historically, there is a distinction drawn between money and services/goods

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- Money = recoverable- Goods/Services = unlikely to be recoverable

- Traditional rule from Sumpter is that goods and services are not recoverable in “entire contract” situations. But many have criticized this as not making sense; why should it be different?

- We know this is not really true because of unjust enrichment law: if there is a benefit to someone (ie half a shed) and a detriment suffered consequently (ie lost money), loser can sue for recovery of the benefit if the retention of the benefit would be unjust in circumstances

Money/Advance Payments

Howe v. Smith (1884)

F: Buyer gives $500 as down payment for house but refuses to pay the rest upon completionI/C: DEPOSIT.A: Look to the intentions of the parties in terms of the overall contract: did they intend the money to be a deposit

or not? Was it intended to be forfeited in the fact of non-completion or not? The best place to start is express intentions in the contract. If the word deposit is on it, the parties do not necessarily know what this means; it does militate in your favour but it is not determinative. The purpose of a deposit is to bind the parties and incentivize the other party to fully complete in the threat of forfeiture; if that is what is going on, then it is most likely a deposit.

R: If it is a part-payment/down-payment the purchaser can get it back. If it is a deposit, the guilty party cannot get it back.

Stevenson v. Colonial Homes Ltd. (1961)

F: Purchaser pays $1000 for pre-fabricated cottage but refused to pay the rest because the cottage was crappy.I/C: DOWN PAYMENTA: Words “down payment” and “deposit” appeared in the contract but in different places; only one of them was

signed by the purchaser. “If the respondent had intended to induce the appellant to enter into a contract and pay money under conditions whereby the money would have been forfeited in the event of default, it should have included the word “deposit” in its contract in place of the word “down payment: or it should have spelled out with some particularity the obligation which the appellant was undertaking by signing the contract”

R: If both words are used and it is clear that it is functioning for both purposes, then the court will treat it as a deposit (if the contract does not go through = returnable, and if the contract does go through = counts towards the payment). May also consider the idea of contra proferendum which means when it is unclear what the parties meant then you can construe it against the drafter. If the person controlled the process and had the opportunity to be clear, then they are to take the adverse reading (not determinative but one of the principles used when interpreting contracts).

(7) STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES

IMPLYING TERMS (Machtinger v Hoj)

(1) Custom or usage - Rather narrow: only applies in certain types of contracts (the practice must be notorious and wide spread)

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- Still tied to the intentions of the parties; if it is expressly implied that the custom and usage does not apply then you cannot imply it

- Examples: diamond contracts or farming contracts

(2) Business efficacy principle/officious bystander test- A test of obviousness; if they ask the officious bystander if it was intended to be part of the deal- Anchored in the intentions of the parties but it is assumed that it was intended because it is so obvious- You can imply a term that would make very clear business sense were important (Lucy Lady Duff Gordon)- Business efficacy means that if you do not imply it then the deal would not make business sense- Business efficacy is a device that allows you to ascertain the intentions of the parties- Officious bystander/business efficacy: the key is that both are implied by fact which means the presumed

intentions of the parties- Any evidence to the contrary then it means you cannot apply it

(3) Implication of terms by law- Not anchored in the presumed intentions of the parties; it is implied as a matter of law - Examples: employment law (Machtinger; obligation of a reasonable term of notice), insurance contracts

(obligation of full disclosure), Basin v Hynrew (always a matter of law and obligation to negotiate in good faith)

- Narrow situations in which this can be done because it overrides the intentions of the parties- Denning says that you can always imply a term by law whenever it is reasonable to do so but McLachlin

rejects this because it is far too broad and endorses the House of Lords which is now Canadian law; when it is necessary in a functional sense to facilitate the fair functioning of a contract

- Unlikely whether this would be asked on an exam because it would require whether there is a fair functioning of the contract and this would take a great deal of information; therefore will likely see business efficacy/officious bystander on an exam

***You can rebut a term of fact (by introducing evidence to the contrary) but you cannot rebut a term of law

Machtinger v. Hoj Industries Ltd. (1992)

R: Intention is relevant to terms implied as a matter of fact but not to terms implied as a matter of law. Implication of law can be from custom, for business efficiency (what is necessary in a contract), or what is reasonable (from Denning's dissent in Liverpool). Three basis for implied terms: (1) Custom or Usage where custom in that industry re that specific type of contract (narrow: the practice must be notorious and widespread); (2) Business efficacy/officious bystander: based on circumstances parties intended the term to exist. Courts will try to give a commercially sensible reading to the deal. Look at tender cases for examples of what kinds of terms were implied and were rational; (3) Implied by law: terms necessary to ensure the fair functioning of the contract. Must be narrower than “reasonable” but not so narrow as to be necessary for the very existence of the contract. E.g.: requirement to provide fair notice before firing employee; duty of good faith and full disclosure in insurance contracts (both required for fair contract). Intentions do not matter; thus extremely limited device.

INCORPORATION

Standard Form Contracts

- Not individually negotiated,; drafted and used over and over again- Commercial importance: Transactional efficiency advantage (bring costs down). There is a speed issue/economic

efficiency argument to allow the “wheels of commerce to keep turning”

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- Difficulty: If they are not individually negotiated and you sign a form that you have not really read then there is not really a bargain. You are ignorant of a vast majority that you are agreeing to. Practically speaking, these are entirely one sided arrangements; every clause will essentially accrue to the value of the party who is controlling the drafting (serious self interest which generally does not favour the other party)

***Standard form contracts and exclusion clauses usually align but do not have to

Exclusion Clauses

- Encountered previously with London Drugs v Kuehne & Nagel- Instead of limiting liability it excludes liability all together- Policy justifications: Enables companies to control risk thus can reduce costs for consumer. Without an exclusion

clause the exposure to liability would be enormous.- Difficulty: Particularly where they arise in a standard form contract where they are not individually negotiated

then they can be very oppressive. Essentially absolve the drafter of any liability for any breach. Unfair, oppressive, and one sided.

Exclusion Clauses: Binding/Valid?

***Before you start the steps, identify whether it is signed or unsigned and keep these separate

1. In order for it to be binding then it has to incorporated into the contract (if not it has no contractual effect whatsoever)

2. Assuming it is incorporated, the next thing you need to determine is the scope and meaning of the clause and whether it covers the breach that has arisen

3. Even if it is incorporated and covers the breach, the court can strike it out as a matter of law/public policy

Thornton v. Shoe Lane Parking Ltd. (1973)

F: T suffered injuries while putting belongings into his trunk while at the defendants parking garage. Outside parking garage was a sign that said “all cars parked at owner’s risk.” Machine gave ticket subject to conditions displayed on the premises. Conditions were on the pillar opposite the ticket machine.

I/C: Incorporated?? NO. Defendant liable for T’s injuries.A: The writing on the ticket stating that it was subject to the conditions was not visible until after the contract

had been formed, therefore the contract is not truly subject to the conditions. First, need to determine when the contract was formed. Denning says the moment you push the button in this case. The terms on the back of the ticket came too late and the contract was already formed. Look at the practicalities; the machine was at the entrance but all signs were inside - it would be too onerous for a person to acquaint themselves with the terms before entering the contract.

R: Could have exclusion clauses in this way if it was brought to customer’s attention before the contract was formed (starting point). If you want to prove it was incorporated you can say that it was subjectively brought to the customers attention before the contract was formed (do not have to demonstrate that they know all the specifics but needs to know that they are subjectively aware of the general character of the thing he was given away. Assuming you cannot prove it subjectively, you can incorporate a clause through an objective standard that the company did what was reasonably sufficient to bring existence of the clause to the customers attention. When will it objectively be enough? Denning says that as a general rule of thumb, the more powerful the clause in a rights dispensing sense, then the more effort there needs to be to bring it to their attention.

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McCutcheon v. David Macbrayne Ltd. (1964)

F: Appellants brother-in-law sends car by ship. The ship sank due to negligent navigation by the respondent. Sues for loss of car. Normally he respondent would have the customer sign a “risk note” (like he had before) but this was merely an oral agreement as the regular clerk was not in the office at the time. Ship company trying to imply an exclusion clause.

I/C: Exclusion clause implied based on prior dealings? NO! Not consistent enough practice; threshold not met

A: It is possible to imply an exclusion clause based on past dealing where there was a course of consistent dealings between the parties that had such a clause. Anchored in the officious bystander test and the intentions of the parties. However it is a very high standard because it is a heavy clause: must be consistent practice, clause cannot vary, and must be obvious that the parties intended to include that term. Really only operates in circumstances that there was an honest oversight

R: An exclusion clause may be implied when parties have made a series of similar contracts, the practice is consistent, each containing the same exclusion clause, and there is no evidence to the contrary that they did not want it this time.

L’Etsrange v Graucob

- Once you out a signature on a contract you are bound by it and it is wholly immaterial whether he has read the document or not

- Exceptions1. If a signature was induced by misrepresentation2. Doctrine of mistake; non est factum (you do not know what you are signing)3. Assuming that neither of these exceptions apply, then you are bound subject to the third exception that was

created in Tilden and enumerated in Karol v Silver Star: if I know, or should know, that when you sign the contract that you are mistaken by the exclusion clause, then I have the duty to make it known to you or you are not bound by it

Tilden Rent A Car Co. v. Clendenning (1978)

F: C rented a car from T. Contained an exclusion clause denying coverage for accidents that occur if the driver had consumed any alcohol. C crashed car under the influence of alcohol.

I/C: Part of the contract? NO, fails at incorporation.A: The exclusion clause ran counter to the purpose of the whole contract (which was for extra insurance). In

very small print, on back of form, and very powerful since it was onerous and over-broad. Transaction carried out in a hurried manner.

R: In the consumer sphere, sufficiency of notice and proportionality trump the L'Estrange notion that a signature alone is binding. An essential part of the L’Estrange test is whether the other party entered into the contract in the belief that the defendant was assenting to all terms. This case adds third exception to L’Estrange principle; if I know, or should know, that when you sign the contract that you are mistaken by the exclusion clause, then I have the duty to make it known to you or you are not bound by it.

Karroll v. Silver Star Mountain Resorts Ltd. (1988)

F: The plaintiff sustained a broken leg while participating in a downhill skiing competition at Silver Star. Plaintiff had signed release prior to race but had not read it.

I/C: Incorporated? YES

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A: Casual glance would reveal this was a legal doc releasing liability; short, easy to read clear bolded heading “RELEASE AND INDEMNITY, PLEASE READ CAREFULLY.” Clause consistent with the type of contract for excluding liability. Plaintiff had signed similar documents in previous races

R: Especially in commercial situations there is a very strong presumption that you’re bound by what you sign (L’Estrange). BUT may escape being bound by what he signs if other party knew/ought to have known he didn’t know what was signing AND other party didn’t take reasonable step to bring clause to attention. To determine whether party should have known consider factors: whether release is consistent with the nature and purpose of contract (if it is an odd or normal thing to sign away? If it is odd then you would have to give them more time and attention); how onerous clause is (if hugely destructive of rights, seems person didn’t know that they were doing in signing, more powerful/not trivial the more you have to bring it to their attention); time and opportunity available to read contract (including length, easy to read, headings).

STRIKING OUT

Step Three of the Exclusion Clause Analysis

- We know that the contract must be read as a whole and not just the clause itself- Contra Proferendum: If there is ambiguity in a clause, the Court will read it against the drafter- This rule is even more enhanced when it comes to exclusion clauses (very narrow and technical reading); if there

is any ambiguity, the Court will actively try to make it as narrow as possible against the drafter (Tercon, Hunter Engineering)

English Approach

- Pre-Tercon- Starting point is freedom of contract which suggests that if the clause is intended to be part of the deal

(incorporated) and it covers the breach as a matter of construction, then it should be given effect- Denning however, developed a set of principle where the court could invalidate them when they are unfair (the

“Doctrine of Fundamental Breach”)- The doctrine is enshrined in the rule of law and not tied to the intentions of the parties- If the exclusion clause is aimed at absolving the breacher of any liability, and the breach goes to the core of what

the contract is about, then it will be invalidated (ex. rotten vegetables)- Problems: has nothing to do with the intentions of the parties and it was uncertain when something would be

fundamental to the contract (undermined freedom of contract and commercial reality)- The House of Lords rejected the doctrine of fundamental breach so it is no longer law in England- But they did feel like there should be some way to control exclusion clauses through what the called a pure

construction approach (which is the modern day strict proferendum approach). But if the clause was clear enough then it would stand (therefore going to the intentions of the parties).

Canadian Approach

- A lot of tension here and Canada was picking it up at the time- Was further complicated by Beaufort Realty where Birtha Wilson says that a judge should be able to invalidate an

exclusion clause if upholding it would unconscionable (therefore there were three approaches in Canada) - Went to SCC in Hunter Engineering: embraced the House of Lords AND Denning approach- Clarified in Tercon, got rid of the doctrine of fundamental breach in Canada and developed two avenues where

exclusion clauses may be struck out as a matter of public policy (upheld by Loychuk and Niedermeyer)

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Hunter Engineering Co. v. Syncrude Canada Ltd. (1989)

F: Do not matter for our purposesI/C: Should it be struck out? NO.A: All judges agreed that judicial discretion should be allowed in striking out unfair exclusion clauses, but

disagreed on how it should be used. [Wilson] carried on from Beaufort Realty and said that it should be struck out if it is unconscionable ; at the time of the breach is it unfair to let the clause stand and protect the breach which goes to the very essence of the contract (she really is embracing Lord Denning’s doctrine of fundamental breach). [Dickson] says that you should be able to invalidate an exclusion clause if it is unconscionable in a legal sense. The doctrine of unconscionability looks to where the contract is formed (not when it is breached like Wilson says) and asks whether there was an equality of bargaining power such that it was not an entirely freely negotiated relationship. If we take this theory seriously, two sophisticated parties would always have equal bargaining power and therefore this would NEVER apply in these cases.

Tercon Contractors Ltd. v. British Columbia (Transportation and Highways)

F: Tendering situation to qualify and a group of six were approved (including Tercon). The person chosen had merged with a party that was not a part of the pre-approved six. Now Tercon says that they have breached contract A; one of which the implied obligation is to only accept compliant bids. The governments exclusion clause said that “no bidder shall have any claim for any compensation of any kind whatsoever, as a result of participating in this process.”

I/C: Should it be struck out? NO. Does not cover the breach (step 2)A: Clause not intended to cover the alleged breach (accepting non-compliant bid) because it only covers the

parties who were pre-approved bidders. Extremely narrow way of reading the clause which show a very narrow contra preferendum approach.

R: Incorporates aspects of Hunter Engineering however the doctrine of fundamental breach is now gone. Court says there is now two avenues in which you can strike out: (1) Was the clause unconscionable at the time it was formed? For the doctrine of unconscionability to apply, at the time of formation is there an inequality of bargaining power? You also have to be able to say that there was unfair exploitation of this unfair bargaining power. This will never be applicable to commercial parties who have independent legal advice. Therefore, this is likely to only apply to consumer contracts. (2) If the clause is applicable and valid, whether the court should nevertheless refuse to enforce it because of an overriding issue of public policy? Most often deals with serious criminality or egregious fraud (ex adulterated baby milk or toxic cooking oils). Therefore this is also an extremely narrow.

Loychuk v. Cougar Mountain Adventures Ltd., (2012)

F: Waiver of liability signed by the appellants before going on a zip-line tour operated by Cougar Mountain. Appellants were injured when they collided while travelling on the same zip-line.

I/C: Should it be struck out? NO.A: SCC considered unconscionability in the case of Tercon Contractors Ltd. v. British Columbia. Parties agree

that the first step is satisfied (she had the free choice to read it and step away from it; it is clear she is not being exploited from a vulnerable position). The final step was also satisfied in that there was no public policy reasons to bar the defence: “Releases such as the one in issue here have been in use for many years and have consistently been upheld by the courts.” “It is not unconscionable for the operator of a recreational-sports facility to require a person who wishes to engage in activities to sign a release that bars all claims for negligence against the operator and its employees.”

R: Reaffirms Tercon

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Niedermeyer v Charlton (2014)

F: The appellant was injured returning to Whistler Village after participating in a zip line experience operated by the respondent, when a bus operated by the respondent, left the road returning from the area where the zip line activities were conducted

I/C: Should it be struck out? YESA: No issues with step one or two of the test. The majority held that it is contrary to public policy to permit the

owner/operator of a motor vehicle to contract out of liability for damages for personal injuries suffered in a motor vehicle accident in BC. Under ICBC, there is an Act that says there is a system of no fault insurance that is intended to be a public benefit; if you sue somebody who hurts you with a car, and you win and you prove they are negligent, then it is ICBC that pays your claim. To uphold this clause would undermine this completely; the effect of the clause would make the ICBC regime inapplicable to anyone who signs a release of liability clause. This scheme is more important than upholding freedom of contract.

R: Exclusion clauses will be struck out when they undermine public regimes such as ICBC no fault insurance or human rights policy (ex. retirement at 65 but firefighters signing contracts that they have to retire by 60).

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V. AVOIDING PERFORMANCE: MISTAKES AND FRUSTRATION

(1) UNILATERAL MISTAKE AS TO TERMS

- One party knows the other party is mistaken about what is being promised and the first party nevertheless snaps up the contract knowing that the other party is mistaken

- In a unilateral mistake the contract is void ab initio (from the beginning)- Not suing for breach of contract because a contract does not exist therefore the remedy cannot be repudiation- There is a difference between void ab initio and voidable- Voidable is synonymous with recision and is a remedy for misrepresentation- This does not apply to unilateral mistakes- The judges permission is not necessary to get out of a contract because there is no contract- Bars do not apply

ASSUMPTIONS

Smith v. Hughes (QB 1871)

F: H refused to complete the contract because the contract had been for the sale of old oats but S tendered for new oats.

R: The test for proving unilateral mistake: (1) The party must actually be mistaken as to the terms of a contract and;(2) The party must know subjectively that the first party is labouring under a mistake as to the terms but decides to snap up the offer nonetheless (capitalizing on the deal)The difficulty under the first step is that it draws a line as to mistake as to a term and mistake as to an assumption. Must be able to say that the party is mistaken as to a term and not just that they assumed they were getting something. For example, there is a difference between buying a horse believed to be sound and buying one believed warranted to be sound. Determine terms/assumptions based on the ORP looking at things such as market price, context, conduct of the parties, industry standard (oat farmer surely knew that the racehorse owner needed old oats), language, etc.

TERMS

Hartog v. Colin & Shields (1939)

F: Parties negotiating the sale of Argentinian hare skins and had discussed a possible sale price of 10 3/4 pence per piece. By mistake, the defendants offered the goods at 10 1/4 pence per pound which is significantly less. H tried to hold him to this offer.

I/C: Unilateral mistake? YESA: Clear that the mistake has been made, the difficulty is determining that the other party knew and “snapped

up” the deal. Market custom suggests that every Argentinian sells hare skins per piece. Price suggests such an unbelievably good deal. They had already agreed upon a price in their interactions and then all of a sudden it was significantly lower than they had discussed. It is a subjective test (there has been some loosening of the

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test in England, but as a matter of Canadian law it is still a subjective). But you have to look to objective criteria to divest them with subjective knowledge.

R: Endorses Smith v Hughes

UNILATERAL MISTAKE AS TO TERMS IN TENDERS

[Unlikely that this will be examined on]

- Recall that the old law was that a call for tenders is an invitation to treat and a submission is an offer- Thus, if there is a mistake, the offeror has the ability to snap up the offer and get the bidder to perform,

knowing that he cannot, and then sue him for expectation damages for breach of contract (capitalizing on the mistake)

- All of this changes now with the A/B analysis- With respect to contract A, there is nothing for the bidder to “snap up” - The very act of sending the bid constitutes acceptance and therefore the deposit is trapped in the contract- The bidder cannot claim a mistake because the offeror has not done anything wrong and has not snapped up

anything (there is no subjective knowledge that the other party is mistaken) - Unilateral mistake doctrine has therefore created a number of problems in the A/B analysis- As soon as the offeror goes to try and pick that bidder for contract B however, knowing that they are mistaken,

then you could then plead unilateral mistake in respect to that

R. v. Ron Engineering & Construction (Eastern) Canada Ltd. (1981)

F: Contractor submitted a tender which he accidentally miscalculated the costs. After realizing the mistake he attempts to withdraw the tender and deposit

I/C: Terms of contract A clearly indicate a contractual right of the owner to forfeit his deposit.A: There is no scope to argue unilateral mistake in the context of contract A because it forms the minute the bid

is submitted (so the acceptor cannot conceptually “snap up” the bid). However, it can operate in contract B if the offeror knows there is a mistake in the bid and snaps it up (Smith v Hughes could be argued). To determine that the offeror knew subjectively that the bid was mistaken, the bidder should tell the owner he made a mistake, that the amount of the bid was ridiculously lower, and there was an obvious error on the face of the bid (ex. page missing). Mistaken bidder could avoid contract A by arguing that the bid was incapable of acceptance because it did not meet the requirements of a call for tenders.

(2) AGREEMENTS MADE UNDER MISTAKEN ASSUMPTIONS

History

- Long complicated history of common mistake- Used to be exclusively governed by common law- Denning did not like the common law mistake approach and attempted to confine and narrow it to a small set of

circumstances- He created and embraced a different kind of mistake which is an equitable common mistake- The important thing to note is that the effect of an equitable common mistake makes the contract voidable (which

means that it may be set aside or it may not be; there is a contract, and there is a possibility of it being void; Solle).

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Denning’s Policy Reasons for Equitable Common Mistake

- Denning did not like the rigidity of the common law common mistake approach- One of these reasons was because it can have an unfair effect on third parties

- An innocent third party may be deprived of the benefit of the contract because their entitlement flows from the original void contract

- Therefore, the equitable doctrine makes a contract voidable based on the judges discretion (one of the conditions being if that it would be unfair to a third party)

- Another problem, particularly in the doctrine of frustration, is often there is a subtle implicit or explicit allocation of risk in the parties of a contract (and therefore can defeat the intentions of the parties themselves)

- In the common law common mistake approach, it may be apparent on close reading of a contract that the parties contemplated that the state of affairs might be true, and bears the risk anyways

- If this is the case, the contract should not always be void ab initio, and the innocent party should be able to sue for breach of contract

- Another issue for Denning is that the common law common mistake test is so narrow, it applies in relatively few cases, and does not usually apply where in fairness it should

- Therefore he wants it to be a wider doctrine that applies in more cases where discretion may be used to make the contract voidable

Common Mistake: England

Four stages of development:(1) Pre-Solle v Butcher where all there was was common law common mistake(2) Solle v Butcher where Denning creates the equitable doctrine which lies beside the common law(3) Where both doctrines are operating parallel to each other and both apply. You apply one and then you apply the

other in the same case.(4) The Great Peace case where Chief Justice Lord Phillips, who occupies Denning’s position, purports to review

Denning’s decision in Solle and preposes that he made it up (which killed equitable mistake in England and therefore reverted back to Lever Brothers). However, there is some question as to his authority to do this and it is not entirely clear since some House of Lords cases have continued to apply the equitable doctrine.

Common Mistake: Canada

- Both types of mistake were embraced in Canada- Ontario is the only province that has finality on the topic- Every other province still has the opportunity to terminate either doctrine or to embrace both since it has not been

decided at the SCC yet

Bell v. Lever Brothers Ltd. (HL 1932)

F: LB appointed Bell to Board of Directors. Unknown to LB was that B had speculated in the company’s business to their private advantage. Later LB negotiated terms of B’s termination for erroneous reasons. LB subsequently discovered breach of original contract which would have justified LB in terminating employment. LB claims subsequent termination agreement invalid as it was made on a mistake of fact

I/C: Common law common mistake? NOA: LB got what they bargained for: they negotiated a termination agreement and that’s what they got. Neither

here nor there they could have terminated otherwise. R: The test for common mistake at common law is the essentially different test (extremely narrow): “The

mistake must be the mistake of both parties and the mistake is as to the existence of some quality

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which makes the thing without the quality essentially different from what the thing was believed to be.” Essentially different means what the parties assumed they contracted for is “different in kind” from what it was believed to be. Based on commercial certainty; they want the essentially different test to be extremely narrow because the Court does not want to declare all of these contracts void ab initio (all of the background notions, knowledge, intentions, are not sufficient to vitiate an agreement)

Ex.’s [Lord Atkin] If X and Y contract for the sale of a horse, and both parties assume that the horse is sound and it turns out that it is not, can you sue for common mistake? No. Because you contracted for a horse and a horse is what you received. OR you contract for a painting: both parties assume that it is real and it turns out to be fake. Cannot apply. You contracted for a piece of art, and piece of art is what you received.

McRae v. Commonwealth Disposals Commission (1951)

F: CDC entered into a contract to sell M a wrecked oil tanker. CDC believes that the oil tanker is there because of gossip but it is never verified. M fitted for salvage expedition at a considerable expense. No tanker found.

I/C: NO MISTAKE.A: Looking at Lever Brothers, you would think that the subject matter would be satisfied because they wanted a

ship and they did not get one and therefore it is essentially different. However, because CDC sold savage rights to M they impliedly promised that the very thing to be salvaged exists (would be absurd otherwise). Therefore, M can sue.

R: If it can be said factually that one of the parties has impliedly promised that the mistaken thing is true, then the doctrine of common mistake does not apply. So to avoid common mistake, find that one party had assumed the risk that the state of affairs will be a certain way (i.e. they’ve impliedly promised).

Solle v. Butcher (1949)

F: P (tenant) told D (landlord), based on legal advice, that flats were not subject to rent control and assuming this to be correct they entered into a 7 year lease. Later finds out it is subject to rent control and P seeks a rebate from D for overpayment on the years of rent. D claims no contract existed because of common mistake and therefore void ab initio.

I/C: Equitable mistake? YES.A: Denning embraces and affirms Bell as the common law doctrine: no mistake here because not essentially

different (contracted for flat, that’s what they got). Invents equitable doctrine: a contract valid at common law can nevertheless be set aside in equity where it is unconscientious for contract to stand AND if setting aside won’t harm innocent 3rd parties who’ve relied on the contract. Clear that there was a contract; they both agreed to the same terms. S was under a mistake which was to him fundamental. He would not have even considered renting the flat if it meant that he could only charge 140/year. Both parties honestly believed not subject to rent control – misapprehension. Neither party was at fault. The mistake was fundamental to the contract because it was objectively important to parties entering a contract at all. There were no 3rd party rights at issue (would fail Lord Atkin’s test: different in value, doesn’t make something different in kind BUT Denning’s test: great difference in value does make the thing different). Partial rescission granted (says court should impose terms which will enable the tenant to choose either to stay on the property at proper rent or to leave)

R: Two stage approach: (1) Lord Atkin approach in Bell, (2) Denning approach. Whenever a Court is of the opinion that it is unconscientious for the contract to stand can never the less be set aside in equity (provided it is unconscientious and no third parties are affected). It will be uncontentious when the (a) parties were under mistake or common misapprehension to the facts or their rights, (b) misapprehension was fundamental, (c) party seeking to set aside is not at fault. If these three can be proven, the contract is voidable

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Great Peace Shipping v. Tsavliris Salvage (2002 Eng CA) - “Test for Common Law Common Mistake”

F: TS hires GP to save stranded ship. Contract says that GP will rescue the ship but the defendant has option to cancel with a 5 day cancellation fee. TS thought that GP was 35 miles away but was in fact 410 miles so the TS decides to cancel but refuses to pay fee saying contract is void due to common mistake.

I/C: NO MISTAKE. There is no such thing as equitable mistake in English law (Lord Phillips).A: Phillips says that Denning’s equitable doctrine is made up, indeterminate, and inconsistent with the common

law (uncertainty in its application and inconsistent with the common law are what it comes down to; Phillips values certainty as a commercial barrister and does not embrace Denning’s flexible approaches). The purpose of the contract was to rescue the ship which can still be done (performance not impossible). Contract enforceable at common law because it was not devoid of purpose/performance was not impossible.

R: England: Changed things. Determined that the view in Solle could not stand with Bell and therefore should not be followed. Eliminated the equitable doctrine, and restated the test for declaring a contract void at common law. Reinforces common law mistake and endorses Bell but puts the test into different words (precisely the same thing):

(1) There must be common assumption as to the existence of a state of facts: Common mistake.(2) There must be no warranty by either party that the state of affairs exists: Incorporates idea from

McRae and cites it as an example of this point. If you have warranted expressly or impliedly that a thing is the way it is, then the doctrine will not apply

(3) The non-existence of the state of affairs must not be attributable to fault of either party: Often creates a lot of difficulty. What he really means is that if you generated the mistake (causally) in circumstances where you are careless or reckless, then you are disentitled from arguing mistake. Embraces the idea of fault and cites McRae as an example (they were causally responsible for the fault and were not diligent in their predatory work and were not reasonable in their preparedness before making the contract). Example of not recklessness in Solle since he was sensible in consulting a lawyer. Therefore we see this aspect in both the equitable and common law doctrine: the party that created the mistake cannot rely on the doctrine of mistake, in common law or equity, unless they were reasonable in doing so.

(4) The non-existence of the state of affairs must render performance of contract impossible. Means the essentially different test from Bell v Lever. Essentially different/impossible performance means the same thing (ex. if you contract for a horse and you get a horse, the contract is not impossible or essentially different. If you contract for a horse and get a lamb, then the contract is impossible and essentially different). Also reformulates this as “is the contract devoid of purpose?”Applied to this case: the fact that the parties contemplated going on with the contract and carried on in doing so until they found something cheaper; they wanted a salvage contract and they got a salvage contract; they are still able to salvage the boat; they could have stipulated in the contract that it was limited to a certain number of miles; difference in value is not enough to render a contract essentially different (Bell).

Miller Paving Ltd. v. B. Gottardo Construction Ltd. (2007)

F: M contracted to supply materials to BGC which then used the material for a highway extension it had contracted to build for the owner of the highway. M and BGC signed a release document stating M had paid in full. M later discovered mistake and sent invoices. G refused to pay. M claims common mistake.

I/C: No common mistake; contract binding; BGC released from any further paymentA: The one thing that is slightly unclear in this case is the allocation of risk. The Court makes reference to Great

Peace (Lord Phillips): if the risk that the thing is untrue is allocated to either party expressly or impliedly then mistake (either type) cannot apply. This case and Lee tend to take a rather broad application of risk allocation than the previous case law (McRae). In Ontario, it seems like you can place risk on the parties even if there is no implied warranty that the thing is true. Seeing as this operates as a complete bar to mistake it produces some significant issues. Great Peace Shipping has not been adopted in Canada. The risk that the

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mistake (that everything was paid for) was allocated to M. Contract stated: “supplier acknowledges and agrees payment in full has been received.” By putting this language in there they own the possibility that they could be wrong and defeats either claim. Commercial reality in supply contracts is that supplier bears the risk (whoever provides the release bears the risk). The Courts goes on to say that there is other rules that may apply. Fault (bars him from applying either type of mistake): he created the mistake factually and did it in a careless manner because he was not responsible in keeping up with his books. This is a good example as a case for whether content was essentially different: they contracted for a release form to release them from further obligations and that is exactly what he got

R: Both types of mistake are entrenched in Canada. Endorses Solle: whether there was a common law mistake and if not look to equitable mistake. Endorses express risk allocation analysis from Great Peace and says if the parties allocate the risk of the mistaken assumption within the contract then that party bears the risk and the doctrine of mistake won’t apply. Endorses “impossibility of performance” phraseology from Great Peace. Endorses the “not at fault for the mistake” part and says that applies under common law and equitable mistake.

Lee v. 1435375 Ontario Ltd. (2013 ONCA)

F: Purchase and sale of dry cleaning business. Contract does not say anything in it whether it has been zoned as a dry cleaning business. He does not know any problems about zoning. Sells it. Purchaser forwards the money to the lawyers escrow account and the contract is complete.

I/C: No mistake (equitable or common law)A: No common mistake: they take a very careful reading of the facts. There is no evidence that the parties

believed it was a permissible use. They never turned their minds to it. They never read the legislation and never contracted on those basis; all they thought impliedly was that they could operate it as a dry cleaner. The onus is on the party arguing the mistake because they made the mistake (trial judge reversed the onus). Caveat emptor: buyer beware (the court allocates the risk on the buyer): the buyer should make inquiries about what they are purchasing and if they do not do this then tough. Takes us quite a bit further than McRae (“buyer beware is a principle we all know” and the Court is not applying promises but judicially imposing risk). Cutting down the operation of McRae: the Court says that are applying McRae but really are not (Hunt is skeptical whether or not Ontario is even aware of what they are doing here in terms of jurisprudence). Equitable mistake does not apply either (fault): he did not take reasonable measures or mention to the other party anything about zoning; he did not inquire or take reasonable steps to help himself out

(3) MISTAKES AS TO IDENTITY

***Species of unilateral mistake because one person is mistaken as to the identity of the other (but treated differently). However, because they are the same species, the remedy is the same and the contract is void ab initio.

How it Operates

- Factually speaking, A and B purport to contract and B is a fraudster pretending to be someone they are not- So A transfers property to B and B gives a check to A which bounces since he was a fraudster- Therefore A has no money and no property and cannot find B because he is a fraudster- B turns around and sells the property to C who has paid good money to the rogue- A cannot sue B so he sues C

- The difficulty between A and C is that they are both completely innocent and therefore the law must decide who gets the property

- If the contract is enforced with no mistake, C will keep the property and A will be deprived

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- Conversely if you set aside the contract between A and B, C is deprived (cannot pass what you do not have; nemo dat)

History

- English law included mistake identity- However, many of the cases are completely irreconcilable which may be good from a judges perspective but not

good from a commercial certainty perspective (which is independently important and has normative force and value in contract law).

- In Canada it is generally the same with differing jurisprudence (up until Shogun)- Shogun must be treated as the operative test/approach to mistaken identity situations- It overcomes all of the previous jurisprudence in the House of Lords and Court of Appeal- However the way Shogun has been written and applied is not necessarily commensurate

TEST (Shogun)

The person who is mistaken must show on a balance of probabilities:1. That they intended to contract with a specific person (as opposed to contracting with the world)2. That the other party knew or ought to have known the first party was mistaken as to identity (easy to prove

factually; if the person comes in with a fake ID they knew they were; can objectively vest them with subjective knowledge)

3. That, at the time of the contract, they regarded the identity of the other party as being crucial importance (it mattered crucially to the deal that the person is who he says he is)

4. That they took reasonable steps to verify the identity of the other party (the standard you reach depends on the nature of the transaction)

Shogun Finance Ltd. v. Hudson (2003 UKHL)

F: Rogue dishonestly acquired a DL from someone else. Buys car from plaintiff and sells to defendant. Rogue vanished. Shogun claimed the car, or its value, from H.

I/C: Mistake as to identity? YES. All 4 requirements satisfied.A: Why does the third party not have to prove that they were reasonable? The mistaken party has brought all of

this to their attention. The third party would never have been aware otherwise. Obiter (Lord Philips): if it is a face to face interaction, the ID does not matter under the third step. In non face to face transaction, we should presume that identity is crucial under the 3rd element (Hunt: does not believe that it is correct to presume which is substantiated by other decisions. It is based on the circumstances and the facts). In this case: (1) Dealer intended to contract with Pattel; he was asked to fill out his name; (2) Did Shogun prove that the other guy knew that Shogun was mistaken as to his identity? Obviously the rogue knew he was pulling a trick (objectively divesting him with subjective knowledge); (3) Was it crucial to the contract? They were doing a credit agreement and the credit rating was surely important. The company was not in the business of extending credit to everyone; not always the case when credit is extended that ID matters but it will be 99% of the time; it depends on the circumstances for instance if there was collateral handed over as well); (4) Did Shogun undertake reasonable steps to identify the rogue? Yes, they ID him, verified his ID, and checked his credit. They did what the ordinary insurance company would have done (the ‘bigger’ the value, the more steps would have to be taken in order to undertake reasonable steps).

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(4) NON EST FACTUM

- Non est factum means “this is not my deed” or the idea that “the mind did not follow the hand” - Emerged in the middle ages during widespread illiteracy; told what the document said but later found it is was

not. - Another species of mistake therefore the remedy is that the contract is void ab initio- While it is similar to that of unilateral mistake, it must be treated differently

Saunders v. Anglia Building Society (HL 1971 AC)

F: Little old lady didn’t have glasses, nephew got her to transfer title of her house: in fact signed over to nephews friend

I/C: Non est factum? NO!A: (1) the grandmother thought she was transferring title and that it is exactly what it did so it was not

fundamentally different; (2) In this case, she did not have to sign the document right then and there. She did nothing to help herself and could have bought new glasses

R: In order to prove non est factum you must satisfy both parts of the test: (1) The document must be fundamentally different or totally different in fact from what you thought you were signing (extremely narrow); (2) Must show that the mistaken party was not negligent in the transaction (careless/being reasonably protective of individual interests).

Marvco Color Research Ltd. v. Harris (SCC 1982)

(1) Affirms Saunders test and brings it into Canadian law.(2) Discusses the policies of the doctrine and why it is so deliberately narrow:

i. Competing innocence; In these situations there are two innocent parties. Therefore, framed narrowly with a high onus on the first party is appropriate because had they not been completely careless/negligent then it would not have happened

ii. Commercial certainty: when documents are signed they need to be binding. A constant unwinding of contracts would go against this and the system would unravel. If a party signs a document carelessly and then they should bear the loss.

(3) The test for carelessness is fact dependant and depends on the nature of the thing that is being bought and sold. The magnitude and the extent of the carelessness should be considered in addition to the circumstances that have contributed to the careless. In this sense, the entire transaction should be assessed globally in order to make a reasonable conclusion about carelessness. If the circumstances are such that they can ‘explain away’ the carelessness then it may not be careless at all. However, one must not consider the ‘origins of the careless’ state of mind or the subjective motivations. These motivations are irrelevant (for instance, in Saunders you cannot say she was not careless because it was a loving relationship between grandmother and nephew)

(4) Signing a document without reading it is sufficiently careless.

(5) RECTIFICATION OF MISTAKE

***The document does not reflect the deal and there is a transcription error which the parties want the judge to correct. An EXCEPTION to the parole evidence rule.

Sylvan Lake Golf and Tennis Club Ltd. v. Performance Industries Ltd. (2002)

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F: P operated golf course and entered into negotiations with D for a joint venture.  The trial judge found that B and O made an oral agreement, which included an option on the 18th fairway for a specific residential development to be undertaken by B.  When O’s lawyer reduced the terms of the oral agreement to writing, the width was not specified correctly.  When B sought to exercise the option, O insisted on the written terms, despite knowing that these terms did not accurately reflect the prior oral option agreement. 

I/C: Rectification? YES.A: (1) There was a prior oral agreement; (2) O had fraudulently misrepresented the written document; (3) the

precise terms of rectification are readily ascertained (yards to feet); (4) there is convincing proof of B’s unilateral mistake and O’s knowledge of that mistake. One of the parties said that there should be an additional requirement of negligence. This was rejected (not an independent pre-requisite) BUT b/c rectification is an equitable remedy there is some overall themes of this. The court could consider a parties carelessness/negligence to disentitle them from rectification BUT this can only go so far; such as in actual fraud where the party knows that the contract does not reflect the deal then the other parties carelessness will not be considered (if it is a situation where he ought to have known then you can consider the other parties carelessness). Then considered the idea of fault. Had it only been equitable fraud they may have considered Bell’s fraud to disentitle him from rectification however since it is an actual fraud scenario it does not matter. However had it been equitable fraud, the court says that they will be seriously scrutinized if you are a sophisticated commercial party. Hinted that they would have rejected his claim for rectification. Important that he was a sophisticated commercial party so if you are an individual it may not be the case.

R: For rectification, four conditions must be met: (1) Must show the existence of a prior oral agreement between parties; (2) Must show that the written agreement does not correspond with the oral agreement and that the other party who is resisting the claim for rectification, must be proven that he knew (actual fraud) or ought to have known (at the time it was reduced to writing) that it does not reflect the written document (equitable fraud); (3) Must be able to identify with precision, the exact terms of the oral agreement and exactly how you would change the written agreement to reflect the oral agreement; (4) The first three steps are to be established to a very high standard (you need convincing proof on all of the other elements = not a balance of probabilities and not beyond a reasonable doubt but somewhere in between). However we now know from McLean that there is no hybrid of convincing proof and there is only two standards: BARD and balance which means that this step therefore only requires proof on a balance of probabilities now making it easier to prove).

Bercovici v. Palmer (1966)

F: P had two businesses at Regina Beach she agreed to sell to D. P seeks rectification to delete reference to ‘Lot 6’ which was put in in error and is currently occupied by Rob Roy Cottage

I/C: Rectification? YES.A: This Court was satisfied beyond a fair and reasonable doubt that the property was not intended by either of

the parties to be included in the contract. It was included by an error of the plaintiffs solicitor and went unnoticed; was never included in any of the negotiations or memorandum; purchase price was not calculated with Rob Roy in the mind of either party; from the date of takeover the D did not demand possession or the keys of Rob Roy and similarly they did not pay taxes or attempt to insure Rob Roy.

R: No categorical limit (ex. oral, written, behaviour, conduct, correspondence) to the kinds of evidence you can look at to prove the oral agreement under step 1. Also no temporal limit (as evidence of timing); you can look at everything before, during, and after; you can look at post-contractual conduct of the parties (which is interesting b/c in most circumstances post-contractual conduct is irrelevant).

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(6) FRUSTRATION

***Essentially a defence to non-performance

- When a supervening event occurs after the formation of contract but before performance date of contract, which makes it impossible or seriously impedes the ability to carry out contract

- Parties generally assume the state of affairs existing at the time of formation will carry on up to time of performance

Remedies

(1) Both parties are relieved of performing future obligations (makes sense b/c performance is near impossible due to intervening event)

(2) Any past performance that has already been exchanged is not returned

Distinguishing from Mistaken Assumptions

- In Mistaken Assumptions, the focus was on assumption at the time the contract was formed which the parties were wrong about at that time.

- Frustration deals with a type of mistaken assumption regarding a state of affairs at contracting that parties assume will continue up to the date of performance of the contract – but something happens

- Both deal with similar policy discussions:- Risk allocation is crucial because if one party has assumed the risk that the assumption is false, they should

bear the loss (tied to intentions of parties)

3 Stages of Development of Doctrine of Frustration

Stage 1: Strict approach/rejected that unforeseen events could alleviate parties no matter how radically the circumstances had been altered

Paradine v. Jane (1647)

F: P leased land to J and brought an actions in debt for rent which J failed to pay. The actions occurred during the Civil war and the D pleads that Prince Rupert invaded the land with an army and drove him off of the lands he was leasing from the P and kept him out so he could not enjoy the lands for some time.

I/C: Frustration? NOA: If a party creates a charge or duty to himself, he is obligated to perform in the face of frustration of purpose.

Rationale for this is freedom of contract and commercial certainty. It is anchored in freedom of contract because he could have protected himself through the use of a variety of clauses.

R: Rejects the doctrine of frustration.

Stage 2: “Implied Terms Analysis”/issue that such implied terms are a judicial fiction

Taylor v. Caldwell (1863)

F: Contract in which the D’s let the P’s use Music Hall for 4 days. On the first day in which the contract was to begin, the Hall was destroyed by fire (not by the fault of either party).

I/C: Frustration? YES

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A: When framing their contract, parties did not have to their minds the possibility of such a disaster and thus made no express stipulation regarding it. The parties contracted on the basis of continued existence of the thing. Paradine v Jane is only applicable where the contract is positive and absolute and not subject to any condition either express or implied. This can be established from the nature of the contract, and whether it can be said that the parties knew from the beginning that the contract could not be fulfilled unless the thing continued to exist. When entering the contract, the parties must’ve contemplated such continuing existence as the foundation of what was to be done.

R: Court is more receptive to the idea of excusing people when a supervening event occurred. It is an implied term that the thing contracted for must exist up until the date of performance. It is also an implied term that if the thing ceases to exist, the parties are excused.

Stage 3: Construction Approach. Different from stage 2 because it looks at the nature of the promise in light of the circumstances (a more overt policy choice). Current law in Canada.

***Cite as example of case with foreseeability

Davis Contractors Ltd. v. Fareham UDC (1956)

F: P entered into a building contract to build 78 houses for D’s municipality within a period of 8 months. Owing to unexpected circumstances, and without fault of either party, adequate supplied of labour were not available in the post-war market and the work took 22 months to complete. DC claims that the contract was frustrated.

I/C: Frustration? NOA: Rejected the implied terms approach; says that it is logically artificial. It is a judicial fiction to say that they

are going to release the parties if they impliedly promised that the resources would continue to exist. This cannot be so b/c you are dealing with unforeseen circumstances. Contract not frustrated b/c circumstances were foreseeable (sophisticated actors contracting post WW). Risk was allocated to contractor (submitted bid and calculated costs and set fixed time for completion with specific penalty if contractor was late).

R: Creates new “Construction Approach:” Frustration will apply if performing the contract now calls for something radically different from that which the parties intended at the time of formation: (i) construct the contract at the time of formation - in light of the circumstances at that time. What are the parties promising each other and what do they intend to acquire? and (ii) consider nature of the unforeseen circumstances (what is the the frustrating event?), and ask are these circumstances such that require the person to do something radically different than they originally promised to do. Limits: (1) The change in circumstances must not be the fault of either party (fault = responsible for bringing about the change), (2) neither party must have borne the risk that the circumstances would change as they happen (if event was foreseeable, court would work to allocate the risk to one party)

***Cite as example of case with un-foreseeability

Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975)

F: P agreed to purchase 26 building lots from D (builder). Both parties were aware that CQH was purchasing the lots for the purpose of erecting a home on each and selling each by separate conveyances. Certain amendments to legislation came into effect which made the transfer of individual lots impossible at time.

I/C: Frustration? YESA: The time constraints were so limited that it made it impossible to process the applications for consent prior to

the closing dates. The zoning legislation change was not the fault of either party. The change was unforeseeable. Promise was for 26 lots upon which both parties knew houses would be built for re-sale. No evidence that it was contemplated between them.

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R: "There can be no frustration if the supervening event results from the voluntary act of one of the parties or if the possibility of such an event arising during the term of the agreement was contemplated by the parties and provided for in the agreement." Intervening legislation which was not within the contemplation of the parties and which destroys the very foundation of the agreement discharges both parties from performance. When constructing the contract (part 1 of the test) you can take into account the broader commercial purpose and not just what the contract says.

The Sea Angel (2007)

F: Do not matter.A: [Takeaway: Risk allocation] This case explains what foreseeability means in this context re risk allocation

(different from in Torts which sees almost anything as foreseeable). Here, “the supervening event is one which an ordinary person of ordinary intelligence would regard as likely to occur.” When the even was foreseeable but not foreseen by the parties, it is less likely that the doctrine of frustration will be held to be inapplicable. The degree of foreseeability required to exclude the doctrine of frustration is, however, a high one: “foreseeability” will support the inference of risk-assumption only where the supervening event is one which any person of ordinary intelligence would regard as likely to occur or one which the parties could reasonably be thought to have foreseen as a real possibility.

R: Court works very hard to place the risk on the parties (by examining the contract) if it is foreseeable. However, it is still possible for something to be foreseeable and the risk not be located (less so in a commercial context)

SELF- INDUCED

***An example of someone bringing about the change themselves and therefore the doctrine not applying

Maritime National Fish Ltd. v. Ocean Trawlers Ltd. (1935)

F: The appellants chartered a trawler from the respondents for a period of one year at a set rate. After he signs the contract he attempts to get fishing licenses for the 5 boats but can only get 3 and applies them to his boats and not the one he contract for; so he no longer wants the boats.

I/C: Frustration? NO, self-induced frustration (it was his own fault)A: Both parties were aware of amendments to the governing legislation when they entered into the new

agreement. The legislation made it punishable to leave or depart from any port in Canada with intent to fish with a vessel that uses an otter or other similar trawl for catching fish, except under a license from the Minister. Knowing about the legislation, the appellants took the risk that the license would not be granted. Case can be properly decided on the simple conclusion that it was the act and election of the appellants which prevented the St. Cuthbert form being licensed for fishing. Appellants cannot rely on their default to excuse them from liability.

R: Frustration cases have always been about risk allocation even though the courts only spoke of it in the third stage cases BUT this case is interesting as an example of risk allocation because even if he was not at fault the risks were allocated. It was not express allocation, however since it was foreseeable that not all of the licenses were granted, he ran the risk that this might indeed occur (very common risk in this industry; contract implicitly contemplated this)

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VI. RELIEF FOR WEAKER PARTIES TO THE CONTRACT

(1) UNDUE INFLUENCE

***Equitable doctrine that allow parties to escape a deal

General

- Where one party has overborne the will of another party through a contract- It is therefore not a genuine agreement because there is an exploitation of influence- The remedy is that the contract becomes voidable which means that there can be rescission

Bars to Rescission

- The bars to rescission do apply- HOWEVER, they apply only as they would in fraudulent misrepresentation (unconscionable dealings)- Therefore if any bars apply there is no rescission but you can get damages (unless it is the affirmation bar then

you get nothing)- However the affirmation bar is also applied differently

- The party can only affirm once they have freed themselves from the influence of the other party- Must be free, factually, from the influence of the other person and make a free choice to affirm (factually

this will generally be said to be true when there is independent legal advice- There is a fourth limit to rescission if third party rights are engaged

- If a third party has acquired rights under a contract and they are a bona fide purchaser for value without notice (Denning calls this person ‘equities darling’), then you cannot rescind the contract but you may get equitable damages

Actual Undue Influence (Type 1)

- Proving on a balance of probabilities that there is actual undue influence and that the plaintiffs will was overborne by the actions of the defendant.

- Historically you had to prove (1) that factually the victims parties will was overborne and was not a product of their free and informed consent; (2) and it was manifestly disadvantageous

- Historic test has been changed in England and then in Canada such that you no longer have to prove that it was manifestly unfair/disadvantageous (CIBC Mortgages v Pitt)

- Policy reasons for abandoning manifestly disadvantageous; if the whole point of contract is consent ad idem, then it should not matter if the deal is fair or unfair because if it goes to consent there was no deal at all

- The only question now is (on a balance): did the person freely consent to the contract or was their will overborne?

- This is not easy to prove- If they are of sound mind and had a lawyer, it generally ends there (narrow doctrine)- Furthermore, if the deal is fair and the other party received something from the deal, this could rebut it as

well

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Presumed Undue Influence (Type 2)

- Applying this gives rise to a presumption of undue influence which makes it look suspicious and then it falls on the other party to prove that it was not (by proving consent, that the plaintiff acted full, free, and informed and that he had independent legal advice)

- More effective litigation strategy and more preferable route

(a) Have to point to some (i) suspiciousness of the nature of the transaction itself. The transaction has to look like an unfair deal and there was potential for abuse (because of the nature of the relationship factually or because it fits under the category of suspicious relationships). No longer have to show that it is manifestly disadvantageous in that the plaintiff was unduly disadvantaged by the transaction or that the defendant was unduly advantaged by the transaction (though there are question as to its persistence)(Geffen, Etredge). However, there still must be an inquiry into the fairness of the deal by asking whether the transaction itself is not readily explicable by looking at the relationship between the parties (ie the only way to explain it is by undue influence). Is it curious looking? Asks the same kind of question but is a lower bar; (ii) falls into a recognized class of power imbalances. The classes are closed; doctor/patient, lawyer/client, teacher/student, parent/child, priest/penitent (does not includes husband/wife or any familial relationships outside parent/child). If you can establish both of these, then a presumption of undue influence is applied and therefore the onus shifts to the other party to show that it was free and fair and not the product of vitiating consent.

(b) Does not fit into categories of relationships but there is (i) a history between the parties that show there is a scope for influence of one party over the other. There must be some scope for dominating influence (Geffen). Not did they actually dominate since this is actual undue influence, but was there potential. What this actually means is a potential to exercise persuasive influence meaning the ability of one person to dominate the will of another through manipulation, coercion, or abuse of power (Geffen). Must also be able to say that (ii) the transaction is suspicious. No longer have to show that it is manifestly disadvantageous in that the plaintiff was unduly disadvantaged by the transaction or that the defendant was unduly advantaged by the transaction (though there are question as to its persistence)(Geffen, Etredge). However, there still must be an inquiry into the fairness of the deal by asking whether the transaction itself is not readily explicable by looking at the relationship between the parties (ie the only way to explain it is by undue influence). Is it curious looking? Asks the same kind of question but is a lower bar. Helpful to look at the degree of disadvantage and the degree of vulnerability.

Presumption of Undue Influence:

Geffen v Goodman Estate (SCC 1991) F: Tzina bipolar and inherited house from mom. Brother asked her to try to change mom’s will so residue is

distributed among kids. T did not agree, but later went to lawyer and did it. T’s estate argues undue influence.I/C: Undue influence? NO.A: Cannot be 2(a) case because it does not fall into the specific categories (do not argue type 1 because they

want the presumption to operate. What level of relationship gives rise to the presumption for 2(b)? Court says there must be some scope for dominating influence. Not did they actually dominate since this is actual undue influence, but was there potential. What this actually means is a potential to exercise persuasive influence over someone (influence meaning the ability of one person to dominate the will of another through manipulation, coercion, or abuse of power. In this case: there was a potential for dominating influence because she had relied on them in the past, she is vulnerable, she placed trust and confidence in them historically; for all of these things they had the ability to influence her.

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R: Under 2(b), special relationships giving rise to presumption must satisfy the ‘dominating influence test’ focusing on whether there was potential for persuasive influence inherent in the nature of the relationship itself. The court also endorses the manifestly disadvantageous requirement from England in that that plaintiff must show under 2(a)/(b) (but not under type 1) that they were unduly disadvantaged by the transaction or that the defendant was unduly advantaged by the transaction. However McLachlin casts doubt on this since it was disregarded under step one. Therefore it is probably a requirement in Canada but not a resounding opinion of the SCC that it should continue.

Royal Bank of Scotland Plc v Etridge (No.2)(2001)

- AGAINST manifest disadvantage:i. There has never been a standard that has been able to be stated clearly (it is unworkable and vague)ii. Equity should unwind a contract because it is not the product of someones free will. So why should it

matter whether a contract is fair or unfair (as addressed under type 1). It seems conceptually inept.iii. It is nice to harmonize different areas of the law; you do not need to prove it under actual undue influence

and it would be discordant to have to prove it under presumed undue influence- NOW do not have to show it is manifestly disadvantageous but you have to ask whether the transaction itself not

readily explicable by looking at the relationship between the parties? - It is asking a similar thing but is a lower bar (yet still inquiring into the fairness of the deal)- Is it curious looking?

- FOR manifest disadvantage:i. It serves as a practical gate keeping function; if we did not have this requirement, every time a contract was

formed in the class based relationships, there would always be a presumption of undue influence (there would be an option to unwind every deal and the onus would be on the other party to prove that it is fair and free)

ii. If you look at 2(b), and there was a relationship where they could be exploited by the other, there would automatically be a presumption of undue influence (ie family cottages)

- So what should Canada do?- But as per Geffin, we do not know which should apply- Should we get rid of it completely so there is no discordance? Should we retain it? Does it work well as a

gate keeping function? For commercial reasons there would be a flood of law suits if we did not have it- Absent independent legal advice, the easiest way to rebut is that the deal was fair. So you do not HAVE to talk

about fairness but it will be the easiest way to rebut the presumption.- Don’t reject “manifestly disadvantageous” requirement but replace it with a different standard: Is the

transaction itself not readily explicable by looking at the relationship between the parties? (i.e. if only way to explain it is by undue influence). Helpful to look at degree of disadvantage and degree of vulnerability.

Rebutting the Presumption of Undue Influence

To prove the deal was fair and informed:- Look at the whole transaction and the facts of the case – common sense- The best way to rebut is by showing that the person had independent advice (and decided to proceed)(thereby still

talking about fairness)- Also probably important that the person understood the advice and that the advice was reasonable

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(2) UNCONSCIONABILITY

***Equitable doctrine that allow parties to escape a deal

General

- Occurs in situations where there is an inequality of bargaining power at the time of formation and an exploration of this inequality that results in an unfair deal

- It seems to be unfair to allow a contract to stand in circumstances where it is the product of disproportionate bargaining power that results in a bad deal

- Look at it as having a procedural and substantive dimension:- Procedural: looks at the inequality of bargaining power (at the weakness of one party)- Substantive: looks at whether the deal was unfair or exploitive

Relationship Between Unconscionability and Undue Influence

- Different normative bases- Undue influence is based on a lack of/vitiated consent- Unconscionability is based on fairness and is not concerned with vitiated consent or situations where one

party has not consented to the deal- They also rise in different circumstances

- In undue influences, you most generally had a relationship established between the parties (in the class based and in the case by case basis as well)

- Not the case with unconscionabilty can arise in those situations but also between complete strangers because it is not about vitiated consent but an inequality of bargaining power

- Tends to apply in different factual scenarios

Policy Considerations

- Freedom of Contract - Arguing that because there is unequal bargaining power the contract should be set aside- Very unusual and it offends freedom of contract giving that we are not dealing with voluntary consent being

compromised- Keep the doctrine quite narrow for this reason; an exceptional type doctrine to succeed in

- Undermines Commercial Certainty- How unfair must the deal be and how unequal must the bargaining power be?- Unclear flexible/vague/morpheus standards that enable the courts to override a deal that was nevertheless

voluntarily entered in to

Remedies

- Voidable/rescission- Therefore the bars to recession will apply- Like undue influence, it operates as fraudulent misrepresentation and therefore equitable damages would be

available- Also like undue influence, the affirmation bar will only apply if the party has freed themselves from procedural

disadvantage (the person explained the inequality and subsequently affirmed it) meaning that they sought independent legal advice

- Practically speaking, the bars have rarely applied (including the affirmation bar)

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Unconscionability and Exculpatory Clauses

- Historically the doctrine of unconscionability has been an all or nothing doctrine that allows you to rescind if you can prove

- In Tercon, by embedding unconscionability into the analysis, the effect of that means that the court is contemplating part rescission

- This is a big deal! Huge issue for freedom of contract- Tercon necessarily means that the court is re-writing the contract parties by putting something in the deal that the

parties did not make- If Tercon is confined to exclusion clauses and allowing partial rescission, leaving the underlying contract in place,

then it is not overly dramatic since it is narrowly confined- The problem going forward that we don’t know if Tercon can be applied to other clauses- The court did not expressly restrict the rule to just exculpatory clauses- Can we remove one term of the clause by proving unconscionability? What is the difference?

Morrison v. Coast finance Ltd. (1965)

F: Tenants in old lady;s house convinced her to take out a mortgage and lend them money to pay off their own debts

I/C: Unconscionability? YES.A: No doubt about the inequality of the appellant. She is advanced age, inexperienced in business,

unsophisticated generally with respect to this kind of transaction. Solicitor said that he could not advise her; so she talked to a lawyer but did not get independent legal advice. Deal was substantially unfair: there was no expectation of reward, no prospect of profit, and no real security. Therefore going forward we need to look at what personal benefit one party gets and the benefits the other party gets in relation. She had not ability to repay it. She did not get anything out of the purpose and the effect was that she had no way to repay it (look at purpose and effect). Taking these together it was extreme folly on her part. The bank knew that these tenants were not credit worthy. This is not a requirement that the stronger party needs to know that the weaker party was making a bad deal, but it does mitigate in favour of unconscionability. The money was dispersed before the mortgage was registered (“a course so unusual it excites suspicion”).

R: Unconscionability requires proof of (1) serious inequality of bargaining power arising out of such things as inequality, need, distress of the weaker (serious inequality = narrow); (2) the deal must be substantially unfair (again, substantially unfair = narrow). On the proof of these circumstances there is a presumption of fraud which the stronger must repel by proving that the bargain was fair, just, and reasonable or by showing that no advantage was taken (therefore there is rescission unless other party can rebut the two elements). Very fact dependent and very flexible which the nature of all equitable relief but in particular this doctrine.

Marshall v. Can. Permanent Trust Co. (ABSC 1968)

F: Man in retirement home sells land. He has stroke and afterwards had no capacity. Committee in charge of his affairs refuses to go through with the deal because it was unconscionable.

I/C: Unconscionability? YESA: Serious inequality of bargaining power? Yes. If he was not formally without capacity at the time he was

pretty close. Spoke about Marshall’s who was a sophisticated speculator in commercial real estate that knew that he was doing. Substantially unfair? Yes. It was an improvident transaction because the cost was significantly less. There was a gross discrepancy between the objective market value and what it was sold for (look at this in context; if it was his daughter it may not be substantially unfair).

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R: Affirms test from Morrison Coast. Addresses the knowledge requirement in that it is not a formal requirement that the stronger party knew subjectively or objectively that the weaker party was making a bad deal.

Contemplating a Wider Doctrine

- Next couple cases contemplate a much wider doctrine emerging and discuss being able to set aside a contract any time there is inequality in bargaining power

- Denning and Lambert view- Not the law at this stage- For our purposes, the test still stands

Lloyds Bank v. Bundy (1975) - Denning

F: B’s tree farm was his only asset and went back many generations. He did a very foolish thing, he mortgaged it to the bank for the sake of his son. Now the bank foreclosed. They have brought this action on him for possession.

I/C: Unconscionability? YES.A: Serious inequality of bargaining power? Yes. The relationship between the bank and the father was one of

trust and confidence yet the bank failed in this trust. Bundy is old, mild-mannered agreeable fella, trust worthy, and would probably sign anything. He did not have time to read it and contemplated. Did not have a lawyer. On the side of the bank they are sophisticated and love the idea of giving more money which he will inevitably lose. Substantially unfair? Yes. The bank let him take out more money than he even asked for which was for their benefit alone. It allowed the father to charge the house to his ruin (grossly inadequate; the loan was for 10% more than the value of the house which is a huge risk). There was a conflict of interest between the bank and the father yet the bank did not realize it. Nor did they suggest that the father should get independent legal advice. The bank ought not to have swept up his sole remaining asset into its hands. Look at the overall effect of the contract in light of the overall commercial reality

R: Denning says that whenever there is an unequal bargaining power then we should always set it aside (not law)

Harry v. Kreutziger (1978) - Lambert

F: Aboriginal fisherman sells his boat and fishing license for $4500 to guy who’d been badgering him to sell it to him.

I/C: Unconscionable? YES.A: Serious inequality of bargaining power? Yes. He suffers from a congenital hearing defect but is by no means

totally deaf. He has a grade 5 education, is mild, inarticulate, and it would appear from the evidence that he is not widely experienced in business matter. Procedural inequality of bargaining power. On the other side a commercially sophisticated business man who proceeded aggressively with full knowledge of the value of the license. Substantially unfair? Yes. The boat was sold for a third of what it is worth. If you have a market value than this is indicative of bad deals though bear in mind they could be explained by other facts. The respondent knew that the preservation of the fishing license was vital to the appellant and therefore made assurances that were untrue regarding the chances of the appellant in obtaining another license. It is his whole livelihood. Court also addresses the knowledge issue notes that the business guy surely knew that this was a terrible deal (if it is not subjective it is certainly objective).

R: Proposes that instead of having the two step test it should be: is the contract sufficiently divergent from the standard of commercial reality such that the contract should be rescinded? This proposed

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approach is even wider. more flexible, and uncertain than the test we currently have. Furthermore, who is to say what is commercially moral in any event?

Business Practices and Consumer Protection Act (S.B.C.2004, c.2) - ONLY APPLIES TO CONSUMER TRANSACTIONS - Intended to reflect the common law with some minor adjustments - Section 7: Makes it very clear that the common law still applies. Just because the legislation can apply does not

mean it ousts the common law- Section 8(2): The knowledge either subjective or objective of the stronger party is a pre-requisite- Section 8(3): Creates a number of factors that the court must consider when determining a contract is

unconscionable (unlike the common law where you may consider them)- Do not need to satisfy them all but need to consider them all

i. Undue pressureii. Supplier took advantage of the consumer or guarantor's inability or incapacity to reasonably

protect his or her own interest because of the consumer or guarantor's physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of the consumer transaction, or any other matter related to the transaction;

iii. The total price grossly exceeded the market priceiv. No reasonable probability of full payment of the total price by the consumerv. Terms were so harsh or adverse to the consumer

- If you satisfy more of these requirements than not, you establish a presumption of unconscionably and then it shifts to the other party to say that it is a free and fair deal

- Why use the legislation? It is a reverse onus situation - much easier to prove from the victims perspective in that you do not need to satisfy all of them just make a bald assumption/pleading

- Therefore you get the benefit of an automatic presumption; you just need to assert it

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VII. REMEDIES

(1) THE BASIC INTEREST PROTECTED BY LAW

Expectation Interest

- The essential, natural, core remedy in contract law- The expectancy principle; “the ruling principle”- Forward looking remedy which puts the victim in the position that they would be in had the contract been

performed (Sally Wertheim v Chicoutimi Pulp); victim gets the monetary value of the other parties performance- Makes sense; it resonates the entire idea of contract law that people make promises and should be held to them- Can claim lost profits as an ordinary incident to expectation damages (though raises issues of evidence; must

show the lost profits as a realistic concept)- Expectation damages encompass replacement costs (the replacement cost of the things in the open market)

- i.e. if you were buying a widget from someone else for $10 and they didn't perform and the market went up and now a widget is $30 then you can claim the $30

- Policy Rationale: having the threat of expectation damages over one’s head encourages one to fulfill their contract- Theoretical arguments

- Resonates with the entire idea of contracts- Law and economic argument (Posner); there is a more normative position that holds people to their

bargains; it ensures and motivates performance (it is easier to perform than have to go to court and put out all the money for that on top of having to pay for performance)

- Keep in mind that because something is hard to quantify does not mean that it is impossible to quantify (like in McRae). It may be speculative, but not impossible.

Reliance Measures

- Alternative to general expectation damages (cannot have them both)- Compensates the innocent party for the loss they actually suffered as a result of relying on the contract that was

breached - Rare- Must show that they did factually spend money in reliance on the contract: assuming this is the case they are only

available in circumstances where expectations damages are not available because you cannot really calculate the value of the promise (McRae is an example)

- Backward looking

Restitutionary Measures

- Measuring the damage by what the wrongdoer gained rather than what the victim lost; “disgorge the wrongdoers profit and assign it to the innocent party”

- Extremely rare in contract law but available in principle- Mostly relevant in unjust enrichment law

- Part of this has to do with the nature of the relationship with the breach- Gain based relief is generally available in breach of fiduciary relationships (ie Bell v Lever Brothers;

corporate opportunity)- Based on relationships of fidelity- Therefore this measure has a strong prophylactic effect to encourage loyalty (rationale)

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- Contract law is not characterized by relationships by loyalty; there is no obligation to look after the other parties interests at the formation of the contract (engaging in your own self interests)

- Because of this, it makes sense that there would rarely be these disgorgement relationships since they are to encourage relationships of fidelity and loyalty (until Blake)

- AG v Blake was novel because it discussed whether you could have gain based remedies

McCrae v. Commonwealth Disposal Comm. (1951 Aus HC)

F: Contract to sell salvage rights to a boat that did not exist (based on rumour). There was a valid contract because the government made an implied promise, that is, the risk was allocated.

I/C: Reliance damages? Yes.A: McRae could not sue for expectation damages because there was no boat (it never existed so impossible to

quantify). Instead court looked to reliance damages to obtain damages for costs incurred in reliance on the promise that the boat was there. McRae relied on promise that boat existed and as a result has foregone opportunity to salvage another boat (know it is possible to claim under loss of chance (issue: how to quantify). In this case some expenditures were recoverable (special salvage equipment, salaries for deckhands, etc.) however, the expenditures McRae would have made anyway and that he still derived a benefit from were not recoverable (ordinary boat equipment, refurbishment of boat)

R: Test for availability of reliance damages: (1) Plaintiff must prove there is an assessable loss and that they factually spent the money, and (2) that he incurred that loss as a result of reliance on the contractual promise. The expenditures must be reasonable; you have to have reasonably incurred expenses that were causally connected to the contract. There are limits as to what can be recovered: expenses must have been incurred relying solely on the promise and they must now be “wasted” in sense that are of no value or benefit to the party now. Rationale for these limits has never been entirely clear but some say that it is a substantiation of the causation analyses (the loss is not really attributable to the breach of the contract. It is really about economic waste; why should the defendant have to pay for things which the other party can still retain a benefit from?). May also claim loss of chance. However this is somewhat speculative and rests largely on the issue of quantification.

Bowlay Logging Ltd. v. Domtar (1992 BCCA)

F: Appellants contracted with the respondent to log a timber sale. The appellant was to cut, skid, and load the timber for a certain price.The respondent was to haul the logs but in breach of its contract failed to provide sufficient trucks.

I/C: Court says D’s breach actually saved B money by breaching so he cannot argue expectation damages, instead argue reliance damages. Successful? NO.

A: D’s breach did not cause reliance loss. Loss of money is due to incompetence and making bad deal. Introduces a limiting principle in that expectation caps reliance damages (one can never have reliance damages that are greater than expectation damages). Furthermore, one cannot claim reliance damages if contract, had it been performed, would have operated at loss.

R: Bowlay affirms McRae: assuming you could have reliance losses, you could not get them for capital expenditures. However, Bowlay puts a twist on this: Although one cannot get value of money spent on capital expenditures to which he still retains a benefit, he can get the depreciation value of the capital assets (ie if value of crane is worth less now that when he bought it, one can claim the difference in value because depreciation is due to the reliance). However, if it is a money losing project, even depreciation is not allowable.

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Sunshine Vacation Villas Ltd. v. Governor and Company of Adventurers of England Trading into Hudson’s Bay

F: Travel agent has a deal with the Bay to open up stores for travel agencies. The Bay reneges and breaches the contract. Meanwhile, the travel agency has spent a lot of money getting ready for the openings. They therefore claim expectation damages, but they also claim reliance damages for all the money they spent on the contract.

R: Reliance damages and expectation damages are alternatives, they are not both available together. This makes sense because if you gave both, it would result in double recovery. Furthermore, one is forward looking and one is backward looking. Can only get reliance damages if expectation damages are unavailable. They are alternatives because profits are revenues minus expenses. So if you are able to get all of your profits and all of your expenses so you would be double counting.

Restitutionary Measures/Disgorgement

Attorney General v. Blake (2001 UKHL)

F: The defendant wrote his autobiography containing information which he contracted not to divulge (from being a double agent). First they sue him for breach of confidence but the problem is that in order to have an obligation of confidence the information disclosed must retain a confidential character which it lacked in character. So they sue him for breach of the employment contract (in which he agreed not to tell secrets and divulge information).

I/C: Disgorgement as a remedy for regular breach of contract? YES.A: It would demoralize the secret service to hold otherwise. There is a continuing legitimate interest here. These

are only available in exceptional and narrow circumstances. Where all other remedies are inadequate on the facts of the case. They are a useful guide in that the victim must have a legitimate continuing interest in preventing the wrongdoer from profit. Provides a very strong deterrent effect. Exceptional. Somewhat analogous to this case.

R: In principle, where ordinary remedies are inadequate, restitutionary/disgorgement damages may be awarded. The problem is that we do not know when it is available. However Lord Bingham gives some clues and says it is only available in exceptional circumstances (extremely narrow). These are circumstances where the expectation measure and the reliance measure are totally inadequate to protect the innocent party. When will this be? It will be where the plaintiff has a legitimate and continuing interest in preventing the defendant from undertaking the very profit making activities that arose from the breach.

(2) SPECIAL ISSUES

Talking about refining the idea of expectation damages

QUANTIFICATION

Chaplin v. Hicks (1911)

F: P sued for loss of chance in actress competition, based on beauty. D sent her letter asking to meet when she made top 50 but P out of town, so D selected others as winners

I/C: Loss of chance? YES. £100 in damages awarded.

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A: She had a one quarter chance based on the will of the third party judges. How do you quantify this? The value she was looking at was that of being on TV and potential fame. Taking away the opportunity to compete deprived the plaintiff of something which has monetary value.

R: Short of impossibility, the fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying expectation damages for breach of contract. Calculation with precision is not required. But quantification cannot be totally speculative and needs some evidential foundation (how much of an evidential foundation is a complicated matter we will not pursue). Only where it is impossible will reliance damages be acceptable.

COST OF COMPLETION

General

- The cost of doing it right or the difference in value in doing it wrong versus doing it right- i.e. Contractor does a shotty job or that does not finish and the other party is unhappy

- Two ways to obtain remedy:- Cost of Completion: cost of buying substitute performance from another, including undoing any defective

performance- What the plaintiff usually wants and the remedy most often given- The cost of putting it right makes ordinary sense as a remedy- The difficulty is that sometimes the cost of completion is disproportionate to the defect and it would be

unfair to saddle the breaching party with the enormous cost for a relatively minor breach (diminution/difference in value)

- In certain circumstances of unfairness, you will default to the lesser diminution amount- The diminution of value is based on fairness and you will only go to it if the deal is unfair to the

breaching party- Difference in the Value: market value of the performance the contract breakers undertook minus that actually

given (ie what was put in versus what should have been put in)

Groves v. John Wunder Co. (1939)

F: D contracted to remove gravel and leave property “at a uniform grade, substantially the same as the grade now existing at roadway.” D removed the good gravel. P seeks to put the land as he wanted in the first place (cost = $60,000). D argues that the land is only worth $12,000 so this would be unjust.

I/C: Cost of completion awarded? YES.A: Conduct of the defendant was deliberate and outrageous (relevant consideration, but not necessary). The

value of the land does not matter and the award should be what it will take to give to the plaintiff what he bargained for (ie could have been a statute that depreciates the land but it does not matter).

R: Cost of completion is the starting point/ordinary measure in contract law; the whole point is to correct a defective contract. However, courts will look to the overall fairness (where the conduct of the defendant may be relevant).

Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (ABCA 1975)

F: P built a shotty house and therefore the D sued for cost of completion for $16,000. TJ only awarded $4300 saying that the amount spent was not all necessary to put the house right. CoAppeal overturns and says he can have the full cost of completion

I/C: Cost of completion awarded? YES.

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A: The plaintiff acted reasonably by consulting and expert (architect) who told him how to fix it. He was not being extravagant.

R: Confirms cost of completion is the ordinary measure for expectation damages but imposes limits: Where the cost of rectification is great in comparison to the nature of the defect, the court will not enforce the cost of completion (cites Cardozo; granite is granite). The person must have acted reasonably in the costs they have incurred (unreasonable would mean that the costs of remediation were grossly disproportionate to the nature of the defect). The reason for the breach is also relevant; bad faith/deliberate breacher motivates the court to award the claimant (relevant but not required).

LOSS OF ENJOYMENT AND OTHER INTANGIBLE LOSSES CONSEQUENT TO A CONTRACT

General

- Historically this was not something you could have in contract law because it was tough to quantify- Also was not in accordance with expectation, reliance, or restitutionary damages - UNTILL Lord Denning in Jarvis

Jarvis v Swans Tours (1973)

F: J bought a two week holiday package in the Swiss Alps over the Christmas-New Year period. Swans Tours, which sold him the holiday, had a brochure in which various assurances were provided. The holiday did not live up tot he brochure by a long stretch; no cakes, mini-skis, no party, yodel too short, no English speaking staff

I/C: Loss of enjoyment? YES.R: Old cases acknowledging you cannot compensate for mental suffering in contract law are OUT OF

DATE.

PUNITIVE DAMAGES

- Historically = also not allowed BUT is now allowed in narrow circumstances- Punitive = the idea is to punish the wrongdoer- Sometimes the focus should be on the victim but in addition on punishing the wrongdoer- Test (Vorvis cited in Whitten)

In order to get punitive damages you have to prove that there was:(i) An actionable wrong; (ii) Injury, and;(iii) That the defendants conduct is deserving of condemnation (this is necessarily the case where their

behaviour is high-handed, vindictive, harsh, or malicious)- More suitable in tort because:

- It never went hand in hand with contract- In tort there is a positive obligation to act morally and if you hurt someone you need to restore them

(underlying social morality)- In contract, there is nothing inherently immoral about breaching a contract

- When you enter into a contract, you promise to do something or promise to pay money in lieu of that- There is nothing wrong with breaching a contract as long as you pay damages in lieu- Not regarded as a bad thing

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- “A duty to keep a promise in contract law means a prediction that if you do not perform you promise to pay damages and nothing more” (Wendall Holmes)

- Nothing moralistic about contract law- When should punitive damages be available?

- Justice McIntyre: said you should be able to get punitive damages in contract law if there is some independent actionable wrong that is done to you over and above the particular breach of contract, and the rationale for reward applies (high-handed, vindictive, harsh, or malicious)(Vorvis)

- Birtha Wilson disagrees with the independent actionable wrong component and said that punitive damages should be available if it is done in a high-handed, vindictive, harsh, or malicious (Vorvis)

- This troubled courts for years because it was not certain UNTIL Whitten sided with McIntyre

Whitten v. Pilot Insurance Co. (SCC 2002)

F: W’s home burnt down one night and the family fled the house, suffering severe frost bite. The fire totally destroyed home and its contents. D accuses family of burning down house, denies coverage in attempt to get family to settle for substantially less

I/C: Punitive damages? YES.A: In ALL insurance cases, there always is a duty of independent good faith performance. Therefore, they were

not entitled to strategically deny his claim. Punitive damages are not uncommon in this context where insurance companies are strategically denying claims. Difficulty in this case is that it does not clarify the idea of an independent actionable wrong. Here, the defendants breached the contract by not paying what they were otherwise obligated to. This is not really independent, but consequence to the contract itself (not the same as having a contract and a tort on top of that). Therefore it is not independent, but dependant. Does not really matter in the case since it has not happened outside of the insurance contract, but in other contexts or situations you might be able to say that what joins the list of wrongs is not independent but rather dependant.

R: Cites Vorvis test (above) and says that in order to get punitive damages, you must commit an “independent actionable wrong (above and beyond the breach). The other party is deserving of punishment in that they acted in a vindictive, high handed, harsh or actionable way. Birtha Wilson questions what an independent actionable wrong means (in Vorvis). It cannot just mean a tort or else it would say so. What it actually means is a breach of fiduciary or duty of confidence. Could this also include duty of good faith (Bhasin v Hynrew)? According to the test, it would not be an independent actionable wrong. However applied to the facts of this case, and analogous to the dependence of insurance schemes, it would.

PENALTY CLAUSES vs LIQUIDATED DAMAGES

General

- Liquidated damages clauses = agreeing what the damages will be for different classes of breach - Common to commercial and corporate contracts- Certain, efficient, attractive, much cheaper, encourages performance of contract- Very fair and easy way to avoid court

- Freedom of contract- Private ordering of relationships- If parties agree on damages given contemplated breaches, why should the courts intervene?

- Difficulty- This is all true IF you can classify the amount of money as being a liquidated damage provision- Penalty clauses tend to ‘butt up’ against penalty clauses (which are not allowed)

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- Both parties draft them at the front end thinking they are liquidated damages clauses but upon breach it becomes evident it is a penalty clause

- Penalty clauses are not allowed in terms of punishment- Do not resonate with contract law- Law is speculative that parties will arrange private punishment- Goes against freedom of contract

Shatilla v. Feinstein (1993 SKCA)

F: D operated a whole sale dry goods business. Sold business to the P on terms that the D agreed to not engage in business of wholesale dry goods or they would have to pay $10,000. D subsequently purchases shared in a company, breaching the contract.

I/C: Penalty clause? YES!A: Test turns on the proper characterization of the clause based on the intentions of the parties in the overall

circumstances. What purpose is this claus designed to serve? Is it designed as a penalty or liquidated damages clause? To answer, ask if this is designed to punish or a genuine pre-estimate of the damages that are likely to be available for the breach to which it relates. Using the word liquidated or penalty is relevant but not determinative. If the amount of money set aside is grossly extravagant vis a vis the breach it is likely penalty. If there is a multiple spectrum of breaches in which the damages could arise and only one sum of money, it is probably not liquidated and would be grossly disproportionate (how could it be a genuine pre-estimate of damages if it is payable in the event of a small loss or a large loss?). If the damages make sense, and it seems like a genuine pre-estimate, then it will stand and it is a efficient re-ordering of the relationship. If it is about punishment and deterrence then the court will not allow it. In this case: non-compete clauses common in business. He is prohibited from doing the entirely host of things either directly or indirectly (within 5 years). Enormously broad prohibition. Court says this cannot possibly be a liquidated damages clause and could be breached in a trivial or huge way and the damage the party would suffer would be significantly different in each circumstance.

R: Test to distinguish between penalty and liquidated damages clauses.

Super Save Disposal Ltd v Blazin Auto Ltd. (BCSC 2011)

F: P entered into a written service agreement with D for waste disposal services. The Standard Form Terms and Conditions of Agreement provided for a five-year term. The parties negotiated a reduction in the term of the agreement to three years. D was supplied with two types of bins. Due to increased costs and service delivery, the monthly amount payable had increased. D fell into arrears in the payment of its account and so P removed both bins from its customer's premises.

I/C: Penalty clause? NO.A: D did not make submissions as to why the liquidated damages provision should be construed as a penalty.

They bore the onus on this issue.R: Another example of distinguishing between clauses. Court makes it clear that the onus is on who wants

to uphold the clause to prove that it is worthy of upholding.

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(3) BOUNDARIES TO RECOVERY

***Limiting principles on the availability of damages

CERTAINTY AND CAUSATION

General

Certainty - Plays a role formally speaking in the award of contractual damages- Damages must be certain in order to claim them - There must be some evidential foundation for which the damages can be estimated and claimed (low bar)- Cannot have damages that are purely speculative (ie McRae = where damages were purely speculative — lack of

certainty would bar expectation damages and that is why court turned to reliance losses)- However, short of impossibility, some speculation can be involved (Chaplin v Hicks; where court took more

elastic approach to quantifying damages — it was sufficiently certain to quantify contingent opportunity and the benefits from that)

Causation- Also plays a role formally speaking- The plaintiffs loss must be caused by the defendants breach- Does not cause many difficulties in practice; the court often assumes causation

Hodgkinson v. Simms

F: H relied on S for investment advice. Later found out that S had been acting on behalf of the specific sheltered property at the time of sale. Broke implications of good faith by not disclosing his own interests and breached fiduciary obligations as a financial advisor to client.

I/C: Causation? YES.A: D argued that there was no causation because even if he had disclosed his self interest, P would have invested

anyways, and there was an intervening cause (the housing market collapsed). Court rejects these arguments. Once you have shown a breach of contract and a loss, you can assert causation; then the onus is on the other party to prove that there is no causation. D did not successfully reduce some evidence to rebut. Courts are very sympathetic to assuming the breach caused the loss pending evidence to the contrary. From a policy perspective, once the court has accepted that there is no evidence to the contrary, as a matter of policy it is the defendants fault; “it is simply unjust to place the risk of market fluctuations on the plaintiff who would never had entered into the contract without the defendants wrongful conduct.”

R: Once claimant established there was a breach of contract, you can assert that the damages came from that breach. Onus then shifts to the defendant to prove that they were not the cause. Policy: would be unjust to put the risk of market fluctuations on the plaintiff. Causation therefore does not really matter for contract law (like it does in tort) — the fear of indeterminate liability does not resonate with the nature of the contractual relationship

REMOTENESS

General

- Important

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- The innocent party can only recover damages that are foreseeable = cannot recover damages that are unforeseeable even if they were caused by the person; if they are unforeseeable they are deemed too remote

- Generally the most common way to limit the quantum of damages- Disallows some, but not all, of the damages- Not an all or nothing proposition = may explain why it is a more robust doctrine- Policy considerations

- About fairness, not causation- Party admits that they have factually caused the problems but out of fairness should not be responsible for

the full quantum- Limiting the obligation to that which are foreseeable- Puts a limit on the expectancy principle (expectation damages) since it can lead to very harsh consequences- Goes to the parties intentions — it would be unfair to saddle the carrier in circumstances where it is not

foreseeable that these damages would arise (Hadley v Baxendale)- You cannot take protective measures if it is unforeseeable; unfair to saddle him with the losses that are

unforeseeable because he was deprived of the opportunity to take protective measures

Hadley v. Baxendale (1854)

F: P’s mill has broken crank shaft. It was supposed to arrive in 1 day but D carriers were delayed. P sues for lost profits.

I/C: Remoteness? YES. A: (1) It was not foreseeable that late crank shaft would close mill in vast majority of cases (maybe had backup

shaft or mill was already closed for other reasons). (2) Would have been foreseeable had it been communicated. Policy: you cannot take protective measures if it is unforeseeable; unfair to saddle him with the losses that are unforeseeable because he was deprived of the opportunity to take protective measures

R: Cite for the rule of remoteness. Test: (1) To be recoverable, he loss suffered must be the probable result arising in the usual course of things in the great multitude of cases. Furthermore, the probability of the result must be in the contemplation of the parties at the time the contract was formed. Foreseeable in an ordinary sense in that it is probable or “likely to happen in a majority of cases.” (2) If contract was made under special circumstances which were communicated between the parties that make the type of loss likely, then this can make it foreseeable even it was not foreseeable under (1). High standard.

Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd. (1949)

F: P wanted to expand their laundry and agreed to purchase a boiler from the D. D knew that the plaintiffs were launderers and dyers and that they required the boiler for business use. They agreed to a certain delivery date but was 6 months late. P sues for loss of business profits. Claim ordinary lost profits and special lost profits (from a contract they had with the government that they had to decline).

I/C: Remoteness? NO (for ordinary), but YES (for special)A: Ordinary lost profits were recoverable since they were obviously foreseeable losses in the industry. How is

this different from Hadley? The nature of the parties make it such that the D knew the importance of the boiler. However others have said that they are not reconcilable due to the difference in time between the two cases and the development of corporate law has made it such that the courts are no longer as reserved in awarding more robust claims. The special lucrative profits were not recoverable because it was not foreseeable they had a special contract with the government (at the time of formation). They could not insert clause for protection when it was completely unforeseeable.

R: Affirms Hadley v Baxendale. First part of the remoteness test deals with imputed/objective knowledge, whereas the second part of the test deals with subjective knowledge; even if it was not foreseen under the first limb, is there anything that would make the parties subjectively aware?

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Scyrup v. Economy Tractor Parts Ltd. (1963 MBCA)

F: Parties contracted for the sale of a hydraulic dozer attachment for the plaintiffs tractor. The plaintiffs evidence established that he made known to the defendant the fact that the attachment was for a tractor which was to be used for a specific job with Supercrete. He also made it plain that he needed this equipment in a hurry and that it had to be in good working order. The equipment was sold to the plaintiff but it did not measure up to the terms of the contract. Supercrete cancelled the contract with the plaintiff. The plaintiff therefore sues for loss of profits.

I/C: Remoteness? NO.A: Majority determines that it is probably ordinarily foreseeable and if not, the specifics of the Supercrete jobs

were disclosed. Therefore, the D had special knowledge of the foreseeable consequence of the use. Dissent was not ready to conclude that the specifics were disclosed. Wanted more information on the value or quantum of the Supercrete job.

R: Embraces Hadley. Example of where the test was met under the second part of the test.

Koufos v. Czarnikow (C)(The Heron II) (1969)

F: [Facts do not matter]R: Use this case for policy considerations. When we talk about foreseeability in contract we are talking

about the probable or likely result (not the fantastic possibilities in tort). The type of loss that would occur in the vast majority of circumstances. It is about fairness and parties being able to protect themselves.

MITIGATION

Asamera Oil Corp. v. Sea Oil & General Corp. (SCC 1979)

The Duty to Mitigate- This is an obligation imposed on the innocent part to try to minimize their losses post-breach- If the party fails to mitigate, and allows losses to ‘pile up,’ they will be disentitled from claiming them- In other words, any unmitigated losses cannot be recovered/will be deducted from losses that are recoverable- This principle series to limit the quantum of expectation damages

Reasons- Causation argument: causally speaking, the other party is not responsible for the losses, you are (you are

almost the intervening cause of the problems at this point)- Foreseeability argument: reasonable people assume that you are going to mitigate your losses so they are not

responsible if you are not going to mitigate your losses post-breach- Law and economics argument: allowing losses to pile up is wasteful and therefore not economically efficient

Content- The content of the duty depends on the nature of the contract you are in (ie insurance, corporate securities, etc)- The difficulty in determining the content of the duty

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