LAWG 100 – CONTRACTSProf. Helge Dedek

Summary Fall 2016Alexandra Klein

1. INTRODUCTION .......................................................................................................................................................... 4

A. CONTRACTS AND THE LAW OF OBLIGATION.......................................................................................................................4ART. 1372 CCQ...........................................................................................................................................................................................5ART. 1378 CCQ...........................................................................................................................................................................................5ART. 1385 CCQ...........................................................................................................................................................................................5RESTATEMENT (SECOND) OF THE LAW OF CONTRACTS § 1 (1981) – CML...............................................................................................5PRIVATE LAW, SOCIAL LIFE – ATKINSON AND SARGENT – 2007...............................................................................................................5OBLIGATION (GREEK AND ROMAN) IN ENCYCLOPEDIA OF ANCIENT HISTORY – DEDEK AND SCHERMAIER – 2011................................5

2. TRADITIONAL CONTRACT THEORY ................................................................................................................... 6

A. AUTONOMY OF THE WILL THEORY......................................................................................................................................6LES OBLIGATIONS – JOBIN AND BEADOUIN AND VEZINA..........................................................................................................................6HUMAN INTERACTION AND THE LAW – FULLER – 1969.............................................................................................................................6THE RISE AND FALL OF FREEDOM OF CONTRACT – ATIYAH – 1979 – CML.............................................................................................7B. HOW DOES THE LAW ENFORCE CONTRACTS? (EXPECTATION V RELIANCE V RESTITUTION)........................................7ART. 1590 CCQ...........................................................................................................................................................................................8ART. 1607 CCQ...........................................................................................................................................................................................8HAWKINS V. MCGEE [1929] – CML (US)..................................................................................................................................................8C. PROMISSORY AND RELIANCE THEORIES..............................................................................................................................8CONTRACT THEORY – SMITH – 2004..........................................................................................................................................................9D. SOURCES OF CONTRACT LAW...............................................................................................................................................9E. IS CONTRACT LAW RELEVANT?...........................................................................................................................................9AN EMPIRICAL VIEW OF CONTRACT – MACAULAY – 1985......................................................................................................................10

3. CONTRACTS ACROSS LEGAL TRADITIONS (JUKIER) ................................................................................. 10

A. CIVIL AND COMMON LAW..................................................................................................................................................10THE CIVIL AND THE COMMON LAW: SOME POINTS OF COMPARISON – DAINOW – 1966-67...................................................................11THE MAKING OF THE CIVIL LAW – WATSON – 1981................................................................................................................................11CLASSIFICATION OF CONTRACTS: A VIEW FROM A COMMON LAWYER – SAMUEL – 2011.....................................................................11A TREATISE ON THE LAW OF CONTRACTS – ADDISON – 1849.................................................................................................................12B. MIXED JURISDICTIONS.........................................................................................................................................................12BY REASON OF AUTHORITY OR BY AUTHORITY OF REASON – L’HEUREUX-DUBÉ – 1993.....................................................................12

4. THE CHANGING CONCEPTION OF CONTRACT LAW ................................................................................... 12

5. CONTRACT LAW AND IDEOLOGY ...................................................................................................................... 13

A. CONTRACT LAW AND IDEOLOGY: THE CARBOLIC SMOKEBALL AS A ROADMAP...........................................................13AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS – SMITH – 1801................................................................13ECONOMY AND SOCIETY: AN OUTLINE OF INTERPRETATIVE SOCIOLOGY – WEBER – 1968...................................................................13THE LAW OF CONTRACT – COLLINS – 2003.............................................................................................................................................14

6. FORMATION OF CONTRACT: INTENT TO CREATE LEGAL RELATIONS .............................................. 14

A. CONTRACT FORMATION VOCABULARY..............................................................................................................................14RICHARD V. TIME INC. [2007] – CVL.......................................................................................................................................................14B. INTENTION TO BE BOUND....................................................................................................................................................15ART. 1386 CCQ.........................................................................................................................................................................................15ART. 1388 CCQ.........................................................................................................................................................................................16ART. 1395 CCQ.........................................................................................................................................................................................16

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CARLILL V. CARBOLIC SMOKE BALL CO. [1893] – CML (UK)...............................................................................................................16JOHN D.R. LEONARD V. PEPSICO, INC [1999] – CML (US).....................................................................................................................17LAVOIE C. BERNIER (SUCCESSION DE) [2010] – CVL..............................................................................................................................18JONES V. PADAVATTON, [1969] – CML (UK)..........................................................................................................................................18KLEINWORT BENSON LTD. V. MALAYSIA MINING CORP. BHD. [1989] – CML (UK).............................................................................19

7. FORMATION OF CONTRACT: OFFER AND ACCEPTANCE .......................................................................... 19

A. EXCHANGE OF CONSENTS: OFFER AND ACCEPTANCE......................................................................................................19ART. 1396 CCQ.........................................................................................................................................................................................20ART. 1387 CCQ.........................................................................................................................................................................................20ART. 1394 CCQ.........................................................................................................................................................................................20PHARMACEUTICAL SOC. OF GREAT BRITAIN V. BOOTS CASH CHEMISTS, LTD., [1953] – CML (UK)....................................................20B. ‘MOMENT OF RESPONSIBILITY’ IS NOT REACHED.............................................................................................................21ART. 1392 CCQ.........................................................................................................................................................................................21ART. 1393 CCQ.........................................................................................................................................................................................21ART. 1390 CCQ.........................................................................................................................................................................................21ART. 1391 CCQ.........................................................................................................................................................................................22SHATFORD V. B.C. WINE GROWERS LTD., [1927] – CML.......................................................................................................................22C. WHEN DOES ACCEPTANCE TAKE PLACE: RECEPTION OR DISPATCH?............................................................................22ENTORES V. MILES FAR EAST CORPORATION, [1955] – CML (UK)........................................................................................................23THE LAW OF CONTRACTS – WADDAMS – 2005........................................................................................................................................23D. THE PROBLEM OF UNILATERAL CONTRACTS....................................................................................................................24ART. 1380 CCQ.........................................................................................................................................................................................24ART. 1395 CCQ.........................................................................................................................................................................................24THE TRUE CONCEPTION OF UNILATERAL CONTRACTS – WORMSER – 1916-1917...................................................................................25ERRINGTON V. ERRINGTON [1952] – CML (UK)......................................................................................................................................25DAWSON V. HELICOPTER EXPLORATION CO., [1955] – CML..................................................................................................................25

8. FORMATION OF CONTRACT: ESSENTIAL ELEMENTS ................................................................................ 26

A. MIRROR IMAGE RULE.........................................................................................................................................................26B. AGREEMENT.........................................................................................................................................................................26TERRASSE HOLDINGS V. SAUNDERS, [1989] – CVL.................................................................................................................................27RAFFLES V. WICHELHAUS (1864) – CML (UK)........................................................................................................................................27C. PARTIAL MATCHES: BATTLE OF THE FORMS....................................................................................................................28BUTLER MACHINE TOOL CO LTD V. EX-CELL-O CORP LTD. [1977] – CML (UK).................................................................................28SURELY THE NEXT TO LAST SHOT IN THE BATTLE OF THE FORMS – OGILVIE – 2011 – CML................................................................28UN CONVENTION FOR THE INTERNATIONAL SALE OF GOODS, ART. 19...................................................................................................30UNIFORM COMMERCIAL CODE, ART. 2-207..............................................................................................................................................30UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS, ART. 2.1.11...........................................................................30PRINCIPLES OF EUROPEAN CONTRACT LAW, ART. 2.209.........................................................................................................................30

9. PRE-CONTRACTUAL ARRANGEMENTS AND EXTRA-LEGAL ARRANGEMENTS ................................ 30

A. PRE-CONTRACTUAL ARRANGEMENTS................................................................................................................................30ART. 1397 CCQ.........................................................................................................................................................................................31ART. 1611 CCQ.........................................................................................................................................................................................31THE GENTLEMAN’S AGREEMENT IN LEGAL THEORY AND IN MODERN PRACTICE – RUDDEN – 1999.....................................................31CERE V. NEELY [1980] – CVL..................................................................................................................................................................32EMPRESS TOWERS V. BANK OF NOVA SCOTIA [1991] – CML.................................................................................................................32

10. CONSIDERATION, CAUSE, FORMALITIES ...................................................................................................... 33

A. FORMALITIES.......................................................................................................................................................................33CONSIDERATION AND FORM – FULLER – 1941.........................................................................................................................................34B. FORMALITIES: THE SEAL (CML).......................................................................................................................................34RECONSTRUCTING CONTRACTS – BRUDNER – 1993.................................................................................................................................34THE LAW OF CONTRACTS – WADDAMS – 2005........................................................................................................................................34C. FORMALITIES: CONSIDERATION (CML)............................................................................................................................34THE DOCTRINE OF CONSIDERATION – INTRODUCTION, IN A HISTORY OF THE COMMON LAW OF CONTRACT: THE RISE OF THE ACTION OF ASSUMPSIT – SIMPSON – 1975.............................................................................................................................................................35

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D. FORMALITIES: CAUSE (CVL)..............................................................................................................................................35ART. 1385 CCQ.........................................................................................................................................................................................36ART. 1410 CCQ.........................................................................................................................................................................................36ART. 1411 CCQ.........................................................................................................................................................................................36ART. 1412 CCQ.........................................................................................................................................................................................36ART. 1413 CCQ.........................................................................................................................................................................................36ART. 1414 CCQ.........................................................................................................................................................................................36ART. 1371 CCQ.........................................................................................................................................................................................36LES OBLIGATIONS – JOBIN AND BAUDOUIN – 2005 – PP. 400-405 – CVL...............................................................................................36HUTCHISON V. THE ROYAL INSTITUTION FOR THE ADVANCEMENT OF LEARNING, [1932] – CVL.........................................................37E. THE BARGAIN THEORY OF CONSIDERATION (CML) AND ‘MUTUALITY OF OBLIGATION’.............................................37HAMER V. SIDWAY [1891] – CML (USA)................................................................................................................................................38ROSCORLA V. THOMAS [1842] – CML (UK)............................................................................................................................................39MIAMI COCA-COLA BOTTLING CO. V. ORANGE CRUSH CO. [1924] – CML (US)...................................................................................39DAHL V. HEM PHARMACEUTICALS CORP. – CML (US)...........................................................................................................................39WOOD V. LUCY, LADY DUFF-GORDON [1917] – CML (US)....................................................................................................................40NAV CANADA V. GREATER FREDERICTON AIRPORT AUTHORITY INC. [2008] – CML............................................................................40KIRKSEY V. KIRKSEY [1845] – CML (US)...............................................................................................................................................41F. CONTRACT MODIFICATION: PRE-EXISTING DUTY RULE...................................................................................................42ART. 1433 CCQ.........................................................................................................................................................................................42HARRIS V. WATSON [1791] – CML (UK).................................................................................................................................................42STILK V. MYRICK [1809] – CML (UK).....................................................................................................................................................43G. CONTRACT MODIFICATION: PROTECTING RELIANCE: PROMISSORY ESTOPPEL............................................................43GILBERT STEEL LTD. V. UNIVERSITY CONSTRUCTION LTD [1976] – CML..............................................................................................44CENTRAL LONDON PROPERTY TRUST V. HIGH TREES HOUSE, [1947] – CML (UK)...............................................................................44WILLIAMS V. ROFFEY BROS AND NICHOLAS LTD., [1991] – CML (UK).................................................................................................45H. CONSIDERATION AND RELIANCE: INCHING TOWARD SEC. 90?........................................................................................46WALTON STORES (INTERSTATE) LTD. V. MAHER [1988] – CML (AUS).................................................................................................46RESTATEMENT (SECOND) OF CONTRACTS § 90.........................................................................................................................................47

11. CONTRACTS AS ‘THING’ ...................................................................................................................................... 47

A. CONTENT OF CONTRACTS...................................................................................................................................................47ART. 1426 CCQ.........................................................................................................................................................................................48ART. 1379 CCQ.........................................................................................................................................................................................48ART. 1384 CCQ.........................................................................................................................................................................................48ART. 1432 CCQ.........................................................................................................................................................................................48ART. 1435 CCQ.........................................................................................................................................................................................48ART. 1436 CCQ.........................................................................................................................................................................................48ART. 1437 CCQ.........................................................................................................................................................................................48LES OBLIGATIONS – JOBIN AND BAUDOUIN – 2005 – CVL......................................................................................................................48CONTRACT AS THING – LEFF – 1970.........................................................................................................................................................49OSCAR CHESS LTD V. WILLIAMS [1975] – CML (UK)............................................................................................................................49THE LAW OF CONTRACTS – MCCAMUS – 2005........................................................................................................................................50

12. INCORPORATION OF TERMS ............................................................................................................................. 50

A. INCORPORATION OF TERMS: CVL.....................................................................................................................................50DELL COMPUTER CORP. V. UNION DES CONSOMMATEURS [2007] – CVL...............................................................................................50B. INCORPORATION OF TERMS: CML: SIGNED DOCS...........................................................................................................51C. INCORPORATION OF TERMS: CML: UNSIGNED DOCS DISCREPANCIES BETWEEN WRITTEN AND ORAL AGREEMENT

51THORNTON V. SHOE LANE PARKING LTD. [1971] – CML (UK)..............................................................................................................52MCCUTCHEON V. DAVID MACBRAYNE, LTD. [1964] – CML (UK).........................................................................................................53BRITISH CRANE HIRE CORPORATION LTD. V. IPSWICH PLANT HIRE LTD. [1975] – CML (UK).............................................................53

13. INTERPRETATION ................................................................................................................................................. 54

THE EIGHT FUNDAMENTAL PRECEPTS OF CONTRACTUAL INTERPRETATION – HALL – 2015..................................................................54A. CVL INTERPRETATION........................................................................................................................................................55ART. 1425 CCQ.........................................................................................................................................................................................55ART. 1426 CCQ.........................................................................................................................................................................................55

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ART. 1427 CCQ.........................................................................................................................................................................................55ART. 1428 CCQ.........................................................................................................................................................................................55ART. 1429 CCQ.........................................................................................................................................................................................55ART. 1430 CCQ.........................................................................................................................................................................................55ART. 1431 CCQ.........................................................................................................................................................................................55ART. 1432 CCQ.........................................................................................................................................................................................55QUEBEC (AGENCE DU REVENU) V. SERVICES ENVIRONNEMENTAUX AES INC. [2013] – CVL...............................................................56B. CML INTERPRETATION.......................................................................................................................................................57SATTVA V. CRESTON [2014] – CML.........................................................................................................................................................57

14. IMPLIED OBLIGATIONS/TERMS ....................................................................................................................... 58

A. IMPLIED TERMS / IMPLIED OBLIGATIONS..........................................................................................................................58ART. 1434 CCQ.........................................................................................................................................................................................59OUELLET V 3092-3122 QUÉBEC INC, [2000] – CVL................................................................................................................................59A (M) V STATIONS DE LA VALLÉE DE ST-SAUVEUR INC. [2010] – CVL.................................................................................................60THE MOORCOCK [1889] – CML (UK)......................................................................................................................................................60B. IMPLIED OBLIGATIONS OF GOOD FAITH............................................................................................................................61C. OBLIGATION OF GOOD FAITH: CVL..................................................................................................................................61ART. 1375 CCQ.........................................................................................................................................................................................62ART. 6 CCQ...............................................................................................................................................................................................62ART. 7 CCQ...............................................................................................................................................................................................62BONA FIDES IN ROMAN CONTRACT LAW – SCHERMAIER – 2000............................................................................................................62B.C.N. V. SOUCISSE [1981] – CVL..........................................................................................................................................................62HOULE V. CNB [1990] – CVL..................................................................................................................................................................63PROVIGO DISTRIBUTION V. SUPERMARCHÉ A.R.G. [1998] – CVL..........................................................................................................64D. OBLIGATION OF GOOD FAITH: CML.................................................................................................................................64MCKINLAY MOTORS LTD. V. HONDA CANADA INC. [1989] – CML........................................................................................................65BHASIN V. HRYNEW [2014] – CML..........................................................................................................................................................66FORM AND SUBSTANCE IN PRIVATE LAW ADJUDICATION – KENNEDY – 1976 – CML...........................................................................66

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1. Introduction

A. Contracts and the Law of Obligation

What is a contract?

Obligation: a judicial link between two or more persons whereby one of them, the debtor, is required under compulsion of law to do something or refrain from doing something (prestation) in favor of the other, the creditor

An obligation that arises voluntarily is a KContract: a K is an enforceable promise

Waddams: a K is a promise that the law will enforce Smith: a K is a self-imposed promissory obligation Pothier: a K is an agreement based on the intention of the parties, and their wills create a legal obligation Beaudoin-Jobin: a K is a bilateral juridical act

Art. 1372 CCQAn obligation arises from a contract or from any act or fact to which the effects of an obligation are attached by law. An obligation may be pure and simple or subject to modalities

Art. 1378 CCQA contract is an agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation.

Art. 1385 CCQA contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties subject the formation of the contract to a solemn form. It is also of the essence of a contract that it have a cause and an object.

Restatement (Second) of the Law of Contracts § 1 (1981) – CMLA contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty

Private Law, Social Life – Atkinson and Sargent – 2007

SUMMARYOutlines the taxonomy of law, separating public and private law and then further distinguishing between 4 categories of private law: exchange, duty, fiduciary, involving property relationships. Delves into philosophical questions about the individual and the place of both public and private law in people’s lives and their place in the law.

KEY POINTS Public law: involves the state

o Criminal lawo Administrative lawo Constitutional law

Private law: relationships between individuals o Exchange relationships: agreements between parties (contracts)o Duty relationships: imposed on individuals by law (torts)o Fiduciary relationships: either imposed on or chosen by the participantso Relationships involving property: property mediates the relationship between individuals

Often public interest in private law possible that it will prevail, forcing adjustments in the purely private law considerations

Philosophical shift in 19th c: emergence of private law doctrine accepting as its premise that the individual ought to be free from outside interference from the state

Obligation (Greek and Roman) in Encyclopedia of Ancient History – Dedek and Schermaier – 2011

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SUMMARYObligation is a legal tie that binds us to render a performance to another person according to our laws.

KEY POINTS Duty: concept that someone owes something to another Liability: concept that the debtor can be held responsible if he breaches such a legal duty Roman law: obligation was enforceable according to ius civile (law of Roman citizen) Greek law: unfamiliar with concept of obligation – agreement to buy and sell created a duty without obligation Categorization of diff obligations: K, quasi-K, delicts, quasi-delicts

2. Traditional Contract Theory

A. Autonomy of the Will Theory

What is autonomy of the will?

Fundamental basis of traditional K theory Individualism & the primacy of individual rights (and subjective Ks) over the objective law of the state

2 parties willingly enter into a K together creation of subjective law, binding on the parties & state Assumption that all men are free and equal and can be trusted to look out for their own interests

Pacta sunt servanda – ie: Ks are binding and act as law, limiting judicial supervision or intervention Assume Ks are just (even if not objectively fair) because free dealing is fair dealing

Why is there a decline of autonomy of the will?

Individuals are not free and equal inequality in bargaining power Ex: systemic inequality (employer/employee, consumer/merchant), access to information, economic background

and financial ability, adhesion Ks Increase in protective public order Proliferation of non-negotiated Ks (adhesion) Need for contractual justice (ie: corrective justice)

Les Obligations – Jobin and Beadouin and Vezina

SUMMARYThe fundamental values underlying K law in QC incl. freedom to K, contractual justice, and contractual security, which follow from the theory of the autonomy of the will.

KEY POINTS4 bases of QC K law

1. Freedom to K: flows directly from autonomy of the will2. Public order: obligations are based in individual will – K is the sum of the individuals wills is in line with

social interests3. Contractual justice: good faith and equity4. Contractual security: a K is legally binding on the parties

Human Interaction and the Law – Fuller – 1969

SUMMARYIn many ways, we can draw parallels between K law and customary law in that both involve a consensual element and share the goal of creating stable interactional expectancies.

KEY POINTSCustomary law: a long and generally observed course of conduct, not the product of an official enactment

Often considered irrelevant to advanced civilizations Parallels to K law: common goal related to code of conduct is the creation of stable interactional expectancies Distinctions to K law:

Freedom to contract.

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o Written code V language of interaction offering an unwritten code of conducto Binding on the parties V binding on a communityo Immediate V persisting

Interpretation Ks

o Standard practiceo Practical construction, ie: actiono Framework for an ongoing relationship

Customary lawo Motivated by obligationo Action

The Rise and Fall of Freedom of Contract – Atiyah – 1979 – CML

SUMMARYIn the 18th c, general principles of K law as the law of the free market took hold. The Court’s only role was to intervene if a party didn’t fulfill their promise. Parties were considered independent and exercising free will and understood to best know their needs, so courts stayed out of K details/unfairness claims.

KEY POINTS 18-19th c saw emergence of gen. principles of K law closely associated with the dev. of the free market and

ideals of political economists shift from property law to K law English translation of Pothier’s Law of Obligations influenced English law: contained gen. principles of K law

that modern English lawyers were looking foro Gave expression to the notion that a K is primarily an agreement based on the intention of the parties –

their will creates the legal obligation became English theory of contractual liability Emphasis on K law as the law of the market well established by 1870 in England based on principal features:

o Parties don’t owe a fiduciary duty to each othero Parties bargain or negotiate and don’t owe a duty until deal is strucko Neither party owes any duty to volunteer info to the other and may seek outside infoo Deal is struck when parties agreeo Content is entirely for parties to settle (unfairness irrelevant since parties know best)o Bindingness is pecuniary o Court’s only function is to ensure procedural fair play if a party doesn’t perform

3 important qualifications to the above principles of K law during the classical period:o English judges always judged pragmatically – if the rule of the marketplace led to very unfair results,

they’d find ways around the principles o Force of precedent and legal doctrine sometimes made it so older 17th c principles were adhered too Statutory erosion of the freedom of the market which were reconciled with K law by excluding those

which applied to companies from K law

B. How Does the Law Enforce Contracts? (Expectation v Reliance v Restitution)

When A and B have a K, and A breaches the K, what does it mean to say that B can enforce the K? Remedies include:

Specific performance: fulfillment of the original (primary) obligation Penalties or liquidated damages clauses Expectation damages (more common) = gold standard

o Because Ks are usually executory – ie: rely on a K once signed not once loss is incurred = protection of stable interaction expectancy

What would B have gotten if A hadn’t reneged? compensation for a breach, measured in the terms of the K (Hawkins v McGee)

Reliance: what B gets extra-contractually to return to state prior to K

Ex: A buys land from B for $10,000 with the intention to sell it to C for $15,00 but B reneges on the deal

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Expectation damages Reliance interests Restitution interestsA receives his loss of $10,000 (reliance) and his expected profit of $5,000 (expectation)

A receives his loss of $10,000 Had there been unjust enrichment, A would receive the difference between his impoverishment and B’s enrichment (lesser amount)

Art. 1590 CCQAn obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay. Where the debtor fails to perform his obligation without justification on his part and he is in default, the creditor may, without prejudice to his right to the performance of the obligation in whole or in part by equivalence,(1)  force specific performance of the obligation;(2)  obtain, in the case of a contractual obligation, the resolution or resiliation of the contract or the reduction of his own correlative obligation;(3)  take any other measure provided by law to enforce his right to the performance of the obligation.

Art. 1607 CCQThe creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor’s default.

Hawkins v. McGee [1929] – CML (US)

FACTS Surgeon promised “I will guarantee to make [the patient’s hand] a 100% perfect hand” prior to an operation to

remove scar tissue and graft chest skin to replace it Surgery didn’t go well and the kid ended up with a hand worse off than before: burned and hairy Assumpsit against surgeon for breach of alleged warranty of the success of the operation

o Form of action in CML dealing with a breach of K HISTORY: trial judge in favour of kid, surgeon appealing

ISSUES1. Did the surgeon enter into a K with the plaintiff, promising a perfect hand? YES2. If so, were damages awarded at trial fair? NO

REASONINGIs it a K?

Surgeon’s claim at face value establishes the giving of a warranty in accordance with his contention Found it was meant to be taken at face value = K

What damages are due? Jury charge at trial: if you find the plaintiff entitled to anything, he is entitled to (1) recover for what pain and

suffering he has been made to endure by the operation and (2) what injury he has sustained over and above the injury that he had before (ie: measured to what degree he’s worse off than before)

o Problematic: damages in K intended for compensation of a breach (return plaintiff to as good as position as he would have been if the defendant had kept his promise)

True measure of damages is the diff between the value to him of a perfect hand and the value of his hand in its present condition

Pain necessarily incident to the surgery was willingly undertaken by the kid to make joint understanding with the doctor to produce a good hand price he was willing to pay

RATIO1. Damages awarded in breach of K are awarded to put the plaintiff in as good a position as he would have been in had the defendant kept his promise2. Damages should not be awarded for factors which the plaintiff knowingly agreed to as preconditions to the K

COMMENTS Ks not good at accounting for pain and suffering unlike torts, since they’re business transactions Even if the hand had been perfect, kid would have suffered pain from the procedure and paying for it

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suffering can’t factor into considerations

C. Promissory and Reliance Theories

Promissory theory (Smith)

Traditional view of the nature of contractual obligations such that they are self-imposed promissory obligations Explains many central aspects of K law, incl:

Freedom to K Freedom of K Remedies of specific performance and expectation damages Privity of K

Reliance theory (Smith)

A K is an obligation to ensure that others whom we induce to reply on us are not left worse off as a consequence of that reliance Consistent with a duty to reimburse reliance costs

Contract Theory – Smith – 2004

SUMMARYThe nature of contractual obligations can be explained as a promissory theory whereby contractual obligations are understood as self-imposed, voluntary promissory obligations. This theory is distinct from reliance theory, which does not explain K law as well

KEY POINTSPromissory theory of K: Ks are not just products of intentional acts (ie: of the will) but also the product of acts expressing an intention to undertake an obligation

Freedom to K: freedom to enter K or not, requires a communication of intention to undertake the obligation Freedom of K: content of a K is controlled by the parties Remedies:

o Specific performance: obligation to complete the promiseo Expectation damage: reimbursement of the value of the promise

Privity of K: Ks are binding on the parties involvedReliance theory: K is an obligation to ensure that others whom we induce to rely upon us are not made worse off as a consequence of that reliance

If the goal is the protection of reliance interests, then reliance induced with or without a promise can be the basis for liability, no promise necessary

Must show an assumption of responsibility between the parties Reliance interests are the only damages as the goal is to ensure the other is not left worse off as a result of their

reliance

D. Sources of Contract Law

K law, more than most other fields in law, is largely non-legislated many sources including: Statute sources (objective law)

o CCQo Statuteo Judgementso International treaties

Contracts (subjective law)o Only overridden by imperative provisions in the Code, though not by suppletive

provisions Custom, doctrine, ‘soft law’ principles

N.B. These all carry different weights.

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o UNIDROIT, Draft Common Frame of Reference, Second Restatement

E. Is Contract Law Relevant?

Why does Macaulay argue that (academic) K law is irrelevant? Parties do not consider K law in planning or enforcing their agreements

o Ex: battle of the forms o Ex: relational and reputational consequences

Legal sanctions are infrequently used to enforce Ks Mediation as alternative to court

An Empirical View of Contract – Macaulay – 1985

SUMMARYAcademic K law is not a descriptively accurate reflection of the institution in operation. Business people are focused on maintaining and furthering relationships and interdependence, so relational sanctions take the place of contract planning and law to keep people in line.

KEY POINTS Academic’s assumptions about the institutions of Ks are all wrong or misleadingly overstated:

o There’s a careful planning of relationships/Ks in light of legal requirements o K law is a body of clear rules to facilitate planningo K litigation is a primary means of deterring breach and resolving disputes

Reality: o Business people don’t plan, pay attention to, or honor Ks and they renegotiate deals and function

outside the legal limitations of Kso Few K cases are litigated and even then rarely produce adequate compensation for injurieso Don’t need K law because of relational sanctions: critical to foster relationships and interdependence at

the expense of potential disputeso Power, exploitation, dependence important factors affecting Ks

3. Contracts Across Legal Traditions (Jukier)

A. Civil and Common Law

CVL

Most CVL jurisdictions have a Civil Code Receive legal system from Roman law sophisticated, organized, formalistic

Emperor Justinian: compiled Roman law into the Corpus Iuris Civilis arguably the first codification of law Roman law actors:

o Iudex: judge (lay-person), decides caseso Praetor: controls access to the iudexo Jurisconsult: jurist, provided legal consultations for the judge (reason and learning), no decision-making

powero Specific formulation for cases (writs) before iudex or praetor would hear it

History: Roman empire falls and Roman law is forgotten in the West. Then there’s a revival in the 11-13 th c attributed to the creation of universities that teach the Corpus Juris Civilis. Grads go to government positions of power and draft legislation in the Roman traditions (no formal approval by any higher power)

Judge controls court and compiles a dossier with lawyers’ arguments and expert witnesses etc No jury generally QC has no jury for CVL courts (obviously for criminal it does, but that’s CML) Code introduces a comprehensive set of principles/statements of law to create a system derived from reason

A way to democratize the law by taking power from judges who aren’t elected by the people Very deductive: treats law as a syllogism: can apply law to facts

K law: lawyer starts by trying to categorize the K

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CML

King didn’t like that each county had decision-making power and diff law placed his deputies in every county so there’d be law common in every county in England Early origins are very procedurally based systems (writ system) Jury system – judge’s role is gate-keeper Oral and adversarial tradition – lawyers argue verbally in court 14th c: profession of court lawyers (barristers) develops (Inns of Court to learn – practical learning) Methodology: foundation is precedent (case law is binding – ie: stare decisis) not very structured or logical

Diff between the power of experience and of logic Doctrine has little authority – sceptical about value of theoretical insights Parallel systems of CML and equity

2 court systems with diff jurisdictions Equity allowed divergence from CML precedent as there was no flexibility in CML Merged at end of 19th c In private law, have CML and equitable doctrines that sometimes overlap and conflict

K law: lawyer starts by asking is there a K here

Tendency for CVL and CML to get closer together over time (Addison)

The Civil and the Common Law: Some Points of Comparison – Dainow – 1966-67

SUMMARYThe CML and CVL law systems differ in fundamental ways. Although movements in each (due to similar social, economic etc needs) have led to the adoption of similar solutions for their legal problems, the methods used to reach them are still very diff.

KEY POINTSCVL CML

Born of Roman law, specifically Justinian’s Corpus Juris Civilis Distinct legal culture incl.

Importance of text (ie: codification) – systematic Explicit rationality (ie: a reasoned opinion) Structured, organized, taxonomic Courts interpret law to apply it to judicial

decisions A priori (ie: it comes from above – ie: general

principles) Formal university training

Sources of positive law Legislation Enacted law

Born of the King’s Court of England (to unify localized law) Distinct legal culture incl.

Decision-making Procedural (ie: writs) Oral adversarial system with a jury Doctrine of precedent (stare decisis) Practical rules Judge can supplement insufficient laws Inns of Court – practical training

Sources of positive law Judicial decisions Case law

The Making of the Civil Law – Watson – 1981

SUMMARYBy defining CVL systems as those which either use parts or the whole of Justinian’s Code as their law (in the past or present) or are derived from such a system, it 1) deemphasizes the importance of borrowing particular Roman law rules and so the similarity of modern rules to Roman law is not decisively important and 2) emphasizes that the presence of a code is not decisive.

KEY POINTS Historical dependence on Roman law is the common char of CVL systems CVL systems derive from it / are influenced by Roman law to diff extents Not all CVL systems are codified – fairly modern invention Working def. of CVL: a system in which parts or whole of Justinian’s Corpus Juris Civilis have been in the

past or are at present treated as the law of the land, or at least, are of direct and highly persuasive force, or else

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it derives from any such system

Classification of Contracts: A View from a Common Lawyer – Samuel – 2011

SUMMARYCVL systems share a general theory of K founded on the idea of agreement whereas UK CML isn’t based on a general theory of K but rather 2 forms of action (write of debt and assumpsit), and CML K theory developed later, in the 19 th c.

A Treatise on the Law of Contracts – Addison – 1849

SUMMARYThe study of Ks is of the utmost importance for everyone, not only lawyers, but noblemen and gentlemen as well. There is a great uniformity in K law, due to its being founded on fundamental principles common to all nations, leading to uniformity of decisions between CVL and CML.

KEY POINTS Historical intersections: distinct pathways of CML and CVL but at any given point in history, there are

communications, cross interpretations, inspirations Adoption in CML of CVL concepts – never perfect transplantation: slightly off because CML has a diff

background and building blocks

B. Mixed Jurisdictions

Why is QC a mixed jurisdiction?

Bijurality: private law governed by CVL / public law governed by CML Civil justice system: (organization of courts, judiciary, civil procedure) heavily influenced by the English adversarial system Judicial methodology: judgments in QC follow CML style: personalized, include dissents, recite facts

By Reason of Authority or by Authority of Reason – L’Heureux-Dubé – 1993

SUMMARYInitial reluctance to form an SCC from QC judges who worried it would erode CVL identity. Through decisions which reflect CVL principles, the SCC has affirmed its authority among QC judges and has demonstrated it can use CVL principles to decide CVL cases.

KEY POINTS Debate re need for SCC dates to before Confederation

o Fear that QC’s legal identity would be lost 1979 requirement that at least 3/9 of SCC judges be from the QC bar

o Recent calls for creation of Supreme Court of QC or a separate CVL division in the SCC CVL: judges must obliged to decide every dispute consistent with basic premise that the law is complete – art.

2: judge can’t refuse to adjudicate under pretext of silence, obscurity, insufficiency of the law Leads to question whether SCC’s decisions in cases governed by CVL weren’t effectively destined to be

ignored within QCo Early QC court tendency to ignore SCC decisions in CVL matters – integrity of CVL at stake

worried about ousting CVL by using CML reasoning and interpretive principles Stopped in 1920: distinguished CVL and CML on a systematic basis principle that each

system should be administered through reference to authorities binding on that system alone has been reaffirmed by the SCC since

o SCC has enhanced the authority of its decisions among QC judges – increased scope of stare decisis (although still can’t say it forms the rationale of the present authority of the SCC’s decisions in CVL cases)

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4. The Changing Conception of Contract Law

(Jukier’s class notes)

Ideological changes in contract law lead to an “ideological battleground” Certainty V stability Individualism V altruism Discrete V relational transactions

Traditional Contract Law Modern Contract Law Primacy of the will, voluntary nature of

agreements Freedom of contract Certainty given pacta sunt servanda Non-interventionist judiciary Self-determination Discrete transactions

Limits on freedom of contract (Collins – “Contract and Market”)

Altruistic (Kennedy) Relational, long-lasting, complex, and changeable

contracts (Macneil) Aboriginal infl. rel. to peaceful rel., kinship,

ceremony, custom, and the continuation of Ks with changing circumstances by repeated ceremony (Borrows and Miller)

Equality in formation, equilibrium in substance, and fraternity in performance (Thivierge-Guelfucci)

5. Contract Law and Ideology

A. Contract Law and Ideology: The Carbolic Smokeball as a Roadmap

Contract and market economy

Humans depend on each other for survival – exchange ( = capability to conclude Ks) Humans use this capability to attend to their own needs by interesting the others’ ‘self-interest’ (Smith)

The “certainty of being able to exchange” as foundation and precondition of progress of the individual as well as society Necessity to establish and safeguard the institution of the enforceable K

“Increased importance of the private law K in general is the legal reflex of the market orientation of our society” (Weber)

Creation of a direct contractual relationship between the manufacturer and consumer (Carbill v Carbolic Smoke Ball)

An Inquiry into the Nature and Causes of the Wealth of Nations – Smith – 1801

SUMMARYTheory of humanity whereby everyone acts in his own interest, and trades succeed when one can convince those around him that the trade is in their best interests. Compares humans to other animals that don’t have these bartering systems.

KEY POINTS “Man, unlike other animals, has almost constant occasion for the help of his brethren, and it is in vain for him

to expect it from their benevolence only” “He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for

their own advantage to do for him what he requires of them” “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from

their regard to their own interest” Trade is what “encourages every man to apply himself to a particular occupation, and to cultivate and bring to

perfection whatever talent or genius he may possess for that particular species of business”

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Economy and Society: An Outline of Interpretative Sociology – Weber – 1968

Integration of all individuals into one compulsory institution resting on formal ‘legal equality’ achieved via1. Extension of the market economy2. Bureaucratization of the activities of the organs of consensual groups

Granted everyone the power to create law (subjective law) by engaging in private legal transactions (Ks)Increased importance of the private law K in general is the legal reflex of the market orientation of our society

The Law of Contract – Collins – 2003

SUMMARYThere has been a shift in the way in which Ks relate to market regulation from the very liberal classical law of K of the 19th c to the more restrictive contemporary K law. Although Ks and markets can occur without a law of K to support them, the law supplies important factors for a successful market order.

KEY POINTSClassical law of K

Small set of fundamental principles: autonomy of the will, individualism 19th c libertarianism Attempted to regulate and understand every aspect of economic social relations by K K law limited the exercise of state power in the name of respecting the liberty of citizens by freedom of K Voluntary choice of individuals to enter into and set the terms of Ks

New conception of K Alteration of the market order and the nature of political and moral justification for its legal regulation Autonomy to an extent undermined by the Welfare State which limits voluntary choice rel. to wealth dist. Modern K law distinguishes between voluntary and involuntary choices in the market and imposes compulsory

terms on certain kinds of contractual relations Market systems flourish under a considerable var. of regulatory strategies Market participants orient their conduct to 3 competing frameworks of norms/standards of behavior:

o It’s important to establish trust between partieso It’s important to ensure the deal works for both partieso Parties will look to any formal agreement as a source of rights and obligations

6. Formation of Contract: Intent to Create Legal Relations

A. Contract Formation Vocabulary

O + A = K

CVL K is “agreement of wills” (1378) “formed by the sole exchange of consents” (1385) Declaration of the parties are “manifestations of will” (1386) Exchange of consent is ‘accomplished’ when an O to K is accepted K is formed when this A is received by the offeror (1387) Moral aspect of K: owe other party a duty to negotiate in good faith (Richard v Time)

CML Formation of K described in terms of ‘offer’ and ‘acceptance’ Moment of responsibility’ also described as a ‘meeting of the minds’ consensus ad idem (similar to agreement of wills) Frequent use of ‘promise’ instead of the more neutral ‘manifestation of will’

First step is O and A and the intention to create legal relations

Contract is formed

AcceptanceOffer

Invitation to treat; negotiation

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Richard v. Time Inc. [2007] – CVL

FACTS R received a notice from TI that included personalized banner headlines claiming him as the winner of a

sweepstakeso Smaller font throughout indicated he had to “return the Grand Prize winning entry in time and

correctly answer a skill-testing question” R concluded he’d won, filled out the form and sent it in but never received a cheque TI said he hadn’t had the winning entry R was embarrassed at having to tell people in fact he wasn’t getting the money R claims the reward amount as compensatory and exemplary damages TI claims the purpose of the notice was to offer people a chance to enter the sweepstakes and subscribe to the

magazine and that hundreds were sent out

ISSUES1. Must Time pay the award to R, even though he didn’t hold the winning entry? NO2. If not, is Time liable to R in compensatory and/or exemplary damages as a result of consumer protection legislation? YES

REASONINGNotice isn’t a K

Every statement indicating R won was made conditional somewhere, albeit ambiguouslyIntentionally misleading

The notice was specifically designed to mislead contained misleading and false representations within the meaning of the Consumer Protection Act (something between K and torts – lower threshold for torts to declare it’s illegal to prey on consumers like that)

RATIO1. Reasonable person would not think this was a K2. This decision establishes the test to determine whether a representation is false or misleading pursuant to the CPA.

Even if companies put disclaimers and conditional, ambiguous language preventing them from contractual obligations, they are still liable to consumers if they give the impression of doing so.

3. Establishes the standard of the ‘average consumer’ that the CPA seeks to protect

B. Intention to Be Bound

Importance of intention to be legally bound – ie: “intention to create a promise” (Carlill v Carbolic Smoke) OR “intention of creating legal relations” (Kleinwort v MMC)

The O confers the power of concluding a K onto the offeree – then once offeree accepts, offeror is bound Is there a serious offer that expresses the willingness to be legally bound?

Art. 1386 CCQThe exchange of consents is accomplished by the express or tacit manifestation of the will of a person to accept an offer to contract made to him by another person.

Art. 1388 CCQAn offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.

Moment of responsibility

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What is a meeting of the minds? Consensus ad idem (similar to agreement of wills) Internal V external will

o Problem with just considering internal will lyingo Problem with just considering external will formalistic

Why is the intention to be legally bound necessary? Want to avoid enforcing certain Ks

Ex: jokes and puffery (Leonard v Pepsico) Ex: domestic Ks (Jones v Padavatton)

Invitation to treat Communications that might contain the necessary info to form a K YET are not considered Os because from the perspective of a reasonable observer, it doesn’t seem plausible that the person who made the ‘invitation’ wanted to confer the power of A onto the addressee Whether an ad is an invitation to treat or an O depends on the legal intentions of the parties and the surrounding circumstances (Leonard v Pepsico AND Lavoie c Bernier contrast with Carlill v Carbolic Smoke)

Presumptions of fact (CML) Business arrangements: assume parties want to be legally bound so agreements are K (Kleinwort) Social/domestic arrangements: assume parties don’t want to be legally bound so agreements aren’t K (Jones v Padavatton) Presumptions are rebuttable

Problems with unilateral Ks Mutuality of obligations is not required in unilateral contracts (Carlill v Carbolic Smoke) How do you know if the performance was in response to the offer?

By CCQ (1395) we do not require evidence b/ we want to reward Good Samaritans (ex: reward if you find my dog.) but this causes huge theoretical problems

Art. 1395 CCQThe offer of a reward made to anyone who performs a particular act is deemed to be accepted and is binding on the offeror as soon as the act is performed, even if the person who performs the act does not know of the offer, unless, in cases which admit of it, the offer was previously revoked expressly and adequately by the offeror.

Always question of if something that doesn’t originally look like a K can later be assessed by the courts as one

SIDENOTE: Precedent Obiter dictum: important, but not binding

Can’t just ignore obiter dictum because it’s not legally bindingo Padavatton: no binding ratio key is that the judge opened the possibility of there being a K in

domestic situations so all English courts had to consider Ks in these situations because of this case Stare decisis: binding

Carlill v. Carbolic Smoke Ball Co. [1893] – CML (UK)

FACTS Vendors of the CSBC placed ad claiming they’d pay £100 to anyone who used it as directed for 2 weeks or

more and still caught the flu and that £1000 had been placed in a bank to “show their sincerity in the matter” C bought the ball and used it as directed for 2 months at which point she got the flu C took them to court when they refused to compensate her HISTORY: trial judge ruled in C’s favour

ISSUESDoes the ad constitute an offer to K? YES

REASONING

Contract law must balance these. It is a dilemma between certainty and stability on the one and, and flexibility on the other. In practice, the internal will is taken into consideration, but it must be corroborated by external proof.

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Is it puffery? NO Intent to be bound demonstrated by the £1000 perspective of a reasonable observer

Is notification of acceptance required? NO Unilateral Ks exception to rule that A must be notified

o Performance = acceptance offeror gets notice of A contemporaneously with notice of performanceo Ie: not too vague – not to the whole world, just those who use the product

Is it binding? YES Offer to become liable to anyone who, before O is retracted, comes forward and performs their part of the K

o O made to ‘indeterminate person’ can be made to the publico Can be revoked before A

Acceptance accomplished via an acto General rule: ‘meeting of the minds’ BUT unilateral K

Is it vague? NO No time period mentioned reasonable to think the £100 will be paid to anyone who gets the flu within a

reasonable time of using the CSB as directedIs there consideration? YES

CSBC gained from the ad (benefit conferred) and there was inconvenience to C in using it (detriment incurred)

RATIOAn ad can constitute a unilateral K, and in such a K, performance amounts to acceptance unless the language clearly states otherwise, no notice of acceptance beyond notice of performance is required

John D.R. Leonard v. Pepsico, Inc [1999] – CML (US)

FACTS P ran an ad offering Pepsi merchandise in exchange for ‘Pepsi Points’ which could be earned by purchasing

Pepsi products or could be purchased at 0.10¢/pt Ad featured a kid with var items of merchandise and the required Pepsi Points indicated at bottom of the screen

o Ad ends with the kid emerging from a Harrier Jet with the subtitle “Harrier Fighter 7,000,000 Pepsi Points” with the message “drink Pepsi – get stuff”

Ad also said to refer to the catalogue and fill out the order form to redeem points JL sent $700,000 to cover the points for the jet and sent the order form and cheque to P P denied the ad was an offer

ISSUESDoes the ad constitute an offer to contract? NO – summary judgment: case thrown out before trial

REASONINGAds don’t constitute an O to sell – are mere requests to consider, examine, negotiate invitation to treat

(Is possible to be an O with clear and explicit language indicating an O but plaintiff must prove this) Ads enforceable only when seller accepts – not merely be offeree’s willingness to accept the O O: order form in the catalogue (didn’t list the jet), not the ad

Reasonable person standard Ad was in jest: no reasonable person would have considered the ad an O for a jet because:

o Puffery by suggesting it can transform mundane lifeo Youth is improbable piloto Depicts wild teen fantasyo Jet’s purpose is militaryo 7,000,000 points is far below market value – too good to be true

Summary judgment appropriate in cases when the wording and actions forming the K are so clear that reasonable people could not differ in understanding their meaning

RATIO1. A basic rule of Ks holds that whether an O has been made depends on the objective reasonableness of the alleged offeree’s belief that the ad or solicitation was intended as an O

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2. An ad doesn’t constitute an offer where a reasonable person wouldn’t construe it as an offer, that is, where a reasonable person would understand that it is puffery

Lavoie c. Bernier (Succession de) [2010] – CVL

FACTS S hired a realtor (B) to sell his house Realtor prepared a descriptive pamphlet mentioning the asking price L contacted the realtor who had him sign a promise to purchase at the asking price and with no conditions Simultaneously, another person contacted the realtor and signed a promise to purchase at a higher price Per regulation, realtor shows S both offers, S accepts the 2nd

L argues the promise to purchase was the acceptance of an offer to sell, and K had been made

ISSUESWas the appellant’s signature the acceptance of an offer to sell? NO

REASONINGAd must not be construed as an O

It does contain all essential elements of an O BUT circumstances: L signed a “promesse d’achat” BUT practice: realtor has mandate to receive offers to buy, not to receive acceptances

o If listing was the O, owner could get many As but he only has the 1 property Response to ad is the O, up to owner to accept

RATIO1. An ad should be construed as an invitation to treat2. Circumstances and usage dictates if it is a firm offer or an invitation to treat, despite it containing all the essential elements of an O

COMMENTSWho is offeree is key: has power because decides whether or not to accept it

Jones v. Padavatton, [1969] – CML (UK)

FACTS Mother promises to pay her daughter $200/month if she gives up her job in the US and moves to London to

study for the bar with the intention of later joining her in Trinidad to practice No real terms agreed on Initial deal not working well so mother agrees to purchase her a house so she can rent out the other rooms and

use the income as maintenance instead of the $200 But daughter gets married, doesn’t finish studies, and 4 years after its purchase, mother seeks possession

ISSUES1. Were the arrangements intended to produce legally binding agreements? NO – no legally binding K, in favor of mother2. Were the arrangements so obscure and uncertain that, though intended to be legally binding, a court could not enforce them? YES

REASONINGObjective test to determine if the agreement was legally binding

Court must consider what the parties said and wrote in light of all the surrounding circumstances and then decide whether the true inference is that the ordinary person would have intended to create a legally binding K

Family arrangements: in domestic settings we don’t assume people want to engage in legal obligationsIf deemed a K, would its terms have been voided?

K valid only so far as daughter was studying – she’s not studying void K not relevant here since no K

RATIO

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Domestic agreements are presumed not to be legally binding unless there’s a clear intention to make it so.

COMMENTS2 decisions in the case – diff reasoning, same result

Majority: no K, just family arrangement Minority: yes K, but daughter breached it

o Assume legal relevance since daughter uprooting her life was so significant and was made based on the promise

Kleinwort Benson Ltd. v. Malaysia Mining Corp. BHD. [1989] – CML (UK)

FACTS MMC incorporated a subsidiary company MMC Metals, which traded on the London Metal Exchange Large funds necessary to trade there so MMC went to KB to secure funding for MMC Metals

o KB sought assurances re the liability of MMC in the case that MMC Metals couldn’t repay the loano MMC refused to give a guarantee in exchange for lower interest rates agreed to a higher rate and a

comfort letter: “It is our policy to ensure that the business of MMC Metals is at all times in a position to meet its liabilities…”

Tin market collapsed and MMC Metals went bankrupt KB asked MMC to repay the outstanding amount

ISSUESIs the comfort letter, as it’s worded, a contractual promise (or a warranty)? NO

REASONINGComfort letter contained no express words of promise

Is a statement of present fact NOT a promise as to future conduct Cannot imply a promise in the words “it is our policy” as would need some indication that it will be in future (Wouldn’t have needed explicit promise – judges can imply a promise into a K)

KB would have to prove MMC had intent to be bound Obviously not: agreed to higher interest rates instead of a guarantee MMC assumed moral responsibility only not a matter for courts

RATIO1. In order for a K to be binding, there must be intent to be legally bound2. Context is important when deciding whether or not there was such intent

COMMENTSRE: Carhill

Both apply the same objective legal test to determine if K or not (ie: was there promissory intent) – diff outcomes

Dislike outcome because: Reliance created by the letter No possibility of claiming unjust enrichment because no co-relative enrichment for MMC Policy (ie: judicial mindset diff when both parties have the wherewithal to help themselves)

7. Formation of Contract: Offer and Acceptance

A. Exchange of Consents: Offer and Acceptance

Do we have serious O and A? Did the O and A meet at some point (temporal and spatial dimension of meeting of the minds) Do O and A match substantially?

Offer

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Not objective, absolute are value judgments you arrive at based on the case Can docs in the particular case be assessed as a serious O in the legal sense?

CCQ (1388)

Art. 1396 CCQAn offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to the offeror that he intends to consider the offer and reply to it within a reasonable time or within the time stated therein.A mere promise is not equivalent to the proposed contract; however, where the beneficiary of the promise accepts the promise or takes up his option, both he and the promisor are bound to enter into the contract, unless the beneficiary decides to enter into the contract immediately.

Acceptance Offeree must show intent to accept O must have been so detailed that ‘yes’ is a sufficient answer (in theory) Silence ≠ acceptance (CML & CVL (CCQ (1394))) – unless it’s an understood practice between parties Conduct = acceptance

Art. 1387 CCQA contract is formed when and where acceptance is received by the offeror, regardless of the method of communication used, and even though the parties have agreed to reserve agreement as to certain secondary elements.

Art. 1394 CCQSilence does not imply acceptance of an offer, unless the contrary results from the will of the parties, the law or special circumstances, such as usage or a prior business relationship

Negotiation Are we able to separate O and A in real life? May switch between parties in real negotiations May not be possible to identify a clear sequence ending with final O and A identifying final O is critical

Pharmaceutical Soc. of Great Britain v. Boots Cash Chemists, Ltd., [1953] – CML (UK)

FACTS

BCC’s ‘self-service’ shop was 1 room with shelves full of meds specified in part 1 of the Poisons List under the Poisons Control Act (PPA)

Customers placed their items in a basket and brought them to the checkout Registered pharmacist supervised the transaction to ensure customer didn’t buy anything he didn’t see fit PS’s duty is to take all reasonable steps to enforce the PPA Per PPA, unlawful to sell poisons from the list unless the sale is effected by or under the supervision of a

registered pharmacist PS claims sale is made when customer removes item from shelf (ie: display of goods was an O) so at checkout,

pharmacist no longer has the power to say no to saleISSUES

Does putting an item up for display constitute an offer? NOIf so, does the customer’s removal of the item from the shelf constitute the acceptance, and thereby a binding K to purchase the item? NO

REASONINGDisplay of goods ≠ O

Make no sense that once you pick up an item, you’re bound to purchase it Is invitation to treat

Customer bringing item to checkout = O Can be either accepted or rejected by cashier K if acceptance Here, transaction between cashier and customer is supervised by pharmacist who can reject the customer’s O

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RATIOThe display of goods is an invitation to treat, and an invitation to treat does not constitute an offer

COMMENTSAnother case of a policy decision detrimental to K law

Technically, display of goods has all the essential elements of an O (price, description, quantity) (1388)Problem rel. to concept that customer makes the O

Merchant as offeree has power to refuse – Charter prevents refusal on discriminatory/arbitrary grounds

B. ‘Moment of Responsibility’ is not Reached

‘Moment of responsibility’ has never been reached because when A became effective, O was no longer effective

Temporal/spatial dimensions O and A can miss each other in space and time Important when/if one party claims not to be bound because the particular moment of formation was never reached

Lapsed Offer Has O lapsed before A has taken effect?

O has expiry date due either to:o O has a term attached to ito O remains open for a reasonable time (CCQ (1392) judge decides) (Shatford v BC Wine Growers)

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

Revocation Has O been revoked before A has taken effect? Law conceptualizes O and A as existing as legally valid acts once they’ve been dispatched

Must remove this legal validity to revoke O Can always revoke unless:

o A has become effective (A effective on reception) CML & CVL (1387)

o O has a term attached CML = can revoke CVL = can’t revoke

O can be revoked before A unless term is attached (1390) because that creates reliance Revocable O to a determinate person hardens into a firm O once offeree clearly indicates

her reliance (1396)

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Art. 1392 CCQAn offer lapses if no acceptance is received by the offeror before the expiry of the specified term or, where no term is specified, before the expiry of a reasonable time; it also lapses with respect to the offeree if he has rejected it.

Art. 1390 CCQAn offer to contract may be made to a determinate or an indeterminate person, and a term for acceptance may or may not be attached to it.Where a term is attached, the offer may not be revoked before the term expires; if none is attached, the offer may be revoked at any time before acceptance is received by the offeror.

Art. 1391 CCQWhere the offeree receives a revocation before the offer, the offer lapses, even though a term is attached to it.

Shatford v. B.C. Wine Growers Ltd., [1927] – CML

FACTS S sent A of an O to purchase loganberries 6 days after having received it by mail S (offeree) wants to enforce K BCWG (offeror) argue the offer had lapsed by then

ISSUESHad the K lapsed by the time S accepted it? YES

REASONINGS didn’t accept the O in a reasonable time given:

The circumstances of the product Fact that most people sign it within 1 day

O and A don’t match because when S tried to accept the O had already expired

RATIOAn offer lapses after a reasonable amount of time in respect to the commodity, the time of year, and the necessity for a prompt response.

C. When Does Acceptance Take Place: Reception or Dispatch?

Reception V dispatch? Must determine where and when A occurs communication takes place upon receipt (mailbox rule at odds)

Face-to-face, phone, instantaneous communication (Entores v Miles Far East): must ensure no interruption (ex: static phone line)

Always about the person who communicates – is it reasonable for them to think communication was successful?

Is the offeree in a position to know whether the offeror has received the A? Mailbox rule doesn’t apply Counter-ex: courier (who confirms receipt) – while it’s with the courier, offeree can’t know if it’s been received

so mailbox rule does apply (I think) Does the failure to receive the A result from the fault of the offeror or from a defect in the communication with respect to which the offeror can be deemed to have assumed risk

Reception not required

Mailbox rule (CML) If the offeror attempts to revoke an O after the offeree has dispatched a message of A, the prevailing rule is that the A is effective on mailing (Waddams; Entores v Miles Far East)

Nowadays must show it was reasonable to have sent A by mail Protects the offeree who might rely on the K after having sent the A offeree should be able to go into the market the instant he accepts the O

Lord Denning’s new communication rules framework (Entores v Miles Far East)When?

Parties communicate in presence of one another At receptionLong distance communication but instantaneous (2-way) means

At reception

Long distance but not instantaneous communication Once it’s put in mailbox

CVL Protection of offeree Acceptance effective on reception (1387) O can be revoked before acceptance unless: term (1390) and/or reliance (1396)

Entores v. Miles Far East Corporation, [1955] – CML (UK)

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FACTS E (in England) and M (in Holland) communicated trade agreements through Telex (instant messaging) Agreement whereby M agrees to sell cathodes to E for a set price Dispute arises and E argues K is governed by English law while M argues Holland law

ISSUESWas the K formed in England? YES

REASONINGForms of communication

Post: acceptance is complete as soon as the letter of acceptance is put in the mailbox (= K is formed) – clear rule

Phone or Telex: no clear ruleInstantaneous communication methods analogous to face-to-face same rule applies

K is formed only once A is receivedo If A is sent and not received by offeror by his own fault and the offeree reasonably believes A was

received a binding K still formedo If A is sent and not received by the offeror by no fault of his own and he reasonably believes no A was

sent no K Here, K made in London governed by UK law

Variations made in Holland but A occurred in UK and K is formed at site of initial A, not where variations were agreedRATIO

Reception rule: in instantaneous communication, a K is formed1. The moment the acceptance is received2. At the place where the acceptance is received

COMMENTSUS: instantaneous communication treated like post (expedition theory) Europe: instantaneous communication treated like face-to-face (reception theory)

The Law of Contracts – Waddams – 2005

SUMMARYOffer and acceptance are bound by a number of complex rules, distinct to different circumstances. The mailbox rule serves to protect the offeree who might rely on the K immediately after having sent the A.

KEY POINTSCommunication of acceptance

Silence ≠ acceptance designed for benefit of offeree (offeree can ignore O without contractual liability)o Not rigid rule: must take into account factors like previous dealing between parties

Need manifestation of assent: oral or action If one party is aware of the other’s belief in the existence of a K and does nothing to deny it but acts as though

there were a K, that party may be estopped from later denying that a K exists Problems of correspondence

Mailbox rule: an A is effective on mailing a letter or sending a telegram even if the message is delayed or lost o Privileges a situation where you can use a form of communication that doesn’t have the ability to

confirm if it’s been receivedo Problems:

O itself is delayed Offeror may seek to revoke an O: can’t once A has been mailed A may be delayed or lost: still accept mailbox rule in the interest of protecting offeree Offeree may seek to overtake an initial A with a rejection or vice versa: offeree shouldn’t be

allowed to speculate at offeror’s expense Jurisdictional question turning on where a K is made: K formed where A is Delay in transmission of the O: may result in the O being delivered after a deadline to accept

through no fault of the offeror Instantaneous communications: governed face-to-face principles

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o Complicated for one-way communication like email/faxTermination of power of A

Lapse: if no limit is set on the timeframe to accept, power of A expires after a reasonable time (depends on many factors)

Revocation: offeror may withdraw O before A promise to hold O open isn’t binding unless it itself is bargained for or under seal

Rejection or counter-O: generally destroys the power to accept the original O Death: death of offeror puts an end to the power of A / death of offeror: depends on the transaction whether O

can be accepted by offeree’s estate

D. The Problem of Unilateral Contracts

Unilateral Ks Dichotomy between Os which invite A through:

Promise (bilateral) Act (unilateral)

o No verbal agreement to do act its completion is A which brings about the need to complete performance

CVL (1380): fortuitous arrangements: one party agrees to do something for free (ex: donations) normal in their formation CML: cuts a normal bilateral exchange in half based on how you phrase the O

Can the offer be revoked? After performance has begun BUT before performance is completed = before acceptance

Until acceptance: if offeree isn’t bound to complete K, offeror shouldn’t be bound to it either symmetry/balance

o Wouldn’t be fair to deny the right to revoke once performance has started creates imbalanceo Also doesn’t seem fair to allow revocation since offeree typically isn’t in as good a position as offeror

and might rely on the unilateral K that could then be revoked Solutions:

CML: Implied obligation to unilateral K to ensure it works fairly (Errington v Errington) CML: Tendency to construct bilateral K (Dawson v Helicopter Exploration)

o Based on circumstances/what the parties wanted (business efficacy) CVL: if the act is seen as a manifestation of wills a ‘normal’ bilateral K comes into existence

o Default is to see bargains as consensual bilateral Kso Offre de recompense (1395): ‘reward’ cases which simply can’t be conceptualized as agreements

Even if the O hasn’t been received, there’s an obligation if the requested act is performed (acte juridique unilateral) (ex: lost dog reward)

Art. 1395 CCQThe offer of a reward made to anyone who performs a particular act is deemed to be accepted and is binding on the offeror as soon as the act is performed, even if the person who performs the act does not know of the offer, unless, in cases which admit of it, the offer was previously revoked expressly and adequately by the offeror.

The True Conception of Unilateral Contracts – Wormser – 1916-1917

SUMMARYA unilateral K is one where a promise has been made by one party, and the contract is formed when the promisee, by completing what was asked of him in the promise, accepts. The concept of unilateral K, when properly understood and

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Art. 1380 CCQA contract is synallagmatic, or bilateral, when the parties obligate themselves reciprocally, each to the other, so that the obligation of one party is correlative to the obligation of the other.When one party obligates himself to the other without any obligation on the part of the latter, the contract is unilateral.

logically applied, presents few difficulties. KEY POINTS

Bilateral K: exchange of promises both parties are boundUnilateral K: act is wanted in return for a promise K created when the act is done only promisor bound, not promisee

Poses many theoretical difficulties for court Ex: X promises to pay Y to walk across a bridge but Y doesn’t promise to walk across in return

o K is formed only when Y walks across it (ie: acceptance)o BUT if X rescinds O while Y is halfway across, K hasn’t been formed so Y has no recourse and

doesn’t seem fair BUT Y could as easily stop walking across halfway through neither is bound Ex: X promises to pay Y to build something but Y doesn’t promise to build it

o X withdraws O after Y has started but no A until completion so Y not entitled to recovery in Ko BUT if Y can’t keep the thing, X is unjustly enriched so Y is permitted to recover from X the

reasonable value to which X is enriched at Y’s expense

Errington v. Errington [1952] – CML (UK)

FACTS E’s late husband purchased a home for his son and daughter in law (W) to live on and told them the down

payment was a gift but they must pay the weekly mortgage instalments o Said “the house will be your property when the mortgage is paid”

E’s suing for possession of the house

ISSUESCan this unilateral K be revoked? NO

REASONINGUnilateral K: no express promise by the son and daughter-in-law to pay the mortgage instalments (not legally bound)

Could only be revoked if the couple didn’t perform – ie: didn’t make the payments BUT they didImplied collateral promise: implied intention was for the home to be theirs if they paid the mortgage

Need to assess if there’s a reason to counterbalance the inequity and find an implied promiseRATIO

1. An offeror can only revoke a unilateral K if the offeree didn’t live up to their side of the K (ie: perform)2. In an offer to form a unilateral contract (acceptance upon completion), the offeror is still bound to the promise if the offer contained an implied promise not to revoke (creates reasonable reliance)

Dawson v. Helicopter Exploration Co., [1955] – CML

FACTS D communicated with S from HEC re the potential exploitation of mineral deposits he had staked in a remote

areao Agreement whereby S, provided he could get a pilot, would fly D out to the land so he could show it to

HEC and if it was worth staking, he’d receive 10% interest in the claimo D was willing to take leave from the army to show the land, communicated this to S

S informed D that they were no longer interested in the land and wouldn’t visit Unknown to D until the following year, S did send out an exploration party S made arrangements with another party for the dev of the mineral deposits D sued for his share

ISSUESWas the agreement a unilateral K? NO – bilateral, ruling in favour of D

REASONINGK implied “complementary action on the part of both parties”

Bilateral K = implied promissory construction gives K the business efficacy the parties intended and involved complementary action by both parties

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o S implied he wouldn’t prevent the complementary performance of D D relied on S for the transportation S failing to provide the helicopter prevented D from

showing the land S violated his duty to DD’s failure to respond to one of the letters from S didn’t constitute an abandonment of the K

RATIO1. When possible, courts should interpret contracts to be bilateral rather than unilateral2. A court can use implied promissory construction to create a bi-lateral contract, and thus it is formed by acceptance and not only at performance3. Where a complementary action is contemplated for both parties, the offeror in a bilateral K cannot revoke the K for want of performance if they fail to discharge their complementary obligation to perform

COMMENTS

RE: Errington: why can one argue an implied bilateral K and the other can’t? Here, court deemed D was dependent on HEC to perform the act implies agreement

8. Formation of Contract: Essential Elements

A. Mirror Image Rule

Mirror image rule Classical K theory: look for perfect match

If O and A match in every respect = K formed If O and A don’t match in every respect = no K formed

CVL O must contain all essential elements of the K (1388)

o If matching A, then K has the content set out by the O Failed A may constitute a new counter-O (1393)

o If counter-O is accepted, then K has the content set out by the counter-O Hardly ever describes real-life situations

B. Agreement

Essential Elements What are the minimum requirements for an agreement to form a K? If parties failed to reach an agreement as to an essential element no K (Terrasses Holdings v Saunders)

Essential elements o Necessary for K formationo Are the missing terms so important that they warrant the conclusion that the parties have not reached an

agreement? (ie: could a judge issue performance without implying terms)o Always depends on concrete agreement in question and its contexto But parties may have agreed on a mechanism that allows for a determination of the main obligations

through the parties and/or judge

Misunderstandings No real agreement has been reached even though the parties aren’t aware of it Ambiguity: there’s no reasonable interpretation that prevails over the other (Raffles v Wichelhaus)

No consensus ad idem

Partial matches Lacks agreement for a part that’s not strictly essential Reality of negotiations (Butler Machine Tool v Ex-Cell) ‘Sliding scale of consent’ V ‘on/off’

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Judges imply provisions (to patch gaps in K) when changes are trivial or meaningless

Terrasse Holdings v. Saunders, [1989] – CVL

FACTS S was a sales agent working on behalf of TH to sell property in TH’s building Best lots sold and then S’s commission dropped a lot so to keep him on the job, TH proposed a bonus of “up to

$60,000 or $70,000” if all the units were rented” – amount never determined S sold them all at the end of that year, during which he was relying on the promise TH refused to pay, claiming its promise was conditional on the building being profitable HISTORY: S sued for breach of K and won. TH appealing

ISSUES1. Was there a contractual obligation between S and TH? NO2. Was there ‘unjust enrichment’? YES – quasi-K

REASONINGCould not imply a K since essential element (the bonus amount) was never determined

No agreement of wills No consensus as to the essentials of the K (ie: meeting of the minds)

Reliance S relied on the promise and continued to work for TH for essentially no money

o TH made it seem guaranteed when they really interpreted it as performance-basedUnjust enrichment (1493-1495)

TH benefited for no apparent reason if a K didn’t exist A benefit by chance, mistake or another's misfortune for which the one enriched has not paid or worked should

not keep – no legal justification

RATIO1. A court cannot imply essential elements/terms into a K (ie: if the K would not exist without this judicial intervention)2. In absence of a K, if there is reliance on the part of the offeree and unjust enrichment on the part of the offeror, damages are still owed.

Raffles v. Wichelhaus (1864) – CML (UK)

FACTS R and W entered into a K whereby plaintiff agreed to ship cotton to the defendant aboard the ship ‘Peerless’ Problem arises because 2 ships named Peerless – 1 sailed in Oct and the other in Dec

o Parties didn’t mean the same ship when they entered into the Ko Important because market price of cotton fluctuates

Defendant refuses to pay for the cotton when it arrives

ISSUESIf there is a latent ambiguity in the K, is there still a binding K? NO – ruling in favour of defendants

REASONINGLatent ambiguity rel. essential element of the K

Neither party was aware there were 2 ships named Peerless K didn’t specify which ship was meant or the delivery date essential term of the K given the fluctuating

market Both interpretations were reasonably interpretable objectively ambiguous

No meeting of the minds due to ambiguity meeting of the minds = mutual assent = binding K Subjective intention is irrelevant unless it was mentioned at the time the K was formed

RATIO

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If a latent ambiguity arises in a K such that there is no meeting of the minds, there is no mutual assent and therefore no K.

C. Partial Matches: Battle of the Forms

In a “battle of the forms”, the parties want a K but, with respect to certain terms each wishes to K on its own terms. This reality, which occurs frequently in the age of large-scale enterprises and complex negotiations, is at odds with the mirror-image rule of classical K theory. Different jurisdictions and institutions have proposed different solutions (Van Mehren – Jukier notes)

Possible solutions K based on offeree’s terms (last shot) K based on offeror’s terms (first shot) K based on those terms over which there’s convergence, the rest is erased and judge fills in gaps (knock-off)

Butler Machine Tool Co Ltd v. Ex-Cell-O Corp Ltd. [1977] – CML (UK)

FACTS B offered to sell a machine to E O stated to be subject to terms and conditions that “shall prevail over any terms and conditions in the Buyer’s

order”o Included a price variation clause providing for an increase in price if production costs rose

E placed an order via a tear-off slip o Slip had a pre-formed answer indicating they’ll buy and accept the terms in the form didn’t include

a price variation clause B accepted the order, confirming the signed slip’s terms (initial quote) At delivery, B claimed a price increase in accordance with the price variation clause E refused to pay more HISTORY: B sued and won. E appeals

ISSUES1. Has a K been concluded? YES2. If so, whose terms prevail? Judgment for E

REASONINGTraditional analysis

E’s order wasn’t A because it contained additions such that it was a rejection of the O in that it constituted a counter-O

B’s letter was an A of the counter-O thereby rejecting the possibility of varying the price K formed on E’s terms

Lord Denning’s ‘better way’: the holistic approach Look at all the docs and determine whether they have reached agreement on all material points despite diffs

between the forms close gaps in agreement K formed as soon as the last form is sent and received without objection Irreconcilable terms should be scrapped and replaced by reasonable implications B’s acknowledgement of E’s acceptance was the decisive doc K formed on E’s terms Analysis not applied – explicitly rejected in UK

RATIO1. In cases of battle of forms, the K is determined per the terms of the final O2. Lord Denning: in cases of battle of forms, communications between parties must be analyzed to see if it can be discerned into an A and O

Surely the Next to Last Shot in the Battle of the Forms – Ogilvie – 2011 – CML

SUMMARY

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Law relating to the formation of K was never broken in the first place and, in Tekdata, the Court of Appeal reminds the courts of that fact and urges renewed commitment to well-established principles of contract law (ie: the traditional approach)

KEY POINTS 2 approaches to K formation: mirror image rule V performance doctrine ‘at war’ with each other

Tekdata v Amphenol Court of Appeal cast doubt on the future of Lord Denning’s ‘better way’ (Ex-Cell-O)

o Restated traditional O and A analysis ‘better way’ as an exception only Ie: both approaches aren’t equal: general rule and rare exception

2 aspects of Denning’s judgment have attracted attention:o Last blow / first shot nomenclature – helps traditional analysis decide which communication, first or

last, defines the agreemento Analytical approach of gleaning from the forms exchanged compatible terms which may be implied

into an agreement (ie: casting aside the traditional analysis)Battle of the forms: parties don’t really know what is in their forms but act as if they have a K until a dispute arises

But both signed and are bound Courts tend to honor the parties’ common understanding that they had an agreement and then must define what

that K involved

Tekdata v Amphenol – CML

FACTS T (plaintiff) manufactured cable harnesses and bought connectors from A (defendant) T sent purchase order stating it was to be on buyer’s terms and A acknowledged order on its own terns that

excluded liability for any breaches of K Connectors defective and late and A denied liability on the basis of its terms HISTORY: trial judge ruled in favour of T based on Lord Denning’s ‘better way’

ISSUESOn whose terms was the K made? Seller’s terms (A)

REASONINGLord Denning’s ‘better way’

Not superior to the traditional analysis and not a precedent to abandon the traditionalNot possible to lay down a general rule applicable to all cases in a battle of the forms, but confirmed that it depends "on what the parties must objectively be taken to have intended

RATIO1. Lord Denning’s ‘better way’ is an exception to the general rule of traditional analysis, based on either the first shot or last blow doctrines. 2. The ‘better way’ involves a contextual gleaning for and implication of reasonable terms, and is only to be used when it’s the parties’ objective intention

UK Courts Sometimes follow the last shot doctrine, sometimes the first blow doctrine

o Sometimes (exception) decide on the basis of an exchange of forms, conduct of the parties, previous course of dealing

Have been sensitive to the actual communication between the parties on a case-by-case basis Look for a mirror image of O and A objectively assessed

Canada No clear acceptance nor rejection of Lord Denning’s ‘better way’

o Tywood applies ito Other cases reject it

Counterpart to the ‘better way’ UN Convention on Contracts for the International Sale of Goods (Vienna Convention) art 19

o Imposes a K on the offeree’s terms where

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a) There’s silence on the offeror’s part b) The terms are not material No K would follow in most cases largely ignored because courts prefer to find Ks once

there’s been performance Uniform Commercial Code §2-207

o Offeree can accept on diff terms from the O except wherea) The O expressly precludes such an Ab) The terms are materially diffc) The offeror has objected to them CA hasn’t adopted this

UN Convention for the International Sale of Goods, Art. 19

Uniform Commercial Code, Art. 2-207

UNIDROIT Principles of International Commercial Contracts, Art. 2.1.11

Principles of European Contract Law, Art. 2.209

9. Pre-Contractual Arrangements and Extra-Legal Arrangements

A. Pre-Contractual Arrangements

Gentleman’s agreement Drafting agreements beyond the law – ie: opting out of the legal system (Rudden)

Pre-Contractual Arrangements Deliberate no-law

No-law-ever No-law-yet

Contextual no-law

No-law yet No final K yet

One party is still without obligation but the other is locked in option Ks or firm Oso Option:

CML: a promise that meets the requirements for the formation of a K and limits the promisor’s power to revoke the O, like:

2nd promise to keep the O open Consideration

CVL: any O with a term attached choice of offeree to bring K to life (1396) (Cere v Neely) Consequences of a violation of a ‘promise to K’ (1397, 1611)

Binding quality of the whole agreement is suspendedo Agreement to agreeo Subject to Ko Letter of intent etc

But: binding agreement with regard to the pre-contractual stage? None of the parties is obligated yet

o Statement of a proposed agreement: ‘letter of intent’o Agreement complete, legal effects deliberately postponed: agreement ‘subject to K’o No final agreement reached yet: ‘agreement to agree’ parties don’t yet want enforceable K

Problems: Intention to create legal relations yet? Incompleteness/uncertainty

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CML: as a rule ‘agreements to agree’ aren’t enforceable (are exceptions) fails for uncertainty Is the agreement so detailed that the K is already formed and its legal effects only

suspended until a certain date?o “An agreement to agree in the future to a particular set of terms is simply an

agreement to those terms.” Or is it indeed incomplete? If so, does it establish some kind of framework that makes it

possible to overcome uncertainty?o Can terms be specified by the mechanisms set out in the agreement?o Agreement to negotiate?

Determining conditions of negotiation Agreements on method of specification

o Empress Towers v Bank of Nova Scotia: “market rental as mutually agreed between” the parties agreement not void for uncertainty

Requirement of negotiating in good faitho Note the ‘officious bystander’ and ‘business efficacy principles’ as standard for the implication of a

promise to negotiate in ‘good faith’

CVL: Agreements to agree: in this scheme, a promise to K is a K (Jukier’s notes) BUT there is a difference between an offer with a term and a promise to K with a term.

An offer with a term is a unilateral juridical act which does not constitute a K, and therefore only entails extra-contractual liability.

A unilateral promise to K is a bilateral juridical act which does constitute a K, and therefore entails contractual liability.

o A K is always a bilateral juridical act, i.e. a meeting of the minds between parties even if it is a unilateral K to which only one party is bound.

It is still an agreement between two parties (1396)

Art. 1397 CCQA contract made in violation of a promise to contract may be set up against the beneficiary of the promise, but without affecting his remedy for damages against the promisor and the person having contracted in bad faith with the promisor.The same rule applies to a contract made in violation of a first refusal agreement.

Art. 1611 CCQThe damages due to the creditor compensate for the amount of the loss he has sustained and the profit of which he has been deprived.Future injury which is certain and assessable is taken into account in awarding damages.

The Gentleman’s Agreement in Legal Theory and in Modern Practice – Rudden – 1999

SUMMARYOverview of what arises when parties eschew the law in their agreements and rely instead on gentleman’s agreements. Distinction between deliberate no-law (no-law-ever clauses and no-law-now clauses) and contextual no-law. One of the most difficult problems for courts surrounds the question of intention: did the parties really mean to exclude the law forever?

KEY POINTSGentleman’s agreement: not enforceable at law and is binding only as a matter of honor

2 situations:o The legal order is expressly excluded by the parties deliberate no-lawo The legal order is not excluded but declines to intervene contextual no-law

Deliberate no-law K is knowingly and properly formed by the parties agree that it is to produce no legal consequences and is to

be binding in honor only Varied jurisdictional responses to the upholding of no-law clauses 2 variants:

o No-law-ever clause: honor regime is permanent Most end satisfactorily don’t involve the legal system don’t make it into doctrine

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Is the agreement a juridical act? Yes (paradoxical because it paralyzes the legal system) If it’s brought to court and plaintiff loses on the grounds of the no-law clause, the court is by

its own abstention, both respecting and enforcing the agreement Offers a touchstone by which we may distinguish 4 visions of the proper function of private

law: Individualist: based on the autonomy of the will (law accepts its own exclusion) Communitarian: based on notions of fairness (law responds to call for aid) Instrumentalist: based on efficiency and effect on markets (law questions future effect) Sceptical: doubts all the previous 3 (law points to diff responses given in similar

situations by diff systems in prior cases)o No-law-yet clause: intention not to be legally bound until later

Agree to defer attribution of all legal consequences until some later voluntary act Contextual no-law

Parties enter into normal Ks that don’t exclude the legal order BUT law declines to supply the usual legal consequences of the transaction, forcing the parties into a relation ruled by honor (ex: social/domestic relations)

Cere v. Neely [1980] – CVL

FACTS N granted C a 2-yr option to purchase a piece of land for $4,000 Within the 2-yr period, C informed N of his intention to exercise the option and purchase the land

o But in the interim: N had sold the land to a diff buyer C had sold the land to a 3rd party for $9,000

C suing N for loss of profit and other expenses incurred

ISSUES1. Did N’s offer create a binding obligation to grant C the option of purchasing the land? YES2. If so, is N liable for the damages incurred given his failure to do so? YES – C awarded $5,000 (his lost profits)

REASONINGN’s O constituted a unilateral promise to K within the 2-yr term

Option functioned as K Option can’t be withdrawn before the end of the term

o N broke the promise by selling the land to another partyo N’s sale isn’t void BUT he’s liable in K to C C relied on the binding nature of the option

C’s premature sale of the property doesn’t affect N’s obligations But it means C doesn’t get damages rel. to the expenses incurred in rel. to the sale

RATIO1. Option Ks are binding unilateral promises 2. An option K constitutes a unilateral promise to K which cannot be withdrawn by the offeror in the period during which the offeree may act upon this promise3. Damages for breach of an options contract, if specific performance is impossible, should place the injured party in the same circumstances he would have been in had the sale gone through

Empress Towers v. Bank of Nova Scotia [1991] – CML

FACTS ET leased to BNS and had a lease agreement which contained a renewal clause

o Contained clause re the factors to agree upon in determining rent priceo Without agreement, the lease agreement wouldn’t be renewed

BNS exercised right to renew lease agreement and proposed rent at the going market rate (per the clause)o ET didn’t provide an answer until the day the initial agreement ended

Before ET responded, ET employee was robbed in a BNS branch and insurance reimbursed only half ET demanded the difference to recover their loss on top of the rent

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BNS refused, ET sought writ of possession HISTORY: BNS successful at trial, T appealing

ISSUES1. Was the renewal clause valid? YES – not uncertain not void 2. If so, did it contain an implicit obligation to negotiate in good faith? YES

REASONING3 categories of ‘promises to negotiate’ (Brown v Gould)

1. Rent to be agreed upon through negotiation = not enforceable2. Rent to be established using a formula but no machinery in place to apply it = court supplies the machinery3. Rent to be established using a formula but the formula is defective despite there being machinery in place to

apply it = court cures the defectRenewal clause here is category 3

Judge interprets clause to mean: a. ET can’t be compelled to enter into a market rental valueb. Implied term ET would negotiate in good faithc. Agreement on market rate could not be unreasonably withheld Justified by reasons of business efficacy and officious bystander principles

Good faith Duty to negotiate in good faith? Implied by context

RATIO1. Agreements to agree on the basis of negotiation are not promises to contract and are not binding. 2. But, if a clause was clearly intended and understood to have legal effect by both parties, the courts will try, through other means, to give the clause the proper legal effect.

COMMENTSRel. ratio to 1428 CCQ: Giving proper legal effect to clauses which the parties intended to have legal effectsCourts used judicial interpretation here – ie: interpretation of terms whereby agreement is considered a valid K

10. Consideration, Cause, Formalities

A. Formalities

Why do we need more than just consent? Not every promise should be enforced (ex: duress)

How do we recognize binding promises? Serious voluntary undertakings could be binding just as a consequence of ‘private autonomy’ Other models:

Ritual (instead of will) as a source of duties Signing of the agreement in a formal doc as an additional requirement Inquiry into and recognition of the reasons for the voluntary undertaking as an additional requirement

Benchmark used by the legal system below which the Court will not allow the agreement to be enforced despite the presence of consent

Formalities (consideration in CML)

Formalities Historically, binding nature of obligations sprang from performance of a ritual or formality, not from the will to be bound CML and CVL have moved from this formal conception to a voluntaristic conception: manifestation of will as source of obligation Form remains an additional requirement in certain situations (ex: consumer protection in writing)

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Gift/donation or gift that creates future obligations need form requirements Functions (Fuller)

Evidentiary: evidence of the existence and content of the K in case of controversy Cautionary: check against inconsiderate action Channeling: parties can make the conscious decision to choose the legal form and consequences

N.B. Types of formalities incl: Writing (e.g. notarial deed), content, delivery, language, consideration.

Consideration and Form – Fuller – 1941

SUMMARYThere are 3 functions performed by legal formalities: (1) the evidentiary function, (2) the cautionary function, (3) the channeling function.

KEY POINTS1. Evidentiary

Evidence of the existence and significance of the K in case of controversy (ex: writing, attestation etc)2. Cautionary

Check against inconsiderate action, makes sure parties are serious and paying attention, relieves judge of inquiring as to whether the K was intended (ex: seal)

3. Channeling Marks enforceability of the K, denotes a legal transaction was intended Offers a legal framework into which the party may fit her actions (channels for the legally effective expression

of intention) Parties make the conscious decision to choose the legal form and consequences

B. Formalities: The Seal (CML)

The seal (CML) Promise under seal is binding “A firm offer is not ordinarily binding but the addition of a seal would make it so” (Waddams) Replaces consideration (Brudner)

Delivery of sealed deed as symbolic transfer: blurs the line between promise and actual conveyance of the deed Decline of the seal in other jurisdictions

Reconstructing Contracts – Brudner – 1993

SUMMARYA promise is not legally binding unless made under seal or unless something of value (consideration) is given in return for it. Consideration and the seal rest on diff theoretical foundations and are therefore not interchangeable ways to test the legal seriousness of a promise

KEY POINTS Consideration: required for enforceability of a promise as promise Seal: promises under seal are enforced as executed gifts – doesn’t trigger the enforcement of a promise, rather

it’s something that (along with delivery) transforms a promise into an executed transfer

The Law of Contracts – Waddams – 2005

REPEAT – SEE ABOVE

C. Formalities: Consideration (CML)

Consideration (CML) Parallels: form requirements for donative agreements in CVL and consideration in CML An additional requirement for the enforceability of informal promises in CML Requires quid pro quo to enforce a promise, must give something in return

Consideration as form

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Indication of seriousness No such thing as gratuitous Ks – but even the smallest things count as consideration effectively reduced to a ritual (peppercorn theory) (Not necessary for promises under seal)

Doctrine of consideration Factors considered by the promisor when she promised; motive (Simpson) Ask if a promise in K is supported by consideration Development of a body of rules, a ‘doctrine’ of certain and defined scope

Promises can have ‘good’ consideration and still not be enforced for other reasons If consideration is ‘good’ this means the court found sufficient reasons for enforcing the promise

Consideration: focus on the detriment to the promisee

Fragmented view of K: the law is concerned with the consideration for a promise, and not the consideration for a K (Trietel)

Now: bargain theory of consideration

The Doctrine of Consideration – Introduction, in a History of the Common Law of Contract: The Rise of the Action of Assumpsit – Simpson – 1975

SUMMARYThe doctrine of consideration is the adoption by CML of the theory that the legal effect of a promise should depend upon the factor(s) which motivated the promise.

KEY POINTS Consideration for a promise meant the factors which the promisor considered when she promised and which

moved or motivated her promising To decide whether a promise to do X is binding, must know why the promise was made A promise which lacks adequate motive can’t have been serious shouldn’t be taken seriously So-called ‘moral’ obligation lies at the heart of the doctrine (ex: the reason you pay back a debt is because you

owe the money (the owing is the consideration))

D. Formalities: Cause (CVL)

Different function than consideration!

What is required for a contract? Exchange of consents (and capacity) Form (where required) Object Cause (reasons for the voluntary undertaking) (Hutchison)

Cause (CVL) CCQ (1385, 1411, 1412, 1371) Function in modern CVL: 2 ways it supports a K (Jobin & Baudouin):

Objective cause: o In reciprocal Ks: the cause of each party’s obligation is to be found in the obligation of the other oneo In gratuitous Ks: the cause lies in the promisor’s ‘intention libérale’ diff from consideration

Performs no independent function simply repeats chars (reciprocal/gratuitous) of the transaction in question

Subjective cause- ‘cause du contrat’ (1411)o Illicitness of cause: starting point for the analysis whether a K is illegal or against public policy:

Art. 1385 CCQA contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition,

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the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties subject the formation of the contract to a solemn form. It is also of the essence of a contract that it have a cause and an object.

Art. 1410 CCQThe cause of a contract is the reason that determines each of the parties to enter into the contract. The cause need not be expressed.

Art. 1411 CCQA contract whose cause is prohibited by law or contrary to public order is null.

Art. 1412 CCQThe object of a contract is the juridical operation envisaged by the parties at the time of its formation, as it emerges from all the rights and obligations created by the contract.

Art. 1413 CCQA contract whose object is prohibited by law or contrary to public order is null.

Art. 1414 CCQWhere a particular or solemn form is required as a necessary condition for the formation of a contract, it must be observed; it must also be observed for any modification to the contract, unless the modification is only an accessory stipulation.

Art. 1371 CCQIt is of the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and, in the case of an obligation arising out of a juridical act, a cause which justifies its existence.

Les Obligations – Jobin and Baudouin – 2005 – pp. 400-405 – CVL

SUMMARYCourt will first examine the subjective cause to ensure it conforms to the law. Then it will look at the abstract (objective) cause to ensure the proper functioning of the K system.

KEY POINTSThe objective cause (cause de l’obligation)

The abstract reason that a party enters into and executes an obligation and its justification for existence o Objective and identical for Ks of the same type (1371)

Utility (limited):o Gratuitous Ks: people don’t give for no reason, but for a precise personal one ‘intention libérale’o Real and unilateral Ks: justify obligation by the nature of the Ko Bilateral Ks: abstract cause justifies the interdependence of the obligation and its implications

Each party’s obligation is to be found in the obligation of the other oneo Cause remains a useful theoretical and didactic idea and serves some practical functions (ex:

distinguishes an onerous and gratuitous title) Sanction: absence of cause leads to the nullification of the engagement

The subjective cause (cause du contrat) The determining factor that pushed the party to enter into a K

o Subjective, concrete, varies between each person and K (1410) What courts use to determine the lawfulness of Ks is a K legal or against public policy? Utility:

o Controls the judiciary the K is legal except for the reasons for which it was entered into so judge can still find it illegal

Sanction: nullification of K

Hutchison v. The Royal Institution for the Advancement of Learning, [1932] – CVL

FACTS

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R promised to donate $200,000 to McGill after having previously offered to donate $150,000 on the condition that the ungifted $150,000 be considered included in the $200,000

R paid $100,000 and asked for an extension to pay the rest McGill accepted and R gave a promissory note to pay the $100,000 3 yrs later and with interest R goes bankrupt

o His trustee, H, excludes this promise from his estate, claiming it was promised without consideration

ISSUES1. What legal system applies to the K? CVL2. Was the pledge for $200,000 and subsequent promissory note for the remaining $100,000 valid? YES

REASONINGJurisdiction

K was made in and intended to be executed in QC, so CVL of K applies no consideration needed (Even if it was CML, CML makes promissory notes about a K binding if the original K was binding

consideration for the original K was having the gym dedicated in his name)CCQ 984 sets out 4 requirements for contracting:

1. Parties have capacity2. Consent is legally given3. There’s an object4. There’s a “lawful cause or consideration” (not consideration in the CML sense!) Donation is object and intention to give is cause valid K

RATIOCVL does not require consideration for a K to be binding; requires only object and cause.

E. The Bargain Theory of Consideration (CML) and ‘Mutuality of Obligation’

Bargain theory of consideration (CML)“An act of forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable” (Pollock) Promises in exchange for immediate act/forbearance = enforceable Promise in exchange for promise of act/forbearance = enforceable Charitable/gratuitous promise = NOT enforceable (unless made under seal)

Modern consideration enshrines bargainBargain test looks for key component of bargain re how consideration and promise are connected

Elements of consideration Look at price being paid by promisee, not benefit incurred on promisor

Promisor gets something from a 3rd party without getting something from the promisee = not enough “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit

accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” (Lush J, Currie v Misa)

How to define detriment? Restriction of freedom: promisee gives up a legal right in exchange for the promise restricts lawful freedom

of action (Hamer v Sidway)

Bargain test: mutual inducement Consideration ≠ motive root of it is the relation of reciprocal conventional inducement

But it is the essence of a consideration that by the terms of the agreement, it’s given and accepted as the motive of inducement of the promise and conversely the promise must be made and accepted as the conventional motive or inducement for furnishing the consideration (Holmes) each induces the other

Mutual inducement: lacks in cases of ‘past consideration’ Coextensiveness required (Roscorla v Thomas)

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Ex: Webb v McGowin (US): W saves M’s life and is injured in the process and M promises to pay W for rest of his life but then M dies and his estate resists further payment

o 1st level of analysis: not enforceable because fails bargain test (saving life not induced by reward past consideration)

o 2nd level of analysis: moral consideration in US (exceptions) is enforceable NOT IN CA

Is any bargained-for consideration sufficient? Courts won’t enter into an inquiry as to the adequacy of consideration fund. principle of law Severe inadequacy may be relevant to determination of fraud or the applicability of unconscionability but it doesn’t preclude finding of sufficient consideration Peppercorn theory

BUT:

Illusory promises Promises that are conditional on an event that is entirely within the promisor’s control

Effectively “I will if I want to” Promises that are coupled with the power to terminate the agreement at will without notice Not good consideration because they don’t restrict future freedom (Miami Coca-Cola v Orange Crush)

Implicit promises Promises that seem insubstantial on their face can be read as non-illusory Implied duty of reasonable efforts

Principle of mutuality is satisfied where, although a party does not seem to have made a promise if regard is had only for the party’s explicit words, a promise is nevertheless implied from the party’s words or actions implied promise serves as consideration (Wood v Lucy)

Unilateral Ks Mutuality of obligations is NOT required in unilateral contracts Consideration is made when the act is completed (and thus, the offer is accepted) (Dahl v HEM Pharmaceuticals)

Promisor has bargained for an act, not a promise instead of the promise it gets the act it bargained for

Hamer v. Sidway [1891] – CML (USA)

FACTS Uncle promised his nephew $5,000 if he promised not to drink, smoke or gamble until he was 21 Nephew performs the condition At 21, uncle says he’ll keep the money until nephew can be responsible, nephew agrees Uncle dies before giving the money Nephew assigned the money to his wife, H, who is suing the executor of the uncle’s estate, S, for the money

ISSUESWas there sufficient consideration to make the uncle’s promise binding? YES

REASONINGThere was sufficient consideration

Abstention from permissible legal conduct = sufficient consideration to make a promise binding Consideration may consist of some right, interest, profit, or benefit to one party OR some forbearance,

detriment, loss, or responsibility given, suffered, undertaken by the other Doesn’t matter if the consideration benefits the promisee or a 3rd party

Ambiguity of the offer Language in the letter made it clear the uncle sought acceptance by performance

RATIO1. Consideration can be an exchange of promises2. The mere abstention from permissible legal conduct is sufficient consideration to make a promise based on that forbearance a valid K

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Roscorla v. Thomas [1842] – CML (UK)

FACTS R bought a horse from T T later warranted the horse’s health, which turned out to be fake R sued for breach of K T claimed there was no consideration for the warranty

ISSUESDid T’s promise for the horse constitute consideration re the warranty on the horse’s condition? NO – promise re condition made after K of sale

REASONINGNo consideration for the warranty

Consideration for the transfer of the horse was the payment Warranty for the horse’s health occurred after the purchase

o Would need fresh consideration from R to be binding 2nd K2nd promise wasn’t coextensive with 1st promise

Promisee isn’t giving promisor anything for the warranty – no mutual inducement because sale wasn’t induced by the warranty

RATIO1. The promise must be coextensive with the consideration 2. Past consideration is not consideration in a new instance; each new promise requires fresh consideration

Miami Coca-Cola Bottling Co. v. Orange Crush Co. [1924] – CML (US)

FACTS CC negotiated a deal to license the production and sale of orange crush in an area OC agreed to supply concentrate at fixed prices and do advertising CC agreed to purchase a certain amount, and bottle and deliver it License was perpetual but CC had the ability to terminate it at will After a year, OC gave written notice it would no longer be bound CC sued for specific performance

ISSUESWas the licensing K between CC and OC valid? NO – lack of mutuality

REASONINGLack of mutuality

The K could be terminated at will by only one of the parties o CC’s promise wasn’t a binding promise at all illusory promise

Formula of ‘a promise for a promise’ broken no mutuality no consideration invalid K

RATIOWhere there is only an illusory promise by one party, there is no consideration.

Dahl v. Hem Pharmaceuticals Corp. – CML (US)

FACTS D participated as a test subject in a drug trial in return for a year’s worth of the drug when the trials were over At the end, HEM refused to provide the drug claiming no valid K since the test subjects were free to withdraw

at any time and hadn’t provided consideration

ISSUESDid D’s voluntary participation in the drug trials constitute consideration? YES – consideration in the form of

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detriment

REASONINGUnilateral K

D doesn’t need to be bound for there to be a K Upon completion of the trial, there was a binding K

o “Somehow the category of unilateral contracts appears to have escaped HEM’s notice”o Misguided to try to bring category of mutuality of obligation to unilateral not dealing with ‘promise

for promise’, it’s ‘promise for act’Consideration

Made upon completion of the act (ie: acceptance of O) Submission to painful, annoying, time-consuming testing detriment = consideration

RATIO1. Detriment constitutes consideration. 2. There is no need for mutuality of obligations in unilateral Ks – it’s a ‘promise for act’ not ‘promise for promise’

Wood v. Lucy, Lady Duff-Gordon [1917] – CML (US)

FACTS L was the 1917 version of Oprah: her endorsement of a product caused it to have additional value in public’s

eye W became L’s marketing agent with the exclusive power to market her products and to place her endorsements

on other people’s products – subject to her approval In return, W got ½ all profits and revenues from all the Ks he made L placed her endorsement on products without W’s knowledge and withheld profits

ISSUESWas the K between W and L invalid because of a lack of consideration? NO – implied consideration

REASONINGImplied consideration in the name of business efficacy

W made no explicit promise from the outset but… Business efficacy: officious bystander would think the K Only made sense if W promised to make reasonable

efforts to get endorsement deals constitutes good considerationo Implied obligation ‘saves’ the uncertainty of agreement, ‘saves’ considerationo Key: gave exclusive license to him – if he did nothing she’d lose all her revenue from endorsements

RATIOCourts will imply clauses into Ks to make them mutual if this appears to have been the intention of the parties (based on words or actions), in the name of business efficacy

Nav Canada v. Greater Fredericton Airport Authority Inc. [2008] – CML

FACTS GFAA extends a runway and needs NAV to relocate an instrument landing system

o NAV concludes the economically better decision is to replace the instrument with DME system which costs $223,000

NAV tells GFAA they must pay the acquisition costo Because no choice, GFAA accepts “under protest”

NAV installs DME, GFAA refuses to pay HISTORY: arbitration determines GFAA should pay, but is overruled at trial. NAV appeals

ISSUES1. Was there sufficient consideration to find that the agreement was binding? NO2. Was the promise obtained under conditions of economic duress, and therefore not binding? YES

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REASONINGUnder the Aviation Services Facilities agreement, NAV is responsible for DME costs

GFAA paying is seen as a modification to the initial Ko Not supported by fresh consideration because NAV had pre-existing duty to payo Promise not to breach K /= consideration

Would accept an incremental change in traditional rules by holding that a modification unsupported by consideration remains enforceable on the condition that it isn’t obtained under economic duress

NAV’s threat to breach K and not install DME constitutes economic duress as GFAA had to capitulate or suffer huge losses

No possibility of arguing promissory estoppel Would be using it as a sword (ie: would be NAV (the appellant) using it to argue detrimental reliance)

RATIO1. If you make an agreement under economic duress, there is no consideration and it is not a valid K2. Modification to K needs not be supported by fresh consideration as long as there is no duress

COMMENTSRE: Williams: tenets of consideration relaxed in both cases to render gratuitous promises to pay, or pay more, enforceable

Rule essentially mirrors CCQ (1433)NOTE: this ‘incrememntal change’ doesn’t stick

Kirksey v. Kirksey [1845] – CML (US)

FACTS Mrs K’s husband died Her brother-in-law, Mr K, offered for land and a place to live Mrs K left her land without selling it and brought her family to Mr K’s land 2 yrs later, Mr K kicks her out and she sues for the land she was promised

ISSUESWas Mr K’s offer to Mrs K re offering her a place to live if she moved to his town a binding K? NO – want of consideration

REASONINGNo consideration

Mrs K giving up her home and moving was inconvenient BUT it was what was required to take up the O (A through performance) was gratuitous, no consideration

She suffered a detriment Bot no mutual inducement: her detriment is induced by the promise BUT his promise isn’t motivated by her

detriment he doesn’t bargain for her leaving her home

RATIO1. Consideration requires mutual inducement 2. Consideration in the form of effort/commitment/dis-benefit has to be distinct from the action required to accept the promise 3. Subsequent reliance (or loss, inconvenience, effort) isn’t valid consideration

COMMENTS Dissent: argues inconvenience of moving and abandoning one’s land should be sufficient to constitute

consideration like detriment Domestic relationship: if see it this way, O wasn’t meant to create legal relations Creepy: if interpret that he had some intentions with her and he kicked her out when she didn’t indulge him,

then he did want something in return for her coming was consideration RE: Hamer v Sidway: Mrs K’s losses weren’t bargained for unline the nephew’s

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F. Contract Modification: Pre-existing Duty Rule

Problems with consideration (Jukier’s notes) Consideration must be co-extensive or co-relative to the other party’s promise.

Therefore, the must be fresh consideration for every new promise – ie: past consideration for an earlier promise is not sufficient to make the new promise binding

Creates problems Rel. to reliance, i.e. detrimental reliance Rel. to promises made to compensate for a service that was not requested Rel. to pre-existing duties

N.B. There is no problem rel. to K modification in the CVL CCQ (1433) allows K modification where there is no fraud, mistake, duress, etc.

Art. 1433 CCQA contract creates obligations and, in certain cases, modifies or extinguishes them. In some cases, it also has the effect of creating, transferring, modifying or extinguishing real rights.

Pre-existing duty rule Does a promise give sufficiently substantial consideration if it’s to do something the promisor is already under an obligation to do?

Has the promisor made a new commitment, adopted a new restraint?o Public duty? No sufficient considerationo Contractual duty? Pre-existing duty owed to promisee = no sufficient consideration

One-sided variation of the agreement Harris v Watson: based exclusively on public policy Stilk v Myrick: shift effected – reformulated in terms of ‘consideration’ Rule produces reasonable outcomes in situations where one party exploits the other party’s need to have the

pre-existing duty performed by exacting an additional feeo Don’t want to encourage practice that extorts bribes, duress

Harris v. Watson [1791] – CML (UK)

FACTS Sailor has a fixed-price K to work on a ship During voyage, sea becomes dangerous and captain promises to pay the sailors extra in exchange for them

taking on more than the ordinary share of duty Captain never gives extra wages, sailor sues for breach of K

ISSUES Was the captain’s promise to pay extra wages enforceable? NO

REASONINGPolicy decision

Cannot rule for sailors because would open the door to duresso Sailors could threaten to allow ship to sink unless they’re paid more

RATIORenegotiation of Ks should not be permitted if such renegotiation would allow one party to blackmail the other.

COMMENTSRE: Stilk: doctrinal reasoning of pre-existing duty comes a century later

Stilk v. Myrick [1809] – CML (UK)

FACTS

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2 sailors deserted during voyage While on docked on land, captain promised to split their wages between the remainder of the crew Captain then refuses to pay

ISSUESWas the captain’s promise to split the wages among the remaining sailors a valid K? NO

REASONINGPolicy?

Policy reasons from Harris not applicable here because promise made on land (ie: no pressing emergency)No consideration for the ulterior pay promised

Sailors still have a pre-existing duty to ensure the ship’s safety until the voyage was completed o Might have higher workload with the 2 deserted, but that doesn’t change what they already agreed to

doo Had essentially promised to work harder if need be nature of the industry

RATIO1. A promise to change the terms of a K is unenforceable where there is no fresh consideration2. Promising to fulfill a duty that one is already legally bound to fulfill is not valid consideration

COMMENTSRE: Harris: better to deal with pre-existing duty (doctrinal argument) than policy policy arguments always seem to lack legitimacy, seem subjective/biased “who are you to tell us how to navigate ships”

G. Contract Modification: Protecting Reliance: Promissory Estoppel

It is not especially difficult to establish whether a discrete contract has consideration The problem emerges specifically with respect to changing or modifying contracts. The law has attempted numerous mechanisms to allow people to change their contracts and to protect the reliance that is created in this situation.

Protect it by way of reliance in its own right (US Restatement) or through promissory estoppel, whether only defensive (Central London Property v High Trees) or potentially aggressive (Walton Stores v Maher)

Change what consists of consideration through factual benefit (William v. Roffey Bros)

Promissory estoppel Principle whereby a promise made without consideration may still be enforced to prevent injustice where the promisee reasonably expected the promise would be binding and relied on the promise to their detriment

Promises unsupported by consideration = not normally enforceable as K promises People prevented (estopped) from reversing their position when other party relies on it to their detriment Protects detrimental reliance and not expectation interest Promises must have the following chars:

Intended to be binding Promisor knew the promisee would act on them (reliance) Promisee did act on them

CA: used exclusively as a shield Can only be used as a shield (from party attempting to renege on new K or impose the old K), and not as a sword (to enforce a K). You need to ask how the person claiming estoppel is using it. Narrow scope in CML CA decisions (Central London Property v High Trees)

Promissory estoppel can only be invoked defensively Can only be used as a ‘shield’ to preclude departure from a promise by a person in a pre-existing K relationship

that he won’t enforce his K rights Promissory estoppel as a sword

The party that benefits from the additional advantages tries to enforce the promise of additional advantageso Refuse to allow the party making a relied-upon concession (= promise to accept less) to act inconsistently

and enforce the initial promiseo Promise to give more can’t be enforced

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Factual Benefit Alterations of a contract will be found to have consideration if they provide a benefit to both parties and are not procured under economic duress (Williams v Roffey Bros)

Uses: in absence of consideration Shield: one-sided var of K in the form of a concession (giving up claims, accepting partial payment etc)

Party that made the concession later tries to enforce the K as it initially was before the concession (Central London Property v High Trees)

Sword: one-sided var of K in the form of additional advantages Party that benefits tries to enforce the promise of additional advantages (Gilbert Steel v University Construction; Williams v Roffey Bros; NAV Canada v Greater Fredericton Airport)

Sword: new relationship, promise without exchange, but followed by reliance (Kirksey v Kirksey; Walton Stores v Maher)

Gilbert Steel Ltd. v. University Construction Ltd [1976] – CML

FACTS G had written K with U to deliver steel for 3 diff buildings at a pre-determined and agreed-on price

o But price of steel rises o Oral agreement that U would pay the increased price – written K was sent but never executed

U gets delivery and refuses to pay higher price HISTORY: trial judge finds insufficient consideration and agreement not binding

ISSUESIs there sufficient consideration to find a binding agreement? NO

REASONINGNo consideration for 4 reasons:

1. G’s promise to give U a ‘good price’ on the next building cannot be considered consideration too vague2. Initial K wasn’t mutually rescinded simply a modification re price (oral agreement /= new K and release

from written K ≠ consideration for new K)3. G’s argument that the increased price afforded greater credit to U dismissed not consideration of ‘real

substance’4. G cannot argue promissory estoppel detrimental reliance not shown

a. And promissory estoppel can’t be used as a sword

RATIO1. In amending a K, there must be fresh consideration.2. Promissory estoppel cannot be used as a sword (ie: as a form of action)

COMMENTSSo dumb: if G had added the smallest thing more to deal, it’d have been consideration

Central London Property Trust v. High Trees House, [1947] – CML (UK)

FACTS HTH leased a block of flats from CLP for £2,500/yr WWII caused drop in occupancy rates, so agreed to reduce the rent by half K didn’t stipulate period and

CLP received no consideration from HTH By 1945, HTH had full occupancy In 1945 CLP brought rent back up to £2,500 and claimed the back-rent for 1939-45 in arrears

ISSUES1. Can a promise, intended to be binding and intended to be acted on, and in fact acted on, be enforceable by law even where there is no consideration? YES2. Can CLP reverse their promise to offer HTH a lower rent when it was hard to find tenants during the war? NO –

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HTH could invoke promissory estoppel

REASONINGA party who waives part of the performance of a K may later reinstate that portion if it would not be unjust or violate the reliance of the other party

Court reasons the waiver was implied to cover wartime period while the flats were not at full occupancy not unjust to return to original amount

o CLP can claim the full rent back to early 1945According to principle of consideration and estoppel (at the time), CLP’s promise to accept lower rent wouldn’t be binding because there was no consideration and their promise didn’t meet the criteria of estoppel at the time

Evolution of CML: promissory estoppel applied to promises with 3 chars:1. They are intended to be binding2. The promisor knew the promisee would act upon them (reliance)3. The promisee did act upon them

CLP estopped from claiming arrears (ie: going back on its promise) because HTH can use promissory estoppel as a shield

RATIO1. Creation of the doctrine of promissory estoppel, along with the restriction that it can only be used as a shield (ie: by the defendant) 2. Promissory estoppel: where a promisor intended to create legal relations, and a promisee relied on it and acted on it, a promise can be legally enforceable despite a lack of consideration

Williams v. Roffey Bros and Nicholas Ltd., [1991] – CML (UK)

FACTS R had a K to renovate flats and subcontracted the carpentry work to W

o Agreement that W would get $20,000 payable in instalments Price too low and W can’t finish

R’s K to renovate had a penalty clause for late completiono Had no choice but to agree to pay W more to finish the work in time

W did not ask for this, had just said he couldn’t finisho W did some but R stopped paying so W never finished the flats

ISSUESWas the agreement to pay W more enforceable? YES

REASONINGGood consideration even though W performing a pre-existing duty

Practical benefit of R (ie: finishing on time) = considerationo Moves from promisee in that he provides this benefit by his work

No evidence of economic duress or fraud W didn’t demand more money, R offered it

No possibility of arguing promissory estoppel Would be using it as a sword (ie: would be R (the plaintiff) using it to rely on the original K)

RATIO1. Cannot use promissory estoppel because it would be a sword 2. A pre-existing duty to the promisor can be legally sufficient consideration if the promisor derives practical benefits from the agreement and if the promise isn’t given under economic duress3. NOT IN CA: Alterations of a contract will be found to have consideration if they provide a benefit to both parties (this benefit may be external to the contract – practical benefit flowing from a 3rd party) and are not procured under economic duress

COMMENTSRE: Gilbert Steel: facts are the same except here R offered more money, while G had demanded more money

Some people thought this case would be a ‘mortal blow’ to consideration

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First case where court finds that practical or factual benefit can constitute fresh consideration for modification of pre-existing duty broadens notion of consideration

Courts are likely to enforce commercial promises where there is mutual advantage

H. Consideration and Reliance: Inching Toward Sec. 90?

Promissory estoppel USA

s. 90 of the Restatement of Contracts recognizes that a promise made without consideration can nevertheless be enforced when it reasonably induces reliance – to the extent that “justice requires”

o Most likely: reliance damages – putting the promisee in the position as if she had never relied on the promise, not as if the promise had been fulfilled

AUS: inching toward s. 90? Walton Stores v Maher extended the doctrine of promissory estoppel to the enforcement of positive promises

o Translation into the “language of promissory estoppel” a promise has to be impliedo There is an obligation before the conclusion of a contract

Imposing liability before both parties want to be bound: conflict of Private Autonomy and the requirement of Fairness/Good Faith

Inching towards section 90 with Waltons?o Whereas section 90 straightforwardly provides a remedy for foreseeable detrimental reliance on a promise,

the rule in the Waltons case rests on the unconscionability that results from ignoring an assumption held by another party that one has played a role in creating and upon which the other has relied.

o Is there really a difference? Would every foreseeable detrimental reliance on a promise caught by section 90 also create a situation of unconscionability because of detrimental reliance on an assumption engendered?

o It is conceivable that the rule articulated in the Waltons case is broader than section 90 because the concept of playing a role in creating an assumption might be thought to be broader than the concept of giving a

promise or undertaking.

o On the other hand, the High Court explicitly resisted adoption of section 90. It may well be that the court envisaged that some element of unfairness beyond mere detrimental reliance on a gratuitous undertaking is captured by the notion of “unconscionability.”

o The distinction is indeed an unduly subtle one and that whatever advantage of breadth may be achieved by the High Court’s formulation is outweighed by the obscurity it

o The High Court has broadened the basis on which a promissory estoppel can found a cause of action and has moved the law of Australia closer to the American doctrine.

Walton Stores (Interstate) Ltd. v. Maher [1988] – CML (AUS)

FACTS W negotiates to lease M’s land

o Agreement was that M would demolish an existing building on the land and build a new one W pressured speed

o Agreement on the conditions of the K was subject to an exchange of Ks which didn’t happen M on assumption the deal is done, began demolition

o W is aware but doesn’t communicate for a montho When M’s halfway through the new building, W then sends letter stating they no longer want to

proceed with the deal

ISSUESCan promissory estoppel be invoked where there is no pre-existing K relationship? YES

REASONINGCourt extends doctrine of promissory estoppel to promises rel. to future conduct (ie: in absence of pre-existing K)

4-part test for applicability:1. Promisee assumed there would be a legal relationship with the promisor eventually YES

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2. Promisor induced promisee to believe this or knew of the promisee’s assumption to this effect, and knew or intended that the promisee intended to act on it YES

3. Promisee acts or refrains from acting to his detriment on the basis of this assumption YES4. Promisor doesn’t act to avoid the detriment YES

Promissory estoppel applies here remedy is reliance interest (no expectation damages since no K)

RATIO1. Extends the principle of promissory estoppel past the contractual realm into the negotiation phase2. Promissory estoppel can be invoked to protect reliance where there was no pre-existing K relationship by enforcing a non-K promise. Remedy is limited to reliance interest.

COMMENTSPromissory estoppel: usage here not what Lord Denning intended because:

No existing K being modified Promissory estoppel being used as a sword No problem rel. to consideration given that it’s a situation about paying less, not more

Radical judgment, but doesn’t do away with consideration because you can only get reliance damages

NOTE: this is AUS and this same idea applies in the US but not CA

Restatement (Second) of Contracts § 90(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the

promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

(2) A charitable subscription or marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance.

Provides a cause of action to enforce promises and to seek damages.

11.Contracts as ‘Thing’

A. Content of Contracts

Once the O’s been made with consideration and formalities and cause, and has been accepted, must ask: WHAT are we enforcing?

Content and its interpretation 1st step: must determine which terms contained in the written doc form part of the juridical construct ‘K’ 2nd step: must interpret the content of the K – what do the terms mean?

K as a juridical construct – translates human behavior into the normative lang of the law of obligationsK as a ‘thing’ – a physical object

In this translational process, K law: Decides which communications can be qualified as a term (Oscar Chess v Williams) Supplements missing terms

Default rules, rules re the implication of terms Law creates ‘types’ of Ks (ex: nominate) (Jobin & Baudouin)

Erases terms that shouldn’t be integrated into the legal construct ‘K’ Should the law take oral communications etc external to the written agreement into account?

o CVL: (1426)o CML: parol evidence rule

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Art. 1426 CCQIn interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account.

Institutionalized protection of weaker partiesSituative: K of adhesion (1379)Functional: consumer Ks (1384) Attempts to remedy the structural inequality of bargaining power Particularly in the case of consumer Ks: consumer protection legislation in CML

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

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

K of adhesionNo possibility of negotiation Not really a K anymore (Leff) Does a K of adhesion in any way reflect the actual ‘consensus’? (1379) Should the doc ‘K’ equal the ‘K’ in the legal sense?

Interpretation contra preferentum (1432) No integration of surprising and unfair terms (1435)

Art. 1432 CCQIn case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer.

Art. 1435 CCQAn external clause referred to in a contract is binding on the parties.In a consumer contract or a contract of adhesion, however, an external clause is null if, at the time of formation of the contract, it was not expressly brought to the attention of the consumer or adhering party, unless the other party proves that the consumer or adhering party otherwise knew of it.

Art. 1436 CCQIn a consumer contract or a contract of adhesion, a clause which is illegible or incomprehensible to a reasonable person is null if the consumer or the adhering party suffers injury therefrom, unless the other party proves that an adequate explanation of the nature and scope of the clause was given to the consumer or adhering party.

Art. 1437 CCQAn abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced.An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore contrary to the requirements of good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.

Les Obligations – Jobin and Baudouin – 2005 – CVL

Distinction in types of K arises from Roman law1. Named K: regulated by the CCQ

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Easier to rule on – just look up relevant CCQ articles2. Unnamed K: legislature doesn’t specify, are decided upon by the parties3. Mixed K: combine 2+ named Ks

Contract as Thing – Leff – 1970

SUMMARYK theory is based not only on a deal but on the dealing, the process animated by the free wills of the parties. Ks of adhesion underline this theory as there is no negotiation but rather the imposition of one party’s terms on the other. The lack of freedom of consumers on the content of the Ks is problematic. The solution is to treat these Ks as ‘property/goods’ rather than Ks and gov interventions serve to regulate them, just as the gov regulates other goods.

KEY POINTSK as K

K theory is based “not only on a deal, but dealing” a process animated by the free wills of the parties Elements of a K: between 2 parties, communicative, subject is mostly future behavior, bargain/trade, not

entering into close interpersonal relationships, joint effort, a combination of the expression of the wills of both parties

Certain transactions have split from this series of identifying elements (labor, insurance, sale Ks) each of which has developed a diff set of identifying criteria

K as K of adhesion No joint effort: one party gives the other the terms of the deal and the other party must accept or leave it Difficulty: nothing preventing highly unequal Ks from being created Law tried to deal with these: regulation of insurance policies, interpretation in the court – against the actual

meaning of the K, stretching fraud and duress, expanding doctrine of considerationo Don’t work create new category: K of adhesion

Practical disaster: no legal theory sufficient to deal with all one-sided consumer dealsK as thing

Leff postulates Ks of adhesion aren’t actually Ks at all process is missingo They’re more like ‘goods’ than ‘contracts’ are produced by one side and either ‘bought’ or

‘rejected’ by the othero ‘Quality control’ via gov regulation intervention in unfair/unsafe Ks just like in dangerous goodso Problems with this approach:

Gov interfering too much with free market? Is it self-correcting? Paternalism: shouldn’t people be allowed to make bad deals if they want?

Oscar Chess Ltd v. Williams [1975] – CML (UK)

FACTS W sold OC a car for £290 It was described as a 1948 model but it was really the 1939 model worth only £179 W said it was 1948 in good faith as he relied on the car log book that had, unbeknownst to him, been forged by

a previous owner 8 months later, W sued for damages

ISSUESIs W liable for breach of warranty? NO

REASONINGIf OC had come promptly rather than waiting 8 months, they could have set the entire K aside in equity

Buyer, as expert, should have checked it at time of saleNo warranty based on the representation of the car’s model

Warranty = subsidiary term in K (a ‘condition’) Innocent misrepresentation /= warranty no right to damages

o Based on facts: both parties believed it was 1948 model as firmly based on OC’s inspection of the log book as on a K warranty by W

o W didn’t intend to warrant himself – only had log book to go on, no personal direct knowledge

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o Reasonable observer wouldn’t have thought it was a warranty

RATIOA representation is not warranty if it is an innocent misrepresentation that a reasonable observer wouldn’t have thought, based on the facts, is a warranty.

The Law of Contracts – McCamus – 2005

SUMMARYEquity and CML were separate systems in UK legal system prior to the 19th c. Equity was curative and was in response to the harshness of CML. K law is based off the doctrines of both, and in a conflict, equity doctrine wins. Judges still have recourse to equity principles in the UK and CA.

KEY POINTS3 meanings of CML

CML V CVLo Based on UK CML, although that’s no longer binding on CA courts as of 1949

Judge-made law V legislationo Gen principles of K law are CML in this sense – CA legislature typically refrains from making K law

Doctrines of CML V equityo Parallel systems in UK law until late 19th c

CML: King’s Bench, Common Pleas, Exchequer Equity: Court of Chancery

Corrective to the harshness of CML, didn’t award damages or compensation Less discretionary and more based on precedent and rules led to procedural

deterioration o UK and CA judges can apply CML and equityo K law derives from CML and equity sources intermingling of doctrineso Equity = curative if conflict between CML and equity doctrine, equity prevails

12.Incorporation of Terms

How do we justify integrating terms into a K that were not negotiated/agreed upon/even read by both parties?

A. Incorporation of Terms: CVL

CCQ (1435): integration of external clauses Test for the integrality or externality of a clause rests on whether it is reasonably accessible See restrictions for consumer Ks/Ks of adhesion (Dell Computers v Union des Consommateurs)

o QC Consumer Protection Act s 11.1: prohibits any stipulation that obliges a consumer to refer a dispute to arbitration, restricts consumer’s right to be before a court (esp a class action), or that deprives the consumer the right to be a member of a class action suit

Dell Computer Corp. v. Union des consommateurs [2007] – CVL

FACTS Dell incorrectly advertised a sig lower price for certain computer models on its website but quickly blocked

these pages and corrected the error D was able to purchase one at the low price using a deep link to access the page Dell refused to honor the purchase

o D attempted to motion for a class action o Dell argued a class action couldn’t be allowed given the arbitration clause in the sales K which was

accessible by hyperlink (ie: ‘terms and conditions’) at the bottom of each page

ISSUES

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1. Do the terms and conditions constitute an external clause? NO2. Is the arbitration clause valid? YES

REASONINGMajorityConsumer K CCQ (1435, 1436, 1437)

Externality: in consumer and adhesion Ks, an arbitration clause is null if not expressly brought to the attention of the consumer (1435)

o Test for externality = test of accessibility ‘terms and conditions’ link at bottom of each page = equiv to turning the page in paper format = effectively part of the same document (ie: not external)

Intelligibility (1436) Not abusive by virtue of appearing in an adhesion K (1437) Clause is valid

Dissent Arbitration clauses create private jurisdiction Dell’s arbitration clause violates CCQ (3149) whereby

consumer Ks cannot be such that they waive the jurisdiction of a QC authority for a QC citizen Ks of adhesion are real Ks

RATIO1. The test for the integrality or externality of a clause rests on whether it is reasonably accessible (ie: whether it’s expressly brought to the attention of the consumer)2. An external clause is one that is physically separate3. Apply the functional equivalence test for e-Ks

B. Incorporation of Terms: CML: Signed Docs

No misrepresentation “When a document containing contractual terms is signed, then, in the absence of fraud or misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not” (L’Estrange v Graucob)

No connection to actual assent (more of a ritual, or a matter of imputation) Can’t argue ‘I didn’t read it’

Misrepresentation: If you sign without reading, and the other party misrepresented, can still undo the K can’t argue ‘you should have read it’

C. Incorporation of Terms: CML: Unsigned Docs Discrepancies between written and oral Agreement

Discrepancies between written and oral agreement

TYPE 1 So-called ‘ticket cases’ (Thornton v Shoe Lane Parking)

Typical issue: exclusion or restriction of liberty Extension of the l’Estrange rule such that even where the K is not signed, the conditions are binding where there

is evidence of some awareness of and assent to the conditions He is bound where the reasonable person would have expected there to be conditions, and this is determined by

whether the conditions were apparent (onus on the party imposing the conditions)

TYPE 2 Oral K with written K following (British Crane Hire v Ipswich Plant Hire) Written K is never signed (McCutcheon v David MacBrayne) Typical issue: knowledge of the terms (can the party proffering the terms reasonably assume the other party knows the terms should be part of the K)

Recipient has knowledge of the terms:

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o “But of course” test – ie: where, if the parties were asked, they would answer “of course” as to whether or not there were conditions, then they are incorporated

If the recipient knows there are conditions and they are supposed to be part of the K assent can be established

Recipient has no knowledge of the terms: o Can the issuer reasonably assume the other party knows either because of:

The nature of the transaction Reasonable notice has been given

o What is essential is to show that a reasonable person would know to expect conditions – ie: awareness or knowledge of the conditions is key (British Crane Hire v Ipswich Plant Hire)

Ie: was the party in question entitled to conclude that the other party accepted their conditions, if they were reasonable?

Contrast with: “Without knowledge there is nothing” (Lord Devlin) NOT the usual explanation

Ex: no consistent practice = no reasonable expectation of knowledge (McCutcheon v David MacBrayne)

Notice Underlying theory: having received reasonable notice, one could make an informed decision and still withdraw from the deal Must be given where and when the K is formed (Thornton v Shoe Lane Parking) What is required?

The harsher the terms, the higher the requirements for noticeo Other purposes of the doc (ex: receipt)o Size of the print (designed to conceal rather than inform), signs, etc

As long as you can prove that both parties knew what was in the K, it doesn’t matter if it’s unsigned

Notice requirements migrating into the context of signed Ks Protects signing party: signature doesn’t manifest consent to terms that the other party had no reason to believe were assented to by the signing party (Tilden Rent-a-Car v Clendenning) Usually onerous provisions ‘inconsistent with the true object of the K’ are cancelled out Modern alternative: specific protective legislative measures (consumer protection)

Thornton v. Shoe Lane Parking Ltd. [1971] – CML (UK)

FACTS Upon entering SL’s parking lot, T is issued a ticket

o Ticket states: “This ticket is issued subject to the conditions of issue as displayed on the premises.” Signs with the conditions were placed on random pillars throughout the lot

o On the signs was an exemption clause excluding SL from liability in case of an accident o T didn’t read the signs

T is injured in the lot

ISSUESWas the exemption clause part of the K? NO – exemption clause came after the K was formed

REASONINGThe exemption clauses are not part of the K

Automatic machine makes the Oo (Because it states the prices etc and fulfills the necessary conditions)

A = T placing money in the machine have a K No additional conditions can be added after K is formed (ie: the printed conditions on the back of the ticket

aren’t valid)Even if they were part of the K, SL didn’t do what was reasonably sufficient to give T notice of the conditions

Would have had to bring attention to the conditions (ex: red arrows)

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The more onerous the clause (ie: the greater the liability), the more effort must be made to call attention to it (1381)

RATIO1. A clause cannot be incorporated into a K once it’s already been concluded2. If the offeror doesn’t do what is reasonable to bring the conditions to the attention of the offeree, then these conditions don’t form part of the K

COMMENTSRE: Pharmaceutical Society: inconsistent since in this case the ‘display of goods’ does constitute an OBetter ways to address this case:

CML: unconscionability CVL: lesion (1474-1475), external clauses in adhesion Ks (1379-1435)

McCutcheon v. David MacBrayne, Ltd. [1964] – CML (UK)

FACTS M’s car was to be shipped to the mainland on a ship owned and operated by DM

o Normally, DM’s customers sign risk notes indemnifying DM, but this wasn’t done this time despite M signing risk notes in prior dealings

Ship sank due to DM’s negligent navigation and the car was lost

ISSUESIs the plaintiff bound by an unsigned K on the basis that he had past dealings with the defendant? NO – was never really ‘course of dealing’ because M never read the conditions any of the times before

REASONINGWas an implied K between M and DM content under dispute

Is the indemnification term incorporated through a past course of dealing?Incorporation of terms

Can be no conditions in K unless they’re brought into it by expression, incorporation, implication Not brought in simply because one party inserted them into similar transactions in the past

o Must prove other party’s actual knowledge of and consent to the terms Evident M was unaware of the terms of the risk note No consistent practice

Assumption that these types of Ks are never read estoppel can’t be used to prevent M from saying he signed previous Ks without reading them

RATIO1. The written terms of previous dealings will only be implied into a new K when it’s demonstrated that the signing party was aware of and consented to those terms2. Unclear if this is used today in law – rejected: ‘without knowledge, there is nothing’

COMMENTS If the K were signed, the consumer cannot get out of it if it is not signed, the K cannot be relied on This is unpalatable because it can lead to unfairness, so we need the legislature to create doctrines to attack (ex: the fairness of exoneration clauses)

British Crane Hire Corporation Ltd. v. Ipswich Plant Hire Ltd. [1975] – CML (UK)

FACTS IP borrowed a crane from BCH along with their driver who remained a ‘servant’ of BCH

o Crane sank in marshy land due to no negligence of the driver BCH claims damages for the cost of recovering the crane from the marsh

Agreement to lend the crane was oral, and per industry custom, written agreement followed aftero It laid out conditions that would make IP liableo IP didn’t sign it before the accident

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ISSUESIs IP liable for the damages per the condition on the unsigned K? YES

REASONINGCourt must decide what each party was reasonably entitled to conclude from the attitude of the other (not the actual intentions of the parties)

Both parties (of equal bargaining power) were aware of the conditions (were the usual conditions)o IP had borrowed cranes before was aware of the normal processo IP was in the same business and used a variation of the same standard form

Note: not a matter of prior dealings implying IP’s knowledge of the conditions Conditions in K imputing liability to IP are incorporated

RATIO1. Where both parties are of equal bargaining power, they are bound to all terms that each party was reasonably entitled to conclude from the attitude of the other provided that it’s shown both parties had knowledge of those terms2. A condition is implicitly included in a K per the above terms

13.Interpretation

What the terms we have decided are in the K (content) actually mean

CML and CVL Set out to verify the intentions of the parties as expressed in the contractual document Not limited to a literal reading of the text Emphasize the significance of judicial discretion – guidelines, no hard and fast rules Starting point is always a close reading of the text look for ambiguity

Read clauses within the context of the entire agreement (1427) Look at factual matrix: context, background ie: extrinsic circumstances assist in determining what the words

chosen by the parties mean (1426)

Tools of Interpretation More or less analogous in CML and CVL Hall

The Eight Fundamental Precepts of Contractual Interpretation – Hall – 2015

SUMMARYThere are 8 fundamental precepts underlying the interpretation of Ks, as these are crucial since issues of contractual interpretation are pervasive and although sometimes affect only the parties involved, other times have huge commercial implications.

KEY POINTSTools of interpretation more or less analogous in CML and CVLFundamental principles:

Words and their context (1425-1426)o Interpreting the words selected by the parties understood in the context of the K

A K is to be construed as a whole with meaning given to all of its provisions (1427-1428) o 1st aspect of context: disputed lang to be interpreted within the context of the agreement as a whole

The factual matrix (1426)o 2nd aspect of context: disputed agreements to be interpreted within the context of the surrounding

circumstances that gave rise to it The organizing principles of good faith (6-7, 1375)

o Underlies K law, manifested in a number of specific legal doctrines incl a duty of honesty Interpretation is an objective exercise vs subjective in QC (1425-1426)

o Seeks to give effect to what the parties objectively manifested by their words, not subjective

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intentions Commercial efficiency

o Interpret commercial Ks in a way to promote efficiency Every effort should be made to find a meaning

o Courts should be loath to hold Ks void for uncertainty A K is to be interpreted as of the date it was made

o Meaning is fixed at the date of K’s formation

Ejusdem generis Where the law lists specific classes of persons/things and then refers to them in general, the general statements

apply only to the same kind of persons/things specifically listedExpressio unius est exclusio alterius

Where the expression of something in a given clause implies it’s not intended to apply elsewhere – ie: it’s included in one clause to the exclusion of others

Contra preferentum (1432) Where the expression of the terms is ambiguous, the interpretation is against the drafting party

A. CVL Interpretation

CCQ (1425-1432) Starting point (1425): common intention rather than adherence to literal meaning (Quebec (Agence du Revenu) v.

Services Environnementaux AES) The K isn’t just the physical doc but what the parties made (wills)

Diff between true intentions and recorded intentions interpretation lets judges adjust to what objectively seems to be the case

Art. 1425 CCQThe common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.

Art. 1426 CCQIn interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account.

Art. 1427 CCQEach clause of a contract is interpreted in light of the others so that each is given the meaning derived from the contract as a whole.

Art. 1428 CCQA clause is given a meaning that gives it some effect rather than one that gives it no effect.

Art. 1429 CCQWords susceptible of two meanings shall be given the meaning that best conforms to the subject matter of the contract.

Art. 1430 CCQA clause intended to eliminate doubt as to the application of the contract to a specific situation does not restrict the scope of a contract otherwise expressed in general terms.

Art. 1431 CCQThe clauses of a contract cover only what it appears that the parties intended to include, however general the terms used.

Art. 1432 CCQ In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer.

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Quebec (Agence du Revenu) v. Services Environnementaux AES inc. [2013] – CVL

FACTS AES agreed to transfer 25% of its shares in Centre Tech to investor Groupe Sani-Gestion

o Entered into reorganization and tax planning agreement that was supposed to be tax neutral On the condition that the consideration other than shares didn’t exceed the ‘adjusted cost base’

(ACB) of the shares received AES made an error assessing the ACB which led the tax authorities (ARQ) to add a taxable capital gain to

AES’s reported income for the year Parties sorted it out among themselves to fix the problem and presented a motion to QC Superior Court to

amend the original agreements to reflect the parties’ original intentions ARQ contested the motion, asking for its dismissal HISTORY: QC SC grants the motion, which is upheld by the court of appeal

ISSUES1. Are the proceedings instated by AES consistent with QC rules of civil procedure? YES2. Are the proceedings instated by AES to amend or correct the K permitted under QC law? YES

REASONINGWas there a K? YES

K is an agreement of the wills for the purpose of carrying out juridical operations evidence of tax planning K

Agreement, the intended effect of which was to defer the tax payable, was vitiated by the error made in calculating the ACB

o Agreement to correct the error = restoration of the integrity of the original KWere the corrections permitted under QC law?

Challenges to notices of assessment/objection are challenges rel to civil aspects of a transaction with tax implications

o Court doesn’t have authority to rule on such notices circumvents specific avenues established by Parliament for tax appeals

Per context of CQ (1425), Court holds the determination of the common interest of the parties represents a true exercise of interpretation

o Court must resolve discrepancies BUT true agreement in this case is that described by the parties – corrections resulted from the true wills of the parties

Open to the courts to intervene to find that the parties’ amendments were legitimate and necessaryo Existence of a real dispute rel. to the parties’ common intention allowed the case to be brought before

the SC, and a motion for rectification was the appropriate way to do it Intervention based on the fund. rules of QC K law which emphasizes the distinction between

the exchange of consents (internal will/true intention) and written expression of that exchange (declared will)

In CVL, the tax authorities do not have an acquired right to benefit from an error made by the parties to a K after the parties have corrected the error by mutual consent

RATIO1. In CVL, tax authorities do not have an acquired right to benefit from an error made by the parties to a K after the parties have corrected the error by mutual consent2. Where the intended agreement provided for the establishment of determinate structures that, properly executed, would have made it possible to meet the objective pursued by the parties, the parties may validly make amendment to give effect to these common intentions

In interpreting a contract, it is important to consider the original intent and will of the parties, as long as it conforms with public order and law

COMMENTSBy CVL (1425) the Court looks to the subjective intention of the parties, despite no presence of ambiguity, vs. CML would have looked to the objective intention

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B. CML Interpretation

CML: construction V interpretation (CVL) Interpreting a K – ie: building a K that makes sense Main guiding principle: to find/give meaning to a K that makes commercial sense and is still in line with what the parties want Interpretation followed by ‘implication of terms’ (gap-filling)

(Normally just falls under interpretation in CVL (ie: doesn’t require tests/doctrine as in CML))

Increasing importance of context Background – anything that would affect the way in which lang of the doc would be understood by the reasonable manBUT are remaining evidentiary restrictions Matrix of fact – no K made in a vacuum – ie: surrounding circumstances

Reference to the factual matrix isn’t a violation of the parol evidence rule (Sattva v Creston – very controversial)o Exceptions: subjective intention and prior negotiations

N.B. impact on the standard of reviewo Deferential standard of review not in cases of standard form Ks

Factual matrix less important Precedential value: establishing the proper interpretation amounts to establishing the correct legal

test as the interpretation may be applied in future cases involving identical/similar provisionso Also: contra proferentum rule

Parol evidence rule (Hall) Preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document (see art. 2863).

N.B. Not rel. to K interpretation (you can rely on the factual matrix when interpreting a K).

Sattva v. Creston [2014] – CML

FACTS S introduced C to a potential mining deposit in Mexico which C purchased S and C entered into a Finder’s Fee Agreement

o Parties agreed to a fee of $1.5M payable as a result of S’s involvement in introducing C to the mining deposit but couldn’t agree how the fee should be paid (ie: how much the shares were worth)

HISTORY: arbitrator finds C in breach of K and liable for damages (assessed on the basis of an 85% probability that the TSX would have valued the finder’s fee at the S’s rate and that S lost the opportunity to sell those shares based on that value)

o Court of Appeal overturns decision on the grounds of issues of law rel. to K

ISSUESQuestion re interpretation of K – reinstates arbitral award in full

REASONINGCourt of Appeal erred in finding the construction of the agreement constituted a question of law

Was a question of mixed fact and law – ie: K interpretation principles must be applied to the written K in light of the factual matrix

SCC rejected the notion that a court’s judgment rel. to leave to appeal creates binding precedent rel. to the merits of the appeal

(Though unnecessary to the disposition of this appeal, SCC established) 3 principles rel. to appeals of arbitration awards which promote deference to arbitrators and promote the finality in the arbitration process

1. In the commercial arbitration context where appeals are restricted to questions of law, the standard of review is reasonableness unless the question is one that specifically calls for the correctness standard

2. S. 31(2)(a) of the BC Arbitration Act implies that assessing whether the legal question at issue my prevent as miscarriage of justice, as required for leave to appeal, depends on whether the proposed appeal has arguable

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merit, which is has when it cannot be dismissed on a preliminary examination.3. The BC Arbitration Act confers a discretion to deny leave even when the requirements of s.31(2) are met.

RATIO1. Parties seeking to appeal domestic commercial arbitration awards must 1) identify a clear questions of law and 2) on appeal, establish that an arbitrator’s decision was not merely incorrect but also unreasonable2. K interpretation is a question of mixed fact and law

COMMENTSCase is relevant outside arbitration to the extent that it confirms that central role of the factual matric in contractual interpretation

By thus stating that contractual interpretation involves issues of mixed law and fact, the SCC has limited appellate review of all decisions interpreting Ks

14.Implied Obligations/Terms

A. Implied Terms / Implied Obligations

What are the terms of the K? incorporation etc What do the terms mean? interpretation Are there gaps that need to be filled? implication of terms gap-filling strategy

CVL implication of terms Adapted by the French CC (stricter terminology) CCQ (1434): implied obligations usage, equity, law

Ks aren’t limited to what’s written but rather it brings in more content, either explicit in the CCQ but also usage and equity

Implied obligations Ks have permeable borders, so obligations can be implied into a written K

Implied in fact where the parties implicitly agreed to an obligation, despite leaving it unsaido The Court fills the gap on the basis of the implied intentions of the party

Implied in law where the Court intervenes to ensure the fair functioning of certain Kso Obligation can be implied according to:

Law Justification in statute and codal provisions (N.B. Can be rel. to imperative or suppletive

provisions) Usage

Usage or custom is defined as something which is (1) uniform, (2) public, (3) general, (4) frequent, (5) ancient

A custom or usage can make it an implied condition of the K even if the K says nothing on the issue (a gap)

o Doesn’t matter what either party knew about the K – since it’s like a norm it can assume law-like status K would be governed by this usage

(Ouellet v 3092-3122 Quebec Inc) Nature of the K

Obligation can be implied by the nature of a K – this lessens the severity of CCQ (1434) by often implying a duty of safety and security into a K – ie: essentially duty of care (see CCQ (1458) whereby one and the same act can be interpreted as a breach of K and a tort)

(A(M) v Stations St Sauveur) Equity

Assume the parties want something that is reasonable, something fair – is an objective principle, something the state wants to enforce (A(M) v Stations St Sauveur)

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o If parties make it explicit: the threshold to deny them what’s written is much higher even if it’s against equity – ie: is there a particular reason to protect the party that agreed to the unfair provision (ex: duress)

o If it’s implicit: then can say it’s unfair Implicit duties grow out of the general rule that there’s equity and good faith when we

determine content of Ks (In French law, once you make a K it governs all aspects of the situation – ex: liable if

you sign a K to renovate a house and your truck runs over their cat)

CML implication of terms Custom and usage Implication in fact

Business efficacy – assume it was intended by both parties (The Moorcock) Officious bystander test – prima facie that which in any K is left to be implied and is so obvious it goes without

saying if a bystander suggested the provision they would say “oh, of course” As usual, more reluctant to see something brought into a K automatically (vs CVL)

Harder to wrap head around the idea that there’s a duty coming to light from the K that isn’t stipulated i Good faith in CML?

Ouellet v 3092-3122 Québec Inc, [2000] – CVL

FACTS O had an agreement with BMW dealership

o He would have no base salary and would earn 20% commission for cars he sold O quits

o Dealership gives him all his accumulated commissions except one car that had not been delivered prior to him quitting

ISSUESCan a salesman get his commission where he quits before the good is delivered? YES

REASONINGCCQ (1434) states that a validly formed K creates an obligation on the parties to respect not only its terms but also everything which follows from its nature following usage, equity, lawIs it custom?

Dealership argues it’s custom that vendors aren’t paid commission on their sales where the car is delivered after they quit

5 conditions to consider something custom:a. Act must be uniformb. Act must be publicc. Act must be generald. Act must be frequente. Act must be ancient

Uniformity: evidence shows that generally commission isn’t paid on these sales but sometimes it is and sometimes a settlement is reached not substantiated enough to determine that it’s uniform

Unclear if it’s a customEquity

Per equity, assume that parties didn’t intend to conclude an unfair or inequitable K Sale of the car is a crucial element of O’s job, not the delivery esp since sometimes that’s not done by the

vendoro Denying a vendor the right to a commission for a car he sold is contrary to equity would sanction

unjust enrichment

RATIO

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Art. 1434 CCQA contract validly formed binds the parties who have entered into it not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law.

1. Per art. 1434, the court can imply obligations into a K which follow from the K’s nature rel. to usage, equity, or law.2. Usage is determined based on it being uniform, public, general, frequent, ancient

A (M) v Stations de la Vallée de St-Sauveur Inc. [2010] – CVL

FACTS X was enrolled in ski lessons (K between parents and St Sauveur) Instructor told the kids to ski down the remainder of the run themselves to meet their parents while she tended

to one who was crying and wouldn’t ski downo She couldn’t see the meeting spot and gave no instructions and assumed the trail would be safe

X fell and was badly injuredo Injuries required a lot of treatment and rehab and resulted in permanent neurological damage

HISTORY: trial judge ruled it was a tort (1457)

ISSUES1. Is the action against St Sauveur properly brought under K law? YES2. Is St Sauveur liable for the kid’s injuries? YES

REASONINGK existed between X’s parents and St Sauveur

Principle obligation in K is to teach X to ski K includes accessory obligations, by implication, to provide X with safe supervision while he’s in instructor’s

care owed a contractual duty to provide him with safe instructiono Flows from the nature of the K in conformity with usage

X’s injury Occurred in connection with a K in which the obligation to provide lessons and the obligation to provide safe

supervision were bound together in a single prestation owed to X Implied obligation to provide safe instruction not separable from the duty to provide lessons

o Is also a fund. principle which is timeless and immutable based on common sense and nature of kidsCCQ (1458)

States non-performance of a K undertaking renders the wrongdoer liable for bodily injury Instructor’s decision was a breach of K unreasonable conduct

RATIO1. Certain Ks have implied obligations which flow from the nature of the K itself. See art. 14342. If you have a K, you must sue in K even if it looks like a tort

The Moorcock [1889] – CML (UK)

FACTS Wharfingers (appellants) owned a wharf abutting on and a jetty extending into the River Thames Respondent owned steamship, Moorcock Agreed that the ship should be discharged and loaded at the wharf – meant it’d take ground at low tide Moorcock sustained damage at low tide from something on the base of the river

ISSUES1. Was there a warranty that this was a safe berth for the ship to lie in? NO2. Was there an implied representation that the wharfingers take reasonable care to ascertain that the riverbed adjoining the jetty is safe? YES

REASONINGNecessary condition of K

Mooring the ship and having it lie on the river at low tide was a necessary condition of the K Wharfingers can know the state of the riverbed as they’re always there but the respondent can’t until it takes

ground for the first timeReasonable implication in the K is that the wharfingers take reasonable care to determine if the riverbed is safe

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Must have undertaken this duty in order to have an honest business dealImplied warranty

Founded on the presumed intention of the parties (ie: efficacy or the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side) and upon reason

RATIO1. Implied warranties can be read into Ks where they are in line with the presumed intention of the parties and upon reason2. Gave rise to the “business efficacy test” for common law implied terms. The test provides that terms will be implied at common law to the extent required to give the contract business efficacy. If the contract makes business sense without the term, the courts will not imply a term

B. Implied Obligations of Good Faith

Individualism (adversary: dealing at arm’s length) V altruism (partner: assuming responsibility for the other party/joint endeavor/fraternité contractuelle) clash of ideologies in K law Good faith implies some objective standard being imposed on the parties

Looking out for each othero Not so easy for K law to embrace – harder in CML V in CVL there’s a tradition of this

Maybe they wouldn’t have wanted it to be there

Doctrine of good faith Duty to bargain in good faith Duty to perform in good faith Good faith as a standard of interpretation Defense against unfair behaviorFlexible standard that enables the judge to reshape the parties’ agreement and to override inflexible rules (Schermaier)

C. Obligation of Good Faith : CVL

Doctrine of good faith (CVL) Grown out of Roman tradition – overarching, general principle

Common to CVL jurisdictions: France, Germanyo Principles of European Contract Law:

Art 1.201: parties must act in accordance with good faith and fair dealing and cannot exclude or limit this duty

Art 1.202: parties owe the other a duty to cooperate in order to give full effect to the Ko UNIDROIT Principles of International Commercial Contracts

Art 1.7(1): parties must act in accordance with good faith and fair dealing in intl. trade Art 1.7(2): parties may not exclude or limit this duty

Modern CVL doctrine developed from the ‘bonae fidei iudicia’ The binding force of Ks is actually rooted in good faith idea that we can enforce Ks is that it’s based on a

binding promise to keep promises (ie: good faith) Cornerstones of the dev of doctrine of good faith technical framework to put over the touchy feely ‘good faith’

BCN c Soucisse Houle c CNB Codified now in CCQ CCQ (6, 7, 1375)

What is the principle of good faith? What kind of behavior does it envision? What is the standard the principle imposes on the parties to a K? When and how do we invoke good faith?No malice and dishonesty Principle implies:

Grey area between good and bad – where do you draw the line? At the very least: ‘no bad faith’ no intentional harm, reprehensible behavior

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o (Provigo distribution v. Supermarché ARG) Could also call for ‘reasonableness’ fair dealing, avoiding to disappoint reliance, etc

o (Houle c CNB) QC case law’s been cranking up the standard in last decades more things are unreasonable

Remedies Fin de non-recevoir (BCN c Soucisse)

Doesn’t extinguish the obligation but permanently takes away its enforceability Similar to estoppel

Damages

Art. 1375 CCQThe parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished.

Art. 6 CCQEvery person is bound to exercise his civil rights in accordance with the requirements of good faith.

Art. 7 CCQNo right may be exercised with the intent of injuring another or in an excessive and unreasonable manner, and therefore contrary to the requirements of good faith.

Bona Fides in Roman Contract Law – Schermaier – 2000

SUMMARYGood faith remains a generalized, vague obligation because to codify it or reduce it to a formula would create inflexible laws that would eventually yield unjust results, which is exactly what good faith guards against.

KEY POINTS Roman maxim summum ius, summa iniuria (“reducing everything to laws will create the greatest injustice”)

ensured that good faith had a prominent place in the Roman law of contracts But Romans realized attempting to crystallize tenants of good faith into law would simply create inflexible

new laws that would eventually yield unjust results Good faith had to remain a generalized, vague obligation – it could not be codified or reduced to a formula

Bona fides Required a debtor to perform in good faith Require seller to tell buyer all defects which are known to him and will be liable if he does not Progress brought about by judicial recognition of bona fides Provisions derived from bona fides become unjust and inflexible if not tested against the standard – cannot be

reduced to a formula

B.C.N. v. Soucisse [1981] – CVL

FACTS S (2 daughters and wife) are the heirs of G

o G had signed a promissory note and 2 letters of suretyship guaranteeing repayment to the bank, BCN, of the current and future debt of R (his son-in-law) if he doesn’t pay ongoing relationship

G dies and the suretyship is passed to his heirs (1937) o S would have to pay existing debt but there was a revocation clause could have put an end to the

surety and not paid future debt o BUT BCN never informed them of the surety or the option to revoke, only of the promissory note

BCN suing S for R’s debts on the basis of the inherited suretyship HISTORY: BCN won at trial, but Court of Appeal overruled this decision allowing action only for the debts

after G’s death

ISSUESAre G’s heirs liable to repay the advances made by BCN after his death? NO

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REASONINGSuretyship is regulated by CCQ (1937)

It’s an obligation that passes to heirs (also clear in G’s letter that it was passed on unless revoked) Doesn’t distinguish between present and future obligations (ie: obligations of settlement V coverage) Jeannin case in France wanted to protect the surety’s heirs where bank was at fault for not informing

o But surety was valid so made bank pay the amount in damages Fin de non-recevoir can be invoked in QC

o Peremptory exemption whereby someone defending an action can have it dismissed without going to the substance of the claim, similar to estoppel

Bank is at fault for not disclosing the existence of the suretyship to the heirs Breach of duty to inform

o Doesn’t automatically terminate the K and give you damages, need fin de non-recevoir as wello S didn’t have a chance to revoke the suretyship before the new credit was extendedo BCN had obligation on the basis of good faith to inform the heirs as soon as it learned of G’s death per

CCQ (1434) Similar to unjust enrichment

A fin de non-recevoir may be used to prevent to bank from benefitting from their fault of not telling the heirs of the suretyship

o No complaint can be based on, nor advantage derived from, one’s own action, negligence, imprudent, or incapacity, much less fault, to the detriment of another (acts as a shield – BCN essentially estopped)

RATIO1. A court may imply a term of good faith into a K through equity2. A fin de non-recevoir may be used to prevent the defendant from benefitting from their own fault3. One of the duties of good faith is the duty to disclose

Houle v. CNB [1990] – CVL

FACTS H were 4 brothers who were shareholders in their family company

o Had a line of credit with CNB which could be recalled at any time (had done business with CNB >60 yrs)

Applied for a higher line of credit when a 3rd party was interested in purchasing their shares CNB performed an audit and decided to recall the loan despite no danger of bankruptcy

Did it because they were away of the sale negotiations Notified H and 3 hrs later liquidated their assets so H was only able to get 1/3 of the value they

expected for their company H suing for the difference

ISSUES1. Did BCN abuse its contractual right? YES2. If so, can the respondents, as 3rd party shareholders to the K, ground an action in contractual liability? NO3. If not, is there an extra-contractual recourse available to H? YES

REASONINGCNB must exercise its right to recall the loan on demand without notice in a reasonable manner

Length of delay between demand for payment and the liquidation of assets is unreasonable abuse of a contractual right (was ‘precipitous’)

H can’t ground their claim in K (1440) As shareholders, they’re 3rd parties to the K BUT a contracting party may incur delictual liability toward a 3rd party

CNB had an ECO obligation to provide a reasonable delay General duty not to prejudice a sale that a person knows to be imminent CNB knew of the impending sale

and had no justification for acting as quickly as it did Abuse of rights giving rise to delictual liability (6, 7, 1375, 1457)

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RATIO1. There is an abuse of contractual rights where there is a lack of good faith, and this is determined by a ‘reasonableness’ standard2. Good faith can imply a term which overrides a term in the K3. 3rd parties have no recourse in contractual liability for abuse of contractual rights, but abuse of contractual rights gives rise to delictual liability (ECO) toward the 3rd party

COMMENTSNOTE: the test for determining the presence of an abusive exercise of a right is not malice, but good faith

RE: Soucisse: not simply implying a term which doesn’t then affect the other terms of the K Here, the implied obligation of good faith is reasonable notice directly contradicts the term that the loan is a

‘demand’ loan could be argued to undermine the notion of autonomy of the will court does this because it’s abuse of right (justification is the important social and economic function of necessary control over K rights)

Provigo distribution v. Supermarché A.R.G. [1998] – CVL

FACTS P signed an agreement with ARG to bring 4 ARG supermarkets under the Provigo brand although they’d

remain independently owned and operatedo ARG will purchase 90% of its stock (food) from P at fixed prices and in exchange benefit from P’s ad

expertise and business practices P opens a new discount supermarket in ARG’s neighbourhood and promotes it aggressively

o Lower prices than other Provigoso But ARG still forced to buy at higher, standard Provigo pricingo Franchising agreement allows for the opening of new stores to compete with existing

ISSUESDid P breach its duty of good faith?

REASONINGThere’s a duty to contract in good faith

Entrenched in the CCQo (6) Good faith as the basis for contractual moralityo (1375) Ks should be negotiated, executed, terminated in good faith

Franchising agreement char by dependence of the franchisee as well as being a partnership Imposes a high expectation of good faith

o ARG depended on P for 90% of supplies and P had a right to control prices and change strategies (ie: open a discount store) not a fault

Implicit obligation P has an implicit obligation to collaborate with franchisees and support or at least minimize harms to them

o P did neither breached its obligation to contract in good faith Violation justified on 4 grounds:

1. P forced ARG to keep its prices up as it had to purchase 90% of stock from P2. P radically changed its commercial strategy3. P refused to give marketing tools to ARG to enable it to compete4. P ran an aggressive ad campaign against ARG

Causality necessary condition to the existence of a contractual obligation Could only show P’s actions led to lowered sales for 1 ARG store

RATIOFranchising agreements carry an implicit obligation to act in good faith to minimize the harm to the franchisee caused by the actions of the franchiser because of the imbalance of power and discretion and high degree of dependency

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D. Obligation of Good Faith: CML

Good Faith in CML Traditionally, CML does not recognize a duty of good faith

UK and CA CML reluctant to acknowledge a general principle of good faith Has always popped up in CML judgments but hard pressed to find a CML judge that would say good faith is an

organizing principle Justification:

Undermines freedom to K Undermines negotiation and bargaining in K Undermines certainty created by a K

USA: acknowledges a general principle of good faith UCC §1-203: obligation of good faith in performance and enforcement 2nd Restatement of Contracts s. 205: every K imposes on the parties a duty of good faith and fair dealing in its

performance and enforcement

Doctrine of good faith (CML) Typically impose a lower standard of good faith on parties to a K Only in the performance of the obligation Limited application – key is vulnerability of one party (Jukier’s notes)

Specific types of Kso Employment, insurance, franchise Ks (Bhasin v Hrynew)

Specific circumstanceso Discretionary exercise of a K right (McKinlay Motors v Honda Canada)

McKinlay Motors Ltd. v. Honda Canada Inc. [1989] – CML

FACTS M owned a Honda dealership (franchise relationship with H)

o Agreement stated that car allocations were made at H’s discretion but based on dealer performance Updated in 1981 containing a formula for “downward allocation spiral” M started receiving fewer and fewer cars every year

H required M to make renovations and expand the dealershipo M spend $180,000 but needed $500,000 more o M refused to pay more because he was getting fewer cars and making less money

H terminated the dealership after giving 6 months notice citing decreased sales, the state of the premises, poor management

ISSUESDid H act in bad faith by under-allocating cars to M which led to the termination of the dealership K? YES

REASONINGPoor sales was not a genuine factor in H’s decision to terminate

Allocation formula structured so that it could only reduce the allotted cars, never increase it Sales had been good and any decrease was due to the allocation formula

o H had actually reduced M’s allocations by an unusually big amount to pressure M to renovate or leave H

o But this undermined M’s capacity to pay for renovations H terminated due to lack of renovations and poor location

Implied term of good faith Court states it’s obviously an implied term of any dealership agreement that the parties act toward each other in

their business dealings in good faith H’s behavior wasn’t in good faith in breach of K

RATIO1. Good faith is an implied term in contracts where there is a long-term relationship with an inequality of bargaining

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power – ie: a vulnerable party. (Most franchise agreements imply good faith)2. In CML, on a case-by-case basis, there is an obligation for parties to use their discretionary powers reasonably. If not, they are acting in bad faith

COMMENTS How it is appropriate for CML to imply a duty of good faith here? Because this is a situation where one of

the parties is exercising discretion rel. to a contractual right This is seen as a deviation from the CML position, which ordinarily does not involve good faith

o It has not been entrenched as a principle; it displays judicial discretion in equity

Bhasin v. Hrynew [2014] – CML

FACTS B and H are competing enrolment directors who market education savings plans to investors for Can-Am B had a 3-yr K which would renew automatically after the term unless one party provided 6 months written

notice H had approached B re merging their agencies B refuses Can-Am appointed H to review its enrolment directors for compliance with securities law

o B objects to his competitor, H, reviewing his confidential business records B went to Can-Am and asked what was happening but Can-Am didn’t reveal that its intention was the merger

with H Can-Am then gives notice of non-renewal H’s agency successfully solicited most of B’s sales agents

ISSUES1. Is there a duty on parties to perform their contractual obligations honestly? YES2. If so, did H and/or Can-Am breach this duty? YES – Can-Am did (no liability on H’s part)

REASONINGCML K law is incoherent on the matter of good faith

CML has resisted the notion of a generalized and independent doctrine of good faith in K performance Here, court decides to recognize that good faith in K performance is a general organizing principle of CML K

lawo State such changes are the court’s duty rel. to the dev. of CML

Honest performance A natural extension of good faith to recognize a duty of honest performance Imposes as a K duty a min standard of honesty in K performance

o Can-Am breached this standard by exercising the non-renewal clause for the purpose of merging B and H’s agencies

o H didn’t breach any K “It is, to say the least, counterintuitive to think that reasonable commercial parties would accept a K which

contained a provision to the effect that they were not obliged to act honestly in performing their K obligations.”

RATIO1. Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings, it is a contractual duty2. There is a CML duty which applies to all contracts to act honestly in the performance of their contractual obligations3. Similar to a franchising K but not quite

Form and Substance in Private Law Adjudication – Kennedy – 1976 – CML

SUMMARY

KEY POINTS Modern situation conditioned by classical individualism. Rejected the idea that particular views are represented

by an ad hoc compromise between policy and altruist morality

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Classical view has 3 propositions:1. In all institutions, there should be an area of individual autonomy or freedom where there is no possibility for

effect on others2. 2 legitimate sources of liability

a. Fault: intentional or negligent interference with the property or rights of othersb. K: adds new duties that are enforced as a matter of right, not a matter of judicial discretion, and content

is limited to the intent of the parties3. Fault and free will to K can generate determinate legal rules through deduction, defining the content and

boundaries of K and tort dutiesModern legal thought in private law rejects classical individualismModern phase of conflict in private law:

Community V autonomy to what extent should one have to share or make sacrifices in the interest of another without contractual obligation

o K and tort law viewed as compensatory, not punitiveo Individualist is opposed to broadening liabilityo Causes altruist and individualist to disagree on three levels

1. Scope of obligation (is there a duty to look out for others?)2. Intensity of obligation (how great is the duty?)3. Extent of liability for consequences

Regulation V facilitation when 2 parties with conflicting claims or interests reach an agreement through bargaining, and the stronger party attempts to enforce it through the legal system

o Individualist position: judge shouldn’t conceive of themselves as regulators of the use of economic power

o Altruist position: judges should carry on and not impede to achieve distributive justice Paternalism V self-determination: arises in situations of error (not conflict as in community v autonomy)

party who incurred unilateral legal obligation tries to back out on the grounds that it goes against party’s real interest

o Individualist position: parties themselves are the best and only judges of their own interests have freedom to act foolishly and others should accept it

o Altruist position: obligee ought to take real interests into account at the bargaining stage and the enforcement stage if he is made aware of them

E. Good Faith in Pre-Contractual Duties

Interference with the principles of: Freedom of K Private autonomy

Underlying idea: the commencement of negotiations creates a special relationship that distinguishes the presumptive partner from any other ‘3rd’ party

CVL v CML CVL: imposes a stricter standard CML: “parties who have begun negotiations are in a relation in which they owe each other some minimal duties of decent behavior

Ex: Walton Stores v Maher – detrimental reliance and unconscionable conduct leads to liability (promissory estoppel)

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