Contract Law - Mod 14

Question 1

Four basic elements necessary for contract formation:

Answer 1

• offer
• acceptance
• consideration
• intention to create legal relations

Question 2

Offer includes:

Answer 2

1. Inclusive terms
2. Outward directed expression
3. Objective
   An offer looks forward to an agreement - to mutual expression of assent
   An offer is an expression by one party of his assent to certain definitive terms, provided that the other party involved in the bargaining transaction will likewise express his or her assent to the identically same terms(Corbin)

Question 3

Pharmaceuticals society of Great Britain v. Boots Cash Chemists - FACTS

Answer 3

• section 18 of the pharmacy and poisons act makes it an offence to sell certain drugs without supervision of a pharmacist
• The society alleged that boots was breaching the act since they allowed people to help themselves to drugs which they then took to the cashier
• boots argued that the display with the priced goods was an invitation which turned into an offer and acceptance of the cashiers area which was under the supervision of the pharmacist. Therefore, the cashier could refuse to sell (not accept the offer) if there was a problem
• The society argued that the sale took place when the customer put the item in the basket since the item with a price tag was an offer that the customer accepted.Therefore, the cashier could not refuse since the sale had already occurred

Question 4

Pharmaceuticals society of Great Britain v. Boots Cash Chemists - COURT HELD

Answer 4

• The display of goods is an invitation which turned into offer an acceptance of the cashiers area
• any other interpretation would mean that the customer could not change their mind (and return the item to the shelf) once it had been placed in the basket

Question 5

Storer v. Manchester - FACTS

Answer 5

• A city Council adopted a policy of selling its community housing and offered the houses to the tenants who were living in the buildings. They devised a simple plan to accomplish this.
• City Council had written to S informing him that it might be willing to sell
• S filed an application form to buy
• there was further correspondence whereby the council sent a letter with the terms and S signed the form and returned it
• before the official contracts could be sent out, there was a change of local government and the new city Council decided to undo the policy of selling council homes and ceased making offers to sell houses
• they decided to go ahead with any legally binding contract and revoke any outstanding offers
• The council law clerk decided that since the contracts have not been exchanged, there is no legally binding contract, and the council was not obligated to conclude the deal with S

Question 6

Storer v. Manchester - Did S have a contract with the council, had there been offer and acceptance?

Answer 6

yes

• must look to objective criteria, what party said or did, not what they intended
• lord denning: “ in contacts you do not look into the actual intent in a man’s mind. You look to what he said and did. A contract is formed when there is, to all outward appearances, contract. A man cannot get out of a contract by saying I did not intend to contract by his words he has done so”

Question 7

Offer and unilateral contracts - two types of contracts:

Answer 7

• bilateral contract

- unilateral contract

Question 8

Bilateral contract

Answer 8

• Mutual promises made in exchange for each other by each of the two contracting parties
• both parties are promisors and promisees
• The contract creates mutual rights and duties
• A contract can exist prior to performance by either party
  Example:
  Offer - I promise to sell you my horse tomorrow for $1000
  Acceptance - I promise to buy your horse tomorrow for $1000
  (Both under a legal obligation)

Question 9

Unilateral contract

Answer 9

• promise or group of promises made by only one of the contracting parties (eg. The promisor/offeror)
• The promisor/offeror is the only party under an enforceable legal duty
• the other party (eg. The promisee/offeree) is the only part who has an enforceable legal right
• basically it is an agreement to pay in exchange for performance, if the promisee/offeree chooses to act
• it is not an outstanding offer, which is not a contract
  Example
  Offer - I will pay you $100 if you mow my lawn before noon on Friday
  Acceptance- you mow the lawn before noon on Friday

Question 10

Carlill v. Carbolic Smoke Ball Co. - FACTS

Answer 10

• CSB manufactured smoke balls, which was a preventative treatment for the flu
• CBS issued an advertisement offering a $100 award to anyone who used the product according to the directions and still managed to catch the flu
• Carlill used the ball according to its instructions but still caught the flu
• was there a contract? - was Carlill entitled to the reward?

Question 11

Carlill v. Carbolic Smoke Ball Co. - Can an advertisement constitute an offer?

Answer 11

• A unilateral contract is just as enforceable as a traditional contact
• it is legally permissible to make an offer to the world
• where the offer indicates, performance of the requested act can constitute acceptance of the offer

Question 12

Carlill v. Carbolic Smoke Ball Co. - COURT HELD

Answer 12

• Carlill was entitled to the reward

Question 13

Acceptance

Answer 13

• an offer creates a power of acceptance in the offeree

- once accepted the contract is clinched (legally enforceable)

Question 14

Requirements of an acceptance

Answer 14

• clear and unconditional
• made in response to offer (not cross offer or counter offer)
• communicated to offeror in compliance with terms stated in offer
• made in knowledge of offer (motive is irrelevant)

Question 15

Larkin v. Gardiner (acceptance) - FACTS

Answer 15

• L retained a real estate agent to sell her property
• The agent was approached by G with an offer of $1900
• The agent took the offer to L and she signed the agreement
• the agent took no steps to communicate L’s acceptance of the offer to G
• a few hours later, G gave notice to the agent that he withdrew his offer
  Was there acceptance prior to withdrawal?

Question 16

Larkin v. Gardiner (acceptance) - COURT HELD

Answer 16

No, there was not acceptance prior to withdrawal

• contracts are not formed on the basis of subjective mutual consent but rather upon the objective interpretation of externally manifested action
• A contract will not be formed until the acceptance of the offer has been communicated to the offeror
• The offeror may revoke the offer prior to acceptance

Question 17

Eliason v. Henshaw - FACTS

Answer 17

• E offered to purchase flour from H
• in the offer E stipulated that the acceptance had to be made by return wagon which was headed to Harper’s Ferry
• H purported to accept the offer by sending an acceptance to E at Georgetown
• E denied that a contract had been made on the basis that their terms as to acceptance had not been complied with

Question 18

Eliason v. Henshaw - COURT HELD

Answer 18

No, there was not an acceptance of the offer
- the offeror is the master of the offer and may insist on acceptance in any way (including acceptance at a particular place)

Question 19

Manchester Diocesan Council for Education v. commercial and general investments Ltd.

Answer 19

• Notification may come through any means (What is important is that the offeree makes his or her intention to except known to the offeror)
• even if the offer provides for a specific means of acceptance, the courts will generally find that any means of acceptance that is no less advantageous to the offeror will conclude the contract
• if the offer makes it abundantly clear that only one means of acceptance is permitted then acceptance will be limited to such means

Question 20

Livingston’s v. Evans (counter offer) - FACTS

Answer 20

• E offered to sell his land to L for $1800
• L responded by telegram, saying, send lowest cash price, will give $1600 cash
• E answered by telegram, cannot reduce price
• L wrote accepting the original offer
• E refused to sell
  Was there an acceptance of E’s offer?

Question 21

Livingston’s v. Evans (counter offer) - E argued

Answer 21

E argued there was no contract for the following three reasons:

• The statement by L to pay $1600 was not on the same terms as the offer and therefore could not be an acceptance
• instead, it was a counter-offer. It is general rule that a counter offer kills the original offer
• therefore, there was no longer an offer to L to accept

Question 22

Livingston’s v. Evans (counter offer) - COURT HELD

Answer 22

• L had accepted E’s offer and a contract was formed
• although the original counter offer by L had terminated E’s offer, E’s subsequent communication “cannot reduce price revived the original offer”

Question 23

Felthouse v. Bindley (does silence constitute acceptance?) - FACTS

Answer 23

• F thought he had reached an agreement to purchase a horse from his nephew for 30 euro, but his nephew informed F that the agreed price was 30 guineas
• F appreciated that there had been some confusion as to price and made a new offer of €30 15 shillings, saying “if I hear no more about him, I consider the horse mine at 39 euro 15 shillings
• subsequently, the nephews farming stock was sold at auction
• The nephew had informed the auctioneer that the horse should not be included, but the auctioneer still sold the horse at the auction
• after the horse had been sold, F received a letter from the nephew acknowledging his acceptance
• F brought action against B (the auctioneer)
• in order to be successful in the action it was necessary to establish that F had a right to the horse at the time it was sold

Question 24

Felthouse v. Bindley (does silence constitute acceptance?) - At what point in time was there a valid contract between F and his nephew? COURT HELD

Answer 24

• at best, the contract was formed when a F received the letter from the nephew (after B had sold the horse at auction)
• A condition in an offer that the offeree’s inaction/silence will constitute acceptance is generally not valid

Question 25

Consumer protection act, 2002 (Ontario)

Answer 25

13. (1) except as provided in the section, the recipient of unsolicited goods or services has no legal obligation and respect other use or disposal
    (2) no suppliers shall demand payment or make any representation that suggests that a consumer is required to make payment in respect of any unsolicited goods or services despite their use, receipt, misuse, loss, damage or theft

Question 26

Acceptance and certainty

Answer 26

• if the terms of an agreement are not sufficiently certain and definitive, there will be no contract
• however, courts will strive to give reasonable force to agreements through reasonable and just interpretation
• The courts will try, whenever possible, to give the proper legal effect to any clause that the parties reasonably understood and intended was to have legal effect

Question 27

Scammell (G.) and Nephew Limited v. Ouston - FACTS

Answer 27

• O agreed to purchase a van from S for €268
• S agreed to take O’s 1935 Bedford van in trade with the remaining purchase price to be paid by a hire purchase agreement
• S notified O that the van would be ready for pick up in a few days, subject to mutual acceptance of the hire purchase agreement
• before the hire purchase agreement was entered into S refused to proceed with the sale

Question 28

Scammell (G.) and Nephew Limited v. Ouston - COURT HELD

Answer 28

Is there a contract? No

• The language used in the agreement was obscure and incapable of any precise meaning
• in order to be binding agreement must be sufficiently definite to enable the court to give it a particular meaning
• A court may import terms on the proof of custom or by implication, but it cannot make an entire contract for the parties
• The parties had not reached agreement on the terms of the hire purchase agreement
• A hire purchase agreement is a complex arrangement. The law has not defined what are the normal and reasonable terms of a hire purchase agreement
• an agreement to agree is not a contract

Question 29

When is an offer terminated?

Answer 29

• Where a time limit is stipulated for acceptance, at that time
• where no time limit is stipulated, after a reasonable time
• upon the revocation by the offeror

Question 30

Dickson v. Dodds - FACTS

Answer 30

• Dodds offered to sell land to Dickinson
• The offer was open until 9 AM on Friday
• Dickinson decide to buy decided the buy the house but believing that he had until Friday to accept did not immediately make this known to Dodds
• before Friday Dickinson heard that Dodds had sold the house to a third-party (Alan)
• before the deadline for acceptance, Dickinson found Dodds at the train station and attempted to hand Dodds acceptance of the offer
• Dodds stated that he could not accept as he sold the house to Allan

Question 31

Dickson v. Dodds - COURT HELD

Answer 31

Is the acceptance valid? No

• an offer is mere nudum pactum (naked promise), which can be revoked at any time prior to acceptance
• knowledge which is sufficient to indicate revocation to the reasonable person (even if indirect) invalidates the power of acceptance
• a promise to hold an offer open for a certain time is unenforceable unless there is consideration for the promise

Question 32

Consideration

Answer 32

• “ if there is no consideration there is no contract”
• consideration must be mutually related to the promise. It must be requested by the promisor. It must be the reason for the promise.
• consideration must be either a legal benefit to the promisor or legal detriment to the promisee (Currie, Hamer)
• consideration must not be illusory. A promise that does not obligate the promisor to actually do anything that is not consideration (Tobias, Wood)
• consideration can be nominal (Westlake, Thomas)

Question 33

Currie v. Misa

Answer 33

• A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other

Question 34

Allegheny College v. National Chautauqua County Bank of Jamestown

Answer 34

• The detriment and promise must be mutually related, the detriment suffered must be requested by the other side
• they must be motive for one another

Question 35

Hamer v. Sidway - FACTS

Answer 35

• an uncle promised to pay his nephew $5000 if the nephew did not drink, smoke, swear or gamble until age 21
• The nephew did not do any of these things and asked for the $5000
• The uncle told his nephew that he would give the nephew the $5000 but died before he paid it
• the executor refused to pay on the basis that there was no consideration for the uncles promise

Question 36

Hamer v. Sidway - The defendants argument

Answer 36

• there was no consideration
• The uncle did not receive any material benefit and the nephew did not suffer any factual detriment (he was the better for not smoking and drinking - not relevant)

Question 37

Hamer v. Sidway- COURT HELD

Answer 37

Was there consideration for the uncles promise? Yes

- nephew gave up his liberty to do these things on the strength of his uncles promise (suffered a legal detriment)

Question 38

Tobias v Dick and T. Eaton co - FACTS

Answer 38

• T entered into an agreement with D
• under the terms of the agreement T had an exclusive right to sell machines in the prairie provinces that were manufactured by D
• T was not very successful and D allowed E to sell its machines in the prairie provinces
• T sued D for breach of contract

Question 39

Tobias v Dick and T. Eaton co - COURT HELD

Answer 39

Was there a contract?

• no, T had not promised anything in return
• in my opinion, it is not a contract at all. It has no mutuality - it is entirely a one-sided arrangement. By it, Tobias gets The exclusive right to sell Dick’s machines within a state or territory for a stated time, but does not promise to sell any of the machines

Question 40

Wood v Lucy, Lady Duff-Gordon - FACTS

Answer 40

• lady duff-Gordon and wood entered into an agreement
• under their agreement wood had the exclusive right to use lady duff-Gordon’s name on clothing designs
• in return for this right lady duff Gordon was entitled to 50% of wood’s profits
• Lady duff Gordon allowed her name to be used by other designers and did not share profits with Wood
• Wood sued for his share of profits
• Lady duff Gordon argued that there was no contract, because wood had not promised to do anything
• His promise was illusory and therefore there was no consideration

Question 41

Wood v Lucy, Lady Duff-Gordon - COURT HELD

Answer 41

Was there a contract? was there consideration?

• yes
• on these facts, you can imply a promise that wood would use reasonable efforts to earn profits from the use of lady duff Gordon’s name
• there is a bilateral contract here because lady duff Gordon promised to let wood use her name in return for wood’s promise do use his best efforts to earn profit from it
• if you imply this term the whole contract, then makes sense

Question 42

past consideration

Answer 42

• The promise and the consideration must purport to be the motive each for the other
• it is not enough that the promise induces the detriment or that the detriment induces the promise
  If a promise is made:
• in return for an act that has already been performed, or
• for a benefit that is already been received,
  The promise is not the motive for the act or the benefit (i.e. the consideration)
• consideration for the promise is “past” and does not support the promise

Question 43

What if the act is performed, or the benefit given: at the request of the promisor, and in circumstances that suggested payment would be made

Answer 43

• then the promise may be enforceable since the consideration may not be in the past

Question 44

Consideration will not be “past” if:

Answer 44

• The act is performed at the promisor’s request and
• The parties understood that the person performing the act would receive a benefit
  Note, this understanding can be implied based on the facts

Question 45

Gilbert Steel v University Construction (pre-existing duty) - FACTS

Answer 45

• steel entered into a written contract with University construction for the purchase of steel at a fixed price
• The market price of steel increased and Gilbert steel asked university construction to pay a higher price
• University construction verbally agreed to the higher price
• Gilbert steel continued to deliver steel which university construction accepted and charged the University construction at the higher price
• University construction refused to pay the higher price

Question 46

Gilbert Steel v University Construction (pre-existing duty) - COURT HELD

Answer 46

Was is the oral promise made by UCL to pay a higher price for steel enforceable ?

• no
• Gilbert steel was already obligated to deliver steel at the lowest price. Gilbert Gilbert steel provided no new consideration for university constructions promise to pay a higher price

Question 47

Balfour v. Balfour - FACTS

Answer 47

• the wife (plaintiff) and her husband (defendant) were married in 1990
• W became ill with arthritis and it was decided that she should remain in England to recuperate
• H returned to Ceylon once his leave had finished
• before H left he promised to pay W €30 per month for her maintenance until such a time as she was well enough to rejoin him or until he returned to England
• eventually differences arose between them as to their living arrangement and it was decided that they should live apart
• H stopped paying the euro30 per month
• W obtained an order for alimony and sued H for the money promised from 1916 until 1918 when alimony payments began
• A trial, Sargent J found the H had an obligation to support W
• accordingly, the consent of W to the agreement for support was consideration

Question 48

Balfour v. Balfour - COURT HELD

Answer 48

• H appealed. What is H‘s promise enforceable?
  No
• duke LJ: W gave no consideration for the promise
• W and H did not intend to make a bargain that could be enforced by law
• Atkins LJ: There are some situations in our law where, although all the requirements of formation are met, there is no legal contract
• examples include an agreement to take walks together or an offer of acceptance or hospitality
• as a general rule, agreement made between husband and wife living in Amity, peace, Goodwill or Harmony are also of this character

Question 49

Balfour v. Balfour - Why are they not enforceable?

Answer 49

• The parties did not intend that these arrangements should be sued upon or transfer legal rights
• The family is an inner private sphere where the parties decide amongst themselves how to allocate the resources and in which they rely on natural love and affection
• this presumption of no intention must be overcome by W who must establish that the agreement was to have legal significance
• The facts of this case, do not support the interpretation of a legally binding relationship was intended
• it would seem odd that the amiable husband would legally bind himself to pay €30 per month under all circumstances
• it’s also unlikely that W who was ill in health and alone in England, but limit herself to that amount whatever the development of her illness
• this leads to the conclusion that neither party contemplated this result and therefore there was no contract which could be sued upon

Question 50

Rose and Frank Company v JR Crompton and brothers

Answer 50

• RFC, was an American distributor of JRC’s products. They had been in business together since 1905
• in 1913 the parties entered into a new agreement. The agreement provided for such matters as the duration of the agreement, the regions covered, the prices
• in the body of the document, there was a clause which stated that the agreement was not formal or legal and that the parties could not litigate the matter in either English or American courts
• after becoming dissatisfied, JRC refused to continue the arrangement and RFC sued

Question 51

Rose and Frank Company v JR Crompton and brothers - was the agreement legally enforceable?

Answer 51

• no
• it is acceptable for parties to come to agreements which do not give rise to legal relations (this is presumed in social or family settings)
• in commercial arrangements there is a factual presumption of the parties intended to create legal relations
• this presumption maybe rebutted with compelling evidence

Question 52

Estoppel

Answer 52

• an equitable remedy which may apply to enforce a promise that is otherwise not enforceable as a contract (often the case when no consideration is given)
  Two types:
• promissory estoppel
• proprietary estoppel

Question 53

Promissory estoppel

Answer 53

• where one party to a contract has promised that they will not strictly enforce their rights under the contract, and then later go back on that promise and attempt to enforce those rights
• other party has not provided any consideration for promise
• does not create new causes of action were none existed before. It only prevents a party from insisting on his strict legal rights where it would be unjust to allow him to do so, having regard to the dealings which have taken place between the parties

Question 54

Hughes v Metropolitan Railway

Answer 54

• by the terms of a lease the landlord (H) had the right to demand the tenant (MR) to perform repairs on giving six months notice
• In October, H gave the notice to MR
• in November and December, H and MR discussed the possibility of H buying MRs interest in the property
• at the end of December, the negotiations broke off
• in April, H asserted that MR had breached the lease because the repairs are not done in time

Question 55

Hughes v Metropolitan Railway - is the lease forfeit?

Answer 55

• no because entering into negotiations H lead MR to believe he would not strictly in force his rights to restrict the lease
  1. The parties have entered into definite terms involving certain legal results
  2. One party is led to believe that the other party will not enforce their strict legal rights
  3. The party who might otherwise have enforced those rights will not be allowed to do so where it would be inequitable in the circumstances

Question 56

Ryan v Moore

Answer 56

• to succeed in a claim for promissory estoppel, the promisee must show that they reasonably relied on the promise to their detriment
• The jurisprudence and academic comments support the requirement of detrimental reliance as lying at the heart of true estoppel

Question 57

Proprietary estoppel

Answer 57

• applies to enforce a promise that creates new legal rights
• applies where a person A has led person B to believe that they will enjoy some right or benefit over property and it would be unfair to allow A to go back on their word

Question 58

Crabb v Arun District Council

Answer 58

• Crabb and Arun District Council both purchased land from the estate of a deceased person
• Crabb’s Parcel of land was further divided into top lot and bottom lot
• the parties had agreed that there should be an access to the two lots at point A
• C decided that it would be easier for him to sell the lots if there was a separate access for the bottom lot at point B
• A agreed to this with some details to be worked out later
• C built a fence between the two properties but put a gate up both point A and B
• C sold the top lot to a third-party without reserving access through point A because it was assumed that point B would be used to access the bottom lot
• after the transfer to the third-party, A tore down the gate at point B and fenced it over
• C offered to make a deal with A but they asked for €3000 for the right of access which C thought was unreasonable
• C sought a declaration stating that he owned the right of way
• The court held that A was required to grant C the right of way
• A led C to believe that they would allow him access at point B at the original meeting
• they did not object when a space was left in the fence, nor did they object when the gate was being put up
• unlike promissory estoppel which is rights limiting, a claim for proprietary estoppel can force a promise which creates new rights

Question 59

Crabb v Arun District Council - does there need to be a definitive promise?

Answer 59

• no, an explicit promise is not necessary
• A court will intervene when someone, by their words or conduct, leads another person to assume that they will enjoy some right or benefit in the property and that person relies on this to their detriment

Question 60

Cowper-Smith v. Morgan - FACTS

Answer 60

• Elizabeth and Arthur Cowper-Smith had made it clear that after their deaths, their property were divided be divided equally among their three children, Gloria Nathan and Max
• following Arthur’s death Elizabeth is executed a new will that appointed Gloria as executor and provided that her estate would be divided equally among Gloria, Nathan and Max
• eventually Elizabeth was no longer able to live on her own, so max gave up his employment income, his cottage lease, his contacts with his children and his social life in England and move back home to Victoria to care for his mother
• before Max agreed to move back to Victoria, Gloria promised that Max would be able to live in the family home permanently and eventually acquire her 1/3 interest in the property
• after her death it came to light that Elizabeth had transferee the family home and all of her investments into joint ownership with Gloria, indicating a trust declaration that Gloria would be entitled absolutely to those assets upon her death
• Gloria announced her plans to sell the family home, and which Max was still living. Max and Nathan sought an order setting aside the trust declaration and declaring that Gloria held the property investments in trust for Elizabeth’s estate
• Max and Nathan also claimed, on the basis of proprietary estoppel, that Max was entitled to purchase gloria’s 1/3 interest in the family home
• The transfer of the family home and investments was found to be ineffective at trial due to Gloria’s undue influence. The trial decision was upheld by the British Columbia Court of Appeal
• The majority of the BCCA held that since Gloria owned no interest in the family home at the time that she made assurances to Max, proprietary estoppel could not arise
• Max appealed to the Supreme Court of Canada on the issue of proprietary estoppel

Question 61

Cowper-Smith v. Morgan - Proprietary estoppel arises where:

Answer 61

• A representation is made to a person which leads the person to believe that he or she will enjoy some right or benefit over property
• The person reasonably relies on that belief by doing or refraining from doing something
• The person suffers a detriment and it would be unfair or unjust to allow the person responsible for the representation to go back on his or her word

Question 62

Cowper-Smith v. Morgan

Answer 62

• The representation or assurance may be express or implied
• it may require the recognition of new rights and interests
• proprietary estoppel can even apply if the promisor did not have an interest in the property at the time the promise was made
• The relevant question is whether the promisee’s reliance was reasonable

Question 63

Cowper-Smith v. Morgan - HELD

Answer 63

• the SCC found that both Max and Gloria had clearly understood for well over a decade that their mothers estate, including the house in which she lived, would be divided equally among her three children upon death
• it was for sufficiently certain that Gloria would inherit a 1/3 interest in the property for her assurance to be taken seriously as one on which Max could rely

Question 64

Breach of contract

Answer 64

• occurs where one or more parties to a contract fail to perform their obligations under the contract
• a breach can result where a party to a contract does something they promised they would not do, or fails to do something they promised they would do
• in many situations the parties are able to resolve the issue through negotiation and agreement
• where this does not happen, the other party may seek a remedy from the courts

Question 65

Breach of contract - two kinds of remedies:

Answer 65

• specific and monetary

Question 66

Specific remedies include:

Answer 66

• A decree of specific performance ordering the defendant to perform his or her promises and
• an injunction ordering the defendant to refrain from doing what he or she promise not to do

Question 67

Monetary remedies

Answer 67

• usually damages, aimed at compensating a plaintiff by measuring their loss in money
• the usual measure in contract cases is a sum of money that will put the plaintiff in as good a position as they would have been in had the contract being performed (“expectation damages”)

Question 68

The purpose of awarding remedies:

Answer 68

• to protect the plaintiffs expectation interest

- this is in contrast a tort law, where the usual measure is the plaintiffs out-of-pocket loss

Question 69

Specific performance - The basics

Answer 69

• specific performance is a discretionary equitable remedy
• unlike in civil law, where specific performance is the normal remedy there is no right to specific performance under the common-law
• specific performance is generally given only one damages are inadequate
• traditionally, specific performance was granted as a matter of course in contracts dealing with land
• in Canada, this prima facie presumption has now been abandoned, where SCC how that specific performance was only available where the land was unique, and damages were inadequate

Question 70

Warner Bros Pictures v. Nelson - FACTS

Answer 70

• Betty Davis signed a contract with Warner Bros. before she became famous
• this contract provided that she would render her acting services exclusively to Warner Bros
• she later found the contract to be unfair and she fled to the UK to work
• Warner brothers wanted the English court to order specific performance to stop her working in the UK

Question 71

Warner Bros Pictures v. Nelson - is Specific performance the proper remedy?

Answer 71

Are monetary damages adequate?

• no
• Bette Davis‘s talents are unique
• damages flowing from the breach would be difficult to measure

Question 72

Warner Bros Pictures v. Nelson - HELD

Answer 72

• The court ordered Betty not to work as an actor for anyone other than Warner for a period of three years
• she could work in other jobs that did not require her to use acting skills
• she was also free to return to her employment with Warner Bros., but the court would not order her to do so

Question 73

Peevyhouse v Garland Coal and Mining Co

Answer 73

• P leased part of their farm to G so that G could remove coal from it. P received royalties
• under the terms of the lease G was required to fill in the coal pits after removing the coal
• G did not fill the coal pits
• The cost of filling to coal pits was approximately $29,000 where the reduction in the value of P’s farm was $300
• The farm was worth around $3500
• P sued G
  The court had to decide what was the proper measure of damages:
• cost of performance (filling the coal pits), or diminution in value (reduction in value of the farm)

Question 74

Peevyhouse v Garland Coal and Mining Co - majority held

Answer 74

Majority: 5 judges
- The proper damages were $300 rather than $29,000
usually, you get the cost of performing but in this contract it is not appropriate because:
- it would be oppressive to order costs of performance
- The requirement to fill the pits was only a secondary provision which was incidental to main purpose of the contract
- no reasonable person would spend that much money to fill coal pits. Therefore, it would be unreasonable to force G to pay for P to do something which P would never do

Question 75

Peevyhouse v Garland Coal and Mining Co - dissent

Answer 75

Dissent: 4 judges
P should get cost of performance ($29,000). Why?
- The requirement to fill the coal pits was an important part of the contract
- what a reasonable person would do was not relevant, what matters is what the parties agreed to
- it may have been logical at the time, for G to have agreed to this
- The cost of filling the pits could have easily been estimated by garland and therefore would have been a consideration when deciding whether to enter into the lease

Question 76

Peevyhouse v Garland Coal and Mining Co - how do you determine the right measure?

Answer 76

Ask yourself two questions:

• does the plaintiff have a special interest in their property other than as economic vehicle? (Ex. Evidence that they valued their property differently than as a commodity)
• was this special interest communicated to the other party at contract formation or embedded in the terms of a contract between them?

Question 77

Groves v John Wonder - FACTS

Answer 77

• G leased land to JW for $105,000
• under the terms of the lease, JW was entitled to take gravel off of the land but was required to leave it level
• JW did not level the land and therefore breached the lease
• The value of the land was $12,160 and the cost of levelling the land was $60,000
• The failure to level the land did not reduce its value in any material way
• what is the proper measure of damages? (Diminution in value or cost of performance?)

Question 78

Groves v John Wonder - Stone J. Majority

Answer 78

• there was a breach and therefore the court should use the expectation interest based on the cost of performance
  Why?
• to award the lower cost would reward a wilful breach by the defendant
• A strict diminution in value would constrict the right of a homeowner to construct items of value that will reduce its value
• it would say that there is no room for the subjective. This has to be wrong since people have the right to have works performed on the property that would diminish its value

Question 79

Groves v John Wonder - Dissenting

Answer 79

• The true measure of the loss should be the diminution in value
• The problem with the majority is that they focus on the gain to the defendant rather than the loss to the plaintiff
• The aim should be to compensate for loss not to punish for breach
• there was no unique or specific use for the land
• The general purpose of the contract was to put the land into shape for general sale
• therefore, measure of damages should be the diminution of value

Question 80

Is it ever appropriate for a court to base images on the gain realized by the breaching party? (Disgorgement- gain-based damages)

Answer 80

• in exceptional circumstances a plaintiff may be awarded damages measured by the defendant’s gain
• this measure of damages is known as the disgorgement damages (operate to strip the defendant of the profit they have made)

Question 81

A.G. V Blake

Answer 81

• B was a former spy for the UK
• in 1944 he signed an undertaking not to divulge any official information gained through his employment
• in 1989 he wrote an autobiography, which was a criminal offence
• the publisher was to pay him €150,000
• the UK government sued B for €150,000

Question 82

A.G. V Blake - A plaintiff can get disgorgement where:

Answer 82

1. Expectation damages or specific performance are inadequate
2. The relationship between the parties was one of trust or confidence
3. The plaintive has a legitimate interest in preventing the defendant from profiting from the breach
   Each of these three requirements were met:
   - expectation damages equaled zero and it was too late to order specific performance
   - The relationship was one of trust and confidence
   - The government has a legitimate interest in preventing the profit since it wants to discourage other spies from doing the same thing

Question 83

Intangible losses

Answer 83

• An intangible loss is a loss that does not have any apparent economic value (ex. Anger or sadness that may occur when a contractual promise is broken)
• traditionally, courts have refused to award damages for mental anguish or emotional suffering in breach of contract cases
• however, where these types of intangible benefits are the very purpose for the contract, the court may award damages to compensate for intangible injuries that are caused by breach of the contract

Question 84

Jarvis v. Swan Tours - FACTS

Answer 84

• mr. Jarvis booked a paid two week holiday in Switzerland with swan tours
• The holiday was a great disappointment and Mr. Jarvis sued for breach of contract

Question 85

Jarvis v. Swan Tours - Is the plaintiff entitled to damages for loss of enjoyment?

Answer 85

• yes

- intangible injuries can be compensated when the very purpose of the contract is for peace of mind and relaxation

Question 86

Punitive damages

Answer 86

• The purposes of damages for breach of contract is to compensate the plaintiff for a loss
• however, in rare circumstances it may be appropriate to punish the defendant through an award of damages
• this type of damages is referred to as punitive damages

Question 87

Punitive damages are not normally awarded because:

Answer 87

• they go against the basic private law principle that damages are to be compensatory
• they are a windfall for the plaintiff
• A civil court is imposing a penalty on the defendant without the protections given in criminal proceedings
• if the defendant has done some thing that the court thinks deserves punishment, the plaintiff may be entitled to recover both compensatory damages and punitive damages
• The court will award punitive damages only where the defendants conduct can be described as harsh, indicative, reprehensible and malicious

Question 88

Whiten v. Pilot Insurance

Answer 88

• The appellant’s family home was destroyed by fire
• The respondent insurance company unjustifiably refused to pay the appellant’s claim for $345,000 under a fire insurance policy
• The ensuring legal battles lasted for several years and cost the appellant approximately $320,000
• at trial, the jury awarded $345,000 in compensatory damages and $1 million in punitive damages
• The court of appeal reduced the punitive damage award to $100,000
• at the Supreme Court of Canada, the issue was one whether the jury award of $1 million in punitive damages was excessive
• the SCC restored the jury awarded $1 million in punitive damages, stating that this was an exceptional case that justified an exceptional remedy
• although the damage award was high the SCC found that the amount of damages was not so disproportionate as to exceed the bounds of rationality

Question 89

Hadley v Baxendale (remoteness and consequential loss) - FACTS

Answer 89

• The plaintive owned a mill
• A mill shaft broke and all production stopped
• The plaintiff asked the defendant to take the shaft to the manufacturer
• The delivery was late, the plaintiff lost €300 in profit
• The defendant only knew that the plaintiff was having a shaft transported from the Mill to the manufacturer

Question 90

Hadley v Baxendale (remoteness and consequential loss) - Is the defendant liable for the lost profit?

Answer 90

• no
• The damages were too remote since the defendant did not know that this that this was the only Mill shaft
• because the defendant did not know, it was not a serious possibility that the late delivery of the mill shaft would result in a shut down at the mill and lost profit
• there were many other possible reasons why the shaft might have been sent to the manufacturer: to be repaired before spare one broke, to be sent back to the engineer who made it, or because there were other problems with the other machinery and it could not be used

Question 91

Hadley v Baxendale (remoteness and consequential loss) - You are liable for damage that:

Answer 91

• could be fairly or reasonably considered as to arise naturally from the breach or
• are reasonably in the contemplation of both parties and known to both parties at the time of the contract
  this is generally seen as a two-step process:
• ordinary losses (these should be imputed) and special losses (there must be made known by the plaintiff to the defendant)

Question 92

Victoria Laundry Ltd v Newman

Answer 92

• The defendant delivered a boiler to the plaintiff late
• as a result of the late delivery the plaintive suffered a loss of ordinary profits and profit on lucrative government contracts
• The plaintiff was not entitled to full recovery of lost profits on the lucrative government contracts
• The court did award damages for loss profit, including a loss for reasonable dying contracts
• even where are you suffer unforeseeable damage that is too remote, you might still be able to recover for the ordinary use of the thing promised

Question 93

Asamera Oil Corp v Sea Oil - mitigation of loss

Answer 93

• it is a general principle of contract law but the plaintiff must attempt to mitigate their loss rather than to allow it to increase unreasonably
• The plaintiff is required to do everything that a reasonable person would do in the circumstances
• you can claim any incidental expenses reasonably required to mitigate your loss
• If you fail to take reasonable steps to mitigate, you’re not entitled to damages for any loss that has resulted from your failure to mitigate
• As a general rule, if you have a fair, real, and substantial claim for specific performance than you need not to mitigate