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De Sade :Property is “a crime committed by the rich against the poor.” William Morris:Capitalism = “the society of contract.” (Late 19th c. US anarchist) Parliament = “a kind of watch committee sitting to see that the interests of the Upper Classes took no hurt.” News from Nowhere. Applies equally well to judges. C.P. Kindleberger:Economic role of insurance: Venice built little ships to divide the risk b/f it achieved the breakthrough represented by marine insurance. Shipping of specie was done in small amounts over several ships to reduce risk. (From this, see that social institutions adapt to needs posed by economic imperatives, as Marx argues.) Karl Polanyi:Links the separateness of the economy from the rest of society to the institution of the contract. The economy connects independent property owners pursuing private interests through the use and exchange of their private property. So long as family and polity are not formed by links of exchange and pursuit of self-interest, they are not part of the economy & vice versa. Robert Keohane:“…whenever, in the economy, actors exert power over one another, the economy is political.” After Hegemony. See pp. 332-326 of notebook 4: Explains how a system of voluntary relations b/w freely contracting and independent persons can indeed be a system of power.
Classical economics:(As argued by Levine and Caporaso) The institution of the contract functions to have the individual see herself as independent, autonomous, separated from institutional loyalties – to move towards a system motivated by self-interest. Neoclassical economics:(As argued by Caporaso & Levine) Voluntariness is based on contract. Therefore, the first task of politics is to secure the system of property rights so that transactions are voluntary. This means establishing and enforcing a set of property rights designed to support the neoclassical ideal of individual well being. Neoclassical contradiction:K can’t bind third party and should not therefore affect third party w/o her consent. But externalities exist (pollution not properly paid for, required “natural” level of unemployment, effects of speculation, etc.) “Efficiency:”In neoclassical economics, efficiency is defined in only two ways. (1) “Productivity.” (2) Maximizing the number of wants with limited resources. Completely ignores efficient use of resources or efficient city planning, etc. Indeed, interference in the economy is seen as contributing to inefficiency by creating “market distortions” and other externalities.
Brierley and Macdonald, “Quebec Civil Law” (1993)
• Civil Code as social constitution
• CCLC: Balance/ tension between two groups of elites:
o Catholic Church, rural economy
o Emerging capitalist economy
• Contracts:Economic liberalism
o Voluntaristic character of Code is most apparent (Autonomy of the will theory) ▪ Courts prohibited from modifying terms of a contract lawfully made ▪ Interest upon usurious loans could not be reduced (Art. 1149 CCLC Para 3) ▪ Abusive penal clauses could not be struck down (Art. 1135)
Autonomy of the will theory: (B/J)
• “Autonomy” – from Gk. “auto nomos,” “choose your own law.” • In the juridical system established by the civil law, the contract is what most characterizes the human will. • Three basic assumptions inherent in theory re. contracts: o Contract is superior to law
▪ In reality, K exists only b/c the law allows it (1372) o Contract is necessarily fair/ just
▪ Inspired by economic liberalism
▪ Strong necessarily dictate to the weak
o Only the will can create an obligation.
▪ Rejection of formalism (Roman law)
Ghestin: “L’utile et le juste dans les contrats” (1981)
• Critique of will theory (though he doesn’t actually state this). • Poses a new basis for the binding nature of Ks:
o Social utility
o Public order
• the only reason we validate Ks is that they are socially useful • Autonomy of the will is not the real reason we enforce Ks. If it were, we would enforce unilateral undertakings • He doesn’t care if Ks are personally useful
o Example: K b/w parents and children: will sell you the farm, but
you undertake to feed me and house me until I die. Cases where has happened twice – but courts haven’t invalidated the 2nd K because, though not useful for the personal vendor, they are socially useful. • Socially useful: provides an instrument whereby you can protect your future interest. Not socially useful to have Ks not be binding. COMMENT:
• not clear Ghestin succeeds in displacing autonomy of the will • It’s also hard to see where, in his theory, we look for “socially useful.” We would seem to need to look for it in the same places as where we look for social policy
What constitutes a valid offer?
CVL definition of an offer & an offeror
Art. 1388: An offer to contract is a proposal
o Which contains all the essential elements of the proposed contract o And in which the offeror signifies his willingness to be bound. ▪ Similar to CML “intention to create legal relations:” B/J: K is born from the meeting of the two wills, with the intention to create juridical links. Art. 1387: secondary terms are not necessary for the formation of a contract B/J: An offer must have the following qualities:
o And precise.
Art. 1389: An offeror is someone who
o initiates the contract
o determines its content
o (in certain cases) presents the last essential element.
CML definition of an offer
CML requirements of a valid offer similar to CVL.
▪ An offer must be firm and unequivocal.
▪ It must contain all the essential elements.
▪ The offeror must have an intention to create a legal obligation (needlessly complicated). o The diff b/w CML and CVL regards “intention to create a legal obligation” (equivalent to willingness to be bound in CVL, but differ in the area in relation to family agreement).
Intention to create a legal obligation
▪ Rebuttable presumption that agreements b/w family members are not made with intention to create “legal” relations (no such presumption in CVL – family agreements are treated the same as other agreements). ▪ Criteria for rebuttal of presumption: seems that if there is reasonable expectation on the part of the offeree, the offer is legally binding (K law protects reasonable expectation). NOTE objective test. ▪ Cases where presumption is rebutted:
o Hamer v. Sidway [NY]: Uncle offered nephew $5000 if he would refrain himself from swearing and smoking. o Thomas v. Thomas: Husband (dead) offered to give house to wife, in return wife should pay 1 pound ground rent /yr and keep the house in repair.
▪ A GENERAL TEST to determine whether the promisor had the intention to create a legal obligation: o The intention to create a legal obligation is not a subjective inner intention, but rather a manifested intention upon which the promisee can reasonably rely. Storer v. Manchester City Hall: “outward expression of intention” supersedes “inward thought” in determining the formation of a contract. Here, the letter of offer was held to be the clerk’s “outward expression of intention.” o The manifested intention to be legally bound can be inferred from ▪ The content of the offer: is the content of offer serious, firm, unequivocal, precise and enforceable that would induce reasonable reliance. ▪ The external condition when the promise is made: Was the promise made in a business meeting or in a casual party. (In Hamer, the uncle took the trouble to write a letter to make the promise)
▪ The relationship b/w promisor and promisee: Business partners are more likely to make legally intended promises than casual friends.
Preliminary negotiation v. offer:
Preliminary negotiations (civil law term) or invitation to treat (common law term) are usually characterized by being incomplete.
▪ Preliminary negotiation does not constitute an offer. In preliminary negotiations, further “meeting of minds” is required. In addition, an offer requires intention to create legal obligation. Any pre-contractual proposal that cannot be characterized as an “offer” is preliminary negotiation. ▪ Preliminary negotiation usually takes the form of
o An enquiry for information,
o A mere response to such an enquiry.
o An invitation to make offers (invitation to tender, or invitation to treat) o A statement of the terms on which the party is prepared to offer.
Harvey v Facey (1893 Privy Council)
Facts: Facey has land to sell. Telegram exchange. Facey replied to the second question only. The third telegram treats the answer of Facey as an unconditional offer. Held: No contract. 3rd telegram considered an offer, not acceptance. Missing evidence of a willingness to create legal relations. The 3rd telegram cannot be considered binding on Facey except to the extent that it does by its terms (lowest price). ▪ Provision of information (the mere quoting of a price) is not to be understood as an implicit offer
Termination of an offer – lapse and revocation
Art. 1390: Offer may not be revoked before expiration of term. • If none
is attached, the offer may be revoked at any time before acceptance is received by the offeror. Art. 1391: Where the offeree receives a revocation (of the offer) before the offer, the offer lapses (even though a term is attached to it. Art. 1392: An offer lapses if:
• No acceptance is received by the offeror before the expiry of the specified term of acceptance • Or, where no term is specified, before the expiry of a reasonable time; • An offer also lapses if the offeree rejected the offer (including counter offer) • The death or bankruptcy of the offeror or the offeree also renders the offer to lapse if that event (death or bankruptcy) occurs before acceptance is received by the offeror.
Is an offer with term truly binding in civil law?
1. Not completely clear – one of the most complicated areas of the civil law of contracts If sell to third person, offer with term has been revoked (1397) If do not sell, not sure.
• When term is attached, not binding on the offeror if no consideration given for offer (Dickinson) • Revocation of offer: possible before acceptance
o Compare w/ Civil law: before receipt of offer
Shatford v. B.C. Wine Growers Ltd (1927 BCSC)
4. An offer stands for a reasonable time, defined according to the circumstances: the commodity being bargained for,
the time of year of the offer, and
the necessity under the circumstances as to whether the offer would be accepted or not. 8. Reason for the delay is immaterial – reason: to protect the offeror
Dickinson v. Dodds (1876 UK)
9. Offer with term & w/o consideration not binding until accepted 10. Offer expires once the offeree learns that offer has been withdrawn Had offer not been withdrawn, possible that Dickinson would have had recourse to damages.
CVL: Offer ( Unilateral promise ( Synallagmatic promise
Both are CVL notions
Art. 1396(1): An offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to the offeror that he intends to ▪ Consider the offer
▪ And reply to it within a reasonable time or within the time stated within. If breached: can only get damages
Compare to offer:
Binding only once the beneficiary agrees
Beneficiary must indicate consent
Must be made to a determinate person
“Offer,” Arts. 1388-92:
Binding when made
No reaction from offeree needed
1390: may be made to a determinate or indeterminate person
Common Law:Unilateral promise is not binding b/c there is no consideration. ( Dickson v. Dodds – unilateral promise to keep offer open has no consideration and thus not binding.
• Not to be confused with synallagmatic K (Art. 1380).
Common Law : Doesn’t know synallagmatic promise. Therefore includes clause re. date of transfer of ownership. (Can do this in civil law also.)
Art. 1396(2):If both parties agree to terms of a K, they can enter K immediately or agree to defer entering into the K immediately, though they are bound to enter into it in the future. Art. 1397:Remedy against violation of synallagmatic promise : K made in violation of promise to contract (bad faith) is still a contract, but still have recourse to damages (2805: good faith always presumed, unless law expressly requires that it be proved.) Reasons why courts would uphold K made in bad faith: 1. Wish to stabilize a situation and freeze it as it exists 2. Real right to property is a fundamental right that can only be limited in very unusual circumstances 3. Don’t know that unilateral promise would have been accepted – so better a contract between parties in bad faith than no contract at all. Art 1454 CCQ:If real right of the same movable property is transferred to different acquirers successively, the acquirer in good faith who is first given possession gets to keep it, even if he/she is not the first person in line. (if the person who has possession negotiated in bad faith, doesn’t get to keep it.
Cere v. Neeley (1980 CS Quebec)(Damages, but no specific performance)
Facts:Neeley makes a unilateral promise to give an option to buy property w/in 2 yrs, for which Cere paid $200.Neeley sells it to Mrs. Reid. Cere attempts to accept offer, but finds it’s already been sold. Held: Cere gets damages, but not specific performance
• $200 constitutes an acceptance to the unilateral promise to sell land in 2 years. A synallagmatic promise was thus created and the two parties were bound to enter into K in 2 yrs. D breached the synallagmatic promise by selling the land to a third party (art. 1396.2) • You get damages not only for the loss of potential earning, but for costs that did not lead to
The Formation of a Contract
Nature of Acceptance
Civil law: Acceptance must correspond substantially to the offer (1393) Common law:Acceptance must mirror the offer
Acceptance must be firm, unequivocal, precise, complete and clear. Contract is made at the moment of acceptance (one exception: synallagmatic)
Art. 1387-8:distinction between primary/ secondary elements Art. 1393: Acceptance which does not correspond substantially to the offer or which is received by the offeror after the offer has lapsed does not constitute acceptance. It may, however, constitute a new offer. (Substantially = essential elements)
Art. 1394: Silence does not imply acceptance of an offer, subject only to the will of the parties, the law or special usage or a prior business relationship. (Can be opted out of)
As a rule, acceptance must be communicated to the offeror (in Common law, this is equivalent of 1394)
In general with K Inter Absentes, simply must ensure that the person received the info.
Storer v. Manchester City Council (1974 UK CA) (Subsidized house for sale)
• Formal contracts had not yet been exchanged, but Storer had filled Agreement of Sale form. • Only info missing from the agreement of sale was ‘date when tenancy ceases’. Holding: Exchange is not necessary to form a concluded contract. Ratio: (Denning)
• In contracts you do not look into the actual intent in a person’s mind: look at what he said and did. A K is formed where there is to all outward appearances OK. The intention is to be found only in the outward expression that the letter conveys. Outward expression of intention supercedes inner thought. COMMENTS:
• Opportunistic use of this doctrine by Denning – may have come to a different conclusion in different fact pattern. • problematizes “precise and complete” requirements – missing info is a secondary term • Denning trying to protect Storer, a poor would-be home-owner o but note also conservative agenda – gov’t out of business of public housing • In CCQ, art. 1387 (you can agree to reserve agreement of future issues…)
Empress Tower v. Bank of Nova Scotia (n.d. BC CA)
Facts: Lease w/ option to renew. Empress Tower didn’t want to allow bank to renew it Held: Renewal clause was not void for uncertainty.
• 2 implied terms: Landlord was to negotiate in good faith and not withhold agreement unreasonably • Renewal Clause not void because landlord had not negotiated in good faith. Officious bystander & business efficacy tests
Non Matching ‘Acceptance’ & Battle of the Forms
What happens when you have additional terms in acceptance?
Civil law: Art 1387: Secondary terms ok.
Art. 1393:Acceptance must correspond “substantially” to the offer. Common law:
▪ Determined by following:
US Uniform Commercial Code (s2-207)
Default position:Changes by offeree are part of contract
Acceptance is partly a counter-offer
UN Convention on K for the Int’ sale of Goods (Vienna Convention) Art. 19
Default position: modifications to offer constitute counter-offer ▪ If a reply to an offer purporting to be an acceptance contains additions, limitations or other modifications, it is a rejection of offer and constitutes a counter offer. ▪ However, a reply to an offer purporting to be an acceptance, but which contains additions or different terms which do not materially alter the terms of the offer, constitutes an acceptance, unless the offeror without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. ▪ If he does not so object, the terms of the K are the terms of the offer with the modifications contained in the acceptance. ▪ What is considered to materially alter (equivalent of civil law’s essential elements): price, payment, quantity and quality of goods, place and time of delivery, extent of one’s party’s liability to the other or the settlement of disputes, etc. Comments:
▪ Echoes CVL’s “primary v. secondary terms.”
Hyde v. Wrench (1840 UK) (Sale of farm – non-matching acceptance)
• The plaintiff by wanting to pay 950 made a counteroffer, terminating defendant’s offer. • A would-be acceptance that doesn’t match offer: 1) is not an acceptance.
2) is a counteroffer
3) kills initial offer
• CIVIL LAW: if A makes an offer with term and B makes a counteroffer and counteroffer is refused, what does that make of the actual offer (art. 1390, 1392, 1393)? o offer creates binding obligation for offeror (if term is specified). That does not mean that counteroffer does not kill
initial offer. Not clear whether counteroffer kills offer. o For hint to answer, Art. 1396 (Unilateral promise, above): Seems to imply that offeror would still be bound. o Policy argument: Should not still be bound; otherwise, offeree has negotiating advantage.
CUQ v. Construction Simard Beaudry (1987 Quebec) (different form used in tender)
Facts: Beaudry wins bid for public works. Subsequently realizes it made a mistake of $200,000 and decides to get out of K. CUQ wants difference between proposed price and price paid to get work done by another company. However, Beaudry’s tender had not used the form required by CUQ. It limited its responsibility to $35,000 Also, Beaudry limited any judicial pursuit to a period of 6 months (time has passed). Held: Beaudry’s form is the valid one.
• The tender is the offer, which the city accepted. If signed, too bad, even if did not agree to terms • consequence: city has accepted the $35,000 and 6 month limitations, so gets nothing Note:
• Tender is not necessarily the offer.
o Possibly the tender is the offer here because the different terms on the different forms constitute essential elements & therefore could not have constituted acceptance (Art. 1397). • Again, external manifestation (signing) is superior to inner intent. o Note tension b/w importance of internal consent in theory and importance of external consent in practice.
CML: Unilateral Contracts – Acceptance by Performance – offer of reward
Art. 1395:There is no requirement for intention to accept in CVL ( no requirement of meeting of minds “The offer of a reward made to
anyone who performs a particular act is deemed to be accepted and is binding on the offeror when the act is performed, even if the person who performs the act does not know of the offer, unless, in cases which admit of it, the offer was previously revoked expressly and adequately by the offeror.” ▪ The unilateral contractual concept that performance constitutes acceptance is the same in both systems. ▪ The only diff is the requirement of intention to contract .
Unilateral Contract: a promise made in return for the performance of an act. performance constitutes acceptance to a unilateral offer. There is no bargain or exchange of promises. ▪ Until performance, neither the offeree nor offeror is bound to enter the contract (the promisor can revoke at anytime) ▪ The offeror cannot revoke after performance starts. Rationale: reasonable reliance on a unilateral offer is worthy of protection even thought there was no bargain. ▪ However, the offeror can revoke unilateral offer once offeree stopped performing Performance:
• In Crown v. Clarke, performance was not acceptance because he did not do it for reward • In Carbolic Smoke Ball:
▪ Behavior takes form of acceptance
▪ Even if this behavior is involuntary (becoming ill) ▪ No need for acceptance to be communicated to the offeror if the offeror dispenses that need. • In Errington: the promissor cannot revoke after performance starts. o But no general principle
o Seems to be more of a judgment based on degree of performance o Not given an adequate answer in Anglo-Canadian common law, unlike US, which distinguishes between part and full performance.
Is the promissor bound?
• No, but recognition that reasonable reliance on a promise is worthy of
protection even though the promise is not bargained for. Compensation for preparation and past performance on the basis of reasonable reliance. • Ex: reward made to many people for finding an object, but only person that will find the object will get money.
The Crown v. Clarke (1927 Australia)
Facts: Clarke gave info re. murder b/c he was accused of the murder himself. A 1000 pounds reward was promised for such information. Clarke was simply acting in order to clear himself from a false charge of murder. Held: Clarke did not, in performing, accept the condition; therefore no meeting of the minds. Ratio:
• Court demands performance on the offer, not just performance. Otherwise, could not have meeting of the minds. • Did not do it for the reward. Therefore no acceptance and therefore no performance. Can’t have a contract without acceptance. COMMENT:
• Williams v. Carwandine (1833) mentioned in the case: she gave information to ease her conscience & got reward. o Reason: people who do this are not bad people, but Clarke is a bad person • Issues of class and social status.
• Abuse of rule of precedent. (Clarke is just riff-raff, so we can ignore the law as it would benefit him.)
Carlill v. Carbolic Smoke Ball [1893 UK CA]
Held: There can be a K when offer is not made to a specific person and no notification of acceptance is given. Ratio:
• K is binding even if it is not made with anyone in particular. They are offers to anybody who performs the conditions named in the advertisement, and anybody who performs the condition accepts the offer. • Re. notification of acceptance:
o intended to protect the offeror; therefore, offeror can waive this requirement if so desires ▪ CSB could have chosen to have acceptance notified to it in some way, but waived this right. ▪ In this case, acceptance = proper use of product ▪ To determine whether notification is required, must look to the offer itself. • Here, K formed when offeree has performed the deed. NOTE:
• Performance in this case is not voluntary (getting sick). • Does not fit well with the idea of meeting of minds since expression of will seen as involuntary act. • Reason: law was being stretched here, so traditional thinking re. performance doesn’t work. Civil law: This case works better in CVL, even though meeting of the minds is more important than in CML. • Art. 1395: can unconsciously enter into a contract (no meeting of the minds).
Errington v. Errington [1952 UK CA](Father buys house)
Facts: (Denning.) Father makes unilateral contract: puts down payment on house and tells them that the house will be theirs when they pay the mortgage. Issue:At what point can offer be revoked?
Held: The couple never bound themselves to pay installments and judge sees no reason why any such obligation should be imposed on them. The father’s promise was a unilateral contract. Offer could not be revoked once the couple entered into the performance of the act, but it would cease to bind him if they left it incomplete and unperformed, which they have not done. NOTE:
• Not a solid rule
• Normally, an offer dies with the offeror. But here, beyond an offer – unilateral contract • Denning: there was a unilateral promise not to revoke the offer. • Finds that there was an intent to create legal relations, but can’t find an implied promise to make payments on her part, or it would have been a contract of
Contracts Inter Absentes – Post-Box Rule and Rule of Reception
Post Box Rule — CML
Today, post-box rule is the default, but can be derogated from. Post-box rule:“deemed to be received.”
Art 1387:“when and where received.”
• CVL speaks of real reception and CML of constructed reception
Is it OK for offeree to overtake acceptance and revoke it before it has arrived? • If accept that Post Office is the agent of the offeror, not possible. • Would allow abuses in days of futures. • same with retraction of refusal of acceptance o argument can be made that there is a difference between the two, but answer not known. ▪ Henthorn: offeror could reasonably expect to receive acceptance by PO, but idea that offer would be revoked was not contemplated by the parties, so couldn’t say PO was offeree’s agent as well.
Household Insurance v. Grant [1879 UK CA]
Facts: Grant offered to buy 100 shares. Offer accepted by post, but never received by Grant Held: K is completed when acceptance is posted.
• Treat post office as agent of both parties. • Therefore, acceptance is communicated at moment the letter is mailed • When the defendant made the offer, we must imply that he authorized them to send the notice of allotment by post. COMMENTS:
• Majority’s decision based on two principal reasons: to find otherwise is o to open the door “to the perpetration of much fraud….” o bad for business
• Re. 50/50 split: majority: can’t do that, even if have common agent. o Implied reason: a contract either exists or it doesn’t o Demonstrates that can’t have compromise in western law.
Herthorn v. Fraser [1891 HL] (Post-box rule)
• H. (from Birkenhead) goes to office of F. (Liverpool) to negotiate purchase of some houses. F. makes offer. • Next day, posts withdrawal of offer b/w 12-1 pm. • Withdrawal does not arrive until after 5 pm. • At 3:50, H. posts unconditional acceptance. Held
• acceptance is complete as soon as posted when acceptance by mail is expressly or impliedly authorized. • a revocation of offer is complete as soon as it’s brought to the mind of the offeree o 2 reasons:
o Offer not made by post, so H. did not designate post as his agent o Revocation of offer was not foreseeable, so no implied agreement to have post be his agent. Ratio:
• Since parties lived in different towns, an acceptance by post must have been contemplated, although offer not made by post. A revocation of an offer is of no effect until brought to the attention of the person to whom the offer was made, and therefore a revocation sent by post does not operate from the time of posting it. • Post rule does not apply to revocation because no implied consent by offeree that post office be considered as agent. • A person who has made an offer must be considered as continuously making it until he has brought to the knowledge of the person to whom it was made that it is withdrawn. COMMENTS:
Dickinson v. Dodds doesn’t apply because in that case, the plaintiff knew of the subsequent sale before he accepted the offer.
Rule of Reception: CVL & CML
Art 1387: A contract is formed when and where acceptance is received by the offeror…. ▪ Exception (art 21 CPA, Insurance). ▪ Not a rule of public order, so can be derogated from. Art. 21, Quebec Consumer Protection Act: A contract made at a distance is considered to have been made at the address of the consumer. [for contracts in person, the contract is fulfilled at consumer’s business place] Note: not Rule of Awareness: case of e-mails: considered to be sent to your office, not to where you are.
Entores v. Miles Far East Corp [1955 UK CA]
Facts: Contract made by telex between Dutch subsidiary of US company in Amsterdam and English company (plaintiff) in London. Not a trial, but an attempt to see where trial should be held Held: As with Art 1387, with instant communication, contract is made when and where acceptance is received. Ratio:
Doesn’t give much of a legal explanation. Rephrases holding as ratio. Secondary reasoning: England is the place with which contract has the closest connection. COMMENTS:
• Underlying reasons:
o business considerations (need for uniformity of laws) o But where conflicts (as with US), must be settled on principle ▪ But his principle is not justified ▪ Really has tried to create principles in order to justify his wish to make UK law uniform with Europe’s in general, but can’t just make uniformity his sole reason because of conflict with US law • Denning answers “when” to the question “where?” • Suggests a solution based on blameworthiness – odd to bring it into a contract issue. • His distinction between instant communication and post box is not convincing o
logic would work equally well for post box (except blameworthiness aspects) o Telephone, telex is just as much the parties’ common agent as is the post. o As with Thornton, makes a distinction where there is none. • House of Lords has declared that telexes are not always subject to rule of reception – only if it’s in the contemplation of the parties.
Offer and Acceptance as a Flawed Paradigm
Pharmaceutical Society of GB v. Boots Cash Chemist [1953 UK CA]
Facts:Chemist displays drugs on shelf that need to be sold under supervision of registered pharmacist. Registered pharmacist supervises transactions at sale counter to ensure that drugs are sold appropriately. Held:
• Display cannot be considered an offer; it is enabling customers to have access to what is in the shop. • the contract of sale is not completed until the customer has indicated the article which he needs and the shopkeeper accepts that offer. (i.e. in a store, the purchaser, not the vendor, makes the offer.) Ratio:
• Customer’s taking product to counter is offer to purchase, which cashier can accept or not. • If display were an offer, would mean that once an article has been placed in the receptacle, the customer is bound to pay for the article and cannot change his mind. COMMENT:
• Example of where facts are made to fit the model of offer and acceptance.
Terrasse Holdings v. Saunders [1989 Quebec](Bonus)
• TH had promised Saunders a bonus, but claim that the promise was conditional . • Trial judge had held that there was no contract because the promise was indeterminate as to amount of bonus. Issues:
• Terms of offer were not sufficiently defined so as to make S’s acceptance a contract. • If not, is there any other recourse available to Saunders? Quasi-Contract : Unjust Enrichment Ratio:
• Courts can’t create an essential element. Were they to do so, they would be creating the contract itself • But issue can be solved through notion of unjust enrichment – court can be more flexible in interpreting quasi-contract COMMENTS :
• Unjust enrichment is used as a means to deal with situations where K is not helpful. Quasi-contract:A liability which cannot be attributed to any other legal principle and which requires someone to pay money to another person because non-payment would confer an unjust benefit on the proposed payor Unjust enrichment:Three requirements : (1) An enrichment, (2) a corresponding deprivation, and (3) the absence of any juristic reason for the enrichment (Sorochan v. Sorochan 1986, SCC)
Macaulay, “An empirical view of contract”(1985)(Legal pluralism)
▪ Academic K law is not a descriptively accurate reflection of the institution in operation ▪ Two theories re. role of contracts – one conservative, other liberal ▪ Both assume that law is the glue that holds society together in capitalist era. ▪ Three academic assumptions re. role of contracts
▪ careful planning of business relationships in light of legal requirements • Similar to econ’s assumption of rational actors ▪ contract law is a body of clear rules which can facilitate planning ▪ contract law and court enforcement are essential to having parties carry out contractual obligations • Litigation deters
o Problems: example: construction companies breach contracts often because they have no assets and will just go bankrupt if sued. His criticism of these views:
▪ This inaccuracy matters in many ways:
▪ K planning and K law at best stand at the margin of imp long-term continuing business relations ▪ Few contract cases are litigated, and those that are have special characteristics ▪ The world is not as formalized as it appears
▪ Attempts to get beyond formal rationality by bending rules. ▪ Also, many actors have no independence of action at all – completely subordinate Relational sanctions (gossip, reputation, stop doing business w/ x), internal mechanisms, and vertical integration serve as ways to reinforce compliance COMMENT:
Very clear that law does not do what its apologists claim it is intended to do in the matter it is intended to do it.
Examples from Foundations summary.
Reality hugely different from theory – hence “empirical.”
The Kinds of Agreements that Are Enforced
Why the Contract? (Avoiding the issue: Formalities)
Need not only consent, but also a valid reason for entering into the K
Civil Law:Cause of the obligation
Obligation: Art. 1371: essential criteria:
i. persons between whom it exists
ii. a prestation which forms its object
iii. (in the case of an obligation arising out of a juridical act) a cause which justifies its existence
A contract can be broken down into:
o Object of the obligation = the prestation
▪ Art. 1373: What you must do
▪ Must be licit, possible, & determined or determinable
▪ Art. 1374: Prestation may relate to any property, even future property, provided that the property is determinate as to kind and determinable as to quantity. o Object of the contract
▪ Arts. 1412-13: the juridical obligation envisaged by the parties at the time of its formation, as it emerges from the rights and obligations created by the contract ▪ A contract whose object is prohibited by law or contrary to public order is null. • Null for illicit cause, not for illicit object • Example: money for an organ or surrogacy contract o Object of the prestation
▪ The thing itself (in K. of sale, the painting) ▪ (Common law = the subject matter of the K) ▪ Cause:
o cause of the obligation : Objective cause
▪ Art. 1371: It is of the essence of an obligation that there be…, in the case of an ob. Arising out of a juridical act, a cause which justifies its existence. ▪ Remains the same for all Ks of same type. o cause of the contract: Subjective cause
▪ Art. 1410: The cause of contract is the reason that determines each of the parties to enter into the contract. The cause needs not to be expressed (Concrete, subjective, variable)
Cause: explanation: B/J:
▪ It is the reason or motive which has determined the contractants to adhere to the contractual arrangement and which justifies its existence. ▪ In classical theory, which Quebec relies upon:
o In synallagmatic K: Cause of the Ob = engagement of other party o In unilateral K: There exists the obligation of only one of the parties. Cause of the Ob. Is therefore the remittance of the material object o In gratuitous acts: The cause of the Ob. = the liberal intention of the donor. ▪ Utility of Cause of the K (Subjective cause):
o It can occur that the K itself is legal and in accord with public order, the obs of the parties are equally licit and moral, and finally, the object of the ob has the same qualities. Nonetheless, the goal that the parties wanted to attain could be illegal. Thus only the subjective cause permits the judge to sanction the K. ▪ Art. 1411: A K whose cause is prohibited by law or contrary to public order is null ▪ Example: Buy hydroponic equipment to grow marijuana: cause of K = to grow marijuana ▪ Cause is at once a condition of the validity of the K (cause of Ob.), which is null if it does not exist or is wrong, and a means of judiciary control (cause of the K) of its legality. Do not confuse nullity for illicitness of the object of the contract & nullity for illicitness of the cause of the contract. ▪ In their opinion, CCQ should have eliminated everything, keeping only Art. 1380 (synallagmatic/ unilateral Ks) and another text overseeing the annulment of all Ks whose goals are illegal or against public order.
Where formalism is required:
Art. 1385: Mentions formalism in defining contract: If law requires a particular form to be respected as a necessary condition of a K’s formation, that form must be respected. Art. 1414: Where a particular or solemn form is required as a necessary condition of formation of a contract, it shall be observed; it shall also be observed for modifications to the contract, unless they are only accessory stipulations Art. 1415: A promise to enter into a contract is not subject to the form required for the contract. ▪ Example:
• 1824: Gift: form required: gift is made, on pain of absolute nullity, by a notarial act en minute, and shall be published. (Doesn’t apply where, in the case of movable property, the consent of the parties is accompanied by delivery and immediate possession of the property.) • Marriage, immovable hypothec, movable hypothec w/o dispossession, donations require form in civil law.
Two types of obligations :
• Moral obligations
o Given no legal weight
• juridical obligations
o civil obligations
▪ fully enforceable by law
o natural obligations
▪ Performance can’t be forced, but natural obligation creates justification for performance or the creation of a civil obligation Art. 2630 :gaming and wagering contracts not expressly authorized by law : not enforceable either way, with some exceptions o Can’t exact payment and can’t get money paid back. o Have natural obligation to pay, but not civil obligation. ▪ But if say “ I will pay tomorrow,” transform a natural obligation into a civil one. Extremely rare that code will spell out a natural obligation – 2630 is example : implies, but doesn’t state. Some patterns :
• Will often find a natural obligation in cases where there was a civil obligation that has disappeared o Example : bankrupt.
▪ Debts relieved, but if sign note after bankruptcy, you create a civil obligation • Will often find a natural obligation where natural obligation looks a lot like a civil obligation o Example : parents have a civil obligation to take care of children and to pay for school ▪ But have limits : 3 Ph.Ds : if parents paid, it was a natural obligation, not a civil one.
In re Ross [1931 Quebec]
Creating an onerous K (art. 1381) from a non-notarized gift (art. 1824). Facts: In 1914, Ross promised McGill 150k to build a gym. In 1920, he increased his promise to 200k. He paid 100k of and then gave McGill a promissory note (not notarized) to pay over 3 years. Ross went bankrupt and the executors refused to honour promissory note. Issue: Difference between the words “cause” and “consideration.” Held: The promissory note is considered ok.
Bernier: Valuable consideration has to be interpreted in a civil law context. In the civil law, “cause” has a wider meaning than common law “consideration” and includes natural or moral obligations. In this case, Ross, a wealthy and important member of the McGill board, intended to uphold his debt of honour so his promise did not need to be notarized. COMMENT:
• First promise was unenforceable.
• Second promise: Not done because of an intention of liberality, but because of intention to save his reputation; therefore becomes an onerous K b/c he receives an advantage. o on first promise: moral obligation
o on written promise: Ross created a natural obligation to live up to his word ▪ Natural obligation created a justification for the creation of a civil obligation through signing of note. • An advantage must be economically valuable. But here, find that saving his reputation is receiving an advantage. (Could have economic repercussions.) o So find here that advantage need not be 100% pecuniary • COMMON LAW: No consideration, so McGill would not have received anything. These natural obs. often called “cases of past consideration.”
CML: Consideration – contract as bargain
Common law looks for a bargain – if no consideration, no bargain Mere exchange of promises not enough to have a K; must have consideration. • Consent is not enough. Common law doesn’t trust parties enough to allow consent alone o Paternalistic
Consideration — Definition:
• (Dictionary) In a K, an interest, right, profit or benefit accrues to the one party while some detriment, forebearance, loss or responsibility is suffered or undertaken by the other. Its main purpose: to distinguish between gratuitous and non-gratuitous promises or undertakings It is a limit on contractual freedom
Theory: Three Perspectives re. Consideration:
Fuller, ‘Consideration and form’
Three functions which act as converging reasons for requiring consideration (none is both necessary and sufficient) • Evidentiary Function: that of providing “evidence of the existence and purport of the contract, in case of controversy” • Cautionary Function: performs a cautionary or deterrent function by acting as a check against inconsiderate action. o ready-made avenues that can be used to enter into a contractual agreement o [In Civil law: nominate contracts]
• Channelling function: Mark and signalize the enforceable promise. It furnishes a simple and external test of enforceability. Legal formalities relieve the judge of an inquiry whether a legal transaction was intended.
Fried, ‘Contract as promise’(critical perspective)
Consideration is a problematic concept (deconstructs consideration). • Disagrees with what he calls Fuller’s “awkward tool.” • Instead of relying on form of consideration, which is very problematic, should rely on notion of fairness (i.e.: should get rid of consideration). o Atiya argues that this is what consideration was in the past: “…consideration really was and is a reason for the recognition of an obligation, rather than a reason for the enforcement of a promise.” • the bargain theory of consideration does not offer consistent set of principles from which all the decisions could flow. • Not true that gifts are economically sterile. If they were, there would be no reason, under this argument, to protect an executed gift either. Also, some contracts are economically sterile.
Atiyah, ‘Consideration, a restatement’ (n.d.)
Consideration should be maintained (by being rethought)
• Consideration really was and is a reason for the recognition of an obligation, rather than a reason for the enforcement of a promise •
Historical definition of “consideration:” a good reason to enforce the contract. Once this has been removed, left with a cold, mechanical definition/ application of consideration.
Conventional view of consideration:
1. A promise is not enforceable (if not under seal) unless the promissor obtains some benefit or the promisee incurs some detriment in return for the promise a. consideration must be of economic value
2. in bilateral contract, consideration for a promise is a counter-promise. In unilateral contract, consideration is the performance of the act specified by the promissor. 3. law of contract only enforces bargains
a. the consideration must be the “price” of the promise 4. past consideration is not sufficient consideration
5. consideration must move from the promisee.
6. law does not enforce gratuitous promises
7. a limited exception to these propositions is recognized by High Trees a. But only enables certain promises without consideration to be set up by way of defence. • reality does not fit these rules, especially in category of gratuitous promises. o “… persistent and apparently compulsive desire of lawyers to concentrate on the typical contractual promise and to draw conclusions of universal validity from that typical case.”
• was never necessary at all
• Assumption underlying need for promissory estoppel: the performance of an act in reliance of a promise, not requested or stated by the promissor, cannot be a good consideration o If this premise is unfounded, then do not need estoppel at all. • Jorden v. Money (1854): Courts were prepared at that time to enforce such a promise where they felt that the justice of the case required it. o to do otherwise is to create a complex order which forces enforcement of “agreements” which are really contracts
that can’t be recognized as such because of misunderstanding of the view of consideration. o Would be simpler if courts were willing to treat action in reliance which suffices for estoppel as also sufficient to satisfy the requirements of consideration
Consideration in practice:
Dickinson(Plaintiff) v Dodds (Def.):
Principle: A gratuitous promise to keep offer to a certain time is not binding w/o consideration Note: issue might have been different if there were reliance
Delgman v Guaranty Trust Co. of Canada [1954 SCC] (Aunt/nephew – unjust enrichment)
Facts: Aunt and nephew enter into K. She will leave him house if he will help her. Performance consisted of taking aunt around town, to Montreal, odd jobs at the 2 houses. Aunt died and agreement is unenforceable because of inadequate form (in this case, s.4 of statute of Frauds). Issues: Whether there is past performance
Held: House is not transferred to nephew. However, recovery for his services. Simply give him $3000 on basis of unjust enrichment for the value of the services performed. Ratio: Nephew has not demonstrated connection between his performance and house (he simply did some repair work on it). COMMENT:
This is the case that, in Canada, recognized unjust enrichment as a separate ground for liability (i.e.: contract, tort, etc.)
Hamer v Sidway[1891 NY CA](Uncle/nephew – no smoking)
Facts: Uncle promised nephew $5000 if he refrained from bad behaviour. Died
w/o paying. Principle: Consideration can be to the benefit of the promisor or to the detriment of the promisee. Ratio:
• Courts will not ask whether the thing which forms the consideration does in fact benefit the promisor or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him. In this case, promisee abandoned a legal right that he had to drink liquor etc…Nothing in this record would permit a determination if the uncle was not benefited in a legal sense • No need for consideration to provide benefit to promissor. Even so, here would have been a benefit to uncle even if it had not been a detriment to promisee. COMMENT:
• Civil law: letter written by uncle, reconfirming the promise, would have transformed a natural obligation into a civil obligation. • Claim v. actuality:
o Court claims not to care about content or motivation. Claims it’s pure form. (But not really) o Consideration is supposedly not an instrument to conserve fairness, but get sense here that it is ▪ If consideration’s purpose were not to ensure fairness, it would be a useless formal requirement, as Atiya argues.
Eleanor Thomas v Benjamin Thomas (1842 UK QB)
Facts: Husband promised to give house to wife in return for L1/ annum and maintenance Principle: A peppercorn (L1/annum) can constitute consideration (in Anglo-Canadian law, not US – Fried) Ratio:
• Consideration is not in respecting deceased’s wishes, but in paying rent and maintaining upkeep • Consideration is something of value in the eyes of the law that moves from the Plaintiff (Eleanor). It may be of benefit to the defendant or to the detriment of the plaintiff. The benefit to the executors is a 1$/year. Nominal but enough to constitute consideration. • Motive is irrelevant
• Civil law: L1/annum would probably be considered a disguised gift, not an onerous contract. • Again, fairness seems to be a factor
Past consideration: Performance of a pre-existing duty:
Traditionally, doing something you had already promised to do is not consideration
Stilk v Myrick [1809 UK]
Facts: During a voyage, some sailors desert. Captain promises to divide their wages among the remaining sailors. Contract they were already under: the sailors had already undertaken to do all they could under all emergencies of the voyage. Held: Past consideration is no consideration – sailors promised nothing new in exchange for the promise COMMENTS:
• Lord Ellenborough: claims he’s analyzing the case without looking at policy issues o Bullshit. He implies quite clearly that to allow the claim would open door to abuses by sailors (extortion). (Note how he conveniently leaves out social context — Napoleonic wars, when sailors’ rights were suppressed to protect England’s supremacy at sea — to create air of impartiality.) o Doesn’t distinguish between agreement made while at a port, where extortion is impossible, as here, and an agreement made while sailing ▪ Captain could not hire other sailors (why not?), so there was duress here as well, even if agreement was made on land. • These are words of court reporter, not judge. Espinasse wrote another report claiming that decision was based on public policy, not past consideration. So could be that entire doctrine of past consideration is based on an incorrect report o But Espinasse had a bad reputation as a court reporter. Another judge: “I will not accept a report from Espinasse or any other ass.”
Foakes v Beer [1884 HL] (Part payment)
Facts: Beer (judgment creditor) promised not to charge interest if Foakes
were to pay principal. Beer is only one who makes promise (brings in issue of reliance). Held:Part payment cannot satisfy full payment (“Rule in Pinnel’s case”)
i.e. previous obligation cannot be used as consideration in a new agreement Ratio:
• No consideration given b/c appellant was under an antecedent obligation to pay the whole debt. COMMENT:
• could be a perfect example to sue under promissory estoppel. • Judgment seemed so commercially unworkable at time that several Canadian provinces passed a series of statutes to the contrary: Today, partial payment can extinguish full debt if both parties agree. • Context: at the time, much harder to go into bankruptcy o Less of a commercial reason to settle for less than full payment because of these other means (imprisonment, etc.) o Today, because can go bankrupt more easily, this case is less relevant
Gilbert Steel v University Construction [1976 Ont. CA]
Facts: Three Ks: (1) Plaintiff agreed to deliver steel at fixed price. (2) Price of steel increased. Plaintiff and defendant wrote new contract with new price. (3) When mill owners announced second increase in price, further discussion took place between plaintiff and defendant. Plaintiff alleges that this discussion resulted in a binding oral agreement on a new price. Held: Third agreement was not a new K, but an agreement to vary the written contract and it must fail for want of consideration. Ratio:
• In this case, no consideration
o not in the mutual agreement to abandon the earlier written contract – understood in 2nd contract that price would rise, so can’t claim new contract because of new price o Not in the promise of “good price” – may be good enough in other cases, but not here because plaintiff did not commit to giving a good price in future. o not in increased credit – “ingenious,” circular argument. and subsequent agreement was held to be merely a variation of an earlier agreement and accordingly failed for
want of consideration (similar to Stilk v. Myrick) Obiter:
One way an argument could succeed is to argue that that the agreement was not an oral variation of a written contract but an implied rescission of the former contract and was therefore supported by the mutual agreement to abandon the old obligations and substitute the new. This reasoning rejected in this case because no changes other than the change in price were discussed. COMMENT:
• Had credit been increased to 61 days rather than 60, that likely would have been good consideration
Williams v Roffey Bros [1991 UK CA](practical benefit = consideration)
• Carpenter unable to complete K due to financial difficulty; contractor agreed to pay more but never did • Counsel for defendants argued that, while defendants might have derived practical benefits from paying the bonus, they derived no benefit in law since the plaintiff was not promising to do any more than he was already bound to by subcontract. Arg. that there was no consideration for the agreement (Stilk v. Myrick). Held: There was consideration for defendants’ promise to pay more: They get a return promise that work will be completed on time & therefore no late penalty. Ratio:
• Glidewell J- The practical benefit is a legal benefit too o Three benefits: contract is not breached; no need to hire new carpenter; no late penalties
Principle of practical benefit:
Practical benefit will be valid if there is (1) practical consideration and (2) no duress if: a) A has entered into K with B to do work for B in return for payment by B; and b) at some stage before A has completely performed his obligations under the K B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and c) B thereupon promises A an additional payment in return for A’s promise to perform his contractual
obligations on time; and d) As a result of giving his promise B obtains in practice a benefit or obviates a disbenefit; and e) B’s promise is not given as a result of economic duress or fraud on the part of A, then the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding. COMMENTS:
• Under traditional view of consideration, all three benefits cited by Glidwell would have been “past consideration.” • This case may seem to undermine tender process, but carpenter’s remedy is limited only to the extent of his reliance – money out of pocket, not profit. • Principle is ridiculous:
o North Ocean Shipping (1978) held that rule in Stilk v Myrick is still good (Past consideration is not good consideration). o Here wants an exception, so crafts a principle with rules so specific that, in reality, it can only apply to this case. • From Ward v Byham  (cited): promise to do no more than is required by law is good consideration as long as the person it is promised to receives some practical benefit from it. Denning in same case: Promise not to do something that is already illegal is not good consideration: Promissor would not get any practical benefit. • This case is not part of Canadian common law (post-1930s) yet.
Estoppel: Protecting reliance
• An equitable doctrine
• Had estoppel applied to promises, would have done away with need for consideration. Doctrine of estoppel arises when you do not have consideration, but the promisee has relied to his detriment.
Estoppel – definition:
• (Combe v Combe, Denning, Court of Appeal, 1951) “Where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be
allowed to revert to the previous legal relations… subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration, but only by his word.” Promissory estoppel – definition:
• the principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his detriment • (Maracle v. Travellers Indemnity Co. of Canada, the court per Sopinka, SCC, 1991) “…The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position.”
What are the Courts doing when they enforce estoppel? 3 views: 1) estoppel as an alternative to consideration (K is about promises) 2) estoppel not about enforcing promises at all, but about protecting reliance (K is about promises). 3) K law is generally about reliance, but this is the only area of the law where the law recognizes it. Remedy: Usually the amount of reliance, not the value of promise
Civil law: No problem in CVL here because no need for consideration. However, a similar problem might arise when promise is a straight gift (not notarized). In that case, civil law might use rules on promise to make a contract.
High Trees Case (1947 UK Denning)
Facts: Plaintiff landlord and defendant had a lease. During war, defendant cannot pay full rent. Rent was halved. End of war, plaintiff suing for some retroactive rent and for return to original rent. Under classic K law the promise is unenforceable. Agreement to halve rent has no consideration. Held:
• So long as a promise is intended to be acted upon, and is acted upon (reliance), that promise will be enforceable – even w/out consideration. Estoppel is suspensory. Strictly speaking, a new K was not created, & the old one was not rescinded: the plaintiff gave the defendant to understand the lower rent would apply only as long as a given set of conditions existed. When those conditions are over, so is the reliance created by the promise. The parties’ rights are then once again defined by the original K. • Landlords don’t get arrears – marks difference between future promise and past reliance. Basis of promise (war and few units rented) no longer apply o The reliance stops from the moment that the landlord says it will stop Principle of the High Trees case:
• A promise, intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply. o Very broad. Denning limits it in Combe.
o Consequence given by Denning, contrary to Foakes v. Beer: A promise to accept a smaller sum in discharge or a larger one, if acted on, is binding, even if there’s no consideration. ▪ [but in practice, courts in England have refused to allow estoppel in cases of partial payment.] COMMENTS:
• Here, promissory estoppel applies to a promise for the first time. • Unlike Roffey, practical benefit of reduced rent is not as obvious. In Roffey, if didn’t pay more, would have gone bankrupt. Here no evidence of that.
Combe v Combe (1951 UK Denning)(Limits High Trees)
Facts: Husband promised to pay wife (no consideration), but never did. She sued for arrears. Held: Cannot use promissory estoppel to enforce an offer that was not relied upon.
Estoppel can only be used as a shield, not a sword.
• Such a promise could have been enforced had the wife, even after
formation, shown some act or forbearance relying on the promise. • Promissory estoppel does not create new causes of action where none existed before. It only prevents a party from insisting on his strict legal rights after he has already promised to waive them. Def of estoppel: At beginning of section.
• No evidence that his promise was intended to be acted upon (i.e.: that she wouldn’t sue for maintenance if he gave her money) • Estoppel never stands alone as a cause of action, so it can never do away with the necessity of consideration when that is an essential part of the cause of action o Consideration still remains a cardinal necessity of the formation of a contract, although not of its modification or discharge COMMENT:
• restricts High Trees. The principle as presented in High Trees would have permitted estoppel to be used as a sword • Had she been poorer than her husband, Denning might have found otherwise.
Walton v Maher (1988 Australia)(estoppel as sword)
Facts:Walton led Maher to believe K of purchase of land was forthcoming. Maher detrimentally relied by tearing down old building and beginning construction of new one. Ratio:
Mason and Wilson:
• Promissory estoppel: (same as Denning above) extended to the enforcement of voluntary promises when a party encouraged in the other party an assumption that a contract will be formed or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party. Brennan:
• Equitable estoppel: 6 criteria to be used as a sword. Plaintiff must prove that: 1. the plaintiff assumed or expected that a legal relationship exists or will exist between them (in the latter case, that the defendant is not free to withdraw from the expected legal relationship) 2. the defendant has induced plaintiff to adopt the assumption or expectation 3. the plaintiff acts or abstains from acting in reliance on the assumption
or expectation 4. the defendant knew or intended him to do so (i.e.: had to know and had to be in bad faith) 5. the plaintiff’s action or inaction will occasion detriment if the assumption/ expectation is not fulfilled 6. the defendant has failed to act or to avoid that detriment by fulfilling the assumption or expectation or otherwise. It’s at the point that Walton knew it wasn’t going to sign contract that it became unconscionable. • There is no contract here, so the source of the obligation is equitable estoppel itself COMMENTS:
• Brennan claims that it’s logically inconsistent to allow estoppel as a shield but not sword. • CIVIL LAW would deal with this through Art. 1375: requirement of good faith
Content of the Contract
Reading the Contract
Arts. 1425 – 1432: mini-guide to interpretation of contracts. • Central article: 1425
Main principles and approaches:
o Arts. 1425 & 1431: Essence over form (Subjective/ internal to K) ▪ Common intention of the parties rather than literal meaning of the words. ▪ More closely related to autonomy of the will. • Example: right of first refusal of all works would likely not be interpreted to include paintings, etc. o Art. 1426: Nature of the contract, circumstances under which it was formed, usage, etc. (Objective) ▪ focuses on factual setting/ social dimension of the contract ▪ Looking at elements that are external rather than internal to the contract • Example: British Crane
o Art. 1428: Contract must produce a meaning/effect: ▪ If judge is faced with two possible interpretations of a term (Art. 1429) or a clause (art. 1428), and only one of the interpretations produces an
effect, he is bound to conform to that interpretation. • Example: “all novels, poems, short stories, and any other works.” Now likely would include paintings. o Arts. 1427 & 1429: Contract must be interpreted as a whole: ▪ Somewhat like exegesis of CCQ itself
Art. 1432: Debtor/ creditor: In case of doubt, K is interpreted in favour of the debtor. Always interpreted in favour of adhering party or consumer Art. 1435: External clause referred to in a contract is binding except in a K of adhesion or a consumer K o In latter cases, binding only if expressly brought to the attention of consumer/ adhering party, unless can prove that consumer/ adhering party otherwise knew of it. • Common law cases: Parker, Thornton, McKinlay. Art. 1436: illegible or incomprehensible clause in consumer K/ K of adhesion is null if consumer/ adhering party suffers injury therefrom o Compare w. Art. 1428: Clause is given a meaning that gives it some effect. Art. 1475: A notice re. exclusion or limitation clauses: Has effect, in respect of the creditor, only if he can prove that the other party was a ware of its existence at time K was formed. o Common law: Parker, Thornton.
In principle, no hierarchy, but tends first to attempt to discover and give force to the intent of parties (Art. 1425) and then to apply Art. 1426. B/J: The rules laid down in the CCQ are only directives, not imperatives of interpretation.
• More literal interpretation: Gives words their plain meaning o What would a reasonable person have taken those words to mean? o Exception: Exclusion of liability clauses: almost always narrowly interpreted. Where CVL starts with “essence over form,” common law begins with “plain meaning of the words.”
Parker v. South Eastern Railway Co. (1877 UK)
Facts: Deposited article in cloakroom was stolen. Back of ticket had
limiting clause. Plaintiff admitted he knew there was writing on the back, but did not read it or believe it contained conditions. Issue: Is the plaintiff bound by the conditions on the back of the ticket? Ratio:
Mellish- Not enough that the plaintiff knew that there was writing on the back of the ticket. • Two conditions: A person needs to know that
1) there was writing
2) the writing contained conditions.
a. Test of reasonable awareness: whether people in general would assume that the writing on the back contained conditions (you would expect conditions on the back of a bill of lading). Three scenarios:
1. if the person receiving the ticket did not see or know of the writing, he is not bound by conditions 2. if he knew there was writing, and knew or believed that it contained conditions, then he is bound by the conditions 3. if he knew there was writing on ticket, but did not believe that the writing contained conditions, he would be bound if the delivering of the ticket to him in such a manner that he could see there was writing upon it, was, in the opinion of jury, reasonable notice that the writing contained conditions.
Bramwell- There is a contract if the person is aware that there is writing. If the plaintiffs did not read it they were as much bound as if they had read it and had not objected. The plaintiffs must have known that the writing concerned them. • Legal issue for Bramwell: “Can a man properly omit to inform himself, being able to do so, and then justly claim, when he could not have claimed if he had informed himself?” COMMENTS:
• Onus on defendant
• Claims he can’t lay down a broad general principle, but in fact he does: o If common knowledge is that a paper contains conditions (bill of lading), the fact that you did not know cannot get you out of the conditions o But gives another, commercial rationale: if had to stop to explain to every person what a bill of lading is, it would be “plainly impossible that business could be carried on.” ▪ But the case
is the same here. See Thornton: Denning: “No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat.” Bramwell:
• onus on plaintiff – extremely reactionary
• Argues and answers the case himself, even though the purpose of appeal is to determine whether new trial should be held because of direction judge gave to the jury. Bramwell not only explains how judge should direct the jury, but also what the outcome should be. • poor argumentation:
o “People are content to take things on trust” Assumes reasonableness of conditions o But reasonableness is simply what becomes common usage – no input by clients. Nothing inherently reasonable in condition.
Thornton v. Shoe Lane Parking Ltd (1971 UK CA)
Facts: Accident in parking lot. Ticket states that it is issued subject to external clauses. Issue: Did the exempting condition form part of the contract? NO Ratio: Denning- 2 reasons:
• Offer and acceptance:
o Contract was concluded when plaintiff put his money in the machine and hence before receiving the ticket . Offer was contained at entrance, with prices, etc. ▪ different from cases where one receives tickets from teller because he cannot get money back from machine. • Reasonable notice of conditions:
o The terms of the offer are contained in the notice placed on or near the machine. The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise. o If have an unusual condition, small print is insufficient – duty to bring to customers’ attention the conditions contained in a ticket in the most explicit way: printed in red ink with a hand pointing to it. Obiter: Assuming that the machine were a clerk, the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or,
if the company did what was reasonably sufficient to give him notice of it. Defendants did not do what was reasonably sufficient. COMMENTS:
• Denning: In case of machine, “The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise.” o Contrary to Denning’s claim, there is no substantial difference between human attendant and machine: contract is still concluded at same time. True that can’t argue with a machine, but, according to his own criteria, the contract in both cases is concluded at the same time, and the conditions on the ticket in both cases are received after the contract is concluded. o What if ticket comes out of machine, attendant takes it, and then hands it over to you? The conditions are already printed on the ticket anyways. Criticism of Denning:
o (Possible title of essay: Denning: Panache or Pastiche? [Note how it echoes “Fusion or Confusion?”) o These notions of “awareness” (Mellish) and “machine v. human attendant” (Denning) seem to be influenced by an idea of pre-capitalist agreement between individuals – this nostalgia of sorts is odd, considering that the formalized agreement of today (K) is truly a capitalist tool, if not invention. ▪ Possible reasons for Denning’s claim: Policy or keeping within scope of precedent, since he himself acknowledges that the past cases were based on the legal fiction that a person could read the conditions and ask for money back if disagreed. o Denning even writes in a Victorian pastiche far too reminiscent of Thomas Hardy (or, as Dr. Klinck more kindly refers to it in an article, a pastoral style), quaintly examining the modern world from a more rural perspective in a supposedly comical anthropological style. ▪ Denning writes as if he were Dickens’ Mr. Skimpole (Bleak House), where musicians, crane operators, cricket players and viewers, and subsidized housing purchasers people the landscape for the benefit of his imagination.
Situating the Contract in a Factual or Legal Setting:
Types of Ks:
o Nominate: Arts. 1708-2643
o Includes Sale, gifts, leasing, carriage, employment, partnership, annuities, insurance, etc. o If can set a K w/in a specific nominate category, many clauses will instantly apply o Innominate
o Includes Ks of hostelry (subject to 2298), medical, franchise, etc. o Mixed:
o Those Ks consisting of two or more nominate Ks (ex.: rent-sale)
Art. 1434: Parties to a K are bound by
o What is expressed
o What is incident to K according to its nature and in conformity with o Usage
▪ Art. 1375: good faith
Crepeau et B/J:
o A right can never be absolute. Every right has a particular purpose: it is conferred to meet social imperatives or economic needs, not to assuage instincts of vengeance or spitefulness. o Usage, equity, law can be used to interpret ambiguous terms.
Ontario Sale of Goods Act ss14-15(p.170)
s.14.In a K of sale of goods by description, implied condition that the goods will correspond to the description Implied conditions as to quality…
s.15.no implied warranty in contract of sale, except… (exceptions are broad enough that they make some form of warranty the rule.)
British Crane Hire v. Ipswich Plant Hire (1975 UK CA)
Facts: Crane sank in mud. Oral contract – no mention of conditions. Accident occurred before printed form was signed by defendants. Held: Conditions
contained in unsigned form should be incorporated into K Ratio: Denning-
• Previous course of dealing
o Not accepted here b/c had only dealt w/ each other 2x before • common understanding which is to be derived from the conduct of the parties: ▪ that the hiring was to be on the terms of the plaintiffs’ usual conditions. ▪ Both parties, being of equal bargaining power, enter contracts on assumption of trust that normal conditions apply (Bramwell in Parker), unless specifically stated otherwise. British Crane did not state otherwise. Obiter: plaintiff could have also recovered on the implied term that hirer should return the chattel to the owner. But it was not argued. COMMENTS:
• Denning did not look at content of K, but rather at the factual setting of the K – equal bargaining power, business usage, relations, etc. • As in w/ bill of lading in Parker, known that such conditions are standard. Denning’s obiter would have made a stronger argument.
GOOD FAITH & IMPLIED TERMS: Fabricating the Contract:
Four possible reasons for inventing something new that isn’t in the factual or legal setting: 1) Logically in contract even if not stated
2) Adding what contracting parties probably had in mind but didn’t include in K 3) Contracting parties didn’t have it in their minds, but had the issue been brought to their attention, they probably would have included it in K. 4) Adding what is just and fair
Art. 6: exercise civil rights in good faith
Art. 1375:Parties shall conduct themselves in good faith at time ob is formed, executed, extinguished. o Note: no mention of “at time it is negotiated.” o Largely a result of Houle and Soucisse.
o Common Law: McKinlay: seems no need for good faith at time
extinguished. Art. 1434:Parties bound by what is express and what is in conformity to (i.e., implied by) equity, usage, law.
Good faith required in pre-K stage. Normally, fault in pre-K stage is delictual, not contractual, unless one imagines that the parties have an implied pre-K agreement to negotiate in good faith. o i.e. B/J seem to imply that good faith in pre-K can be derived from Art. 1375. It would rather seem that this duty derives more logically from Art. 6, but can get more damages through 1375 than 6.
Officious bystander test: what would parties have answered if 3rd party asked them while making the K? 3rd of 4 rationales
Business efficacy test: what must be necessarily implied for K to make business sense. Ex: Empress: K does not make sense if Empress does not negotiate at all. o These 2 tests have been criticized: ratify purpose of K and disconnect it from what parties really agreed to. o Common law implies terms as often as civil law
o Pockets of good faith, no general principle as in Arts 6, 1375. o BUT the increasing appearance of good faith seems to indicate the emergence of a general principle.
National Bank of Canada v. Soucisse (1981 SCC Quebec)(Equity implies good faith)
Facts: Surety dies. Bank did not tell heirs that suretyship could be revoked at any time. The bank took the initiative to contact the estate to inform it of the obligations of the surety. But the bank did not tell the estate of the 2 letters of surety that are at issue, and on which it relies in claiming to be repaid certain advances. Held: Heirs are not responsible for paying debt incurred after surety’s death. Ratio: Beetz-
1. Bank was at fault. Once the Bank took the initiative in informing the estate, it assumed a duty to do so completely. Art. 1434: Equity implies that agreements must be performed in good faith. 2. Can apply a fin de non-recevoir since the Bank would be deriving a benefit from its own fault. Sources: French and Belgian cases: banks have a duty to warn heirs based on a duty of good faith in performing Ks. In order to invent a new clause, the court relies on an extremely general reference to equity. • Problem: in CCLC, no provision equivalent to 1134 CN or 1375 CCQ (good faith re. contracts), so clearly law was not the same. • Art. 1024 CCLC: (today’s equivalent: 1434 CCQ) contracts include not just what is said, but also what must be implied according to equity, usage, law. o Beetz: what can possibly be more required by equity than to act in good faith? COMMENTS:
Fin de non-recevoir (definition)
• Sometimes confused with estoppel, which does not exist in civil law • All fins de non-recevoir are not listable. This case cements new category: o “No complaint can be based on, nor advantage derived from, one’s own action, negligence, imprudence or incapacity, much less fault, to the detriment of another…. [N]o one should derive a benefit from a fault committed by him: on the contrary, he should repair the damage caused.” (Lemerle)
McKinlay Motors v. Honda of Canada (1989 NFL)
Facts: Honda dealer asks McKinlay to expand premises, but also gives them less cars. Eventually terminates contract. (Pizzazz) Held:Implied term: parties must act towards each other in good faith: H reduced allocation of cars in bad faith. Ratio:
• Honda was fully within its rights to terminate contract, so no breach of contract there, not even for giving more notice than required. • Reduction of cars was done in bad faith and was serious enough to constitute a breach of contract. COMMENTS:
• Not clear why can imply a term of good faith in the dealings within the
contract (allocation of cars) but not in the reason for the termination of the contract. Compare to Art. 1375. o If there was bad faith in the one, clearly bad faith in the other – contract was terminated for a reason corollary to reason for reduction of cars.
Martel Building v. Canada 
Facts:Martel submitted the lowest bid but was not chosen by Atomic Energy of Canada. Held:implied term of good faith to treat all bidders fairly Ratio:
• two standards:
o 1) business efficacy: tender process would not make commercial sense if gov’t did not treat bidders fairly. o 2) officious bystander.
ABUSE OF RIGHTS: Limiting the Contract (CVL)
• Abuse of rights = oxymoron. Either you do or you do not have a right o Had Houle been common law case: no abuse of rights, but implied clause re. reasonable time.
No right is absolute.
Art. 7: No right may be exercised so as to harm another or in an unreasonable manner which is contrary to the requirements of good faith. o last clause may be problematic – Houle (pre-CCQ): no bad faith at all Art. 1403: Fear induced by the abusive exercise of a right or by the threat of such exercise vitiates consent.
Houle v. National Bank of Canada (1990 SCC Quebec)(Sale of assets in 3 hours)
Facts: Banks called loan and immediately took possession of assets and liquidated them in < three hours. Family then sold company for much less than it was worth. Held: Bank had legitimate right to recall loan, but the
exercise of that right without providing the debtor with a reasonable delay constitutes an abuse of rights. Ratio:
1) Abuse of contractual rights:
• Abuse of rights can stem from:
o bad faith
o unreasonable exercise of contractual right
• Only parties to a K may claim for breach of that contractual obligation. • Reasonable delay determined according to facts of each case • Since respondents were not parties in the K, they had no right of action against the bank based on that contract for the abuse by the bank a kual right. 2) Delictual Responsibility:
• Arises not from the contract, but from the law itself: Art 1457 o Three things must be established:
Fault(Bank’s impulsive repo while fully aware of Houles’ imminent sale of shares.) Damage(reduced price of shares)
Causation(shares sold to company that the bank knew they were negotiating with) • Kual relationship does not shield parties from their extra-k responsibilities to 3rd parties o Delictual liability requires a legal obligation, apart from the K, between the K’ing party and 3rd party. o Normally, relationship between bank and family would not be enough to create a legal obligation on the part of the bank • But here, bank knew about imminent sale of shares • (Malouf:) General legal obligation not to prejudice the parties to a sale when the sale is, to his knowledge, imminent • Should the sale fail to materialize or the price decrease due to a course of conduct which constitutes a fault, liability may be engaged under 1053 CCLC / 1457 CCQ. Obiter: For delictual liability to arise between the contracting parties themselves, the fault alleged must be independent of the contract and would have existed even independently of the contract COMMENTS:
• If contract had contained a clause saying it could liquidate the assets w/in 3 hours of notice, would not have been an abuse of rights (art. 6), but an abusive clause (Art. 1436). o Abusive clause is only relevant in contracts of adhesion.
Calmann-Levi c Koskas (1992 CA Paris)(Novel – Type 4)
Facts: Publishing K: CL published Koskas’ 1st novel, with right of 1st refusal for next two. Koskas submitted intentionally unpublishable works to get out of K. Held: Abuse of rights arises from bad faith.
• Considering that the right of first refusal is intended to limit the publisher’s financial risks in publishing a new author, a new author cannot liberate himself from the contractual obligations by submitting a manuscript he knows to be unpublishable.
PUBLIC POLICY: The Kinds of Agreements that are not Enforced:
How do courts determine what sorts of activities are sanctioned? What sources do courts draw upon? o Previous judgments
o public opinion
o moral argument
o government pronouncements
How closely related must the contract be to the illicit activity to keep it from being enforced? Two ways to determine: • terms of the contract
o If the object of the prestation is itself illicit (i.e.: cocaine) o If the object of the obligation is illicit (1373 i.e.: contract to murder) o if the object of the contract is illicit (1412-3 i.e.: contract to sell blood. Both parts of transaction are legal, but together not. • Cause of the contract (as it’s known in civil law – Arts.1410-11) i.e.: buy hydroponic equipment with the purpose of growing marijuana, or contract contrary to public policy
Art. 9: In the exercise of civil rights, derogations may be made from those rules of this code which supplement intention, but not from those of public order. Art. 1373: The debtor is bound to render a prestation that is possible and determinate or determinable and that is neither forbidden by law nor contrary to public order. Art. 1411: A contract whose cause is prohibited by law or contrary to public order is null. Art. 1413: A Contract whose object is prohibited by law or contrary to public order is null. Art. 1417: A Contract is absolutely null where the condition of formation sanctioned by its nullity is necessary for the protection of the general interest. Art 1419:A contract is relatively null when nullity is necessary for the protection of a private interest, such as where the consent of the parties or of one of them is vitiated (ex.: contract under duress) (See also 1420) Art. 1422: Effect of nullity: A contract that is null is deemed never to have existed. In such a case, each party is bound to restore to the other the prestations he has received. (Art. 1699: restitution of prestations.)
Brasseries Labatt c. Villa [1995 CA Quebec]
Facts: Promotion required V to move family to Montreal. He didn’t do so and was dismissed by L for breach of K. Held: Discriminatory clause on the basis of Villa’s civil status – violation of Quebec Charter. Ratio:
• Contrary to public order. (art. 1373) and contrary to the Charter art 10 (p. 1352 of CCQ) which forbids any discrimination based on “l’etat civil” (marital status). o Cannot be defended under art. 20 of Charter, which allows discrimination re. things listed in Art. 10 if that discrimination is required by the employment. Here, requirement is not connected to legitimate business interests. • Intent v. Effect: a Kual clause is discriminatory if either its effect or intent is discriminatory. (Same with fed. Charter: Purpose or effects.) Gendreau-
• an employer cannot impose on his employee a way of living his marital and family life. Also against the right to private life (art. 5 of Charter).
Clause is bad because it contravenes public order – moral argument used. Could not simply have argued that it was an abusive clause (1437) because prior to 1994, no such thing in CCLC
Textual and Virtual Restrictions:
Everything that is not prohibited is permitted
• The source of the public order is a text
• Tend to be easy to impose. ex.: Art. 541: Procreation or gestation agreements Virtual:
• Difficulties arise because there’s nothing to point to as proof that the activity is illicit • Often what begins as a virtual public order becomes a textual public order
In the Matter of Baby M (1988 New Jersey)
Facts: Surrogate mother agrees to be artificially inseminated w/ the plaintiff’s sperm in exchange for money. But she no longer wants to give up the child to the natural father and his wife. Held: Surrogacy K is not enforceable b/c conflicts with law & public policy. Mother’s consent is irrelevant. Ratio:
– Payment of money to the mother is illegal, perhaps criminal, and potentially degrading to women. – Long-term effects of surrogacy K are unknown
Social values, potential offensiveness to women, Senate report = criteria here. Note how, re. social issues, restrictive/ proactive approach is taken (effects on women unknown), but re. economic issues, usually liberal/ reactive approach is taken. Civil law: Art. 541: procreation or gestation agreements.
Cataford c Moreau [1978 CS Quebec](Tubal ligation)
Facts : Tubal ligation improperly performed & Cataford gets pregnant. Catafords are poor & have 10 kids already. Catafords claim breach of K. Moreau claims K void for being contrary to public order; therefore no K. Held: Tubal ligation is not contrary to public order.
• Given the age of the parties, the number of children they already had, and their socio-economic situation, there was nothing illicit in the tubal ligation • Sources to determine public order:
o Medical opinion is not opposed to sterilization for serious reasons o distinguished Canadian investigators share this opinion o Quebec gov’t considers sterilization legitimate
o Regie de l’assurance-sante du Quebec covers the cost of sterilization
Restrictive Covenants and Severability:
• Main purpose of restrictive covenants: to protect the employer. It’s in the employer’s interest to have no restrictions as to what can be prohibited. • Almost no difference b/w CVL & CML re. non-competition clauses, except regarding presumption of invalidity. But end result is the same.
• Known as “clause containing restraint of trade”
• Presumed to be void for being contrary to public policy (economic interests of society), but will be upheld if found to be reasonable after regard to the legitimate interests of the parties and also of the public. o Example of how K law functions to protect freedom to be a’doin’. • The restriction is reasonable if it is directed to the protection of the of the proprietary interests of his business (Gordon).
• No presumption of invalidity, but limited by Art. 2089. Art. 2088: Employment contract: employee is bound… not to use any confidential information he may obtain in carrying out his work. These obs. continue for a reasonable time after cessation of the K, and permanently where the info. concerns the reputation and private life of another person. Art. 2089: Restrictive covenants: Employment K may stipulate that employee will not compete w/ employer or participate in any capacity whatsoever in an enterprise which would then compete with him, even after termination of K. LIMITS: as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer. o Restriction has to be related to the legitimate business interests of the employer/ buyer of business. If it’s a short time, it can be a larger area. o Same criteria as CML (Gordon v. Ferguson)
COMMON LAW: Gordon v. Ferguson.
CIVIL LAW: Art. 1438.
• If the bad clause of the K is the object of the obligation, the object of the K, or the cause of the K, then the K as a whole falls. • If the bad part of the K is a secondary obligation, clause can be severed. • So can court change the clause to keep it within the permissible bounds? NO o Don’t want judges making contracts
o whole justification for contracts stems from parties’ intent. o Courts don’t read down contracts when doing so goes against the plain meaning o don’t want to give employers the ability to put all sorts of clauses into a contract and have the court shoot down the invalid ones. ▪ Forces employees to go to court, where they will likely be at a disadvantage financially ▪ Not reconstructing clauses forces corporations/ parties to demonstrate self-restraint. • B/c courts seem not to read in, way for employers to get around this: o Phrase clauses in such a way that they can be read down or selectively severed: i.e., instead of “20 mile radius,” “Nanaimo and 20 mile radius.”
▪ Permits blue pencil or selective severance approach. o Include severability clause: contract stands w/o one of these clauses. o Some have tried to include a clause allowing the court to become an agent of the parties to rewrite the K. ▪ But courts have refused – doing so protects employers ▪ Deterrence that entire clause would fall is gone if courts allowed this. Courts don’t have much problem in severing a whole clause, but do have problems with selective severance
Pigeon J. in Cameron: this is ridiculous: look at substance, not form.
Cameron v Canadian Factors Corporation [1971 SCC Quebec]
Facts: Non-competition clauses prohibit Cameron from (1) attempting to induce clients or prospective clients, and (2) from working anywhere in Canada in the same business or in a finance company. If he breached, was liable to pay $10,000. He took job w/ rival factoring firm 3 weeks after quitting. (Note that what he did was within what a reasonable restrictive covenant could have validly prohibited.) Held: There was breach of K, but it was invalid.
Need to balance the interests of the employer (protection of business) and the employee (economic mobility) (the $10,000 is not a problem.) ▪ Contrary to principles of public order (freedom of economic/ employment opportunity, personal freedom) ▪ Exceed any reasonable requirement for employer to protect its business interests (duration, territorial scope, and range of employments). Dissent: Pigeon. This type of K only becomes invalid if it impairs freedom of employment by reason of excessive limitations in terms of time and space, and with regard to the nature of the activities forbidden to the employee. This contract is divisible. Make it separate within the same paragraph. COMMENTS:
• Severability: Laskin asks typical question: How central is that clause to the entire K? If K makes sense w/o it, can sever clause. Here, it’s a part
of a clause, not a whole clause.
Gordon v Ferguson [1962 NS SC] (Severability)
Facts: Physician signed employment K containing non-competition clause which prevented him from practicing medicine “within the town [Halifax] and a radius of 20 miles from the boundary thereof” and 20-mile radius. For 5 yrs. Held: Covenant is invalid and restriction cannot be severed Ratio: MacDonald-
• A clause on restraint of trade is presumed to be void as contrary to public policy, but will be upheld if found to be reasonable having regard to the legitimate interests of the parties and of the public. It can only be viewed as reasonable if it is directed to the protection of the covenantee’s proprietary interest. • Prohibition was excessive because:
o Precludes employee from dealing with patients unconnected with the practice (proprietary interest) of the employer (including persons who have moved into the area after termination of K). o Unreasonable in extent.
• Can’t fix clause b/c would require reading in.
• TEST: Three general rules re. severability of covenants in restraint of trade: o Technical: whether the K constitutes one indivisible covenant or series of independent covenants – whether you can excise part w/o affecting the whole. General caution against carving out of void covenants the maximum which the employer validly could have inserted o Each covenant according to its own facts: unlikely that precedent will help. o such guidance as there may be from precedent should be derived from Canadian rather than British cases. COMMENTS
Test of validity of restrictive covenant is same as Art. 2089.
Impact of Illegality
Art.1418: Absolute nullity
o May be invoked by any person having a present and actual interest in doing so. It is Absolute nullity is invoked by the court of its own accord. A K that is absolutely null may not be confirmed. Art. 1420: relative nullity
o May be invoked only by the person in whose interest it is established or by the other contracting party, provided he is acting in good faith and sustains serious injury therefrom; it may not be invoked by the court of its own motion. A K that is relatively null may be confirmed. o See also 1421: unless the nature of the nullity is clearly indicated in the law, a K which does not meet the necessary conditions of its formation is presumed to be relatively null. o Common law is equivalent of 1419.
Art. 1422: A contract that is null is deemed never to have been written. o In such a case, each party is bound to restore to the other the prestations he has received. Art. 1438: Null clause:
o Does not render K invalid in other respects unless it is apparent that the K may be considered only as an indivisible whole Art. 1699: Restitution of prestations:
o Occurs where a person is bound by law to return to another person the property he has received, either unlawfully or by error, or under a juridical act which is subsequently annulled retroactively… o The court may, exceptionally, refuse restitution where it would have the effect of according an undue advantage to one party, whether the debtor or the creditor, unless it deems sufficient, in that case, to modify the scope or mode of the restitution instead.
Reasons for setting aside (prima facie valid) agreements:
Substantive v. procedural unfairness:
procedural: there was a problem with the way the K was signed
substantive: something wrong with the content: uncommon in the law Usually, if there’s a substantive unfairness, it will be b/c there is a procedural unfairness as well. • Courts are much more disposed at looking at procedural problems. Often will say they’re looking at procedural problems, but they’re actually looking at substantive problems. • In next five sections, move from procedural unfairness to substantive unfairness.
Competence/aptitude: One’s factual ability to understand the implications of a K. Protects people who become mentally ill suddenly or are under the influence of alcohol or drugs. Capacity:The legal ability to bind oneself
Can be curtailed only by statute (minors [art. 153], etc.) or by a court order (putting someone under a protective regime) o Incapacity is a ground for nullifying contracts in both traditions (Art. 1385).
Art. 4:Presumption of competence.
Art. 1385: A K is formed by exchange of consents
Art. 1398: Consent may be given only by a person capable of binding herself.
• Person who invokes incapacity must prove its existence. • Capacity and consent are not synonymous.
• Types of incapacity:
o Incapacity of exercise
▪ Declared by law – a person is restrained from liberally exercising certain of her rights, in general those that deal with the protection of her personal interests. ▪ Not permanent
• Example: incapacity of a minor
• Relative nullity (in principle)
o Incapacity of use:
▪ Veritable ban on contracting – individual is separated from his juridical personality ▪ Founded on notion of public order.
• Both legal incapacity (special rules for minors) and rules for inability to consent (1398) are included under incapacity. • Poor and Ignorant Persons: courts have tried to expand concept. o Requires substantive unfairness
Knowledge of incapacity/ incompetence on part of other party: • Common Law: Knowledge is required for incompetence, but not for incapacity • Civil law: knowledge of either is irrelevant
o In both systems, where you have legally incapacitated persons, knowledge is not required. In other cases of factual incapacity, in the common law you need knowledge for K to be set aside. In civil law, not exactly clear (1398 does not say anything about it). o If the issue was really about whether the person really consented, then knowledge should be irrelevant. o Art. 149:Relative nullity: Only the person who suffers from incompetence may annul the K.
Thibodeau c. Thibodeau [1960 SCC Quebec]
• Total insanity is not required to pronounce the nullity of a K. • K will be null for lack of valid consent if the person lacks o the capacity to understand its significance,
o the will to appreciate the deed, to resist or consent to it, o if by reason of a weakness of mind the person lacks ability to evaluate the deed or its consequences. In one word, if the person has no control over his mind NOTE:
• Presumed competent at time made the K (Art.4). How can he prove he was
incompetent? Can show he was incompetent before and after. Here, established as a fact that he was incompetent in August and October, so presume he was also incompetent in September • Substantive issues not discussed at all. Approached purely from procedural angle. • Court speaks of mental incapacity. Today, all incapacity is referred to as legal incapacity. Thibodeau would be decided on 1398, on the basic ground of consent.
Two impulses: to protect the victim and punish the perpetrator.
CML v. CVL:
• In both traditions, threat must be known by the other party. • terminology and approaches are different.
o CVL: Consent vitiated by fear (art. 1399)
o CML: “Coercion of will vitiates consent” (Pao On v. Lau Yiu) o See greater tendency to protect abstract interests of “the economy.” Reduction of obs.:
o CVL: Art. 1407: Party whose consent is vitiated through fear can have his obs reduced o CML: no notion of reducing obs – either have K or don’t.
CIVIL LAW approach:
▪ Art. 1399: Consent may be vitiated by fear. (But not all types of fear.)
STEP 2: TYPES OF FEAR THAT MAY VITIATE CONSENT:
▪ Art.1402: Reasonable fear of serious injury:
o threat must be known by creditor (unlike CCLC 994 – now brought in line with France & common law) o threat has to be illicit/unlawful
o threat of serious injury to person or property (odd since threat has to be unlawful). o The fear must be “determinant:” Threat must
have induced you subjectively and objectively (not in code, but traditionally part of civil code). ▪ Objective test: it must be a fear of “serious injury” ▪ Subjective test: it must be a “reasonable fear”.
STEP 3: PROCEDURAL v. SUBSTANTIVE UNFAIRNESS:
▪ Fear must be induced by one or more of following means: 1) direct exertion of threat – Art. 1402
o Procedural unfairness: consent is vitiated. (Doesn’t matter if it’s a good deal) o Threat must be against contracting part or a third party. o Threat must be illegitimate (implied from art. 1403) o Threat must be known to other party
2) abuse of right – Art. 1403
o Procedural unfairness: consent is vitiated. a. Joubert v. Lapierre
3) state of necessity – Art. 1404
o Substantive unfairness must be established to vitiate consent. o Must entail exploitation of the situation – bad faith o Bad faith is determined by whether or not the party exploited the state of necessity. If acted in good faith, consent is valid. a. Stauss-Schillo v. Goblet
STEP 4: REMEDY:
▪ Art. 1407: A person whose consent is vitiated can have K annulled; in the case of error caused by fear, may also claim damages, or where he prefers K to be maintained, apply for reduction of his ob equivalent to the damages he would be justified in claiming. o Compare to CML: no notion of reducing the obs.
Joubert v. Lapierre (1972 CS Quebec)
Facts: Milkman forced to buy milk route to renew contract. Joubert had adopted the policy of selling the trucks to employees because it did not want to enter in collective bargaining. Held: Fear induced by abuse of rights
• Procedural unfairness: Fear was not induced by illegitimate means (had the right to fire him), but by abuse of right (used a right for another end– to get rid of union and avoid collective agreement) • Substantive unfairness: Milk route was surely unprofitable. COMMENTS:
• Art. 7: Abuse of rights: No right may be exercised in an unreasonable manner which is contrary to the requirements of good faith. • Borderline case: very close to normal negotiation process. • COMMON LAW: May be a case of undue influence in common law (b/c L, being poor and ignorant, has a relation of trust).
Strauss-Schillo v. Goblet (1946 France)
Facts:Jews sold furniture for a fair price before fleeing France to avoid Nazi invasion. Held:Consent not vitiated by duress
• Art. 1404: state of necessity alone cannot vitiate consent: if other party knew but did not act in bad faith, consent is not vitiated b/c no exploitation. • Fear originating from 3rd party can vitiate consent (1402), but consent must have been provoked by the violent activities/ threats of the 3rd party, and not merely exclusively by exterior events, or from a simple state of necessity, however serious. • K was not signed as a result of actual violence, but b/c it was an efficacious way of avoiding the eventual violence. COMMENT:
• Substantive fairness is noted in decision: price paid was fair.
COMMON LAW approach:
Barton v. Armstrong [1975 JCPV]
Facts: A threatened to kill B if B does not agree to a fair business deal. B agreed partly b/c of commercial motive. Held:Threat vitiates consent even if it is only one of several reasons that contributed to the consent.
the court does not allow an examination into the relative importance of contributory causes. i.e.: No “but/for” test.
NESS Test: Necessary element in a set of sufficient conditions. NOTE:
Civil law: ‘but for’ test (1401) may have led to different results.
Corresponding CVL: art. 1402: “fear of serious injury to the person or property of one of the parties…”
Pao On v. Lau Yiu [cited in Atlas] Test for economic duress (coercion) vs. commercial pressure:
▪ Whether the person alleged to have been coerced did or did not protest. ▪ Whether alternative course was available to him.
▪ Whether he was advised by an independent (neutral) agent. ▪ Whether after entering the contract he took steps to avoid it. ▪ Whether other party confronted him with coercive acts. [Atlas] Note: Atlas: not all the tests have to be satisfied.
Atlas Express v. Kafco [1989 UK QB](Threat of breach of K = illegitimate means)
Facts: A underestimated cost, entered contract w/ K, then threatened to breach of K did not agree to revised price. A knew K had to meet deadline & did not have time to negotiate w/ another shipper. Held: second K not binding
Ratio: There are 2 reasons why the agreement is not binding: • economic duress:
o Threat of breach of K is an illegitimate means of commercial pressure. Also, A acted in bad faith, exploiting K’s weak bargaining position.. • no consideration for the increased charge.
Williams v. Roffey Bros [1991 UK CA]
Facts: Carpenter unable to complete K due to financial difficulty. R volunteered to pay more to get job done. Held:Non-opportunistic threat to breach contract (no intention to exploit deadline) NOTE:
• Gilbert Steel – non-opportunistic threat to breach K also • Had Roffey not been a contractor, but instead a consumer, unlikely that case would be decided this way – different standards for business v. individual. • Importance of good faith, though not mentioned.
State of necessity:
In neither system is there a general defence of state of necessity.
state of necessity – Art. 1404
o Substantive unfairness must be established to vitiate consent. o Must entail exploitation of the situation – bad faith o Bad faith is determined by whether or not the party exploited the state of necessity. If acted in good faith, consent is valid. a. Strauss-Schillo v. Goblet
▪ “Unconscionability” covers things broader than “state of necessity.” o Covers situations where one party can and does take advantage of another party 2 elements: (Need both)
▪ Procedural: superior bargaining power: (ex.: monopoly or “poor and ignorant persons.”) ▪ Substantive: taking advantage: price is unfair.
Post v. Jones [1856 US]
Facts: Exploitative auctioning of whale oil belonging to rescued whaling crew – K held invalid. Ratio: Grier:
▪ Procedural: unfair circumstances: rescued party has no bargaining power ▪ Substantive: Exploitation is evidenced by the unfair price paid for the oil NOTE:
▪ Economic imperative:
The general interests of commerce will be much better promoted by requiring the salvor to trust for compensation for the liberal recompense usually awarded by courts for such services.
Undue Influence: CML
• Solely a common law concept
• Also contained w/in “unconscionability.” (See previous section.) • Definition:
Two classes of Undue Influence:
o 1) Enter K with someone you trust and that trust is abused to obtain an advantage, or: o 2) Enter K with someone you trust; that person did not commit any wrongful act, but did gain some advantage. o Differs from duress in that not forced to enter into K; instead, you happily surrender your judgment to the other person. ▪ Two types of undue influence:
o De facto undue influence: Claimant must prove that other party, conscious of his position of authority, exerted undue influence to enter into the K o Presumed undue influence: (Requires substantive unfairness – Morgan) ▪ Automatic presumption: certain relationships as a matter of law raise the presumption that undue influence has been exercised. (e.g. doctor/patient, lawyer/client…etc.) ▪ De facto presumption: No such special relationship, but there was a
relationship under which the claimant generally reposed trust and confidence in the wrongdoer. (No need to prove that the wrongdoer exerted actual undue influence. o Rebuttal of presumption:
▪ K was not manifestly disadvantageous (Morgan). ▪ Victim acted independently – i.e. person got independent legal advice. Like the law in general, this concept is alienating, condescending (not always the case w/ law in general – sometimes expects you to know too much), and disempowering.
• Would call this “fear” or “violence” (duress), or, where no fear or violence, “error” or “mistake.” • There is a duty of disclosure in CVL, esp. w/ lawyer, doctor, etc. • These cases are not that different from Thibodeau
o Theoretically, might be able to use Art. 1398 (consent may be given only by a person capable of binding herself), but this has never been tried.
Lloyds Bank v. Bundy [1975 UK CA Denning](Inequality of Bargaining Power)
Facts:Bank manager encouraged Bundy to sign second guarantee on son’s debt, for which he received no consideration. Son went bankrupt. Held: The agreement can be set aside.
• General principle: Person who signs a bank guarantee can’t get out of it. o Exception: Inequality of bargaining power is found in several areas, but has never been acknowledges as a general principle. ▪ Duress of goods/ unconscionable transactions/ undue influence/ undue pressure/ salvage agreements Principle : Inequality of bargaining power: courts give relief when (1) terms are very unfair and
(2) contractant’s bargaining power is grievously impaired by reason of his own needs/desires/ignorance/infirmity, coupled with undue influences by
other party. Other judges:
• Presumption of undue influence:
o Special relationship: Bundy trusted bank manager’s advice on general matters of the transaction. Bank did not advise him to receive independent advice. o Substantive unfairness: Consideration moving from bank was grossly inadequate. COMMENTS:
• Bank manager did not act in bad faith.
• Denning’s ratio is overturned in Morgan, but other judges’ ratio is not.
NatWest Bank v. Morgan [1985 HL](Undue influence, not inequality of barg. power)
Facts: In order to avoid losing the house, husband made refinancing arrangements with a bank, the refinancing being secured by a legal charge on the house. Bank manager incorrectly assured the wife in good faith that the charge only secured the amount advanced to refinance the mortgage. In fact the charge was unlimited and extended to all the husband’s liabilities to the bank, although it was the bank’s intention to treat it as limited. Bank did not advise her to obtain independent legal advice. Hubby died leaving no debt, but she falls into debt. Agreement is not manifestly disadvantageous to her. Held: Not a case of (presumed) undue influence.
Ratio: Lord Scarman:
Need both undue influence and substantive unfairness to set aside K on these grounds. ▪ Presumption of undue influence: not all confidential relationships create presumption of undue influence. ▪ There must be a “special” confidential relationship ▪ There could be a special relationship b/w banker/ customer, but not here: • The signing of the charge to refinance the mortgage was an ordinary banking transaction. • If bank goes further and advises on more general matters regarding the wisdom of the transaction, then a special relationship may be created. COMMENTS:
▪ Re. Denning:
o Denning was mistaken in finding an overarching principle of inequality of bargaining power o Unfair bargains are enforceable, except in specific circumstances
Barclays Bank v. O’Brien [1994 HL] (Undue influence by 3rd Party – constructive knowledge)
Facts: Husband uses matrimonial home as security for business debts. Both hubby and wife sign guarantee, but wife was not made fully aware of nature and extent of guarantee. Bank attempts to take possession of house. Held: Lord Browne-Wilkinson
▪ De facto undue influence (not automatic presumption): Wife relied on husband. ▪ Substantive unfairness: Wife got nothing out of deal.
▪ General rule: A creditor not affected by defect of consent of third party that they are not aware of. You need knowledge. But the creditor bank is affected by 3rd party’s undue influence if: ▪ i) it has notice (they knew about it) or
▪ ii) constructive notice: they should have known about the risk of it. ▪ The fact that bank knew that there was a relationship b/w hubby/wife = there might be undue influence. Therefore under duty to inform wife (3rd party) that she should get ind. advice. ▪ If the bank doesn’t do anything, it is presumed to have known of the undue influence. ▪ This principle holds w/ all cohabitees.
▪ if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in the knowledge of the true facts, the creditor will be unable to enforce the surety obligation Comments:
▪ Underlying issue: should the law go ahead of social reality or should social reality go ahead. ▪ Note importance of economic rationale: “an
important public interest, viz the need to ensure that the wealth currently tied up in the matrimonial home does not become economically sterile.” Need to ensure that law intended to protect spouses does not make home useless as security.
Unfair Content: Abusive Clauses and Exclusion Clauses
Continuing the CML notion of “unconscionability.”
Abusive clause: Definition: Difficult to define.
Does not apply to essential elements of K (Yoskovitch)
What is different here from Unfair Circumstances:
▪ Concern for procedural fairness seems less central – greater concern for substantive fairness ▪ unfairness covers just a part of the contract, not the K as a whole ▪ Unfairness will be located in a part of the K that is severable – i.e. in a clause, not whole K. ▪ Not a problem of consent
CIVIL LAW: Abusive clauses in K of adhesion/ Consumer K.
Art. 1379: K of adhesion: A K in which essential stipulations were drawn up by one party and were not negotiable. Art. 1384: consumer K
Art. 1400: Error re. essential elements vitiates consent. (Yoskovitch) Art. 1432: Contra preferentem.
Art. 1436: an illegible or incomprehensible clause is null in a consumer K or in a contract of adhesion Art. 1437: an abusive clause in a consumer contract or contract of adhesion is null, or the obligation may be reduced. An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore in bad faith. Art. 1438: Null clause: doesn’t render K invalid unless it is apparent that K may be considered only as an indivisible whole. Art. 1474: Exclusion clauses: Can’t limit injury caused by intentional or gross fault (gross recklessness, carelessness, negligence) ▪ If have exclusion clause but cannot use 1474, can go back to 1437 (abusive clause) ▪ Could be argued that silence in Code is intentional & that can’t go back to another art., but still worth trying.
Yoskovitch v. Tabor [1995 CS Quebec](error)
Facts: Y sold her (worthless) baking business to T, her cleaning lady for 50,000. Held: consent was vitiated by an error as to an essential element of the contract Ratio:
Art. 1400 – error as to essential element vitiates consent. The error is not as to value of business (court can’t do that), but as to trial period, mode of payment, etc. NOTES:
• Lesion cannot be applied b/c Tabor was neither a minor nor a person under protective supervision when K was signed. • Art. 1437: re. annulment of abusive clause: Yoskovitch tentatively declares (but does not decide) that the article cannot be applied as against an essential clause in the K, such as the price, the annulment of which would prevent the K from being formed.
Janin Construction v. Chabot [1999 CA Quebec] (Abusive clause)
Facts:K. re. digging of sewer system. Unforeseen soil condition. Exclusion clause: not liable for providing wrongful info. Held:Exclusion clause constitutes an abusive clause under Art. 1437. Ratio:
▪ Art. 1379: K is a K of adhesion.
o Can have a K of adhesion b/w equals (even b/w two private citizens), but must be non-negotiable. o Tender process: one of the parties sets the rules o Availability of competitors is irrelevant to whether it is possible to negotiate o The possibility of refusal is also irrelevant to whether K is one of adhesion. ▪ Art. 1437: Abusive clause in K of adhesion or consumer K is null. NOTE:
▪ Provost: disagrees w. court and B/J re. competition.
▪ We seem to be saying that the clause was abusive simply b/c they hit bedrock, but really it’s b/c of an unfair apportionment of risk, where Janin has no remedy.
COMMON LAW: Unconscionability v. Fundamental Breach
Fundamental Breach:Procedural and Substantive unfairness.
• (Syncrude:) Occurs where the event resulting from the failure by one party to perform a primary ob. has the effect of depriving other party of substantially the whole benefit which it was the intention of the parties that he should obtain from K. • Don’t necessarily need inequality of bargaining power to invalidate clause, unlike with unconscionability.
George Mitchell v. Finney Lock Seeds [1983 UK CA](Fundamental Breach)
Facts: M bought cabbage seed from FLS. K contained limiting clause – liability of vendor limited to replacement/ refund. Owing to errors by the defendant, the seed was not cabbage seed, and the loss to the plaintiff was L61,000 whereas the cost of the seed had been L192. Denning:
▪ Evolution of K law:
▪ Winter: “Freedom of K,” where big exploited the small through use of limiting clause. ▪ Secret weapon: Fundamental Breach – interpreting the “true” construction of the K ▪ Limiting clauses “interpreted” so strictly that they became useless. Contra preferentem. ▪ Basic principle: if stronger party was guilty of a breach which went to the “very root” of the K, could not rely on limiting clause to exempt himself from liability. ▪ Underlying logic of the doctrine: It cannot be the parties’ true intention to enter into a K for a specific purpose and then stipulate an over-sweeping exclusion clause that would completely shield one party from the “fundamental” breach of that purpose, rendering the K useless. ▪ In this case: Here, delivery of wrong seeds would have constituted a fundamental breach of the K. ▪ Denning had transformed the doctrine from an “interpretive technique” to a “rule of law.” ▪ Spring/ summer:
▪ Unfair Contract Terms Act (1977): The courts should only enforce limiting clauses if they were fair and reasonable in themselves and
it was fair and reasonable to allow the big concern to rely on them. In cases of personal injury or death, it was not permissible to exclude or restrict liability; in consumer contracts any exemption clause was subject to the test of reasonableness. ▪ Law now:
▪ The test of reasonableness in the two Securicor cases: ▪ Replaced the doctrine of fundamental breach after the Act was passed. ▪ In the second case, HL made a distinction between clauses which excluded liability altogether and those which only limited liability to a certain sum. Exclusion clauses were to be construed strictly, whereas limitation clauses were to be construed naturally. However, it does look as if they were relying on the reasonableness of the limitation clause. ▪ There is really no distinction b/w exclusion and limitation clauses, contrary to HL ▪ Dislikes HL distinction b/w primary/secondary obs – “fit only for the rarefied atmosphere of the House of Lords.” COMMENTS:
Denning may be implying that “reasonableness” test & distinction b/w exclusion and limiting clauses indicate a return to autumn.
Photo Productions v. Securicor [1980 HL](“reasonableness” test)
Facts: Securicor and Photo Productions entered into an agreement by which Securicor agreed to provide night patrol service. The contract incorporated exclusion clause re. liability Held: Exclusion clause is valid
Ratio: Lord Wilberforce:
▪ rejects Denning’s view of fundamental breach: not a general principle, but an interpretation of the “true” construction of the K. ▪ B/c of Unfair Contract Terms Act (1977), when the parties are not of unequal bargaining power, and where risks borne by insurance, case for judicial intervention undemonstrated. ▪ In this case, it was reasonable for Securicor to assume a modest risk and Photo the substantial risk (cheap charge, Securicor no knowledge of value of Photo’s factory). ▪ Reasonableness “test” applied to whole K, not just clause in question. ▪ Securicor did breach its
duty in a failure to operate the service with proper regard to safety. But in interpreting the contract, the clause does apply in such instances. COMMENTS:
▪ Mentions 26 pence/ visit b/c owner has two options: pay more for security and get better terms in K (i.e., no exemption clause) ▪ Implication: you get what you pay for.
▪ Role of insurance is a factor, but rarely, if ever, acknowledged as important to the legal analysis. ▪ People normally put reasonable clauses into K: exclusion clause was reasonable b/c price was so low. ▪ Unfair Contract Terms Act allows court to strike down a clause that’s unfair ▪ So even though the outcome might seem unfair, have other remedies, unlike in Canada. ▪ Had Denning’s fundamental breach applied as a rule of law, exclusion clause would have been void b/c “security” goes to the root of the K. ▪ CIVIL LAW: outcome would have been different, regardless of whether it was a K of adhesion (which it was) or not: ▪ Art. 1474: intentional or gross fault (in the form of gross recklessness).
Hunter Engineering v. Syncrude Canada [1989 SCC](Fund. Breach & Unconscionability)
Facts: S bought gear boxes from H. Warranty expired and gear boxes broke – warranty clauses exclude liability for defective gear boxes after expiry of warranty period. Held: Exclusion clause is valid.
Dickson: Unconscionability + “true” construction of the K (Photo Productions decision) ▪ Emphasizes Freedom of K: refused to assess “reasonableness” of enforcing K: courts should not disturb the bargain parties have struck. ▪ Criticized fundamental breach as an imperfect, unnecessarily complex doctrine which results in uncertainty in the law. ▪ Courts should intervene only when there is procedural unfairness (w/ fundamental breach, court’s intervention in all substantially unfair Ks constitutes too much restriction on freedom to K. ▪ If on the true construction, the contract excludes liability for the kind of breach that occurred, the party in breach will generally be saved from liability.
Only where the contract is unconscionable, as might arise from situations of unequal bargaining power between the parties, should the courts interfere with agreements the parties have freely concluded. In this case, parties are of equal power. Wilson- Fundamental Breach (as both rule of law and “true” construction of K + reasonableness test) ▪ Seems to interpret fundamental breach more like Denning than like Photo Production: it’s more than a tool of interpretation ▪ Unconscionability is even less certain and more complex than fundamental breach. ▪ The exclusion clause cannot be considered in isolation from the context (other provisions of the K and the circumstances in which it was entered to). ▪ Otherwise, party may be able to commit a fundamental breach secure in the knowledge that no liability will ensue. In Canada, w/o an Unfair Contract Terms Act, the common law must be used to prevent the courts from enforcing bargains in favour of parties who totally repudiate such bargains themselves. ▪ Unconscionability deprives the court of its power of assistance on policy grounds in appropriate circumstances – w/o procedural unfairness, court would be unable to step in. ▪ In cases of inequality of bargaining power, the court has other tools other than exclusion clauses (unconscionability). However, where such inequality does not exist, courts cannot really use unconscionability (without some stretching). In the present state of the law, the doctrine of fundamental breach provides an answer. COMMENTS:
▪ W/ either approach, exclusion clause would have been valid here. ▪ Unconscionability: No inequality of bargaining power ▪ Fundamental breach: No substantive unfairness under circumstances Difference b/w two approaches: Questions asked:
▪ Dickson: was there unequal bargaining power at the making of the K? ▪ Wilson: is it fair for one party to rely on the exclusion clause at the time of its breach? ▪ court is reallocating the risk of the loss after the loss has occurred
State of the law in Canada (CML):
▪ One of the most painful cases in common law of K.
o Have both unconscionability and fundamental breach – don’t know which one applies in Canada ▪ There are 2 C.A. decisions (BC and NS) that apply Denning’s Fundamental Breach, but that’s not determinative WHAT IT SHOULD BE IN CANADA: Argument in favour of fundamental breach: ▪ My not unbiased and impressionistic approach is partly in rebellion against the form of legal argumentation, partly a result of my not yet having been able to formulate my criticism in a sufficiently rigorous manner at this point in my legal education. ▪ Basis for rejection of fundamental breach doesn’t exist in Canada b/c no legislation (Unfair K Terms Act) to replace it. ▪ Wilberforce in Securicor, though critical of doctrine of fundamental breach, claims that it served a useful purpose (in spite of its imperfections) because there were large numbers of problems in which it was worse to leave exception clauses to operate. But the Unfair Contract Terms Act 1977 was passed. This Act applies to consumer K and those based on standard terms and enables exception clauses to be applied with regard to what is just and reasonable. ▪ Insurance: Rarely, if ever mentioned, as a ground for court decision, though it does play a role (esp. in Extra-K cases). But it is mentioned in Securicor case. When have insurance, not so much of a problem that losses fall on purchaser, but if no insurance, may be a problem, especially when dealing with citizens rather than corporations. ▪ In that case, either doctrine can deal with the issue, since inequality of bargaining power constitutes procedural unfairness, which can trigger unconscionability.
Problems with Doctrine of Fundamental Breach (and Defence):
▪ The decision as to which clauses get knocked out is both arbitrary and dependent on the chance happening of whatever event it is that triggers one of many possible “fundamental breaches.” ▪ The institution known as K is intended to apportion risk – it is a “beachhead into the future.” As such, seems fair that losses fall where they may when there is no substantive unfairness. However, not every risk is knowable, and relying solely on procedural unfairness could lead to real injustices. ▪ Formalism of unconscionability approach betrays the blindness and totalizing tendency of contemporary power disciplines (law and economics) – law attempts to extend equitable concepts, but can never extend them to their logical conclusions. They must of necessity be kept in the abstract; otherwise, the contradictions inherent in trying to ensure equity within an inequitable framework would become too apparent. • Examples:
o substantive v. procedural equality: echoes problems with debates about equality in law more generally – such debates tend to ignore economic wealth and power. Reason: otherwise debate becomes “political,” and law is not the framework within which to discuss politics of that sort. Speak in abstract or macroeconomic terms to disguise or obscure what is actually happening. Example: discussion of economy as its own end – as can be seen from “debate” regarding Ontario’s modifications to its labour legislation. ▪ Which makes policy discussions within legal circles rather laughable: cannot concentrate too much on the concrete details for reasons given above, but can make policy decisions not based on any data • Macaulay’s legal pluralistic approach: legal theory doesn’t reflect reality of societal relations • (example from Extra-K)
▪ In keeping with the spirit of such policy considerations, I can make my own policy argument of approximately the same calibre: If do not have possibility that breach of K may trigger nullity of exclusion or limiting clause, run the risk that a party to a K will, if not intentionally breach the K or act in bad faith, at least possibly not be as concerned if he accidentally inconveniences other party. • This very argument can rest on notion of “efficiency” so dear to both neoclassical economics and its toady, the law. o Discuss “democracy,” but not regarding the spheres people actually inhabit, especially the workplace and community. (Dispempowering and profoundly undemocratic nature of the law and of division of labour which creates such a great division of labour.) o Constitutional law: Advertising as contributing to “human flourishing” and allowing people to make informed decisions (ignoring that division of labour and capitalism itself limits as much as or more than it enables human flourishing – again conflating the macro [societal flourishing] with the micro).
o The very discussion of “Freedom of K:” disguises power relations (about which one can only be willfully unaware) while not even recognizing that the very institution of private property could be the source of the few power inequalities that the law does recognize. ▪ If neoclassical economics is the theology of capitalism, law is its keeper and law school its seminary.
LESION in CVL: Unbalanced Contract:
W/ exception of Consumer Protection Act, lesion is of limited importance outside of minors & protected majors. ▪ Inconsistencies in this area of law due to attempt to balance competing interests. ▪ Freedom of K v. substantive unfairness
▪ Yoskovitch: Court: code as a rule does not allow a plea of lesion under 1437. Unstated reason: It would make lesion applicable to all Ks of adhesion. ▪ CCQ exceptions where lesion is available: Usually deal with circumstances in which people are vulnerable. ▪ General rule: can’t plead lesion to get out of K
Art. 1399: Consent may be vitiated by lesion
Art. 1405: except in cases expressly provided by law, lesion vitiates consent only in respect of minors and protected majors. Art. 1406(1):Objective lesion (normal persons): Lesion results from the exploitation of one of the parties by the other, which creates a “serious” disproportion b/w the prestations of the parties The fact that there is a serious disproportion creates a presumption of exploitation. • Rare. Only mentioned in a few other instances in the code: o 2332 (K of loan)
▪ Where a person suffers lesion, having regard to risk and all the circumstances, court may: ▪ Produce nullity of K;
▪ Order the reduction of the obs.;
▪ Revise the terms of the K.
o 424 (renunciation of family patrimony), o 472 (Partition of acquests: renunciation may be annulled by lesion), o 2634 error of law (but French doesn’t mention lesion) Art. 1406(2):Subjective lesion (minors & protected majors): In cases involving such people, lesion may also result from an obligation that is considered excessive in view of: o Patrimonial situation
o The advantages the individual gains from the K o General circumstances.
Art. 1407: Remedy for vitiated consent: annulment of K. In the case of error caused by lesion, may also claim damages or apply for a reduction of his obligation equivalent to the damages he would be justified in claiming. Art. 1408: in the case of a demand for the annulment of a K on the ground of lesion, the court may maintain the K where the defendant offers a reduction of his claim or an equitable pecuniary supplement.
Consumer Protection Act (Quebec): arts 8, 9
▪ objective lesion: Party can have K annulled or obs reduced if ▪ there is a “considerable” disproportion of prestations ▪ Subjective lesion: concerned not only with the object of the contract, but also with whether the obligations imposed on the specific consumer by the K “excessive, abusive or exorbitant.” o 3 criteria (Art. 9) Do not need to satisfy all three (Gareau) ▪ The condition of parties
• Echoes 1406(2): patrimonial situation. ▪ The circumstance under which the contract was enter into: (Did party obtain legal advice? Was it an impulse buy?) • 1406.2: general circumstances.
▪ The advantages [practical benefit] that result from the K for the consumer • 1406.2: advantage
Differences b/w CCQ & CPA notions of lesion:
▪ Both share idea that contractual exploitation is at the heart of lesion, but CPA’s understanding of lesion is much broader. ▪ Disproportion b/w prestations:
o Art. 8 CPA: “considerable;” Art. 1406(1) CCQ “serious” ▪ CPA applies lesion to all regular persons (as long as they are consumers in a particular consumer contract) ▪ CPA requires only substantive unfairness; CCQ requires both procedural and substantive unfairness (with exceptions listed above). ▪ Art. 41 of la Loi d’interpretation requires arts. 8 & 9 CPA to receive broad and liberal interpretation. o Arts 1405, 1406, 2332 CCQ receive strict interpretation by the courts (Roynat). ▪ CPA is an exception – an example of what neither CML/ CVL will do: strike down a K b/c of imbalance.
▪ CPA’s “subjective lesion” is similar to, but goes beyond, CML concept of “unconscionability.” ▪ Somewhat similar to “constructive knowledge” in O’Brien. • Obligation on vendors to ensure that other person can afford it. ▪ No strong CPA in CML.
Roynat v. Restaurant Nouvelle Orleans [1976 CA Quebec] (Lesion under CCQ)
Facts: Ramada, which wanted to buy RNO, told it to get rid of loan owed to Roynat. Clause in K b/w Roynat and RNO prohibiting cancellation of loan for 5 yrs. Roynat and RNO cancelled loan w/ $148,000 penalty. Ramada buys RNO & tries to have court reduce the penalty on the basis of lesion by invoking 1040 CCLC (2332 CCQ). Held: Cannot invoke lesion here
• No procedural unfairness: Debtor is a big chain restaurant (no unequal bargaining power). That’s why this case is about lesion instead of duress • No substantive unfairness
o debtor claimed that 150 K penalty represents a gross disproportion b/w the prestations of the parties (art. 1406(1)) o court separates
penalty provision from the K of loan, saying it’s a separate contract. Although preparing money for the loan and paying penalty for breaching the K are both monetary obligations, the court adopted a strict interpretation saying that the monetary obligation of paying the penalty is not strictly a prestation of the K of loan. The second agreement did not amend the loan agreement, but merely terminated it. o Taking away the penalty obligation, there’s no substantive unfairness of the K of loan. COMMENTS:
• Courts adopt a strict interpretation of Ks to narrow the scope of lesion for regular persons. o Here, restrictive interpretation to 2332 because it’s seen as an exception to the rule that you can’t plead lesion to get out of K. • Problem with holding: if you terminate an agreement in a way that initial loan said could not be done, how can you say you’re not amending the original agreement?
Gareau Auto v. CIBC [1989 CA Quebec](Lesion under CPA)
Facts: Carbonneau bought a $10K boat from Gareau, regretted choice, didn’t pay, tried to have K annulled on basis of ss. 8, 9 CPA. Held:
▪ no objective lesion: the price of boat is fair.
▪ Subjective lesion:
o Applied 3 tests under s. 9 –
▪ 1) the financial condition of C: he can’t afford to buy the boat. ▪ 2) circumstances under which the K was concluded: C tried to argue about family problems, didn’t work ▪ 3) Real benefit for the consumer: the boat is useless to C. COMMENTS:
Do not need to satisfy all three criteria
Misapprehension (i.e., at time of giving consent)
2 components to law of misapprehension:
▪ 1) mistaken belief.
▪ 2) What types of mistaken beliefs the legal system accepts ▪ Civil law: autonomy of the will (internal consent) • More receptive
to plea of mistake.
▪ Common Law: reasonable expectations of the parties • a mistake can invalidate a K when a fundamental element has changed o Mistake of identity: think you’ve contracted with x, but really w/ y. ▪ (Civil law calls it inuitu personae) o Mistake of existence of object of K or subject matter of K. ▪ i.e., painting was burned while signing K Allocation of risk: Who should reasonably assume the risk?
▪ Sometimes, reasonable to ascribe responsibility for the untruthfulness of the facts to only one party, which bypasses issue of risk by interpreting K and determining it a breach of K (Raffles). Restitution: CVL is more flexible. CML = all or nothing.
Art. 1400: error vitiates consent where it relates to:
• (1) nature of the K (i.e.: sale or lease?) • (2) object of the prestation (the thing being sold) • (3) an essential element
No distinction b/w error as to law or as to fact, w/ 2 exceptions: ▪ Art. 2634: transaction (a K by which parties prevent a future contestation, put an end to a lawsuit, or settle difficulties arising in the execution of a judgment) ▪ Art. 2852: Admission
Where error does not cause nullity (Art. 1400 & B/J) :
o Inexcusable error (Art. 1400, Paradis).
o Economic error
▪ Exception: (Yoskovitch) When the economic error is at the same time an error as to an essential determining element o Error about secondary terms (Same as Raffles)
o Formal error (calculation error, writing error, etc.) – but can have obs. reduced.
Mistake as to law v. mistake as to fact: former is not valid o In
context of mistakes, courts go around this all the time (Ex.: Solle v. Butcher). CML is less sympathetic towards internal consent and unilateral self-induced misapprehension CML distinguishes b/w mistake as to terms (invalidates K) & mistake as to assumption (does not invalidate K).
UNILATERAL Self-Induced Misapprehension
COMMON LAW CASES:
▪ No recourse for unilateral self-induced misapprehension in CML.
Raffles v. Wichelhaus [1864 UK](“Peerless”)
Facts: “Peerless” ship. (Note irony in name of the two boats.) Held: No K.
▪ Acceptance did not match offer; no meeting of the minds; K was never formed. ▪ No consensus ad idem (agreement as to the same thing).
▪ No concrete rule of the law from this case.
▪ Provost: two purposes for studying this case:
▪ Misapprehension must be about essential element (same as Art. 1400, though not stated directly) ▪ Misapprehension must be related to a clause in the K.
Bell (defendant) v. Lever (plaintiff) [1931 HL](Golden handshake/ Niger Co.)
Facts: 2 Ks. (1) K of employment as chairman of Niger Co. (2) K of termination of employment, w/ L50,000 golden handshake. After 2nd K, L discovered that B had breached previous K and could have dismissed him w/o paying him the money. Held: Atkin: A K to terminate a previous K is not void if it turns out that the K had already been breached and could have been terminated otherwise – Ratio:
▪ immaterial that same result could have been achieved in a different way. ▪ Mistake regarding principal consideration (principal reason) is
irrelevant. Other comments in case:
▪ Bell test: Does the mistake make the thing essentially different? Mistake will not affect assent unless it is the mistake of both parties and is as to something that makes the thing essentially different from what it was believed to be. ▪ Kennedy v. Panama… Mail Co.: plaintiff applied for shares in defendant company based on company info that claimed that it had exclusive K with gov’t of NZ. Info was incorrect, but innocent • Court: though there was misapprehension as to a material part of the motive inducing him to buy the shares, it did not prevent the shares from being in substance those he applied for. ▪ Examples given re. no remedy:
▪ A buys or leases house from B. The house is uninhabitable; had A known, would never have bought it. A has no remedy, regardless of whether B knew or not, so long as he made no representation or gave no warranty. ▪ even with painting example, where both parties believe it to be the work of an old master. high price is paid. No remedy Comments:
▪ Implied condition: if the K expressly or impliedly contains a term that a particular assumption (fundamental reason for making the K) is a condition of the K, the K is avoided if the assumption is not true. This is not the case here. ▪ Compare to CIVIL LAW (Huot), where mistake regarding reason to enter into a K (gas servitude) was invoked to invalidate the K. ▪ I.e.: mistake regarding principal consideration/ principal reason would invalidate K.
Smith v. Hughes [1871 UK QB](Old v. new oats)
Facts: Old v. new oats. “Good oats” for sale. Sample given. After purchase, H realized they were new oats. Horses can only eat old oats. Held: Passive self-deception of the buyer is not a reason to avoid the K. Principle: where a specific article is offered for sale, without express warranty or where the law implies a warranty, and the buyer has full opportunity to inspect and form his own judgment, if he chooses to act on his own judgment, the rule caveat emptor applies. If he gets the article he contracted to buy, and that article corresponds with what it was sold as, he is bound by the
contract. Ratio: Cockburn-
▪ Seller said nothing nor did anything to contribute to his deception. No legal obligation on the seller to state whether the oats were new or old. COMMENTS:
▪ Re. consensus ad idem: The 2 parties were not ad idem as to the age of oats, but they were ad idem as to the sale and purchase of them. ▪ Blackburn, concurring: the difference is the same as that b/w buying a horse believed to be sound and buying a horse believed to be warrantied to be sound. ▪ Again note disempowering nature of holding: if you rely on your own judgment and are ripped off, too bad. If you rely on other person’s judgment and are ripped off, then have remedy. ▪ Foundations article by Williams: the law does not like those who have a will or act – does not like agency because exercise of agency undermines the attempt to present power relations as structure.
Laidlaw v. Organ US (19th c. US)(Tobacco)
Facts: O knew that the British blockade would be lifted but he remained silent when asked by L if he knew of anything which would increase the value of tobacco. However, no evidence suggests that Organ did anything to induce Laidlaw to believe that peace did not exist. After the completion of K, the news of the treaty became public and the price of tobacco increased between 20 to 50%. Held: Marshall:
▪ No fraud in withholding information when asked
▪ The information was equally accessible to both parties. Comments:
▪ Info wasn’t really equally accessible: Organ got info from an offshore squadron that peace was signed. ▪ Nothing in the K itself is mistaken, but the reason he enters into K is mistaken ▪ CIVIL LAW: Art. 1410: the cause of the K for Laidlaw is that the blockade is still on. Could try to argue that the cause is inexistent, but it is not an essential element of the K ▪ Neither common nor civil law accepts mistake of motive as a plea
CIVIL LAW CASES:
Rawleigh v. Dumoulin [1926 SCC Quebec](Reference letter)
Facts: Defendant signed a surety that he thought was a letter of reference (didn’t read English). Held: Art. 1400: Error as to nature of K (error re. fundamental element) vitiates consent. Ratio: Mignault-
▪ The cause of the error is irrelevant. Art. 922 CCLC envisages error subjectively. If it exists, regardless of the cause, it annuls the K. ▪ The fact that the plaintiff had nothing to do with the error, and that he is suffering from the negligence of the defendant is not enough to maintain an action based on a contract that has been declared null. NOTES:
▪ No equivalent to 922 CCLC in CCQ, but still accepted as valid by B/J.
Huot v. Ouellette [1981 CS Quebec] (Gas servitude – subjective error)
Facts: Synallagmatic promise to buy/sell house. H then discovered gas servitude under the house. His wife has phobia re. gas. H. sought to annul K due to error. Both parties in good faith Held: Purely subjective error can vitiate consent
▪ The determination of a fundamental error (an error that relates to a principal consideration) is determined according to a subjective rather than objective test. ▪ Reasonable expectations of the seller are sacrificed to protect the wife’s inner intent. Note:
▪ COMMON LAW: exactly the opposite: Bell.
▪ Where CML would protect reasonable expectations, CVL protects inner consent
Paradis v. Merrett [1995 Cour de Quebec](Uniling. Anglo. Inexcusable error)
Facts: Merrett, a unilingual Anglophone, signed lease in French as representative of the company, but found that he actually signed in his own name and is responsible for paying the rent. Held: Art. 1400(2): inexcusable error does not vitiate consent Ratio: Bossé- 2 arguments:
1) Test for inexcusable error: reasonable & prudent person standard i. He was negligent in not informing himself
ii. Substantive unfairness is irrelevant
2) At a Vancouver branch, he had signed a deal where he was a guarantor. It is doubtful that he would not have signed the lease if he had known its nature. Had also signed other complicated documents in French in past. NOTES:
▪ Had the error not been inexcusable, Paradis would have had a duty to disclose.
SHARED Self-induced Misapprehension
▪ Both parties share the same mistaken assumption
▪ Raffles: two choices: either no K (if both parties are mistaken) or unilateral misapprehension. ▪ Allocation of risk: look at relevant expertise of the parties. ▪ Remedies: Both traditions: nullity of K and restitution of prestations (Art. 1407)
Solle v. Butcher [1950 UK CA](Rent)
Facts: Shared misapprehension of landlord & tenant regarding allowable price of rent (it was too high). Tenant claims rent should be reduced. Landlord sought to have lease, which had been entered into under a mutual mistake of fact, invalidated. Held:K is voidable, subject to choice of tenant to pay full rent. Ratio: Denning-
▪ Shared misapprehension is a ground for setting aside a K (under scenario 3) ▪ 2 types of mistakes:
▪ Mistakes which render a contract a nullity (which now have to be read through Bell): once all outward appearances of K exist, then the K is
good unless and until it is set aside for breach of some condition expressed or implied in it, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning. ▪ Mistakes which render a contract voidable (liable to be set aside on some equitable ground & do not have to be read through Bell b/c decision in Bell not based on equity): A contract will be set aside if • 1) unconscientious scenario due to legal advantage; • 2) mistake of one party induced by material misrepresentation of the other, even if it was not fraudulent or fundamental. • 3) In pursuance to law of equity, if parties were under a common misapprehension either as to facts or as to their respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault. ▪ The difference: if a contract is void, then court has no say on how the K should be set aside, but if it is voidable, the court can set K aside on the terms it wants. • In this case, by reason of the common misapprehension, the lease can be set aside on such terms as the court thinks fit. Comments:
▪ It’s a misapprehension as to law, but Denning says it’s as to fact as to what rights both parties have. ▪ Echoes CVL notion of absolute v. relative nullity, but actually different. ▪ Denning limits Bell here, but does not admit it.
Sherwood v. Walker (1887 SC Michigan)(Cow)
Facts:Sherwood (plaintiff) made K to buy cow from Walker. Told at the time that K was made that cow was “probably barren.” Price: $80. When he went to pick her up and pay, he was told he could not have her. Turns out that she was preggers. Because fertile, she’s worth from $750-$1000. Held:Contract is invalidated by shared misapprehension as to the “substance” of the thing bargained for. Ratio: Per Morse:
▪ Mere shared misapp. is not sufficient to set aside an otherwise valid K. ▪ Must determine if misapp. is as to the whole K to the root of the matter (ex.: horse/cat are in substance different), or only to some point an error
as to which does not affect the whole substance of the consideration (ex.: a “sound” horse v. an unsound horse.) ▪ Breeding cow is a substantially different creature than a breeding one. Standard of determination: their economic values ▪ A party who has given an apparent consent to a K of sale may refuse to execute it if the K made upon the mistake of material fact, but mistake must be mutual. DISSENT per Sherwood (who shares the namesake of purchaser)
▪ Buyer purchased her believing she could breed. No pretense that he bought the cow for beef. ▪ If anyone should be made to bear the risk, it should be the vendor Comments:
▪ Rule in Bell: If it’s a shared misapp. as to a material thing (the substance of the thing), then K can be set aside ▪ The disagreement b/w majority and dissent is one as to fact, not law. ▪ the disagreement suggests that the test (misapprehension has to relate to essential element) can be manipulated by manipulating the facts. ▪ Characterization of what is an essential element is firmly devoid of concrete meaning. ▪ Brings us back to L. Atkin in Bell: termination of employment K – it remains the same K, regardless of whether it could have been terminated under different circumstances. ▪ According to Provost, Sherwood’s dissent requires you to argue against your own cause (Vendor would have to say: “she might be sterile.”). I don’t see this. ▪ Had mistake been the other way around (i.e.: purchase of apparently fertile but actually barren cow), buyer would not be able to claim mistake if he was aware of the risk but did not do anything to clarify it. ▪ That logic should apply in the present case too
▪ Frustration: based on the thing being radically different than that K’ed for: that’s why Morse had to hold that the cow was a substantially different animal. ▪ Compare to Heilbut (Rubber co): here, it is the vendor who is the victim of the mistake.
Affaire “Le Poussin” [1987 CA Versailles]
Facts:Family had painting as heirloom, and were told by art appraiser that
it was not a Poussin. Sold it through auction. It was sold as belonging to a school which did not make it particularly valuable. Louvre bought painting and immediately disclosed that it believes it to be a Nicholas Poussin. Vendors seeked to have K voided on basis that it was made under error. Held:K is annulled.
▪ “Scope of the agreed uncertainty:” If misapprehension falls outside the scope of the agreed risk, and is regarding an essential element, then K can be annulled. ▪ The essential element here: the identity of the painter ▪ The scope of the agreed uncertainty here: There was an agreed risk (painter unknown), but the error falls outside the parameters of that risk (school to which painter belonged). ▪ Both parties agreed that the uncertainty was circumscribed to the school – uncertain of the author, but agree that author belongs to the school Comments:
▪ Distinction b/w economic error and other errors:
▪ An economic error is an error as to the valuation of the thing – a mistaken assessment based on correct data ▪ Here, an error based on an essential element, which error may change the value of the thing • If an error other than economic error is regarding an essential element which might have an impact on the price, it can be invoked to annul a K. ▪ Had vendors not checked with an art expert, that would have changed things.
Misapprehension Induced by the Other Party
▪ Different dynamic than self-induced misapprehension because one party is doing something morally wrong ▪ Inducing misapprehension is mostly in a pre-contractual state. K law is reluctant to impose any duties for two reasons: ▪ Freedom to K
▪ Market efficiency
▪ The law in this area seeks 2 things:
▪ Sanction a moral wrong
▪ Cure procedural unfairness in K.
Misapprehension as to law vs. misapprehension as to fact:
▪ Common law: when misapp. is due to misrepresentation, courts tend to claim it’s an error as to knowledge of your rights, not an error as to law.
1. DELIBERATE INDUCEMENT
Deliberate inducement = intentional creation of factual misapprehension in order to induce consent to a K o Inducement must be intentional
o Inducement must be successful in creating the misapprehension
▪ Known as “fraud.”
Art 1401: Error induced by fraud committed by other party or with his knowledge vitiates consent whenever, but for that error, the party would not have K’ed, or would have K’ed in different terms. (Creighton reduces “but for” obligation.) o Fraud may result from silence or concealment.
o Fraud must emanate from or be known to other party Art. 1407: Remedy: right to apply for annulment; where error was caused by fraud, may also claim damages or, where he prefers K to be maintained, apply for a reduction in his obs. o Choice of remedy is left to the person who has been defrauded. o B/J:
▪ If there is fraud, not necessary that the error be one that the law recognizes as vitiating consent (i.e.: essential element, etc. under Art. 1400). ▪ Principal v. incident fraud: (distinction no longer exists, but B/J think it’s still useful) • Principal: The fraud which led to consent of the K • Incident fraud: fraud which led to consent of certain conditions in the K. o Incident fraud gives right to an action to reduce the obs ▪ Take into account particular circumstances, nature of the K, & personality of the victim.
▪ Known as “deliberate misrepresentation.”
Five variations which decreasingly rely on a duty to inform to provide support for the victim: 1. Outright lie
o Either propio motu or in response to a question
2. Half-true statement
o Present info which is true but which implies untruth (Tremblay v. Les Petroles). o Present info which is true but becomes untrue before the making of the K (Bail) 3. Silence
o Party doesn’t answer other party’s question (Laidlaw v. Organ – tobacco) o Art. 1401: Fraud may result from silence
▪ Depends on whether there is duty to inform. Laidlaw: no duty to inform if info was equally accessible. 4. Not correcting a clear misapprehension in the other party o Party is aware of and encourages other party’s misapprehension through artifice ▪ Creighton v. Grynspan: Deliberate inducement vitiates consent ▪ Smith v. Hughes: Aware, but no inducement. Consent not vitiated b/c information was accessible to both parties and there’s no relationship of trust or confidence. o Key question: Does the negligence of one party negate the other party’s duty to inform? Yes, unless there is a special relationship of trust or confidence. 5. Withholding information suspected to be important to other party o Bail: To establish deliberately induced misapprehension, must establish a duty of care ▪ General duty to act in good faith (Soucisse, Houle, Art.6). ▪ Elements of duty to disclose:
• Party’s knowledge of info (actual or constructive [presumed]) • Info must be of decisive importance (Art. 1401) • Impossibility of other party to inform herself and legitimate reliance. o These criteria are consistent with the evolution of duty to inform ▪ Looks like Laidlaw re. accessibility of info. ▪ Looks like Smith v. Hughes re. nature of relationship o CIVIL LAW: Bail is the state of the law. General duty to inform (arts. 6,
1375) • In some areas, there is a statutory requirement of full disclosure (Art. 228 CPA: no merchant may withhold info that’s important to consumer) • At pre-K stage, duty to disclose is subsumed under error & fraud. o COMMON LAW: Certain duties to inform in some areas of the law (doctor/ patient; manufacturer/ user of product) • No judgment says Laidlaw (duty to inform based on impossibility of obtaining info) or Smith (one party surrenders judgment to other) are expressions of a broader principle. o But not unrealistic to say we are one judgment away from a general duty to inform.
Tremblay v. Les Petroles [1961 SCC Quebec](Garage – Type 2: deliberate inducement w/o lying)
Facts: LP told T that garage could make $20K per annum if managed properly, but did not disclose fact that it had been operating at a loss for last 6-7 yrs. Held: K of lease annulled du to fraud.
▪ Dolus bonos (mere puff) v. Dolus malos (bad fraud):
o Distinction b/w an exaggeration that an honest person would commit w/o violating the law (mere puff/ mere exaggeration) & a false representation w/o any basis that induced the other party to enter the K (Fraud/ dolus malos). o Also distinction b/w statement of opinion v. statement of fact. ▪ T would never have entered K if he had known about the loss. ▪ The misrepresentation was in saying: “With good management, you can make x profit/ year.” They imply that they had it under good management themselves. Comments:
▪ in this case, unclear that statement by Les Petroles was untrue. However, in the implication that there would be no systematic loss, Tremblay was led to believe that they were making a profit. ▪ T was given enough info to have been able to discover the truth himself; therefore was negligent. As with LeBel (dissent in part in Creighton), courts have to balance moral guilt v. negligence and will generally support the negligent victim. ▪
Statement of opinion v. statement of fact. Statement of opinion is something about which you can expect others to differ (“Best Pastrami in NYC!”). But a statement of opinion can invoke a lie if it comes from an expert on whom you rely
Creighton v. Grynspan [1987 CA Quebec](Old boulevard: Type 2)
Facts: G were planning on buying the entire property (including part of the boulevard). C wrote offer stating “the property, more or less.” Error was known by C and was maintained through silence. G were also negligent. Held: Fraud vitiating consent
▪ The defendant’s failure to do more constituted an “artifice” within the meaning of art 993 CCLC. There was fraud. ▪ This fraud was determinant (“dol principal”) and not just “incidental,” since plaintiffs would not have offered to purchase had they been aware of the true state of affairs. ▪ Cannot use a clause in the K to get out of problem when the problem is caused by your own fraud. B/c of fraud, other party is no more bound by that clause than by any other. ▪ Not receptive to Creighton’s argument that for plaintiffs to be successful, they must show that the lie was successful (“but for” today under Art. 1400). o Do not want to protect the person who lied.
▪ NOTE: Distinction b/w dol principal/ incident was eliminated by art. 1401. Today, consent is vitiated by fraud, period. This brings CCQ in line with Common law (Barton v. Armstrong) where you must show only that misrepresentation a key reason, not the reason to enter into a K. ▪ Again see that, between morally wrongful defendant and negligent plaintiff, courts will tend to side in favour of latter – less moral wrong. ▪ The fact that boulevard was missing = bad deal for plaintiffs. Again see substantive unfairness, though again not an overt element in the decision.
Smith v. Hughes(Type 3: silence)
Oats. Aware of misapprehension, but no inducement. Consent not vitiated b/c information was accessible to both parties and there’s no relationship of trust or confidence.
Bail v. Bank of Montreal [1992 SCC Quebec](Hydro Quebec – Type 5)
Facts: Hydro Quebec enters into contract with B. B hires Laprise as subcontractors. L goes bankrupt, BM is the bank responsible. BM sues HQ because they had given wrong information, though they knew it to be incorrect during the tender period. Had HQ told L and B about information they had, L would not have gone bankrupt. Issue: Duty to inform in a K of enterprise.
Held:HQ breached its duty to inform.
▪ 2-step test:
▪ Step 1: Which party has the duty to inform?
o 1) allocation of risk: the party who assumes the risk has the duty to inform himself. Who should reasonably bear the risk? ▪ Risk is generally assumed by contractor, who is in a position to assess the risk during the tender process (Arts. 2118-9), but other party must not distort the evaluation of the risk by the party assuming it (esp. when the info in question is contained in the call for tender documents) o 2) relative expertise of the parties: related to 1). Generally a specialist would assume the risk. o 3) continuous formation of contract. (these principles arise from contract of enterprise) – When a contract is made w/ expectation that they will be continuously revised as new elements are discovered, the duty to inform in the pre-contractual stage continues to exist even after K is concluded. ▪ Step 2: Does this party have a duty to inform in this case? o 1) whether party had knowledge of info, actual or “presumed” (e.g. a manufacturer is presumed to have knowledge about his products) o 2) whether the info is of decisive importance (Art. 1401) o 3) whether it was impossible for the other party to obtain this info (practical impossibility). ▪ Applying the test:
▪ Step 1: HQ had a duty to inform since:
o 1) it had assumed a certain degree of liability with respect to the accuracy of the geotechnical data, o 2) it had greater expertise than B and L in relation to the geotechnical studies o 3) the number and scope of the alteration (indicated by the error regarding soil condition) completely changed the nature of the original contract (elements that would substantially change the nature of the K have to be informed). ▪ Step 2: HQ breached the duty to inform b/c
o 1) HQ was fully aware of the error after receiving the 1977 Report o 2) HQ concealed this report, which was essential in carrying out the work it ordered ( a complete silence and conspiracy which led to the bankruptcy of L. ▪ Delictual liability for third party based on K’ual relationship: o Breach of K’ual duty is indicative but not determinative of breach of extra-K ob. o May be held delictually liable to 3rd party if failed to act reasonably. o Delictual liability must arise independently of contractual obligations and all the elements required to give rise to such liability must be found. COMMENTS:
▪ In pre-K stage, duty to inform is subsumed under fraud (1401) and error ▪ As a duty of good faith continues into K, duty to inform continues as well. ▪ Art. 1375: duty to act in good faith at time ob is created, performed, extinguished. ▪ In all Ks have duty to inform even once K is made. difference here is that in K of continuous formation, , pre-K stage lasts longer. ▪ Not giving info = passive fraud (1401) Had K already been made, would not have been fraud, but breach of duty, but K would not have been vitiated. ▪ Another way case could have been decided:
▪ An alternative to “impossibility to obtain info” is “legitimate reliance” on the other party. ▪ Legitimate reliance can stem from
o The nature of contract (e.g. contract of agency or mandate) o Or nature of relationship (contract b/w family members, or K b/w professional and non-professionals – doctor, banker, lawyer…etc.) ▪ duty to inform continues during the life of a K (not just in K of enterprise
where performance is on-going). This notion is derived from the duty to act in good faith both during the time the contract is concluded and at the course of performance of the K (art. 1375). ▪ For Provost, Bail stands for two things: special relationship of legitimate reliance and accessibility of information. ▪ Characteristics of K of enterprise for large projects:
▪ K in continuous formation (pre-K ob to inform is present when change orders are issued) ▪ Owner generally has significant knowledge in the field (relevant to allocation of risk) ▪ Allocation of risk
▪ Common Law:
▪ Finds exactly the same pockets of duty to inform as civil law did pre-Bail (Dr., etc), but hasn’t yet had a decision the equivalent of Bail to confirm the same overarching principle.
Janin Construction v. Chabot (Incorrect information)
▪ Sewer – hit bedrock.
▪ City required Janin to quote a price based on incorrect information and then used a clause to escape liability for any errors contained in this same information ▪ The clause was unreasonable, in violation of the Regie’s duty to inform and contrary to principles of good faith o In construction contracts of this nature, the contractor assumes the responsibility for unexpected risks; in return, the “maitre de l’ouvrage” owes a duty to supply timely, accurate information that will help offset the risk.
Kronman: “Mistake, Disclosure, Information, and the Law of Contracts”
▪ From an economic point of view, the risk of mistakes represents a cost (to parties and to society) because of resources that must be devoted to process of allocating goods. ▪ Information is the antidote to mistake.
▪ Where the parties have actually assigned the risk (whether explicitly
or implicitly through past patterns of dealings) their own allocation must be respected. ▪ Where they have not, a court should assign risk of occurrence to the party who is the better information-gatherer. ▪ When only one party is mistaken, it is reasonable to assume that he is in a better position than the other party to prevent his own error. This is not true in every case. ▪ Distinction between information as a result of deliberate search o To encourage people to acquire info, should allow the possessors of deliberately acquired information to enter into a K which that info suggests is profitable, without disclosing info to other party. o A party who has casually acquired info is a cheaper mistake preventer. ▪ But a rule for case-by case application of a disclosure requirement will be difficult. As an alternative, one might uniformly apply a blanket rule (of disclosure or nondisclosure) across each class of cases involving the same sort of information (info about market condition, or about defects in property). In determining the appropriate blanket rule, first need to decide if the kind of information involved is more likely to be generated by chance or by deliberate searching. (more deliberate research then non-disclosure) Comments:
▪ Free-market approach, not in keeping with the shift towards greater scope for morality in K law. ▪ Inequality of bargaining power is not an element of duty to inform
2. NEGLIGENT INDUCEMENT – CML
▪ Deliberate inducement = K and delict. Negligent inducement = only K ▪ Only speaking of procedural fairness here.
▪ The need for doctrine of negligent inducement arises b/c the law on mistake is more limited than in CVL, where one can plead error
▪ Negligent inducement is completely subsumed under fraud (except two cases in France, which have been criticized. ▪ Negligent inducement does not
exist because fraud requires intentionality. ▪ Negligent inducement is not intentional
▪ A party that is merely negligent is not in bad faith. Difficult to use fraud when person is in good faith. o Is that reason enough not to allow negligent inducement in CVL? ▪ “Mistake” is more developed and equitable in CVL, but error is often economic error • Economic error is lesion, which is not accepted as a basis for canceling K, except in limited circumstances. ▪ B/c of duty to act in good faith, it may be easier to find liability for negligent misrepresentation in delict than in K law. • But if sue in delict, the K will still be in existence. Another possible way to deal w/ negligent inducement:
▪ Read arts. 1400, 1401 and 1407 carefully. Error is not necessarily occasioned by fraud. Therefore, although fraud cannot be invoked to deal w/ negligent inducement, error in a broad sense can be applied. ▪ Difference b/w using general error (art. 1400) v. “error induced by fraud:” o The remedy for “general error” is provided in art. 1400 – vitiation of consent – complete nullity of K. Very rigid remedy. o The remedy for “error occasioned by fraud” is provided in art. 1407: the complaint, may “in addition to annulment, claim damages or, where he prefers that the contract be maintained, apply for a reduction of his obligation equivalent to the damages he would be justified in claiming.” More flexible remedy than art. 1400. ▪ However, since art. 1407 (fraud) cannot be invoked to deal w/ negligent inducement. The only remedy for negligent inducement in CLL is annulment of the K (art. 1400)
Esso Petroleum v. Mardon [1976 UK CA]
Facts: E negligently made a “fatal error” regarding forecast of sale volume at a gas station. M was induced to enter into the lease K by the forecast. Held: K can be set aside under either collateral warranty or negligent misrepresentation, and the damages received should be the same. Ratio: Denning
1) collateral warranty:
▪ Definition: If a representation is made for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering the K, that is prima facie ground for inferring that the representation was intended as a warranty. ▪ Collateral warranty is only applicable to a fact, not an opinion. o Esso did not warrant volume sold per year, which is not a fact but an opinion. But nevertheless, it was a forecast made by a party, Esso, who had special knowledge and skill. If such a person makes a forecast (intending that the other person acts on it), it can well be interpreted as a warranty that the forecast was made with reasonable care and skill. Esso was negligent, its negligence may be sanctioned. 2) negligent misrepresentation:
▪ Based on principle of Hedley Byrne: if a person with special knowledge (i.e., a professional) makes a representation to another with the intention of inducing him to enter a contract, he is under a duty to use reasonable care to see that the representation is correct. If he acts negligently, he is liable in damages. • This is a duty to use reasonable care in pre-K stage (i.e., more of a tort remedy). COMMENTS:
▪ For Denning the end result is the same: does not matter if we find breach of contract or if we use negligent inducement and find damages because the damages would be the same. ▪ Provost: But this is not true, because in K, you can get expectation damages; torts only reliance damages ▪ For Denning to be correct, Negligent misrepresentation would have to be considered a K remedy. ▪ innocent misrepresentation gives no right to damages
▪ In the making of an opinion, there is factual representation in the way the opinion was formed.
3. INNOCENT INDUCEMENT
No blameworthiness in innocent inducement.
Still have a degree of procedural unfairness.
How innocent inducement differs from shared misapprehension:
One of the parties had the information first.
Different at level of remedies.
Relate assumption of fault to one of the contracting parties. You get breach of K and remedies for breach of K.
Heilbut, Symons v. Buckleton [1912 HL](Rubber company)
Facts: Innocent fraudulent misrepresentation. The claim is based on the allegation that the plaintiff was induced to enter into these contracts by the false and fraudulent representation of the defendants that the company was a rubber company. Plaintiff alleged that there was breach of an alleged warranty given by the defendant that the company was a rubber company. Held: Innocent misrepresentation gives no right to damages. No collateral warranty. Ratio: Moulton-
▪ warranty: A warranty is a K collateral to the main K. Each has an independent existence. Collateral contracts are rare b/c it’s more common to simply modify the main K [b/c of this, collateral Ks must be strictly proven]. A mere statement of fact cannot constitute a warranty. To establish collateral warranty, must establish inducement. ▪ Misrepresentation: innocent misrepresentation gives no right to damages. Many attempts to make persons ▪ obiter: dealing only w/ warranty or representation relating to a specific thing. This is wholly distinct from goods sold by description and their answering to that description becomes a condition of the contract. COMMENTS:
▪ Moulton’s narrow version has not been followed
▪ Collateral warranty will only exist in rare circumstances: compare to Esso. ▪ Innocent misrepresentation does allow nullity of K, but Buckelton did not want rescission of K because you only get restitution (money back) but no expectation damages. ▪ negligent misrepresentation did not exist at the time, so had only innocent misrep and deliberate misrep ▪ Easier to make claim of collateral guarantee when there is negligence. ▪ Compare to Sherwood v. Walker (cow): here, it is the recipient who is the
victim of the mistake.
C. MISAPPREHENSION INDUCED BY A THIRD PARTY
▪ If party has knowledge: fraud, deliberately-induced misapprehension. ▪ If party doesn’t have knowledge: self-induced misapprehension/ error/ mistake [all mean the same].
Art. 1401: Error induced by fraud committed w/ knowledge of other party vitiates consent (“but for”)
▪ Common law:
▪ Barclays v. O’Brien: law here connects to law of undue influence, which connects to the law of duty to inform. If somebody is at high risk, you have some duty to react. ▪ Civil law:
▪ No incorporation of constructive knowledge in Quebec. But yes in German civil law ▪ nothing in CCQ prevents it, but nothing directly enables it either ▪ CVL might expand duty of disclosure (which does not exist in CML). • O’Brien: CML found duty to make sure wife got independent advice, which is different from CVL’s duty of disclosure. • Duty of disclosure = duty to give info. But CML’s duty is to make sure the other party thinks independently. Not sure that this is possible in CVL.
Rawleigh v. Dumoulin [1926 SCC Quebec](Reference letter)
Held: K is set aside due to error regarding the nature of the K. Ratio:
▪ The fact that P had nothing to do w/ the error, and that he is suffering from the negligence of D, is not enough to maintain an action based on a K that has been declared null. Comments
▪ Mignault: key element here is knowledge. 1401 CCQ: knowledge is required. ▪ Some have criticized this decision: Charland is not 3rd party. But ct. sees him that way: Art. 993 CCLC/ art. 1401 CCQ.
Barclays Bank v. O’Brien [1994 HL] (Undue influence by 3rd Party – constructive knowledge)
Facts: Husband uses matrimonial home as security for business debts. Both hubby and wife sign guarantee, but wife was not made fully aware of nature and extent of guarantee. Bank attempts to take possession of house. Held: Lord Browne-Wilkinson
▪ Constructive knowledge of the undue influence: The fact that bank knew that there was a relationship b/w hubby/wife = there might be undue influence. Therefore under duty to inform wife (3rd party) that she should get independent advice. ▪ If bank doesn’t do anything, it is presumed to have known of the undue influence. ▪ This principle holds w/ all cohabitees.
▪ if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in the knowledge of the true facts, the creditor will be unable to enforce the surety obligation
Changed circumstances (i.e., after K is formed)
▪ The principal notion is that obligations are absolute.
▪ However, changing circumstances may lead to substantive unfairness. ▪ Common law is more flexible than civil law in making accommodation for changing circumstances. ▪ Common law: uses “frustration” for impossibility, futility, impracticability.
▪ Different ways of dealing with the problem of changed circumstances: ▪ In Taylor, read into it an implied clause.
▪ Include terms of risk allocation in the K
▪ Include a force majeur clause. Canada Starch Case ▪ Include hardship clauses
Art. 1383:Distinction instantaneous/successive performance K: In Ks of successive performance, more of a possibility that unfairness might arise. ▪ Craponne (1876): court refused to ameliorate the unfairness. Has evolution of CVL softened this position?
Impossibility of performance:
Must first determine if there is a stipulation on K re. allocation of risk. If yes, stipulation must be respected.
▪ No obligation to perform. “Impossibility” is defined very strictly. Art. 1470: Person may free himself from liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it. Superior force is an unforeseeable and irresistible event. Arts. 1693-4: Impossibility of performance: debtor is relieved of performance (under certain circumstances), but can’t exact creditor’s performance. K intuitu personae: where need the specific thing or a specific person (artist, say). Known in both traditions, but CML doesn’t recognize the name (Taylor)
Taylor v. Caldwell [1862 UK](Music hall)
Facts: Plaintiff agreed to rent a Music Hall from defendant. It burned down due to no one’s fault. Plaintiff had spent money on reliance. Held: Defendant doesn’t have to pay money spent by plaintiff in reliance. Ratio: Blackburn J-
▪ Implied condition: in the absence of any express or implied warranty that the thing shall exist, the K is subject to an implied condition that the parties shall be relieved of the obligations if the thing that is the foundation of the K ceases to exist. (Would include K to have portrait painted by specific artist who is then severely injured in car accident.) Comments:
▪ Borrows heavily from civil law
▪ No attempt here to say that it was in the minds of the co-K’ants. ▪ Foundation = object of prestation = the hall
▪ In case of partial performance, can claim partial payment ▪ Implied condition can be thought of as risk allocation. ▪ Where K of sale is made transferring property immediately but to be delivered on a future date, if property perishes w/ no fault of vendor before delivery, purchaser must pay the price and the vendor is excused from performing K to deliver, as it’s now impossible.
Otis Elevator (plaintiff) v. Viglione [1978 CS Quebec] (Force majeur rule)
Facts: Parties entered into a K whereby O was supposed to install elevators in defendant’s building. Contract contained Force majeur clause that plaintiff will not be liable for loss or delay due to any cause beyond your or our reasonable control, including strikes. Other companies in Montreal were not affected by strike. Held: P cannot claim force majeur
▪ In order to rely on impossibility, must prove that the impossibility of performance was absolute (art 1470 CCQ today). o Not sufficient that the performance would have been extremely difficult or hazardous. Here, did not even try to have the work completed by another contractor. Comments:
▪ This case was later overturned b/c of clause in K itself. Judgment here is based solely on civil law rules of superior force, not on sup. force as defined in K. ▪ This conclusion was particularly worrisome: It encourages strike-breaking. Court is pushing anti-union strategy: to get out of K, have to have tried to hire scabs, etc. Would push even more repressive anti-union activities by capital b/c it would have had even more to lose through a successful strike. ▪ K is not voided ab initio. rather, simply that non-performance is excused from that point on ▪ It is possible to enlarge the category of impossibility in the K itself, as was done here.
Impracticability of performance:
Impracticability: Changed circumstances after the formation of a K which alter the K in a fundamental way such that the K becomes extremely imbalanced. Impracticability/ imprevision does not exist as a doctrine in civil law. It exists in principle in common law, but never actually accepted. John Walker opens door to impracticability (which would render the thing radically different than that K’ed for), but it’s never actually permitted. (In US, UCC rules have carried into normal K law, so it is allowed) 2 arguments against accepting impracticability:
▪ Legal: protect stability of K.
▪ Domino Effect: if you allow it for 1 contract, it will impact other Ks (Canada Starch case). ▪ These arguments are hard to believe based on the experience of UCC, Italy, Germany and some UN law. An argument for accepting impracticability:
▪ Good faith. Trend toward accepting good faith in general. It is always possible to include clauses that deal with impracticability (hardship clauses). Unlike force majeur, they do not expand list of possibilities, but provide that if supervening circumstances create hardship for a party then they might have a right not to perform. Impracticability v. misapprehension: why are they treated differently? ▪ One happens before the K, the other after.
▪ rules on misapp: want to create incentives for discovery of information ▪ Impracticability = unforeseeable, so acquisition of info. is irrelevant as info was unattainable. ▪ Impracticability = significant imbalance in the K. Art. 1383:K of instantaneous performance v. K of successive performance
[There should be some way of adjusting K to new circumstances in K of successive performance.]
de Gallifet v. Commune de Pelissanne [1876 France](Canal de Craponne)
Facts: Ancestors of dG undertook to maintain a watercourse in favour of commune, perpetually, at a set price. The supervening event that wasn’t taken into account: inflation. Held: Court should not be allowed to modify the contract of the parties. Ratio:
▪ Raison juridique: 1) some contracting parties might try to get out of deal in bad faith. 2) protect stability of K. ▪ Raison economique: difficult to judge impact of revising the contract. Therefore better leave it to legislator. Comments:
Reasons that could be used against court’s decision:
1) it would have been possible to argue that the theory of cause does not only play a role at the moment of formation, but also during its execution. 2) Or even that prestations should take place in good faith. Possible ways of dealing with the problem:
1) inclusion of clauses that will peg the price to inflation. 2) Hardship clause: convenu de renegocier le K au cas ou des donnees nouvelles se feraient jour. 3) Clause de force majeur: in certain extreme cases.
Canada Starch (Skippy) v. Gill [1983 SC Quebec] (force majeur clause)
Facts: CS ordered peanuts from G (K based on Quebec law), who is not able to deliver entire amount because of drought in southern US. CS refuses modification to contract. G got his peanuts from shellers under a contract based on the UCC. Under the UCC, the impracticability due to the changed weather circumstances implies that shellers do not have to provide full amount of peanuts but rather allocate deliveries of peanuts in a fair and reasonable manner among their customers. Hence, G could not coerce shellers to sell him peanuts. It was possible for G to buy peanuts from other sources, but that would have been very expensive. The contract between the CS and G had a force majeur clause. Held: Force majeur clause is applicable
Ratio: Biron J-
▪ Impossibility under Quebec civil law:
o liberates its debtor.
o But the impossibility must be
▪ 1) absolute & permanent
▪ 2) Not imputable to fault of debtor
▪ 3) before debtor is in breach.
o It is not enough that the performance has become more onerous: in this case, there was no impossibility. Court rejects argument based on a) imprevision and b) force majeur in the code CCLC. ▪ However, there was a force majeur clause that read “or any other cause beyond the reasonable [not absolute] control of seller.” o Not the drought, but the allocation scheme imposed by shellers/ UCC which is covered by the clause here. Comments:
▪ Arguments not accepted by court:
▪ Canada Starch made a large profit from price increases (who benefits from inflation?) ▪ Giff would have gone bankrupt had it bought peanuts on the open market ▪ Possibly not accepted because they were not necessary to achieve an equitable result. ▪ Even under UCC, this is a borderline case.
▪ UCC represents a legislated change to the common law. ▪ Canada and the UK do not have changes
▪ Impracticability is not a valid ground at common law. John walker represents common law generally. ▪ Mentions near end that defendant has committed no fault. Is that relevant? ▪ Cannot, in a K, waive your right to sue for breach: against public order.
Amalgamated Investment and Property v. John Walker [1976 UK CA] (Frustration & mutual mistake)
Facts: A day after the K was signed, the property was listed as a cultural heritage building, which severely limited the commercial use of the property, and consequently reduced its value by L1,500,000. Plaintiff is
trying to get rescission of the agreement on the ground of common mistake, basing its claim on 2 grounds: 1) mistake (underscore some connection between mistake and frustration) 2) frustration. Held: K cannot be set aside for either frustration or mistake Ratio: Buckley-
▪ Mutual mistake: to be used as a ground for setting aside a contract, it is must show that the mistake existed at the date of the contract [same with threat, fraud, misrep]. ▪ Building became listed after the contract was signed. ▪ Frustration: occurs after K is made. Frustration occurs whenever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. ▪ Criteria:
▪ Radically imbalanced obligation w/o the fault of either party due to changing circumstances ▪ If risk is foreseeable, risk must have been allocated in K ▪ If the changed circumstance is not foreseeable, may allow frustration w/o stipulation in K (can be argued that party did not accept the risk). ▪ Cannot plea frustration re. a foreseeable risk.
▪ John Walker opens door to impracticability (which would render the thing radically different than that K’ed for), but it’s never actually permitted. (In US, UCC rules have carried into normal K law, so it is allowed) ▪ See this in two ways: (1) risk was foreseeable; (2) risk was allocated. ▪ frustration is based on thing being radically different than that K’ed for – Sherwood v. Walker: that’s why Morse had to hold that the cow was a substantially different animal. ▪ Holding based on notion that it is always foreseeable that a building may become listed. ▪ Is the risk here really foreseeable? It doesn’t seem to be any more foreseeable than the burning down of a music hall or the illness of a king.
Futility of Performance:
The performance is neither impossible nor impracticable, but it becomes pointless to perform.
Common law: Futility is contained within doctrine of frustration Civil law: Impossible to prove futility
▪ Foundation of the K in CML = cause of the K in CVL ▪ Cause of K is essential to the formation of K; the disappearance of the cause of the K after K is formed is irrelevant to the performance of the obligations • i.e., the parties are still bound to perform even if performance has become futile. Art. 1699(1): restitution of prestations takes place where a person is bound by law to return to another person the property he received • either unlawfully
• or by error
• or under a juridical act which is subsequently annulled retroactively Art. 1699(2): Court may, exceptionally refuse restitution where it would have the effect of according an undue advantage to one party (e.g., due to reliance). ▪ Common law: Frustrated Contracts Act (See Fibrosa comments).
Krell v. Henry [1903 UK KB](King)
Facts: def rented flat to watch coronation process. A deposit was paid. King got sick. Plaintiff wants rest of money, def wants his deposit back because he agues there was failure of consideration. Held: If the circumstance that has changed was the foundation of the K, and it was not in the contemplation of the parties, then the K will be set aside. Ratio: Vaughan Williams-
▪ The nature of the contract is such that both parties must have known that without the procession there is no contract. ▪ Implied condition that the parties shall be excused if performance becomes impossible. o This does not only apply to cases where the contract is impossible because the thing does not exist anymore, but also where there is cessation of a state of things that goes to the root of the contract (for both parties). ▪ This
need not be explicitly mentioned if it can be shown that both parties contemplated this. ▪ 3 step analysis:
▪ 1) What was the foundation of the contract? Coronation process. ▪ 2) Was the performance of the contract prevented by the change in situation? Yes. ▪ 3) Was the change in situation unforeseeable? Yes. ▪ Hence, parties should not be held by general words.
▪ Also important whether the event which causes impossibility was or might have been anticipated and guarded against. Comments:
▪ Here, substantive rather than literal interpretation of K, as it doesn’t mention coronation process. ▪ The K was not enforceable by either party
▪ In the case of a cab that you ask to take you to the Derby Day, but then Derby is cancelled. This is different because the happening of the Derby is not the foundation of the contract with the Cab. The cab had no special qualifications for the purpose which led to the selection of the cab for this particular occasion.
Fibrosa v. Fairbairn Lawson [1942 HL]
Facts: Plaintiff, a polish company, entered into a K with an English company whereby FSA agreed to sell machinery of which one third was to be paid with the order. The sale made subject to the condition that: “should dispatch be hindered by any cause whatsoever beyond our reasonable control, including war, an extension of time will be allowed.” $1000 were paid. War broke out. Plaintiff want to get their money back. Held: Right to recover prepayment: In the case of the frustration of the K, the party that has made prepayment can recover, unless there is a contractual agreement otherwise. Ratio: Viscount Simon-
▪ Frustration of the K, despite the clause, because the war involved prolonged and indefinite interruption of performance. ▪ Total failure of consideration. This is not based on the terms of a K, but on the law. ▪ Since the right to recover is permitted when there is frustration due to the destruction of a particular subject-matter, no reason why the right to
recover would not arise when frustration arises from supervening circumstances. ▪ Although, in the formation of the K, a promise to do the thing may be the consideration, the law of failure of consideration and the right to recover money on that ground, it is not the promise which is the consideration but the performance. Comments:
▪ If have part performance and K is frustrated, it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done. ▪ If no performance at all (total failure of consideration), the law, not the K, gives the remedy (restitution). ▪ State of the law today:
▪ Frustrated Contracts Act [UK and most common law provinces]: there must be restitution, but if one party incurred expenses, then those amounts can be deduced from restitution. ▪ Civil law this is dealt with in art. 1699 (2): modulates restitution to protect reliance of the party. ▪ Same principle is at play and common and civil law are not that different.
Classification of obligations:
o 2 elements:
▪ 1) Must define the extent of obligation,
▪ 2) establish who would bear burden of proof.
• If the plaintiff has a substantial role in the performance, hard to impose obligation of results.
INTENSITY OF OBLIGATIONS:
Mostly CIVIL LAW, but also found in common law.
a) obligation of means:
• obligation to take prudent and diligent steps to achieve result. • Burden of proof is on complainant
• E.g., Arts. 2032 (carrier: gratuitous carriage); 1309 (administrator) b) obligation of result:
• Absolute obligation of a specific result
• Presumption of fault
• Superior force and impossibility might excuse non-performance. • E.g., Arts. 2049 (Carrier: must carry property to destination); 1470 (superior force) c) obligation of warranty:
• guarantee result 100% and assume risks.
• Non-performance triggers liability
• E.g., insurance company can’t claim superior force
IMPORTANCE OF OBLIGATIONS:
Mostly COMMON LAW, but also found in civil law.
▪ Not all terms are equal. Importance of terms that are breached, and kind of reaction permissible. ▪ For purpose of breach, this distinction only exists in common law: Condition, warranty, intermediate terms [see Cehave]. ▪ In the civil law, the discussion is on importance of secondary/essential exists but it is subsumed in discussion about offer and acceptance. • [Seems to be a trend that civil law concentrates more on pre-K stage and common law more on performance stage.] Art. 1604(2): Not entitled to resolution or resiliation of K if the default of the debtor is of minor importance, unless, in the case of an ob. of successive performance, the default occurs repeatedly. [Termination only if breach is serious enough – similar to common law]
Cehave v. Bremer [1976 UK CA](Citrus pulp pellets)
Facts: K of sale to C. Clause: “shipment to be made in good condition.” In one cargo, a portion of pellets was in bad condition. C refused the accept delivery. Both parties disowned the property. Between contract and arrival of shipment, market prices had dropped considerably, which might be the reason why C wants to get out of K. Also, once pellets reached Rotterdam,
sold to third party for a 1/3 of the price and then C bought these same pellets for a 1/3 of the price Held:Cehave was entitled only to damages, not to terminate the K. Ratio: Lord Denning-
▪ Three distinctions:
• Breach of condition = entitled to terminate K ▪ Warranty:
• Breach of warranty = entitled only to damages ▪ Intermediate term:
• Between conditions and warranties
• Effect of breach will depend on the seriousness of the breach. If breach went to root of K, can terminate; otherwise, cannot. ▪ court’s approach:
▪ See if term on its true construction is a condition strictly so called ▪ If not a condition, then look at the extent of the breach. ▪ In this case, “shipped in good condition” is an intermediate term. Look at severity of breach. It could not have been that bad, since Cehave used them as intended. ▪ “Merchantable” = condition and not a warranty. For any breach of it, buyer is entitled to reject the goods. The court examines what a reasonable merchant might consider: ▪ Purpose for which goods of that kind are commonly bought ▪ difference between performance as stipulated and as performed ▪ look at price
▪ other relevant circumstances
▪ industry standards
▪ the fact that Cehave purchased the same pellets showed that there was not much difference. If still useful for their purposes, can’t reject them (unless a specific description is attached – like “new motor horns.”) Comments:
▪ Old law (only condition v. warranty) concentrated on significance of breach. With change, concentrate on significance of term. ▪ If there was a breach of a condition, then you can terminate contract, if it was a warranty then you can only claim damages. ▪ Similar to civil law
distinction between essential and secondary terms of K (1388 and 1387). ▪ A term not identified will be an intermediate term.
▪ consequence will depend on seriousness of breach. This comes closer to civil law (1604(2)). ▪ Bad faith:
▪ Common law: fact that Cehave may have acted in bad faith is no reason to put it aside from beginning. ▪ Civil law: Art. 1375.
▪ Policy argument: In 1960s, the state of the law changed. The rigid compartmentalization was not satisfactory because it did not permit factoring in the seriousness of the breach. This detracted from K as stabilizer.
Consequences that follow from breach:
▪ Civil law: contracting party must be put in default. 1594-1600: No need for this step in common law. ▪ Reaction to breach:
1) you do nothing: your inaction means that you disregard breach: affirm, confirm, accept the breach. It is important to react (Art. 1432) 2) particular to civil law: suspend performance in reaction to non-performance. 3) seek damages (CML) or reduction of ob (CVL) for non performance. 4) end the K. 2 options: a) end the K for future, or b) end the K ab initio.
Common law spends more time discussing breach than the civil law because: ▪ importance of remedies: civilians tend to think that remedies are a broader theme than K. Related to obligations in general. ▪ common law driven by litigation: in such circumstances remedies matter very much. ▪ different from the civil law, where more time is spent thinking about how one should act. ▪ French judgments spend very little time on remedies. Remedies are questions of fact not law. In Quebec, courts do discuss remedial issues.
Arts. 1594 – 1600: default
Art. 1420: a K that is relatively null may be confirmed.
Art. 1432:The confirmation of a K results from the express or tacit will to
renounce the invocation of its nullity. Art. 1591: Where obs arising from a synallagmatic K are exigible and one of the parties fails to perform his ob. to a substantial degree, the other party may refuse to perform his correlative ob. to a corresponding degree, unless he is bound by law, the will of the parties, or usage to perform first. Art. 1606: A K which is resolved is deemed never to have existed; each party is, in such a case, bound to restore to the other the prestations he has already received. A K which is resiliated ceases to exist, but only for the future. ———————–
 Again, allows for a great deal of ambiguity: Imagine “good oats.” That description, if 10% were bad, would likely not allow purchaser to get out of K. But if “grade A oats,” probably could get out of K. Problematic to rely on definition rather than on inherent quality.