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Contracts Outline Kayli Clark 1 of 34

DOCTRINE OF MISTAKE —> IS THERE A K? • Doctrine of mistake is one of last resort. Many “mistake” issues can be dealt with by traditional K-

formation principles. To be applied, must be true ambiguity in the terms or assumptions of the K.• Must look at:

1) Fairness: Who should bear the risk? Will one party be greatly enriched if K enforced?➡ Big corporations usually better able to bear the risk

2) Formation: No consensus ad idem normally requires a K to be void ab initio 3) Reasonable person: Exception. Would a reasonable person think there was a K?

• Summary: If one party never promised the certain quality of the product, even if aware P thought product had that quality & D knew it didn’t, there is no remedy. Bcuz of paramount importance that K be observed & if parties honestly comply w/ essentials of K formation —> they are bound

Application1) Did K (expressly or impliedly) provide for who bears the risk of mistake? (Miller Paving)

• A cancellation fee indicates that the risk is to be borne by the person who has to bear cancellation fee (Great Peace Shipping).

• Was it someone’s responsibility to determine the amount owing? (Miller Paving 2007)2) If not, can turn to CL mistake (Miller Paving)3) If K is valid at CL, can make a plea in equity (Miller Paving)

Who made the mistake1) Common: Both parties made the mistake about the same thing2) Mutual: Both parties made mistakes but about different things (Seller thinks they are selling

X, Buyer thinks they are buying Y) (Staiman Steel 1976)3) Unilateral: One party is mistaken & other party knows/ ought to know they’re mistaken (fair?)

• Unfair surprise, you are bing unjustly enrichment vs.• Certainty/ predictability (Sanctity of K. If such an important provision, why not in K?)

• Deception (did the seller promise anything thru words or conduct?) vs. • Caveat Emptor (seller under no obligation to tell buyer of their mistake)➡ Applies in commercial settings, not usually in consumer vs. biz settings

Mistake of the nature of document• Non est Factum: A person does not know what their signing. Therefore, their signature is not

binding. Required: The document they are signing must be radically different and represent a fundamental change.• K not void: (i)Person is of full age, understanding, and literate (ii)Person was negligent (iii)K

signed was not fundamentally different from what they thought they signed (iv)Reasonable pre-cautions not taken. (Saunders v Anglia 1971)

• K void: (i)Person temporarily or permanently unable to read/ understand document (ii)Person took reasonable precautions


Common law mistake of terms• Definition: A mistake as to the subject matter of the K (Staiman Steel & Smith v. Hughes)➡ (I thought you promised me that the car you were selling me had a six-cylinder engine) ➡ Could argue based on: breach of warranty, breach of condition, misrepresentation

• D: Void: No consensus ad idem if two parties agreed on two fundamentally different terms of K• P: Not void: Apply objective “reasonable person test” —> Even though no consensus ad idem,

can a RP find certainty in the terms? (Hughes)• The words & actions of D indicate the intention to have a binding K (Smith v. Hughes 1871)

• Snapping up a deal: Despite the fact that objectively an offer was clear, both parties knew/ should have known there was a mistake. As such, there is no K (Hartog)• Exception to objective approach: To prevent a form of fraud, can look to parties’ subjective

intentions (this only applies to a mistake of terms, not to mistake of facts)

• Arguments:• D (wants K void): Consensus ad idem. K should be void, there was a mistake of terms that

were central to the K and therefore no consensus ad idem at the time of K formation. Each party subjectively thought the type of ___ was central to the K (Raffles)

• P (wants K upheld): Reasonable person test. Subjective approach to K formation has been re-jected (Smith v. Hughes). An objective approach has been adopted for K formation and a rea-sonable person could find certainty in the terms. Raffles can be distinguished because there is not total ambiguity in this case. In this case, a person could infer a common intention (Staiman)

• D (wants K void): Snap up deal. P is acting opportunistically and trying to “snap up” the deal. Courts are not inclined to enforce K if it leads to unjust enrichment (Staiman Steel 1976)

• P (wants K upheld): Caveat Emptor. Not acting opportunistically, Caveat Emptor should apply. No general obligation for one party to disabuse the other of a mistake (if not fraudulent/ deceit-ful). Promised nothing. There was a mutual mistake (Smith v. Hughes)

• D (wants K void): Risk burden. P is better able to bear the burden of risk that the K will not go through. Courts have commonly supported the consumer in transactions with corporations

• P (wants K upheld): Reliance. A seller of goods is not necessarily the more “powerful party. I am not a multi-national company, I am a privately run shop. I relied on the buyer following through with this K. It is unfair to void K when a reasonable person would’ve relied on it. Ks = sacrosanct


Common law mistake of assumptions• Definition: A mistake made by both parties, relating to the existence of some quality external to

the K, which rendered the agreement essentially different (usually a common mistake)➡ (I thought the car you were selling me had a six-cylinder engine)➡ Can argue based on: Nothing else. Mistake is only remedy

• Three types of mistaken assumptions:1) Identity of K parties: Intended to K w/ someone else. Evidence: K face to face v. in writing.✴ Ultimate question: Who bears the risk btwn two innocent parties

• K Void: (i)If the offer was to the person the rogue was impersonating, not the rogue. (Cundy v Lindsay) (i)If a fundamental mistake regarding identity of the party➡ K is only void if P knows the person who the fraud is pretending to be.

• K not void: When there is face-to-face interaction, strong presump. that each party in-tended to K with the present party. Not applicable to K’s solely in writing (Phillips v Brooks 1919)

• K Voidable: Fraudulent misrepresentation (Lewis v Avery; Shogun)➡ If K found to be “voidable” but it is not voided before rogue sells product to a third

party, then the third party is the rightful owner (no remedy) (Lewis v Avery; Shogun)➡ Sale of Goods Act s. 28: When seller of goods has a voidable title, but seller’s title

has not yet been voided @ time of sale, then buyer acquires title to the goods.

2) Existence of subject matter: No K if what is being sold does not exist• K Void: (i)Common assumption that subject matter of K is in existence when it is not;

(ii)One party is unable to supply the goods contracted for• K Not Void: When party claiming “mistake” is responsible for the mistake (McRae)

3) Quality of subject matter: Very high standard (Bell v. Lever Bros 1932)• K Void: (i)Mistake of both parties & (ii)Mistake was a fundamental underlying assumption

about the quality which made the K essentially different from what it was believed to be• Fundamentally diff: Barren v. Breeding cow• Fundamentally same: Severance agreement w/ pay v. severance agreement w/o pay

(a difference in monetary value does not render the K fundamentally different)

Equitable mistake • K can be “voidable” under equity when (Solle v. Butcher 1950):

1) Common & Fundamental misapprehension: K entered into under a common & fundamen-tal misapprehension (party seeking to set K aside not @ fault) (Miller Paving 2007);

2) Unconscientious to avail on mistake: It is unconscientious or unreasonable for one party to avail themselves on the legal advantage it obtained; and

3) No injustice to 3P: It is possible to remedy the situation w/o injustice to a 3rd party• Examples:

• Fraud or Material misrepresentation (Solle v. Butcher 1950)• Mistake by one party (re: identity) and other party knows but remains silent• Common assumption (re: fundamental fact) and that party is not at fault

• Overturned: Application of equitable mistake was overturned in Great Peace Shipping. However, this is a UK case and is not applied in Canada. This is good because the Test for Mistake in Great Peace Shipping is too restrictive (requires impossibility of performance)

• Policy reasons: (i)3Ps (CL mistake doesn’t account for 3Ps who have relied on K); (ii)Remedial flexibility (binary options - void v. not void - don’t always provide a sufficient remedy)


• Negligent misrepresentation:Special relationship btwn P&D (provides opinion or info); False info provided negligently; P reasonably relied on rep & damages suffered (Hedley Byrne 1964)


• Arguments:• Identity of parties

• P (wants K void): Nemo Dat. You cannot transfer (sell or buy) property you do not have. The fraud did not “own” the property when sold it to P. As such, K is void

• D (wants K upheld): BFP for value. I am an innocent party and paid for this property. There is a policy argument upheld by the courts for protecting bona fide purchasers for value. Why? Be-cause seller is in a better position to protect themselves (require identity before sell, require full bank payment, certified cheque, etc.)

• P (wants K void): Identity of purchaser. Identity of purchaser is of key importance. I intended to K w/ someone else and not the rougue. Therefore, the decision in Cundy should be followed and the K should be considered void ab initio

• D (wants K upheld): Written K. The decision in Cundy can be distinguished because that was for a written K. This K is face to face, therefore the decision in Phillips should be applied and the K upheld.

• P (wants K void): Intention of parties. Face to face is not a rigid rule. Strong presumption that when parties transact F-to-F, they are transacting w/ each other. But this can be overcome if the intention of the parties was to complete the agreement only on written terms (Shogun). Written docs reveal true identity of rogue & since the offer was to the person on paper & not the rogue, the K is void ab initio

• D (wants K upheld): Due diligence. There is nothing more D could have done to ensure the transaction was legitimate. P however was in a position to do more due diligence

• P (wants K void): Fraud Misrep. P may have been able to do more due diligence but they do not need to bcuz their actions would be considered Fraudulent Misrep & under Fraudulent Mis-rep a K is voidable and can be set aside. Therefore property should belong to P

• D (wants K upheld): Detect fraud b4 sold. It is true that a K is voidable under Fraud Misrep but only if P finds out the fraud before goods are sold to 3P (D). That did not happen in this case. Therefore K is enforced and D holds rightful title (Lewis v Avery 1972)

• Existence of subject matter• D (wants K void): Common assumption. There was a common assumption that the thing ex-

isted and it does not exist. Therefore, K should be void.• P (wants K upheld): No common assumption. This was not a common assumption. D made

an assumption and P relied on it. A party cannot rely on doctrine of mistake if (i)No reasonable grounds for believing the thing existed & (ii)They deliberately induced that belief into the mind of the other (McRae 1951). D did not take any steps to verify the existence of the thing and a rea-sonable person would expect P to rely on D’s assertion (D’s an “expert”). K should be upheld

• Quality of subject matter• D (wants K void): Fundamentally different. Both parties made a mistaken common assumption

about the quality of the subject matter. Without this quality, the subject matter of the K is funda-mentally different and therefore it would be unfair to enforce the K when it is not what D thought they were contracting about

• P (wants K upheld): High standard. The very essence of the K has not been affected by D’s mistaken assumption. The quality of subject matter requirement is a very high requirement (Bell v. Lever Bros). Further, even if the mistake is fundamental, it is due to D’s own mistake and as such the doctrine of mistake cannot be applied. (McRae)


WHAT ARE THE TERMS OF THE K?

Parole evidence —> Use if there is ANY SORT of promise in fact pattern• P: Rule: Oral statements that contradict K aren’t admissible (if no ambiguity) (BMO 1969)

• Not applicable: Written K not the whole K (oral terms supplement written K bcuz of ambiguity)• Oral admissible if: (i)Misrep, (ii)Warranty, (iii)Mistake, (iv)Unconscionability, (v)Rectification

• D: Presumption: PER recast as a presumption not a rule (Gallen 1984 - failed buckwheat crop)

• Four step PER application (Gallen 1984)1. Warranty: Is parole evidence a warranty —> was it the very thing which induced the other

party to contract? If oral term is a representation/ puff, PER may apply• Mere puff: Advertising, does not give rise to any legally binding obligations • Innocent misrep: False statement about a material fact that D did not know was false.

Was not meant/ did not induce. Remedy limited to rescission (Redgrave 1881)• Warranty: Made to induce to enter K, it does induce (other party relied on it), & reliance

is reasonable. D=special knowledge, formal context, specific content (Dick Bentley 1965)2. Harmoniously: Can oral term & written term be interpreted harmoniously (can both be given

effect)? Does it conflict with the “this is the entire agreement” term in written K?3. Presumption: If there is a contradiction, strong presumption in favour of written doc. The rule

is not absolute. “If on the evidence the oral warranty was intended to prevail, it will prevail”4. Rebuttal to rule: Courts won’t allow written agreement to override a clear, specific represen-

tation which has been relied on(i) Nature of document - Look at totality of evidence. Is there an “entire agreement” clause?

Did both parties have knowledge of written K (read it)? Was the doc signed? Was the K standard form? Was the doc short (shorter docs = less likely PER applied)? If parties in-tend written K to be exclusive/authoritative, PER applies (Zell 1943)

(ii) Nature of conflict - How significant is the conflict? General exclusion won’t override spe-cific oral UNLESS exclusion brought directly to parties attention (Zippy Print 1995)

(iii) Nature of the representation - Oral term central to formation of K? Credible evidence?(iv) Relationship of the parties - Unfair bargaining power? Had oral reps in the past? If two

seasoned, commercial parties, PER more likely to apply(v) General - What was the parties intention? Has there been reliance? What is the reason-

able expectation? Would enforcing the oral term lead to unfair surprise?• Policy rational for PER:

• Administrative ease - look at one written K. Fraud prevention - oral term hard to prove; • Efficacy of commercial documents - sets bad precedent if can overrule written K; • Enhance certainty - prevent unfair surprises in unrecorded terms

• Policy rational against PER: • Reliance: Person heard the statements and relied on the statements when entering the K• Legislation: Consumer protection legislation says PER does not apply.

Rectification • General rule: If a mistake as to the recording of the terms of the K, can seek rectification if:

• P proves existence & content of a prior agrmt. Proof of oral agrmt (beyond BOP but not RD)• P provides precise wording for rectification• D knew or ought to have known the mistake (i.e. refusing to rectify would be unconscionable)

• Arguments:• P (wants K upheld): Caveat Emptor Allowing rectification will promote sloppy work & lack of DD


• D (wants K fixed): P trying to promote unconscionable conduct. P ought to have known there was an error. This is not what we agreed to. K has no business efficacy if upheld as is.


IS THERE AN EXCLUSION OR LIMITED LIABILITY CLAUSE?

Exclusion clauses • Signature rule: Standard form K is a binding contract. Signature establishes assent (L’Estrange)

• P: 1st development: Onerous terms in a standard form K are not binding unless they are brought to the attention of the signor (Tilden 1978)• Why: (i)P did not read the K before signing. (i)Signature does not reflect true intention of signer.

(iii)Car rental knew Tilden didn’t read & no reasonable steps were taken to bring to his attention

• Policy: (i)Not a K btwn sophisticated biz’s (ii)Consumer trusted that biz wouldn’t be unreasonable

• D: 2nd development: No general requirement to bring terms to a signing party’s attention, unless circumstances indicate a reasonable person should have known the signing party was mistaken/ not consenting to the terms. TILDEN NOT APPLIED BROADLY (Karroll 1988)

• As such, a standard K will be upheld even if not read EXCEPT in three circumstances (where party requesting assent must notify the signatory) Onus on P to fit into the categories.(Karroll):

1. Non est factum: Assent was not their own2. Fraud or misrepresentation3. P: Reason to believe the signor misunderstood the terms/ K (Objective test)

• Staying silent if aware of misunderstanding = misrep by omission (Karroll 1988)

• Length of K: Long K w/ little time to read/ review. Did it say “Please Read Carefully”?• Size of print: Small font• Formality: Informal• Speed of transaction: Hasty, No opportunity to read the K• Consistency of clause w/ K: Clause is inconsistent with rest of K (limit liability so per-

son can partake in dangerous activity?)• Specific exclusion clause or general: General exclusion clause• Expectations: Signed release forms like this b4? Form consistent w/ industry standard?• Bargaining power: Unequal bargaining power? Lack of equality between the parties?

• D: Commercial: No obligation for a party to bring terms to other parties attention (Karroll 1988)• D: Not commercial: Stating “Please Read Carefully” can suffice as bringing to attention

• Arguments:• P (K not binding): K length, font size. It is true that Tilden has not been broadly applied, how-

ever this is not an exchange btwn sophisticated biz. There was reason to believe that I misun-derstood the terms because you saw I did not read the whole K, the K was very long, and the exclusion clause was in small font.

• D (K binding): Speed of txn, consistency, party expectations. There was plenty of time for P to read the document and she had signed documents like this before. Further, the exclusion clause was consistent with the rest of the K.


Conclusion: The onus was on P to prove that she fit into one of the categories in which the Tilden rule applies and P has failed to do so so K is binding. The courts decision would be in line with pol-icy considerations regarding the sanctity of K


Doctrine of fundamental breach • Original rule: Exemption clause cannot protect a party who is liable of a breach that goes to the

root of K (Karsales 1956 - agreed to buy car but arrived in deplorable state)

• Implied terms: No matter how clear the exempt clause, cannot protect the party if not carrying out K in its essential aspects. Cannot turn a blind eye to your obligations (Karsales 1956)

• Limited application: It was found that the court has no discretion to refuse to enforce a valid and applicable exclusion clause unless P can point to paramount public policy concern which over-rides freedom of K (Tercon 2010 ineligible bidder)

D: D would argue that to determine if there is an overriding public policy concern, a three-step ana-lytical approach can be applied (Tercon). The approach requires the exclusion clause to: (i)Apply in the circ, (ii)be unconscionable @ formation of K, and (iii)be overridden by policy b4 a court will find it unenforceable. D would argue that the excl. clause applies in the circ, it is not unconscionable

• Three step analytical approach (Tercon 2010):1. Apply: Does the exclusion clause apply to the circumstances established?

➡ Intention of parties: When created K

2. Unconscionable: If yes, was it unconscionable @ formation of K?➡ Concerned w/ K formation NOT K breach ➡ Unequal bargain pwr: Two commercial parties?

3. Public Policy: If yes, should the court refuse enforcement due to public policy?➡ Onus: On P avoiding enforcement of excl. clause to prove public interest > enforcing

K➡ Ex: Criminality, fraud, abusive conduct, unfairness, recklessness➡ Contemptuous conduct: D knew resin was defective & could be dangerous but did

not disclose the risk & sold it anyways (Dow Chemical 2004)➡ Redundant: If exclusion clause is so broad it renders other provision redundant, it will

not be enforced (Tercon 2010)➡ Solution: If exclusion clause becomes unfair during the course of performance but

was fair at inception - not enforced if meets public policy requirements.

4. Contra Proferentum: Even if there is no overt public policy to override freedom of K, the clause is at best ambiguous and thus ambiguity should be construed in favour of signatory

• Policy: Balance btwn: Abuse of power/ unconscionability v. Freedom of K/ autonomy of parties

Conclusion P: In favour of P which is in line w/ policy considerations regarding abuse of powerConclusion D: In favour of D which is in line w/ policy considerations regarding freedom of K and respecting the autonomy of parties

Doctrine of Privity • Historically: Privity is a common law that states only someone party to a contract may enforce it,

even if the contract was made for the benefit of a third party (Tweddle v. Atkinson)• Outcome: If you are not privy to a contract, cannot sue a party in the contract because no

rights and liabilities to the third party;• Now: Third parties can be privy to a contract if (i) intention to include 3P as beneficiaries; (ii) activ-

ities performed by 3Ps are contemplated by contract (Fraser River 1999)


• “Intention” to include 3rd party must be contemplated by BOTH PARTIES. If K implies that 3Ps are included, courts would find that signing the contract = “contemplating” including 3Ps


HAS THE K BEEN FRUSTRATED? • General principle: Frustration is a mistake in the future. Most often relates to land sale

• Requirements to apply: Unexpected event goes beyond risks allocated by K✴ Mere fact that K becomes more expensive/ difficult to carry out is not enough to provide re-

lief

• Argue mistake first• Why: Frustration relieves parties of future obligations but mistake would find the K void ab initio

• Mistake has more flexible remedies (“voidable” vs. “void”)• Mistake can recover historical pmts (void) where frustration can only recover future pmts

• BC Frustrated Contracts Act: S.5 allows for:• Restitution: Pre-frustration losses to be recovered • Reliance: Reliance losses from a frustrated K to be apportioned equally between the parties

• Policy. Balance between: • Certainty and predictability of market place. Sanctity of K (courts shouldn’t interfere) K upheld• Unfairness/ onerous/ efficient allocation of risk (courts should interfere) K voidable

K impossible to perform • Stages of frustration

• First: Rule of absolute promise: Does not matter if fundamental change to purpose of the K. Buyer assumes both risks and rewards of ownership and K should be upheld (Paradine 1647)

• Second: Relaxing the absolute rule: Imply a condition into K about continued existence of sub-ject matter. Only bound by obligations if what was Kd for continues to exist (Caldwell)

• Third: New rule: Very similar to mistake (Krell - rent room for King Henry Procession)(i) The frustrating event is fundamental to the K(ii) The frustrating event made contractual performance impossible(iii) The frustrating event was an unanticipated risk(iv) The frustrating event was no fault of either party

• Examples:• Promise to marry: promisor dies. Contract for portrait: artist goes blind• Music hall lease: music hall burns down (Taylor v Caldwell 1863)• International sale: Export ban introduced (legal impossibility)

• Arguments:• P (K upheld): Caveat Emptor. Buyer/ lessee obtains benefits and burdens of the product/ land

during the time that they own it. The fact that there was a war that prevented the use of the land does not change the requirements of contracts. The K is enforceable (Paradine)

• D (K void): Implied condition. K is subject to an implied condition that the subject matter/ pur-pose continues to exist. Since the subject matter has been destroyed (Caldwell) or the purpose of the K has been destroyed (Krell), D should be relieved of future obligations.


Commercial venture is destroyed**More common. It is about the purpose for which the K was entered into being destroyed”**

• Rule —> Applied narrowly. Could suffer substantial hardship (big cost inc) & courts won’t apply(i) The frustrating event is fundamental to the K

• Event must occur after K formation(ii) The frustrating event render contractual purpose destroyed

• Impact must be more than inconvenience —> must render K fruitless✴ Radical change in K —> completely affects the nature & purpose (need to know the

other parties purpose. Not enough just to be aware of it) (KBK v Safeway 2000)- Aware of purpose: (i)What did the Ad say? (ii)Contract clauses specifically stating

the purpose? (iii)Purchase price specifically calculated based on purpose?✴ Change must be permanent (not just a delay)✴ Not a “radical change”: Increase in expenses, delay, onerousness, lost profits

(iii) The frustrating event was an unanticipated risk• General exclusion clause: Does not count as allocating the risk (Safeway)• Who are the parties: Are the parties sophisticated enough to think that something like this

could go wrong with K? (Sea Angel)✴ Must not have been foreseeable (otherwise parties would just allocate risk)✴ Was the risk (a delay) a risk of the “industry”?✴ If the risk was not foreseen, should it have been?✴ If the general form of the risk is foreseeable (delays), it doesn’t matter if that particu-

lar form is not foreseeable (duration of delay) (Sea Angel)

(iv) The frustrating event was no fault of either party• At fault: Can’t deliver on K bcuz (i)ineffective marketing (ii)high cost (Atlantic Paper 1976)✴ Must not be self-induced

• Force Majeure clauses:• Construed narrowly: Courts see some of these provisions as transferring all the risks of loss to

one party. This can lead to an inequitable allocation of risk

• Examples:• Commercial purpose of K is destroyed

• Policy: Risk of unfair hardship to P outweigh general policy of K enforcement (Caveat Emptor)?

• Arguments:• P (K upheld): No radical change. K was for sale of land - not specifically for sale of land to be

rezoned - therefore there was no radical change in K. Further, a risk like this was contemplated because a provision in K that allocates risk should zoning change (Victoria Wood)

• D (K void): Risk not foreseeable. This K was clearly for rezoned land - proven by how the K was advertised and the fact that a provision in the K indicates D’s intention to rezone. Further, this event was not foreseeable. It was the first of its kind (a new gov’t program). The provision “allocating the risk” is generally worded and not applicable to this scenario. K is frustrated (Safeway)

Conclusion• For P: K upheld because aligns with principles of certainty and predictability in the market place

and the sanctity of a K.


• For D: K void because requiring D to perform would be overly onerous and unfair. Courts are will-ing to step in and efficiently allocate risk if this was not done during K formation due to a power imbalance and P took advantage of D


IS THE K UNFAIR?

Duress - Common law remedy• Pressure or threat: Provides relief where there is a pressure or threat that results in a K being

formed due to a coercion of will that vitiated consent. Very difficult to establish• General attributes:

1) Most commonly used: When K between commercial entities. 2) Application: Narrow

3) Required: No other alternatives; Pressure 4)Not required: A relationship btwn parties

• K modification originally: unenforceable if no new consideration (practical benefit) or accepted under duress (Williams v. Roffey)

• K modification now: enforceable if no new consideration as long as no duress (NAV Canada)

• General test (need 1 & 2 to be present):1) Pressure: K was extracted due to pressure (more than ordinary commercial pressure)

• Requiring a tugboat to pay for assistance bcuz about to collide (Port Caledonia 1903)• Requiring a contractor to settle for a lower bill bcuz going bankrupt (D&C Builders 1966)• Legitimately allowed: to w/hold performance so other party will change a term (NAV

Can)

2) No alternative: Coerced party had no practical alternative but to agree• Is the party applying pressure a monopoly? (NAV Canada 2008)• Absence of alternatives is indicative but not determinative of duress. Could still have

consent even if there is a lack of alternatives (NAV Canada 2008)

3) Consent: If Step 1 & 2 are met, did the coerced party consent to the K change?• Was promise supported by consideration? Indicative of commercial pressure not duress• Was it made under protest?• Were reasonable steps taken to disaffirm the promise as soon as possible?✴ No relief: If victim approves of K after pressure stops (waits years to bring claim)

• No Defence: If D was acting in good faith; Or if P obtained independent legal advice

• Result: Goods or person: K is void ab initio. Economic: K is voidable at option of coerced party

• Policy: Just bcuz a party forced a hard bargain, if the other chooses to accept (even if no other option) is that fair to set the K aside? When does commercial pressure become duress?

Conclusion of No Duress: Courts would likely not find duress because there is no pressure or threat that was applied to P in such a degree that it resulted in a coercion of their will that vitiated consent.


Unconscionability - Equitable remedy• 1. Contextual factors: Allows for relief from an unfair adv. gained by an unconscientious use of

power by a stronger party against a weaker party (UBP) (Morrison v Coast Financial 1965) • UI: about “lack of consent”. Unconscionability: there can be consent but K could still = void

• 2. General test: Requires there to be unequal bargaining pwr & proof of substantial unfairness in order for K to be voidable

• 3. Arguments:1) Unequal bargaining power (UBP) due to ignorance, economic need, distress, etc.; and

• No express categories of relationships —> but usually pre-existing relationships where there is a potential for inequality

• More power: knowledge, education, experience• Not necessarily more power: More money (Harry v Kreutziger 1978 - Ab fishing license)

2) Proof of substantial unfairness in the bargain• If these requirements are met, D presumed to commit “fraud” which they have to disprove • Even though consent was given, K should be void if weaker party as not given a chance to

(i) seek independent legal advice; and is (ii) less knowledgeable (Bundy 1975)

• Rebuttal to general test (Morrison v Coast Financial 1965):• D can prove the transaction was: (i) fair, (ii) just and (iii) reasonable or (iv) No adv. was taken

• Alternative test:• Prove whole txn is divergent from community standards of commercial morality✴ Laws regarding commercial transactions can dictate community standards

• Result: K is voidable at the option of the coerced party

• Consumer Protection Act:• S.8: Unconscionability can occur before, during or after the transaction

- Better than Unconscionability —> only looks @ unconscionability @ time of K formation• S.9: Once unconscionability alleged = p.f. presumption of unconscionability. Biz must disprove

• Policy: Protect the vulnerable

Conclusion of No Unconscionablity: Courts would likely not find unconscionability because there was equal bargaining power between the parties and D has discharged its burden to prove that the transaction was fair and just and no advantage was taken


Undue influence • Dominant relationships: Provides relief for improper use of influence over another to induce K

• Equitable remedy —> Valid @ CL but equity step in to rescind K• Doesn’t have to be actual influence, can be the possibility of influence. “Simply the relationship

itself can mean that one party is predisposed to agree w/ the other party” (Royal Bank)• General attributes:

1) Most commonly used: K between private individuals 2) Application: Broad3) Required: Relationship btwn parties 4) Not required: A lack of alternatives; Pressure

• Two Categories of relationships:1) Actual influence:

(a) No pre-existing relationship of trust & confidence: Claimant must prove UI

2) Presumed undue influence: —> w/ in presumed UI there are two subcategories➡ Is there an established relationship of dependance?

(a) De jure: Established relationship of influence = dependence is presumed• Ex: Fiduciary, trustee/ beneficiary; solicitor/ client; doctor/ patient; parent/ child✴ Husband & Wife: NOT DE JURE! Must prove de facto relationship (Royal

Bank)✴ Were sexual ties used as a weapon? Reliance on hubby to take care of fi-

nancials?• Rebuttal: P didn’t enter into the K through their full, free and informed thought✴ If De Jure fails —> then run De Facto

➡ No? Is there a manifest disadvantage?(b) De facto: Relationship must be proven. Was there a relationship of trust & confidence?

• Ex: Sexual relationships; Bank/ client; Professor/student• Rebuttal: Prove no influence. Prove P entered into K thru free & informed thought✴ Manifest disadvantage: Not always required (forced to sell house, but made $$).

- Commercial txn: Manifest disadvantage/ D’s undue benefit needs to be present- Gifts: Manifest disadvantage does not need to be present

➡ Onus shifts to D: Txn entered into as a result of full, free and informed thought• Manifest disadvantage: Although not necessary to prove UI, it is helpful to show UN-

FAIRNESS in K —> K was not entered into w/ full/ freewill • Factors: Little contact btwn parties, no reliance = No UI (Goodman 1991)

• Requirement for banks• Bank is “put on inquiry” to ensure ppl making a guarantee are doing so voluntarily. If banks do

this “DD”, then they are protected (K enforced) even if there is UI (Royal Bank)• (i)Meet w/ spouse privately; (ii)Explain extent of liability; (iii)Warn of risk; (iv)Urge them to obtain

independent legal advice (Royal Bank of Scotland 2001)• If banks have actual or constructive notice of the risk of UI - K will be void

• Constructive notice: Txn (on its face) not benefit spouse & possible influence (spouse)• Arguments:

• P (K void): Manifest disadvantage. I was at a manifest disadvantage and D was in a de facto position of trust which he abused. Therefore, K should be void

• D (K upheld): No manifest disadv. No manifest disadvantage, you made a lot of $$ on sale of house. Courts do not like to interfere w/ reasonable bargains. No UI & K should be upheld

• P (K void): Process v Result. Do not need manifest disadvantage to claim UI. UI is about wrongful influence by a party. UI is focused on the process of txn & end result. Even though I made money on the sale of my house, I did not want to sell it.


• Result: K is voidable at the option of the coerced party

Conclusion: No improper use of influence bcuz no relationship of trust/ reliance and P entered K bcuz of full, free and informed thought


DOES THE K VIOLATE LAW OR PUBLIC POLICY? • Illegality: Does not mean unlawful —> Means court’s will not apply for public policy reasons• Policy: When does public policy trump private ordering?

• In favour of private ordering: (i)Agreements btwn rational individuals should be enforced. (ii)En-forcing Ks promotes predictability and certainty.

• In favour of public policy: (i)When private rights injure public interests. (ii)Only override private or-dering in rare cases where harm is “substantially incontestable”

-> PERSON CLAIMING DAMAGES WOULD NOT CLAIM ILLEGALITY BCUZ MAKES K VOID <-Statutory law • Meaning: Where K (formation or performance) is expressly or impliedly prohibited by statute

• Is K entered into w/ object of committing an act prohibited by statute?• Does K require performance contrary to a statute? Confer benefits in violation of a statute?

• Traditional approach• D: Very strict - K formed /performed contrary to statute (even if trivial infringement) K = void• P: Courts moved away from traditional approach (Still v. Minister of National Revenue 1988)

• Contextual approach —> requires three steps—> Takes into account the policy aspect1) Determining the purpose of the statute2) Would allowing the action (formation/ performance of K) violate statute’s purpose?3) If there is a violation, can it be justified (policy)? Consider (Still v. Minister of National Rev):

• P (K upheld): Serious consequences of invalidating a K • D (K void): Social policy reasons for the prohibition (granting relief to P would under-

mine the purpose of the statute) • P (K upheld): Class of persons statute meant to protect (if meant to protect P, then find-

ing the K void because it infringes the statute is counter-intuitive)• D (K void): P can’t benefit from their own wrong (Did P act in good faith? Was infringe-

ment intentional?)• P (K upheld): Even if statute was followed - would not have changed anything

• Result: If K is found illegal, it is void ab initio. • Policy: To determined “effects of illegality” courts must balance (i)Gradations of offensiveness &

(ii)Relative innocence of parties

Common law• Contrary to public policy

• Ex: K’s injurious to the state or administration of justice, involving immorality, benefit from crime• Ex: Restrictive covenants (RC) are prima facie unenforceable —> especially if ambiguous

• P’s POV (unenforceable) : Freedom of trade/ freedom of K is in the public’s interest✴ Employment K: Stricter scrutiny applied to employment K (disparity of bargaining

pwr) (KRG Insurance v Sharon 2009)✴ Sale of a business: Less strict scrutiny

• D’s POV (enforceable):• Exceptions✴Restrictive covenant is reasonable: (i)Time (ii)Activity (iii)Geography (iv)Unambiguous

• Severance - unreasonable/ ambiguous part of RC can be severed✴Notional: Reading down provision so that it isn’t illegal —> Cannot be applied

- Cannot be used to save a RC bcuz it would amount to court-rewriting K (KRG)✴Blue pencil: Scratch out individual words to avoid illegality —> Can be applied

- Can only be used in very rare circumstances. Was not used in (KRG)


• Contrary to common law: K to commit a tort


Consumer protection• Approach to consumer protection:

1) Is it a consumer transaction? 2) If yes, is the vendor regulated by a statute (Sale of Goods Act/ BPCPA)?

• Sale of Goods Act• About: Consumers have a statutory right that a good is fit for its intended purpose• Applies: Only to goods not to services • Waiver: A consumer’s rights to the Sale of Goods Act cannot be waived ✴ This does not apply to txn’s w/ a primarily business/ commercial purpose

• Business Practices & CPA• About: Consumers have the right not to be deceived by:

• Oral/ written/ visual representations made by a supplier; or• Product does not have certain qualities that were promised (benefits, age, style)• Product will not be supplied w/in the stated period of time & supplier knows this• The supplier’s price estimate is materially less than the price subsequently demanded by

the supplier after goods are delivered• Conduct by the supplier that has the effect or capability of being misleading

• Misleading: the supplier exaggerates, is ambiguous, or fails to state a material fact• There is a potential defect and supplier does not say anything (Rushak 1991)• A repair is needed when it is not• The supplier has ulterior intentions for soliciting P

✴ Deceptive acts can occur before, during, or after consumer transaction• Applies: Only to consumers not to txns that are btwn two businesses

• Consumer txn: Supply of goods or services for primarily personal, family or household

• Waiver: A consumer’s rights to the BPCPA cannot be waived • Reverse Burden of Proof: Once a consumer makes an allegation of deception/ unconscionabil-

ity, it is on the supplier to disprove the allegation• Supplier proving P knowingly & voluntarily signed the waiver = discharge BoP (Loychuck)

• Remedy: Consumer can bring an acton for damages or an injunction• Intention of supplier does not matter: Does not need to be deliberate deception. But if the sup-

plier’s words/ actions have the capability to deceive and the effect is deceptive = K is voidable• What used to be considered “puffery” by a salesman can now give rise to legal consequences

under statutes• Economic rationales for gov’t intervention (consumer protection)

i) Prevent monopoly (ensures competitive marketplace)ii) Regulation of product (safety, hazards and pollution)iii) Addresses information failures —> Theory: consumers w/ more info make better decisions

• Decreases disparity btwn sellers/ consumers knowledge (mandatory disclosure req’m)• Evens out bargaining power• Prohibits fraud/ deception

iv) Increases consumer education (“truth enhancement” in marketing)

• Non-economic rationalesi) Paternalistic concerns (txn may not be in consumers LT interest, capacity concerns, protect-

ing vulnerable customers)ii) Redistributive concerns (interest rate regulation, rent control)

• Policy: Consumer protection leaves the standard of care of vendors very high.


• Even if the vendor told the consumer to have the product “checked out” if they followed this by saying that the product was “one of the best of its kind” their act would = deceptive (Rushak)


HAS THERE BEEN DISHONEST PERFORMANCE? • Basic level of honest conduct is necessary to the proper functioning of commerce• A duty of honest performance limits contractual discretionary powers✴ Requires discretion to be exercised reasonably, honestly and in light of the purposes for

which it was conferred.

Good faith • Traditionally: Courts had been reluctant too recognize a good faith obligation in the performance

of a K. This was overturned in Bhasin v Hrynew 2014• Currently: Parties must be honest w/ each other in relation to the performance of their contractual

dealings (i.e. must not lie or knowingly mislead each other)• Specific duties

i) Duty to cooperate in achieving objectives of the Kii) Duty on a vendor to take all reasonable steps to complete a saleiii) Duty not to evade contractual obligations

• General duties• What is required to achieve “good faith” is context specific (Bhasin v Hrynew 2014)✴ different implications for a LT K of mutual cooperation vs. a more transactional ex-

change• It is not the level of honesty required in a fiduciary relationship• But it is about honest performance, you promised to do something, so you should do it✴ Imposes a minimum standard of honest contractual performance. ✴ It operates irrespective of the intentions of the parties

• Application• Last resort: Use as a last resort to achieve “fairness”• Problems addressed by good faith can also be addressed by unconscionability and duress

• Criticisms• Uncertainty: The doctrine is too vague• Blanket approach: Having a “piecemeal approach” to dealing w/ bad faith is better for CL

• Categories of relationships where good faith requirements are recognized:• Insurance• Franchisor-franchisee• Employment

• Arguments:• P (K upheld): Discretionary powers. Doctrine of Good Faith requires a minimum level of hon-

est performance. The K between P & D is a LT mutual agreement. Therefore, what is required to achieve “good faith” is more than what is required in a mere transactional exchange. It may have been D’s intention when entering this K to leave when economic times got hard but the Doctrine of Good Faith operates irrespective of the intentions of the party. If D’s discretionary powers were used reasonably and honestly (as the Doctrine requires), we could have com-pleted the sale. As such, the K should be enforced.

• D (K void): Not bad faith, taking advantage of a lucrative K. I used my discretion in light of the purpose for which it was conferred (to leave an unprofitable K) and should not be held li-able or accountable for P’s bad business decisions. I was not operating in “bad faith” I was op-erating as a businessman and should be free to enter and enforce contracts where P was aware of the terms and signed anyways. Caveat Emptor applies.


WHAT IS THE REMEDY? 1) There is a K —> Offer, acceptance, consideration, mistake at formation2) A term has been breached —> breach of condition or warranty NOT misrepresentation3) There is no excuse or defence for that breach —> Duress, UI, unconscionability4) Damages —> P has the burden of proving (in descending order):

(i) Expectation: (i)Exact value of expected benefit & (ii)Expected benefit likely to be achieved; (ii) Reliance: (i)Incurred costs, (ii)Due to reliance, (iii)Suffered loss/ costs wasted, (iv)Costs are

reasonable; or(iii) Restitution: (ii)Value of benefit P gave to D

5) Defences —> Burden shifts to D to prove:(i) Expectation: (ii)Expected benefit too uncertain to calculate or (ii)Unlikely to be achieved (ii) Reliance: (i)No reliance - would have spent the costs any way or (ii)Not wasted, would have

been incurred and equally wasted even if K fulfilled6) Limiting principles —> Onus on D to prove too remote, P did not mitigate

• Remoteness: Damage foreseeable bcuz: (i)usual course of things; (ii)special communication• Mitigation: P failed to take reasonable steps to mitigate: f(i)air risk alloc; (ii)Economic waste

• CLAIM DAMAGES FOR P THAT WOULD RESULT IN GREATEST VALUE !!!Breach of a contract - common law (economic losses) • Expectation damages - default measure

• General attributes:• Purpose: Put P back in the place they would’ve been had K performed • Measure: P’s expected benefit (how much would it cost to put P where would have been?)• Justice: Distributive

• Calculation:• Cost of performance - default measure - accounts for sanctity of K, P compensation

• Difference btwn (i)what K for & (ii)what recv’d (includes reimbursement for defective perf)• Used when: Willful breach; K is sacrosanct; Do not want to reward opportunistic conduct• Ex: K for supply of goods. Goods never arrive. Cost of goods go up.

• Remedy: Difference btwn K price of goods and current market price + incidental costs• Policy: Sanctity of K, do not reward K breaker, compensate P, D do what they agreed to

• Difference in value• Difference btwn the (i)market value of the performance of the K and (ii)what was received• Used when: Economic waste; Property has no unique value; Breach was incidental to K• Ex: $100 to finish K. But unfinished K only impacts market value by $10.

• Remedy: Cost of performance lead to unjust enrichment, so diff in value used• Policy: Prevent economic waste (windfall payment to P)

• Compensation for consumer surplus• P can recover $$ in between the COP (windfall) and DIV (Nil) because D’s breach about

something that made K more convenient even if it did not increase the market value• Policy: Balances unfair surprise (to D) for windfall pmt & not rewarding a K breaker

• Loss of chance• Four requirements (Chaplin):

1. Loss of chance due to D’s conduct• Real & substantial chance P could have had a better bargain had D not breached

K2. Chance must be sufficiently real & significant, more than mere speculation

• Must be a direct chance of winning. McRae was indirect & not good enough


3. Outcome cannot depend on P’s own conduct4. Loss of chance must have some practical value (?)

• Ex: Land dev’p K. D must do “erthang” to get permit but didn’t make best efforts. P sue for “loss of chance” BUT no guarantee get permit. Damages disc. for probability of success

• Arguments Cost of performance vs Difference in value:• P (COP): Willful breach & Compensate P. D’s breach was deliberate and courts do not

want to reward faithless conduct. Doctrine of remedy about compensating P, therefore cost of performance should be used (Groves 1939)

• D (DIV): Windfall. Agree that goal in damages is compensation. It is not punishment for bad faith Ds, therefore DIV should be used to calculate damages. If COP was used it would re-sult in P getting a windfall because the K did nothing to increase the value in their property. Using COP unjustly enrich P (Peevyhouse 1963)

• P (COP): Lack of value does not absolve breach. There is no unjust enrichment - D en-tered the K and knew what he was getting into. Further, a lack of value in the land does not absolve D of the consequences of his breach (Groves 1939)

• D: Economic waste. Carrying out the K would result in economic waste because the COP is grossly out of proportion with the benefit obtained. (Groves dissent, 1939)

• P (COP): Economic waste has a narrow application. Carrying out K would not result in economic waste - only applies if carrying out the K would result in the destruction of a sub-stantially completed structure (Groves 1939)

• D (DIV): Incidental. COP is only applicable if the K about something special/ a particular use to P. P admitted they wouldn’t use the $$$ to finish the K anyways. This indicates the breach was about something incidental to K, not the main purpose (Peevyhouse 1963)

• P (COP): Sanctity of K. Courts do not want to reward opportunistic conduct which is what D’s wilful breach is. Further, courts want to uphold the sanctity of K. What is the point of having a K if D can just breach it with no real damages (Peevyhouse dissent 963)

• D (DIV): Liquidated damages clause. If the breach was so important to P, why did they not just put a liquidated damages clause for non-performance in the K? (Groves dissent 1939)

• P (COP): Unjust enrichment. If COP not awarded, there is basically no other recourse for P (policy considerations). Further, P would never have entered the K unless D agreed to do the K. Letting D breach the K w/o paying damages would leave D unjustly enriched (Rad-ford 1977)

• Arguments Loss of chance:• P: D breached K. Claim expectation damages because if K had not been breached, could

have earned a profit of (xxx) (Anglia, 1972)• D: E.D. need a degree of certainty. P’s claim of expected future benefits is too speculative

and there is no proof that they would have ever been generated (Sunshine Vacations,1984). I am not required to pay damages if the quantum is so uncertain (McRae,1951)

• P: Loss of chance. An element of guesswork will not always prevent expectation damages. If loss of chance can be quantified to an extent, then it is not too speculative (Chaplin, 1911)

• Policy (why expectation damages are the default):• Promotes reliance on business arrangements: Present value given to future entitlements• Promotes market ordering: encourages ppl to plan for the future & allocate risks

• BUT: Reliance damages will be used instead of Expectation when:• E.D. too uncertain: What was K’d for does not exist & even if it did, not sure it would have

any value (McRae, 1951). Do not know if venture will be a success or failure (Anglia, 1972)• E.D. too speculative: What exact amount of future profits? (Sunshine Vacations,1984)• P Elects to do so: When P elects to do so (P claim damages that = most $$) (Anglia, 1972)


• Reliance damages - E.D. too speculative (must be reasonable wasted costs) OR if elected• General attributes:

• Purpose: Prevent harm to P. Puts P back where they would have been, if had not entered K

• Measure: Losses incurred by P• Justice: Restorative

• Arguments:• P: Incurred cost, reliance, costs wasted. Difficulty in assessing damages does not relieve

D of the liability. If expectation damages are too difficult to calculate, then reliance damages can be claimed (McRae, 1951). I have incurred costs, I incurred them because of reliance on the K with D and these costs have been wasted.

• D: Reasonable costs. Reliance damages only awarded if reasonable. The costs P is claim-ing were incurred months before the K was signed and the other costs would be incurred re-gardless of whether P took this job or another job. Therefore a court would likely consider these costs to be unreasonable (McRae, 1951)

• P: Costs in contemplation of parties. Just because these costs were incurred before the K was signed does not mean they are not recoverable (Anglia, 1972). These costs could reasonably be expected to be in the contemplation of the parties as “likely to be wasted if the K was broken”. As such, they are recoverable as reliance damages (Anglia, 1972)

• D: Double counting. Even if the costs were “reasonably contemplated”, P also asking for lost profits. Awarding P reliance damages for “wasted costs” & lost profits = double counting and would result in P’s unjust enrichment. Courts do not want to unduly burden D, therefore these costs should be excluded from the reliance damage calc (Sunshine Vacations,1984)

• P: Compensate P. The whole point of the doctrine of damages and remedies is to compen-sate the P for losses incurred. I have incurred losses due to D’s breach and should be com-pensated for them

• D: P not compensated for bad biz deals. Only have to compensate for losses if P would not have incurred the losses IF K WAS PERFORMED. This is not the case. P was losing money in the K (expected profits < costs invested). My breach of the K SAVED P money. Courts do not grant compensation for P’s who entered into bad business deals. As such, damages should be nil

• Restitution• General attributes:

• Purpose: Prevent unjust enrichment of D. Give back to P whatever they transferred to D• Measure: Benefit to D• Justice: Corrective

• Application: K is frustrated

• Policy: The goal of damages/ remedies = compensation not punishment• P: Protecting P’s interest and reasonable expectations of P• D: Unduly burdening D and unfair surprise to D regarding the unexpected quantum of liability


Limiting principles • Remoteness - A question of policy rather than the parties’ reasonable expectations

• Rule1) Did breach cause harm that arose during the usual course of things?; or2) Was the harm in the reasonable contemplation of the parties (special circumstances com-

municated to D)• Special circumstances need to be known at K formation• Just need to tell D of general surrounding circumstances (not everything)

• Factors to consider to determine if damage was foreseeable• Degree of probability/ foreseeability of loss —> Harm needs to be “sufficiently likely to occur• Communication of special circumstances —> Timing and specificity of communication?• D’ s knowledge of P ’ s business —> Established relationship= RF. Transitory relationship=

No• Exception to transitory relationship: If D provides specific assurances or advertising

• Nature of D’ s business —> Sophisticated party/ Expert = damages foreseeable• Nature of the product —> Whole machine= RF. Machine part= No• Proportionality —> Big difference between cost of damage v. cost of K = Not RF

• Arguments• P: R.F. D should compensate me for the harm caused by the breach of K because it was

reasonably foreseeable that the breach would cause this loss. (Victoria Laundry 1949)• D: Unusual harm. This loss was unusual, not in the normal course of things. Unfair to im-

pose unknown risk of lost profits if that risk was not allocated expressly in the K (Hadley v Baxendale 1854);

• P: Communicated concerns. Even if the loss was special, the harm was reasonably con-templated by D because I communicated my concerns. Further, D had special knowledge of my business because we had been contracting for years. D is a sophisticated party and should have known breaching a K for xxxx would cause losses (Victoria Laundry)

• D: General communication not enough. P communicated a general need/ concern but no specific info. There is a policy concern with saddling D with a significant liability when info was not clearly communicated because it results in an unfair suppose (Scyrup 1963)

• P: Specific assurances. Sufficient info communicated & D provided specific assurances that he could get the job done. If D was concerned about getting the K done, then he should not have made promises that induced me to enter the K (Purolater 1980)

• D: Low probability. Damage that is foreseeable as a real possibility but would only occur in a small minority of cases cannot be viewed as “arising in the usual course of things” or be in the “contemplation of parties”. The harm has to be RF and a high probability (Koufos 1969)

• Application: Remoteness is only applied if parties have not allocated damage in K provisions

• Policy P’s reasonable expectations of K being done vs D’s surprise @ unexpected liability

• Mitigation• Principle: P cannot recover damages if they could have been reasonably avoided. P must have

taken reasonable steps to avoid the loss• P must mitigate w/ in reasonable time of breach• Commercial context: P required to continue dealing with D. Personal service K: No.

• Onus of proof: D must prove P failed to mitigate


• Rationales: Fair allocation of risk (P in best position to deal w/ consequences), Avoid economic waste


Breach of a contract - equity (economic losses)• Specific performance: Require K to be performed. Exception to the rule. Not generally applied

• Requirements: To claim specific performance —> Need to show $$ damages are not enough

• Applicable:• When (i)goods are unique (ii)land is unique or (iii)it’s a LT supply K (P may go out of business)

• Indications of uniqueness (John Dodge):i) When a substitute is not availableii) Land or goods are particularly suitable for a specific purposeiii) Convenienceiv) Combination of attractive features at a comparable price

• Not applicable:• Employment K: Strong presumption that employer cannot use specific performance to force

EE to work for them. HOWEVER, not an absolute rule

• Why Specific Performance is the exception to the rule:• Administrative: Courts would have to continue to supervise K to ensure ongoing compliance• Efficiency: If parties’ knew they would get specific performance, no motivation to mitigate

• Injunction: Require D to stop certain conduct/ enforce negative covenant/ maintain status quo• Application (Warner Bros 1936):

• Negative covenants: Courts generally enforce “negative covenants” (Cannot do something if parties agreed it should not be done)

• Not enforced under all circumstances• Not enforced if it amounts to enforcing a positive covenant • Ex: Won’t force D to work for P. But will force D to not work with anyone else (not en-

forcing a positive covenant because D can get another job)

• Positive covenants: Courts generally do not enforce “positive covenants (Continue working for someone) because this is a slavery

• Equitable damages: When specific performance or injunction is appropriate but impossible. • Money substituted for value of specific performance or injunction

Conclusion: Expect > equity: Can be uneconomic to force performance if K is broken (wasted re-sources)


Liquidated damages • Liquidated damages: Parties have pre-determined the amount of money one party owes the

other for not paying something by a certain date (i.e. breaching the K)• Penalty: Sum included in K is unconscionable compared to the loss incurred (P claims)• Liquidated damage: Fair/ genuine pre-estimate of damage (D claims

• Courts role: Law and Equity Act (BC) Can provide relief to parties if the penalty clause or forfei-ture is for an unconscionable amount• Why: Role of liquidated damages: To allocate risk NOT to penalize a breaching party

• Clause will be enforced if: A Liquidated Damages Clause will be enforced if it is a genuine pre-estimate of the expected loss P would sustain in the event of a breach by D AND NOT a penalty clause that is oppressive or unreasonable. Specific factors (Supersave 2011):• Liquidated damage clause is close to other damage calculations (ED, reliance, specific perf.)• Liquidated damage clause is close to the loss actually suffered by P• K btwn commercial entities that have equal sophistication & bargaining power

• Onus is on D:• Person who does not want to pay the liquidated damages (D) must prove:

• P failed to mitigate• The clause is an oppressive penalty not a pre-estimate of expected losses

• Policy: Freedom of K vs Relief against oppressive or unconscionable penalty

• Arguments• P: Breach of K. D breached the K (did not make payment in time) as such, D should pay the

liquidated damages stipulated in the K

• D: Onerous penalty. Liquidated damage clause is an onerous penalty that does not accurately reflect the loss incurred by P and it is significantly higher then expectation damages or reliance damages would be. Courts apply relief against oppressive conduct and this is an uncon-scionable penalty (Supersave 2011)

• P: Equal bargaining pwr. D is a commercial entity & has equal bargaining power to me. They signed the K indicating they agreed to the liquidated damages clause. Courts would consider the policy argument regarding the autonomy of parties and the freedom of K.(Supersave 2011)

Conclusion: D has the burden of proving P failed to mitigate & clause was an oppressive penalty. In this case the D discharged their burden because the penalty does not reflect the amount calcu-lated for ED or reliance damages and there was unequal bargaining power between the parties


Non-pecuniary damages - intangible harms • History

• Initially: No damages for mental disorder or non-economic interests • Why: Commercial world is about pursuit of self-interest. Feelings are for torts

• Middle: Categories were developed where damages would be granted for mental disorder:• K is for pleasure/ entertainment/ peace of mind

• Holidays (Jarvis 1973)• Weddings• Disability insurance (Peace of Mind K)• *Needs to be major part of K but not the essence of the K*

• Pets• Pet stolen/ killed by 3rd party

• Physical inconvenience/ discomfort from sensory experience• Radio makes a buzzing noise in rental car and it could not be fixed

• Employment: Intentional infliction of mental distress (Honda 2008)

• Now: Courts apply a two-part test: What did the K promise? (Fidler 2006)1) Was an object of K to secure a psychological benefit?

• Was the mental stress suffered by P reasonably w/in the contemplation of the parties when they entered the K?

• Need not be a dominant purpose or essence of the K —> just needs to be part of the K• Ex: Insurance K. The very purpose ppl enter insurance Ks is so they can protect them-

selves & do not have to stress about being taken care of (Fidler 2006)• Ex: Fired from EE contract ONLY IF an independent actionable tort (attacked EE’s repu-

tation when fired them, fired EE to deprive of pension) (Honda 2008)2) Was degree of mental suffering caused by breach of such a degree that it is suffi-

cient to warrant compensation?• Being frustrated or stressed just because K was breached is not enough

Punitive damages • Purpose: To condemn behaviour. Focus on penalizing D for misconduct. About deterrence• Application: VERY RARE. Usually only applied when clearly a strong person is taking advantage

of the vulnerable (insurance K or employment K). Needs three features (Whiten 2002):1) Exception to the rule: Needs to address highly reprehensible behaviour2) Rational: Pmt of damages needs to be related to: punishment, deterrence or denunciation3) Proportional: Damages need to be proportionate to misconduct and no more

• Was D’s conduct intentional? How vulnerable is P? How blameworthy is D’s conduct?

Other • No K: restitution of benefits (deposit back)• Equitable mistake: courts have broad remedial discretion (set aside terms of K)• K frustrated: Parties relieved of future performance, restitution of past benefits, sharing of costs.

If K is frustrated - not able to claim damages? Because no one is at fault?• Unconscionability/ undue influence/ duress: K voidable. Set aside on terms. Order restitution

of benefits/damages (?)• Void —> get restitution/ rescission

• Misrepresentation; Mistakes; Frustration• Defences —> unconscionability, undue influence, duress


CONTRACT DRAFTING

High level considerations• Strategy: Draft the first draft - put in lots of favourable clauses - then act offended when other

party wants to change SO MANY THINGS• Content: Legislation applies in addition to K terms (BPCPA)

Definitions• Location: Define the word or concept the first time you mention it• Legislation: If you have a K with a sales of goods act, make sure your definition in the K is consis-

tent with the definition in the legislation• Application: Make sure the defined terms are being used and being used consistently

Covenants • Definition: Ongoing promises to take action (affirmative) or to not take action (negative)• Issue: When a bank lends to a small business they will often include a negative requirement re-

quiring the small company to agree not to borrow any further money. This is an issue

Condition precedents • Definition: Provides the ability for a party to get “out” of the K• Issue: Determining whether we are dealing with a true condition with objective criteria or whether

it is a requirement that is too ambiguous/ subjective to be enforced

Remedial provisions • Why in K: To specify which remedies available for specific breaches• Not all K have remedial provisions - but just because they don’t does not mean there are no reme-

dies• Legislation: Must be aware that legislative provisions require certain remedies in certain situations

Limitation of liability • Indemnity: You are going to cover any damage or cost that arises out of this K or breach of this K• Key elements: Who is receiving the benefit; Who is agreeing to the limitation; Amount of the limi-

tation; Categories of damages to be limited• **Make sure to use plain language for limitation of liability —> more likely to be upheld

• Recommendation to client: set out specific damages/ extent of liability in K because remote-ness doctrine goes either way

LEASE DRAFTING

High level considerations• Discretionary provisions: Include “acting reasonably” to provisions that leave decisions entirely up

to another party’s discretion• Be careful: If used in some places and not in others, the other party may argue that they do

not have to act “reasonably” in general. Just where it expressly says so in the K• Counter: No. In Bhasin the court held that there is a food faith overlay to fulfilling all K

• Permitted use of premises: Important clause. Make sure tenant understands that their biz must fit this description —> otherwise landlords can kick them out

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