Contracts Johnson 2009 2

Contracts – Johnson/09

Case Facts Ratio and key points

Part I – Contract FormationI. Offer and Acceptance1. The Traditional Rules of Offer and Acceptance

Smith v. Hughes (UK QB, 1871; p. 417)

Sale of oats; buyer (D) wanted old, bought new, despite seeing sample from P. P sues to bind D.

Consensus ad idem is tested objectively: “reasonable person”

Bailey v. West (US, 1969; Assign. 1)

P provided room, board and care for a horse that had been dropped off by an agent of D, but of which D disavowed ownership all along.

The 'essential elements of contracts “implied in fact” are mutual agreement and intent to promise, but the agreement and the promise have not been made in words and are implied from the facts', p. 5.

'the plaintiff was a mere volunteer who [worked] at his own risk and with full knowledge that he might not be reimbursed', p. 6.

Lucy v. Zehmer (US, 1954; Assign. 2)

Property sale without consideration based on contract on napkin at bar. D pleads drunkenness.

'If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind.', p. 5.

Ball v. Hardy (Ont CA, 2006; Small Group)

Ottawa River-side house, Mississauga couple. Ps sue for specific performance on property transaction, the D trying to renege on written document.

Written agreement was a manifestation of mutual assent for the sale of the property.

No defence, e.g., mistake, applies. D did not communicate reservation or misunderstanding that she may have had to the purchasers and it appears that she simply changed her mind after the execution of a valid and enforceable agreement of purchase and sale.

A. OfferMirror Image Rule There exists a contract when both parties agree on the terms. Offeror extends terms to an offeree who can accept or extend back a counter-offer and thus (traditionally) becomes an

offeror in her own right. The formulation of counter-offer terminates the initial offer.

Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. (UK QB, 1953; p. 417)

Display of goods in a self-services store

Display of goods is an invitation to treat and not an offer

Lefkowitz v. Great Minneapolis Super Store (Minn, US, 1957; p. 416)

99% discount offered on sale of first three coats; seller unwilling to honour advert

Advertiser (as master of offer) can modify offer only until is is accepted;

Where an offer is definite and clear, it can be accepted, e.g., an advertisement; this is a unilateral contract

B. Acceptance Offeror is master of acceptance

Tinn v. Hoffman & Co. (UK, 1873; p. 419)

Where negotiated by post, there is no binding contract unless one party sends acceptance.

A bilateral contract is formed by an exchange of

1 of Error: Reference source not found

promises.

Dickinson v. Dodds (UK, 1876; p. 419)

Written offer to sell house if accepted within 48 h, but offer waved off before acceptance

Common law rule is that in the absence of consideration, a promise to keep an offer open is not enforceable.

Felthouse v. Brindley (UK, 1862; p. 419)

Acceptance cannot be based on 'negative option' from offeror (e.g., 'if I don't hear from you this week we have a deal')

Saint John Tug Boat Co. v. Irving Refining Ltd (SCC, 1964; p. 419)

P, D agreed to stand-by fee for six weeks; after seven months, D said fee was applicable only for the first six weeks.

Where one party continues to make use of a consideration beyond the time frame of the original contract, it may still be in force.

Postal RuleLocation where the acceptance is received is the location of the formation of the contract (i.e., default venue for dispute resolution).

Adams v. Lindsell (UK KB, 1818; p. 422)

Consensus ad idem occurs / acceptance is valid when the response to an offer is posted.

Because the offeror is master of acceptance, unless chooses to specify otherwise, the acceptor can use the same medium as did the offeror

Household Fire & Carriage Accident Ins. Co Ltd. v. Grant (UK CA, 1879; p. 422)

Risk of loss is assigned to offeror. If offeror wants to avoid risk of loss of acceptance,

can set other terms of acceptance.

Schiller v. Fisher (SCC, 1981; p. 423)

Letters re: land deal going back and forth, acceptance made on specified day, but letter not received until later

Acceptance must be made, communicated to offeror, until then, no acceptance.

Postal Rule applies by default in postal arrangements, but may be set aside via terms.

Rolling v. Willann Investments

(Ont CA, 1989; p. 426)

Fax is valid for offer and acceptance; differs from postal rule—accepted as and where offeror receives it

Eastern Power Ltd. v. Azienda Communale Energia and Ambiente (Ont CA, 1999; p. 427)

Ontario company (P) working with Italian company (D) faxed acceptance to Italy, seeks remedy in Ontario

Fax is valid for offer and acceptance under general rule.

Contract is formed at location of acceptance. Instantaneous transmission rule: faxes (not yet found

for email) are instantaneous, so follow general rule, not postal rule.

Rudder v. Microsoft (Ont SCJ, 1999; p. 435)

P didn't scroll through EULA, seeks local forum instead of one specified in EULA

Multi-screen EULA is like a multi-page paper contract, not like obscure fine-print.

Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A § 13(1), 68

13(1): 'Except as provided in this section, a recipient of unsolicited goods or services has no legal obligation in respect of their use or disposal.'

68: 'Despite section 13, a consumer who applies for a credit card without signing an application form or who receives a credit card from a credit card issuer without applying for it shall be deemed to have entered into a credit agreement with the issuer with respect to the card on first using the card.'

Rationale for credit card exception is policy: tender type, not mere product

C. Revocation Generally, an offer can be revoked at any time before acceptance.

Henthorn v. Fraser Where postal rule applies, revocation must reach


(UK, 1892; p. 440) offeree before acceptance is posted.

Byrne v. Van Tienhoven (UK, 1880; p. 440)

Where postal rule does not apply, revocation is possible before acceptance reaches the offeror.

Dickinson v. Dodds (UK, 1876; p. 419)

Written offer to sell house if accepted within 48 h, but offer waved off before acceptance

A promise to keep a firm offer open (without consideration) can be revoked at any time before being accepted.

Great Northern Railway Co. v. Witham (UK, 1873; p. 440)

D made open offer (of unilateral contract) to supply good to GNR at specific prices within a year, sought to withdraw after getting an order.

Offer to supply at a specified price could be withdrawn at any time because GNR had not paid for Witham to stand ready at the particular prices: Witham can change the prices at any time, but must honour prices already ordered.

Offer and acceptance exists for each order. To keep single offer open 12 months, consideration

(or seal) would be needed.

D. Unilateral Contracts and Revocation

Carlill v. Carbolic Smoke Ball Co. (UK CA, 1893; p. 442)

Carbolic offers to pay ₤100 to anyone who contracts influenza while using their smoke ball, reneges claiming offer was puffery.

Offer is unilateral, made to the world, but contract forms only with those to take it up (¶ 6)

Offer was accepted in this case by performance

Dawson v. Helicopter Exploration Co. Ltd. (SCC, 1955; p. 447)

P has a line on a prospecting find and agrees with D to check it out; D goes with someone else.

When terms require complementary offer that's binding on each party is bilateral, where express promises may be absent, may still be “instinct with obligation” (i.e., though not expressly stated, implicit that the point of the contract was that D would take P)

Courts prefer to see a bilateral contract if it fits the facts, rather than unilateral.

Errington v. Errington (UK CA, 1952; p. 449)

Father bought house for son and daughter-in-law to live in, said it would be theirs when he retired if they paid mortgage (they did, though didn't finish before death of father). Father's widow sought the property.

Denning L.J.: Once performance has commenced, unilateral contracts cannot be revoked.

Doctrine of part performance.

E. Tender Contracts Established in Ron Engineering, below. Contract A:

The request of tender constitutes an offer to the prospective bidders in a unilateral contract The contractor's submission of a sealed irrevocable bid to the offeror constitutes the acceptance

Contract B: The actual contract to do the work is bilateral: the work for the payment

Tendering and related issues tends to be decide on the basis that is good policy to have a fair bidding process for open competition toward the objective of economic certainty.

Ron Engineering & Construction (Eastern) v. Ontario (SCC, 1981; p. 454; p. 781)

P responded to D's request for tenders on a construction contract with a tender that was (accidentally) unprofitable for P, refused to follow through when selected by D.

The tender of the contractor is binding even if there was a mistake by the bidder in maintaining its price unless there is a mistake so big that it is apparent on the face of the tender. (SCC)

Estey J.: finding “the integrity of the bidding system must be protected”


Northern Construction Co. Ltd. v. Gloge Heating and Plumbing Ltd. (AB CA, 1986; p. 455)

Sub-contractors (D) sought to escape loss-making work on P's construction contract on basis that its sub-contract bid was in error.

Ct followed analysis in Ron Engineering, seeing contracts A and B binding general contractor and sub-contractor.

Consideration for B is 'we promise to give you the job' in exchange for 'our offer is irrevocable'. Therefore A keeps the offer open without allowing the tenderer to revoke their offer.

Subcontractor is free to withdraw the bid until tendering closed, but until P accepted an offer, the subbie is stuck.

Naylor Group v. Ellis-Don Construction (SCC, 2001; p. 458)

Appellant used respondent's low bid to get the contract, then shopped the work around to do the actual work.

When the appellant chose to submit tender using the subbie, they are stuck with them.

M.J.B. Enterprises v. Defense Contruction (1951) Co. Ltd. (SCC, 1999; p. 468)

Four tender offers, awarded to lowest, notwithstanding the fact that the lowest did not comply with the original specifications Tender doc included a privilege clause that allowed owner to reject all bids or not select the smallest.

Did parties behave properly? Privilege clause is only one clause of Contract A and

must be read in harmony with the other clauses. Privilege clause does not override the obligation to

accept only a compliant bid.

Martel Building v. Canada (SCC, 2000; p. 470)

Four bidders on leasing to federal government (D). After submitting, D added 'fit up' costs to modify buildings to suit D's needs. Lowest 'raw' bid became second-lowest after fit-up costs.

Reasonable for buyer to apply fit-up costs applied in same standard to all bidders, so that's allowed.

2. Limits of Traditional RulesA. Consensus ad idem and mistake

Raffles v. Wichelhaus (UK Exch, 1864; p. 474)

P agreed to sell cotton to D “to arrive ex Peerless from Bombay”, but two ships named Peerless; D thought October Peerless, and P December; in December P tried to deliver and D refused. P sued to bind D.

Note: heard in Equity Consensus ad idem not reached and thus no contract.

Smith v. Hughes (UK QB, 1871; p. 477)

Sale of oats; buyer (D) wanted old, bought new, despite seeing sample from P. P sues to bind D.

Consensus ad idem is tested objectively: “reasonable person”

Buyer saw the goods and thus should have known better than to enter into contract... but did enter into the contract; sale by sample.

Caveat emptor. “The Devil alone knoweth the mind of man.” I.e.,

can't read the minds of the parties.

Hobbs v. Esquimalt and Nanaimo Railway Co.

Hobbs (P) seeks to hold D to agreement entered by P and

If the principal allows the agent to represent to third parties that they have the authority of the principal,


(SCC, 1899; p. 482) Trutch, an agent of D to sell land in fee simple. D claims reserve of mineral rights on grounds that Trutch had no authority to deal.

then the principal is bound. Although the parties may not be ad idem, A is bound

in spite of their mistake, if A’s words or conduct are such as to induce B to reasonably believe that A was assenting to the terms proposed by B.

Note two forms available, agent chose.

Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (Ont HCJ, 1976; p. 485)

Auction: steel at auction in lots, then in bulk at request of bidding parties. Nominal “misunderstanding” as to which steel was included in the auction. Some steel had previously been sold. P bids on “remaining steel” and claims pre-sold lot.

Ct: P is disingenuous in claim, parties were ad idem, “reasonable person” test for terms applies, and reasonable person at auction understood that pre-sold steel was excluded.

B. Indefiniteness and Contract Negotiation: Agreements to Agree

May & Butcher v. The King(UK HL, 1929; p. 492..)

Where an important term is omitted from a contract, it will not be supplied by the court and the contract is void (e.g., price)

Hillas v. Arcos (UK HL, 1932; p. 493)

Hillas (UK) agreed to import cheap lumber from Arcos (Russian) in light of boycott on Russian lumber with an option for 10 times as much cheap lumber the next year on same terms. Boycott ended, Arcos wanted out of deal, claiming it was insufficiently definite.

Ct upheld contract between P and D despite that important terms like sizes and proportions of sizes were not specified for the new year.

Distinguished from May & Butcher because parties got through first year on vague terms, so why not second year also?

Foley v. Classique Coaches (UK KB, 1934; p. 493)

P dealt in petrol, D in coaches. P sold land to D with supplemental terms that D would buy petrol from P. Price not defined in contract, but it does have arbitration clause.

Parties behaved as though they had an agreement, and have an arbitration clause, so should have used that to settle disputed pricing.

Courtney & Fairbain v.Tolaini Brothers (UK CA, 1975; p. 498)

P was going to contract to build for D, on net + 5% terms to be negotiated, in exchange for providing a person to finance the work. The person was provided, but the D went with another builder in the end.

Denning M.R.: if can't have a contract to contract, can't have a contract to negotiate.

Empress Towers Ltd. v. Bank of Nova Scotia (BC CA, 1990; p. 500)

Rental agreement with renewal that stated market rates at agreement of parties, but with unclear terms. Parties don't agree at renewal and landlord (P) seeks “writ of possession”.

Landlord must agree to accept the new rate as the market rental; this carries implied terms that: Landlord will bargain in good faith to reach

agreement on market rental; and Agreement on market rental will not be

unreasonably withheld. No duty to negotiate in good faith in Canada, so first

fails but second stands.

Walford v. Miles D to sell photographic Can't have a contract to negotiate.


(UK HL, 1992; p. 505) processing business has two offers, including one from P. Agreed in principle with warranty of trading profits, “subject to contract”.

A duty to negotiate in good faith is unworkable in practice as inherently inconsistent with the position of the negotiating party.

“Lock out” agreement to prevent negotiations with other parties may be enforceable.

C. Letters of Intent

Canada Square Corp. v. Versafood Services Ltd. (Ont CA, 1981; p. 514)

Did the parties have an enforceable contract for a roof-top restaurant to be operated by the D as tenant of P? Parties each spent significant money on developing project. Written agreement from P on letter of intent from D, but no formal lease.

Ct: distinction between enforcement where condition is uncertain, versus enforcement where a minor term is uncertain.

Agreement is enforceable: in part because the term in question is not

essential to the overall agreement, and in part because both parties appeared to act as

though they had reached an agreement

LCDH Audio Visual Ltd. v. ISTS Verbatim Ltd. (Ont HCJ, 1988; p. 516)

Ottawa invited firms to bid on an audio-visual services. Based on qualifying parties, winning bidder (5 a term) was expected to subcontract to one of two firms. The remaining subcontractor, the plaintiff, was offered only a one-year subcontract, less than they expected (5 a).

Found: essentially a contract to contract, and thus unenforceable. Actions of the defendant as shocking and disappointing to the plaintiffs but not binding. Dismissed with costs.

Distinguishable from Versafood because the parties never proceeded as though they had reached an agreement, had never stated that they had reached an agreement

D. Oral Agreements

Pennzoil v. Texaco (US, 1987; p. 519)

Coming out of a board meeting, Getty Oil president said orally “you've got a deal” to P with transaction agreement to be drafted, but Getty Oil later sold to Texaco.

Oral agreement may be binding if sufficiently clear as an outward expression of intent, even when written documents are planned.

3. Protection of Expectations Arising from NegotiationsA. Duty to Bargain in Good Faith

Martel Building Ltd. v. Canada (SCC, 2000; p. 521)

Martel was negotiating to lease space to an agency of the government. Terms were not settled on the quick time line requested by D and thus the item went to tender and Martel lost out.

SCC: there is no tort liability for negligence in commercial negotiations.

Per policy rationale, courts don't want to set up tort law (e.g., negligence) as a de facto insurance system for contract disputes.

Hard bargaining is okay, but soft around the edges.

Big Quill Resources v. Potash Corp of Saskatchewan (Sask CA, 2001; p. 524)

Removal of word “sales” in the phrase “sales tax” – not brought to attention of the other side, increasing supplier’s costs, buyer's price was cost+, insulating supplier from higher price.

Court found a way to relieve buyer of this more onerous burden – unilateral mistake on part of P was induced by D

978011 Ontario Ltd. v. Cornell Engineering

Standard form modified and submitted to other side. Other

Party has an obligation to read documents and will be assumed to have done so.


(Ont CA, 2001; p. 525) side signed without reading it. This was not a situation where documents were going back and forth between the parties, and there was a surreptitious change.

Le Mesurier v. Andrus (Ont CA, 1986; p. 525)

Grange J.A.: “Vendors and purchasers owe a duty to each other honestly to perform a contract honestly made.”

Ct frowned upon attempt of D-purchaser to leverage a peculiarly technical reading of a contract term.

GATX Corp v. Hawker Siddelely Canada Inc. (ON Gen Div, 1996; p. 526)

'Cute' attempt to avoid restrictions in a shareholders' agreement.

Blair J.: makes reference to “the good faith doctrine of contractual performance, which in my view is part of the law of Ontario.”

B. Restitution and Reliance

Brewer Street Investment v. Barclays Woollen Co. (UK CA, 1954; p. 527)

Parties negotiating a lease. Would-be tenant asks for work to be done on the property and offers to pay; landlord get it started, but the lease is not executed and the work not completed.

Denning L.J.: no contract to enforce, tenant's offer was conditional upon lease and upon completion of the work—who should pay for partial work? Who was responsible for breakdown in lease negotiations?

In this case neither is clearly at fault. Construction was clearly intended to be to the

benefit of the tenant and not the landlord, so risk and thus cost to the tenant in this case.

Landlord relied on promise of tenant.

Brewer v. Chrysler Canada(AB SC, 1977; p. 529)

P undertook to meet conditions to set up car dealership, and based in part on assurance of D, knew himself to be en route to having dealership. Over time, P spent down required start capital and D waved off agreement since term no longer met (and contract not yet executed).

P awarded reliance damages. P had made an investment toward the business

arrangement, had been induced by other party. Court did not find a contract between the parties, but

awarded plaintiff damages for his services.

C. Duty of Confidentiality Some duties statutory (fiduciary duties of corporate directors, conflict of interest of public officials), some are

doctrines of common law Duties vary with context, may change upon completion of contract

Fiduciary obligations, examples: Teacher / Student • Parent / Child Trustee / Beneficiary • Director / Corporation

Lac Minerals Ltd. v. International Corona Resources Ltd. (SCC, 1989; p. 534)

Corona (P) is junior miner with property believed to have large deposits of gold. Lac as courted senior miner learned of gold potential in neighbouring land. Corona developed their own mine with another senior and Lac acquired and developed the adjoining property.

(Trial judge awarded the Lac mine, less development costs, to Corona on Lac's violation of fiduciary duty and confidence owed Corona as a partner in negotiations.)

SCC: divided on whether Lac had owed Corona a duty of confidentiality vs. fiduciary and on remediation: some saying Lac should hold mine in trust for Corona, some wanting damages.

D. Battle of the Forms When using forms designed to give the using party an advantage (e.g., a purchase order form being used by a buyer),


differs from a form being used for a similar purpose by the other party (e.g., an order form with terms printed on the back) and both sides use the forms paying attention only to the 'filled-in terms' (e.g., the items being ordered, delivery details and prices) it can become uncertain whose terms apply to any particular transaction: this is the battle of the forms.

“In some cases the battle is won by the man who fires the last shot. He is the man who puts forward the latest terms and conditions; and, if not objected to be the other party, he may be taken to have agreed to them.”

“First blow” concept would be where some term is described at the onset as overriding and inviolable. E.g., if later adjustments are so substantial that they would reasonably have altered the core (previously understood to have been agreed) terms but the attention of the first party is not drawn to them.

“Knock out rule” would strike out conflicting terms and see what remains: sufficient for contract formation? Are critical elements (price, quality of goods, delivery) there? Then fill in the gaps.

“Last shot” tends to dominate in Canada, but not strictly and solely

Butler Machine Tool Co. Ltd v. Ex-Cell-O Corp (England) Ltd (UK CA, 1979; p. 541)

Butler (seller) quoted a price on an item for delivery on a form with a price-variation clause. By delivery time, price had increased, so seller charged more than quoted. Buyer rejected excess charge on basis that their own form did not have any price variation clause.

Denning M.R.: “This case is a “battle of the forms”.”

Delay is caused by seller, so would seem inequitable to allow their price escalation clause to function.

Here, found for buyer, i.e. receipt of goods was not acceptance in this case.

Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. (Ont HCJ, 1979; p. 545)

Tywood (P) invited to tender for sale of storage tanks. Agreement on specifications and price reached, and 3 tanks delivered. Invitation to tender from D didn't make mention of arbitration, nor did quotation from P. Purchase orders were issued by D that had arbitration clause. Purchase orders were not signed by plaintiff or returned to defendant, but delivery of goods was made.

Parties are forum shopping: Ontario (Vendor)(Court) vs. New Brunswick (Buyer)(Arbitration)

Grange J.: “neither party turned their attention to terms”, and decides on policy basis: preference of the courts to avoid replacing court's determination of issues with arbitration.

(Decision was almost 30 a ago; more recently, arbitration has become more accepted.)

Uniform Commercial Code § 2-207 (p. )

~(1) Expression of acceptance sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree.

II. THE KINDS OF PROMISES THE LAW WILL ENFORCE1. Legal FormalitiesA. The Writing Requirement


Three functions of the seal: (i) Evidentiary - formality provides evidence that contract exists (ii) Cautionary - formality forces parties to slow down and think about what they are doing (iii) Channelling - formality is a cheap test of enforceability - a signal to courts and laypersons

that they need not enquire further - the contract is good and enforceable

Statute of Frauds, R.S.O. 1990, c. S.19, as amended, §§ 4, 6, 7 (p. 233)

4. Writing required for certain contracts:(i) promise to answer damages out of executor's or administrator's own estate;(ii) promise to answer for the debt, default or miscarriage of any other person (suretyship);(iii) any agreement made upon consideration of marriage;(iv) sale of lands, tenements or hereditaments, or any interest in or concerning them6. Consideration for promise to answer for another (indemnity) need not be in writing 7. Ratification of promise made during minority to be made in writing

Sureties vs. Indemnities Suretyship (e.g., acting as a guarantor for a line of credit) vs. Indemnity Surety: “Please supply goods to debtor, and if debtor does not pay (fails to meet the

primary obligation), then I will (secondary obligation).” = contract of suretyship, read very strictly, tends to be interpreted against the creditor. Creditor ends up with a primary party to hold liable and a backup in the event the primary fails out.

Indemnity: “Please supply goods to debtor and I will see you paid.” ≠ contract of suretyship. Creditor ends up with two parties to hold jointly liable.

If debtor defaults and guarantor/indemnifier pays out to creditor (in full) then the obligation of the debtor is subrogated (from creditor) to the guarantor/indemnifier.

So when standing in for someone's debt, the backup payer will prefer to be seen as a guarantor and the creditor will prefer to see that person as an indemnifier.

Mountstephen v. Lakeman (UK HL, 1871; p. 233)

Lakeman (D) offered “to see [that P would be] paid” by community board if P did construction job, but the board would not pay.

Triangular relationship did not exist; straight contract between P (Contractor / Creditor) and D (Board Chair / Debtor)

Because it was not therefore a contract of suretyship, Statute of Frauds did not apply, and thus Lakeman’s promise was enforceable

B. Unjust Enrichment and the Doctrine of Part Performance

Deglman v. Guarantee Trust Co. of Canada and Constantineau (SCC, 1954; p. 238)

Nephew of deceased stayed with her during a certain period, and in return for services there was a promise to convey the house to him upon her death. Promise is not in writing.

Found that the services were not directly in relation to the property at question and thus the oral nature of the contract was insufficient.

Nephew awarded cash payment for services provided per court's assessment of value; otherwise, the Aunt and thus estate would have been unduly enriched

2. Promises That Will Be DeniedA. Unfairness

The Port Caledonia (UK, 1903; p. 247)

Port Caledonia tug boat: “I’ll only rescue you if you pay me ₤1000” where the job is worth ₤200 at most

Found not enforceable; “inequitable, extortionate, and unreasonable” agreement—unjust.

Doctrine of unconscionability or duress

3. Formal ContractsA. Promises Under Seal

Re/Max Garden City Realty v. 828294 Ontario Ltd (ON Gen Div, 1992; p. 251)

No consideration, simply a promise to pay the real estate agent – but would be enforceable if under seal

Was the promise made under seal? Held: Yes, parties intention that it be under seal is

determining factor: wax not necessary. Note: this was an equitable assignment


4. ConsiderationA. The Basic ConceptThree methods of transferring property inter vivos: (i) gift (will theory foundation) (ii) contract (bargaining theory, need to show that the promise was bought), (iii) deed (formality makes the promise binding).Consideration something of value in the eyes of the law, moving from the plaintiff… (p. 258) traditional definitions looked benefit to promisor, or detriment to promisee (p. 258) Note concern with consideration for a promise, rather than consideration for a contract,

thus, analysed as though we are trying to enforce the particular promise at issue“Peppercorn theory” courts will not inquire into the adequacy of consideration (e.g., a peppercorn in return for something valuable); to do

so would be to buy into 'just value' theory attaching inherent value to goods and services. Some instances where value is considered, e.g., under statute esp. where a fraction of the gross transaction value goes

to the Crown: taxation often considers (three separate items like) 'fair market value', 'market value', 'fair value'. Also shows up in common law under doctrine of unconscionability.

Thomas v. Thomas (UK QB, 1842; p. 259)

Testator wants to add to legacy that he has left his wife (note that he holds house on long lease, likely 99 years).Executors make the deal, after his death.Executor seeking to evict: no consideration for promise that she could remain in house for life.

“Rent is not incidental”, contract found. Ct unwilling to consider the merit of the the

consideration: not going to ask whether the payment is fair or market value or reasonable: consistent with laissez-faire policy direction.

White v. Bluett (UK, 1853; p. 260)

Executor sues son on a promissory note that the son claims is void because he made an agreement with his father that if he stopped complaining the debt was waived.

No right to complain, therefore no consideration Ct concerned about commercial integrity of

promissory notes and duress.

Hamer v. Sidway (NY CA, 1891; p. 261)

P has obtained by assignment an interest against the estate being executed by the D for $5000, seeks that money. Claim founded on forbearance of original creditor (giving up smoking, drinking) at behest of testator.

“it is of no moment whether such performance actually proved of benefit to the promisor.”

Westlake v. Adams (UK, 1858; p. 264)

“the law will not enter into an inquiry as the adequacy [i.e., amount] of the consideration”

it matters only that the consideration is in amount sufficient to meet the terms of the agreed contract

Currie v. Misa (UK, 1875; p. 258, 261)

“A valuable consideration in the sense of the law may consist either in (i) some right, interest, profit, or benefit accruing to one party, (ii) or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.... [it need not] in fact benefit the promisee or a third


party”

B. Past Consideration “Past consideration is no consideration”: logical outcome of the “bargain theory”, or “mutuality”

Eastwood v. Kenyon (UK QB, 1840; p. 265)

Child (Sarah) raised by guardian; guardian borrowed money for Sarah’s expenses; when she came of age, Sarah promised to pay debt; Sarah married, and husband promised to pay debt; husband did not pay, guardian sued on the debt.

Found: no cause of action. Denman J.: alludes to “mischievous consequences”

if this action allowed: would include a vast uncertainty in the buying and selling of debt.

Ct comment on “foreseeable detrimental impact on society of permitting a proliferation of preferences” seems like a foundation of current accounting.

Transaction requires unity of time.

Lampleigh v. Braithwait (UK, 1615; p. 267)

A voluntary performance will not give rise to a contract, unless that act is in response to a request by the other party, even where there is no contemplation of consideration at the time of that initial request.

The subsequent promise is quantification of the original obligation, not a new one.

Roscorla v. Thomas (UK QB 1842; p. 269)

P contracted to buy a horse from D. D subsequently said the horse was in good condition. Horse upon delivery was not in good condition. P sues for breach of warranty.

Claim for subsequent warranty as to quality of horse is declined: the term should have been included in the contract if it had been intended.

Note: other ways to deal with untrue representations, e.g., criminal fraud per se

C. Mutuality Wholly executory: exchange of future performances, each promise is consideration for the other. Mutuality (more Canadian and UK concept, like bargaining in US parlance):

either both parties are bound or neither

Great Northern Railway Co. v. Witham (UK, 1873; p. 273)

D made open offer (of unilateral contract) to supply good to GNR at specific prices within a year, sought to withdraw after getting an order.

Witham can change the prices at any time, but must honour prices already ordered (mutuality achieved for these).

Offer and acceptance exists for each order.

Bernstein v. WB Mfg. Co. (US MA, 1921; p. 276)

Action to recover damages for alleged breach of contract which P claims resulted from an order that the D admits it placed with the P for delivery of certain goods.

Term allowing 'subject to a limit of credit and determination at any time' lets D out.

Delivery of and payment for samples was not partial performance or consideration, so because this term voids mutuality, found for D

Wood v. Lucy, Lady Duff-Gordon (NY CA, 1917; p. 277)

Wood is a manufacturer and Lady Duff-Gordon a fashion trend-setter whose “favor helps a sale”. P claims D has violated agreement by endorsing other products. D responds that the agreement is void as it does not bind P to anything.

¶ 2: “A promise may be lacking, and yet the whole writing may be “instinct with an obligation,” imperfectly expressed... If that is so, there is a contract.”


D. Going-Transaction Adjustments Adjustments to transactions that modify the terms of an existing contract. By doctrine, such adjustments are not binding unless they themselves encompass an exchange of promises. The traditional rule is that without “fresh consideration” a promise to modify a contract is unenforceable.

Harris v. Watson (UK, 1791; p. 284)

P is a seaman on ship of D. D offered extra pay for extra work on the voyage, when the P noted that the ship was in danger.

This might open up potential extortion on the part of sailors, since they hold ships at their mercy—i.e., policy consideration.

Stilk v. Myrick (UK, 1809; p. 285)

Similar facts to Harris v. Watson

Seamen should stick to the contract they entered into before departing.

Policy still relevant but decision framed as contractual certainty.

Raggow v. Scougall (UK, 1915; p. 286)

D offers reduced pay to employees as an alternative to closing during war. D to restore original contract upon peace. P and D agreed, executed new contract. P sues for old rate and claims new contract is like old with no new consideration.

Found: P is dishonest (i.e., voluntary agreement had been reached), and so non-suited.

The original contract is actually rescinded and replaced; this is not an amendment to the original contract.

Stott v. Merit Investment (Ont CA, 1988; p. 288)

Stott's client loses on gold futures trading and Stott assumes liability upon client's default. But Douglas (at Merit) intervened in action and created such loss.

Majority finds that Stott got to keep his job and this was consideration for his acceptance of debt

Dissent [and TJ] would prefer to rely on Douglas's assumption of risk on behalf of the company voids Merit's claim and means no consideration: forbearance of a non-existing claim is not valid consideration.

Gilbert Steel v. University Construction (Ont CA, 1976; p. 293)

P's action for damages for breach of oral contract for the supply of steel bars to be incorporated into apartment buildings of D. Supplier is trying to get a positive benefit in this promise.

Wilson J. concerned with economic duress: Gilbert should have used a price escalation clause

rather than leveraging a de facto local monopoly. 'A plaintiff cannot found his claim in estoppel.'

Williams v. Roffey Bros and Nicholls (Contractors),(UK CA, 1990; p. 301)

Carpenter can't afford to finish the job for the agreed price, gets extra money from buyer who later (after reliance) reneges on payment of extra money.

Difference from Gilbert Steel: in this case, both parties saw that the job ended up being more than initially anticipated, where in Gilbert Steel, the supplier tried to take advantage of position.

The offer for price increase came from the other side in the transaction.

Foakes v. Beer,(UK HL, 1884; p. 308)

P awarded an amount from D, agreed she would accept some now then payments until all paid; arguably implicitly waives interest by omission from contract. D paid principal in full, action to recover interest.

Found: retain doctrine from Pinnel's Case: “payment of a lesser sum on the day cannot be satisfaction for the whole”

Payment of a lesser sum in satisfaction of a whole is not sufficient, unless there is consideration for the new promise; none in this case.


Mercantile Law Amendment Act, R.S.O. 1990, c. M.10, §16

The year after Foakes v. Beer was decided, enacted in ON Other jurisdictions did similarly around same time (e.g., BC, AB, SK, MA) “Part performance of an obligation either before or after a breach thereof when

expressly accepted by the creditor or rendered in pursuance of an agreement for that express purpose, though without any new consideration, shall be held to extinguish the obligation.”

E. Contracts with a Third Party

Scotson v. Pegg (UK Exch, 1861; p. 312)

Person A, having made a contract with B to perform, may also use that performance as consideration in another contract with C.

5. Reliance as the Basis for the Enforcement of PromisesA. Reliance in the Commercial Context

Central London Property Trust v. High Trees House (UK KB, 1947; p. 315)

WWII: low tenancy, so landlord proposes new lower rental rate; following war, landlord goes broke and rights and obligations pass to bankruptcy receiver. P sues for full rent, D points out that lower rate had been acted thereupon. P argues no consideration for lower rent.New promise not supported by consideration.

Landlord awarded back rent to time when property fully rented out (since that was logical end of new promise).

In obiter, Denning indicates that the P would not have been successful claiming back rent to start of new promise—D had relied on the promise by staying in the house. This is the foundation of promissory estoppel:Where a promise is offered and another party relies upon it, the offeror is estopped from claiming a lack of consideration. A shield not a sword, used in defence only.

Hughes v. Metropolitan Railway (UK HL, 1877 ; p. 316)

P, landlord of D, was entitled to compel repairs within six months of notice. After such notice, P and D negotiated but failed to agree to a sale of the property. When six months passed, P sued for breach and to evict D.

Found that the subsequent expectation created by the P's negotiation interrupted the six months' notice, granting D additional time to repair.

First case of promissory estoppel in that the promise implied in negotiation could not be undone by the P.

Combe v. Combe (UK CA, 1951, p. 318)

Wife sues for arrears in amounts husband agreed to pay (not supported by consideration).Decree nisi (divorce) – then contemplation of maintenanace, then husband promises to pay ₤100, but never does.

Denning backs off broad statement of promissory estoppel, limiting it with the sword / shield distinction

Wife's nominal forbearance to sue in divorce court cannot be consideration because it is a right she cannot waive, thus there's no consideration for the husband's promise and it is not binding—no reliance, since he never paid.

High Trees, as re-interpreted, 'shield':(1)[First Party] ← (Promises && Consideration) → [Second Party](2)[First Party] – (New promises, no consideration) → [Second Party] = Reliance(3)[First Party] – (Attempt to enforce (1)) → [Second Party] = Promissory estoppel

Combe v. Combe, being would-be 'sword':(1)[Promisee / Plaintiff] ← (New promises, no consideration) – [Promisor / Defendant]

This doctrine would be a sword in the hand of the plaintiff: attempt to use promissory estoppel in the absence of consideration, where there is no pre-existing agreement.


D & C Builders Ltd. v. Rees (UK QB, 1966; p. 323)

P do work for D, who doesn't pay in full. Upon trying to collect when in dire financial straits, D offers partial payment in satisfaction of the whole. P sues for whole now.

Denning J. indicates that partial satisfaction may suffice only where there is true accord, and that isn't found here, sue to economic duress, so

Concurring, Danckwerts J. finds for P, citing Foakes v. Beer

Tudale Explorations v. Bruce (ON DC, 1979; p. 328)

Tudale terminated agreement to extend time for mining rights negotiations, despite verbal agreement for 30 day extension.

Grange J. follows Hughes v. Metropolitan Railway, and Denning's concept of promissory estoppel, or classic doctrine of waiver.

Brings promissory estoppel to Canada Note importance of 'true accord'

Walton Stores (Interstate) v. Maher (Aus. HCA, 1988; p. 332)

D demolishes building and builds to P's specs, thinking that WS will rent the new building. WS had never responded to agreement (so no preexisting contract and so promissory estoppel cannot be used as a shield).

Ct finds that P knew or ought to have known that D understood agreement, sees detrimental reliance on a promise to enter into a lease.

To depart “from the basic assumptions underlying the transaction between the parties must be unconscionable.” (¶ 34)

So promissory estoppel allowed as a sword in Australia, though not in Canada, essentially allowing the formation of legal relations.

Baxter v. Jones (ON CA, 1903; p. 341)

P believes he has increased insurance coverage via agent (D) but the agent did not notify the insurers and so the increase is void.

Liability for D found because he had started the process of insuring the P but failed to follow through with the notifications.

Sloan v. Union Oil of Canada (BC SC, 1955, p. 343)

P offered generous termination benefit which evaporate when D is acquired by another company. Sues for benefit.

Ct finds that employee can take advantage of early retirement package under terms offered by original employer.

An equitable finding of detrimental reliance.

McCunn Estate v. CIBC (ON CA, 2001; p. 346)

Insurance terminated upon reaching age 70. Premiums continue to be paid beyond that, since bank didn't notify of cancellation.

Majority see this as a mistake on the part of the bank (analogy of depositing 1 M$ by accident).

Minority prefers to apply objective test of Smith v. Hughes, noting that appeared to be a continuation of the bank's offer, since they continued to accept payments.

B. Reliance in the Non-commercial Context

Skidmore v. Bradford (UK Chanc., 1869, p. 355)

Uncle buys warehouse in nephew’s name, dies and seller sues nephew for the unpaid portion of the cost of the building.

Reliance on Uncle’s promise is sufficient to enforce the promise; uncle's estate must pay down the debt.

Dalhousie v. Boutilier (SCC, 1934; p. 356)

D pledged donation to university, but did not follow through

Not enforceable – not supported by consideration Ct found that the P did not substantially rely on D's

pledge

6. Intention to Create Legal RelationsA. The Non-commercial Context

Balfour v. Balfour (UK CA, 1919; p. 361)

Husband promised to support wife while overseas.

Promises between spouses presumed to be unenforceable.

To make an intrafamilial promise binding, put it


under seal.

Jones v. Padavatton (UK CA, 1969; p. 363)

Mother-daughter dispute: studying at the bar but not making progress per terms of agreement for daughter's use of mother's house in London.

Danckwerts: no intention to form legal relations; could have used a sealed instrument.

Salmon LJ.: If there was intention, it was limited to a ‘reasonable time’ which had passed.

In transaction with non-family members, presumption is for legal relations to be formed;

In familial transactions, presumed intention to create no legal relations.

B. The Commercial Context: Letters of Comfort

TD Bank v. Leigh Instruments (ON CA, 1990; p. 368)

Bank is owed money, gets a Letter of Comfort (LoC) from the parent company. The bank then tries to sue on the LoC. Under LoC, bank charges higher interest than under guarantee, due to higher risk – the bank knows this.

A Letter of Comfort is not intended to create a legal obligation to repay a debt; i.e., it is less than a guarantee

Was not a misrepresentation by Leigh because the letters said only that Leigh would ensure that the the company would be managed to meet debts, not guaranteeing that it would do so.

Policy: if court found letter of comfort binding, this eliminates that business tool.

7. Third-party Beneficiaries and Privity of ContractA. Doctrine of Privity Only a party to a contract can sue or be sued on a contract. Others are “strangers” to the contract. Contracts over non-land deal with “personal rights”; contracts over land deal with “real rights”. Personal oblig. stick to the people (incl. corporations) whereas real oblig. can follow the title of the land. There may be an implied collateral contract extending from the manufacturer to the consumer,

especially where a retailer is relies on representations from the manufacturer in selling; or where the manufacturer has provided information directly to the consumer (e.g., pamphlets).

Where a contract is not found, it may be reasonable for a consumer someone to sue the manufacturer in tort.

Dunlop Pneumatic Tyre v. Selfridge (UK HL, 1915; p. 377)

P tries to sue D based on the agreement between P and a wholesaler (who had agreed on a price for retailers), a party dealing commercially with each of the P and D.

Only a party to a contract can sue on it (consideration must be given for the promise)

Tweddle v. Atkinson (UK QB, 1861; p. 377)

Lord Haldane: “My lords, in the law of England, certain principles are fundamental. One is that only a person who a party to a contract can sue upon it. Our law [contrast with Scots law or Civil law jurisdictions] knows nothing of a jus quaestitum tertio arising by way of contract.”

Also: in order to enforce a contract, consideration must have been given by the promisor.

Scruttons v. Midland Silicones

(UK AC, 1962; p. 378)

Consignor (shipper) → Carrier (transpo company; hires stevedores) → Consignee (buyer).Bill of lading, as a contract, excluded liability for the carrier, but didn't mention stevedores, who end up

Court finds strictly in privity that stevedores are not party to the contract and their liability is not limited.

Policy: effect was to encourage double insurance, where most efficient would have been for shipper to insure, knowing the value best.

Led to use of Himalaya clauses = a term on a bill of lading to expressly extend a limitation of liability to third parties [employees], such as stevedores


damaging the product.Stevedores claimed exemption in Bill of Lading.

(from Alder v. Dickson, The Himalaya)

B. Exceptions to the Doctrine of Privity(i) Agency (agent acting for principle, even where undisclosed)

(ii) Assignment (debt is re-assigned across parties)

(iii) Trust (a Trustee agrees to hold assets in trust for another)

(iv) Employees (subject to 'London Drugs Test')

(v) Collateral Contract (Collateral contract between A and C, consideration for which was the instruction to B, given in reliance on representation by C)

New Zealand Shipping v. A.M. Satterthwaite(UK PC, 1975; p. 381)

Stevedore damaged a drill, is sued by consignee. Which of two insurers will bear the loss? Shipper or stevedores?

Carrier is agent in communicating unilateral offer to stevedores, who accept by performance.

Held that the stevedores had provided consideration for the benefit of the exclusion clause by the discharge of goods from the ship.

The stevedores also do that as a part of their employment, but one performance can satisfy promises to more than one party (employer, consignee)

Greenwood Shopping Plaza v. Beattie (SCC, 1980; p. 384)

Two welders working on contract for Canadian Tire torched the place. Can Tire’s landlord sued the welders. Can Tire covered by insurance, but welders not covered.

Court finds privity in Can Tire's agreement with landlord, finds full liability for welders.

At odds with New Zealand Shipping, since welders seem just as much agents as stevedores.

London Drugs v. Kuehne & Nagel (SCC, 1992; p. 385)

P stored a transformer with D, two employees of which caused great damage to it.

Policy: don't want to encourage parties to sue minions and employees directly in commerce.

Employees can fit within (relaxed) privity due to identity of interest with the employer (explicit party to the contract)

Enables employees to enjoy limitation of liability where:(i) such a clause is explicit or implicit in the governing contract;(ii) the employees were working in the course of employment.

Laing Property v. All Seasons Display (BC CA, 2000; p. 399)

Christmas display in mall catches fire; landlord is covered by insurance, which extends to the employees responsible for the fire

Tenant's employees are found to be covered by the limitation that the employer agreed in contract with the landlord.

Note: leave declined on appeal to SCC.

8. Excuses for Non-performanceA. Express Conditions and the Waiver Thereof

Dynamic Transport v. OK Detailing (SCC, 1978; p. 556)

P (buyer) of land from D claims specific performance after D doesn't transfer land.

Found for P, seeing condition precedent that the D would subdivide the land, since only a seller can do so (there, then).

D under duty to perform toward that end in good faith, to complete the sale


Turney v. Zhilka (SCC, 1959; p. 563)

D agreed to buy land from P with a condition precedent that the land would be annexed to a nearby town, a matter in the town's hands.

Where a third party has the discretion in the condition precedent, it cannot be waived even when it is solely to the benefit of one party.

A future uncertainty makes this a 'true condition precedent' which neither party may waive.

Beauchamp v. Beauchamp (ON CA, 1973; p. 564)

P agreed to buy land from D for 15.5 k$ with condition precedent that P be able to find mortgage of 10 k$ + second of 2.5 k$; P actually secured mortgage of 12 k$; D cites condition, stops sale.

Found for P; the mortgaging term is for the P (if any) to waive and they may do so.

Not a pure externality intruding on contractual situation as in Turney.

Barnett v. Harrison (SCC, 1975; p. 565)

P agrees to purchase land from D, term stipulates condition precedent that involves effort by P but decision by municipality.

This is, like Turney, a situation of a 'true condition precedent' and thus it may not be waived.

So Turney remains 'good' law, with some statutory overrides (e.g., in BC).

B. Implied Conditions

Ontario Sale of Goods Act, R.S.O. 1990, S1, § 12-15

12. (1) Where seller fails on a condition, buyer can choose to waive the condition, to see it as a breach of warranty or to see it as a repudiation.(2) Whether a term is a core condition or a warranty is determined by construction, whatever it might be labelled in the contract.(3) By default, an unseverable contract wholly or partially filled, or a contract for a specific good or property filled, breach of a condition by the seller is treated as a breach of warranty.(4) Nothing in this section affects the case of a condition or warranty, fulfilment of which is excused by law by reason of impossibility or otherwise.

13. By default in contract of sale:(a) an implied condition on the part of the seller that in the case of a sale

the seller has a right to sell the goods, and that in the case of an agreement to sell the seller will have a right to sell the goods at the time when the property is to pass;

(b) an implied warranty that the buyer will have and enjoy quiet possession of the goods; and

(c) an implied warranty that the goods will be free from any charge or encumbrance in favour of any third party, not declared or known to the buyer before or at the time when the contract is made.

14. Upon sale by description, there is an implied condition that the goods will correspond with the description. If there is also a sample, still must meet description, not merely match sample.

15. No implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except:1. Where buyer makes known particular purpose and the buyer relies on the

seller’s skill or judgement, and the goods match the seller’s business (whether seller is the manufacturer or not).

2. Where bought by description from a seller who deals in such goods (whether the seller is the manufacturer or not), there is an implied condition that the goods will be of merchantable quality, but if the buyer has examined the goods, there is no implied condition as regards defects that such examination ought to have revealed.

3. An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.


4. An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.

Hongkong Fir Shipping v. Kawasaki Kisen Kaisha(UK CA, 1962; p. 575)

Charterparty for 5 a, to take ore to JP, takes 6 months instead of 6 weeks to arrive on a trip. Upon arrival, owner patches up and re-staffs vessel, lessor said that the seaworthiness of the vessel was a condition, the owner said warranty.

HL says innominate term: was not or could not be settled to be condition or warranty at formation, and so await damage, and then determine an appropriate remedy. (Intermediate between condition and warranty.)

Here see damages to date, and warranty onwards. Policy: don't want to allow easy out from contract to

match market vagaries, so stuck.

968703 Ontario v. Vernon (ON CA, 1999; p. 581)

D hired P to auction off assets. P failed to deposit initial proceeds (100 k$) to a joint account as agreed and pursued actions in breach of fiduciary duties. Is Vernon entitled to have repudiated remaining elements of contract?

Found: several factors guide determination of if breach is substantial enough to void contract:(a) ratio of obligation not performed to total;(b) seriousness of breach to innocent party;(c) likelihood of repetition of the breach;(d) seriousness of the consequences of breach;(e) relationship of part performed to the whole.

Here, the missing funds are big enough in context of whole contract to excuse D.

If a party is found untrustworthy, termination on grounds of repudiatory breach is likely justified.

Sail Labrador v. “Challenge One” (The) (SCC, 1999; p. 583)

Bank error caused the final payment for the purchase of a boat to be late. Seller claimed this as repudiation on the part of the buyer and thus claimed termination of the contract. Buyer sued for specific performance.

Found: this was not a substantial breach since the timing of one payment is not the core of the contract.

C. Anticipatory Repudiation

Hochster v. De La Tour (UK QB, 1853; p. 588)

D agrees to engage P as courier in specific future work, but then says in advance that will not need agreed services.

Found: If it is clear that the other party will not be able to comply, then can sue now for non-compliance.

Frost v. Knight (UK Exch, 1872; p. 590)

Parties agreed to marry after death of P's father; before her father dies, D repudiates agreement.

Found: Anticipatory breach works in favour of innocent party by creating an option of which they need not avail themselves.

In this case, claiming sooner decreases damages because the sooner P claims, the more marriageable she remains (thus less damage to her interests).

Part II – Interpretation of ContractsI. The Basic Rules

Federal Commerce & Navigation v. Tradax Export SA (The “Martha Envoy”) (UK HL, 1977; p. 619)

Ship owner lets a ship to a charterer in a charterparty. Demurrage are days beyond “lay” days (the usual days to unload a ship). Traffic congestion in shipping is a

Found: the market is competitive and thus expects to see that the cost of the risk is built into the pricing of the contract implicitly (i.e., charterer pays shipowner more if shipowner bears risk, to be assessed against market pricing)


common “misfortune risk”. In this case, who bears the cost of demurrage?

Scott v. Wawanesa Mutual Insurance (SCC, 1989; p. 620)

Child burns insured house down. Insurance won't pay out because (i) the terms of insurance contract exclude damage that results from illegal actions on the part of the insured and (ii) the terms define the insured to include dependents under the age of 21.

Majority sees a clear exclusion of the acts and thus the damage in this case, so no insurance payout. Strong policy-brought exclusion of benefits from ones own wrongdoing.

Minority looks to the overall intent of the parties in the insurance contract, seeing several coverage (each insured is barred from profiting from their own wrongdoing, but the other co-insured can benefit) instead of joint coverage (all insured parties treated as a unified whole).

Minority quotes Estey J. from another case: 'normal rules of construction lead a court to search for an interpretation which would appear to promote or advance the true intent of the parties at the time of entry into the contract'

Note contra proferentum: where the wording is ambiguous it will typically be construed strictly against the party who drafted it and who seeks now to rely upon it.

II. The Parol Evidence Rule 'can't bring in external evidence' to seek intention of the parties where a written document is evidence of the contract

(i.e., the document, by definition, specifies the intent of the parties). Often these days, a term will be included in the contract that the written document is the whole contract.

Lampson v. City of Quebec (CA PC, 1920; p. 629)

Lord Atkinson: 'that intention by which the deed is to be construed is that of the parties as revealed by the language they have chosen to use in the deed itself'

Eli Lilly v. Novopharm (SCC, 1998; p. 629)

Strictly put, per Iacobucci, because of the parol evidence rule, it is 'unnecessary to consider any extrinsic evidence at all when the document is clear and unambiguous on its face'

He notes that it would be absurd to ignore the commercial interests of the parties, but expects that the meaning should be readable from the text, if the parties intended their words' legal consequences

Bauer v. BMO (SCC, 1980; p. 631)

Creditor (D) failed to perfect, thereby increasing debt owed by guarantor. Anything that a creditor does to increase the risk on the guarantee of the guarantor will release the guarantor from their obligations, but BMO claims benefit of term in contract.

Found for BMO: strict adherence to construction of the contract: despite that BMO intended to perfect their interest in the debt, that they didn't does not void their claim to Bauer because their contract with the guarantor explicitly permitted them to fail to perfect the debt.

Gallen v. Allstate Grain (BC CA, 1984; p. 635)

P bought grain seed from D after receiving oral assurance that the product would smother weeds, which did not occur. The contract specified that D

Court notes exceptions to strict application of parole evidence rule, offers a list of situations in which extrinsic evidence should be admitted (e.g., to support a collateral agreement, to dispel ambiguities)

Parol evidence rule thus amounts to a presumption in


did not warrant the crop. favour of the written agreement, nothing more. Here court find oral assertion was a warranty.

Hi-Tech Group v. Sears Canada (ON CA, 2001; p. 646)

Difference of opinion about when the contract for management of the 'Mature Outlook' programme could be terminated: P: with 120 days notice before the end of any 1a term; D: with 120 days notice.

Where the document is ambiguous, the courts will look to the surrounding circumstances.

Lord Wilberforce quoted: 'no contracts are made in a vacuum' (contrasted with omission of evidence from beyond the contract).

III. Misrepresentations and Warranties1. Representations, Conditions and Warranties

(mere) puff: sales talk—typically not actionable, i.e., no remedy; representations: statement of fact—party receiving this should be able to rely on it, but it's not typically a part of the

contract, not a statement of future performance; when wrong: innocent (remedy: rescission of the contract), fraudulent (remedy: termination and can sue for tort of deceit with likely significant damages (in tort)), negligent in the middle but relatively new (remedy: tort);

opinion: no particular expertise—reasonable person would not rely on this—typically not actionable; [expert opinion: professionals are more likely to be 'on the hook' for their utterances;] warranty: a representation that something will occur in the future—thus, a promise of future performance; not a term,

or may be collateral (an 'independent promise')—breach one one side will not absolve the other side of their commitments, although that side can sue for damages;

condition: an essential term, at the root of the contract, was bargained for in essence (a 'dependent promise', tied to the promise(s) going the other direction in the contract); a breach of such a term means that the other party isn't getting that for which they bargained, which might be termed a fundamental breach—party suffering from the breach doesn't need to perform and can sue for damages (after taking mitigating steps).

A. Innocent

Hongkong Fir Shipping v. Kawasaki Kisen Kaisha(UK CA, 1962; p. 575)

Charterparty for 5 a, to take ore to JP, takes 6 months instead of 6 weeks to arrive on a trip. Upon arrival, owner patches up and re-staffs vessel, lessor said that the seaworthiness of the vessel was a condition, the owner said warranty.

HL says innominate term: was not or could not be settled to be condition or warranty at formation, and so await damage, and then determine an appropriate remedy. (Intermediate between condition and warranty.)

Here see damages to date, and warranty onwards. Policy: don't want to allow easy out from contract to

match market vagaries, so stuck.

Ontario Sale of Goods Act, R.S.O. 1990, S1, § 12-15

As above.

Consumer Protection Act, 2002, S.O. 2002, c. Sched. A., § 7, 9

7. No waiver of substantive and procedural rights, despite any such agreement Limitation on effect of term requiring arbitration: must allow court action Procedure to resolve dispute: may use any procedure available in law Settlements or decisions: as binding as if this statute were not involved Non-application of Arbitration Act, 1991

9. Quality of services: supplied deemed to warrant reasonably acceptable quality Quality of goods: implied conditions and warranties from Sale of Goods Act are

deemed to apply Cannot void the Sale of Goods Act in a consumer transaction


If a term specifies contravention of Sale of Goods Act, it is severed and void

2. MisrepresentationsA. Innocent

Redgrave v. Hurd (UK Chanc, 1881; pp. 658)

In P's sale of his solicitor's business, asserts it brings in 200 £ per year, but upon taking possession and partial payment, D finds it does not and refuses to complete. P sues for specific performance.

Court finds innocent misrepresentation: rescission. Note that only options then were fraud and innocent

misrepresentation: would have been difficult for D to ascertain truth of the matter, so would likely have been difficult to prove fraud, but action doesn't seem so innocent

Rescission gets D his payment back, but not reliance.

B. Fraudulent

Derry v. Peek (UK HL, 1889; p. 659)

Fraud: 'false representation must have been made knowingly, or without belief in its truth, or recklessly, careless whether is be true or false'

3. Collateral Contracts A contract between two parties may be accompanied by a collateral contract between one of them and a third person

relating to the same subject-matter.

Heilbut, Symons v. Buckleton, (UK HL, 1913; p. 661)

'I understand you are bringing out a rubber company.'

Court finds no collateral contract: high hurdle. Note that there was no negligent misrepresentation

then, so court was forced into innocent or fraudulent

Dick Bentley Productions v. Harold Smith Motors (UK CA, 1965; p. 666)

Dealer (D) sells car saying that it has only 20 k miles on it, but in reality it has 100 k.

A statement intended to induce another party into a contract with the party making the statement, that does so will be considered a warranty.

Need to look beyond the written instrument and work around the parol evidence rule.

Again, before advent of negligent misrepresentation.

Murray v. Sperry Rand (ON HC, 1979; p. 673)

P bought harvester, relying on manufacturer's promotional brochure. Harvester underperforms.

Privity of contract is relevant here. No problem to find dealer liable, but manufacturer tougher.

Finds warranty: a collateral contract that induced P into contract with dealership: affirmations of future performance instead of just facts

Implied term that goods will conform to their description

Shanklin Pier v. Detel Products (UK KB, 1951; p. 676)

P employed contractors to paint a pier, told them to buy paint made by D, who had said that paint would last for 7 a. It lasted only three months.

Found: P can sue D on a collateral contract, having provided consideration for the D's promise via agreement with the contractors, entailing purchase of the D's paint

Must be an intention to create a collateral contract before that contract can be formed.

Fraser-Reid v. Droumtsekas (SCC, 1980; p. 668)

P bought a completed house from D, a builder. Sale document stated that house met municipal rules, but it did not, and it flooded.

Express warranty is found here against the construction company.

Warranty must be a collateral undertaking forming part of the contract by agreement of the parties, express or implied, and must be given during the course of the dealing which leads to the bargain and should then enter into the bargain as part of it

4. Warranties and the Doctrine of Privity

McMorran v. Dominion Stores Carbonated drink bottle Contract is invoked to find manufacturer (co-D, in


(ON HC, 1977; p. 683)exploded, injuring P's eye. this case) liable by vertical privity due to a latent

defect in the product.

Sigurdson v. Hillcrest Service (SK QB, 1976; p. 684)

Defect of brake hose could not be seen by mechanic (D) upon installation, caused accident and injury (to Ps).

No negligence (of installation) because of latent defect (by definition, latent defect cannot be seen upon reasonable inspection), so no tort.

Contract liability limited to the one of the three Ps that actually purchased the goods: breach implied by Sale of Goods Act§ 15(1) [fitness for purpose], so manufacturer liable to defendant ('vertical privity')

Winnipeg Condominium v. Bird Construction (SCC, 1995; p. 685)

Cladding falls off building, second purchaser sues construction company, despite that the contract was between the builder and the initial owner only.

Held: liability extends beyond the first purchaser—danger of the defect is highlighted in this case, so would it extend to non-dangerous defects?

In this case, pure economic loss claimed in tort is limited, but allowed: tort as an alternative where strict privity would be unjust?

5. Boundaries of Tort and Contract: Contractual Relational Economic Loss

Bow Valley Husky (Bermuda) v. Saint John Shipbuilding(SCC, 1997; p. 687)

Parent companies own a joint subsidiary, which contracts with a maintenance company. The subsidiary burns down using a supplier's product and the parent companies want to recover from the maintenance company, but are barred by privity. Sue maintenance company and supplier in tort.

Majority: exclusionary clause covered duty to warn (can contract out of tort liability)

Minority: exclusionary clause should be conveyed strictly; did not include duty to warn; Bermuda was contributorily negligent (60%)

Principle of avoidance of “liability in an indeterminate amount for an indeterminate time to an indeterminate class” per Cardozo C.J. is invoked as a policy argument to void liability to parent companies in 'contractual relational economic loss', so:

Economic loss of third parties that contracted with an innocent party that was negligently harmed by the party it had a contractual relationship with will not be compensated.

6. Negligent Misrepresentation

Esso Petroleum v. Mardon (UK CA, 1976; p. 709)

Representation made by expert provided by P prior to contract formation about how much petrol would be sold induced D to enter into the contested contract.

Majority found: would find breach of warranty, trial judge did not, so:

Negligent misrepresentation:~If one has or professes special knowledge or skill and makes a representation by virtue thereof to another with the intention of inducing that party to enter into a contract, one is under a duty to use reasonable care that the representation is correct.

VK Mason v. Bank of NS (SCC, 1985; p. 715)

D assures P that if they invest in third party, they will be paid through third party's loan with the bank. Third party goes bankrupt; the bank won’t release money. No contract, so P sues in tort on their negligently-made assurance.

Brings negligent misrepresentation to Canada Test for negligent misrepresentation:

(i) there must be an untrue statement, (ii) it must have been made negligently, (iii) there must be a special relationship giving rise to a duty of care, and (iiii) there must be reliance which is foreseeable.

Keith Plumbing & Heating v. New Port City Club (BC CA, 2000; p. 723)

Bank falsely, carelessly misrepresented the finances of D, and relying on that, P lent

Despite that the bank's letter had specifically disclaimed the problem that arose, from the point of view of the P, only the bank had information about


money. the financing situation, so finds negligent misrep.

7. Negligent Misrepresentation and Concurrent Liability

J. Nunes Diamonds v. Dominion Electric Protection(SCC, 1972; p.725)

P installed burglar alarm, getting inexpensive insurance. Like alarm circumvented at another business; P was assured by D that alarm okay.

Limitation on negligent misrepresentation: where risks are allocated in the contract, the tort claim of negligent misrepresentation is barred

The assurance was given negligently, but must be independent of the contract to fuel tort liability

Queen v. Cognos(SCC, 1993; p. 726)

P induced to move to Ottawa for employment by D along with oral assurance of at least two years' work. One month in, D terminates, following written contract terms.So breach seems a stretch; maybe use oral statement.

Exculpatory clause cannot be used for pre-contractual representations and will not protect D from negligent misrepresentation .

Independence arises in one of two ways: (i) made to person who is not a party to the contract (may be negligent misrepresentation), or (ii) duty owed by D is independent of the contract

Central Trust v. Rafuse(SCC, 1986; p. 728)

Where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negate the right to sue in tort.

BG Checo v. BC Hydro & Power Authority(SCC, 1993; p. 729)

Adopts rule of Rafuse, above, to Canada. I.e., concurrent liability allowed.

Hercules Management v. Ernst & Young (SCC, 1997; p. 731)

Auditors (D) negligently misrepresented status of third parties with whom it had contracts. P relied on these auditing reports to its detriment.

Test for duty in negligent misrepresentation: (i) is there a duty of care, (ii) if so, should the scope of that duty be limited by policy concerns? [Anns/Kamloops Test]

Again, Cardozo's expression of the concerns about indeterminacy of liability in: amount, time, class.

Here, policy concerns void liability of auditor (D).

IV. Techniques of Control1. Contracts of Adhesion and Inequality of Bargaining Power

Parker v. South Eastern Railway, (UK CA, 1877; p. 847)

Action against the D for the value of a bag and its contents (24 £) lost by the negligence of the D's employees. Back of ticket from D said 'no claims greater than 10 £'.Not a signed contract.

Exculpatory clause will be incorporated iff:(i) party knew or ought reasonably to have known that the clause would likely be there, (ii) or if reasonable notice of the clause is given

Reasonability of notice depends on (a) the nature of the clause (more unusual requires more, clearer notice), and (b) the degree of notice (is the exempting condition set out prominently on the face of the ticket, or referred to prominently? unlikely to be incorporated if there are no such words)

Heffron v. Imperial Parking (ON CA, 1973; p. 853)

Parked car, paid rate, left keys in car as told. Ticket said 'no liability for theft or damage'.

D cannot rely on exemption clause because this is a a fundamental breach, so normal bailment rules apply

Burden of proof: insufficient to claim ignorance of what happened. Must show loss (i) not the fault of the bailee, and (ii) not due to negligence

D prefers to see license to park over bailment


Bailment: owner retains legal title of goods but hands over possession either gratuitously or for value; if goods cannot be returned at end of bailment the bailee is assumed to be liable unless shows that took all reasonable steps/due care to return goods in same form.

Licence: not a contractual relationship; permission to do something which would otherwise constitute a trespass; no liability

Thornton v. Shoe Lane, (UK QB, 1971; p. 857)

P parked in lot operated by D with sign 'All cars parked at owner's risk,' ticket refers reader to terms posted on premises.P injured in elevator, sues.

P had insufficient notice of the D's intention for P to waive rights in contract to park—terms would have needed to be made clear upon getting the ticket, not later.

Red hand pointing toward exemption clause needed

2. Signed Contracts and the Doctrine of Fundamental Breach(1) Rule of law: operates regardless of the intention of the parties – if there has been a fundamental breach, the exculpatory clause dissolves(2) Rule of construction: Ct must examine the contract as a whole to see whether, on its true construction, an exculpatory clause applies to the instant case, fundamental breach or not(3) Wilson J. in Hunter: substantive test of reasonableness

L'Estrange v. Graucob (UK CA, 1934; p. 860)

A person who signs a contract will be bound by its terms even if they did not read them.

(For commercial contracts only, where the parties had the time to read the contract.)

Photo Productions v. Securicor Transport (UK HL, 1980; p. 864)

Cheap, negligent security guard set fire to premises being guarded. Securicor's contract had an exculpatory clause.

Rejected: Rule of Law approach would be that the contract dissolved and the clause with it and that Securicor is liable.

Rule of Construction approach: parties bargained for this position, so stuck: D charged less for security had exculpatory clause, so P should have bought insurance

Beaufort Realties v. Chomedy Aluminum (SCC, 1980; p. 868)

Despite agreement to not do so, D filed a mechanics lien against the P's property.

Canadian adoption of Rule of Law approach to doctrine of fundamental breach, despite noting Rule of Construction approach in decision.

Hunter Engineering v. Syncrude Canada (SCC, 1989; p. 871)

Machine broke down after warranty expired: supplier not liable, because of exclusion warranties.

Fundamental breach is a rule of construction and not a rule of law, as adopted in Canada.

Plas-Tex v. Dow Chemicals (p. 702)

D manufactured resin used by P in pipe-manufacture for use by P and others in P's group. Resin had a defect which rendered pipes hazardous. D was aware of defect at time of contracting, P was not. D inserted limited liability clause to protect against defect.

Found: improper to add a term to cover a major defect that is known to the inserting party.

Strikes out limitation of liability clause on policy grounds: the unconscionability of the D's actions warrants a removal of limitation of liability

D's actions amount to a breach of fundamental terms of the contract.

3. Signed Form Contracts and Inequality of Bargaining Power

McCutcheon v. David Macbrayne (UK HL, 1964; p. 889)

Farmer takes ferry a number of times, never reading “three or four thousand words” terms and conditions.

Burden on the ferry to show that P did understand the contract.

The pattern of the transaction creates a situation in which is it reasonable that the contract has not been


read or understood (would create a huge queue for the ferry as people read the contract before signing it each time). D may even expect no one reads it.

Tilden Rent-a-Car v. Clendenning (ON CA, 1978; p. 895)

D took extra insurance, exclusion clause on back of rental insurance contract excluded driving when intoxicated, accident occurred when he was intoxicated. D had relied on an oral assertion from P that there were no terms that he needed to know.

Found for P on weight of oral assurance. In commercial context, harsh rule of L’Estrange may

be fine, but not in consumer context P should draw these terms to the attention of the

other party (red hand)

978011 Ontario Ltd. v. Cornell Engineering (ON CA, 2001; p. 903)

Commercial context; signed document without reading it.

Termination provision was clear and visible, and it was only P's precipitous act in signing without reading that gave rise to his mistake

Five factors might justify reliance (might need more than one):(i) past dealings in which reliance was accepted,(ii) explicit assumption of advisory responsibilities,(iii) relative positions of the parties in understanding,(iiii) manner in which parties were brought together, the expectation that could create in the relying party;(v) whether 'trust and confidence' has expressly been placed by one party in the other.

Part III – RemediesI. DamagesThree heads of damages:

(a) punitive (rarely awarded in contract law), (b) expectation (to take P to position as if the contract had been performed), (c) restitutionary / reliance (generally to take P to position as if the contract had not been entered).

Also note specific performance, not a type of damage per se.Expectation in contract law relates to the expectations that were voluntarily created through the contract;in tort law, expectation arises, but is not interfered with in a voluntary manner (e.g., expectation of wages).

To sustain expectation damages, injured party typically must (i) prove existence of contract, (ii) assert that breach has occurred, (iii) prove the injury as a direct result of the breach, and (iiii) value the expectations with proof.

1. The Compensation Principle

Wertheim v. Chicoutimi Pulp (CA PC, 1911; p. 5)

Complainant should, so far as can be done by money, be placed in the same position as he would have been in if the contract had been performed.

2. Quantification of ValueExpectation: Two bases of assessment:

(a) difference in value, (b) cost of performance / cost of cure.

To an extent, depends on nature of property at issue: goods (prima facie difference in value) vs. building/land (prima facie cost of the cure).

(loss of bargain) = (gains prevented) + (losses suffered) – (costs avoided) – (gains made possible)

Peevyhouse v. Garland Coal D strip mines the land; clause Damages are to be measured by the cost of


(Okla SC, 1963; p. 6) in contract that they would put the P's property back as they found it.

completing performance, unless that cost is vastly disproportionate to the value to be derived there from (unjust enrichment).

Policy: cost of specific performance is greater than the value of the award, and so choose damage instead of specific performance

Minority holds that the D acted wilfully and not in good faith and the cost of performance was factored into the contract, and courts should not rewrite the contract and the contract is clear and unambiguous and thus should be upheld. [prefer this]

Groves v. John Wunder Co.(US-Minn, 1939, p. 7 at ¶ 11)

Measure of damages here was the cost of performance (minority view from Peevyhouse)

Ruxley Electronics and Constr. v. Forsyth(UK HL, 1996; p.20)

D (owner) contracted with P (builder) for a pool in his back garden. Built too shallow.

Introduces loss of amenity: paying a reasonable sum for the loss suffered the other party.

Damages are designed to compensate a loss not to provide a gratuitous benefit to an aggrieved party or punish the D for breach.

If the cost of reinstatement outweighs the need to reinstate, it is unreasonable to award the cost of reinstatement.

Victory Motors v. Bayda(Sask DC, 1973; p. 25)

D contracted with P to buy a car and then reneged. P sues for commission on lost sale, D claims that since P sold the car to another, no damages are warranted. P claims that could have sold two.

Court relies market conditions to assess damages:analysis of supply and demand as evidence to assess whether or not the P would have sold two cars in reality or not: per court, if demand exceeds supply, then P could not have found a second vehicle from manufacturer to sell... if demand is met with supply to spare, then P could have found and sold a second car given the second customer.

3. The Scope of a Damages Award: Reasonable Contemplation

Hadley v. Baxendale (UK Exch, 1854; p. 49)

Carrier delayed in taking shaft from Mill for repair. Mill sues for lost profits as result of shutting down mill for days.

Special circumstances: “where two parties have made a contract which one of them has broken, the damages ... should be such as may fairly and reasonably be considered [limitations on damages]:

(i) arising naturally in the course of things;

(ii) such as may be reasonably have been supposed by the parties (i.e., special circumstances will need evidence of communication so that the party bearing the risk can be shown to have agreed to bear it.

Victoria Laundry v. Newman(UK CA, 1949; p. 55)

P getting boiler replaced; told D that boiler required ASAP; boiler damaged before delivery, took 20 weeks to get it in place; P lost very lucrative dyeing contracts as well as the normal business, so sues for loss of profits during delay

D liable for only loss of profits as might reasonably have been expected to be earned in the normal course of their laundry business

Here, this includes laundry and dying business that could be reasonably expected, but not the missed lucrative dyeing contract

Koufos v. Czarnikow (The Heron II)

P contracted with D for shipment of sugar. Delay in

Found: loss of profit claimed in this case was not too remote to be recoverable as damages


(UK HL, 1969; p. 57) delivery, meanwhile market does down; shipper sued for lost profit.

Overrules Victoria Laundry, allowing claims for things that might happen (real chance), not requiring strict probability.

Policy: argument for different standards in contract vs. tort: contracting parties may direct attention of other party to unusual risk, before the contract is made. Voluntariness supports argument for higher threshold

3. The Appropriate Measure of Damages

Anglia Television v. Reed(UK QB, 1972; p. 68)

Preparatory outlay by film company. Lead actor, D, after signing, repudiated.P could not prove the potential gains (the actual amount prevented by the breach) but can claim reliance losses that occurred before the contract because it was in the reasonable contemplation of the parties when signing.

Innocent party must elect between:

(i) costs incurred (reliance damages) or

(ii) loss of profits (expectation damages).

Reliance damages more typically awarded where damages are speculative

Cornwall Gravel v. Purolator Courier(ON HCJ, 1978; p. 78)

Tender delivered late by D, despite that special circumstances (deadline) communicated by P to D. P would have been awarded contract and made material profit.

Purolator is liable. Response of courier companies is to start limiting

liability more directly in contracts.

4. Lost Enjoyment and Non-economic Interests

Jarvis v. Swan's Tours(UK CA, 1973; p. 92)

P's fortnight-long jaunt to Switzerland was not fun as expected based on brochure from D.

Compensated for his loss of enjoyment, beyond strict cost of the tour.

5. Employment Contracts and Aggravated Damages

Bardal v. Globe and Mail(ON HCJ, 1960; p. 99)

P sues for insufficient notice on dismissal.

Length of notice must be decided case by case on basis of:

Character of employment Length of service Age of employee Availability of similar employment Experience training and qualifications of

employment

Vorvis v. Insurance Corporation of BC (SCC, 1989; p. 99)

Solicitor dismissed, following period of harassment and humiliation by senior.

Note difference between aggravated damages (essentially compensatory and non-economic on top of expectation damages, e.g., for mental distress) vs. punitive damages (court denounces, essentially 'fining' the claimant).

Majority: need independent “actionable wrong” for aggravated damages or punitive damages (may be possible in contract, but rare); court seeks to keep distinction between contracts and torts


Wallace v. United Grain Growers (SCC, 1997; p. 102)

P left previous job because told this one would last until retirement; abruptly dismissed.

Noting the common power imbalance between employers and employees, ct moves to protect vulnerable employees

Company acted in bad faith and unreasonably during the dismissal, so courts awarded additional aggravated damages based on mental anguish suffered.

6. Punitive Damages

Whiten v. Pilot Insurance(SCC, 2002; p. 123)

House catches fire, family escapes but pets killed. Insurance company refused to pay out, claiming (falsely) that insured set fire to house herself.

Falsity and extremity of insurer's actions lead court invite court to denounce actions.

Punitive damages contrast with unconscionability. Latter usually arises in business to consumer situation, typically when P has engaged in the impugned behaviour, and so is raised as a defence (typically to explain why the D did not perform). Punitive damages would be more likely invoked where the D is doing sketchy stuff, not the P.


Contracts Johnson 2009 2

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