contracts long summary

Contracts: Long Summary

Legend:Times New Roman: Class NotesGrey: policy

Contracts: Sep 8 (Class 2)

II. REMEDIES

2. Damages: The Interests Protected...............................................................................................780 According to Holmes and Posner, contract breach should be morally neutral.

Holmes: The Path of the Law............................................................................................................781 The duty to keep a contract at common law means a prediction that you must pay damages if

you do not keep it.

The main point of Holmes: When you enter into a contract, Holmes is telling you that you have a choice. Keep that promise, or you can breach it and you can pay damages.

If you were to run an approach counter to Holmes: a coercive remedy. Holmes doesn’t care why you breach a contract. Whatever form of remedy you deal with a

breach, should not be such that it compels parties to keep their promises. Parties should feel free to breach whenever they want.

If they do choose to breach, will treat it as MORALLY NEUTRAL in terms of the types of damages we award.

All contract law is concerned with is allocating risk . The way we deal with breach, should reflect what would’ve happened had the promise been kept.

Posner: Economic Analysis of Law ...................................................................................................781 Holmes’s view contains an important economic insight: in many cases, it is uneconomical to

induce completion of performance of a contract after it has been broken. To compel completion of a contract (or costly negotiations to discharge the promisor) would

result in a waste of resources, and again the law does not compel completion but confines the victim to simple damages.

Three types of damages:o Expectation: aims to put the innocent party in the position he would have been in, had

the contract been fulfilled.o Reliance: aims to put the innocent party in the position he would have been in, had he

not entered into the contract.o Restitution: aims to give back what the innocent party transferred to the contract

breaker.

Idea is that active agent has to take positive action, and that also is consistent with what he would say is an efficient breach: allow market to operate in a manner that supports moving resources to the most efficient use.

Posner part of Law and Economics school. o Behavioural economics, which has departed from rational actor model (people will do

what the reasonable person would do), is more empirically based on what parties actually do.

Fuller and Purdue: The Reliance Interest in Contract Damages........................................................783

The Purposes Pursued in Awarding Contract Damages: Unjust enrichment: the plaintiff has in reliance on the promise of the defendant conferred some

value on the defendant. The defendant fails to perform his promise. The object here may be termed the prevention of gain by the defaulting promisor at the expense of the promise. The interest protected may be called the restitution interest.

The plaintiff has in reliance on the promise of the defendant changed his position. Court may award damages to the plaintiff the purpose of undoing the harm which is reliance on the defendant’s promise has caused him. Our object is to put him in as good a position as he was in before the promise was made. The interest protected may be called the reliance interest.

Without insisting on reliance by the promise or enrichment of the promisor, we may seek to give the promise the value of the expectancy which the promise created. Here, our object is to put the plaintiff in as good a position as he would have occupied had the defendant performed his promise. This interest is called the expectation interest.

Goal of remedies is to create CERTAINTY in the market. Parties can rely on each other, and if they breach the contract, the damages will be compensatory, not punitive, so they can feel free to breach where it makes sense.

To do this, we use the EXPECTATIONS MEASURE as the dominant measure, but in certain circumstances, use reliance measure.

(a) The Expectation Measure of Damages........................................................................................791 Fuller and Purdue argue that the goal of contract remedies is to promote market activity. To

further this goal, contract law should protect reliance interests of non-breaching parties. To protect reliance interests, contract law should award the expectation measure of damages.

AVG Mgmt. Science Ltd. v. Barwell Devs Ltd.....................................................................................TBDFacts:

Respondents accepted offer from Jordan to purchase an apartment building. Agreement was subject to a provision for benefit of Jordan.

Appellant made an offer to purchase the same property later on. The vendors mistakenly concluded that the Jordan deal was off for failure of Jordan to meet the

provision in its contract. They accepted the appellant’s offer, but Jordan refused to accept a return of its deposit tendered by the vendors.

The appellant brought an action for damages, but by reason of rule in Bain v Fothergill, appellant was denied recovery for the loss of its bargain and its damages were limited to return of deposit, costs of investigating title and solicitors’ frees and disbursements preparatory to carrying out the contract.

Analysis: Rule in Bain v Fothergill: limiting principle for assessing damages in favour of a purchaser for

breach of contract for sale of land. The purchase was held disentitled to recover damages for loss of his bargain if the sale fell through because of the vendor’s inability, absent fraud or bad faith, to give a good title.

o If vendor finds that he is unable to complete the sale because of a defect in his title, the purchaser will only be able to claim the return of his deposit and damages for expenses incurred, not for loss of his bargain.

Present case is not within the rule in Bain. The vendors here had title and then proceeded to agree to sell the same property twice.

Ratio: rule in Bain should no longer be followed in respect of land transactions in those Provinces that have a Torrens system of title registration or a near similar system.

The judge that rendered position: Laskin CJC (Chief Justice). Who are the parties in this dispute?

o Barwell: respondent, who has agreed to sell property to Jordan. Barwell agrees to sell

property to Jordano AVG is the other party: they are the people that the vendor, Barwell, sold the property to.

Jordan is successful in getting a coercive remedy. Vendor was forced to convey property to Jordan development.

If acting for appellant (purchaser), what would argument be here?o If you are acting for purchaser, do you want Bain v Fothergill to apply or not?

If Bain v Fothergill does not apply, then you would get dominant measure of damages (expectations); if it does apply, it acts to limit the application of the expectation measure of damages.

o You’re making case to narrow application of Bain to these facts

You’re acting for vendor: what do they want? For Bain v Fothergill to apply.

Ratio: Bain: exception to expectancy measure, so conditions giving rise to no longer apply.

(b) The Reliance Measure of Damages.............................................................................................793

Use of reliance measure : most notable reason is that the plaintiff has not suffered any losses measurable by the expectation level or has been unable to prove or establish expectation losses with the requisite degree of certainty.

As a consequence, the damages claim is confined to restoring the plaintiff to his pre-contract position.

There may be occasions on which the plaintiff is seeking reliance recovery because it represents a potentially more lucrative basis of damages than the expectation measure.

Contracts: Sep 13 (Class 4)

McRae v. Commonwealth Disposals Comm......................................................................................793

Facts: Contract was contract for sale of goods. There was no market into which the buyers could go to mitigate their loss, and the rule normally

applied would require us to arrive at the value of the goods to the buyer at the place where they ought to have been delivered and at the time when they ought to have been delivered.

The plaintiffs assessed their damages on the basis of an average-sized tanker, another tanker, and an estimated value of cargo of oil.

The Commission did not contract to deliver a tanker of any particular size or of any particular value or in any particular condition, nor did it contract to deliver any oil.

Analysis: Practical substance of this case lies in three factors:

o 1) Commission promised that there was a tanker at or near to the specified place.o 2) In reliance on that promise, the plaintiffs expended considerable sums of money.o 3) There was in fact no tanker at or anywhere near the specified place.

Counsel for defendant: it still could not be held that the alleged damage flowed from the breach.

The fact that the expense was wasted flowed prima-facie from the fact that there was no tanker; the first fact is damage, and the second fact is breach of contract.

o The burden is now on the Commission of establishing that if there had been a tanker, the expense incurred would equally have been wasted.

It is the breach of contract itself which makes it impossible to undertake an assessment of damages based on a comparison between what was promised and was delivered.

Issue: how should the plaintiff be properly compensated for his losses?Ratio:

• McRae case: get into when we should award the reliance measure. This case has been cited by our own Supreme Court and has established the reliance test.

• McRae promised, in a certain place in the ocean, an oil tanker. • What part of the promise was breached?

• There was nothing wrecked on the reef. That one oil tanker was not there.• Significant expenses were incurred, thinking there was this tanker out there. • Why does this present a problem in terms of remedies?

• We have a problem in terms of putting them in the position that they would’ve been in, because we just don’t know.

• The oil tanker wasn’t where it was supposed to be. So how do we deal with this?• Compensatory: can force them to fulfill their contracts, but generally, know that won’t

use coercive damages.• Expectancy: don’t know what should’ve happened so don’t know how to put plaintiff

back in position they would’ve been in. • What we see come out this is when it is the alternative measure of damages: reliance

measure.• Where in the decision do we start to see development of a specific decision?

• There’s an actual test in the decision: comes from the second part of last paragraph of pg. 795. Has to be read with more general statement that expectancy not possible.

• 3 circumstances are in place where can reliance apply:• Need to be in situation where expectancy impossible to prove. • Burden shifts: contract breaker expected to show that whatever expenses were incurred

by the counter party would’ve been lost anyway. Burden shifts to defendant to show that these expenses would have been lost in any case , but the defendant is unable to do so .

• The impossibility of proof results from the nature of the defendant’s breach .• Proof of expectancy impossible because defendant never had an oil tanker. Not

about the nature/uncertainty about the contract; it was about the breach, the promise about something that didn’t exist. Where the third factor comes in.

Bowlay Logging Ltd. v. Domtar Ltd. .................................................................................................797• Breach of contract when didn’t provide sufficient trucks to take away the trucks.• One of those situations where we attempt to use reliance measure, not expectancy measure. Why

is it that they want reliance measure of damages, not expectancy?• Because losing money. If contract had gone through, it would’ve been at a loss.

• Expectation measure seeks to put the parties that they would’ve been in had the contract been performed. If promise had been kept, party that experienced the breach would be at a loss . The reason that there is a claim here for the reliance measure, rather than the expectation measure, is that the expectation measure would have put the party into a losing position, whereas the reliance measure would not. It would actually give them some compensation. So can we apply McRae?

• Look at test, check to see if expectancy possible. Since there was a clear contract, therefore, was an expectancy (with some degree of certainty). The reliance measure is NOT available.

• $150,000 = total value of K (what paid if contract completed). Have already spent $232,905 (expenses). Paid $108,128.57. So they want the difference between the expenses and what they’ve been paid so far.

• Didn’t satisfy McRae test. Can’t get reliance: we don’t compensate bad bargains, sorry.

• How is Bowlay consistent with what Fuller and Purdue were concerned with?• Idea that you have to be as efficient as possible. Fuller and Perdue were concerned that

reliance measure would be a drag on economic activity, that parties would take advantage of it to make up for their own inefficiencies.

• Principled approach to applying reliance measure of damages. McRae applies, and reliance cannot be an alternative.

• To have awarded reliance, would be punitive level of damages rather than a neutral way of dealing with the breach.

• From now on, the McRae test is the test we’ll be using for reliance.

Ratio:• Bowlay tells us you can’t just turn to reliance if you would be put in a better position if in

reliance rather than expectancy. If want to get reliance, have to establish the test. • Bowlay is helpful for situations where there’s an attempt to get around that test, where

reliance is tried to be applied where expectancy would not put you in as good a position.

Sunshine Vacation Villas Ltd. v. Governor and Company of Adventurersof England Trading into Hudson's Bay..............................................................................................801 Facts:

The plaintiff was granted licences to operate travel agencies in six small stores, but the Bay eventually renewed agreements with existing licensees.

Sunshine was then aware that the Bay was in breach of its promise to make available the outlets.

There were negotiations, with Sunshine hoping to become the Bay’s exclusive travel agent, and in hope that they would succeed, Sunshine carried through with its plans to open an outlet. Eventually, Sunshine terminated its contract with the Bay.

Damages awarded: loss of capital AND loss of profit.

Analysis: It is wrong in principle to make an award based upon a mixture of approaches. One method of assessment, the return of expenses or loss of capital, approaches the matter by

considering what Sunshine Vacation’s position would have been had it not entered into the contract. The other, loss of profit, approaches it by considering what the position would have been had the Bay carried out its bargain.

The Bay asserted that Sunshine would have been in a loss position at the end of the three-year period, though the trial judge concluded that the projections of Sunshine were reliable.

The Bay cannot discharge the onus of establishing that Sunshine would have suffered a loss.

• The promise that was breached was about the larger Vancouver/Victoria stores. “We, the Bay, promise that you’ll be the main travel agent for the Western stores.”

• The question becomes, what will be the measure of damages? Does McRae apply here?• 1) No expectancy, because business hasn’t been set up yet. • 2)

• 3) Nature of breach: didn’t allow Sunshine to have these stores, can’t measure expectancy.

• Sunshine did incur a significant amount of expenses because imagined what business would be like.

• Bay argues that if get $100K, then should give up the loss of capital.• The main issue that we’re confronted with is, trying to get from expectancy and reliance.

Expectancy (backward looking: where the loss of capital comes in) and, also arguing that they should get loss of profit too – forward looking

• Court says no, we’ve decided that reliance measure is only what applies. So will just get loss of capital.

• Some issue around what should be included in loss of capital. What they’re referring to in loss of capital is loss of unworking capital.

• What happens at the end of the day is plaintiff is entitled just to the loss of capital. • Why does the court say no to loss of profit? Court says reliance measure is appropriate

measure, and can’t claim loss of profit because can’t estimate it with certainty (??).

Ratio: Have to pick one or the other. Sunshine: once met McRae test in what goes into reliance measure of damages, not open for you to draw from expectancy and get more that way. CAN’T GET BOTH. Up to the parties to argue what they want.

(c) Restitution The defendant has been enriched at the expense of the now impoverished plaintiff, and justice

demands a return to the previous state of equilibrium between them.

• Give back whatever you took from the other party back to the other party.• Often comes up in insolvency contracts. Often awarded in breach of fiduciary duties.• Restore state of equilibrium. • Damages for breach of contract are measured by the benefit gained by the wrongdoer of the

breach.

Attorney-General v. Blake.................................................................................................................805

Analysis (Lord Nicholls): Proceedings concern the unpaid money of £90,000. Attorney General commenced an action against Blake, with view to ensuring he should not

enjoy any further financial fruits from his treachery. Two situations in which justice requires the award of restiutionary damages where

compensatory damages would be inadequate:o Case of “skimped” performance, where the defendant fails to provide the full extent of

services he has contracted to provide. He should be liable to pay back the amount of expenditure he saved by the breach.

o Where defendant has obtained his profit by doing the very thing he contracted not to do.

The appropriate form of order on this appeal is a declaration that the Attorney General is entitled to be paid a sum equal to whatever amount is due and owing to Blake from Jonathan Cape under the publishing agreement.

Facts: Blake (defendant) entered into a publishing contract with Jonathan Cape Ltd.

o Granted Cape an exclusive right to publish the book in this country in return for royalties.

Neither the security and intelligence services nor any other branch of the government were aware of the book until its publication was announced.

Blake had not sought any prior authorization from the Crown to disclose any of the information. Cape already paid Blake about £60,000 (money irrecoverable); £ 90,000 remains payable. Private law claim: Blake signed an Official Secrets Act declaration: “I undertake not to divulge

any official information gained by me as a result of my employment, either in the press or in book form.”

o By submitting his manuscript for publication without first obtaining clearance, Blake committed a breach of this undertaking.

Broad proposition that a wrongdoer should not be allowed to profit from his wrong has an obvious attraction. The corollary (consequence) is that the person wronged may recover the amount of this profit when he has suffered no financially measurable loss.

Analysis: These cases illustrate that circumstances do arise when the just response to a breach of contract

is that the wrongdoer should not be permitted to retain any profit from the breach. Judge’s conclusion: there seems to be no reason, in principle, why the court must in all

circumstances rules out an account of profits as a remedy for breach of contract. The law recognizes that damages are not always a sufficient remedy for breach of contract:

foundation of court’s jurisdiction to grant remedies of specific performance and injunction. When the circumstances require, damages are measured by reference to the benefit obtained

by the wrongdoer. Further, in certain circumstances an account of profits is ordered in preference to an award of

damages. Sometimes the injured party is given the choice: either compensatory damages or an account of the wrongdoer’s profits.

However, the main argument against the availability of an account of profits as a remedy for breach of contract is that the circumstances where this remedy may be granted will be uncertain.

The main argument against the availability of account profits as a remedy for breach of contract is that the circumstances where this remedy may be granted will be uncertain.

Two situations in which justice requires the award of restitutionary damages where compensatory damages would be inadequate:

o Case of “skimped” performance, where defendant fails to provide the full extent of services he has contracted to provide.

He should be liable to pay back the amount of expenditure he saved by the breach.

If a shopkeeper supplies inferior and cheaper goods than those ordered and paid for, he has to refund the difference in price.

o Where defendant has obtained his profit by doing the very thing he contracted not to do

• Contract was between Blake and the government of UK: Security Intelligence Services. Promise was to not release any of the information. Blake and AG. A non-disclosure contract.

• Also a contract between Blake and Cape (publisher). There was a promise to deliver a book: there was royalties (a percentage of the profits that the publisher will collect on sales of the book) but an advance is also given.

• Advance was given to Blake: GONE for all intents and purposes. But 90,000 pounds is still owed.

• Government doesn’t want Blake to continue profiting.• Normally, would put innocent party in position that they would’ve been in had the contract been

performed (expectation measure): but the government would be in that exact same position had the contract been performed.

• Is this a situation where we seek to award reliance? Expectancy would’ve been possible, though.• We’re trying to go broader than we traditionally would: want a DISGORGEMENT of profit.

Really rare form of remedy. Basically, what this case is dealing with is can we expand the restitution damages to include an account or disgorgement of profits? What are the tensions in doing so?

• But restitution allows Blake to keep the advance (advance is gone for all intents and purposes), which seems intuitively wrong. What is the problem with using restitution?

• Posner: efficient breach. Can you just breach a contract and enter another one?• Takes into account third parties’ abilities to enter into contract. Might still be that concern with

letting Blake efficiently breach his own contract. Don’t want people to benefit from wrong to counterparty.

• Lord Nicholls’s test: disgorgement of profits, when can it be applied?• He’s making clear that he’s not trying to attach a PUNITIVE element to the breach.

Award of disgorgement of profits should not be to seek to PUNISH people.• Fiduciary duties arise when there’s a special relationship between two parties. If there’s a breach

in that context: restricting in some manner. Not our traditional types of contracts: something derived from a fiduciary relationship.

• Could be argued, even though secrets are out, just by breaching contract of this sort, Blake’s violated the security of the nation’s service.

• The facilitation and protection of relationships: relationship of trust and confidence. • Normally, a person should be able to breach a contract, so long as he pays the damages.

But there’s FIDUCIARY duty here, which is special.

Dissent (Lord Hobhouse)? • Basically, what he could argue is the main argument against disgorgement of profits: there’s

uncertainty around circumstances. Could have a chilling effect on commercial activity as a result of this uncertainty.

• Blake: used to define restitution in general , not just disgorgement of profits

Decision: Attorney General is entitled to be paid a sum equal to whatever amount is due to Blake from Jonathan Cape under the publishing agreement.

3. Damages: The Boundaries of Recovery (a) Circumscribing the Zone of Protected Interests..........................................................................814

As we saw in McRae, we must be able to calculate loss of profits with some degree of certainty to award expectancy damages. However, Chaplin v Hicks illustrates that courts are not prevented from awarding expectancy damages because there is an element of guesswork in the assessment.

(i) Loss of a Chance...........................................................................................................................814 Chaplin v. Hicks.................................................................................................................................814 Facts:

Defendant’s secretary wrote to plaintiff asking her to call to see the defendant in London. The plaintiff was in Dundee at the time and did not receive the letter in time to permit her to keep the appointment.

Consequently, she wasn’t able to see the defendant, who selected twelve other winners. Plaintiff sued for loss of chance of selection.

Analysis: Winning a prize turned on such a number of contingencies that it was impossible for anyone to

say that there was any assessable value of that loss. But judge doesn’t agree with this contention.

Does not agree that, if uncertainty is impossible of attainment, the damages for a breach of contract are unassessable.

Jury might well take the view that such a right (to sell this right in the market) would have been of such a value that everyone would recognize a good price could be obtained for it.

• The main contract we’re concerned with: twelve winners will receive three year contracts to work as actresses, depending on how attractive they are.

• What’s at stake here is there’s a question about the plaintiff would have been able to enter into that contract. And there is an issue around the contract and the rules.

• Loss of chance: loss of chance to enter into the contract. • Uncertainty: in order to award expectancy, you need to with some degree of certainty be able to

calculate the loss of profits.

Issue: What exactly is the degree of certainty required to give expectancy damages? Should damages be awarded if there is a lack of certainty?

• This was non-transferable: there wasn’t a market, and McRae tells us this is problematic.• What does Chaplin tells us, when there is some difficulty but also some possibility?

• Requires some guess work on the part of the jury. Requires some assumptions to get at some sort of expectancy award. Need to show with some degree of certainty, and leave to jury to calculate.

(ii) Cost of Completion v. Difference in Value...................................................................................816 In the following cases, we consider two different approaches that may be used for awarding

expectancy damages:o 1) Cost of completion: the cost of buying substitute performance from another

including undoing any defective performance.o 2) Difference in value: the market value of the performance the contract breakers

undertook minus that actually given.

Contracts: Sep 27 Readings

Groves v. John Wunder Co................................................................................................................816

Facts: Groves: owned a tract of land. Principal value may have been in the deposit of sand and gravel

that it carried. Contract: defendant agreed to remove sand and gravel and to leave the property at same grade

now. Overburden will be used for purpose of maintaining and establishing said grade. Under the contract, defendant got the Groves screening plant. Defendant deliberately breached the contract. Failed to leave premises in condition in which it

was required to be left. Cost of depositing overburden elsewhere: $60K

o If defendant had left land in condition required, value of land only $12,160 Damages: difference between market value of land before and what it would’ve been had

defendant performed what he was supposed to.

• Groves promises Wunder access to the gravel and the plant on the site they own. In return, Wunder will provide money and restore the land to its original state.

• Wunder took whatever it wanted, but didn’t put the land back to what it was before.• Restoration of land would’ve cost $60,000 and the value of the land, after remediation of the

land is done, would’ve been about $12K• Increase from valueless land (at time contract was entered into) and increase in value

after work was done ($12K).

• Expectation measure of damages seeks to put counterparty in position they would’ve been, had the contract been formed: $12K. Groves does not agree with this.

• Groves is saying had position been formed, there should’ve been cost of performance: cost of actually DOING the work. Trial judge awarded $15K: used diminution of value.

• Concerned with the freedom of choice for the ability to have done something that wouldn’t have higher market value once the work is done.

• Saying that just because the result will be of small value, it’s not right to limit the ability of a party to contract for that and then get damages if there’s been a breach.

• Dissent worried about efficient breaches.• Focused on this notion that if you want to protect yourself and you’re entering into this

kind of contract, where going to pay a lot for the small value at the end, then you have to protect yourself by contracting this protection up front

• The dissent would not have given anything more than the difference in value and any interest that was awarded at the trial.

• Breach consists of failure to do work on an asset, you should award the value of the work rather than the value of the end result.

• Is this going to come up every time we award expectation damages? No, this is a specific type of scenario where COST OF WORK IS HIGH and difference in value is smaller. Only in these types of instances where these scenarios would arise.

Decision: new trial ordered.

Posner, Economic Analysis of Law....................................................................................................821

Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd........................................................................821

Facts: Nu-West (respondent) contracted to build a house for Thunderbird (appellant) Appellant began to complain about deviations from specifications. Nu-West then decided that no further work should be done until all disputes had been resolved. Nu-West sued appellants; appellants counterclaimed for cost of rectifying deficiencies. Rectifying work cost $16K; however, Thunderbird only awarded $4,238: trial judge did not

consider demolition of basement necessary.

Issue: Narrow: should the aggrieved party have the right to be awarded the cost of rectification if it is

much greater than the nature of the defect?

Analysis: Restriction on rule of right of aggrieved party to have right to building he contracted for: where

cost of rectification is great in comparison to nature of the defect, the Court will not force a slavish following of the precise specifications of the contract.

The wrongdoer is entitled to expect the aggrieved party to act reasonably.

Thunderbird’s conduct was reasonable by reason of Thunderbird’s conduct in respect of other defects and deficiencies.

Conclusion: It follows that Thunderbird must be allowed the $16 K paid to rectify the defects.

• Very important: the cost of the work of rectifying the deficiencies was already DONE.• Appellate court: says that should be all REASONABLE costs.

• Generally speaking, instead of putting down one category of hardwood that has slight tinge of colour that’s different, have to redo the whole basement: not going to award these damages.

• But if there was a slant in the floor, then this is REASONABLE. Would award damages.• There’s a small discussion: if want higher quality of material and that’s what you’re

doing replacement work with, that’s unfair to party breaching because SHOULD’VE contracted for that specifically in contract.

• Can’t get what is economically wasteful and put a definition onto that, which is basically that you have to act reasonably in rectifying what’s been done, but not with PERFECTION.

• Looked at conduct in the context of ALL actions taken. Work was done with some expertise.• It made a BIG difference that the work had already been done: addresses potential windfall

argument, where you can give the other party the money to get the work done, whereas here, it has been done.

• Ben-Ishai: shouldn’t be the driving factor: other cases will have a different issue, so we shouldn’t look AHEAD to whether the party did the work. She thinks that it’s a little bit artificial to look back to what was done.

• We’re just concerned with putting the party in the position they would’ve been in.

Ratio: damages will be awarded to rectify the breach, as long as what’s being rectified is reasonable and not economically wasteful.

Contracts: Sep 29 Readings

(b) Certainty, Causation and Remoteness.........................................................................................849 Among the most prominent limitations on the scope of expectation damages are those provided

by the principles of certainty, causation, and remoteness. Stated more specifically, the three principles mean:

o i) That plaintiffs must prove with a sufficient degree of certainty that they would have made profits in the amounts claimed if the defendant had performed.

o ii) That that loss was in fact caused by the defendant’s breach;o iii) That it was sufficiently within the range of the defendant’s contemplation at the time

of entry into the contract. The greatest emphasis is placed on this principle.

(i) Certainty.......................................................................................................................................849

So far as a reliance claim contains a wasted opportunity component, the plaintiff will also have to establish with a reasonable degree of certainty that there were other available profit-making opportunities that he/she would have taken were it not for entry into the contract with the defendant.

However, the courts have compromised the purity of the certainty principle. In loss of profits claims, the courts are frequently forgiving of plaintiffs who are unable to establish a precise number.

(ii) Remoteness.................................................................................................................................858

Hadley v. Baxendale..........................................................................................................................858

Facts: Plaintiffs were millers: mill stopped by breakage of crank shaft. Needed to send shaft to the

engineers at Greenwich as a pattern for a new one. Gave the shaft to a carrier (Pickford) at Greenwich Delivery of shaft was delayed by some neglect. Plaintiffs did not receive shaft for several days . Working of mill was delayed, and lost profits they

would have otherwise received. On the part of defendants: objected that damages were too remote. Plaintiffs claimed £300 in lost profits; defendants found liable for £50.

Issue: Should the party that breaches a contract be responsible for damages that it would not

reasonably contemplate to arise normally?

Ratio: If the special circumstances under which the contract was actually were wholly unknown to the

party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury that would arise generally. Damages limited to what was reasonably contemplated.

Analysis: Loss of profits cannot reasonably be considered such a consequence of the breach of contract. Such consequences (loss of profits) would not, in all probability, have occurred. These special circumstances were here never communicated by the plaintiffs to the defendants.

Conclusion: ALDERSON B.: the jury ought not to take the loss of profits into consideration at all in estimating

the damages.

• Contract between the mill and the carrier.

• What is the breach? The shaft wasn’t delivered in time, 300 pounds of profit were lost. • Baxendale: modern day example is Purolator.• Expectation damages: to put them in the position they would’ve been in, award 300 pounds (of

profit).• Lower court awarded 50 pounds because they were not prepared to award full

expectation of damages. Therefore, there was an appeal.

• Ratio: two rules (Pg 859)• Rule 1: nothing extra’s been communicated . Basic contract has been made. In certain

circumstances, the only damages that you get are those reasonably and naturally flowed (probable result of breach). If nothing special is communicated, what we’re looking at is what did the contract breaker think that would probably result from breach.

• Rule 2 : if you do communicate special circumstances, then it will be taken into account.• It might’ve been priced into the contract had it been communicated.

• Here, it’s Rule 1: special circumstances that there was only one shaft and the mill would have to be shut down without it. Rule 1 asks us to look at what is probable and reasonable from the breach.

• Expectancy damages would be awarded without loss of profits.• We know those three days that the mill had to be shut down…did NOT meet the

remoteness test. • Point of rule: limiting liability and enabling transactions.

• Rule is to encourage people to share more information with each other. Not to open the doors to too much uncertainty and unending liability.

Contracts: Oct 3 Readings

Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd....................................................................861 Facts:

Plaintiffs wished to expand their laundry and agreed to purchase a large boiler owned by the defendants.

The defendants knew that the plaintiffs were launderers and dyers and they required the boiler for use in their business.

Boiler was damaged while it was being dismantled on the defendants’ premises. Repairs to the boiler caused a lengthy delay, and the plaintiffs sued for loss of business profits.

Trial judge refused to allow anything for loss of profits because loss was said to be too “remote.”

Analysis: Evidence was led for plaintiffs that if the boiler had been punctually delivered, then:

o 1) they could have taken on a very large number of new customers.o 2) They would’ve accepted a number of highly lucrative dyeing contracts.

Knowledge is of two kinds: imputed and actual.

o Everyone, as a reasonable person, is taken to know the “ordinary course of things” and consequently what loss is liable to result from a breach of contract in that ordinary course.

o But to this knowledge, there may have to be added in a particular knowledge that the contract breaker actually possesses, of special circumstances, of such a kind that a breach in those circumstances would be liable to cause more loss.

It is enough for the reasonable to foresee that a loss is LIKELY to result: “on the cards” We reject the submission for the defendants that an engineering company knows no more than

the plain man about boilers or the purposes to which they are commonly put by different classes or purchasers, including laundries.

They knew they were supplying the boiler to a company carrying on the business of laundrymen for dyers, for use in that business.

It was surely not necessary for the defendants to be specifically informed of loss of business if boiler wasn’t delivered on time.

However, the defendants did NOT know about the particularly lucrative dyeing contracts: in order for plaintiffs to recover specifically profits from these contracts, the defendants would have had to know, at the time of their agreement, of prospect and terms of such contracts.

• Parties that we’re concerned: Victoria Laundry and Newman.• Victoria purchases a new boiler from Newman. The breach: time of delivery. Newman

manufactures these boilers. There was a big contract that Victoria lost.• Lower court: no lost profits were awarded. Judge awarded some damages, but refused to allow

anything for loss of profits, on the grounds that such a loss was too remote.• Newman knew this business well: knew these kinds of losses would flow. We know at the lower

court that lost profits were not allowed. • On appeal: lost profits on ordinary business, those lost profits were found to be NOT too remote:

they were allowed. However, the especially lucrative dying contracts: don’t get those profits. They were not allowed.

• Newman, as compared to Baxendale, had a higher level of knowledge and expertise about the business of Victoria Laundry as compared to Hadley. Where does this fact become significant?

• Rule 1: will take into account the expertise when determining what was reasonably within contemplation.

• One of the key things that we get from this decision. Get this spectrum of cases. • How would we use this spectrum going forward?

• Fact that what is to be known is based on foreseeability and knowledge.• Spectrum on Pg 863

• Pg 861:• Spectrum: highest level: manufacturer or designer • Second part: Not a situation where going and buying from the actual producer: buying to

resell. (Intermediate: doesn’t actually design, but resells).• At the end of the scale: cases where the defendant is not a vendor of the goods but a

carrier. (courrier, carrier: not a specialist at all)

• Based on WHO you are (contract breaker), we’re going to impute a level of knowledge to you as to the damages. Carrier: not high level. Manufacturer: high level. Will be held liable for a higher number of potential damages.

• Second part: Hadley v Baxendale: told that it has to be in contemplation of the contract breaker as a PROBABLE result. This seems to be a very high standard.

• Victoria: waters it down. Liable to result. Lower standard that’s being articulated. • Two things are done to Rule 1 by Victoria:

• 1) Knowledge is imputed in applying that rule. Depends on where in the spectrum of cases the contract breaker fits.

• 2) Waters down the actual standard from probable to liable/on the cards. What this means is quite ambiguous. “On the cards”: doesn’t have to be 100% that it’ll happen. Something less than likely. Liable: it’s a real possibility.

• The first rule: there was a conclusion reached that if you look at what was in contemplation of the contract breaker, Newman, will impute a very high level of knowledge, the business was liable, would’ve been in their contemplation to liable to result.

• Lucrative contracts: had to be communicated and thus too remote.

Pg 864, Q2: Remoteness test to this point: What was not necessarily was BOUND to result, but what was likely or liable to do so: a “serious possibility” or “real danger,” given the state of knowledge of the defendant.

Scyrup v. Economy Tractor Parts Ltd.................................................................................................865

Facts: Appeal by the defendant to judgment holding defendant liable to plaintiff. Plaintiff entered into a contract with Supercrete that required the use of his tractor. To make tractor suitable for job, plaintiff needed hydraulic dozer attachment, which he

purchased from the defendant. o Plaintiff made it clear that the attachment was for a tractor to be used on a job, and that

he needed this equipment in a hurry. However, certain parts were missing and the hydraulic attachment would not function. Plaintiff

received three pumps and each one did not work; had to rebuild one of the pumps to make attachment work.

Supercrete cancelled contract with plaintiff: plaintiff’s loss of profit represents the main item of damages.

Issue: Were the damages for loss of profits reasonably foreseeable to the defendant?

Ratio: Dissent: Miller CJM

Where the defendant is not given sufficient information regarding actual contract in which plaintiff was interested, defendant reasonably could not have anticipated damages for loss of profit by plaintiff.

• Economy wasn’t able to supply what it promised to supply. • Question is: can Economy be found liable for the loss of profits on contract with Scyrup that they

could no longer before because it didn’t have the part?• Manitoba Court of Appeal: affirm lower court’s decision: award loss of profits. • Dissent: we don’t want to make people insurers. Issue is proportionality. • We’re concerned with Rule 2: because the contract is special circumstances. This part was

required specifically to perform this contract. • We’re told in Victoria Laundry as well as Hadley that if there are special circumstances, need to

be communicated. Now we’re asking about the nature of that communication. Once on alert that there are some special circumstances going on, defendant needs to ask questions. Suggesting that once that red flag goes on, onus is on the other party: need to ask questions, limit liability in itself.

• Dissent says that it needs to be reasonable, need to take proportionality in account.

Koufos v. Czarnikow (C.) (The Heron II)…………………………………………………………………………………………………868

Facts: Respondents chartered the appellant’s vessel to carry sugar to a certain port. Vessel was delayed by nine days. It was the intention of the respondents to sell the sugar “promptly after arrival” at the port.

Appellant was aware that there was a market for sugar at the port city. Market price of sugar had fallen right before the sugar was delivered, partly because another

cargo of sugar had arrived. The respondents want to recover the difference as damage for breach of contract.

Issue: Should damages that, though reasonably foreseeable, only occur in a small minority of cases, be

awarded?

Rule: What must be foreseeable is the general type of loss, even if not the extent. In contract, the loss must be foreseeable enough to be a serious possibility, a real danger, or a

very substantial possibility.

• Contract to charter a boat: contract was breached. Breach was: timing of delivery was not adhered to.

• What is there an attempt to claim damages for?

• Claim for loss of profits based on change of market value between anticipated delivery date and the nine days later. Price of sugar went down in these nine days: would not be an issue if price went up.

• Rule 1 scenario:• They didn’t know that market price of sugar would go up.• Also, no explicit indication that there would be an immediate sale of the sugar.• Lower court does not award loss of profits on drop in price of sugar.• Court of Appeal: awards loss of profits.• House of Lords: awards loss of profits.

• If plaintiff, would be arguing…• Hadley: would be a PROBABLE result.• Victoria: would be a POSSIBLE result.

• If acting for defendant, want Hadley because there’s a higher threshold of what’s contemplated.• Lord Reid:

• Pg 869: proper test.• He doesn’t follow Victoria Laundry: reinterprets standard for Hadley as probable = NOT

UNLIKELY. Because Victoria opens up the floodgates and is TOO EASY.• First, we have probable, which is a really high threshold: Hadley• Then, we have Lord Reid and Heron II re-interpreting what that means, as NOT

UNLIKELY.• Victoria: ON THE CARDS: easy standard to meet.• How does Lord Reid apply not unlikely?

• Two parts: not unlikely if that if charter a boat from one place to another, they’ll want to sell it.

• Not unlikely that if it’s late, the price of the sugar could go down, making you lose money.

• What’s the problem with Victoria: too low a threshold. Anything could go in. But is Reid’s standard any better? These terms alone are pretty meaningless. Need to understand how they were played out in the cases.

• What we do here is rather official: want to apply them to your particular set of facts.

III. THE ENFORCEMENT OF PROMISES


1. Introduction.................................................................................................................................153

Three ways in which a promise can become enforceable (1) as a contract; (2) as a deed; (3) by way of estoppel.

Three additional criteria to make a promise a binding contract:o Promise is supported by consideration. o Promisor must intend to create legal relations.o Requirement that the agreement be evidenced in writing.

Governors of Dalhousie College v. Boutilier......................................................................................156

Facts: The defendant had promised to pay Dalhousie College $5,000 before he died. The subscription

was not accompanied or followed by any letter from the deceased as to the terms of payment. After he signed the subscription form, he met with severe financial reverses, which prevented

him from honouring his pledge. But that he desired to honour his pledge is evidenced by a brief letter addressed by him to the President.

Issue:

Ratio:

• Boutilier promised $5,000 to Dalhousie. Boutilier finds himself in financial difficulty, but does write to Dalhousie saying he intends to pay. But he offers no payment terms or schedules. Unfortunately, he does, and now, Dalhousie sues the estate to try to redeem this money.

• Is there consideration flowing from Boutilier to Dalhousie? $5,000.• From Dalhousie to Boutilier: vague statement that Dalhousie will “improve efficiency of

teaching, build new buildings, keep pace.” • Not concerned with what third parties are doing: we’re concerned with what the parties in the

contract are doing. • The possibility that other people are subscribing is out.

• What’s the problem with saying, “improving efficiency…”• This does not fall under the definition of consideration.

• Could make an argument that making your name at the front of the building is something of value (something that could be monetized), but the courts didn’t agree. The problem was, there wasn’t something specific, whereas if you have a name on a door, that’s advertisement.

• Argument could be made that by telling people in your community that you donated money to a major institution, increases your perception.

• Concern with charitable intentions?• Maybe they’re intended as an ongoing negotiation.• But on the flipside, the donators could bail out of contracts.

RATIO: Dalhousie tells us that in order for charitable donations to be legally binding, there must be a consideration flowing from both parties. Consideration has a very specific meaning: act or service, forbearance, or promise thereof. If that can’t be identified in the documents made, then that promise isn’t enforceable.

• **Bottom line is that even though this is a charitable context, the usual doctrine will apply. The decision itself gives us specific ways that consideration could be found in the future.

• From Dalhousie, what we get is that we need more SPECIFICITY and something of value.• Consideration is an act, service, or forebearance.

Brantford v. Marquis ……………………………………………….......................................................................161Facts:

Marquis agreed to give them $1 million over 5 years, but only paid $200,000 because she died. Originally, this Marquis couple and she wanted to continue the legacy that her husband had

continued with her own gift giving and had made this promise made over time. The hospital is seeking $800,000 owed. The naming was what would be given in return, but the naming had not been finalized.

Analysis: Does the naming matter? Does consideration turn on whether it fits the definition of considering

as it is set out? Does the consideration have to be something objectively of value?o No consideration here . Therefore, no enforceable contract, and the decision explicitly

tells us that. Court treated the naming as not there. Do the three scenarios: is there consideration, and if not, say not why not. And argue for or

against enforcement of that promise.

Wood v. Lucy, Lady Duff-Gordon.......................................................................................................164 Held to be enforceable because half of profits from exclusive agency relationship. A reasonable implied effort to obtain profits, so consideration can be implied if it’s really

obvious.


2. Past Consideration.......................................................................................................................166 Eastwood v. Kenyon..........................................................................................................................166 Facts:

The plaintiff, acting as Sarah’s guardian after the death of her father, spent money for her benefit and borrowed money from Blackburn, to whom in return he gave a promissory note.

When Sarah became older, she promised the plaintiff that she would pay the amount of the note and she paid one year’s interest on it.

Next, Sarah married the defendant, who also promised the plaintiff that he would pay the amount of the note, but he failed to make any.

Analysis: Plaintiff: declaration disclosed a sufficient moral consideration to support the promise. Judge finds that consideration for it was past and executed long before. Defendant was in no way connected with the property or with the plaintiff.

Decision: in favour of defendant.Ratio: Past consideration is not good consideration. Consideration must be received shortly after a promise is made, unless it’s at the request of the other party.

Policy considerations: even if the defendant had been Sarah, wouldn’t be good consideration, unless it had explicitly at her request, because she was a child.

Lampleigh v. Brathwait.....................................................................................................................168 Facts:

Lampleigh (P) is suing Brathwait (D). P is suing D because D agreed to pay P 100 pounds to acquire a pardon to being erroneously accused of killing someone.

In terms of the time sequence of what went on, first, the work was done to obtain a pardon, and then afterwards, there was a promise for 100 pounds to be made.

100 pounds is offered after.

Analysis: Obtaining the pardon: PAST consideration. If we were to go by Eastwood, is the promise to pay 100 pounds enforceable?

o No, the promise is NOT enforceable.

Your promise to pay 100 pounds is not supported by this past consideration, BUT: Can be good consideration where there’s a request for the work to have been done , and the work was done in a situation where one would expect compensation for such work .

o E.g. if you walk into a lawyer’s office for work to be done, there is an implied promise

that you will compensate the lawyer. Difference from Eastwood?

Ratio: it was REQUESTED by the defendant, and done with a reasonable expectation for compensation.

Thomas v. Thomas............................................................................................................................169 Facts:

House for his wife at his death. Problem is she gets evicted. Estate of Thomas is managed by his executors.

Analysis: This isn’t a past consideration situation. The issue in this case is, is there enough? What is

ENOUGH to constitute consideration?o We’ve looked at the other issues in consideration, like specificity, if something was

actually promised. Here, we’re grappling with the question, is this enough? I promise you a house, you give me one pound? Is that reasonable?

The judge decides that it is enough, and she gets the house. It’s a hands-off approach. If there is something of value, then there’s consideration flowing in both directions.

This was definitely motivated by the time and a certain result. What motivated this decision?o We don’t see the development of the peppercorn theory yet . The judge says, not going

to look at it in detail that was done in Dalhousie, but will find something flowing in both directions.

o If it wasn’t for this result, she would be out on the street with nothing to take care of her.

That’s the development of this doctrine.

If we move forward in time, this has developed into doctrine of nominal consideration .

Ratio: Thomas v Thomas there to show an example of nominal consideration. Anything of value is

“enough.” There has to be something of a recognized value that we can put a monetary value to.


3. Forebearance...............................................................................................................................TBD B. (D.C.) v. Arkin................................................................................................................................TBD Facts:

Plaintiff sues the defendants for money she paid to them as compensation for damages the defendant Zellers sustained resulting from thefts committed by her young son.

There was consideration moving both ways: in exchange for Zellers forbearance to bring suit against her, the plaintiff voluntarily paid to them the sum of money.

Issue: can a plaintiff recover money paid to a defendant on the ground that the latter never had a valid claim against the former personally?

Ratio: Yes, the plaintiff can recover this money. Forbearance is good consideration, but subject to certain conditions (as long as they didn’t conceal facts and seriously intended). Forbearance to enforce a claim known to be invalid is not good consideration. Dubious claim: can still be good, as long as it’s done in good faith, and two conditions: can’t conceal facts, and also, they must intend to seriously pursue the claim.

• What’s the test we get from this decision? What’s the ratio here?• Rule 1: if a claim is known to be invalid, it’s not good consideration.• Rule 2: where claims are doubtful and NOT known to be invalid, can be good consideration. But

have to meet these following conditions:• Defendant can’t conceal parts of the agreement.• Defendant has to have serious intention to pursue this claim. The party who’s relying on

this has to seriously intend to pursue this claim.

Analysis: Forbearance to sue is good consideration. But a promise is not binding if the sole consideration for it is a forbearance to enforce a claim

that is invalid and that is either known by the party forbearing to be invalid or not believed by him to be valid (first scenario).

If the claim is doubtful or not known to be invalid (second scenario), forbearance to enforce it can be good consideration.

o Same rule applies even if the claim is clearly invalid in law, as long it was a reasonable claim in good faith by forbearing party.

Two further conditions: forbearing party must not deliberately conceal from the other party facts that would enable him to defeat the claim. He must also show that he seriously intended to pursue the claim.

Judge does not believe that Zellers would have seriously thought this claim could succeed or that they seriously intended to pursue it to court if it was not paid.

• Zellers gets outside agency to write a threatening letter to the mother to pay them.• What this course turns on is whether there is any sort of enforceable agreement. • What are the issues here?

• Is this promise not to sue good consideration?• If you were Zellers, you would say that forbearance of not suing has value in that you save legal

fees, etc. However, this is an idle threat: no parent is apparently liable for the actions of the child. That’s the law that the judge in this decision seems to adopt. Parents are not responsible for the torts of their children.

• What’s the test we get from this decision? What’s the ratio here?• Rule 1: if a claim is known to be invalid, it’s not good consideration.• Rule 2: where claims are doubtful and NOT known to be invalid, can be good consideration. But

have to meet these following conditions:• Defendant can’t conceal parts of the agreement.• Defendant has to have serious intention to pursue this claim. The party who’s relying on

this has to seriously intend to pursue this claim.• In this case, the claim is known to be invalid. Not merely a doubtful claim, but it’s an invalid

claim. • But if the law had changed, and parents were responsible for their children’s torts:

• Discover evidence that said, as of ____, we are now shifting our policy. That’s why companies have policies and systems, well it’s our general principle to do X.

• Will depend on every instance if the company has intention to sue. Here, you look at their policies (Zellers had it in their policy that they wouldn’t sue).

4. Pre-existing Legal Duty.................................................................................................................172

Suppose that B makes a promise to A in return for A’s promise to perform some act X that A is already legally bound to perform. Is the promise by A to do X good consideration for B’s promise?

As far as the law is concerned, X is necessary. From this perspective, then, A gives up precisely nothing in exchange for B’s promise.

However, this reasoning has lost favour in modern courts.

(a) Public Duty...................................................................................................................................172

The traditional view is that if, in exchange for a promise, the promisee agrees to perform, or actually performs, a public duty, there is no consideration, unless there’s something extra (Byham).

However, courts were able to find consideration if it could be shown that the promisee provided something extra.

(b) Duty Owed to a Third Party.........................................................................................................173

The performance of a duty owed to a third party has traditionally been viewed as good consideration, particularly in the family context.

Ward v Byham: Father of illegitimate child was going to pay Mom 1 pound a week, as long as daughter well

paid. Also can decide if she wants to live with Mom or Dad. Important to realize that at the time, by the law in England, duty to take care of illegitimate

children fell on mother.

Ratio: pre-existing legal duty is not good consideration. But if you provide something “extra” of value, then it is:

In this case, extra is accommodation of choice, and SHOWING that she is loved and cared for.

Pao On v. Lau Yiu Long .....................................................................................................................173

Facts: Plaintiffs owned all shares in Shing On, and defendants were majority shareholders in Fu Chip. Fu Chip wanted to acquire a building from Shing On, and this transaction was conducted

without cash payments. Under the main agreements, plaintiffs agreed to sell to Fu Chip on Apr 30 1973 all their shares

in Shing On in exchange for the allotment to the plaintiffs of 4.2 million shares in Fu Chip. There was a subsidiary agreement that stated that defendants would buy back from the

plaintiffs the 2.5 million shares before Apr 30 1974 at $2.50/share. But this agreement would not allow the plaintiffs to reap the benefits if the shares’ value increased. Subsidiary agreement was cancelled. Defendants agreed that they would compensate the plaintiffs for any loss in respect to the 2.5 mil shares.

Price of Fu Chip dropped to $0.36/share and the defendants refused to fulfill their guarantee.

Issue: Can consideration be invalidated if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position?

Ratio: No, because where businessmen are negotiating at arm’s length, it is unnecessary for the achievement of justice. Pre-existing duty to a third party can count as good consideration, provided there is no duress .

Analysis: It is not possible to treat the defendants’ promise of indemnity as independent of the plaintiffs’

antecedent promise not to sell.

• Plaintiff: SH of Shing On. Defendant: SH of Fu Chip• Fu Chip being different from shareholders of Fu Chip

• Plaintiff promises is to sell the shares in Shing On and not to sell 2.5 mil shares of Fu Chip until Apr 30 1974. The reason that they’re promising not to sell is because if you have a massive sale of shares, it’ll depress the price of shares for all shareholders.

• Fu Chip is promising 4.2 million shares of Fu Chip. • This is done for the purchase of a building. • First agreement: the first subsidiary agreement was that no matter what, the shares would be

bought back at $2.50. One of the plaintiffs got upset about this is the upside.• The new subsidiary agreement: they would buy back (indemnity) at $2.50 only if value had

dropped below that. • They’re promising to do what they already promised to do. One argument: that it was a pre-

existing duty. Second argument: that it was past consideration.• Arguing that was promised, under the main agreement, was consideration for this subsidiary

agreement. • The problem with this is: the parties are NOT the same. • 2) Past consideration: expectation of…. (can get around this). Either that it was at the

explicit request of the other party, and the other condition was that was there expectation that they would be compensated for it?

• 1) Pre-existing duty: we do reach the conclusion that the general rule, a promise to perform a pre-existing duty is good consideration SUBJECT TO duress.

• Why is duress an issue? “I won’t do what I promised.” It can hold up the entire transaction.

If third party duty (usually past consideration), you basically go through Eastwood and Lampleigh analyses, and then to Pao On. No duress here, but there was economic pressure. Have to force you to making that move.

(c) Duty Owed to the Promisor.........................................................................................................177 Stilk v. Myrick....................................................................................................................................177Facts:

Action for seaman’s wages. Plaintiff was to be paid at the rate of £5 a month. Whether he was entitled to higher rate of

wages? In the course of the voyage, two seamen deserted. The captain, trying to supply their places, promised that they should have the wages of the two

divided among them if he could not get two other seamen

Ratio: Promise to perform a pre-existing legal duty between two parties is not good consideration. This is a blanket rule. ***Duress is an issue here, because they were at sea. This rule gets overturned later.

If you’re trying to make a new contract, can’t take a pre-existing duty and try and use this as consideration, between two parties.

Analysis: Agreement void. No consideration for the ulterior pay promised to the mariners who remained

with the ship. The desertion of part of the crew is to be considered an emergency of the voyage. Those who

remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to port. (pre-existing duty)

• Problem: pre-existing legal duty

Ratio: Promise to perform a pre-existing legal duty between two parties is not good consideration• The difference between the two-person case and three-person case is that for three-person case,

pre-existing legal duty to third party is good consideration, subject to duress.


Gilbert Steel Ltd. v. University Const. Ltd..........................................................................................178 Judge: Wilson JFacts:

Plaintiff seeking damages for breach of an oral agreement for the supply of fabricated steel bars to be incorporated into apartment buildings being constructed by the defendant.

The plaintiff entered into a written contract to deliver to the defendant fabricated steel for apartment buildings to be erected.

Multiple price increases in steel by owners of steel mill. Issue: having found on the evidence that the defendant had orally agreed to pay the increased

prices, the legal issue confronting the judge was whether that agreement was legally binding upon the defendant or whether it failed for want of consideration.

Although repeated references were made at trial by the Gilbert brothers to the fact that the parties had made a “new contract” in March, 1970, it seems fairly clear from the evidence when read as a whole that the “new contract” referred to was the agreement to pay the increased price for the steel.

Final submission put forward by counsel for the appellant was that the defendant had in effect acquiesced in such increase in price and should not subsequently be permitted to repudiate it.

• Plaintiff supplies the steel to the university.• Steel company says there’ll be an increase in price. Gilbert Steel creates another contract

representing an increased price.

• Second time, just enter into an oral agreement, and the university doesn’t end up paying them more.

• What’s the most obvious thing they could argue? Pre-existing duty under old contract (between two parties), and past consideration.

• What does court say to these two issues?• How do we apply Stilk? Pre-existing legal duty as between two legal parties, we’re

told, is not good consideration. • Change in credit: circular argument. Promise to lend money is valuable, yes, that would be good

consideration. • Is pre-existing duty between two parties good consideration? No, follows Stilk. • The issue that we want to get at: if the trouble we’re concerned with is economic duress,

shouldn’t we just deal with it head on?

Ratio: same as Stilk. Just an example of Stilk.Good price on next job could’ve been valid consideration, but there was no good price. Extended credit also rejected as an argument.

Policy: she might ask about maintaining long-term relationships: can’t revise a contract MID CONTRACT because it’s already pre-existing duty. Have to carry out initial contract if something arises. If you have a business deal with someone, and want to be in business together, other party would probably agree. Underlying policy: still duress, but don’t choose to deal with it. Choose to follow Stilk.

Williams v. Roffey Bros. & Nicholls (Contractors) Ltd........................................................................182

Facts: Subcontracts portion of the job to carpenters. The main contractors offer to pay their

subcontractors more money to get the work done faster. Promise: promise to pay 10,300 pounds. Previous arrangement was fixed rate of 20,000 pounds,

but subsequent agreement was 575 pounds. The issue arises because the defendant agrees to pay the carpenter this additional amount. He

gives him a pre-payment, but the contractor stops. So the carpenter stops work.

Analysis: The issue is whether there was consideration flowing from the contractor to the defendant

(promise to pay 575 pounds). Stilk still applies here. Is this promise to pay the 575 pounds enforceable? Yes, yet Stilk is still the law. If duress is the scenario we’re concerned with, shouldn’t we just hit it head on? We don’t yet

know the definitions but they could be similar. Seek to get around Stilk: any time there is a practical benefit between two parties, there’s good

consideration. Seems like walking the line between duress and practical benefits.

Duress: making party do something that they would not voluntarily want. Non-consensual. But there’s a higher threshold of duress for companies (commercial pressure is different from duress).

Ratio: extra money for faster completion is good consideration. Stilk is still law here, even though it’s completely outdated.

Greater Fredericton Airport Authority Inc. v. NAV Canada...............................................................186Facts:

ASF agreement: federal government entered into this agreement with Nav Canada, under which the latter would assume responsibility for the air navigation services at airports across Canada.

Government began divesting itself of airports and the Greater Fredericton Airport Authority was created, with the government’s duties and rights assigned to it.

Airport Authority requested that Nav Canada relocate an instrument landing system (ILS) to the runway being extended. Nav Canada said that it made more sense to replace a part of the existing ILS with new distance measuring equipment (DME) rather than relocating the entire system to the new runway.

After a dispute arose as to who should pay the acquisition price for the DME, Nav Canada refused to relocate the ILS unless the Airport Authority agreed to pay for the new equipment.

The airport authority eventually capitulated so as to ensure the new runway would become operational, but maintained it was not responsible to pay for the equipment.

It promised by way of a letter to pay the acquisition costs of the equipment. On the basis of this letter, Nav acquired and installed the necessary equipment. Subsequently, the Airport Authority refused to make the promised payment.

Should NAV move this device or just buy a new one? If moved it, would’ve have to pay for it themselves, so said it was more economical to get new device. Argued about it: other guy said I will pay for it, but paying for it in protest.

Issue: whether the promise by the Airport Authority to pay for the DME was legally binding.

Analysis: Was the promise supported by consideration? It must be asked whether the party seeking to enforce the post-contractual modification (Nav

Canada) had agreed to do more than originally promised (in the ASF agreement) in return for the agreement to modify the contract.

Nav Canada’s pre-existing contractual obligation was to pay for the DME once it exercised its contractual right to insist on purchasing new equipment rather than relocating the old. In short, Nav Canada promised nothing in return for the Airport Authority’s promise to pay for a navigational aid that it was not contractually bound to pay for under the ASF Agreement.

The plaintiff (Nav Canada) cannot argue that the consideration for the defendant’s promise to pay more was the plaintiff’s forbearance from exercising its legal right ot breach the contract by refusing to deliver promised goods or by withholding promised services (e.g. refusing to acquire and install the DME).

The rule in Stilk is an unsatisfactory way of dealing with the enforceability of post-contractual modifications.

o This rule shouldn’t be regarded as determinative as to whether a gratuitous promise is enforceable.

Post-contractual modification, unsupported by consideration, may be enforceable so long as it is established that the variation was not procured under economic duress .

A person who agrees to pay more than the original contract price is entitled to argue that the agreement was procured under economic duress.

Ratio: doctrine of consideration will now recognize these contractual variations. Variation to an existing contract, unsupported by consideration, is enforceable if not procured under economic duress.

Post-contractual modification, unsupported by consideration, may be enforceable so long as it is established that the variation was not procured under economic duress .

Difference between this and Roffey is that there isn’t talk about practical benefits at all. Slowly getting away from Stilk. Still good law, but should only be good for finding duress. Basically saying Stilk is not good law. Very sneaky.

Court found in circumstances Greater Fredericton didn’t have any options (duress). Test for duress: are there any PRACTICAL alternatives or are they being forced into consenting to the changes?This is a case where they talked about incremental change (policy question). Policy consideration that brought to this decision: courts doing anything to follow Stilk, and this was creating uncertainty in the law.


(i) Accord and Satisfaction................................................................................................................192 Turn our attention to cases involving promises to extinguish an existing contractual obligation in

return for partial performance of that obligation.o Problem: can doing or promising to do what one is already contractually bound to do for

a person be good consideration for the latter’s promise? In cases involving promises to accept less, the courts have adhered more rigidly to the

traditional position that no consideration is provided than they have in cases involving promises to pay more.

Sometimes a promise to extinguish an obligation in exchange for partial performance of the same will be enforced on the theory that the parties intended to rescind the original contract and to substitute a new one.

o Traditionally, the rescission argument is available only where the obligations of both parties are at least partially unperformed , as the consideration is the mutual release of the old obligations.

Accord and satisfaction: purchase of a release from an obligation by means of any valuable consideration.

o Accord: agreement by which the obligation is discharged.o Satisfaction: consideration that makes the agreement operative.

Foakes v. Beer...................................................................................................................................192

Facts: Foakes was the debtor of Mrs. Beer. He requested Beer to give him time to repay her. Wanted

to pay her £500, which she would acknowledge as part satisfaction of the debt. Issue was directed to be tried whether any and what amount was due upon the judgment. It was found that the whole sum had been paid, but the respondent claimed interest. The Court

of Appeal entered judgment for interest due.

• What is a judgment debtor?• Someone who’s had a ruling made against them by court and they owe a person money. • As a legal remedy, you can file a suit against somebody.

• What we’re talking about here is a promise made by who? The debtor made an agreement to pay off the debt over time.

• The promise that we’re particularly concerned with is, you can partially repay me for this. Everything but the interest is owed here. The promise to accept less was the promise to just take the principal owed rather than the principal plus the interest.

• What’s the consideration here? There’s some practical benefit (we could argue) of the immediate payment, or even a partial sum, and the argument could be made that that’s consideration.

• Is this argument accepted in 1888 by the House of Lords? No. Basically says at this point in time that a promise to accept less is not enforceable without consideration flowing in the other direction.

Decision: On that basis, what is the result here? They uphold the interest for the debt payable .

Issue: there was an accord, because agreed obligation should be discharged. But was there satisfaction? Receiving less money on its own cannot be enough. There needs be some sort of extra benefit.

Re Selectmove Ltd.............................................................................................................................195 Facts:

The company was required to deduct form payments its employees certain amounts of money for the purposes of income tax and national insurance contributions and to forward the deductions to the Crown.

o Over an extended period of time, the company failed to pay the deductions. o It later agreed to make all current payments at rate of £1000 per month.

The company made payments of its current obligations, though not in strict accordance with the alleged agreement.

Then, the company dismissed all of its employees and sold its work in progress to another company.

Crown sought the compulsory liquidation of the company and the payment of arrears.

Failed to pay taxes, company was saying having problems and would pay taxes in installments of 100 pounds. The collector says he’s going to ask and inform them if the proposal is unacceptable. The crown then demands full payment immediately. So the company made 7 payments of 100 pounds, and gave notice of dismissal. After they went bankrupt, crown sought liquidation of assets, whatever was owed. Argument advanced that Crown got an additional benefit by deriving practical benefits from the arrangement because they stood to receive more by not enforcing the promise and forcing the company into liquidation. Basically, Roffey Brothers says practical advantage makes it enforceable, and this was rejected in promises to pay less. Ended up following Foakes. Very loose reasoning: said Roffey would conflict with authority from Foakes. Held that there was no consideration here. Although the creditor may see benefit in taking installments, no consideration: distinguishing promises to pay less and promises to pay more but not allowing Roffey to apply to this situation.

Analysis: Counsel submitted that an additional benefit to the Crown was conferred by the agreement in

that the Crown stood to derive practical benefits therefrom; it was likely to recover more from not enforcing its debt against the company, which was known to be in financial difficulties, than from putting the company into liquidation.

Proposition that a promise to perform an existing obligation can amount to good consideration provided that there are practical benefits to the promisee.

• Company keeps deductions in trust, and then pays it to the government. • Another situation of promise to accept less: • This decision refers to both Foakes and Roffey:

• How is Foakes treated here? Foakes is held to apply. The Judge sticks with it. Foakes is applied and the result is that there’s no consideration. This promise is not enforceable.

• Williams v. Roffey? Two different paths emerging where there’s a promise to pay more. More openness subject to duress…

• Where there’s a promise to accept less, outright ban like in Stilk (??)

Ratio: Roffey does not apply to promises to pay less. Meaning you still need new consideration for these promises.

Foot v. Rawlings................................................................................................................................197Facts:

Appellant owed the respondent a large sum under a series of promissory notes.

The parties made an agreement for the payment of the debt on the basis of a letter sent by the respondent, and it was signed by both parties.

Appellant complied with the terms of the agreement, but soon, the respondent sued the appellant for the balance of his debt.

Analysis: Giving of the several series of post-dated cheques constituted good consideration. The agreement clearly implies that so long as there is no default in its terms, the respondent will

not sue on the notes. An agreement for good consideration suspending a right of action so long as the debtor

continues to perform the obligations which he has undertaken thereunder is BINDING.

Agreed to let Rawlings pay off in installments, subject to condition that he give him dated cheques payable for the next six months. Said, see that not able to pay this off, so will lower the fees. Your installment and your interest, but need six dated cheques on my desk. Kind of peppercorn theory: you CAN pay less (incremental changes in law not to overhaul law), but can’t be cash.

Ratio: rule from Foakes still there. Getting around it by instituting this rule that says post-dated cheques (negotiable instrument of value: anything but money)

• A number of distinguishing facts here.• Promise to accept less.• Clear agreement that sketches out the importance.• Tangible item is the post-dated cheques. That’s a way of getting around the rule. This is good

consideration.• What can we take away? What’s the ratio from this case?

• Foakes still applies, but specific focus on POST-DATED cheques. “Negotiable instruments.”

• Horse and cash difference: one is negotiable, but cash is not. If owe 100 dollars, can give horse worth five dollars, but can’t give five dollars.

• What we’re looking for is that there’s consideration flowing from the DEBTOR. There’s no question that the creditor is doing something.

• Judges are resistant to overturning outright doctrine that’s been applied for so long. • Very incremental changes in the law because have to be an expert to changing such a

long line of cases. That’s where legislation comes in: more consultation, more committees, etc.

(ii) Statute.........................................................................................................................................200 Judicature Act...................................................................................................................................200

Part performance of an obligation either before or after a breach thereof shall be held to extinguish the obligation:

o When expressly accepted by a creditor in satisfaction (in satisfaction of relieving further obligations).

o Or when rendered pursuant to an agreement for that purpose though without any new consideration (creditor makes an agreement to pay less).

Once you’ve started paying it off, can make an agreement to pay less.

• A number of provinces have a judicature act. What is the judicature act telling us?• Paying less. Doesn’t have to be a breach of the contract where the obligation arose. • Paying less than the full amount owed regardless of the actual terms of that agreement

will mean that you no longer owe that original amount, in one of two situations:• 1) if the other party agrees to it. • 2) when there is consideration flowing as well (e.g. instead of me handing you

the money, I say on Friday, I’ll hand you the money. No new consideration to cancel things or accept less).

• B): If you promise to bring to class on Thursday $60, I’ll accept that in satisfaction of $65. Nothing extra.

Contracts: Nov 8 Readings

III. THE ENFORCEMENT OF PROMISES CONT’D

Court of equity: try to address inequities that arise to address those promises that meet strict doctrinal requirements, and that is doctrine of promissory estoppel.

What often happens is someone is making a promise, and they promise to waive their strict legal rights. One example of that is I’m promising to accept less money, so waiving strict legal right to insist on full payment of an amount. Or, I’m waiving…

There’s a historical resistance to this concept. This was before Denning did this THING.o Promissory estoppel was seen as cutting edge, and going right to heart of consideration

doctrine.o That’s why there’s this roundabout language. It’s done purposely by these judges who are

uncomfortable with the law they’re trying to apply. ESPECIALLY ABOUT equities. Another way or asking the same question is, what was the representation/promise made? You

might not see it exactly framed like that, but you can come up with what the promise was.

Basic requirements for estoppel: Some sort of legal relationship between parties. Making of a representation : think of that as a promise. Representation must be MADE and

INTENDED TO BE ACTED ON. Action by representee to person getting this promise taken on the basis of getting that

representation.

Doctrinal difficulties: Does the person making that representation intend that that representation will be relied upon.

5. Promissory Estoppel and Waiver...................................................................201

Hughes v Metropolitan Railway Company:Facts:

The respondent railway company leased property from the appellant landlord. The landlord asked that the tenant repair the property within six months. Tenant replied by suggesting that landlord buy the tenant’s leasehold and proposed to defer starting repairs until they heard from the landlord about the arrangement to be implemented. Landlord never responded to tenant’s proposal to defer repairs.

Three days before the notice to repair was due to expire, the tenant wrote to the plaintiffs saying that in light of the breakdown of negotiations, it would now undertake the repairs. Landlord then served a writ of ejectment on the tenant, though the tenant eventually finished the repairs. The landlord sued to enforce the writ.

Analysis: The effect of the letter (to defer repairs) was to propose to the appellant to suspend the

operation of that notice to enter upon a negotiation for the purchase and sale of the lease. It appears to me that both parties by entering upon the negotiation which they entered upon,

made it an inequitable thing that the exact period of six months dating from the month of October should afterwards be measured out as against the Respondents as the period during which the repairs must be executed.

Hughes was asked to do repairs, and asked to buy its stake in the lease. What was the right that the landlord had under this lease?

o To file a writ if he failed to perform in six months. Requirement that if says will do a

repair and doesn’t do it, can get out. Based on the discussion in the case, there’s an argument that a promise is being made: “I landlord

will not enforce my strict legal rights for failing to make the repairs during the course of our discussion.”

The first step is to see if there is any consideration. For every promise that we’re trying to enforce, is there consideration for that? This one’s pretty clear that we can’t find any.

At this point, if say no consideration, is there something else we can rely on? That’s why we use promissory estoppel to say that this promise is one that will be enforceable.

If this promise is enforceable, what does that mean in terms of this case? o Ultimately, the doctrine of promissory estoppel is applied here, and there’s a finding that

the strict legal rights under the contract cannot be exercised. o So when the circumstances that gave rise to the estoppel cease to exist, then it will be

again available to the landlord to exercise their rights. There is an issue: can promissory estoppel only be used as a defence? Means: here, the landlord is

trying to enforce their rights to say you didn’t do your obligation, you’re out. But tenant says, no, promissory estoppel as a defence.

o But can also be used as a “sword” rather than shield, but stronger case if use promissory

estoppel as a shield.

Decision: Present appeal dismissed with costs.

Ratio: If parties who have entered into definite and distinct terms involving certain legal results—

certain penalties or legal forfeiture—afterwards by their own act or with their own consent enter upon a course of negotiation that has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings that have thus taken place between the parties.

Guy wanted to delay repairs for his place. Negotiations broke down. So then they tried to evict him, and court said, you promised that because you entered negotiations on basis of repairs, knew that wouldn’t get repairs wouldn’t get done. Acted on the repairs.Representation was made because of negotiations. Intended to affect the relationship (didn’t have to do repairs during negos, and action was he didn’t do them). Inequitable to enforce the right for not being able to enforce the rights.

Make representation, intend for it to acted on, and then it’s acted on.

Would it be unfair based on what new promise he was told to enforce that right? Eg. High trees said wouldn’t charge full amount. Inequities will always verify it’s the right.

Central London Property Trust Ltd. v. High Tree House Ltd.........................................203Facts:

Plaintiffs gave defendants a block of flats from Sep 1937, at ground rent of £2,500 a year. With war conditions prevailing, it was apparent to those responsible that the rent reserved under the lease could not be paid out of the profits of the flats and, accordingly, discussions took place between the directors of the two companies concerned.

Plaintiffs wrote to defendants, saying the ground rent would be reduced to £1,250/year. The defendants paid the reduced rent from 1941 to beginning of 1945, by which time all the

flats in the block were fully let, and continued to pay it thereafter. In Sep 1945, receiver of plaintiff ascertained that the rent actually reserved by it was £2,500. On Sep 1945, he wrote to the defendants saying that rent must be paid at the full rate and claiming that arrears amounting to £7,916 were due.

Analysis: There are cases in which a promise was made that was intended to create legal relations, and

which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact so acted on. In such cases the courts have said that the promise must be honoured.

The conditions prevailing at the time when the reduction in rent was made had completely passed away by the early months of 1945. Promise was understood by all parties only to apply

under the conditions prevailing at the time when it was made, namely, when the flats were only partially let.

Under the law, it seems that rent is payable at the full rate for the quarters ending Sep 29 and Dec 25, 1945.

Two parties going to lease out a block of space. Long contract: 99 years. After the agreement, conditions were terrible, so went back to the lessor and asked if they could get a lower rate.

After war ended , space was fully rented, and then the lessor asked for full rent. Receiver insisted on previous strict legal right.

1) Was there any consideration for the P’s promise to take reduced rent? 2) Would it have been possible to recover full rent?

o Why are we being asked about March 1943: because the war was still going on at this

point. No, it wouldn’t have been consistent with the representation that was made. 3) If there had been some sort of notice given in that period of time, could they have done so?

o Yes, you can give notice and terminate promissory estoppel: can’t be done right now.

4) Would it make a difference if apartments had all been let during the war?o Probably wouldn’t have an enforceable representation. Prove that the condition leading to

cheaper lease was over. 5) How did the Ds “act on” the promise in High Trees?

o How active does that acting on have to be? They didn’t move out, they stayed put. This

question is there to flag that they might be at issue…how active do you have to be? 6) Would the application of the High Trees principle lead to a different result in Foakes?

o Foakes doesn’t meet the basic requirements for estoppel.

o It’s a “yes, but…”

Decision: judgment for plaintiff for amount claimed.

Ratio: promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply.

Says same thing as Hughes. If no notice has been given to cancel it, the courts will keep applying the estoppel, unless the conditions under estoppel are changed.

John Burrows Ltd. v. Subsurface Surveys Ltd............................................................ 205Facts:

Defendant purchased a business belonging to the plaintiff. Part of purchase price was secured by a promissory note in the amount of $42,000, which the defendant gave to the plaintiff in March 1963.

The note provided for payments in monthly installments and contained an acceleration clause allowing the creditor to claim the whole amount due if there was a default of more than 10 days on any payment. Defendant was consistently more than 10 days in default with its payments, though creditor accepted these late payments without invoking acceleration clause.

Following disagreement between two parties, plaintiff sued for the whole amount when the defendant was late.

Analysis: Hughes: “…afterwards by their own act or with their own consent, enter upon a course of

negotiation that has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, the person who otherwise might have enforced those rights will not be allowed to enforce them.”

This type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation that had the effect of leading the other to suppose that the strict rights under the contract would not be enforced: there must be evidence from which it can inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations.

It is not enough to show that one party has taken advantage of indulgences granted to him by the other.

I do not think that the evidence warrants the inference that the appellant entered into any such negotiations with the respondents. (The appellants didn’t ENTER into any negotiations with the respondents.)

Promissory note: like an IOU. Willing to extend credit: instead of being paid the full purchase amount, they agreed that 42K would be paid back at a later time. The way that was memorialized and made enforceable was through a promissory note. It’s a way of using formality to make something enforceable without having to go to our doctrines of promissory estoppel.

There is this promise as part of the promissory note that $42K would be paid back. Within the promissory note, there’s a stipulation that if more than 10 days late, the plaintiff could claim the whole amount.

Often if have a loan, there would be a requirement that you pay X amount over a certain amount of time. But there will be a clause as part of that loan agreement that if any time more than X days late, the entire amount will be due: acceleration clause.

There’s a late payment, but then he just lets it slide. Then there’s an insisting on the payment, and use of acceleration clause. Argument attempted: by not insisting on your strict legal rights over this 18 month period, this

has created the representation that you will not insist on your strict legal rights, so I will use promissory estoppel to enforce those rights.

Concept of negotiation on Pg. 206: discussion in particular that there needs to be a pattern of negotiation, or process of negotiation. Reference to a passage from Hughes. But what does negotiation mean?

o There’s a recognition by the other party that he is allowing his rights…

o What’s meant in this case by negotiation: there needs to be something active on the part

of parties going on, as opposed to mere indulgence. There is ambiguity about what is required in terms of representation. If arguing on behalf of

someone trying to enforce promissory estoppel, would want to use Hughes. If want to say promise was not enforceable, would use John Burrows.

Decision: allow the appeal.Ratio here: a mere indulgence is insufficient. Mere indulgence: basically not doing anything: no active negotiation of any sort. Nothing explicit.

Courts ruled this was a mere indulgence. They have to engage in some sort of strict negotiations. Policy concerns here: if PE applied, in all future commercial transactions, you’ll never give an indulgence. Courts give people a little bit of leeway to help each other out. Just by saying that mere indulgences are okay, BUT not enough for estoppel. E.g. one second late.Standard in Hughes raised to more than mere indulgence: NEGOTIATIONS.

D. & C. Builders Ltd. v. Rees.......................................................................................208Facts:

Defendant employed plaintiffs to do work at his premises. In July, there was no dispute as to the work done, and there was an outstanding payment to the plaintiff that the defendant didn’t pay.

In Aug, plaintiffs wrote asking defendant to pay remainder of the bill, but the latter didn’t reply. After another attempt to contact the defendant, in Nov, the defendant’s wife said to the plaintiff that her husband would offer £300 in settlement, and implied that if they didn’t accept this payment, they would get nothing. The plaintiffs were in dire financial need, and had no choice but to accept.

Analysis: If a merchant who is owed a sum of money is asked to take less, the settlement is not binding to

him. But according to Hughes, if on the faith of creditor not enforcing payment of balance, the debtor pays a lesser sum to creditor and creditor accepts it as satisfaction, creditor won’t be allowed to enforce payment of the balance when it would be inequitable to do so (note this qualification).

o Where has been true accord under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts on that accord by paying the lesser sum and creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance.

Seems that there was no true accord here. Creditor was in need of money to meet his own commitments, and wife was putting undue pressure on the creditor by making a threat to break the contract.

No person can insist on a settlement procured by intimidation.

Promise at issue here: Promise to accept less. Promissory estoppel:

o There is a representation that was acted on.

o Here, in promissory estoppel cases, the word we use to describe this type of concerns is

“equity.” This is an equitable remedy: in order to get an equitable remedy, have to come to court with clean hands.

What’s problematic on the basis here? The builders are forced to accept less. It’s either they accept the 300 and not go bankrupt, or not accept the amount offered and go bankrupt.

On that basis, how does promissory estoppel apply here? What we’re told is that we know PE could apply to Foakes and Beer situation: promise to accept less, subject to equity: if inequitable circumstances, then you won’t be able to apply promissory estoppel.

Decision: appeal dismissed. No reason why creditor should not enforce the full amount due to him. Ratio:

Where has been true accord under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts on that accord by paying the lesser sum and creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance.

If inequitable circumstances, then you won’t be able to apply promissory estoppel. No person can insist on a settlement procured by intimidation.

Inequities come up here: she intimidates him. For PE to apply, and especially as a sword, you have to come to court with “clean hands.” PE does not apply if modification is obtained under duress. Can’t use PE when it would be inequitable to do so.

Contracts: Nov 21 (Lecture 14) Readings

Where one party makes a representation (mere indulgence is not), such that we can consider it a representation in the doctrine, and it’s intended to be acted on, then we will not turn around and say that the party that makes that representation will be free from any kind of consequence from making that representation. All sorts of contour to this doctrine: even though promissory doctrine, it began over time to develop its own elements, such as a legal relationship, requirement that it’s a serious representation (one acted on, and that it was one acted on), and we looked at this notion that just because one makes the type of representation that might be supported by the promissory estoppel doctrine does not mean that promise is made in perpetuity.

Also, need to come in with clean hands to make us want to help them and enable justice.

Waiver: treat waiver as the representation in the estoppel analysis. The principle of waiver: if one party by his conduct, leads another to believe that the strict

rights arising under the contract will not be insisted on, intending that the other should act on that belief and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so.

Sword or shield? Being used as a sword: cause of action gives promissory estoppel. They shouldn’t have done

what they did because of PE.o Instead of a situation where the landlord is taking tenant to court, it’s the tenant taking

landlord. Based on this relationship, I want to STAY: PUSHING FORWARD. Shield: I’m right in doing what I did because of PE.

o Generally speaking, we know that a shield is a more persuasive PE case, but there are

cases where can use PE as a sword. Wife case: she was using it as a SWORD, and there was a legal relationship.

(c) The NoticeSaskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co...........................211Facts:

Appellant (Maritime) issued insurance policy to SRB. Premium payments, under the policy, had to be paid within the grace period. SRB paid annual premium irregularly, and policy lapsed after SRB failed to pay annual premium

within grace period; policy was subsequently reinstated, but in 1981, SRB failed to make payment again. On this occasion, Maritime accepted late payment and did not require evidence of insurability and application for reinstatement (which was required for reinstatement in the policy provisions).

In Jul 1984, SRB mailed a cheque to Maritime that they never received, nor was it deducted from SRB’s bank account. Maritime then sent a late payment offer to SR, but SRB did not respond.

Nov 1984: Maritime wrote a letter advising respondent that the premium due on Jul 1984 remained unpaid (November letter: “policy is out of force, and we will require immediate payment to pay Jul 1984-85 premium.”). Maritime then sent the respondent a letter of notice of policy lapse. SRB eventually responded to late payment offer (didn’t check mail regularly) and sent Maritime two cheques, both refused. Insured person eventually died, but his policy was deemed no longer valid.

Analysis: Maritime’s position is that the policy issued to the respondents lapsed after the expiry of the

grace period for payment of the 1984 premium. Respondents’ position that Maritime waived its right to compel timely payment under the

policy. The respondents further submit that none of Maritime’s acts were sufficient to retract its waiver of time and that the policy was still in force at the time of death.

As the parties have chosen to frame their submissions in waiver, only that doctrine needs to be dealt with.

Waiver occurs where one party to a contract or to proceedings takes steps that amount to foregoing reliance on some known right or defect in the performance of the other party.

Waiver will only be found where the evidence demonstrates that the party waiving had (1) full knowledge of rights; (2) an unequivocal and conscious intention to abandon them.

Waiver issue here turns entirely on Maritime’s intentions. Respondents submit that by encouraging policyholders to pay by mail, by requesting payment of the 1984 premium after the expiry of the policy grace period, by delaying issuance of the February lapse notice, by failing to return the $45 partial payment, and in accepting late payment in 1981, Maritime waived its right to require payment in accordance with the terms of the policy.

November letter makes no mention of evidence of insurability, nor does it speak of reinstatement: clear evidence of Maritime’s intention to waive its right to compel timely payment.

But demand for payment has been deemed insufficient to give rise to waiver, though in some circumstances it may.

o Demand for payment in the November letter was a clear and unequivocal expression of Maritime’s intention to continue coverage upon payment of the July premium and as such constituted waiver of the TIME REQUIREMENTS for payment under the policy.

Question is then whether the waiver was still in effect when SRB tendered payment of missing premium in July 1985. Waiver can be retracted if reasonable notice is given to party in whose favour it operates.

In the present appeal, respondents were not aware of Maritime’s waiver until they received the November letter, along with lapse notice and late payment offer in April 1985.

It follows that they did not rely on Maritime’s waiver. In such circumstances, Maritime was not required to give any notice of its intention to lapse the policy.

Once respondents opened mail, they became aware of Maritime’s intention to retract its waiver. An informal communication of a party’s intention to insist on strict compliance with the terms of a contract is sufficient notice. Even if a reasonable notice requirement were imposed, it would be adequately met by respondents’ failure to act between Apr and Jul.

Three parties here: insurance company, employer, and insured person. Late payment notice, and then November letter says this policy is technically out of force. Make

full payment, and you’ll be fine. In February, said haven’t responded to November letter, so only way to reinstate it is to go

through all requirements again: demonstrate insurability and demonstrate health, but unable to do so because terminally ill.

Issue: all three letters: SRB becomes aware of all three letters in April because it was a seasonal business. Do they send the money in April? No. They wait until July. They send the money. The cheques are refused, and so there’s no attempt to make the claim, and none of this is successful. What would be the argument that you would make on the part of the widow, the one that wants to get the money, using promissory estoppel?

o Mere indulgence? No, because sent all these letters. But why didn’t you respond to them?

o They had to give reasonable notice. Up till when would it have been reasonable for them

to pay after the November letter? Some time, April, May, would’ve been more reasonable.

What is the decision here?o Waiver: where court finds is from the November letter, and if that’s where we say it came

from, was it in effect at the time that there was an attempt to pay in July? No, it had been retracted by then, and was it a reasonable letter? The decision here is that is the insurance payable or not? No. There’s all sort of legislation that informs these sorts of contracts.

Waiver: treat waiver as the representation in the estoppel analysis. November letter was the waiver of strict legal rights. But this letter wasn’t acted on.

Decision: appeal dismissed. Respondents not entitled to any benefits under policy.Ratio:

An informal communication of a party’s intention to insist on strict compliance with the terms of a contract is sufficient notice.

Reasonable notice terminates promissory estoppel.

Sword: Here, would be inequitable to use PE as a sword because reasonable notice was given.

International Knitwear Architects Inc. v. Kabob Investments Ltd................................215Facts:

The plaintiff tenant leased property from the defendant landlord. May 1989: landlord was experiencing difficulties, and landlord agreed to reduce rent. Dec 1991: no payment being made, landlord distrained (used a remedy) for arrears throughout

term of lease, and on Dec 24 1991, demanded arrears, interest, and payment in full from 1 Jan 1992 (used remedy to claim full amount). Previously $2290, and attempted to collect full amount, not reduced amount.

Tenant sued for damages for illegal distress, and landlord counterclaimed for rent and other moneys owing under the lease for the whole of the term.

Analysis: Where notice was must be given to effect a purpose, at least two questions arise: 1) Must the

notice be for a reasonable period; 2) must the notice specify the period correctly—a so-called “dated notice”?

Landlord was entitled to give, and the tenant was obliged to accept, notice reasonable in length to revive the obligations of the lease, but the notice need not be a dated notice and that, in this case, a reasonable time, from 24th of Dec 1991 to revive the obligation for both basic rent and additional rent was to 1st of Feb 1992.

Decision: appeal allowed in part for landlord. Tenant liable for amounts payable under lease for FINAL THREE MONTHS OF TERM.

Ratio: reasonable notice terminates PE (confirms Saskatchewan). Confirms High Trees, that so long as conditions apply, PE applies.

(d) The RelianceW.J. Alan & Co. v. El Nasr Export & Import Co.............................................................216

Buyers purchased coffee from sellers. The price in contracts referred to Kenyan shillings, though this was of little importance at the time because there was parity between sterling and Kenyan currency.

o The buyers opened a letter of credit in sterling, of which the sellers raised no complaint. Sellers invoiced bank in sterling and accepted payment in sterling.

o Letter of credit: it’s a bank draft. Don’t trust the other party and don’t trust their system,

so relying on a bank to step in and provide that credit, and guarantee this money will come to you. It’s a bit dated, but still use it in some situations.

Then, it was announced that sterling would be devalued, but it was not known whether there would be an equivalent devaluation of Kenyan currency. The sellers nonetheless sent their invoice to buyers’ bank and were paid in sterling.

It became known that Kenyan currency would not be devalued, and the sellers prepared an invoice for an extra amount of Kenyan shillings to offset devaluation. Buyers said there was nothing more to be owed.

Analysis: The sellers accepted that offer by making use of the credit to receive payment for a part of the

contractual goods. By that acceptance, as the sellers must be deemed to have known, not only did the confirming bank become irrevocably bound by the terms of the offer (and by no other terms), but so also did the buyers become bound.

When the letter of credit was accepted as a transaction in sterling as the currency of account, the price under the sale contract could not remain as Kenyan currency.

The acceptance by the sellers of the sterling credit was a once-for-all acceptance. It was not a concession for a specified period of time or one which the sellers could operate as long as they chose and thereafter unilaterally abrogate.

The principle of waiver: if one party by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted on, intending that the other should act on that belief and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so.

Argument for estoppel?o There’s a legal relationship (there’s a contractual relationship) and reliance.

o Representation. More than just a mere indulgence: there’s a letter of credit.

When looking at representation, does the acting on have to be detrimental? Detrimental reliance will be a more compelling case, but it doesn’t have to be detrimental. What was the acting on? What was actually done? The invoice was in sterling? They paid the first half, and suggests that it doesn’t have to be detrimental, doesn’t have to be something significant done.

Decision: appeal allowed. Ruling in favour of buyers.

When they act on it, doesn’t have to be detrimental. Representation was acted on; meant that bank invoiced in sterling. At the end, there was a week before the sterling was supposed to go down; submitted to bank invoice anyway. Sterling went down, but shillings didn’t.

Ratio: Acting on doesn’t have to require detriment for PE to apply.

Would be inequitable to go back on it, and you can’t revoke it because of letter of credit. Trying to argue that there wasn’t any detriment, so PE can’t apply. Don’t have to incur detriment by acting on it.

Société Italo-Belge Pour le Commerce et l'Industrie S.A. v. Palm et al.........................220(Post Chaser)

Facts: The plaintiffs agreed to sell palm oil to the defendants, who in turn contracted to sell the

consignment to sub-buyers, Conti and others. The terms of the contract required “Declaration of ship to be made to buyers in writing as soon

as possible after vessel’s sailing.” The sellers did not give this declaration until more than a month after the ship sailed. However, on receipt of the declaration, the buyers and Conti made no protest about its lateness, although the other sub-buyers did.

Later, the buyers sent a message requesting the sellers to hand over the documents covering the consignment to Conti. When the sub-buyers rejected the documents two days later, the buyers also rejected them and the sellers were forced to sell the oil elsewhere at a loss.

The court found that the delay in making the declaration of ship gave the buyers the right to reject the sellers’ tender of documents.

Analysis: Did the buyers waive their right to reject the sellers’ tender of documents? Did the buyers’ message to the sellers on 20th January constitute an unequivocal representation

that they did not intend to enforce their strict legal rights to reject the sellers’ tender of documents?

Also, was there any sufficient reliance by the sellers on this representation to give rise to an equitable estoppel?

Hughes: representor will not be allowed to enforce his rights “where it would inequitable having regard to the dealings which have taken place between the parties.”

There is no finding of any reliance by the sellers on the buyers’ representation. It is impossible to say that the sellers expended any money at all in consequence of the representation, and the time involved was so short that it is difficult to attribute any importance to it.

It does not follow that in every case in which the representee has acted, or failed to act, in reliance on the representation, it will be inequitable for the representor to enforce his rights for the nature of the action, or inaction, may be insufficient to give rise to the equity.

Here, I cannot see anything which would render it inequitable for the buyers thereafter to enforce their legal right to reject the documents.

What was the issue with these documents?o They were supposed to be sent within a reasonable time after the boat left.

What was the representation? Seller needs to deliver to the buyer, and representation that buyer makes is that they will accept them, despite the late delivery.

o Now do they say that outright, or what do they do? What are we getting representation

from? They don’t protest. First, the buyers make no protest about the lateness of the documents, but then they reject them.

What’s the issue here?o Basically, can the buyer insist on their strict legal rights to have prompt delivery, despite

this potential representation that they’re not insisting on prompt delivery? What does the court decide here?

o Essentially, it’s the acting on component here that seems to be problematic. Basically, no

evidence that the sellers’ position has been in any way been prejudiced by relying on this representation.

The court is not allowing for doctrine of promissory estoppel to be applied here. How do we reconcile this reasoning with Alan? Are these two cases telling us different things?

o Here, the two are consistent in not requiring detrimental reliance, but there HAS TO BE

some ACTING ON. There wasn’t even as much as what happened in Alan in the form of paying. So you can see that this sort of acting on is a subtle distinction. Here, there seems to be nothing that took place whatsoever.

Decision: in favour of the buyers.Ratio:

It does not follow that in every case in which the representee has acted, or failed to act, in reliance on the representation, it will be inequitable for the representor to enforce his rights for the nature of the action, or inaction, may be insufficient to give rise to the equity.

o NATURE of the action must be looked at.

Not really a case of PE because not really relied on. Even if they thought that buyers, didn’t act on it in two days. Representation there, but there was no acting on it.Inequity would come up: is it unfair that we don’t hold this suspension of rights? It’s only two days later, and buyers had a right to reject it.

(e) Sword or Shield?Petridis v. Shabinsky....................................................................................................227Facts:

The plaintiff carried on a restaurant business in a shopping centre owned and managed by the defendant.

The lease gave the plaintiff an option to renew, to be exercised by 31st December 1980. In order to renew, the tenant was required to give to the landlord notice in writing 6 months prior to the expiry of the lease. Rent, if not agreed, was to be fixed by arbitration.

Towards end of 1980, the plaintiff alleged that she mentioned to the defendant the need to get together on the renewal of the lease to which the defendant had replied that he would see the plaintiff after the holidays. Negotiations took place but they were unable to agree on rent, and did not apparently consider arbitration.

June: defendant gave notice to plaintiff requiring vacancy of leased place.

Analysis: This is not a case of promissory estoppel: even if the doctrine can be used as a “sword” to

establish a claim rather than as a shield in defence of a claim, the representation must be at a time when a legal relationship exists.

Here, while the lease itself continued after Dec 1980, the option did not, and it is the existence of the option that is the legal relationship upon which promissory estoppel must be founded.

This is a case of the recognition of the continued existence of rights that would otherwise come to an end. Landlord wanted lease to continue and it hoped to persuade the tenant to accept the proposed rent. It would inequitable to permit the landlord to terminate the negotiations without some reasonable notice to the tenant.

Two components: lease that was ongoing, and an option to renew the lease. After, they entered ongoing negotiations to try to renew it, and then the negotiations broke down. Landlord said you have to get out in a couple of weeks.

If they were kicked out, their business would’ve been significantly impacted. What’s the legal relationship issue here? When is there an attempt to make this claim?

o At the time claim is being made, is there a legal relationship between these two parties?

They issued the desire to renew the contract more than six months before. o At the time of attempt to make claim, overall relationship (landlord-tenant) had

continued, but the relationship centered on this desire to renew: relationship based on the option to renew. We know that there has to be some sort of legal relationship, so what does the court do here to try and get around this?

o What they’re basically saying is there really isn’t something extra that’s being promised,

but a waiving of strict legal rights. Not going to insist on the exact timing, other than the option to renew, and on that basis, you don’t need the same kind of requirement for legal relationship as you would in promissory estoppel. Keep in mind that this is all done in the context of the fact there is a bigger legal relationship between the two parties. They are in a landlord tenant relationship, so there’s something tying the two parties.

We want some sort of formality or condition: to be held to the serious intended promises and are in fact acted on. We don’t want the whole world to open up and do away with whole world of doctrine.

In this case, was there acting on? The renovation seemed to be before? Just staying put was acting on without going to find another place because that was important to them to continue business.

The catch here is LEGAL RELATIONSHIP. The court gets around it because there’s an overriding legal relationship and says it is a WAIVER instead of a promissory estoppel case.

If you characterize it more as a waiver and have more circumstances as PE, will allow you to bring the claim, even if it’s a sword.

Point is can’t just bring out PE with a stranger that you have no actual ongoing legal relationship with.

Decision: in favour of tenant.

Ratio: PE can be used as a sword when 1) it is equitable; 2) legal relationships exist. If the equities say so, you can use it as a sword.

Implicitly, the option to renew (the relationship over that) went on. Extension of time was a representation.

Combe v. Combe..........................................................................................................224Facts:

Parties separated. Wife’s lawyer wrote to husband’s lawyer, saying husband had agreed to pay her allowance of 100L per year (this promise was made AFTER the divorce). When wife’s lawyer wrote for first installment of 25L, the husband replied that he could not be expected to pay in advance, and he never made any payment. The wife pressed for payment but made no application to Divorce Court for maintenance. She had an income higher than her husband did.

She brought an action six years later for 600L. Judge held that there was no consideration for husband’s promise to pay his wife 100L, but he

held that the promise was enforceable on the principle stated in High Trees, because it was an unequivocal acceptance of liability, intended to be binding, intended to be acted on and, in fact, acted on. The husband appealed.

Analysis: Seeing that the principle of promissory estoppel (?) never stands alone as giving a cause of

action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action.

Wife can only enforce the promise if there was consideration for it. Even though she suffered some detriment by her forbearance, the forbearance was not at the

husband’s request, so there is no consideration. It would not be right for the wife, who is better off than her husband, to take no action for

six/seven years and then come down on him for the whole 600L.

Promise was made after the divorce. Very close. Unusual that wife was making more than husband. Was there consideration here? Perhaps for past consideration. Argument of promissory estoppel:

o No legal relationship between the two parties. Need something tying the parties together.

The past marriage would not do it. If they were currently married, that would be okay. This was the problem here.

o There may have been acting on because she expected to receive this income.

o Representation’s quite clear.

o Overall, the facts that we talked about, she’s making more money, doesn’t seem to be

those type of equitable facts that would overall move the court to give judgment for promissory estoppel.

o This promise is not enforceable. Still, we don’t have the full picture.

Ratio: you have to sue based on something. Inequities: had enough money on her own. Can’t use PE as a cause of action. In none of these cases was the defendant sued as a cause of action itself. Use it as a sword: make it that the person is asserting a right. Can use it as a sword when it’s equitable. If no existing rights, you can’t just come out of nowhere and use it.

Contracts: Nov 22 Readings

Promissory estoppel analysis:• Identify the promise.• Try for consideration first. Don’t invent facts to try to find consideration, though. • And then go to analysis of PE. When you’re there, the key components are the equities. Consider

whether there was notice.• Sword v shield scenario? • And then look at the legal relationship issue, which is expanded in Waltons. If there’s no legal

relationship, is it possible to find a situation whether we would be able to invoke Waltons with an INTENTION of a legal relationship?

• Want to make clear that just because it’s discretionary in its application, does not mean that you don’t need to know the key components of the doctrine. E.g. reasonable notice. You need to know those components.

Consider equities, notice, reliance, sword v. shield, cause of action v. proprietary estoppel.

Example from slides: Look for promise implied or actual.

Promise from the bank to the Mason was the promise that Osgoode was financially viable enough to pay for the project. Bank made a representation about the financial viability of Osgoode. Promising that Osgoode was able to pay.

Is there consideration? Doesn’t appear to be. Find a situation where the bank would be Mason’s lender: it’s not here, so it would be a

stretch. But it would be okay to stretch here a little bit: why would the Bank put themselves out like that and make a representation? You can play that up, but move on.

Is the party making the promise estopped thereby from asserting strict legal rights. Representation: The bank assured us of Osgoode’s financial viability, and Mason acted

on this representation. Question of reasonable notice: there was nothing done to retract the letter. But no legal relationship!

Consider equities, notice, reliance, sword v. shield, cause of action v. proprietary estoppel.

Privity of Contracts:

• It arises in two potential situations: it can arise if something is a complete stranger to a contract attempts to enforce a contract (no consideration flowing from that). The more difficult set of circumstances is if someone’s a beneficiary under a contract, but it’s not a contract that they’re party to. If you’re a beneficiary of a contract but not a party, can you enforce that contract?

Waltons Stores (Interstate) Pty. Ltd. v. Maher..............................................................230Facts:

Waltons (appellant) negotiated with Mahers (respondent) for lease of land owned by the Mahers. Waltons proposed the demolition, and replacement in accordance with their specifications, of an existing building on the land.

The target date for occupation created a need for a sense of urgency. The Mahers’ solicitor told Waltons’ solicitor that the Mahers could not complete construction before the target date, unless demolition began immediately.

Some proposed amendments to the lease still had to be agreed on. Waltons’ solicitor said he had verbal instructions to accept the amendments, but that he would get formal instructions. He then sent over fresh docs to Mahers’ lawyer incorporating the amendments. He stated in a letter that he thought approval would be coming, and if there were any amendments not agreed to by the Waltons, he’d let them now. The Mahers were not notified of any objections.

Later, Waltons’ lawyer returned the lease stating their intention not to proceed. During the weeks of silence, Waltons knew that Mahers had demolished the old building and partly erected the new building.

Analysis:

• Landlord is suing the tenant. • Usually, we see situations more commonly in PE where it is the case where the landlord is suing

the tenant, and tenant is bringing up PE as a SHIELD, where landlord is estopped from evicting the tenant. But in this case, the potential landlord would like the tenant to sign the lease. They’re using it as a SWORD (it’s their cause of action, not being attached to a cause of action).

• Lawyers aren’t doing anything without clients’ instructions. The actual representation comes from their omission (know there’s work being done) and in sitting there and letting it happen: that’s where we construct the presumption. This type of work is only necessary for the Waltons because they needed to take the premises quickly. By this omission, we can get at this representation.

• Can we find consideration for the promise to enter into the lease? Waltons are saying there was no promise on their part to enter the lease.

• How would we make the PE argument? • 1) Is there a legal relationship between these two parties? None. That’s why the case is

before us.• 2) Representation made (the omission from acting, and they had knowledge), intended to

be acted on. There’s been the acting on already.• 3) That they should’ve communicated in a reasonable time.

• Proprietary estoppel:

• Promissory estoppel applied in the land context. It was the early emergence of promissory estoppel, and in those situations, the doctrine was held to apply even when there wasn’t a pre-existing legal relationship between the two parties.

• The court is able to expand the doctrine and say it applies to broader PE cases. There’s a discussion of the American doctrine of PE: something called “race to the top,” where states have modified their corporate laws to make them less friendly to corporations so they can have more corporations incorporating in their state. Delaware: perception that corporate laws as they apply to remedies against corporations are more lax as compared to other jurisdictions. But this is not the case in contract law: there’s a lot of uniformity.

• We’re basically told that the American position: it’s a promise that is to be acted on. You could use promissory estoppel to act on it.

• So how is this doctrine different from our doctrine? How is the American one different from ours? There’s still got to be a legal relationship somewhere, but there has to be something there. We have certain doctrinal requirements that we seem to be more concerned with following.

• What’s adopted instead in Walton? Australian approach is not adopted in Waltons; similar approach to Canadian doctrinal one is adopted. Essentially an addition of legal relationship requirement. Has to be good likelihood that legal relationship will be entered into. And the expectation of that has to be created by the promisor, him or herself.

• Which approach to you is more useful?

Ratio: legal relationship or CLEAR INTENTION of legal relationship is necessary for PE, as long as it’s induced by representor. Representor also has to encourage you to act on this promise. Doing something includes the knowledge that you’re doing something to your own detriment but you’re not doing anything. If stood by and didn’t say anything… It’s a HIGHER threshold if the relationship is a future one.

M.(N.) v. A.(A.T.)............................................................................................................239Facts:

This appeal arises from a failed relationship. It is from an order dismissing Ms. A’s claim to enforce a promise by Mr. M to pay the balance outstanding on the mortgage on her home in England if she would come to live with him in Canada with a view to marriage.

In reliance on that promise, Ms. A resigned her permanent job in England and moved to Vancouver. Mr. M, however, didn’t pay off her mortgage. He did loan her $100K on a promissory note, which Ms. A. applied to her mortgage. About a week later, Mr. M evicted Ms. A from his home.

She’s suing not to have to pay the note back.

Analysis:• What’s the promise at issue here? The promise to pay off the mortgage. That’s the representation,

and that’s what’s being fought back. Was there consideration for that promise? • Court did say that perhaps no consideration because even if he paid off her mortgage, she

could leave him. No consideration flowing back.• PE argument (consideration is not a problem for PE):

• 1) Representation? Yes, because she was told if she moved to Canada and gave up her job, he’d pay off her mortgage.

• 2) Acting on? She moved to Canada. • 3) But what’s the problem with the doctrine here? No legal relationship. Trial judge

based his decision on the fact that there’s no legal relationship, so no PE. But post-Walton, what would be the answer here? Either it’s a legal relationship or a clear intention to enter into legal relationship. How does CA apply that here?

• Intention of legal relationship: perhaps an engagement. • Walton: is that the law in Canada? It is the law. M v. A is an application of Waltons. We can see

that it applies more in a commercial setting, and it’s a high threshold that there’s an intention to enter into a legal relationship. Here, the entrance into a legal relationship is unclear.

Ratio: confirms Waltons. He did nothing to create an inducement to believe there was a legal relationship. There was nothing hold her down to stay with him.

6. Formality: Promises Under Seal.....................................................................251 In some jurisdictions and legal systems, a seal is sufficient to enforce a promise: the common

law continues to enforce such promises even in the absence of consideration. Legal formalities such as the seal serve several different functions: “evidentiary” and

“cautionary.” Presence of a seal provides clear evidence that the promisor intended to create a legal obligation; and the act of sealing a promise serves to encourage the promisor to carefully contemplate legal consequences of his actions.

Royal Bank v. Kiska.......................................................................................................252Facts:

Plaintiff bank brought action on a guarantee that had been signed by the defendant. At the time of signature, no wafer seal was attached to the guarantee, but the word “seal” was printed on the document.

Majority of court found that the guarantee was binding because it was supported by consideration.

Laskin JA in his dissent: no consideration and thus in view that guarantee could be enforced only if it constituted a sealed instrument.

Analysis:• Importance of formality when use formality to make promises. • What’s a testimonium?• It says “seal” in brackets, but there’s no seal. Is it sufficient to need a seal? You need some

version of a seal. • If you’re using formality to enforce the contract, it has to be there. If formality’s what’s being

used, all the required elements have to be there, and seal has to be affixed. • If no consideration but there’s a seal, it’s sufficient. Have another tool at your disposal.

Decision: appeal dismissed. Ruling in favour of defendant.Ratio: If you’re using formality to enforce the contract, it has to be there. If formality’s what’s being used, all the required elements have to be there, and seal has to be affixed. Need a seal; without it, it won’t be enforced.

Dissent: invitation to put the seal there. Refuses to read in that writing in seal is a good seal.

IV. PRIVITY OF CONTRACT

Privity of Contracts:It arises in two potential situations:

• it can arise if something is a complete stranger to a contract attempts to enforce a contract (no consideration flowing from that).

• The more difficult set of circumstances is if someone’s a beneficiary under a contract, but it’s not a contract that they’re party to. If you’re a beneficiary of a contract but not a party, can you enforce that contract?

Provender v. Wood........................................................................................................276Facts:

• Son-in-law bringing contract against father-in-law to give him 20 pounds.

Analysis:• He is the son-in-law, who is now suing his benefactor (third party) (beneficiary, not a stranger).

In 1630, can a beneficiary who’s still third party to the contract sue under contract? Yes. • Stranger to consideration, not stranger as in stranger vs beneficiary of contract.

Ratio: in 1630, a beneficiary who’s third party to the contract can sue under contract.

Tweddle v. Atkinson.......................................................................................................276Facts:

Parents of both parties to marriage orally promised to give the plaintiff (groom) a marriage portion, and after the marriage, the parents entered into agreement: to give 200L to groom.

Contract was between father of the groom and father of the bride.

Analysis:• What’s the decision here? Can the third party beneficiary of a contract sue to enforce it?

• Here, we’re told that no, not allowed. Stranger to consideration can take advantage of the contract, even if it is more for his benefit. 1861: cannot sue to enforce that contract.

Ratio: in 1861, a third party beneficiary of a contract cannot sue to enforce it. Consideration must move from the party; otherwise, not entitled to sue upon.

Dunlop Pheumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.................................................277Facts:

The appellants, tire manufacturers, sold their tires to Dew, who were wholesale merchants, on terms that Dew would not sell the tires below Dunlop’s list prices, except to certain customers.

The respondents, a large department store, obtained the tires from Dew and signed an agreement under which they promised not to sell or offer them below list price (would give 5 pounds for each tire sold under price to Dunlop), but they breached this agreement by charging one customer less than the list price.

The contract between Dew and Self-ridge: Dunlop is the third party. Selfridge sold for lower than the price enforced by the contract.

Analysis (Viscount Haldane): Principle 1: only a person who is a party to a contract can sue on it. Our law knows nothing of

the right of a third party to recover. Principle 2: if a person with whom a contract not under seal has been made is to be able to

enforce it, consideration must have been given by him to the promisor or to some other person at the promisor’s request.

Principle 3: principal not named in the contract may sue upon it if the promisee really contracted at his agent. To entitle him to sue, he must have given consideration either personally or through the promisee, acting as his agent in giving it.

The only consideration disclosed by the (Jan 2) contract is one given by Dew, not as their agents, but as principals acting on their own account.

Two contracts—one by a man on his own account as principal, and another by the same man as agent—may be validly comprised in the same piece of paper. But they must be two contracts, and not one as here. I do not think that a man can treat one and the same contract as made by him in two capacities.

Analysis (Lord Dunedin): Agreement sued on is an agreement which on the face of it is an agreement between Dew and

Selfridge. But I have no difficulty in the circumstances of this case in holding it proved that the agreement was truly made by Dew as agent for Dunlop, or in other words that Dunlop was the undisclosed principal, and as such can sue on the agreement.

o To enforce it, he must show consideration moving from Dunlop to Selfridge. What did Dunlop do, or forbear to do in a question with Selfridge? Nothing.

o He had no action against Dew which he gave up, because Dew had fulfilled his contract with Dunlop in obtaining a contract from Selfridge in the terms prescribed.

• Dunlop is said to be a stranger in a later case (Beswick), but could be argued that they could be characterized as a beneficiary. Dunlop could benefit from keeping prices at a certain level, so is a third-party beneficiary. Penalty was to go to Dunlop, too; therefore, they are a beneficiary.

• The argument is that when Dew enters into contract with Selfridge, Dew is in fact acting for Dunlop as Dunlop’s agent, so not in fact a third-party: reduces it to a two-party scenario.

• The reason why we have privity of contract rule: if third-party scenario, Dunlop has not in fact given Selfridge anything; therefore, it’s a privity issue. But once we turn it into a two-party scenario, we eliminate that…

RATIO: Where we can find agency relationship, that’s one exception of privity of contract doctrine. First, privity of contract is the law, but one exception to privity of contract law is agency.

• If it hadn’t been that Dunlop sold the tires to Dew and then Dew sold to Selfridge, could make that argument. If Dew made sales agent for Dunlop, then could be argued.

RATIO: You can’t be agent and principal in same transaction.• E.g. real estate agent scenario: you get agent to market and sell your house. If there’s an exchange

of title, then it’s not agency.

Decision: appeal dismissed.

(3. Ways in which the third party may acquire the benefit)

Beswick v. Beswick (C.A.)............................................................................................283Facts:

Peter Beswick was a coal merchant, whose nephew, John Beswick, helped him out with his business. Before Peter died, he transferred his business to his nephew, with the agreement that Peter would be employed as a consultant for the rest of his life with a fixed weekly salary, and that after he died, his nephew would pay his widow £5/week.

After he died, the nephew paid the widow the first £5, but stopped after that payment.

Analysis (Lord Denning): General rule is that “no third person can sue or be sued on a contract to which he is not a party”

but at bottom that is only a rule of procedure. It goes to the form of remedy, not to the underlying right.

Where a contract is made for the benefit of a third person who has a legitimate interest to enforce it, it can be enforced by the third person in the name of the contracting party or jointly with him or, if he refuses to join, by adding him as a defendant.

It is different when a third person has no legitimate interest. Here, the widow sues in her capacity as executrix of her husband’s estate (and therefore as

contracting party), and also in her personal capacity (and therefore as a third person).

• Wife is executor of old man’s estate.What happens when someone’s an administrator of the estate: she assumes the responsibilities of the oldman for purposes of administering the estate.

• What is the problem with the old woman just suing the nephew? No consideration between them. There’s a payment and nothing flowing back from the old lady. But, is the promise to make that payment part of another enforceable contract?

• Based on the strict privity of contract analysis, what would the rule be here? Could the old lady, had she not been the administrator, enforced this contract? NO. Because she’s a third party.

• Can we find an agency relationship here? Could argue that the old man was acting as an agent of the old woman – but this is a weak argument.

• Because she is the administrator, is there another way we can get around this? Administrator steps into shoes of deceased, so she would sue on his behalf the nephew.

• If we were to apply compensatory damages here (the norm), what position would estate been in? Had the promise been performed, the estate wouldn’t have been in a different position.

• Way to get around it: award of performance. Administrator should just seek to enforce the promise.

• What does Lord Denning say about what the wife could do? • She can bring a joint claim, where her claim is attached. Doesn’t matter that she’s

administrator: could force whoever is the administrator to bring the claim, asking them to bring the claim, and joining them as a defendant. Would name them as a defendant because not going forward to enforce the contract.

• He is trying to get around privity of contract rule.• What’s problematic with this? Breaks the old administration doctrine, where even if she manages

to convince the administrator, had it not been her, no consideration to administrator such that she can sue him. Procedural mess.

Decision: appeal allowed.This is different because he’s the administrator of the estate. Problem is, if she’s administrator, she’s the “husband.”

Denning says that, fuck this guy, she can sue you. He says what you can do is join the administrator and beneficiary. As beneficiary, can sue by adding administrator to the suit. If the administrator were someone else, she could bring the administrator in, either as a plaintiff or as a defendant (if administrator refused). Throwing away whole history of privity of contract.

House of Lords: yeah, Denning, can’t go that far. They do admit that there is a need to change the law. If Parliament were too slow in doing this, we should do this ourselves, but don’t do this ourselves. For the purposes of this case, third-party beneficiary rule is correct. But here’s how justice can be done: instead of awarding compensatory damages, she can go for award of performance (suing as the estate).

Beswick v. Beswick (H.L.)..............................................................................................284Analysis (Lord Reid):

Respondent sues both in her capacity as administratrix of the estate and in her personal capacity, so it’s necessary to consider her rights in each capacity.

Appellant’s assertion that respondent’s only right to sue him is for damages for breach of his contract, meaning nominal damages, since breach of contract caused no loss to the estate of her deceased husband: result would be grossly unjust.

Respondent’s argument: she is entitled in her capacity of administratrix to enforce provision of agreement for benefit of herself in her personal capacity, and that a proper way of enforcing that provision is to order specific performance.

o That would produce a just result.

Analysis (Lord Pearce): It is argued that the estate can only recover nominal damages and that no other remedy is open:

such a result is wholly repugnant. I do not accept the view that damages must be nominal. In the present case, I think that the

damages must be substantial. More appropriate remedy is that of specific performance . Obstacle to granting specific performance? Argued that since the widow personally had no

rights which she personally could enforce, the court will not make an order which will have the effect of enforcing those rights. I can find no principle to this effect.

• In fact, she is the administrator.• How is it that the issue we talked about before? How would we deal with the damages? The

nephew paid with the business by using an annuity.• This decision is important to us not just because of what it says about p of c, but only examples

we’ve looked at where specific performance is ordered. Because compensatory damages would not do justice and would not provide an appropriate remedy in the circumstances. That would mean the business is conveyed for free. And the party’s intention would not in fact be carried out.

• Now, what is the problem with another scenario where if it was in fact not the same person, and it’d been creditor named the administrator, what would be the problem with this approach? Why would creditor enforce the promise?

• Don’t have that in the House of Lords decision.• What is the state of the law after this decision?

• If you’re a third party to an action, whether a beneficiary or an agent, don’t have a cause of action. The situation where there’s an administrator, not an exception, because just able to step in the shoes of the contracting party.

London Drugs Ltd. v. Kuehne & Nagel International Ltd................................................298Facts:

London Drugs delivered a transformer, which had been purchased from its manufacturer, Federal Pioneer, to Kuehne for storage.

The contract of storage included the following limitation of liability clause: “Warehouseman’s liability on any one package is limited to $40 unless the holder has declared in writing a valuation in excess of $40 and paid the additional charge specified to cover warehouse liability.”

The appellant chose not to obtain additional insurance from Kuehne and instead arranged for its own all-risk coverage.

Employees of Kuehne did not use standard procedures when loading transformer onto a truck, and the transformed toppled over and fell, causing damages.

Issues: 1) Duty of care owed by employees to their employer’s customers 2) Extent to which employees can claim the benefit of their employer’s contractual limitation of

liability clause.

Analysis:• What is the promise that there’s an attempt to enforce?

• Between London Drugs and K&N. Limited liability clause to 40 dollars. Who is trying to benefit from that limitation of liability? The employees. Are they party to that contract? They’re third-party beneficiaries to this contract.

• We could try to make the exception argument: agency exception. Who is acting as an agent for who? Employer is acting as an agent for the employees.

• Even if we’re able to break it down, what is flowing from the employees to London Drugs in exchange for that limitation of liability promise, even if there is the breaking down of the three parties. Is there anywhere where we can find consideration?

• There are particular policy concerns that arise in employer-employee context, where there seems to be a need for a particular rule to arise. In that way, what is the particular rule that we get from this case about this type of situation? Where can we find that?

• How would we apply the ratio to these particular facts? Where’s the clause we’re concerned with?

• Another exception to p of C here: Something systemic about protection of employees.• Employees were third-party beneficiaries.

RATIO: Pg 304: Employees may obtain such a benefit if the following requirements are satisfied:

o 1) Limitation of liability clause must, either expressly or impliedly, extend its benefit to

the employees (or employee) seeking to rely on it, ando 2) The employees (or employee) seeking the benefit of the limitation of liability clause

must have been acting in the course of their employment AND must have been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred.

Final exception to privity of contract: 1) agency (Dunlop); 2) employees in limited liability clauses (London Drugs).

London Drugs is suing the EMPLOYEES. Third-party to limited liability clause, so not allowed to benefit. No consideration flowed from the employees. Employees saying we can benefit from this contract, even though they’re third parties. Two rules when employees should be protected under limited liability agreements: 1) limitation of liability clause (this clause either expressly or implies must extend benefits to employees) (in clause, say we’re limited in liability, including our employees); 2) employees have be acting in course of employment and providing services that the contract was for. Policy concern: employees don’t expect to be subject to unlimited liability, and if they were, wouldn’t be able to pay for it anyway. Would also allow the plaintiff to circumvent limited liability clause (forego this extra clause), instead of getting insurance.

Need to re-read.

V. OFFER AND ACCEPTANCE

Offer and Acceptance:• Be mindful of one error commonly made: also needs to be that vehicle that makes that contract

enforceable; promissory estoppel, consideration, or seal. NOT enough to have offer and acceptance. We’re still concerned with the overall enforceability of the contract.

• One thing to be distinguished: from an offer, just an invitation to treat. That’s often a subtle distinction, and what there’s a lot of case law on: is it mere puffery, or sales talk, or is it an actual offer that you have the ability to accept?

• Which offer are you talking about? • The point at which you are looking is where there’s a meeting of the minds of the parties. Where

the parties have the same offer in mind that’s accepted by one of the parties. Ultimate goal in this whole analysis.

MEC Catalogue:• They have a catalogue online and in hard copy. Picture of a tent, and then there’s a price beside

that tent. Is that an offer, if you choose to respond to it? Would be a different situation if it’s not a catalogue that just advertises the products, but one where the actual method of purchase and sale is actually looking at the catalogue and sending in money. Should distinguish between these two situations.

• Goods in the window displayed: that’s also an invitation to “treat” (invitation to make an offer). Still have to go in and inquire with a sales clerk.

Unilateral contract: It’s a promise in exchange for an act. Here, promises: I will promise you 100 pounds. What’s the

act required? Taking this smoke ball. Promise for an act. More likely to see a situation where notification of acceptance has been dispensed with.

• Another example: reward for finding my cat. Invitation for Tenders:

• Traditionally, if the tender or call for tender and nothing to bind the parties, there’s two potential issues (next slide).

• If there’s nothing binding parties to this process, potential issues in this process.• Tender: invitation to make an offer.• Basically, there was that intermediate period where there was no protection for either party. But

two cases that deal with the two potential cases. Inequities that could arise as it relates to the owners, and with parties making the bid and withdrawing.

• Possibility of withdrawing offers prior to acceptance.

Big point here is differentiating invitation to treat (sales talk) versus actual offer.

1. Introduction................................................................................................................15

Distinction between obligations based on consent to an exchange, which are the province of the law of contracts, and obligations created by the general law, which are considered under the headings of torts and restitution.

The first prerequisite to contractual liability based on consent is that the parties must have reached an agreement.

o Courts are simply enforcing a mutual agreement freely consented to by each party to the contract.

The formal framework of offer and acceptance rules determines the existence of contractual agreement through a stylized sequence of actions.

Courts increasingly acknowledge that a more flexible approach to determining when an agreement exists is required in practice to address the wide range of contracting situations and varying policies raised by different situations.

Many of the rules of offer and acceptance are highly contextual. E.g. context of previous business and legal relations

o Impact of increasing numbers of cross-border transactions to which Canadians may be parties. Often involves challenging rules of private international law.

o Impact on contract formation of the changing technological setting for modern transactions.

2. Offer and Invitation to Treat......................................................................................18Canadian Dyers Assn. Ltd. v. Burton..............................................................................18Facts:

Plaintiffs asked the defendants to state their lowest price for the property they were selling, to which the defendant responded $1650, the lowest price that he wanted to sell at for cash.

Plaintiffs accepted this offer, to which the defendant responded, the last price he gave him was the lowest he was prepared to accept.

Cheque for $500 was sent, and defendant was asked to have deed prepared, which the defendant’s lawyer did. Then, the lawyer wrote that there was no contract, and returned the cheque.

Analysis (Middleton J): A mere quotation of price does not constitute an offer to sell to the person to whom the

quotation is addressed. Here, there was far more than a mere quotation of price: statement of readiness to sell to

plaintiffs at price already named. Defendant’s actions show that he regarded his letter as an offer and later letter as making a

contract.

• Harvey: Pg 18: telegraph of the lower price. Ratio from this case: Just a quotation of the lower price is INSUFFICIENT to be an offer. Intention is important.

• Burton is different because the price quoted is a specific price quoted to the plaintiff. We see a willingness to sell to that particular party, as well as a quote of lowest price.

• This is a valid offer and contract. • Is the court looking at just Oct 21 letter or looking further ahead? They do look ahead. Arguably,

court could’ve made the court solely on the basis of that letter, but they gave flavour to the decision and we’re comfortable with the decision with the activities that happened after.

Decision: this is a valid offer.Ratio: An indication of willingness to sell, as well as a specific price quoted to an individual, is sufficient to constitute an offer. Language (“prepared to accept”) and actions (searching for deed and title) could constitute the offer. Actions can imply the meaning of the words.

Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd..........................................................................20Facts:

Defendants operated a self-service pharmacy. One section of the Chemists’ Dept. was devoted exclusively to drugs included in the Poisons List.

The Chemists’ Dept. was under personal control of the registered pharmacist, who was stationed near the poisons section.

In every case involving the sale of a drug, the pharmacist supervised that part of the transaction which took place at the cash desk and was authorized by the defendants to prevent at that stage of the transaction any customers from removing any drugs from the premises. No steps were taken by the defendants to inform the customers of the pharmacist’s authorization.

Two customers purchased a bottle of medicine included in Poisons List. Issue: whether these ales were effected by or under supervision of a registered pharmacist.

Analysis (Somervell LJ): The plaintiffs are the Pharmaceutical Society. One of their duties is to take all reasonable steps

to enforce the provisions of the Act. The point taken by the plaintiffs: it is said that the purchase is complete if and when a customer

going around the shelves takes an article and puts it in the receptacle which he or she is carrying, and that therefore, if that is right, when the customer comes to the pay desk, having completed the tour of the premises, the registered pharmacist, if so minded, has no power to say: “This drug ought not to be sold to this customer.”

The contract is not completed until the customer having indicated the articles that he needs, the shopkeeper or someone on his behalf, accepts that offer. I can see no reason at all for drawing any different implication as a result of this layout.

If the plaintiffs are right, once an article has been placed in the receptacle, the customer himself is bound and would have no right, without paying for the first article, to substitute an article that he preferred more.

Analysis (Birkett LJ):

The mere fact that a customer picks up a bottle of medicine from the shelves does not amount to an acceptance of an offer to sell. No sale is effected until the buyer’s offer to buy is accepted by the acceptance of the price.

• Why are we concerned with this particular issue of when there’s an offer? One of the situations where contract law intersects with other areas of law. What’s being sold here? Medications with small doses of poison, and the sale needs to be supervised.

• Who’s making the offer and who accepts it when you go to a store? • You make the offer when you go up to the cash register with your items. The customer is

making the offer at the point of sale, and it’s up to the store, through their agent (cashier or pharmacist), to accept that offer or not.

• What’s problematic about this? Just from a broader perspective? Could be problematic if don’t have other vehicles to make sure that other stores and entities stick to the prices they claim to be selling goods at. Could also be issues, where: get to cash register and have 15 bags of chips, and cashier says you don’t need any more chips.

Ratio: No sale is effected until the buyer’s offer to buy is accepted by the acceptance of the price.Decision: appeal dismissed.

Monitoring has to happen before the acceptance (completion of sale). Court says this is absurd: customers can’t change their mind once they put it down on the counter. Picking up an item can’t constitute an offer. Offer is when they bring it to the cashier.First guy is saying displaying goods is an offer.

Carlill v. Carbolic Smoke Ball Co.....................................................................................25Facts:

Defendants, who were the proprietors and vendors of “Carbolic Smoke Ball,” inserted an ad in the newspaper, saying that 100 pounds would be awarded to any person who contracts the flu after having used the ball three times daily for two weeks. It was claimed that during the last epidemic of the flu, there’d been no case of anyone who’d contracted the flu and was using the smoke ball.

On faith of this ad, plaintiff bought on these balls and used it. She caught the flu. Previous judge said she was entitled to 100 pounds. Defendant appealed.

Analysis (Bowen LJ): We were asked to say this document was a contract too vague to be enforced. Vagueness seems

to show that no contract was intended. How would an ordinary person reading this document construe it? The intention was that the

circulation of the smoke ball should be promoted, and that the use of it should be increased. It seems that the way that the public would read this, is that anyone who used the ball and caught a cold would be entitled to the reward.

The ad said that 1000L was lodged at the bank: therefore, can’t be said that statement was intended to be a mere puff. Intended to be understood by the public as an offer that was to be acted on.

No check? Answer: if a person chooses to make extravagant promises of this kind, extravagance is no reason in law why he should not be bound by them.

Contract made with the entire world? No, it is an offer made to the entire world; contract is made with those who come forward and perform the condition on the faith of the ad.

No notification of acceptance ?o One cannot doubt that an acceptance of an offer made ought to be notified to the

person who makes the offer so that the two minds may come together.o No doubt that where a person in an offer made by him to another person intimates a

PARTICULAR mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance.

o How are we to find out whether the person who makes the offer does intimate notification will not be necessary to constitute binding bargain? Look to offer itself.

From ad, seems that inference to be drawn that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition, notification is dispensed with.

No consideration for promise?o Any act from which defendant derives a benefit or advantage, or any labour, detriment,

or INCONVENIENCE sustained by the plaintiff, provided this is done with consent of defendant, is good consideration.

o Inconvenience sustained by one party at request of other is enough to create a consideration. Defendant also received benefit from user here.

Analysis (Lindley MR): Notification of acceptance need no precede the performance. This offer is a continuing offer: it

was never revoked, and if notice is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of performance of condition.

The person who makes the offer shows by his language and from the nature of the transaction that he does not expect and does not require notice of acceptance apart from notice of the performance.

Is the advertisement an offer or a mere “puff?” and why?• It’s clear that this is serious. This looks like it has serious enough element to it. It’s specific

enough to create an offer. Now, what’s the general rule on accepting an offer? How do we go about accepting an offer? Communicate the acceptance.

• What’s the issue here with communication?• Argued that there’s no communication of acceptance. Pg 27: “Then it was…”• Expressed that if there’s no notification that’s needed, then it’s sufficient.• Another example: promise to pay 10 bucks to whoever mows my lawn.

• Was there consideration to pay this 100 pounds? Yes.• “Unilateral contract”: It’s a promise in exchange for an act. Here, promises: I will promise you

100 pounds. What’s the act required? Taking this smoke ball. Promise for an act. More likely to see a situation where notification of acceptance has been dispensed with.

• Another example: reward for finding my cat.

Ratio: No doubt that where a person in an offer made by him to another person intimates a

PARTICULAR mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance.

One must determine how an ordinary person would construe the offer/contract in determining whether it is valid.

Inconvenience sustained by one party at request of other is enough to create a consideration. Notification of acceptance need not precede the performance.

This is unilateral contract, so as long as it remains unrevoked, performing what’s the contract asks you to do constitutes acceptance and consideration. E.g. reward problem for unilateral contract. Don’t need prior notice of acceptance.

Intention to the contract is important (read offers as intended to be read by those it was made to). Reading it as public would read it.

Invitation for Tenders:• Traditionally, if the tender or call for tender and nothing to bind the parties, there’s two potential

issues (next slide).• If there’s nothing binding parties to this process, potential issues in this process.• Tender: invitation to make an offer.• Basically, there was that intermediate period where there was no protection for either party. But

two cases that deal with the two potential cases. Inequities that could arise as it relates to the owners, and with parties making the bid and withdrawing.

• Possibility of withdrawing offers prior to acceptance.

R. v. Ron Engineering......................................................................................................35Facts:

The contractor submitted a tender to build a project. Also submitted a tender deposit. Paragraph 13 of the Information for Tenderers: “Commission may retain the tender deposit for

use of the Commission…” Contractor’s employee learned that tender was lower than the next lowest tender. Contractor

then sent a telex that said the tender amount was supposed to be higher than it actually was. Requested to withdraw tender.

Later, contractor maintained it had not withdrawn its tender, but that it was incapable of being accepted.

Had to submit a tender, including a deposit, but forgot a lot of costs. But they didn’t revoke the offer but they didn’t view it as having an obligation. Made a bad offer.

Issue: would contractor have been entitled to withdraw its tender and recover its deposit?

• The reason we have this case: because the party Ron Eng wants their deposit back and the idea was that, if you withdraw and part of terms, can’t get deposit back.

• Contract B is the contract we’re all trying to get. It becomes standard terminology in other cases. Contract they’re all bidding for.

• Contract A: What we’re saying is Contract A is a promise on the part of the owner to review the bids according to the terms and conditions and the bidder is submitting the bid. That’s the consideration flowing in both directions. What’s the terms in Contract A? What will differ in terms of the Contract A is the terms and conditions. We need to look at the specific factors of the cases and the terms and conditions there.

• Clause right there that they can KEEP THE DEPOSIT.• Another clause that’s important: There was a violation and because of another term and

condition, the Commission was able to keep the deposit. • This contract A was breached, and in certain circumstances, what we’re doing in terms of

remedies is the default rule: if parties have already put into the contract language that they can keep the deposit, there’s been a violation of the terms and conditions: Contract A has been breached. If there wasn’t Contract A, would there be any recourse (under old analysis, before Contract A- B analysis. Before that, all you had was the main contract, and if something happened before you got to that main contract, there was no recourse for either party.)? There’d be no way for the Crown to protect themselves from the entity that decides to just withdraw their offer, even after they’re reviewed it.

Analysis (Estey J): Contract arose upon submission of a tender between the contractor and the owner whereby the

tenderer could not withdraw the tender for a period of sixty days after the date of the opening of the tenders.

Right to recover the tender deposit sixty days after opening of tenders if tender was not accepted by owner.

The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made.

Obligation in both parties to enter into a contract (finalized contract) upon acceptance of the tender.

The deposit was recoverable by the contractor under certain conditions, none of which were met.

*Contracts A and B

Decision: dismissal of contractor’s claim for return of tender deposit.

They realize forgot to include the costs, so bid had to be higher. Instead of saying want to take our bid back, bid doesn’t count in the first place. Didn’t revoke because not allowed to revoke offers. Saying it wasn’t a contract. Judge said that there’s a two-contract analysis: Contract A is a unilateral contract, so the second I submit a tender, you’re accepting the offer (given consideration). What you win with Contract A is that the owner will consider the bids under the terms and conditions stipulated.

Can’t revoke an offer: can’t assume that there’s no . Policy reasons: submitting lowest bid because that will give the lowest costs. Once submit tender, accept offer from unilateral contract. Further, the owner gets to decide which one they’re going with contract B. What we learn in the next case is it’s not necessarily the lowest offer.

MJB Enterprises v. Defence Construction.......................................................................38Facts:

• There’s a situation where there’s a non-compliant bid (bid did not comply with terms and conditions). But for that bid, MJB said they were the lowest price-compliant bid. Owner decides to go with the non-compliant bid, the bid that did not follow the terms and conditions. MJB is pissed off and seeks recourse.

Analysis:What is Contract A here? It’s the same. But what part of Contract A is there an argument made that’s being breached?

• Privilege clause: don’t have to accept the lowest bid. Doesn’t have to be there in every contract. Here, says it’s open to the owner to accept any bid even if it’s not the lowest-price bid. Don’t actually have language around the terms and conditions. If there’s a privilege clause like this, which is basically intended to say even if it’s a lower price bid, might not go with it, can you use that to say that I can pick any bid I want? That’s the question at issue.

• Why would an owner not want to accept a lowest-price bid? Experience, reputation of bidder, etc.• Basically, it’s possible to put a clause that they will not necessarily accept the lowest price bid,

BUT it’s not okay to have a set of terms and conditions that you agree to review bids according to and consider bids that are not compliant with those terms and conditions. Bids have to be compliant with whatever conditions you set out.

• Did the defendant breach their obligation? Yes. How? Breach was that they accepted a non-compliant bid.

• What did courts say about damages? Expectancy damages. Dominant measure is expectancy. How do you calculate expectancy on breach of Contract A like that? Are you put in position you’re in if Contract B was awarded.

• It was determined that in this particular set of facts, they would’ve been awarded the bid. The parties agreed to what the expectancy amount would be.

You can’t assume a set of conditions: need to look at the conditions in each case.

There was a privilege clause, and this allows the owner to not necessarily choose the lowest bid. They could choose another bid, but for various reasons. Five people could submit a bid, but only two people are capable of doing it on time. Good reputation, and the other companies are too small. Even though you could give a bid, can bring outside factors to consider a bid. Accepted a bid that didn’t meet the terms and conditions of the bid: non-compliant bid, but they still accepted it.

MJB said you accepted a non-compliant bid, which you agreed you wouldn’t, and if you didn’t, you’d probably accept it.

Ratio: You can only accept bids that are compliant with terms and conditions, but there can be a privilege clause. Acceptance of unilateral contracts must adhere to the terms and conditions outlined in the notice for that unilateral contract. Policy: Deals with lack of recourse for bidders. Also arrived at decision by using officious bystander test. All it meant is that it could be implied from the conditions of the tender that only valid offers would be accepted. It’d be absurd if invalid offers could be accepted, so officious bystander test is if, this person was standing in the room with contract being made, would they believe that non-compliant bids are permissible?

contracts long summary

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