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Contract Law Winter 2016

Table of Contents

Negligent Misrepresentations + Concurrent Liability...........................................5


Negligent Misrepresentations............................................................................................... 5
Hedley Byrne v. Heller.................................................................................................................... 5
Hercules Management v. Ernst & Young.........................................................................................5
Sodd Corp. v. N. Tessis.................................................................................................................... 5
BG Checo Intl v. BC Hydro............................................................................................................. 6
Negligent Misrepresentation Disclaimer Clause (Merger Clause)....................................................6
Concurrent Liability........................................................................................................................ 6

Parol Evidence and Classification of terms..........................................................6


Parol Evidence...................................................................................................................... 7
Zell v. American Seating co............................................................................................................ 7
Hawrish v. BMO.............................................................................................................................. 7
Bauer v. BMO.................................................................................................................................. 7
J. Evans & Son v. Merzario.............................................................................................................. 7
Gallen v. Allstate Grain co.............................................................................................................. 7

Classification of Terms.......................................................................................................... 8
Hong Kong Fir v. Kawasaki.............................................................................................................. 8
Classification Scheme..................................................................................................................... 8
Krawchuk v. Ulychova..................................................................................................................... 8
968703 Ontario v. Vernon............................................................................................................... 8
Condition........................................................................................................................................ 9
Wickman Machine Toold Sales LTD. v. L. Schuler A.G......................................................................9
Ontario Sale of Goods Act............................................................................................................... 9

Discharge by performance.................................................................................9
Discharge by Performance.................................................................................................. 10
Fairbanks Soap Co. v. Sheppard.................................................................................................... 10
Markland Associates v. Lohnes..................................................................................................... 10
Sumpter v. Hedges....................................................................................................................... 10
Deposits and Part Payments......................................................................................................... 10
Howe v. Smith.............................................................................................................................. 10
Stevenson v. Colonial Homes....................................................................................................... 10

8.0 Standard Form Contracts....................................................................10

Standard Form Contracts.................................................................................10


Imposition of terms into a K............................................................................................... 11
Standard Form Contracts Exclusion Clauses....................................................................11
Machtinger v. HOJ Industries Ltd................................................................................................... 11
Rules of Construction................................................................................................................... 11
Scott v. Wawanesa Mutual Insurance........................................................................................... 11
Control of Exclusion Clauses......................................................................................................... 11
Parker/Gabell v. South Eastern Railway........................................................................................ 12
Thornton v. Shoe Lane Parking Ltd............................................................................................... 12
Barnes v. Steamship..................................................................................................................... 12

Standard Form Contracts Unsigned v. Signed Documents...............................................12


Interfoto Picture Library v. Stiletto Visual Programmes.................................................................12
McCutcheon v. David MacBrayne................................................................................................. 12
Doctrine of notice Unsigned documents....................................................................................12
Tilden Rent-a-Car co. v. Clendenning............................................................................................ 12
Doctrine of Notice Signed Documents.......................................................................................12

Fundamental Breach........................................................................................................... 13
General........................................................................................................................................ 13
Karsales (Harrow) Ltd. v. Wallis..................................................................................................... 13
Suisse Atlantique v. Rotterdamsche............................................................................................. 13
Photo Production Ltd v. Securior Transport Ltd.............................................................................13
Hunter Engineering v. Syncrude Canada Ltd................................................................................13
Fraser Jewellers Ltd. Dominion Electric Protection Co...................................................................13
Soloway v. Davis Moving and Storage Inc.....................................................................................13
Plas-Tex Canada v. Dow................................................................................................................ 13
Tercon v. BC.................................................................................................................................. 13

9.0 Mistake............................................................................................. 13
Types of Mistake..............................................................................................13
Mutual Mistake................................................................................................................... 14

General........................................................................................................................................ 14
Stainman Steel v. Commercial...................................................................................................... 14
Smith v. Hughes........................................................................................................................... 14

Tendering Cases on Mistake............................................................................................... 15


Imperial Glass Ltd. v. Consolidated Supplies Ltd...........................................................................15
Belle River Community Arena Ltd v. WJC Kaufmann.....................................................................15
R v. Ron Engineering.................................................................................................................... 15
Calgary v. Northern Construction................................................................................................. 15

Common Mistake in Assumption......................................................................................... 15


Bell v. Lever Brothers................................................................................................................... 15
McRae v. Commonwealth Disposals.............................................................................................. 15

Equitable Mistake............................................................................................................... 16
Solle v. Butcher............................................................................................................................ 16
Great Peace Shipping Ltd. v. Tsavliris........................................................................................... 16
Miller Paving v. B Gottardo Construction.......................................................................................16
Associated Japanese Bank v. Credit do Nord SA...........................................................................16
Lee v. 1435375 Ontario Ltd.......................................................................................................... 16

Mistake in Identity.............................................................................................................. 17
Shogun Finance Ltd. v. Hudson..................................................................................................... 17

Mistakenly Signed Documents: Non Est Factum.................................................................17


General........................................................................................................................................ 17
Saunders v. Anglia Building Society.............................................................................................. 17
Marvco Color Research Co. v. Harris............................................................................................. 17

Rectification........................................................................................................................ 18
General........................................................................................................................................ 18
Bercovic v. Palmer........................................................................................................................ 18
Marvco Color Research Co. v. Harris............................................................................................. 18
Sylvan Lake Golf and Tennis Club v. Performance Industries........................................................18
McLean v. McLean........................................................................................................................ 18

10.0 Frustration....................................................................................... 19
Generally:.......................................................................................................19
Frustration.......................................................................................................................... 19
Taylor v. Caldwell.......................................................................................................................... 19
Merchant marine Ltd. v. Canadian Trading Co..............................................................................19
Review of K................................................................................................................................... 19
Capital Quality Homes Ltd. v. Colwyn Construction......................................................................20
Victoria Wood Development Corp. v. Ondrey................................................................................20
KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd.......................................................................20
Kesmat Investment Inc. v. Industrial Machinery Co. & Canadian Indemnity Co............................20
Force Majeure Clauses.................................................................................................................. 20

Self induced Frustration...................................................................................................... 20


Maritime national Fish Ltd. v. Ocean Trawlers Ltd.........................................................................20
Atlantic Paper Stock Ltd. v. St. Anne Nackawick...........................................................................20
Frustrated Contracts Act............................................................................................................... 20

11.0 Protection of Weaker Parties - Duress, Undue Influence and


Unconscionability.................................................................................... 21

Generally........................................................................................................21
Protection of Weaker Parties - Duress................................................................................. 21
Greater Fredericton Airport Authority v. Nav Can.........................................................................21
General Framework for Analysis of Economic Duress...................................................................21

Undue Influence................................................................................................................. 21
Geffen v. Goodman Estate............................................................................................................ 22
Royal Bank of Scotland v. Etridge................................................................................................. 22
Canada Undue Influence.............................................................................................................. 22

Unconscionability: The traditional doctrine.........................................................................23


Morrision v. Coast Finance............................................................................................................ 23
Marshall v. Canadian Permanent Trust.......................................................................................... 23

Unconscionability: The Wider View..................................................................................... 23


Lloyds Bank v. Bundy................................................................................................................... 23
Harry v. Kreutziger........................................................................................................................ 24

Statutory Relief in Ontario............................................................................................................ 24


Capacity as a minor...................................................................................................................... 24

Unconscionability: Mental Incapacity.................................................................................. 24


General........................................................................................................................................ 24
Archer v. Cutter............................................................................................................................ 24
Hart v. OConnor........................................................................................................................... 24

12.0 Illegality and Public Policy................................................................25


General...........................................................................................................25
Types of Illegality................................................................................................................ 25
Chesire & Fifoot List...................................................................................................................... 25

Illegality - Contract............................................................................................................. 26
KRG Insurance Brokers (Western) v. Shafron................................................................................26

Illegality - Statute............................................................................................................... 27
Generally...................................................................................................................................... 27
Still v. Minister of National Revenue............................................................................................. 27
Public Interest............................................................................................................................... 27

13.0 Remedies The Interests Protected...................................................27

General............................................................................................................................... 27
Remedies Damages......................................................................................................... 28
Damages............................................................................................................................ 28
McRae v. Commonwealth Disposals.............................................................................................. 28
Bowlay Logging Ltd. v. Domtar..................................................................................................... 29
Sunshine Vacation Villas v. The Bay.............................................................................................. 29
AG v. Blake................................................................................................................................... 29

Damages - Loss of Chance................................................................................................ 29


Chaplin v. Hicks............................................................................................................................ 29

Damages - Cost of Completion v. Value in Land/Difference in Value (expectation)...........29


Problems...................................................................................................................................... 29
Groves v. John Wunder Co............................................................................................................ 29
Nu-West Homes v. Thunderbird Petro........................................................................................... 29

Damages - Loss of Enjoyment........................................................................................... 30


Jarvis v. Swans Tours..................................................................................................................... 30

Damages - Aggravated v. Punitive...................................................................................... 30


Vorvis v. Insurance Corp. of BC..................................................................................................... 30
Wallace v. United Grain Growers.................................................................................................. 30
Whiten v. Pilot Insurance co.......................................................................................................... 30

Damages - Certainty, Causation and Remoteness.............................................................30


General........................................................................................................................................ 30
Hodgkinson v. Simms................................................................................................................... 31
Hadley v. Baxendale..................................................................................................................... 31

LEGEND
Representations and terms, classification and consequences
Standard Form Contracts
Mistake
Frustration
Protection of Weaker Parties
Illegality and Public Policy
Remedies

Negligent Misrepresentations + Concurrent Liability

Liability in contract and tort


Where carless misrepresentation induces an agreement, it might be argued that the making of such a
misrepresentation is, in accordance with a breach of a term of the agreement.
Causes of action:
o Tort negligent and fraudulent misrepresentation; deceit

o Contract as a term of the K


o Equity innocent and fraudulent misrepresentation
Negligent Misrepresentations
Hedley Byrne v.
Negligent misrepresentation
Heller
A duty to exercise reasonable care will be found where an inquirer is trysting the
representor to exercise a reasonable degree of care and where the representor knew or
ought to have known that the inquirer was relying upon him/her
Claim for negligent misrepresentation has to involve a special relationship and the
reliance on misrepresentation caused economic loss
o Special relationship:
1) the person is in the business of giving advice
2) where the person has special skill or knowledge and knows the inquirer is
relying on him/her to furnish advice
3) where parties are engaged in pre-contractual negotiations or have some
other business relationship
Hercules
Duty of care in tort in Canada arises when the following two things are met:
Management v. Ernst
o 1) there is a sufficient relationship of proximity or neighborhood such that in the
& Young
contemplation of the wrongdoer, carelessness on his party may cause damage to
the plaintiff. Two factors for special relationship.
1) Reasonable foreseeability that the plaintiff would rely on
representation
2) Reliance by the plaintiff (in the circumstances) be reasonable
For reasonable reliance, look at (not exhaustive):
o 1) Does defendant have direct or indirect financial interest in
transaction?
o 2) Is defendant professional? Skill? Judgment? Knowledge?
o 3) Advice or information given in the course of the defendants
business?
o 4) Defendant gave deliberate and not socially arising advice
o 5) Advice was given in response to specific enquiry or request
o 2) are there any considerations [policy] to negate the former?
Court is mostly concerned with avoiding exposing the defendant to
indeterminate liability to an indeterminate class of individuals.

Sodd Corp. v. N.
Tessis

Tessis: in K said no warranty or condition as to quality or condition of stock (which was


actually way less than advertised)
Pre-contractual misrepresentation MAY give rise to liability in tort (Hedley Byrne) and
may give rise to damages in K a a collateral warranty special relationship must exist
(Hercules test) Representation as to value of stock was a warranty.
Since Tessis was accountant to Sodd, there was a special relationship; had professional
responsibility and therefore a duty of care was owed.
Valuation was negligent misrepresentation, intended to be acted upon.
Exception clause DID NOT include negligent misrepresentation
Concurrent liability in K and tort for pre-contractual misrepresentation
BG Checo Intl v.
BG bid on K, BC said would have land cleared, wasnt BG incurred additional expenses
BC Hydro
BG sued in K and in Tort successful
A plaintiff is always allowed to sue in both tort and contract, if they both apply, so long
as the relevant duty necessary for the tort action is not explicitly negated in the contract.
Negligent Misrepresentation Disclaimer Clause (Merger Clause)
A representor may exclude liability for negligent statements by issuing a disclaimer at the time of giving advice
(appropriately worded). The effect of the disclaimer minimizes the element of reliance by the representee. May
not always eliminate liability but will show that the representee could not have reasonably relied on the advice
and that the representor did not intent to hold themselves out as giving advice.
Concurrent Liability
Where the contract specifies a higher duty than in tort, the plaintiff can pursue either action
Where the contract specifies a lower duty than tort, plaintiff will be required to live by the contract specifications
(e.g. exclusion clause negating tort). Not always successful.
If tort and contract are co-extensive, the plaintiff is at liberty to choose which action is most beneficial.

Parol Evidence and Classification of terms

Strict Hawrish:
o Parol evidence cannot be admitted that contradicts varies adds to or subtracts from the terms of the
written agreement.
o Restricts evidence
Modern Gallen
o Places emphasis on the need for parties to demonstrate that the parties intended to reduce their
agreement entirely into writing as a precondition to the application of the rule.
o Parties could show evidence demonstrating that a written agreement that appears complete on its face
is actually merely a component of an agreement that appears complete on its face but is actually only a
component of an agreement that is intended by the parties to be partly oral partly writing.
Rationale
o 1) Suspicion of perjury BUT if ambiguity, need rectification or business efficacy, can use parol
evidence
o 2) Finality between parties commercial certainty, supports preference give to written K
How do we determine whether the written contract is the complete contract? McLauchlan says we admit
parol evidence to determine the issue. Look at:
o (1) a written contract which is to contain all the terms of their agreement;
o (2) parties have concluded a valid and binding contract, and;
o (3) parol evidence must have the effect of varying, adding to, or contradicting express terms of the
written agreement.
ANY evidence is admissible to establish all three admitting parole evidence to see if a
written contract is complete.

Exception: Wedderburn: Where the written contract looks as if it is the whole contract then the parties will
be bound by it. When it does not look as if it is the whole contract then parol evidence is admissible to gather
the complete contract. include this in a contract, and you will for the most part be insulated from liability.
Entire Agreement Clause: This agreement constitutes the entire and only agreement between the parties
hereto with respect to the subject matter thereof, superseding any and all prior negotiations, understandings
and agreements, written or oral can be subject to equitable remedies.

Zell v. American
Seating co.

Hawrish v. BMO
Strict application

Bauer v. BMO
Strict application

J. Evans & Son v.


Merzario
More Generous
Gallen v. Allstate
Grain co.
More Generous

Parol Evidence
Frank C.J. a rule leaky cannot fairly be described as a stout container of legal
certainty
Many exceptions to parole evidence rule Interpret the K; Remove ambiguities; Imply
terms for business efficacy; show need for rectification
Cannot have an inconsistent oral agreement, contradicting the express written terms of
the agreement.
If want to enforce oral agreement, must have clear intent by parties to have an
agreement, otherwise will be bound by written contract.
Oral term CANNOT be enforced where it is inconsistent with a written term of the
contract
Must be sufficient evidence of an oral misrepresentation which induced a party to enter
into the contract [very similar to Hawrish, in exam can use both to reflect each other]
Hybrid K: partially writing, partially oral, partially conduct
In hybrid Ks courts will look at all the evidence to gather the parties intentions as to
the terms of the Ks and parol evidence rules do not apply
Court adopts harmonious construction of the contract approach
Must determine intent of parties to see if they intended to exclude the express warranty,
if they did parole evidence rule does not apply.
o 1. If oral term contradicts the contract, PE rule applies and it should not be permitted
o 2. PE rule is not a doctrine that should be used in situations where theres a measure
of unfairness
o 3. Even in Hawrish and Bauer, there was indication where if there was more
evidence available, there would consider the non-application of the rule
In Bauer, the only evidence he had was his own but he had nothing else
supporting: in the judgment, you can see the court saying had there been more
evidence, they could have
o 4. If the contract is induced by an oral misrepresentation that is inconsistent with the
written contract, the written contract cannot stand
o 5. If oral term contradicts the written term, the PE rule applies; if the oral term adds,
it should be allowed because it doesnt specifically contradict
o 6. Presumption is still rebuttable;
o 7. Presumption is much more rigorous when it is a negotiated contract rather than a
standard form contract
o 8. The more specific an oral statement is, the more likely the PE rule should not
apply. Specific terms prevail over general terms.

Hong Kong Fir v.


Kawasaki

Classification of Terms
Term, Condition, Warranty or Innominate term, if innominate, go to HK test.
If K is silent on a term (innominate), the court must determine the type of breach by
applying the substantial deprivation test:
o Does the occurrence of the event deprive the party who has further undertakings still
to perform, of substantially the whole benefit which it was the intention of the parties
as expressed in the contract that s/he should obtain as the consideration for
performing those undertakings?
o Essentially: look at the events that occurred as a result of the breach and decide if
these events deprived the party attempting to repudiate of the benefits that it
expected to receive from the K.
the breach must lead to the party not being able to obtain all or a substantial
proportion of the benefits that they intended to receive by entering into the
contract - if they do, then repudiation is in order, else only damages can be
awarded.
If one party is at fault for burning the non-performance, then breach of K applies
If the parties are not at fault, then the law of frustration will apply

Classification Scheme
Breach of conditions
o Innocent party gets to repudiate (stop preforming) relieves innocent party of preforming their future
obligations and allows them to sue immediately for damages.
o Question to ask: will deprive the party substantially the whole benefit it intended to get?
Breach of Warranties
o Wont deprive innocent party of substantially the whole of the benefit they are to receive from the contract
o Does not relieve innocent party from performance obligations, although can sue for damages while continuing
to preform.
Innominate or intermediate terms
o Look at events created by the breach, and whether the event deprived the party not at fault substantially the
whole benefit, whit it was intended? Repudiation (Condition) or damages and performance (Warrenty)
o Apply substantial deprivation test to determine whether to treat as discharged for breach, or only right to seek
damages Hong Kong Fir Test
Steps to classify Terms and determining breach:
o 1. Construe the K to determine what kind of breach (condition or warranty)
o 2. Add into such interpretation the commercial setting or context common business practices etc.
o 3. If the term cannot be identified as a condition or a warranty, apply the HK Fir test and look at the
consequences of the breach (did the breach result in the fact that the innocent third party was deprived of
substantially the whole benefit of the contract when the parties first made the contract)
Look at: 1) the quantifiviety of the breach (time, how much was left, money left etc); 2) seriousness of
the breach on the innocent party; 3) Will this breach be repeated?

Krawchuk v.
Ulychova
968703 Ontario v.
Vernon
Modern Canadian
Approach

HK Fir test adopted in Canada


Is plaintiff substantially deprived of the benefit of having the K enforced?
HK Fir can be used after the contract has ended/not ongoing.
Enhanced Hong Kong Test. Now look at substantial deprivation + Below.
o The ratio of the partys obligation not performed to the obligation as a whole;
o The seriousness of the breach to the innocent party;
o The likelihood of repetition of the breach;
o The seriousness of the consequences of breach;
o The relationship of the part of the obligation performed to the whole obligation

Condition
Once a beach of condition happens, two options:
o 1) can disaffirm, and accept repudiation and damages. Disaffirmation must be communicated. Brings contract
to an end.
o 2) can affirm, and continue performance. Once the contract is up, they can sue for damages
o Presumption is affirmation. Acquiesce affirms the contract. If dont continue and disaffirm they will be in
breach.
Wickman Machine
Just because K says condition doesnt mean clause is actually a condition. Need to
Toold Sales LTD. v.
construe within the context of the intention of the parties.
L. Schuler A.G
If the condition would lead to an unreasonable result, then the condition may not be
binding e.g. visiting 6 firms a week, in large geographic area.
Ontario Sale of Goods Act
Applies to the sale of goods between parties & consumers
S.13 Implied Conditions and Warranties
o In a contract of sale, unless the circumstances of the contract are such to show a different intention there is:
(a) an implied condition on the part of the seller that in the case of a sale the seller has a right to sell the
goods, and that in the case of an agreement to sell the seller will have a right to sell the goods at the time
when the property is to pass
(b) an implied warren that the buyer will have and enjoy quiet possession of the goods
(c) and an implied warranty that the goods will be free from any charge of encumbrance in favor of any
third party not declared or known to the buyer before or at the time when the contract is made.
S.15 Implied conditions as to quality or fitness
o Subject to this Act and any statute in that behalf, there is no implied warranty or condition as to the quality or
fitness for any particular purpose of goods supplied under a contract of sale, except as follows:
1. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for
which the goods are required so as to show that the buyer relies on the sellers skill or judgment, and the
goods are of a description that it is in the course of the sellers business to supply (whether the seller is
the manufacturer or not), there is an implied condition that the goods will be reasonably fit for such
purpose, but in the case of a contract for the sale of a specified article under its patent or other trade
name there is no implied condition as to its fitness for any particular purpose.
2. Where goods are bought by description from a seller who deals in goods of that description (whether
the seller is the manufacturer or not), there is an implied condition that the goods will be of
merchantable quality, but if the buyer has examined the goods, there is no implied condition as regards
defects that such examination ought to have revealed.
3. An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by
the usage of trade.
4. An express warranty or condition does not negative a warranty or condition implied by this Act unless
inconsistent therewith.

Discharge by performance

Has the K been satisfactorily performed, that you can say all of the parties obligations have been discharged

Go through Fairbanks/Markland 1st then we move to Sumpter.


Classic interpretation
o Cutter v. Powell: If agreement is for an entire performance as condition precedent to payment,
breaching party will get NO compensation for partial or defective work performed.
Modified/Nuanced approaches
o 1) is the K divisible?
o 2) was it substantially performed?
o 3) restitution/unjust enrichment (subject to Sumpters v. Hedges)

Discharge by Performance
Fairbanks Soap Co. Where K has been substantially performed, payment for work is done, is due, even if
v. Sheppard
there are defects in the performance, the non-breaching party is not-released from
obligations to pay.
substantial performance is determined on a case-by-case basis
Non substantial performance will allow one to get out/non-payment of a lump sum
contract
Sabotaged and not functional machine. Distinguish this with Markland and vice-versa.
Markland
Where substantial performance is done, recovery can be obtained for work done, less
Associates v. Lohnes
the cost for fixing the deficiencies/remaining work.
Argue this first THEN go to unjust enrichment (quantum meriut)
BUT if breach goes to root of K, then the innocent party can treat the K as discharged
Look of contract:
o 1. Abandoned and left unfinished
o 2. No benefit
o 3. Not what was contracted for, entirely different from the contracted grounds
Sumpter v. Hedges
If K cannot be enforced, can claim Quantum Meriut (services rendered) OR quantum
valebat (for good supplied) unjust enrichment.
For it to succeed, other party has to voluntarily accept the goods rendered. E.g. a quasicontract. Court imposes on basis of what has been done.
If abandon contract, quantum damages can only be awarded where the circumstances
give the other party an option to take or not take the benefit of the work done, thus
creating an inference of a new contract. E.g. building foundation of house, left, people
can still build house on foundation. Can sue for Meriut.
THIS is argued 2ndary to Markland. This is a defense (e.g. should the court find that the
contract was not substantially performed, this will step in and say hey no Quantum).
When contract cant be enforced, and where relationship between parties was
contractually based on a contract not gratitutious (gift)
Deposits and Part Payments
Deposit: an amount of money to be forfeited on breach of the obligations secured
Part Payment: an amount of money paid toward full sum
Howe v. Smith
Pre-payments phrased as deposits are kept by seller who accepts the deposit, if buyer
defaults
In determining if deposit or part payment, look to what parties intended. i.e. did they
know that the deposit would be kept in non-performance?
Stevenson v.
Deposit or part payment courts will look to:
Colonial Homes
o If the payment is not expressed as a deposit it will not be treated as one
o Must be clear and specific language saying deposit
o If standard form K, the courts will construe against the drafter, if terms are
ambiguous will find in favor of part payment (contra preferendum)

8.0 Standard Form Contracts


Standard Form Contracts

Generally:
Sources of interpretation
o The K itself what meaning have parties ascribed to a particular word; is the K intentionally ambiguous
o The parties themselves
o Surrounding circumstances what happened during negotiations
o Custom commercial context (what industry & what are norms); what did the parties naturally expect e.g.
concert venue, expect that venue isnt responsible for everything?
o Community standards conscionability or public policy standards, what is the community and what are
their standards

Usually drafted by one party e.g. ticket to venue, parking ticket

Terms are usually not negotiated. Issue is did you agree to the terms? Harsher the clause, more scrutiny it will
attract from courts
Imposition of terms into a K

Terms implied as a matter of custom or usage


o Presumed intentions of the parties are determined

Terms implied by fact


o Implied to give business efficacy
o Presumed intentions of the parties are determined

Terms implied by law


o Terms implied as legal incident of a particular kind or class of K
o The presumed intentions of the parties are not relevant
Machtinger v. HOJ
Industries Ltd.

Standard Form Contracts Exclusion Clauses


Some terms are implied into standard form K, even if there is an exclusion clause
Courts look to see if the term is required to the fair functioning of the agreement
McLahlin identifies three types of implied terms:
o Terms implied by fact (intention required. Had parties put their mind to these issues
would they have agreed to this term?)
o Terms implied by law (no intention required e.g. Employment standards/common
law notice) applied in this case
o Terms implied by custom and usage
Test for implying a term: implication of term is a matter of necessity. Look to the
inherent nature of the contract and the relationship it establishes.

Rules of Construction
Look at neutral ordinary meaning of words;
o If there is a special meaning attached to a term, the courts require definitions. If no definition and dispute
arises, the courts will look at the nature and ordinary meaning of the words.
Typed/handwritten terms have more weight than printed form where there is a conflict of ambiguity
Contra Proferentem construed against the party who drafted the contract or clause. Can contract out of this
(still subject to equitable remedies tho)
Harmonious construction interpret within context of the contract
Ejusdem Generis general terms should be viewed in light of the specific terms/categories before it

Scott v. Wawanesa
Mutual Insurance

Disclaimer clauses are strictly construed against the interest of the party who drafted it
(Contra Proferentem). Any ambiguity will be construed against the drafter.
When the wording of a contract is unambiguous however, the court should not give it a
meaning different than that which is expressed, unless it is unreasonable or has an effect
contrary to the intention of the parties.
Control of Exclusion Clauses
Three Mechanisms of Control
o Interpretation a strict construction will be given to the exclusion clause. Needs to be absolutely clear so
there is no ambiguity what youre contracting out of (Contra Prefrendum applies)
o Doctrine of notice has notice of the exclusion clause been given to the party to be bound?
o Unconscionability reasonableness
Parker/Gabell v.
Individuals only bound to the terms that one has been given reasonable notice of
South Eastern
Drafter must give notice to person signing or the term cannot be depended on
Railway
However, a person is bound by conditions of the contract if s/he has actual notice of
Thornton v. Shoe Ticket printing machine no chance for changing the terms (post-formation K)
Lane Parking Ltd. Exclusion clause is ineffective unless it is brought to the partys attention before the K is
concluded. Must be done in a reasonable way.
Person relying on onerous clause must take steps to make known the clause to the other
party
Barnes v.
SCC interpreted notice to individual with custom of industry. Boat industry, had to be
Steamship
aware of type of agreement (ticket) and dangers that were inherent (falling down a hatch).
There was notice (on the wall) as well.
Standard Form Contracts Unsigned v. Signed Documents
Interfoto Picture
If a condition in a set of printed conditions (that was not signed) is particularly onerous,
Library v. Stiletto
or unusual the party seeking to enforce it must show that the particular condition was
Visual Programmes
fairly brought to the attention of the other party. [Unsigned document notice]
McCutcheon v. David Guy takes ferry every day w/ same ticket. Ferry breaks down. P Sues.
MacBrayne
Defendant argues custom and usage incorporation into implied K
Where contracts are made in circumstances in which there is no scope for free
negotiation, the terms must be free clear and reasonable, and settled independently as
such
If 2 parties have made a series of similar contracts, each containing certain conditions,
and then they make another contract without expressly referring to those conditions, it
may be that those conditions ought to be incorporated if there is evidence to prove a
constituent or constant course of dealings
Doctrine of notice Unsigned documents
Party will be bound by term if
o They have actual knowledge; actual knowledge of the existence of the clause (regardless if read the clause)
Reasonable Notice
o Where a party is aware that there is writing on the ticket/receipt, but did not know or believe that the writing
contained conditions applicable to the contract, the party is nevertheless bound by those terms if reasonable
notice was given that the writing contained conditions
o No due diligence on party to find out whether the contract contained conditions. The obligations lies on the
party seeking to enforce the conditions that reasonable notice was given.

Tilden Rent-a-Car co.


v. Clendenning

Signature not necessarily binding not determinative


If a condition in a set of printed conditions (that was not signed) is particularly onerous,
or unusual the party seeking to enforce it must show that the particular condition was
fairly brought to the attention of the other party.
A signature to a contract may not truly represent assent to a disclaimer clause where the
other party knows that the document has not been assented to; and especially when
conditions contained in it are onerous and unusual and have not been brought to the
attention of the signatory
Doctrine of Notice Signed Documents
A signature carries with it assent regardless of the state of the knowledge of the party to be bound by the terms
(LEstrange v. Garucob)
Signature in consumer sphere is not consensus. If signing the K is hurried and informal, sufficiency of notice and
proportionality trump the notion that a signature is binding (Tilden Rent-A-Car)
Fundamental Breach
General
Term of contract that is so fundamental, without its performance there is in substance no K
Breach of term(s) so fundamental that it goes to the root of the K. Can be for multiple terms, and it is a breach
being so fundamental that it is considered that you have no contract. Deprived of what you have contracted for.
Has been replaced with unconscionability exclusion clause that absolve liability for fundamental breach not
operative. Dealt with by unconscionability e.g. clause was unconscionable.
Karsales (Harrow)
Party cannot rely on an exemption clause to protect it from breach of contract that goes
Ltd. v. Wallis
to the very root of the contract
Suisse Atlantique v. Must look to the contract as a whole and see if the exemption clause is reasonable before
Rotterdamsche
deciding not to apply it. Variation of Karsales.
Photo Production
Parties are free to contract with exclusion clauses, however in the event of a fundamental
Ltd v. Securior
breach, such exclusion clauses must be construed to determine if fundamental breach.
Transport Ltd.
Reasonableness of clause is a relevant consideration.
Hunter Engineering Wilson: fundamental breach should be available as a residual regulative mechanism
v. Syncrude Canada
where:
Ltd.
o 1) there is equal bargaining power; 2) substantially the whole benefit of the K is
deprived; 3) there is an unfair act by the other party; 4) the court wants to help by
enforcing the exclusion clause unreasonable
Dickson:
o Fundamental breach should be abandoned. Unconscionabliity doctrine should be used
instead.
Causes problems (See Fraser and Soloway for different interpretations)
Fraser Jewellers
Exclusion clause should be enforced according to its terms if enforcement is neither
Ltd. Dominion
unconscionable (Dickson) or unreasonable/unfair (Wilson)
Electric Protection
Co.
Soloway v. Davis
Relief should only be granted if the clause is seen in the light of the whole agreement is
Moving and Storage
unreasonable, unconscionable or unfair.
Inc
Plas-Tex Canada v.
Apply unconscionability approach (Dickson) only limit on enforcing a clause that is
Dow
otherwise enforceable = unconscinoabliity

Tercon v. BC

To see the effect of exclusion clause three step analysis.


o 1) The court must determine whether the exclusion clause applies in the
circumstances based on the wording must be clear and unambiguous
Must be reasonable. Was notice given? Are there signatures? What was the
context of the contract?
o 2) Is the clause unreasonable/unconscionable at the time of the contract was made?
as might arise from situations of unequal bargaining power between the
parties
o 3) If the clause is applicable and valid, will the court refuse to enforce because of an
overriding public policy? determine whether the valid clause ought not to be
enforced because of the existence of an overriding public policy consideration
Public policy will outweigh the freedom to contract

9.0 Mistake
Types of Mistake

TO USE MISTAKE. THE PARTIES MUST HAVE TALKED ABOUT IT. OR AT LEAST ASSUMED
DIFFERENT THINGS.
Mistake deals with area where there is a present existing error made between the factual circumstances
understood by the parties and the actual factual circumstances.
Last resort because courts favor freedom of contract and buyer beware
Question to ask: is there a mistake of fact or mistake of terms?
Three types of Mistake
o Common mistake as between the parties
E.g. party agrees to sell X and X no long exists
If fundamental to the K, then the K will not be enforceable
o Mutual mistake occurs when both parties are mistaken, but mistakes are different
o Unilateral Mistake Known to One Party One party is under a mistake, and other party is aware of
erroneous belief
Common Law Mistake
o Mistake of KIND not QUALITY
o Mistake to under-lying assumptions K is valid unless the mistake is common and fundamental
o Mistake in terms of the K EITHER 1) K is void for lack of consensus as idem; or 2) the contract is
enforced on an objective view of the K
o Mistake in identity of parties to the K
o Non-est Factum mistake in character of K

Mutual Mistake
General
Whether the mistake is operative to void the K will depend on whether the mistake is as to the underlying
assumptions or as to the terms of the K
Mistake of an assumption = wont work
Mistake of term = may work
Note: cannot snap up offer, made when you know the vendor is operating under a mistake, because you are not
ad idem.
Stainman Steel v.
Mistake as to terms (Steel v. Used steel)
Commercial
To establish a mutual mistake, the court will rely on an objective test based on the
words/conduct of the parties.
Mutual mistake to terms
o Mutual mistake as to the terms of a K will not void a K if on objective basis the court
can determine that the parties concluded a K on certain terms.
o Mutual mistake as to terms will void a K when there is no consensus ad idem
Void if the terms of the K are so unclear that no K can be said to have
concluded
o Common intention to buy used steel consensus ad idem was met. Was a assumption
it would be a particular grade, not mistake of condition
See also: Lindsey v. Heron
o If parties not ad idem regarding term, intent can be determining form the language
used and the conduct of the parties surrounding negotiations.
Smith v. Hughes
Without warranty (oral representation) about a good being sold in a K, there will be no
mutual mistake. Courts will not look to assumptions for basis of mistake.
Seller is under no obligation to correct any unwarranted assumptions of the party buying
the good (Caveat Emptor)
Unless a quality of an item is made a condition of the contract, in the absence of fraud, a
mistaken assumption by one party will not void the contract.
**A Unilateral mistake about an assumption is not operative and the mistaken party has
NO recourse.
Tendering Cases on Mistake
Imperial Glass Ltd. If K stipulates the term, and you agree to that, you cant try to void the K for mistake
v. Consolidated
because you were under assumption otherwise.
Supplies Ltd.
Belle River
Cannot accept tender when you know or ought to reasonably know that there is a
Community Arena
mistake before accepting the bid.
Ltd v. WJC
Courts will not allow parties to snap up K if there is knowledge to both parties of the
Kaufmann
mistake.
Snapping up a mistaken offer is invalid
R v. Ron
If no operative mistake when entering into unilateral K, then there will be a valid K
Engineering
Must look to see if the mistake was obvious on its face. If knew it was mistaken, the
may be operative, but if cant tell prima facie, the the contract is OK. (Might run into
problems under contract B, but for the purpose of the unilateral contract A, good to go)
Essentially this is a unilateral mistake not known to the other party. NOT snaping up.
Calgary v.
If no grossly disproportionate burden on tenderer in making mistake when submitting
Northern
tenderer, then the court will not interfere with the contract under equity.
Construction
This was a unilateral mistake in assumption (Smith v. Hughes)

Common Mistake in Assumption


Common mistake as to the quality of the contract. Not fundamental and not operative
(employment contract)
Mistake must be fundamental before it is operative and makes the contract void.
K only void under common law if:
o Mistake as to existence of subject matter (before or after the time of contracting)
o Mistake as to quality (but only if the subject matter is essentially different form
what they thought they were contracting for e.g. asked for beans and got lentils. But
if asked for beans, and got C grade beans without specifying grade, will not be a
mistake)
Common law = mistake to quality probably not voidable
Equity = mistake to quality might be voidable
McRae v.
Cannot rely on mutual mistake to void a contract if result of own negligence
Commonwealth
Party cannot rely on their own negligence to say there was a common or mutual
Disposals
mistake to get out of a K.
If risk has been allocated to one party with respect to the risk, the party who has the
risk will be in breach of contract if the mistake/risk comes into existence.
Equitable Mistake
If mistake that will not operate at common law, equity might come in to make the contract voidable. If voidable,
court can put terms to regulate the contract between the parties.
Allows a wider scope of remedies. If there is an injustice done to a party.
Allows mistake of quality
Solle v. Butcher
Courts will set aside K under equity when unconscionable for the other party to gain
legal advantage. Unconscionabiltiy?
o 1) where mistake by one party has been induced by a material representation of the
other (innocent misrepresentation allowing for recession under equity)
o 2) where one party knows the other is mistake about the terms of the offer or identity
of the person by whom it was made (unilateral mistake render K void at common
law)
o 3) the parties are under a common misapprehension either to the facts or rights,
where that misapprehension was fundamental and where the party seeking to set
aside was not at fault (equity fundamental is used differently)
Common mistake may be set aside if the facts provide the mistake was fundamental and
the party seeking it to be set aside was not at fault.
Great Peace
5 considerations for Equitable Mistake following elements must be present in
Shipping Ltd. v.
common mistake under equity [ contrast with Solle v. Butcher]
Tsavliris
o [1] There must be a common assumption as to the existence of a state of affairs at the
In line with Bell v.
time the contract was formed?
Lever Bros. Restricts
if its after the contract was formed, look to frustration
Solle.
o [2] there must be no warranty by either party that that state of affairs exists;
o [3] the non-existence of the state of affairs must not be attributable to the fault of
either party;
o [4] the non-existence of the state of affairs must render performance of the contract
impossible;
o [5] the state of affairs may be the existence, or a vital attribute, of the consideration
to be provided or circumstances which must subsist if performance of the contractual
adventure is to be possible
Bell v. Lever
Brothers

Miller Paving v. B
Gottardo
Construction

Associated Japanese
Bank v. Credit do
Nord SA
Lee v. 1435375
Ontario Ltd.

STEPS TO APPLY IN MISTAKE


On common mistake: Courts should first look to contract to see if the parties allocated
the risk regarding the common mistake. If there is an allocation of risk the breach is in
Caveat Emptor, and not under mistake.
Then applying Bell v. Lever Bros Miller must show that the subject matter of the
contract was something essentially different from what it was believed to be
Applying Great Peace Shipping Miller would have to show that the presumed state of
affairs was not his fault (element 3)
Applying the doctrine of equitable mistake Solle v. Butcher Miller must show
unfairness and that the mistake was not its fault
Since risk was allocated, not able to claim mistake
To determine if K is at common law or in equity, must determine whether the K (by
express or implied condition) provides who bears the risk of a mistake. Only if the K is
silent on mistake, can you invoke it.
Courts try to void K on common law; then if cant will look to equity
To determine if K is at common law or in equity, must determine whether the K (by
express or implied condition) provides who bears the risk of a mistake. Only if the K is
silent on mistake, can you invoke it.
Courts try to void K on common law; then if cant will look to equity

IN EXAM
LOOK FOR A COMMON MISTAKE START WITH BELL AND Lever BROS (COMMON MISTAKE
FUNDAMENTAL TO THE CONTRACT)
THEN USE GREAT PEACE 5 POINT TEST TO DETERMINE IF A COMMON MISTAKE EXISTS
IF COMMON MISTAKE EXISTS, AND NOT BROUGHT ABOUT BY FAULT OF THE PARTY AND GOES
TO THE ROOT OF THE CONTRACT, OR IT MAKES CONTRACT IMPOSSIBLE TO PERFORM (IN ANY
OF THESE SITUATIONS) THEN THE COMMMON MISTAKE IS OPERABLE AND IT VOIDS THE
CONTRACT
IF HOWEVER THE COMMON MISTAKE IS NOT OPERABLE AND IT DOES NOT OPERATE TO VOID
THE CONTRACT AND THE CONTRACT REMAINS ALIVE AND WELL, THEN YOU CAN APPLY
SOLLE. BECAUSE POTENTIALLY IN EQUITY THERE MAY BE A REMEDY
TO APPLY EQUITABLE MISTAKE, THERE HAS TO BE AN ISSUE OF FAIRNESS I.E. IT WOULD BE
UNFAIR TO HOLD THE CONTRACT ALIVE THEN YOU CAN SET ASIDE CONTRACT ON SPECIFIC
TERMS

Shogun Finance
Ltd. v. Hudson

Mistake in Identity
IF mistaken party intended only to communicate the offer to the person as
misrepresented by the rouge, there is no consensus ad idem, if the rogue is not that
person. The party who entered into this contract will plead unilateral mistake as to
identity to avoid the contract and will have to show that the identity of the person with
which they were dealing was important and that they had taken efforts to establish
identity.
HOWEVER, if the \ mistaken party simply wished to deal with the person in front of
them, there is not mistake. Unless there is fraud, there can be contract with 3rd party
representing the offer.
In face to face dealings, presumption that the offer was addressed and made to the
person who accepted it
That presumption can be rebutted it:
o 1) When making the offer, the offeror regards the identify of the offeree as vital;
o 2) if the offeror indented to deal with someone other than the offeree
If individual does not wish to enter into a K with the rogue, but with the represented
person, when the mistake is realized, the K is void
Mistakenly Signed Documents: Non Est Factum

General
Document is mistakenly signed
Issues with Character & Negligence
With Negligence the presence deprives the person of the right to claim non est factum as they cannot take
advantage of their own negligence. Essentially cant take advantage of own negligence
Saunders v. Anglia Modern position is to consider whether there is a fundamental difference, radical
Building Society
difference, or total difference in what the person believed he/she was signing and what
in fact he/she signed. If one of theses, person can plead non-est-factum
Person cannot claim non-est-factum due to own negligence.
Marvco Color
Non Est Factum (in Canada) can only be used when there is no negligence or
Research Co. v.
carelessness and there has been a mistake as to the nature of the documents.
Harris
A precondition to use Non Est Factum is that the document was signed and
fundamentally or radically different

Rectification
General
Equity e.g. if there is a mistake as to recording intentions, signing document, term of a contract etc. Equity will
step in to rectify the situation.
HOWEVER if no objective meaning can be construed from the word in a contract, the contract will be void (1st
semester) and rectification cannot step in.
Oral terms differ from writing exception to the parole evidence rule
Rectification deals with parties that are ad idem, with respect to intentions (common intention to agree) but the
document is inaccurate and does not express the agreement accurate
Allows court to change written document to what the parties orally agree
Equitable remedy that seeks to correct documents so that they are accorded with the agreed understanding of
the parties. Applies to all documents not just K.
Bercovic v. Palmer The court has to be satisfied beyond a fair and reasonable doubt that the parties shared a
common intention up to the time of execution of the contract
The court will consider all evidence of the parties, parol or otherwise, including evidence
subsequent and after to the execution of the K.
Marvco Color
Negligence in not reading document bar individual from raising plea of non est factum in
Research Co. v.
circumstances it would otherwise be available?
Harris
Non Est Factum (in Canada) can only be used when there is not negligence or
carelessness and there has been a mistake as to the nature of the documents.
A precondition to use Non Est Factum is that the document was signed and
fundamentally or radically different
Sylvan Lake Golf and
Tennis Club v.
Performance
Industries

McLean v. McLean

Rectification is an equitable remedy; the purpose is to prevent a written document


from being used as an engine of fraud
4 preconditions for remedy of rectification
o 1) the plaintiff must show that existence and content of the inconsistent prior oral
agreement. Inconsistence between oral agreement and contract.
o 2) the plaintiff must show not only that the written document does not correspond
with the oral agreement, but that the defendant knew or ought to have known of the
mistake in reducing the oral terms to writing. And that it would be fraud or
equivalent to fraud to take advantage of the error in recording the prior oral
agreement. (the written document does not correspond to the oral agreement and
the defendant knew or ought to have known then mistake)
o 3) Fraud or equivalent to fraud refers to transactions falling short of deceit but
where the Court is of the opinion that it is unconscientious for a person to avail
himself of the advantage obtained. Fraud in the "wider sense" of a ground for
equitable relief "is so infinite in its varieties that the Courts have not attempted to
define it", but "all kinds of unfair dealing and unconscionable conduct in matters of
contract come within its purview.
o 4) All of the above must be established by convincing proof, i.e. proof that may
well fall short of the criminal standard but which goes beyond the sort of proof that
only reluctantly and with hesitation scrapes over the low end of civil more
probable than not standard
o 5) The failure of a plaintiff to exercise due diligence in that they have failed to read
the written document and to discover the error is not a bar to a suit of rectification,
although it may go to the exercise of discretion of this equitable remedy (failure to
read does not preclude rectification. But may influence the remedy give by court)
Modifies Sylvan lake from convincing proof to what a reasonable observer would
have taken the parties to have intended, in light of evidence and surrounding
documents/circumstances

10.0 Frustration
Generally:

Mistake deals with mistaken assumptions in the past, frustration is about mistaken assumption in the future.
Frustration deals issue where the future factual circumstances have departed in reality from what the parties
anticipated. NEED CHANGE IN CIRCUMSTNACES after the contract has been entered into
Frustration went through three phases of development:
o (1) Really strict notion of absolute contract Paradine v. Jane
o (2) More lenient; implied term theory Taylor v Caldwell
o (3) Objective standard reasonable person approach Current Law
Use the Davis decision to argue the proposition of law
Use Capital Quality to argue the foundation of the agreement has been destroyed
Use Victoria Wood to argue the foundation of the agreement has not been destroyed

Taylor v. Caldwell

Merchant marine
Ltd. v. Canadian
Trading Co.

Frustration
In the absence of any express or implied warranty that the thing will exist the contract is
subject to implied condition that the parties shall be excused when the performance
becomes impossible, from the thing being gone without the fault of either party
There is an implied term in contracts that the parties intended the contract to terminate
should the subject matter of the contract be destroyed, at no fault of either party.
The hall set fire, was not fault of either party, performance excused.

Test to determine if doctrine of frustration applies for impossibility of performance:


o Was the nature of the contract, in the circumstances in which was made, such that the
parties must have made their bargain on the footing that a particular thing or state of
affairs had to be in place at the time of performance.
o Would reasonable people, situated in the place of the parties, have agreed that the
promised contractual obligation would not need to be performed if the state of affairs
was not in existence at the time performance was scheduled? If so, such a term can be
implied.
o No such term should be implied where it is possible to hold that a reasonable person
could have contemplated the risk foresight negates doctrine of frustration
Generally: performance that is rendered more onerous by changing circumstances that
are foreseeable are not likely to ground a frustration defense.
Where it is not a foreseeable event, parties have not allocated risk NO CONTRACT

Review of K
Doctrine operates when unforeseen events arise after a K is concluded that frustrate the whole object of the K
Discharges the K by operation of law
Examples of impossibility of performance:
o Death/illness
o Destruction of subject matter
o Common venture no longer available
o Performance is now illegal due to changes in the law
Limitation: where express provisions in the K suggest a proper assessment of possible risks
Capital Quality
New legislation can fundamentally change the character of the K, therefor frustrating the
Homes Ltd. v.
purpose of the original K.
Colwyn
The very foundation of an agreement must be destroyed in order for the doctrine of
Construction
frustration to apply (e.g. new legislation)
Both parties discharged from duties, deposit was returned.
Victoria Wood
Distinguishes above new zoning/legislation that is foreseeable will not frustrate a contract
Development
Agreement was not conditional on land development, just for purchase of land
Corp. v. Ondrey
Developers should always be conscious of risk of new legislation/zoning
Purchaser could have allocated by risk via inclusion of condition regarding ability to
develop in light of new legislation
KBK No. 138
Ventures Ltd. v.
Canada Safeway
Ltd.

Kesmat Investment
Inc. v. Industrial
Machinery Co. &
Canadian Indemnity
Co.

The drastic interest was not foreseeable and not fault of either party
An intervening event and change of circumstances so fundamentally different from what
they recently negotiated strikes at the root of the contract and the contract will be void.
Argue with Capital Quality. Rezoning struck at the foundation of the agreement.
Impossibility of performance also encompasses impracticality of performance due to
extreme and unreasonable difficulty, expense, injury or loss
Not completely unforeseen e.g. environmental study new awareness on environmental
matters
Environmental impact study not SO unreasonable or enormous to render the K
impracticable
Cost of hardship will not frustrate a contract, however, where a contract is so
impracticable so as to be impossible to perform, the contact can be frustrated.

Force Majeure Clauses


Exemption clause in K for a class of events which are beyond control of the parties e.g. riot, act of god,
flood, war etc.
Can: suspend performance for specific time; vary K for a period of time; can lead to termination without
payment of damages.
Courts will ensure that not all risk is allocated on one party, due to unequal bargaining position. Tend to
construe the clauses strict, similar to exclusion clauses.

Self induced Frustration


Maritime national
If aware of legislative changes at the time of contracting, frustration will not apply
Fish Ltd. v. Ocean
If have the power to determine aspect, and choose wrong things and K doesnt work out,
Trawlers Ltd.
cant say frustrated
Atlantic Paper Stock Force Majeure Clauses will be applied, but still have to preform contractual duties, even
Ltd. v. St. Anne
if it will be at a loss. any available market meant any market, NOT just
Nackawick
profitable/advantageous
Frustrated Contracts Act
Provides full range of methods available to allocate loss between parties when K is frustrated

11.0 Protection of Weaker Parties - Duress, Undue Influence and Unconscionability


Generally

Concerns ways in which weaker parties can avoid a contract due to undue influence, unconscionability,
incapacity etc.
Weaker parties can be: intellectually, financially weaker, or as a result of a special relationship where a party
may have placed trust and confidence in the stronger party
Minors/mentally disabled presumed to be at a disadvantage when contracting, leading to void or voidable
contracts you
Protecting person against a bad party need to balance it with the principle of caveat emptor

Greater Fredericton
Airport Authority v.
Nav Can
Duress Authority

Protection of Weaker Parties - Duress


Variation to existing K, unsupported by fresh consideration may be enforceable if not
made under economic duress
Whether economic duress exists look at:
o 1) was there pressure amounting to compulsion of the will of the victim? (was
consent vitiated)
Was there a demand/threat? Pressure exerted?
o 2) was the pressure exerted illegitimate (look at the nature of the presume, and nature
of the demand. If lawful demand, you look at whether exerted pressure is legitimate)
Was this made under protest?
Was there a practical alternative?
o 3) whether the coerced party consented to the variation (see below)

General Framework for Analysis of Economic Duress


For successful plea, need 3 elements now
1) the promise was result of exercise of pressure (demand or threat)
2) coerced party had no practical alternative but to agree to the demand to vary the terms of the underlying
K
3) whether the coerced party consented to the variation
o look at: 1) whether the promise was supported by consideration; 2) whether the coerced party made
the promise under protest or without prejudice; 3) whether the coerced party took reasonable steps to
disaffirm the promise as soon as practical
Undue Influence
The key to undue influence is that it constitutes an unfair exploitation by one party of a relationship which gives
him/her ascendancy or influence over the other
Different with duress, because duress person being accused knows that they are exerting duress
Can arise in trustee relationship
o Examples: older people and their caretakers, children and adults, experts and non-experts, fiduciary
relationship, teacher student, doctor and patient, lawyer and client, pastor and member of the congregation,

Geffen v.
Goodman Estate

To establish undue influence. Test:


1. Whether the potential for domination adheres within the nature of the relationship
itself. Look at the relationship between the parties. Emphasis on whether one person is in
Undue Authority
the position to dominate the will of the other.
2. Nature of the transaction
o commercial transactions= need to show exactly how the defendant was unduly
benefited by the contract, or the other party was unduly disadvantaged. Manifest
disadvantage
o non commercial agreements= dont have to prove undue benefit or disadvantage.
Enough to establish presence of dominant relationship. (ie parent-children)
3. Once presumption of undue influence established, onus shifts to defendant to rebut.
Need to show the plaintiff entered into the transaction as a result of free and informed
thought.
o rebut can be: plaintiff receives independent advice from lawyer.
Royal Bank of
Burden of proving undue influence rests on the party who claims to have been wronged.
Scotland v.
Can show undue influence in 2 ways (prima facie):
Etridge
o 1) Relationship: proof that the complainant placed trust and confidence in the other
party in relationship to the management of the complainant financial affairs
o 2) Proof that the transaction is not readily explicable by the relationship (accounted
for/understood)
o Once established, burden shifts
Special Relationships: Where a special relationship exists, the complainant need not
establish the first factor above (trust/confidence)
Use Actual Where Presumption Fails: Where the presumption is inapplicable, the
claimant must prove the existence of a trust relationship and that the influenced partys
consent was procured by abuse of that relationship
Independent Advice does not itself show that subsequent completion of the transaction
was free from the exercise of undue influence
Banks are put on notice in every case where the relationship between the surety and
debtor is non-commercial, and must take reasonable steps to properly explain the risks the
surety runs.
Canada Undue Influence
Manifest disadvantage only operates in commercial contracts, and need not be shows in situations of gifts etc.
Class I Actual undue influence
o In this category the complainant must adduce actual evidence of undue influence that was used to procure the
impugned transaction. [ie. A bullying housekeeper on an elderly employer who had become dependent upon
the housekeeper]
o How do you deal with undue influence? Through facts. If factually it can be demonstrated
Class 2A Presumed undue influence by operation of law. Status relationships
o Solicitor client, Trustee beneficiary, Guardian ward,
Parent infant child.
o These categories are not closed
Class 2B Relational presumed undue influence
o A complainant must lead evidence of the de facto existence of a relationship under which s/he generally
reposed trust and confidence in the influencer.
o Husband Wife, Adult child elderly parent, Employer young inexperienced employee, Manager young
pop musician

Unconscionability: The traditional doctrine


Unequal bargaining power
Look at the behavior of the defendant and see if it was reasonable
Allows weaker party to put an end to the relationship/obligation
Caution by courts, because if there is a bad bargain, that is still properly made, dont want to disrupt. Cavet
Empotor
Two doctrines: Traditional (strict) e.g. Morrison & Modern (Wider) e.g. Bundy
Morrision v. Coast An unfair deal with unequal power between the parties gives rise to a presumption of
Finance
unconscionability; once this is raised the stronger party must rebut the presumption.
Requirements to find unconscionability
Leading case on
o 1) Was the bargain obtained by the stronger party substantially unfair?
traditional doctrine
Surrounding facts that make the transaction unconscionable? Contextual aspects
rather than the substance of the transaction itself.
o 2) A finding of inequality of bargaining position at the time the K has been entered
Cognitive deficiencies (infirm, mentally incapacitated, illiteracy, drunkenness,
emotional distress, inability to understand the language)
Marshall v.
Unconscionability will be found if:
Canadian
o 1. The individual was incapable of protecting his interests
Permanent Trust
o 2. There was an improvident (irresponsible) transaction
When testing for inequality, two criteria must be met:
o 1. the party must be unable to protect their interests - no need that the other party be
aware of this;
o 2. the transaction must be improvident - the onus is on the stronger party to
demonstrate that the offer was fair.
Equal footing depends, authority on both sides
Unconscionability: The Wider View
Lloyds Bank v.
Bank manager giving lean new of problem to Bundy sons business; bundy would have
Bundy
done anything for son.
Applies Morrison test: 1) is there an improvident bargain? 2) unequal bargaining power?
o Unequal bargaining power:
1) not dependent on proof of wrongdoing by defendant
2) not an issue over bearing another persons influence (undue influence),
just need to find grievous impairment of ability to assess own needs and
desires
3) Grossly inadequate consideration or unfair terms must be present
Denning 6 consideration for Unconscionability (dont need to meet all 6, but generally if
some/all then its unconscionable)
o The adequacy of the exchange
o Lack of independent advice
o Lack of bargaining position through some infirmity, age, illiteracy, or ignorance
o Presence of a special relationship - i.e. confidence
o Choice of alternatives available to the innocent party
o The means used in negotiations - i.e. high pressure sales techniques.
Law relieves a person from a contract who, without independent advice, enters a contract
that is very unfair or transfers a property for inadequate consideration which is grossly
inadequate when his bargaining power is grievously impaired by reason of his own
needs/desires/ignorance or affirmity couples with undue influences or pressures brought to
bear on him by or for the benefit of others.

Harry v.
Kreutziger

Court took into account community standards with the traditional 2 pillars (Morrison) for
unconsctionabiltiy
o Whether the transaction, seen as a whole, is sufficiently divergent from
community standards of commercial morality that it should be rescinded
Community standards: what is the community, what are the standards
When arguing for unconscionabiltiy, use Morrison & include this for community standards

Statutory Relief in Ontario


S.15 Consumer Protection Act
o It is an unfair practice to make an unconscionable representation
o s.15(2) outlines various factors.
(2) Without limiting the generality of what may be taken into account in determining whether a representation is
unconscionable, there may be taken into account that the person making the representation or the persons employer or
principal knows or ought to know, (a) that the consumer is not reasonably able to protect his or her interests because of
disability, ignorance, illiteracy, inability to understand the language of an agreement or similar factors; (b) that the price
grossly exceeds the price at which similar goods or services are readily available to like consumers; (c) that the consumer is
unable to receive a substantial benefit from the subject-matter of the representation; (d) that there is no reasonable probability
of payment of the obligation in full by the consumer; (e) that the consumer transaction is excessively one-sided in favour of
someone other than the consumer; (f) that the terms of the consumer transaction are so adverse to the consumer as to be
inequitable; (g) that a statement of opinion is misleading and the consumer is likely to rely on it to his or her detriment; or (h)
that the consumer is being subjected to undue pressure to enter into a consumer transaction.

o S.18 allows for recession where a person has engaged in an unfair process, as long as notice has
been provided within one year
Capacity as a minor
4 contracts that affect minors
1) Contracts of necessaries contracts made by persons who provide necessaries. Under the sales of goods
act, the infant is only liable to pay the reasonable costs of necessaries where they have been sold and
delivered.
2) Contracts of Service employment will be enforceable as long as it can be said of the contract that it is
for the infants benefit
3) voidable contracts
1) those valid unless repudiated
o (a) Land contracts
o (b) Share contracts
o (c) Partnership agreements
o (d) Marriage Settlements
In these contracts the infant can enforce the contract. During infancy, the infant cannot be sued
on the contract
2) Those invalid unless ratified deals with all other K. In these K, the infant can sue both before and after
ratification, however, the infant cannot be sued until ratification.
4) Void contracts incapable of ratification because so detrimental.

Unconscionability: Mental Incapacity


General
Question for courts is: should the law look after those laboring from a mental incapacity, which is not
apparent. How does this affect certainty of contracts?
Archer v.
Defendant does not require knowledge, merely that the condition existed at the time of K
Cutter
and was unfair to hold the person to that K due to illness
Hart v.
Mental illness must have been known or ought to have been known to the defendant will
OConnor
void a contract under unconscionabilty

12.0 Illegality and Public Policy


General

Types of Illegality
Problems may arise where the contract involves a breach of:
1) Statute
o
Courts inquire into the policy of a statute to see if its object can be achieved by imposing a penalty (fine)
rather than striking down the K.
o
Was the statute intended to interfere with the K or merely control its operation in more efficient or orderly
manner?

2) Public Policy
o
Hard to define

Chesire & Fifoot List


1.
A contract to commit a crime, a tort or a fraud on a third party.
a. This is obvious... but not all are this obvious

Transport case interest rate from various loans totaled more than 60%, which was more than the
Crim Code rate. It was found the parties had no intention to offend the CC, and it was unbeknownst to them
that this was offensive to the CC. Court developed tools for contract / clauses, dealing with public policy
interest (2 Types of Severance)
1) Notional several
a. When the court reads down the term in the clause. Aka they literally amend / massage / rejig the
understanding that stems from the clause itself or the contract
b. Ie in this case if total interest rate was 71%, they can read down to 60%, and therefore interest rate now
applies and is no longer offensive to the CC, and can be applied
2) Blue-line severance
a. Comes from terminology from an older case where the judge said you literally take a blue pen and strike
down
b. Done so AS LONG AS in so doing, you dont change the meaning of the clause or the contract in any
significant degree; as long as you are aligning with the original intentions of the party the words being
struck out are probably not so important words. Which would be very difficult considering these words
are offensive to statute
c. This would not work with the interest case, because if you strike it out, you have no more interest
2.
A contract that is sexually immoral.
a. After fam law act, it was considered immoral to cohabit if there was a contract dealing with cohabitation,
it was sexually immoral
3.
A contract prejudicial to the public safety.
a. Cant contract with an enemy of the state
b. Some of this is less obvious
4.
A contract prejudicial to (or ousts) the administration of justice.
a. Any contract that uses mediation
b. A form convenience clause (Rudder v Microsoft)
i. This was for efficiency. Thousands of people use MSFT, and you cant have MSFT going to every
jurisdiction. In these situations, the courts says its fine
c. However, in situations of bankruptcy, the creditors ask that the debtors dont oppose them in courtbut
this would be unfair so it is prejudicial to the administration of justice
d. So there are the very same public policy context; but court accepts it in some situations and not in others
(very interesting)
5.
A contract liability to corrupt public life.
a. Ie: Illonois tried to sell his office seat to the highest bidderthis would not be an enforceable contract
6.
A contract to defraud the revenue.
a. This is the worst kind to get into

b. Ie: trying to get out of a tax, income tax or whateverif youre liable to pay tax to the government for
$10K but do other things to avoid it, like selling after the tax.. this is fraudulent
7.
A contract to oust the jurisdiction of the court.
8.
A contract that tends to prejudice the status of marriage.
a. Ie. A contract that forces 2 people to get married.. this is not enforceable
9.
A contract in restraint of trade.
a. Presumption that these types of clauses are unenforceable
b. These clauses are found in non-solicitation / non-competition clausesmeant to restrain someone for
doing something in a specific region for a specific time
c. PP rationale here is that the court doesnt want anyone to be restricted in the way they make their
livelihood
Restraint of trade clauses are usually found in contracts such as:
sale of a business
i. on equal bargaining power, and usually a payment made for the concept of goodwill, so the vendor
has the ability to willingly sell it, but also list their price for it
ii. Courts will be more deferential to this; and prima facie.. because they know the vendor was
knowledgeable of what they were getting into
employment contracts
iii. there is an imbalance of power here. If you are first contracting for a job, obviously youre not gonna
put out of a big fight (ie if the employer says when you leave here, you cant work in this trade for
three years)
iv. for employees, they dont get paid for good will, just terminationthis is completely different
dynamic being protected in the employment contracts than from sale of business
v. Courts more likely to interfere if anything, because they know the employees probably didnt know
what they were getting into
exclusive dealing contracts
vi. ie professional athletes have agency contract
vii. Agency contract has exclusive tradecannot engage with other agents for x years

Kind of hybrid of both sale of business contract and employees contract in the way the courts deal with this,
because theyre on equal bargaining powers, but no payment for goodwill
10. Other public policies
a. Contracts dealing with sexuality
b. Contracts dealing with reproduction Assisted Human Reproduction Act + Sperm Donation

KRG Insurance
Brokers (Western)
v. Shafron

Illegality - Contract
To determine if a restrictive covenant is void or unenforceable, if must be clear and
unambiguous.
Two types of restraint of trade clauses
1) restraint attached to the sale of a business
2) restraint in associated with employment contracts (will attract more scrutiny)
Test:
o 1. Determine if the clause is contained in an employment agreement or sale of
business
o 2. Determine if the clause is clear and unambiguous
Can use notional/blue line severance to either read down, or strike out
Metro city of Vancouver? What is that, there is no such thing as metro
Vancouver. Greater Vancouver yes
o 3. If the clause is clear, determine if the clause is reasonable as between the parties
look at geographical and temporal qualifications: how big is the region? How
long will trade be restricted? Completely contextual.
o 4. Determine if the clause is reasonable with regard to the public interest
This is trade dependent. Difference with doctor and laborer
Doctors patients should be able to choose doctor, restrictive covenant will be
struck down. Cant deprive region of service.
Is this stifling a competitive market place? Thwarting open and competitive
market place.

Illegality - Statute
Generally
Arises when party seeks to enforce a K which perpetrates a wrong e.g. bribe, corruption, murder etc.
Arise from infringement of statute that governs the conduct e.g. employment law
General proposition person should not gain from wrongdoing
Still v. Minister of
Statutory illegality Traditional approach
National Revenue
o Contracts prohibited in formation
o Contracts that are prohibited from particular manner of performance
Modern Approach
o 2 step process:
1. Look at the policy objective of the legislation, is there anything explicit in the
governing statute that makes the conduct void?
Look to underlying legislative purpose of the prohibition, and how the
statute purpose is served by rendering the K unenforceable ab initio
2. Whether or not the parties are benefiting from their wrong
o Some circumstances require a remedy individual was under assumption that they
were allowed to work due to government error.
Public Interest
The issue of the public interest has several facets:
There is a public interest as between the parties themselves (for example, patients having the right to choose
their own doctor even though the doctor is restrained from treating the patient by operation of a restraint of
trade clause)
Thus this aspect deals with a more limited view of the public
Have to consider the public because they had nothing to do with the contract between parties if
youre enforcing a restrictive covenant clause, are you breaking the patient doctor relationship
A second public interest is the wider public interest in keeping an open and competitive market place
These aspects are examined in article by Trebilcock (cb761) in the context of the sale of medical and dental
practices.
The cases are all over the map as to how they are decided
Statutory Illegality
Conduct that has been contracted for is prohibited by statute, or is something peripheral to it manner of
performance is something prohibited by statute
All comes down to what the purpose behind the statute is
Illegality can arise where a party seeks to enforce a contract which perpetrates a wrong (ie. a bribe, or
corruption of an official, contract to murder)
Voided because conduct is prohibited by statute
Is life insurance invalid because it was brought about intentionally (murder)?
Conduct that may not necessarily contemplated by legislation but perhaps ought to have been.
Should it be enforceable?
Illegality can arise from infringement of a statute that purports to govern the same conduct contracted by the
parties statutory illegality

13.0 Remedies The Interests Protected


General

Have to show
o Liability and Damages to get remedies

Breach of K
o Non performance of a duty
o Repudiation (didnt start)
o Mis-performance

Each requires different remedy Damages (put person back in position had the breach not occurred),
injunction (amandavis - force or prohibitive - stop), specific performance (dont want money but job done),
declaratory order (declare this person is a shareholder, not covered by limitations act), restitution (back to precontractual stage)
Remedies Damages

General purpose of damages is to compensate innocent party to position had the breach not occurred

Based on the loss to the innocent party not on gain to defendant

Must prove liability and damages

Boundaries for damages:


o 1) Mitigation person has positive duty to mitigate their damages
o 2) Causation must be directly linked to the damages caused
o 3) Remoteness if you can reasonably foresee that if the breach occurred, the damages would have been
foreseen (Hadley v. Baxendale)

Expectation Interest:
o Damages are awarded to put innocent party into the position that the party would have been in had the
contract been performed
o This is the presumptive remedy
o AKA. What did the party expect to get out of the contract; and how did they compensated for that when the
contract was breached?

Reliance Interest:
o A plaintiff who is unable to prove the value of a promised performance can instead claim the expenses which
have been wasted or thrown away in reliance on the broken promise
o Aka. Damages awarded to compensate the person for what they spent on reliance of the contract in the first
place; NOT what they expected to get out of the contract

Restitution (Indemnity) Interest:


o Plaintiff seeks to recover benefits received by the defaulting party
o Aka. Restoring the parties to its pre-contractual interest

Emotional Distress
o Jarvis v. Swan Tours didnt have a good time and sued the company for not giving him what was
guaranteed. so he sued on the basis of emotional distress

Punitive damages dont compensate for any of theses, they are meant to punish the wrongdoer. Very high
threshold.

How to establish right to damages:


o Certainality; Causation; Remoteness

4 key aspects
o There is no compulsion to perform. The variety of remedies available to an innocent party for breach of
contract may be broadly classified as either compensatory (substitution) or coercive (specific). The
compensatory remedy, which provides the normal relief in action for breach of contract, is the action for
damages
o Compensation for loss suffered by the non-breaching party is provided in the form of money. The nonbreaching party may obtain a substitute with this money
o No distinction is made in awarding damages based on the manner of breach
o The goal for contractual remedies is compensation not punishment
Damages
McRae v.
Damages for opportunity cost.
Commonwealth
If cant mitigate damages, may still get damages.
Disposals
Unique case, because got damages for reliance on possible cost of salvaging the tanker.
Court gave damages on basis of going out of pocket to try and find the tanker
Court awarded expenses

Bowlay Logging
Ltd. v. Domtar

Sunshine
Vacation Villas v.
The Bay

Damages for losses incurred in reliance of a K should only put individual/company back to
spot, had the K been performed.
Bowlay lost money because of bad deal, not because of breach of K. In fact, without breach
of K, Bowlay would be in an even worse position. Therefore, no damages on basis of
expectation.
Where a contract has been breached by the defendant, the plaintiff can generally recover
expenses incurred in part performance of the contract. However, where the defendant proves
that the contract, if completed, would have resulted in a loss to the plaintiff in excess of the
expenditures, then the plaintiff cannot recover

When calculating damages, rival claims of waste expenses and loss of profits are alternative
claims
Cant get both reliance and expectancy damages. Appropriate in this case was reliance.
Loss of profit (if the bay had carried out its promise) expectancy
Loss of capital (no contract at all) reliance
AG v. Blake
Breach of K but difficult to determine remedy
If a breach of K happened, but no longer relevant, then will be harder to get damages
An account of profits will only be allowed in exceptional circumstances.
Damages - Loss of Chance
Chaplin v. Hicks
Just because damages may be difficult to calculate, will not stop court and does not relieve
the wrongdoer
If court can calculate loss of profits with some degree of certainty must be expectation
damages
Relied on McRae to award damages.
Damages - Cost of Completion v. Value in Land/Difference in Value (expectation)
Problems
What about the efficient breach? Concept of struggling with when it makes sense to breach K then to carry it out.
One party is going to worse off, one better off. How do you measure damages?
Cost of Completion: the cost required to substitute for performance, including any money that has to be handed
over to rectify any faults made by any party
Difference in Value: the market value of the performance minus the actual performance given. (what value would
have been)

Groves v. John
Wunder Co.

There is no fixed rule to decide how to award damages for cost of completion. Done on a
case by case basis.
with respect to land there is no fixed rule as to whether the difference in the value of the
land or the cost of remedying the defect will be taken as the measure of damages. It depends
on the circumstances
Example:
o Wants house using specific materials. Contractor finishes house and uses wrong material
o Difference between materials is just $20
o Do you pay damages? Or specific performance? Or difference in price? Depends on
circumstances
Nu-West Homes
Cost of rectification of deficiencies in building contracts is the general measure of damages
v. Thunderbird
(to give the P what was contracted for) unless such cost is grossly out of proportion to the
Petro
good obtained (that is, the cost of rectification is not reasonable)
Expectation
Expectation interest: money to complete the K + expense to rectify problems with the house
Damages
If the plaintiff is a victim to a breach and acts reasonably in taking alternative measures, he
can recover full cost of performance except when the cost of completion is large in
comparison to the defect.
Damages - Loss of Enjoyment
Jarvis v. Swans
Damages for mental distress are recoverable for breach of K
Tours
If the contracting party breaks his contract of enjoyment or entertainment, damages can be
given for the disappointment, distress, upset and frustration
This case: Denning treated the brochure as warranties
Note: for employment, you can make argument for emotional damages if cause mental
distress INDEPENDENT from the termination itself.
Damages - Aggravated v. Punitive
Aggravated: compensatory in nature and take into account intangible injuries (distress, humiliation etc)
Punitive: for the purpose of punishing the defendant. Not compensatory in nature. Also known as vindication/penal
Vorvis v.
Re: Aggravated Damages
Insurance Corp. of
o Compensatory in nature
BC
o Can be awarded for a breach of K where the act or acts complained of construe an
Employment
independent actionable wrong
Re: Punitive Damages
o Punish the Wrongdoer, OR independent actionable wrong
o Must be harsh, vindictive, reprehensible or malicious
General Employment K considerations
o 1. Each party can terminate the K
o 2. Employee is entitled to reasonable notice, or payment of salary benefits in lieu of
reasonable notice
o 3. Damages for mental distress can arise in K
o 4. Aggravated damages for mental distress can be awarded in rare circumstances to
compensate the plaintiff for intangible injuries such as mental distress, particularly
where it can be established that the conduct amounts to an independent actionable
wrong
o 5. Punitive damages are awarded in rare cases where there was independent actionable
wrong that was harsh, vindictive, malicious

Wallace v. United

Grain Growers
Employment
Whiten v. Pilot

Insurance co.
Where good faith is
owed

Discharge from employment must be egregious to be entitled to punitive and aggravated


damages if not, but still exceptionally wronged, court may award extended notice.
With insurance companies, they must accept claims in good faith, which they were not in
this case. Since they did not operate in good faith, court awards punitive damages to deter
this behavior in the future.
**Need contractual duty to act in good faith to get punitive damages like this. High
threshold. Higher duty of care = more likely will get punitive damages.
Damages - Certainty, Causation and Remoteness

General
The principle of certainty requires that the plaintiff prove with sufficient degree that they would have made the
amount of damages claimed for (usually profits) if the defendant had performed under the K
The principle of causation requires that the plaintiff to prove that the loss was in fact caused by the defendants
breach
The principle of remoteness requires that the plaintiff shows that the loss was sufficiently in the range of the
defendants contemplation at the time of the entry into the K
Hodgkinson v.
Proper approach to damages for breach of Fiduciary Duty is restitutionary
Simms
Once the plaintiff makes a case out for breach of fiduciary duty based on non-disclosure,
and establishes a loss occasioned thereby, the onus is on the defendant to prove that the
plaintiff would have suffered the same loss regardless of the breach; mere speculation not
enough
Duty of disclosure that Simms breached was directly related to the risk that materialized
and cause appellants loss.
Damages must be foreseeable as to kind (could happen), not extent ($$)
Court will award restitution of $, less the tax benefit received
Where a party can show that but for the relevant breach it would not have entered into a
given contract, the party will be freed form the burden or benefit of the rest of the contract.
Hadley v.
Damages will not be awarded that are too remote
Baxendale
Reasonable contemplation test:
o Loss must be such as may be reasonably be supposed to have been in the minds of both
parties at the time they made the contract. Arising naturally over course of business
(implied knowledge)
Special circumstances:
o Where plaintiff communicates to defendant special circumstances and the damages due
to the special circumstances would have been reasonably foreseeable and contemplated
by the parties (actual knowledge)