Contract 1

Is there a contract?

 

Offer

-         was there an intent to contract?  Objective test

-         offers can expire, can be revoked at any time before acceptance

 

Acceptance

-         must be clear intent to contract.  Objective test

-         must correspond to the offer – if there is a change, it’s a counter offer

-         can accept by:

o       promise (I accept!!  This is what happens in bilateral K)

o       performance (unilateral K)

-         contract is made when acceptance is received by offeror

o       exception: mail rule.  Its accepted when you put it in the mail

 

Consideration

-         the price requested by the promisor

o       benefit to promisor or detriment to promise

o       performance

o       mutual promises – promise to assume a detriment or create a benefit

-          

Form

-         only K’s that need to be signed are land deals and guarantees (Law and Equity Act s.59)

-         seal works as a signature and counts as consideration

-         Part-performance

o       In a K for land, part-performance will substitute for a signature as long as past performance was unequivocally about land

 

Tendering

-         Contract A/Contract B stuff (Ron Engineering)

 

 

 

 
This K should not be enforced because…

 

1. The person suing is a 3^rd party beneficiary (Tweedle)
1. Exceptions

                                                               i.      Agency (New Zealand Shipping)

                                                             ii.      Trust (Van Peddick)

                                                            iii.      Collateral Contract/Warranty (Shanklin Pier)

                                                           iv.      Tort Law  (Donoghue v. Stevenson)

                                                             v.      Assignment (debts can be assigned to a third party)

                                                           vi.      Statute (ex. Insurance K’s can protect a third party)

                                                          vii.      The Principled Exception (London Drugs, Fraser River Pile & Dredge)

1.      was party intended to be a 3^rd party beneficiary?

2.      was the 3^rd party does exactly what the K was about?

 

 

2. Parole Evidence Rule - The person suing is trying to use parole evidence
1. Parole evidence rule used – Bauer, Carmen Construction
2. Parole evidence can be rebutted (Gallen)

 

 

3. K is unconscionable (Osario)
1. One party took advantage of an inequality in bargaining strength in a way that is “sufficiently divergent from community standards of commercial morality”
2. Common Law Remedy à K is voidable in equity (end K, return benefits)
3. Legislative Remedy à Consumer protection legislation (Rushak)

 

 

4. Party performed in bad faith (McKinley Motors v. Honda)
1. not about negotiation, but performance

 

 

5. K is illegal (Still v. MNR)
1. Is the purpose of the statute being served by holding the K void for illegality?
2. Is there unjust enrichment, or should losses lie where they fall?

 

6. Economic Duress (D&C Builders)
1. Looks better if you sue right away (as D&C did, but Stott did not)

 

This K should not be enforced because…..there’s a MISTAKE!

 

1.    mistake in assumptions about the subject matter of the K.  must be a common mistake

a.       Common Law (Bell v. lever) à void ab initio

                                                               i.      Res sua

                                                             ii.      Res extincta

                                                            iii.      “essential difference”

b.      Equitable (Solle v. Butcher) à voidable

                                                               i.      Must be common

                                                             ii.      Must be fundamental (operative mistake using but for test)

                                                            iii.      P must not be at fault

                                                           iv.      NOTE THE GREAT PEACE!

 

2.    Settlement

a.       Courts may upset a settlement if there was a mistake (Magee, TD v. Fortin)

 

3.    Misunderstanding

a.       Mistake in identity – you are contracting with the party in front of you

                                                               i.      Only party who can accept offer is the party who made the offer (Bolton)

b.      Mistake of Terms à void ab initio if…on an objective test….

                                                               i.      There is a true ambiguity

                                                             ii.      That goes to an important term

                                                            iii.      There is no reason to prefer one reading over another

c.       Non Est Factum à void ab initio

                                                               i.      Not available if there is a third party or someone was negligent (Marvco)

 

4.    Typo

a.       K will not be void…it will be rectified and made right (Performance Industries)

b.      Must prove 5 requirements… see sheet

 

5. Frustration – there was a frustrating event
1. Seller takes the risk of a price increase in discrete K’s (Eastern Airlines)
2. Cannot apply to land
3. Must be a fundamental event that destroys the commercial purpose (Krell)

                                                               i.      objective test – would a reasonable person see this as frustration

4. Usually, a K would be void at the point of the frustrating event (coronation cases)

                                                               i.      Fibrosa – benefits conferred should be returned

                                                             ii.      Frustrated Contracts Act 

1.      benefits payable before the event do not have to be paid

2.      reliance will be protected (different in BC and Ontario)

The exculpatory clause should not apply because….

 

1. Unsigned Standard Form – the ticket cases
1. If the party knew about the condition – condition valid (Parker)
2. If the party didn’t know about the condition - condition valid only if…

                                                               i.      There reasonable steps taken to make the condition known (Parker)

                                                             ii.      If unusual condition, more steps need to be taken (Thornton)

3. If the ticket is given after the K is formed – condition is not valid (Thornton)
4. Fundamental breach (Heffron) --  note Hunter!

 

2.    Signed contract

a.       signature implies knowledge and acceptance of condition (L’Estrange) UNLESS…

                                                               i.      Fraud or misrepresentation

                                                             ii.      Duress

                                                            iii.      Non est factum

                                                           iv.      Fundamental breach --  note Hunter!

                                                             v.      There was no signature!  (McCutcheon) 

                                                           vi.      Interpretation – condition that go beyond what a reasonable person would expect have no effect (Tilden, Karroll v. Silver Star)

 

3. The clause is penal
1. Clause is penal if court thinks its excessive.

                                                               i.      Test: is it commercially reasonable (Dunlop Tire, Estley)

2. If clause covers many breaches – if its unreasonable for one, its void for all
3. In deemed penal -  party will have to sue for damages regularly.
4. Note: deposits and forfeiture clauses

 

4.    Fundamental Breach

a.       Probably not applicable because of Hunter – should use unconscionability

b.      Dissent in Hunter  would apply it as a rule of construction

                                                               i.      Rule of law – exculpatory clause does not apply

                                                             ii.      Rule of construction – parties excused from further performance, but exculpatory clause lives and may apply

 

 

Rules of Exculpatory Clauses

-         they will be strictly construed

-         contra preferentum – if you make and its ambiguous, it’ll be read against you

-         if you want to exclude negligence, must specifically say “negligence is excluded”

 

 

Sales of Good Act

-         implied warranty of merchantability, implied warranty of fitness for purpose

 

Remedies for Breach of Contract

 

-         the usual remedy is expectation interest (reliance + expected profit)

 

Will get expectation damages UNLESS…

(1)   cost of performance exceeds value gained (Peevyhouse, Groves)

a.       might just get cost of performance if destruction of property

(2)   Demand is greater than supply (Victory Motors)

a.       Would’ve sold the car anyways, can’t get lost bargain

(3)   Profits unknown (Anglia TV)

a.       Will assume that profits = $0

(4)   Completion of K would lead to a loss (Bowlay Logging)

a.       Will just get nominal damages

 

(5)   Damages are too remote

a.       Damages must be within the reasonable contemplation of the parties (Heron II)

                                                               i.      Actual knowledge of the D

                                                             ii.      Knowledge imputed to a reasonable person in their position

b.      Special Profits.  Usually get compensation for ordinary profits that are foreseeable.  If special profits, will only get compensation for those if the special profits were communicated and D accepted the extra risk (Horne v. Midland Railway, Cornwall v. Purolator, Victoria Laundry)

 

(6)   You should’ve mitigated the damages (Payzu v. Saunders)

a.       Except in cases of anticipatory breach

 

 

Other Damages

(1)   Punitive Damages for an independently actionable wrong (Whiten v. Pilot Insurance)

(2)   Loss of Chance 

(3)   Equitable Damages – specific performance or injunction (Semelhago, Warner Bros)

(4)   Non-economic loss

a.       Can get damages for loss of peace of mind if peace of mind is the essence of the contract (Jarvis v. Swan Tours, Newell v. Canadian Pacific Air)

 

Employment Contract

-         at common law, employer must give reasonable notice

o       Bardal – factors that determine length of the notice period

o       Cannot sue for punitive or aggravated damages unless the employer’s conduct constitutes a separately actionable wrong (its not a piece of mind K, it’s a job!) (Vorvis).  Bad faith dismissal should increase notice period (Wallace)

§         Dissent in Wallace –bad faith dismissal should increase damages

§         Dissent in Vorvis – shouldn’t need to be a separate actionable wrong

This K may be enforceable despite…

 

Problems with finding consideration…and solutions!

 

1.    Past consideration

a.       If an event has passed, it will not be consideration for another promise (Eastwood)

 

2.    Pre-existing Duty

a.       Cannot promise to do something that you are already under a duty to do (Stilk)

b.      BUT à look to the benefit to the promisor as evidence of consideration (Roffey)

                                                               i.      Don’t just focus on detriment to promise

 

3.    Compromises

a.       A lesser sum won’t be consideration for a greater sum (Foakes v. Beer)

b.      BUT à legislation (Law and Equity Act.  Creditor can accept lesser sum)

c.       BUT à find rescission of old K and creation of a new K (Raggow)

                                                               i.      But if the only change in the K is price, rescission theory doesn’t work (Gilbert Steel)

 

4.    Unilateral contracts

a.       can be revoked at any time up to full performance (Carbolics)

b.      Solutions:

                                                               i.      Convert unilateral contract into bilateral contract (Dawson Helicopters – interpret the facts so that the promisor requested a promise in return)

                                                             ii.      Stretch consideration (Thomas v. Thomas – uncle promised son money if he stopped drinking and gambling.  Courts thought that stopping drinking was consideration and so could protect reliance)

                                                            iii.      Find consideration by looking benefit to promisor (Roffey)

                                                          iv.      Estoppel – protects reliance, existing relationship

1.      a party who relies on a promise will get protection.  Bad party will be estopped from taking back their promise

2.      Representational Estoppel – about persuading someone into a K by making representations about a current fact.  Cannot be used as a sword (Patternson Motors)

3.      Proprietary Estoppel – about land.  Can be used as a sword

4.      Promisory Estoppel – representation of a future fact.  Cannot be used as a sword

5.      NOTE: bad distinction between sword and shield

Tendering

 

Auction theories – where is the offer and acceptance

-         Seller represented by auctioneer.  Duty of auctioneer is to get highest price from a group of buyers.  This forms a binding contract.  If buyer doesn’t purchase, breach of contract.

-         Theory:

o       (1) Auctioneer creates an invitation to treat.  Offer is when the bidder bids.  Acceptance is fall of the hammer

o       (2) Auctioneer provides a conditional offer.  The condition is that there is no higher offer.  Acceptance is a bid. 

-         To determine whether a contract is formed, look to outside sources?

o       Reasonable expectations of the parties

o       Practical application – what makes sense in the situation

 

Government Contracts/Construction Contracts

-         Opposite of the auction.  There are many sellers.  (In auction there are many buyers)

-         ISSUE: without a seal, a firm offer is unsupported by consideration and thus is revocable at any time

o       Its essential to the working of the tendering process that offers cannot be revoked once submitted.  This would upset the process, just like if bidder in an auction revoked his offer, or if an auctioneer revoked the item. 

 

Tendering process – Ron Engineering

(1)   Contract A – Owner puts out an offer to enter into unilateral contract that is accepted on performance.  The price requested for the contract is submission of the bid.  Submitting the bid is acceptance and performance.  (acceptance and performance are the same in a unilateral contract – Carbolics).  Contract A is an agreement to enter into contract B.  Both parties agree to enter into contract B if your bid is the successful bid. 

(2)   Contract B – the actual contract of requesting and performing the work.  Everything of Contract B is represented in contract A except the price

 

Rules of Tendering:

(1)   cannot revoke bid after closing (Ron Engineering)

(2)   can withdraw tender up to close of tenders, but afterwards bound by it (Gloge)

(3)   implied within Contract A is that only bids that comply with terms will be accepted (MJB)

(4)   Owners can change bid as long as all bids are treated fairly and equally (Martel)

(5)   Must hire the carried sub-contractors unless there is reasonable cause not to (Naylor)

 

Ron Engineering v. Ontario (1981,  SCC,  Estey)

-         FACTS: Ron enters $2.7M bid, with $150,000 deposit at 3pm deadline.  Ron wins with lowest bid by $600,000.  At 4:13pm, mistake in bid reported to ministry.  Ron had left out labour costs of $750,000.  Ron asks to withdraw and to resubmit his bid.  Ministry refuses and keeps $150,000 deposit.

-         COURT: Held for D.  Ron doesn’t get back anything.  used contract A, contract B formula

 

 

Northern Construction Co. v. Gloge Heating (AB CA, 1986, Irving JA)

-         FACTS: P is prime contractor for a job.  D is sub-contractor.  D submits a tender to P, but later realizes that it is far too low.  D doesn’t perform the contract (anticipatory breach), claiming mistake.  P finds someone else at an added cost of $341k.  P sues D for breach of the tender Contract A

-         COURT: D is liable for breach of Contract A.  Courts need to protect the reliance of a contractor on a sub-contractor or else whole system would fail

 

 

M.J.B. Enterprises v. Defence Construction (1951)

-         FACTS: D solicits bids for a construction project.  The overall owner of the project (Gov’t of Canada) accepts the lowest tendered bid even though it didn’t comply with the tender specifications.  P sues for breach of K, claiming that the lowest tender should have been disqualified and its tender accepted as the lowest valid bid.

-         COURT: P’s bid would have been accepted if not for the unfit low bid (on a balance of probabilities).  Full expectation damages awarded.  To uphold integrity of tendering process, it is implied within contract A that only compliant tenders will be accepted

 

Martel v. Canada (2000, SCC, Iacobucci and Major J)

-         FACTS: P had submitted lowest bid, but the government made adjustments on “fit-up” and so their bid was no longer lowest.  Government used a formula to “fit up” all bids. 

-         COURT:  Its OK to “fit-up” the bids because the process was fair and all bids were changed.  Owners are allowed to “fit up” bids to better meet their needs as long as there is no preferential treatment. 

o       There is an implied term of the contract A that all bidders will be equally treated

 

Nailor v. Ellis-Don (2001, SCC, Binnie for the court)

-         FACTS: P had submitted lowest bid in a bid depository system to prime contractor D.  P was not part of a particular union that D exclusively employs.  D says no problem, as D was in a dispute with the union at the time.  D then turns around and decides not to hire P due to P having the wrong union affiliation.  P sues for breach of K.

-         COURT: held for P because of breach of contract A.  Rules of the bid depository stated that a prime contractor is required to submit tender with “carried” sub-contractors unless there is a reasonable cause not to do so.  This was not a reasonable cause.

o       These rules became an implied term of Contract A.

o       The contract was between owner and prime, no contract between prime contract and sub-contractor.  Sub-contractor can sue it is an implied term of contract A that there is an obligation between all parties.