Contract 2021-2022 Roadmap

Overview of Roadmap
CML CVL
Does X have a claim against Y? CVL
1. Is there a valid contract between X and Y? 1. First, is there a contract?
• Consideration 2. Second, is the contract void (defense)
2. Is the contract enforceable? a. 1422 is the actual defense. Requirement for invoking nullity.
• Vitiation of consent? b. Path to nullity is 1419, 1420. Nullity could be invoked if
a) Misrepresentation "consent was vitiated".
b) Duress/ Economic Duress c. 1400- error vitiates the consent of parties. Contract becomes
c) Undue Influence relatively null (art 1407). 1422- contract that is null is deemed
d) Unconscionability not to have existed.
• Absolute nullity, contract can’t be enforced? d. 1407.
a) Against public policy/ illegal e. 1400- back to this analysis. Is it an error that qualifies.
b) Mistake i. Does the error relate to the three things in the code.
3. Do the obligations no longer exist due to supervening events? Is it an essential element (this is a wide concept).
• Frustration Mistake as to its substance and would also qualify as
• Right to repudiation (see number 4) an error. On the other hand, motive for the contract
4. Did Y have a right to repudiation because X breached the contract? may be too far removed from the subject and hence
• Did X breach the contract? Consider what was actually qualify for error.
promised/ implied terms/ interpretation of contract (see ii. Then second step is causation.
number 5) iii. Third step is whether it is an excusable error.
• Was the breach substantial enough?
5. What was actually promised? Which terms are actually enforceable?
• Incorporation of terms
• Interpretation of terms
• Implied terms?
6. What are the remedies?
• Damages
• Termination
• Specific performance (exception)

• First, is there a valid contract that gives rise to a contractual claim?

• Second, is that contract void? (defense)
 o misunderstanding or mistaken assumption
▪ Ruled out misunderstanding, took it as mistaken
assumption
▪ Is mistaken assumption mutual. Yes.
▪ Is it fundamental? Mistake of kind or quality. In here
it is a mistake of kind. (Lever Brothers test)

Is the contract/ provision against public policy?

Common Law Civil Law
Doctrine of Statutory/Common Law Illegality: The state will not enforce A contract whose cause (1410), object (1411) and prestation (1373) is
contracts that violate public policy and community values. contrary to public policy is null (1411; 1413; 1373).
1. Is the cause (subjective) prohibited by law or contrary to public
Public policy and community values can be defined by various sources policy? (1411)
including the charter, international agreements, law, market interests, etc 2. Is the object prohibited by law or contrary to public policy? (1413)
(restraint of trade; Baby M) 3. Is the prestation prohibited by law or contrary to public policy?
(1373)
Remedies: Contract is void (not voidable)
A contract that is null is deemed never to have existed. In such a case, each
Doctrine of severance: If it is necessary for the contract, then the whole party is bound to restore to the other the prestations he has received (1422).
contract is void.
Any agreement whereby a woman undertakes to procreate or carry a child for
another person (surrogacy) is absolutely null (541). A contract that is
absolutely null may not be confirmed (1418).

Public policy and community values can be defined by various sources

including the charter, international agreements, law, market interests, etc.

Case Law: Case Law:

1. Cameron v. Canadian Factors Corp., [1971] (CVL) (Employee quit and 1. Brasserie Labatt Ltd. v. Villa, [1995] (CVL) (family didn’t move to MTL)
moved next door) • An employer cannot impose a contractual obligation on the
a. Under the civil code and the common law, employee restrain employee’s conduct of his marital and family life. This would be
clauses may be held invalid because of their unreasonable duration, against public order and is thus not valid (1373).
territorial coverage and scope (restraint of trade)
 b. Consider whether provision hurts the market economy • Charter values can inform what is against public order (Court referred
c. Consider public policy: incentive for companies to draft reasonable to Art 5/Art 10 of the QC charter)
clauses from the beginning • This may also relate to binding obligations on third parties who did not
d. Prohibition against reading down clauses or making them less consent to the contract nor its terms.
excessive 2. Cameron v. Canadian Factors Corp., [1971] (CVL) (Employee quit and
2. In the Matter of Baby M., 109 N.J. 396 (1988) CML (surrogate mother moved next door)
refused to give up baby) • Under the civil code and the common law, employee restrain clauses
a. Paid surrogacy contracts cannot be upheld may be held invalid because of their unreasonable duration, territorial
b. Binding agreements to cede a child executed prior to birth cannot coverage and scope
be upheld • Consider whether provision hurts the market economy
c. Voluntary, unpaid surrogacy is legal provided that there is no • Consider public policy: incentive for companies to draft reasonable
binding agreement to give up the child. clauses from the beginning
d. Contracts may be ruled invalid if they directly conflict with existing • Prohibition against reading down clauses or making them less
statutes and conflict with public policies of the state excessive
e. “There are, in a civilized society, things money can’t buy.” 3. Bruker v. Marcovitz, 2007 SCC 5 (CVL) (Jewish husband doesn’t want to
give wife a get to remarry)
• Individuals may exercise freedom of religion by transforming religious
obligations into contractual rights (ex. Obligation to provide a get).
• It is in line with community values to allow religious contracts.
• Despite this, religious freedom must be balanced against other rights
found in the Quebec charter

Is there Crainte (CVL)/ Duress (CML)

CML CVL
Duress: Coercion that “vitiates consent”. Actual or threatened violence. Test
• Modern modification: Economic Duress To fall within the doctrine of crainte (1402), there must be (Joubert):
• The Common law has traditional focused on dire threats such as • Illegitimate constraint: this pressure must be illegitimate in some
bodily harm/ harm to property. Subtle threats typically didn’t fall way
under duress. Economic duress has only recently been accepted. o Can involve an abuse of rights (1403)
o Consider why the constraint is being used?
Previous Test (Atlas) o Consider if economic pressure is legitimate?
1. Illegitimate pressure: “Coercion of the will so as to vitiate consent” (refer o How the threat is being used to assert an end?
to Marissa’s roadmap) • Reasonable fear: the pressure must lead to a (subjective) reasonable
2. “Overborne Will”: “...must have had no alternative course open to him” fear.
o Was it “reasonable” for the concrete party in question to feel
Economic Duress (Universe Tankship) intimidated and act accordingly?
o was it “reasonable” for the concrete party in question to feel
intimidated and act accordingly?
1. Pressure amounting to compulsion of the will “...the victim’s intentional • Causation: pressure (which need not be physical pressure/violence).
submission arising from the realization that there is no other practical Fear must have deprived the party of the free choice to enter the
choice open to him.” contract.
• Will was overcome because had to make that choice o But for test: without this fear, they wouldn’t have entered
2. Illegitimacy of the pressure exerted the contract
• What is the nature of the pressure? (Is it unlawful/ illegitimate) • Serious Injury: this fear leads to an unfair/unjust result.
i. Tortuous/ unlawful pressure is illegitimate (Nav Canada)
• What is the nature of the demand which the pressure is applied to If pressure from third party (Byrne):
support? Nature of the demand can render a threat illegitimate even 1. In order for the doctrine of crainte to be invoked when the pressure is
if the threat is not unlawful such as breach of contract alleged to have come from a third party, the contracting party must have
had knowledge of the pressure (positive knowledge)
Economic Duress during Contract modification (Nav NFL; NB not Canada) • Not a question of what they should’ve known but what they did
1. Promise must be extracted as a result of pressure (whether demand/ know
threat) 2. Where the party had reasonable time and means to become enlightened
2. The exercise of that pressure must have been such that the coerced party and seek legal council, she will forfeit the ability to plead crainte
had no practical alternative but to agree to the coercer's demand to vary
the terms of the underlying contract
3. Once these are established must determine whether coerced party
consented to the variation, three factors to consider:
a. Promise supported by consideration
b. Whether promise was made under protest or without prejudice. May
not be fatal but considered
c. Whether confirming part took time to disaffirm the promise as soon
as practical

Note: Condition of illegitimate pressure is not required for cases involving

post-contractual modifications
Case Law Code/ Case Law
1. Atlas Express Ltd. v. Kafko Ltd., [1989] Q.B. 833 (CML UK) (Atlas refused
to ship goods unless higher price) 1. § J.J. Joubert Ltd. v. Lapierre, [1972] C.S. 476 (CVL) (milkman signs
a. Consider survival of company and if they had to do something in contract out of fear of being fired)
order to survive • Constraints and pressures may be legitimate
b. Economic duress must be distinguished from commercial pressure • When considering if constraint is illegitimate, consider objective. For
which on any view is not sufficient to vitiate consent example, the objective of avoiding collective labour agreements is not
c. “Where a party…was forced… to renegotiate the terms of a contract legitimate and thus threatening to fire is not legitimate.
to his disadvantage and had no alternative but to accept the new • Consider the relationship between “means” and “ends”: Joubert had
terms offered, his apparent consent to the new terms [is] vitiated by a right to terminate an employee, but if the right is used for
economic duress.” illegitimate means, it can be an abuse of rights (1403)
• A finding of crainte requires a contextual, individualized analysis
2. Greater Fredericton Airport Authority Inc v Nav Canada, 2008 NBCA 28 2. § Byrne c Trust Prêt et Revenu, [1999] RRA 967 (CVL) (Wife is pressured
para 33 (New Brunswick, CML- not exactly precedent) (needing to move by husband)
airport equipment) • Since company had no knowledge of pressure and did not apply
a. A variation to an original contract unsupported by consideration can pressure themselves, contract was still valid. She also had plenty of
be upheld, so long as no economic duress is present (*stand alone time to take matters into her own hands.
decision, Gilbert rule is the law*) • Positive knowledge
b. Illegitimate pressure is irrelevant in variation of contract

1402 Fear of serious injury to the person or property of one of the parties
vitiates consent given by that party where the fear is induced by violence or
threats exerted or made by or known to the other party. Apprehended injury
may also relate to another person or his property and is appraised according
to the circumstances.

1403 Fear induced by the abusive exercise of a right or power or by the threat
of such exercise vitiates consent.

1404 Consent to a contract the object of which is to deliver the person

making it from fear of serious injury is not vitiated where the other
contracting party, although aware of the state of necessity, is acting in good
faith.

Consequences Consequences

1419 A contract is relatively null where the condition of formation sanctioned

by its nullity is necessary for the protection of an individual interest, such as
where the consent of the parties or of one of them is vitiated

1422 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

Unperformed obligations are not enforceable

Is there undue influence (Common law only)

Common Law CVL
Undue influence: A person who has been induced to enter into a transaction • No equivalent.
by the undue influence of another (the wrongdoer) is entitled to set that • Consider other tools: crainte, error, etc.
transaction aside against the wrongdoer. Such undue influence is either
actual or presumed No direct equivalent in the Civil Code!
• Equity’s analogue of duress

Where the creditor is a third party, and is not the one exercising undue
influence, the transaction may be set aside if the complainant can establish
that the wrongdoer acted as the third party’s agent OR that the third party at
actual/ constructive notice of the wrong doing.

Test (O’Brian adopted in Deguid)

Was their undue influence?

Class 1: “actual undue influence” very hard to prove, necessary for claimant
to prove affirmatively that the wrongdoer exercised undue influence to enter
the transaction
Class 2: “presumed undue influence” No need to prove actual exercise of UI!,
complainant only has to show relationship of trust/ confidence and that it is
fair to assume this relationship was abused with the transaction
• Class 2A: legal presumption in certain relationships (parent/child,
solicitor/client, doctor/patient)
• Class 2B: relationship of Trust and Confidence has to be proved;
existence of such a relationship raises assumption of Undue Influence
• Husband/ wife no longer presumed but need to be proven.
• In such cases, burden rests on wrongdoer to prove complainant
entered contract freely

Did the party have constructive notice? (If undue influence by third party)
1. Was there a duty to inquire? (Deguid)
• It is the duty of a creditor to ensure that undue influence has not
been exercised by a person agreeing to be a surety (constructive
notice)
• Red flags, transaction seems wrong, substantial risk that a wrong was
committed
• No benefits for the guarantor, presence of a close relationship, lack of
financial knowledge (O’Brian; Deguid)
• Legitimate obligation put onto banks
2. Did the bank discharge duty?
• Did bank take reasonable steps to ensure the consent is given freely.
For example, telling the potential surety the amount of the
 guarantee, the risks involved, and by advising them to seek
independent legal counsel.
• If yes, the bank is not fixed with constructive notice. Contract is
enforceable even if there Is undue influence from a third party.
• If no, the bank is fixed with constructive notice. The contract is not
enforceable if there is undue influence from a third party.

Remedy: voidable

Look for vulnerability, relationship, inappropriate times for contracts death

beds, insistent demands, reoccurring demands

Case Law
1. Barclays Bank plc v. O’Brien, [1994] 1 AC 180 (CML UK) (wife signed
contract under husband’s instructions)
• Changes in society that wife is not subservient to husband, thus
no presumed undue influence
• It is the duty of a creditor to ensure that undue influence has
not been exercised by a person agreeing to be a surety
(constructive notice)
2. Bank of Montreal v. Duguid (2000), 47 O.R. (3d) 737 (C.A.) (real estate
agent wife made loan under husband influence)
• found no undue influence here because it wasn’t shown to be a
relationship of trust/ confidence. She was a real estate agent,
had knowledge of their investments and didn’t put her trust in
her husband.
• Consider persons job/ expertise
3. Bank of Montreal v. Bertolo (1986), 57 O.R. (2d) 577 (C.A.) (widow with
little education acted as guarantor for son)
• undue influence could have applied here but instead applied
unconscionability

Null: problem lies in the formation

Rescinded (CML): problem lies in the formation – contract never existed
Resolved (CVL): problem lies in the formation ¬– contract never existed
Resiliated (CML/CVL): recognized the validity – contract ceases to exist from this moment on

Is there unconscionability (CML)? Is the clause abusive (CVL)?

Common Law CVL
Unconscionability: Contract is so unequal/ unfair that it would shock the 1437 Abusive Clause
conscious if it was enforced. Origins in equity, renders a contract An abusive clause in a consumer contract or contract of adhesion is null, or
unenforceable. the obligation arising from it may be reduced.

An abusive clause is a clause which is excessively and unreasonably

Test (Kreutziger, two parts, confirmed in Uber) detrimental to the consumer or the adhering party (weaker party) and is
therefore contrary to the requirements of good faith; in particular, a clause
1. Procedural element: Inequality in the position of the parties due to the which so departs from the fundamental obligations arising from the rules
ignorance, need or distress of the weaker, which would leave him in the normally governing the contract that it changes the nature of the contract is
power of the stronger. an abusive clause
• “Inequality of bargaining power exists when one party cannot
adequately protect their interests in the contracting process. Similar to Unconscionability:
“[Uber 66]- standard form contracts • Procedural element: needs to be consumer contract/ contract of
• Economic necessity adhesion
• Two types of cases (Uber): o Consumer contract: as per art. 1384 C.C.Q., puts the
o Necessity cases: weaker party so dependent on the emphasis on the presumed imbalance between the
stronger party, serious consequences would flow from bargaining power of the parties
not agreeing to a contract o Adhesion contract: as per art. 1379 C.C.Q., which focuses on
o Practical cases: where only one party could the lack of negotiation and unilateral drafting
understand and appreciate the full import of the • Substantive element: Excessively or unreasonably detrimental to the
contractual terms weaker party (consumer/ adhering party)
• vulnerability of one person due to old age, lack of experience,
disabilities, emotional distress, illiteracy, etc. Assessment of abusive clause (Parent-Constantin)
• Cognitive asymmetry”: only one party can “understand and 1. First (clause in itself) the inherent character of the clause can be
appreciate the full import of the contractual terms (Uber) interpreted to determine whether, by its very nature, it is
• Use of standard form may be considered as impairing a party’s excessive and unreasonable (for example waiving any contestation
ability to protect their interests (Uber) of food control methods)
2. Substantive element: Undue advantage “coupled with a substantial 2. Second (consequences of clause) whether the combined effect of
unfairness of the bargain” the impugned clause and the other stipulations of the
• Inadequate consideration agreement creates the abusive effect prohibited by the
• “A bargain is improvident if it unduly advantages the stronger legislator.
party or unduly disadvantages the more vulnerable.” [Uber 77] 3. Third, sometimes preferable to determine the effect of the
• It is not essential that one party knowingly takes advantage of disputed clause on other contracts that are closely related.
another party (Uber)
Determining Whether a clause is abusive (Parent-Constantin):
Once this is established, other party must displace the presumption of fraud 1. Proportionality: Court must consider the clause’s scope and justification
by demonstrating the bargain was “fair, just and reasonable.” in relation to the nature of the contract and its content
2. Consequences: resulting from its application
o A clause may not be abusive when it is first read or examined
in the abstract, but it may become abusive once applied,
Note: not entirely clear whether doctrine of unconscionability can be used to given the effects it produces at that time or the
set aside single clauses. circumstances surrounding its application.
3. Subjective vs objective elements (Kechichian):
Enforcement of Exclusion Clause (Exculpatory clauses) (Tercon Three-part o Objective: excessive or impossible to preform.
Test) o Subjective: excessive considering the particular situation of
1. As a matter of interpretation does the exclusion clause apply to the the defendant
circumstances? 4. Other Considerations of whether clause is unreasonable (from outside
• Interpretation using integrity, business efficacy and contra source):
proferentem (lack of clarity cannot burden the other party, o Reciprocity: does it confer the same obligations
expense will be taken on by the party proffering the offer) o Proportionality: clause serves a valid purpose, the means
2. Was the exclusion clause unconscionable at the time the contract was employed to serve that purpose are proportional
made? o Awareness: did consumer receive sufficient information
• See test for unconscionability (is this identical to the classical about that clause.
doctrine?)
3. Should the court nonetheless refuse to enforce the otherwise valid Difference with Lesion
exclusion clause on policy grounds? (Burden of proof lies with plaintiff). • Abusive clauses based on the idea of equity more than consent.
Lesion more about consent.
Remedy: • Lesion results in either the entire contract or one of its obligations
1. Voidable being reduced. With abusive clauses, it is generally just the abusive
2. Severability clause that is reduced, although if the clause in question is central to
the contract, the entire contract is nullified.
• There has been debate of whether 1437 can be applied to the
principal object of a contract (notably the price or the main
prestation). Some have argued this wouldn’t occur because its not a
specific clause but a number.
• Likely lesion is better if you want to annul the entire contract or
theres something wrong with the general nature of the contract.
Case Law Case Law
Abusive Clauses
1. Bank of Montreal v. Bertolo (1986), 57 O.R. (2d) 577 (C.A.) (widow with 1. Slush Puppie v. 153226 Canada Inc., [1994] (depanneur using other slush
little education acted as guarantor for son) materials)
• Undue influence can apply here but court applied • Issue was whether rental contract was abusive, found contract
unconscionability instead. Focused on her relationship with the was adhesive contract because it was drawn up by Slush Puppy
Bank. • Contract stated had no right to contest the test results, the
• Legal advice was not deemed independent because the lawyer testing process was also unclear. No reason for this
also represented son and the bank • Procedural unfairness of a clause can render it abusive
• Unconscionable for bank to take advantage of security when • Question: is this part of the contract somehow so unfair that we
mother did not receive proper independent advice. can cut it out and have the contract stand without it?
2. Harry v. Kreutziger (CML 1979) (status Indian lied to and sold boat)
 • lack of education, physical fitness and economic class can • When a clause is abusive (1437) and is rescinded, the contract
inform power dynamics stands unless the clause is necessary to the contract’s overall
• consider whether deal was made as a result of the wrongful function.
claims 2. Parent-Constatin c. 9013-1996 Québec inc. (Voyages Symone Brouty)
3. Heller v Uber Technologies (SCC, 2020, CML) (uber drivers’ mediation in 2007 (trip to Egypt cancelled)
Netherlands) • Issue of whether the cancellation clause is abusive
• the arbitration clause was unconscionable because the fee was • Had cancellation insurance that wouldn’t pay when trip
almost as much as their annual salary cancelled
• disparity between bargaining power, resources and also • Court ruled insurer not liable and noted ambiguity of clause:
disadvantaged drivers noted trips are non cancellable but also noted cancellation fee
4. Tercon Contractors Ltd v British Columbia (Transportation and • This was a consumer contract and falls within the Consumer
Highways), [2010] (bidding with government) protection act (section 8)
• Province technically bid with outside who they weren’t • Can also apply 1437
supposed to but included exclusion of liability clause • Application of 1437 test, first, clause in itself Is excessive not to
• Dissent and majority demonstrate differences in opinions of allow cancellation. Second, consequences of the clause led
interpretation plaintiffs to technically pay for a trip that was already sold to
• Majority: Interpretation using integrity, business efficacy and someone else
contra proferentem (lack of clarity cannot burden the other 3. Québec (Procureur général) c. Kechichian [2000] J.Q. no 2049 (C.A.) (K
party, expense will be taken on by the party proffering the offer) meant to pay to support parents as a part of a sponsorship contract)
• Binnie: continues applying the test, clause was not • Issue was whether sponsorship agreement was null for
unconscionable (no presence of either unequal bargaining abusiveness
power or policy interference from the Transportation Act), and • Agreement was adhesion contract because it had a
that there is no policy consideration that should interfere with predetermined form and content
the court upholding the clause. • COA said it would be abusive: “to require the contractor to
perform an obligation that is practically impossible to fulfil or
totally disproportionate to the correlative obligation”
• Found no abusive clause because the obligation to support
one’s family is not unreasonable nor against public order

Is there lesion?
CML CVL
Unconscionability is rough equivalent to lesion in CML. 1405- Except in the cases expressly provided by law, lesion vitiates consent
only with respect to minors and protected persons of full age
• Applies in cases of (1) minors, (2) adults under protective supervision,
(3) cases provided by the law like family law and loan provisions
1406- Lesion results from the exploitation of one of the parties by the other,
which creates a serious disproportion between the prestations of the parties;
the fact that there is a serious disproportion creates a presumption of
exploitation.

Consumer Protections Act (allows lesion for consumer contracts)

Art 8- The consumer may demand the nullity of a contract or a reduction in
his obligations thereunder where the disproportion between the respective
obligations of the parties is so great as to amount to exploitation of the
consumer or where the obligation of the consumer is excessive, harsh or
unconscionable.

Art 9- Where the court must determine whether a consumer consented to a

contract, it shall consider the condition of the parties, the circumstances in
which the contract was entered into and the benefits arising from the
contract for the consumer.

Two Types of Lesion (under art 8)

1. Objective lesion: disproportion, price is excessive in light of the
market price.
2. Subjective lesion: excessive, abusive, exorbitant with respect to
specific consumer.
a. Art 9-consider the circumstances in which the contract was
entered into (economic situation, advantages resulting from
the contract, etc.)
b. Art 9 imposes the burden the obligation on the merchant to
make sure the consumer is financially stable to afford making
the payment

Difference with abusive clause.

• Looking to whole contract/ price rather than a specific clause
• Likely apply to the whole contract
Case Law
1. Gareau Auto v. B.C. Impériale de Commerce, [1989] R.J.Q. 1091 (C.A.)
(man too broke to buy boat)
• C purchased boat from G for a fair price of 11,000$. Decides he does
not want the boat and stops paying.
 • Bank is involved because G sells the debt to the Bank to get the
money right away, Bank wants the interest on the sale. Bank asks for
entire sum of C’s payment
• Purchase of the boat found invalid due to lesion under s. 8 and 9 of
the consumer protection act
• Judge interprets s. 9 as imposing obligation on the merchant to verify
the consumer’s financial situation and to refuse the sale if the
consumer cannot afford to make payments. The price of the boat was
fair, but C was clearly too poor to buy a boat for non-
commercial/pleasure purposes. Hence there is subjective lesion and
the sale should be annulled.

Was there misrepresentation/fraud (CML)? Was there dol (CVL)?

CML CVL
Misrepresentation: a material statement of fact that is false. 1400- Error vitiates the consent of the parties or of one of them where the
• Equivalent to CVL dol but its wider because it goes beyond intentional error relates to the nature of the contract, to the object of the prestation or
fraud. Right to rescind can even come from innocent misrepresentation. to any essential element that determined the consent. An inexcusable error
• In CML, fraud is any intentional misrepresentation. Fraud is rarely does not constitute a defect of consent.
pursued because the never tort of negligent misrepresentation is easier
to prove and provides similar remedies 1401- Error on the part of one party induced by fraud committed by the other
party or with his knowledge vitiates consent whenever, but for that error, the
*General requirements*: party would not have contracted, or would have contracted on different
1. Material statement of existing fact (present or past) that is false terms. Fraud may result from silence or concealment.
(assessed from the perspective of the reasonable observer)
• Consider: material facts of the transaction, the knowledge of General requirements
the respective parties and their relative positions, the words of 1. Intentional Error or Error with the other party’s knowledge
representation used, and the actual condition of the subject- a. May result from silence/ concealment
matter spoken of (Bisset) b. Lies, maneuvers
• In situations where one party has specialist knowledge of the c. Need to distinguish between bon dol (simply exaggeration or
subject (so that his "opinion" is one which is effectively a inflation)- ex. (this is the best car you will ever drive)
"statement of fact") then the misstatement becomes an d. Even if the error was inexcusable, if the other party
actionable misrepresentation (as seen in Esso; Bisset) intentionally misled you it doesn’t matter, you can get out of
• To be distinguished from sales talk, opinion, forecasting (see the contract
Bisset) e. Dol vitiates consent only if the party seeking to enforce the
• Consider also what is being promised? Is a sound estimation contract was aware of the fraud (Rawleigh)
being promised or is the actual number being promised? (ESO) 2. Causation: but for that error, the other party wouldn’t have entered
the contract
 2. Materiality: misrepresentation must relate to a matter that a 1407
reasonable person would consider relevant for the decision to enter
the agreement in question 1420- opportunity to confirm
3. Inducement: misrepresentation must have constituted an
inducement which the representee relied 1422- if continue to act you accept
• Not necessarily exclusive or predominant inducement
• Actual reliance 1423- contract that is null that is deemed to never existed
• No duty to engage in due diligence
1424-
Negligent Misrepresentation (Hedley Burns applied in Eso)
1. An untrue statement that was made negligently
2. A special relationship giving rise to duty of care
• Relationship between buyer and seller is not enough (Andronyk)
3. foreseeable reliance by representee on statement
4. the reliance must have been detrimental to the representee in the sense
that damages resulted

Case Law Case Law

1. Bisset v. Wilkinson [1927] (NZL) (no room for sheep) 1. Tremblay v. Les Pétroles Inc., [1961] B.R. 856 (C.A.), CVL (gas station
• Wilkinson sold land and told Bisset that he thought land could did not earn as much)
hold 2000 sheep. This was not the case. The issue was • Court found dol, plaintiff would not have entered into lease if
whether the statement could be considered a statement of not for the misrepresentation
fact, falling under misrepresentation. • While Tremblay delayed before bringing action, this did not
• Concluded that it was a statement of opinion not fact. Could indicate renouncing his right. The fact that he was defrauded
not amount to a serious representation based on W’s only became clear to him by degrees.
knowledge. • Damages: did not include all loses because it was unclear how
2. Esso Petroleum Co. Ltd. v. Mardon, [1976] QB 80 (C.A.). (CML UK) much was due to inexperience/ bad management
(did not sell as much gas) • Delay in bringing action for fraud must not be so long as to
• Estimated station would sell 200,000 gallons, moved the imply “acceptance of the situation and ratification of the
station but still provided same estimate to Mardon. Mardon contract.”
began to lose money even when he renegotiated lease. • Generally, the courts will not expect the innocent party to do
• Misstatement of opinion becomes more factual if one has more; as soon as we determine that one party intentionally
expert knowledge (distinguished from Bisset because each misled the other, we won’t blame the ‘victim’ for not doing
party was equally able to form an opinion) research.
• Future predictions can be warranties if they are given with the 2. Creighton v. Grynspan, [1987] R.J.Q. 527 (C.A.) CVL (not as much
intent to induce another party to enter into a contract, and square footage)
they are relied upon in the decision to enter into the contract
(these are called collateral warranties)
 • Promised that the estimation procedure was sound which it • Creighton was meant to sell a land with boulevard, then
wasn’t changed offer to exclude boulevard. Did not draw anyone’s
• Application of Headley Burns in contracts attention to omission of boulevard.
3. Andronyk v. Williams, [1985] M.J. No. 148 (CML Manitoba) (land not • Court found dol, It was not enough that Creighton removed
as good as one thought) the specific language describing the boulevard in his second
• Innocent Misrepresentation of the quality of the land was offer, he should have brought the omission to the attention of
found to be a statement of fact not a warranty. Can consider Grynspan and Schiff.
that both parties had knowledge of Farming and William didn’t • In certain situations, reticence (silence) without a positive act
inspect. may constitute fraud.
• Relationship of buyer seller is not sufficient in itself to breed a
duty of care.
• Recission but no damages

Was there a mistake (CML)? Was there an error (CVL)?

CML CML
Mistake: 1400- Error vitiates the consent of the parties or of one of them where the
• Much narrower than civil law error. error relates to the nature of the contract, to the object of the prestation or
• Essentially a residual category that is rarely applied to any essential element that determined the consent. An inexcusable error
• Common law is reluctant to grant relief grounded on (unilateral) does not constitute a defect of consent.
mistake
Error:
Two types of mistakes: 1. Much broader than mistake
• Mistaken assumption 2. Even unilateral error can give rise to a right to apply for annulment
• Misunderstanding
General requirements:
Mistaken assumption (Bell v Lever brothers): 1. Error needs to be related to:
a) Nature of the contract- mistaken as to what the contract is
▪ Ex. Contract of sale vs contract of lease
 1. Mistake concerns an essential/ fundamental quality of the thing b) Object of the pretestation- mistaken as to what the
being exchanged obligation entailed
a. mere difference in quality is not enough to trigger the ▪ A wants to buy X. B wants to sell Y.
doctrine of mistake. For example, being more expensive c) Any essential element that determined the consent (broad
(Lever Brothers) category)
b. Doctrine of mistake will not apply if both parties get exactly ▪ Defined subjectively (Huot). How subjective can this
what they had bargained for be?
c. Subject matter has become something essentially different ▪ How far is the motive removed from the object of the
from what it was believed to be contract?
2. Second, both parties shared this mistake ▪ Does the error objectively amount to a substantial
3. Remedy: nullification, consent vitiated characteristic? Buying a work of art thinking it was
created by a specific person (error)
Two classical cases of mistaken assumption: ▪ Or is it unrelated to the quality of the object? Buy a
1. “res extincta” house because you think the area is a good place to
• unbeknownst to the parties, the sold goods have ceased to get a job which it is not (not error)
exist before the contract was made 2. Causation: would not have entered the contract but for this error
• error about the existence of something 3. Error is non inexcusable
2. “res sua” a. Burden on party trying to uphold contract to show that error
• purchaser already owned the subject matter of the sale was inexcusable
• error about the title b. Errors are inexcusable when party has committed gross
3. “Beyond these two categories, the scope of the common law negligence that led to such error.
doctrine has been and, indeed, remains rather unclear.” c. Very narrowly defined exception. For instance, not doing
research to guarantee property would not trigger your severe
phobia was not considered an inexcusable error (Huot).
d. I didn’t read it may fall within gross negligence unless there
Misunderstandings (Raffles) no real agreement has been reached are other factors like lack of education, linguistic skills,
No “consensus ad idem”, contract void misleading, etc.
1. Ambiguity: there is no reasonable interpretation that prevails over e. Fraud supercedes error
the other
2. Mistake as to terms: one party is mistaken as to a contractual
stipulation and the other party is aware of that mistake (corrective as
to the reasonable person standard)
• The one case where unilateral mistake is allowed
3. Remedy: contract is void

Remedy: can be void/voidable- void in terms of no agreement

Case Law Case Law
1. Sherwood v. Walker (1887), 33 NW 919 (Mich. S.C.). CML (infertile 1. Rawleigh v. Dumoulin, [1926] R.C.S. 551 CVL (tricked into being a
cow was actually fertile) guarantor by a third party)
a. Contract may be voided if it was founded on a mistake • C tricked Dumoulin into signing a guarantee on C’s loans to
b. If there is a difference…as to the substance of the thing Rawleigh by pretending that the guarantee was actually a
bargained for, if the thing actually delivered or received is recommendation of some kind. Three parties involved.
different in substance from the thing bargained for and • When C went bankrupt, Rawleigh tried to enforce guarantee
intended to be sold – then there is no contract. against D.
c. Difference in quality is not enough to trigger a mistake. • Dol does not apply because Rawleigh did not know of C’s
Difference between breeding cow and meat cow is one in fraud and dol must be intentional
kind not in quality. • However, there was clearly error, since Dumoulin was not
d. Extension of the res extincta doctrine- the thing sold and aware of the type of contract he was signing
bought had in fact no existence • Error was not inexcusable because the contract drafted
e. Note: likely this would have been decided differently under completely concealed the content
the doctrine of mistake today. Assumption of cow not 2. Huot v. Ouellette, [1981] C.S. 872 (CVL) (buys house not knowing
different just more expensive. gas line)
2. Bell v. Lever Brothers Ltd., [1932] A.C. 161 (H.L.). (CML UK) • Buys property not knowing there is a gas line. Does not want
(fraudulent employees get severance agreements) the property any more.
a. Lever negotiated severance agreements with employees who • Because Huot had uncontrollable fear of gas, it was an
were involved in illegal speculation. Lever sued because he essential element of the contract. Thus contract annulled
said there was no use of severance agreements if he could • While Ouellete did have an obligation to bring it to their
have just fired the employees. attention, it was done in good faith and thus damages are
b. Mistake operates to nullify consent not warranted.
c. Lever’s argument can only succeed if there is a fundamental • Applied the older code.
difference between paying to release from a broken contract
and an unbroken contract. Outcome is the same, termination
hence no difference.
d. Doctrine of mistake will not apply if both parties get exactly
what they had bargained for
 Supervening events: Was there frustration/hardship (CML)? Was there impossibility (CVL)?
CML CVL
Frustration/ Impossibility: Where the purpose/ obligations of the contract Impossibility of Performance
have been frustrated or made impossible.
1470- A person may free himself from his liability for injury caused to another
Impossibility or frustration will discharge the promisor, without her fault by proving that the injury results from superior force, unless he has
where: undertaken to make reparation for it. Superior force is an unforeseeable and
1. A contract requires the existence of a thing, the thing perishes or irresistible event, including external causes with the same characteristics.
becomes unavailable
2. A contract requires personal performance, the promisor dies or is 1603- The creditor may be authorized to destroy or remove, at the expense of
incapacitated the debtor, what has been done by the debtor in violation of an obligation
3. Performance is subsequently prohibited/ prevented by the law not to do.

1694- A debtor released by impossibility of performance may not exact

General Requirements (KBK): performance of the correlative obligation of the creditor; if the performance
1. The event in question must have occurred after the formation of the has already been rendered, restitution is owed. Where the debtor has
contract and cannot be self-induced. performed part of his obligation, the creditor remains bound to perform his
2. The contract must, as a result, be totally different from what the own obligation to the extent of his enrichment.
parties had intended. This difference must take into account the
distinction between complete fruitlessness and mere General requirements
inconvenience.
 • Purpose was radically frustrated. 1. Force Majeure/Superior force: Superior force is an unforeseeable
• Mere onerousness does not count. Has to make the contract and irresistible event, including external causes with the same
radically different (Davis Contractor) characteristics.
• Consider purpose of the contract and if it was known to the a. Events that render performance more difficult, dangerous, or
parties at the time (KBK). For instance, since purpose was costly do not qualify as ‘force majeure’ (Ottis)
clear in the contract, it was easier to find frustration in (KBK). b. Events that simply benefit the other party do not count as
• Can look to both intrinsic and extrinsic evidence of purpose. force majeure (Uber)
3. The disruption must be permanent, not temporary or transient. The 2. Force needs to render performance impossible
change must totally affect the nature, meaning, purpose, effect and
consequences of the contract so far as concerns either or both
parties.
• Can look to both intrinsic and extrinsic evidence Note: Quebec does not accept the doctrine of unforseeability (imprévision)
4. Finally, the act or event that brought about such radical change or hardship as an excuse for non-performance or a reason to adjust the
must not have been foreseeable. contract (Churchill Falls). Events that render performance more difficult,
dangerous, or costly do not qualify as “force majeur.” Ongoing discussion
whether Quebec law should adopt the approach of other Civil Law systems,
Hardship/ Impracticality: Circumstances which render the performance model codes etc. Parties can still contract around this default rule (Ottis
radically more different from which was undertaken by the contract. Non Elevator).
haec in foedera veni. It was not this that I promised to do. Performance may
still be possible but much more onerous, costly etc. Reluctance to alter
contract, or excuse non performance for hardship.
• The CML allows for hardship as a defence of contractual non-
performance, but the bar for such hardship is high (Sainsbury).
• If full performance is impossible, courts will still order partial
performance, where the situation and the contract allow for it
(Sainsbury)

Case Law Case Law

1. Krell v Henry, [1903] KB 740 (CA) (CML) (coronation flopped) 1. Otis Elevator Co. Ltd. c. A. Viglione & Bros. Inc., Mtl., 500-09-
• Krell advertised windows in his apartment to watch the 000316-786 (CA). (CVL) (elevator installation delayed but contract
coronation on a specific day. In the end, the coronation was denied liability for delay)
cancelled. There was no explicit mention of the coronation in • Otis agreed to install an elevator in A Viglione’s building in
the contract. four months, for a fixed price. Strike delayed installation, but
• Issue was whether parties were released from the contract contract specified that delay wouldn’t entail liability.
due to frustration. Court found that they were because the • While strike is not considered a force majeure under the
purpose was frustrated. CCQ, provision still bars recovery.
• While court found that coronation was not explicitly 2. Churchill Falls (Labrador) Corp. v. Hydro Quebec 2018 SCC 46
mentioned, necessary conditions should not be limited to (Quebec got a good deal on electricity)
 what was expressly mentioned in the contract. Extrinsic • Churchill falls and Hydro-Quebec had an agreement where
evidence can show what was assumed by the parties. Churchill falls would sell electricity to QC at a fixed rate. The
Coronation was hence an implied condition of the contract. electricity market changed substantially, now the purchase
2. Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL price for electricity is well below market value. Hydro-
3 (CML) (building houses took longer than expected) Québec sells electricity from the plant to third parties at
• Contract to build houses within 8 months except it actually current prices, and this generates substantial profits for
took 22 months due to the lack of skilled labour. It also Hydro-Québec.
ended up costing more. Davis, the contractor, argues that • Issue whether Churchill can enforce Hydro to renegotiate the
the contract was frustrated. contract because of unforseeable changes in electricity
• Court found that, although the contract had become more • Court contemplated doctrine of unforseeability: has the
onerous, the contract was not frustrated. effect of which is that parties can be required to renegotiate
• Delay would need to be of a character so different from a contract if, as a result of unforeseen events, performance
anything contemplated, not just that the contract was more of the obligations stipulated in the contract would be
onerous. In the end, job was just harder, not of a different excessively onerous for one of them. Cannot be relied on
kind. when disadvantaged party has accepted the risk or when
• Court found that frustration doesn’t apply in this case unforeseen events make it more beneficial to one party
because the cause of the delay was reasonably foreseeable (rather than less beneficial to one party).
by the parties and they ought to have taken the risks into • Court also noted that the principles of good faith and equity
account when entering the contract. do not impose a duty to renegotiate on Hydro-Québec. “The
• Rejects the implied term theory which was based on introduction of the duty of good faith into the Civil Code of
whether a reasonable person in the position of the parties Québec shows that the legislature intended to temper the
would have agreed the contract should end with the principles of the binding force of contracts and autonomy of
supervening event. the will of the parties.” Serves to protect the equilibrium of
• The new approach is one of construction, where the court the contract. The courts cannot rely on it to order the
looks at the contract and determines whether the sharing of profits that have been honestly earned.
supervening event renders it performance to be radically • Considered good faith if it was a relational contract but
different from what was agreed found that it wasn’t
3. KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd. (2000, CML)
(rezoned building)
• KBK wanted to purchase property for commercial use put it
was rezoned and established that it couldn’t be used for
commercial purposes
• Court found that the contract was frustrated. The Rezoning
was unexpected (unforseeable), and the development of the
property as commercial/ residential went to the root of the
contract. The purpose of the contract was thus altered.
• Note that seller was aware of buyer’s intention (noted in
contract) for the use of land
 • Contract was clearly structured and existed for the land to be
used commercially.
4. H.R. Sainsbury Ltd. v. Street, [1970] 3 All E.R. 1126 (CML) (less barley
than expected)
• Sainsbury wanted to buy certain amount of barley but
farmer produced less than predicted and market prices went
up. Sold to someone else for higher price.
• Court found that farmer breached contract which was not
void for frustration since 275 tons was just an upper limit
and did not radically alter the contract.
• Based on custom, logic and contractual interpretation, court
determined an implied term that he wouldn’t need to sell
the full amount if, through no fault of his own, he couldn’t
produce enough.
• Court didn’t find hardship even though farmer argued he
would need some barley to sustain his farm.

“Innocent” (not careless) Negligent Intentional

CML Misrepresentation = Misrepresentation = Misrepresentation =
Rescission Rescission + Damages (Tort of Rescission + Damages (Tort of Deceit)
Negligent Misrepresentation)
CVL Excusable error, 1400= relative nullity Excusable error 1400, relative nullity Fraud 1401, relative nullity, delictual
delictual damages 1457 damages 1407, 1457

Mistake/ fraud Transsystemic Comparison

CML CVL
Mistaken Assumption: wider in scope than fraud, can include innocent and Fraud: more limited to intentional.
negligent misrepresentation. More than just intentional misrepresentation.

Remedies: recission, damages (for negligent and intentional)

Mistake: Narrower than CVL and considered almost a residual category. Error: broader scope of application than “mistake”. Situations of common law
Rarely applied. Restricted to unprovoked, spontaneous misapprehensions/ “innocent misrepresentations” fall in the CVL under excusable error.
misunderstandings.

Motives/ Assumptions: will only be considered if they are shared by both Motives/ Assumptions: Will consider unilateral motives if they are
parties. CML does not allow unilateral mistaken assumptions. substantially connected to the object of the contract.
 Is the Contract Voidable/ relatively Null
Common Law CVL
Can be confirmed. 1399 Consent must be free and enlightened. It may be vitiated by error, fear
or lesion.
• Free from compulsion
• Enlightened in understanding all the relevant information to inform
your will
Remedies
1407 A person whose consent is vitiated has the right to apply for annulment
of the contract; in the case of error occasioned by fraud, of fear or of lesion,
he may, in addition to annulment, also 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.

1420 A contract that is relatively null may be confirmed

1419 A contract is relatively null where the condition of formation sanctioned

by its nullity is necessary for the protection of an individual interest, such as
where the consent of the parties or of one of them is vitiated

1408 In a case of lesion, the court may maintain a contract for which
annulment is sought, if the defendant offers a reduction of his claim or an
equitable pecuniary supplement.

1439: A contract may not be resolved, resiliated, modified or revoked except

on grounds recognized by law or by agreement of the parties.

If a clause/ obligation is found invalid can its be severed from the contract? Can the contract be saved?
Common Law CVL
Doctrine of severability (not cases) When a clause is abusive (1437) and is rescinded, the contract stands unless
the clause is necessary to the contract’s overall function.

1438- Villa v brasserie

• When a clause is abusive (1437) and is rescinded, the contract stands

unless the clause is necessary to the contract’s overall function.
Different types of contracts

1379- A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his
instructions, and were not negotiable. Any contract that is not a contract of adhesion is a contract by mutual agreement

1384- A consumer contract is a contract whose field of application is delimited by legislation respecting consumer protection whereby one of the parties, being a
natural person, the consumer, acquires, leases, borrows or obtains in any other manner, for personal, family or domestic purposes,
property or services from the other party, who offers such property or services as part of an enterprise which he carries on

Absolute nullity= restitution

What was actually promised? What were the terms of the contract?
CML CVL

Incorporation of Terms (What are the terms?)

General Rules: 1435- An external clause referred to in a contract is binding on the parties. In
• Based on the Objective standard (Oscar Chess Williams): What was a consumer contract or a contract of adhesion, however, an external clause is
reasonable to assume was promised? null if, at the time of formation of the contract, it was not expressly brought
• What it reasonable to assume promise or factual statement to the attention of the consumer or adhering party, unless the other party
(Oscar Chess Williams) proves that the consumer or adhering party otherwise knew of it.

Signed Document 1436- In a consumer contract or a contract of adhesion, a clause which is

1. Typically, rule is that if you sign a document, you are responsible for illegible or incomprehensible to a reasonable person is null if the consumer
all terms or the adhering party suffers injury therefrom, unless the other party proves
2. Notice-requirements, however, are migrating into the context of that an adequate explanation of the nature and scope of the clause was given
signed agreements! See Tilden rent a car. The crucial question is: can to the consumer or adhering party. Per Dell Comp v. Union, 'illegible’ can be
the party proffering the written terms reasonably assume that the due to being “buried among a large number of other clauses,”
other party knows that the terms should be part of the contract? ‘incomprehensible’ can be due to poor drafting or excessive ambiguity.
• Signature does not manifest consent to terms that the other • Was Clause buried under other clauses? (Dell Comp)
party “had no reason to believe were assented to” by the • Was clause ambiguous/ poorly drafted? (Dell Comp)
signing party (Tilden).
• Where a clause is incompatible with the offeree’s purpose for Electronic Clauses: Apply the functional equivalence test to determine
entering into the contract, the offeror must take reasonable whether electronic clauses are “reasonably accessible” for the parties.
steps to make him aware of the clauses in order to rely upon “Access to the clause should be no more difficult than access to its equivalent
them (Tilden). on paper.” (Dell)
Unsigned Document (ticket cases)
• General rule: The consumer is bound by the conditions if he is aware
of the condition OR if the company did what was reasonably
sufficient to give him notice of it.
• Condition wide and destructive of rights (exclusion clauses): If a
condition is wide and destructive of rights, the condition should be
drawn to the customer's attention in the most explicit way (Thorton)

Interpretation (What do the terms actually mean)

General rule: what the parties intended to do. Subjective intention not used General rule: The guiding principle of contractual interpretation in Québec is
as evidence of contractual interpretation. to seek “l’intention originelle commune” of the parties (1425)
• As compared to CML, will allow subjective intention but this cannot
Interpretation principles (Geoff Hall): override the objective common intention
1. Words and their context: words of document and surrounding • Contracts can only be corrected after the fact to meet the original
circumstances and specific intentions of the parties, not simply to rectify undesired
2. Contract construed as a whole (Sattva) consequences. Contractual interpretation focuses on what the parties
3. Factual matrix: with exception of subjective intentions and evidence actually agreed to do, not on what their motivations were in entering
of previous negotiations (Parol evidence rule; Sattva) into an agreement or the consequences they intended it to have.
4. Organizing principle of good faith: a new principle which requires that (Jean Coutu).
“parties generally must perform their contractual duties honestly and
reasonably and not capriciously or arbitrarily.” 1425- The common intention of the parties, rather than adherence to the
5. More focused on objective intentions rather than subjective literal meaning of the words shall be sought in interpreting a contract (see
intentions Agence de Revenue)
6. Commercial or business efficacy: commercial contracts must be
interpreted in accordance with sound commercial principles and good 1426- In interpreting a contract, the nature of the contract, the circumstances
business sense in which it was forced, the interpretation which was already been given to it
by the parties or which it may have received, and usage, are all taken into
account

Holistic interpretation
1427- Each clause of a contract is interpreted in light of the others so that
each is given the meaning derived from the contract as a whole.

Meaning
1428- A clause is given a meaning that gives it some effect rather than one
that gives it no effect.
• Interpret so that it is enforceable
 1430- A clause intended to eliminate doubt as to the application of the
contract to a specific situation does not restrict the scope of a contract
otherwise expressed in general terms.

1431- The clauses of a contract cover only what it appears that the parties
intended to include, however general the terms used.

1432- In case of doubt, a contract is interpreted in favour of the person who

contracted the obligation and against the person who stipulated it. In all
cases, it is interpreted in favour of the adhering party or consumer.

Case Law Case Law

1. Oscar Chess: said car might be one year but it was the wrong year.
Based on reasonable observer, with no car expertise, would not have
given guarantee on the year of the car model. Thus, it was a
statement of belief not a contractual promise.
Implied terms
General rule of implication (Moorcock): CVL- Courts not meant to imply terms but discover terms through
1. Terms will be implied only if they are obvious and necessary, not if interpretation.
they are simply desirable and reasonable.
2. An implied clause may be read into a contract in order to maintain 1434- A contract validly forced binds the parties who have entered into it not
the presumed intension of the parties or for reasons of business only as to what they have expressed in it but also as to what is incident to it
efficacy (See also Wood v Lucy). according to its nature and in conformity with usage, equity or law (implied
• Ex: implied warranty of safety of boat for the contract to term)
make sense (Moorcock)
• Ex: use reasonable efforts to bring profits and revenues into Past business dealings/ customs:
existence (Wood v Lucy) • A custom can be implied into the contract in CVL under CCQ 1434,
but it must be uniform, public, general, common, and ‘ancient’ (old)
(Ouellet)
Past industry relationships/ business dealings: o If there is not enough proof of the custom, then it won’t be
1. Where past interactions or industry practice create reasonable implied
expectations about the content of contracts, those expectations can
be implied into the contract (Ipswich Plant Hire, ex. liability terms) Good faith
• Applies only where parties are on even bargaining ground/ • Contractual relationships spark duties of equity and good faith (art 6
both industry experts CCQ; Station de la Vallee)
2. Need to be aware of past conditions to be implied in future business o 7- No right may be exercised with the intent of injuring
dealings (McCutcheon v David MacBrayne Ltd- didn’t read past another or in an excessive and unreasonable manner and
contracts so wasn’t aware of liability waiver) therefore contrary to the requirements of good faith
 o 1375- The parties shall conduct themselves in good faith both
at the time the obligation arises and at the time it is
Good Faith performed or extinguished.
• Good faith is a general ordering principle underlying the • Along with standard good faith requirements of 1434 (implies good
Canadian CML (Bhasin) faith), franchising agreements carry an implied obligation to act in
• Generally, a duty not to lie good faith to minimize harm to the franchisee caused by the actions
• Good faith must be read in unlike CVL where all contracts imply of the franchiser
good faith o The extent of contracting parties’ obligations to each other is
• There is a CML duty to act honestly in contractual performance determined by their relationship (joint venture- see Uber)
(Bhasin): “parties must not lie or otherwise knowingly mislead • Duty to bargain in good faith, standard of interpretation and defence
each other about matters directly linked to the performance of against unfair behaviour
the contract
i. Only applies to performance of the contracts not Examples of good faith
negotiations 1. Soucisses- Groulx died, BCN advises heirs that they had debt but did
ii. Not a duty to disclose not inform that they could leave surety contract
iii. Not a duty of fiduciary loyalty • Partial information is misleading information
iv. Should be context-specific • The Bank especially could not simply disclose what it was to
its advantage to disclose and withhold what was in its
Example interest to conceal.”
• Bhasin-Bhasin had a relationship with Can-am to sell products but • Good faith using as shield.
lied about different aspects of this relationship like plans to merge • Court then applies the doctrine of fins de non-recevoir, which
company. keeps parties from benefiting from their own negligence or
• Callow- Baycrest made decision it was going to terminate contract fault, to the detriment of another, and lets plaintiffs out of
with Callow but did not inform Callow who preformed more work at the contract
no charge as an incentive to renew. Baycrest terminated and Callow 2. Houle- There is a general extra-contractual duty not to prejudice
alleges violates good faith duty. (harm/ injure) imminent sales
o The duty to act honestly in the performance of the contract • Did not allow reasonable delay for repayment. (for example 3
precluded the active deception by Baycrest by which it hours to repay before liquidating assets)
knowingly misled Callow into believing that the winter 3. Provigo- Provigo in partnership with Arg who had to buy stock from
maintenance agreement would not be terminated (court 90% stock from Provigo. Provigo opened store in area and
decision). Exercised the termination clause dishonestly which aggressively started promoting it. Sold at lower prices than Arb was
is directly related to the performance of the contract. buying from provigo.
4. Dunkin- duty on franchisor Dunkin' Brands to take reasonable steps
to protect and enhance the brand in the face of competition.
 Note: see Dedek commentary on Art 6-104 for difference between CML and
CVL. CVL: categorizes every contract as a ‘type’ thus placing the agreement
Note: see Dedek commentary on Art 6-104 for difference between CML and within a context of “certain (default) rules applicable to the pertinent ‘type’
CVL. Essentially, CML much more into implied terms because it does not have of transaction.” “The civilian approach tends to engender an understanding of
a systematic almost scientific body of rules to rely on. General understanding a contractual agreement as more deeply intermeshed and woven into a
in CML is that implication in fact & interpretation are separate normative fabric of codal (default) rules and standards of ‘good faith’ which,
doctrines/processes; crossing the line between what can still be found in the therefore, do not have to be ‘imported’ into the contract by means of a
language of the contract and finding a gap that needs to be filled. doctrine of implication of terms.”

Is the impugned clause incorporated into the contract?

Common Law CVL
1. Has the clause been incorporated?
a) Has the document been signed?
i. “When a document containing contractual terms is signed,
then, in the absence of fraud or misrepresentation, the party
signing it is bound, and it is wholly immaterial whether he has
read the document or not.” (L’Estrange v. Graucob)
ii. However, Signature does not manifest consent to terms that
the other party “had no reason to believe were assented to”
by the signing party (Tilden).
iii. Where a clause is incompatible with the offeree’s purpose for
entering into the contract, the offeror must take reasonable
steps to make him aware of the clauses in order to rely upon
them (Tilden)
 Case Law Case Law

Did a Breach of Contract Occur?

CML CVL
Has the obligation been discharged? Has the Obligation been discharged?
1. Discharge by performance? Parties perform exactly as they should 1. Discharge by performance? Parties perform exactly as they should
2. Discharge by agreement: What has been created by agreement may (CCQ 1553)
be extinguished by agreement” 2. Discharge by agreement: What has been created by agreement may
3. Discharged due to frustration/hardship/Impossibility: Non- be extinguished by agreement” (CVL: CCQ 1439, 1687)
performance is excused 3. Discharge due to /Impossibility: Non-performance is excused (CVL:
CCQ 1671, 1693)
First, must determine what was fundamentally promised. First, must determine what was fundamentally promised.
• Thoroughly analyze the content of the contract: determine the nature • Thoroughly analyze the content of the contract: determine the nature
and scope of promises/undertakings/obligations and scope of promises/undertakings/obligations
Did the party honour the obligations arising from the contract? Did the party honour the obligations arising from the contract? (1458)
No- BREACH No- BREACH
Yes- NO BREACH Yes- NO BREACH
What type of breach occurred? What type of breach occurred?
1. total failure to perform 1. total failure to perform
2. late performance 2. late performance
3. partial or defective performance 3. partial or defective performance

If a breach has occurred, what are the remedies?

CML CVL
1480
Pursuant to 1590 CCQ, there are three main remedies:
1. Termination of the contract or obligations
2. Order from court for performance in kind
3. Get damages as performance by equivalence

Termination of the Contract

Two main cases: 1604- “He [the creditor] is not entitled to resolution or resiliation of the
1. Repudiation: When a party intimates by words/ conducts that she contract if the default of the debtor is of minor importance...”
does not intent to honour her obligations when they fall due in the à Creditor remains bound by her own obligation but possibility of reduction
future (anticipatory breach) (McCacmus) and damages
2. Repudiatory: when a breach is fundamental or material (see Hong • Distinction between resolution and reciliation
Kong fir) • Suggestion that threshold is lower than CML
a. Is the stipulation a warranting or condition (Cehave)?
b. Does the occurrence of the event deprive the innocent party 1606 (different consequences)- A contract which is resolved is deemed never
of substantially the whole benefit of the contract? (Hong to have existed; each party is, in such a case, bound to restore to the other
Kong Fir) Does the breach go to the root of the contract the prestations he has already received. A contract which is resiliated ceases
(Cehave)? to exist, but only for the future
c. Does not count when its one’s own breach, applies to actions
of the other party or to natural events (Hong Kong Fir)

Rescinding: void since the beginning, return all stipulations (restitution).

Resolution:
Reciliation: void from now on, do not return stipulations.
Case Law

1. Hong Kong Fir v. Kawasaki Kisen Kaisha, [1962] 2 Q.B. 26 (ship not
seaworthy)
• Hong Kong fir chartered ship which was guaranteed to be
seaworthy. Ship was not seaworthy. Kawasaki claims because
it was not seaworthy, they are entitled to repudiation
(release from contract)
• Court found breach was not severe enough.
• Departs from previous step of warranty/ condition. Mainly
focused on whether the breach deprives the whole benefit of
the contract.
• Breach can result from external force or actions of other
parties
2. Cehave NV v. Bremer Handelsgesellschaft mbH, [1975] 3 All E.R. 739
(used pellets anyways)
 • Bremer agreed to sell Cehave citrus pellets for cattle feed,
with all goods to be sold “in good condition.” Market price
fell before pellets arrived; pellets were also in bad condition.
• Cehave rejected cargo, but arranged middleman to buy it and
used it anyway to make feed as originally planned
• Court found breach was not substantial enough to warrant
repudiation.
Specific Performance
In the CML, more of an equitable remedy or an exception. In the CVL, it the rule rather than an exception.

Main rule: Cannot Enforce specific personal performance (like forcing a

specific person or small business to do something) 1601 A creditor may, in cases which admit of it, demand that the debtor be
forced to make specific performance of the obligation.
First, are damages inadequate?
1. Difficulty in calculating damages (Argyll) 1590- (types of remedies for breach)
2. Is the subject matter unique that it is difficult to calculate damages
(“Uniqueness-Test”, Warner) Courts are less likely to enforce obligations to do rather than to give
• Sale of land, presumption that it is unique because it is a strong interference with personal freedom.
• Sale of goods, presumption that damages are sufficient
Specific performance will however not be enforced if:
Second, even if damages are inadequate courts won’t enforce specific 1. Personal Services
performance when (Argyll): 2. Actual performance is impossible
1. Performance would require ongoing supervision by the court
(continued court action - defendant trying to get away doing little and
plaintiff complaining)
• Court would be required to give indefinite rulings in order to
ensure the execution of the order
2. Enforcing the obligation would require a finding of contempt against
a party not meeting the order, rendering the remedy expensive and
hard to assess
3. The plaintiff would be enriched beyond what they’d suffer under
breach and the defendant impoverished
4. The obligation would be imprecise and hard to enforce
5. Public Policy: Employment contracts
• Can’t force employee to remain in an employment
relationship
• Court will not force upon the employer a relationship that
requires trust and confidence
Test for negative performance (Warner Brothers):
1. Does it require the party to choose between a positive obligation and
“idleness and starvation”?
2. A negative obligation will not be enforced if damages are more
appropriate

Case Law Case Law

1. Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd., 1. Construction Belcourt Ltée v. Golden Griddle Pancake House Ltd,
(1997), [1998] .C. 1, [1997] 2W.L.R. 898 (H.L.) (Anchor tenant losing [1988] R.J.Q. 716 (C.S.) (CVL) (mall needs pancake restaurant)
money and wants to leave) • Golden griddle was anchor tenant in that it brought in a lot of
• Anchor tenant losing money at mall and closed store which revenue for the mall. Golden griddle franchise went
breached contract. Mall couldn’t obtain specific performance bankrupt, mall has clause that stipulated Golden Griddle
because that is an exception to damages. would stay (injunction provision).
• While damages may be difficult to calculate, applying specific • Golden griddle cross-sued for dol but court found bon dol,
performance would be substantially more difficult because Golden griddle cannot rely on advertisement as
2. Warner Bros. Pictures v. Nelson, [1937] 1 K.B. 209 (can get specific warranty. Golden is sophisticated enough to understand
performance not to do something) these issues.
• Bette Davis entered into an exclusive contract with Warner • Since contract valid, no reason to apply injunction provision.
Bros. in 1934 in which she agreed to the positive stipulation Contracting parties can choose their own recourse.
to “render her exclusive services as a motion picture and/or • “A stipulation in an agreement by the debtor that his creditor
legitimate stage actress.” Davis entered into a contract with may obtain ‘specific performance’ does not automatically
third party and Warners seeks an injunction against her create a right to such a remedy”
performance in this production. • Cases where specific performance is not available: Specific
• CML will not enforce specific performance of a personal performance will not be ordered for personal services,
action but WB seeks specific performance of her negative including small businesses operated by the owner
obligation.
• Damages aren’t appropriate, since they would be difficult to
assess and “difficult to recover from an artist.”
• The Court will not grant an injunction in the case of such a
contract to enforce negative covenants if doing so would be
tantamount to ordering the party to choose between specific
performance or “idleness and starvation” (OR if damages are
more appropriate).
• Forbidding someone from doing something may not be
specific performance. For example, Bette Davis may not be
able to work in her special line but she can still work. This still
feels unreasonable.
Damages
Goal: Put in the same position as if contract had been preformed (Hawkins v Goal: Put in the same position as if contract had been preformed
McGee)
1468 (safety defect) The manufacturer of a movable thing is bound to make
Three main types of damages (Fuller & Purdue): reparation for injury caused to a third person by reason of a safety defect in
1. Expectancy: What you expected to get out of the contract the thing, even if it is incorporated with or placed in an immovable for the
• Ex. I expected to get this much profit from the contract, I service or operation of the immovable. The same rule applies to a person who
expected to sell, etc. distributes the thing under his name or as his own and to any supplier of the
2. Reliance: Losses suffered from relying on contract thing, whether a wholesaler or a retailer and whether or not he imported the
• Ex. Entered new contract or bought new equipment because thing.
relied on this contract.
• Somewhat similar to torts, but back in position of status quo. 1607 (general damages) The creditor is entitled to damages for bodily, moral
• Reliance damages are something the courts will exceptionally or material injury which is an immediate and direct consequence of the
grant (See Security Stove), but cannot be put in a position debtor’s default.
that is better than before (windfall scenario). This can lead to
unjust enrichment. 1611 (contract performance damages) The damages due to the creditor
3. Restitution: Get what you gave back. compensate for the amount of the loss he has sustained and the profit of
• Ex. Paid 100$ for no labour. Get the 100$ back. which he has been deprived (Consequential damages). Future injury which is
certain and assessable is taken into account in awarding damages.
How to calculate expectancy damages (Fuller/Purdue):
1. Non-performance
• Seller breaches by unexcused non-delivery: market price for
goods – contract price = profit margin/ expectation damages
• Buyer breaches by unexcused non-acceptance contract price
– market price = expectation damages
2. Suboptimal Performance
• Cost of Cure Formula = how much would it cost to complete
the performance (to 100%), to go into the market to purchase
the completion- in a commodity marketplace, there is almost
no difference between this formula and the formula for non-
performance

Determining Which form of compensation is appropriate:

1. “The method of estimating the damages should be adopted which is

the most definite and certain and which best achieves the
fundamental purpose of compensation” (Security Stove)
2. Sub-optimal performance/ Cost of cure: Where the cost of placing
the promisee in the position of perfect fulfillment of the contract
(cost of cure) is very disproportionate to the benefit that would result
 from the contract, courts should look to reasonability. If the cost of
cure is deemed to be unreasonable, then the court should look to
alternative measures (Ruxley).
• Should hence avoid windfall scenarios or put in a better
position that she would have been in if contract had been
preformed.
• Potential of unjust enrichment
• Considers what the plaintiff will actually do with that money
• Expectancy limits reliance if defendant can prove that
contract was unprofitable for the plaintiff.

1. Security Stove & Mfg. Co. v. American Ry. Express Co., 51 S.W. 2d
572 (Mo. Ct. App.1932) (inventor of stove wanted to market his new
product)
• Security Stove had invented a dual oil and gas burning
furnace that they wanted to exhibit at a trade fair. Entered
contract to ship parts but it was delayed and didn’t arrive on
time for the fair.
• Court found that reliance damages may be appropriate (for
example renting the space at the fair)
• Court says cannot recover expectation damages because
there was no guarantee of sales from the fair.
• In some instances, the injured party may recover expenses
incurred in relying upon the contract, although such expenses
would have been incurred had the contract not been
breached.
2. Ruxley Electronics v. Forsyth, [1995] 3 All. E.R. 268> (pool not big
enough)
• Forsyth hired Ruxley to build pool at a certain size but it
didn’t end up being big enough. Argue that they need full
damages to rebuild pool at appropriate depth.
• Court ruled that can only recover loss of amenity damages
(difference of enjoyment between what the pool was
supposed to be and what it is)
• The court settles on a test of proportionality and
reasonability. We only perform this test if there is the risk of
a windfall scenario. Court resolves with amenity damages or
loss of enjoyment between two pools
 Limits for damages/ liability
No liability for consequences of the breach that are too remote 1607-The creditor is entitled to damages for bodily, moral or material
injury which is an immediate and direct consequence of the debtor's
General Damages: Damages that flow from a given type of breach without default.
regard to the buyer's particular circumstances. They are never barred by the
Hadley principle because by their very definition such damages should 1611-The damages due to the creditor compensate for the amount of
"reasonably be considered... [as] arising naturally, i.e., according to the usual the loss he has sustained and the profit of which he has been deprived.
course of things from the breach."
1613- In contractual matters, the debtor is liable only for damages that
Consequential Damages: Special or consequential damages are the damages were foreseen or foreseeable at the time the obligation was contracted,
above and beyond general damages that flow from a breach as a result of the where the failure to perform the obligation does not proceed from
buyer's particular circumstances. Typically, consequential damages consist of intentional or gross fault on his part; even then, the damages include
lost profits (although other kinds of consequential damages may occur). They only what is an immediate and direct consequence of the non-performance.
typically consist of the difference between the profits the buyer actually
made in transactions with third persons and the profits he would have made General rule: Damages need to be foreseeable at the time the contract was
if the seller had performed. made as well as an immediate and direct consequence of the breach.

Consequential Damages- Hadley-Rule In cases of gross/intentional fault: Damage still needs to be an immediate
and direct consequence of the non-performance.
1. Reasonably foreseeable: When the damage is reasonably
foreseeable (“such as may fairly and reasonably be considered either
arising naturally, i.e., according to the usual course of things, from
such breach of contract itself”)
• Perspective of reasonable observer
• Includes “imputed knowledge”- certain things people know
whether or not we have proof it was communicated. For
engineers understanding boiler had a commercial use
(Victoria Laundry).
• Foreseeability alone is not enough to allow recovery; the loss
must be sufficiently likely to justify holding the contract-
breaker responsible. Does not need to be more than 50%
(Heron II)
2. Actual knowledge: When the damage is in the contemplation of both
parties (“such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as
the probable result of the breach of it.”)
• Did the plaintiff make it known to the other party that there Note: related to will theory, damage has to be within the contemplation of
will be consequential damages if performance fails? (Hadley) the parties.
 • Would need to be explicitly communicated

Case Law Case Law

1. Hadley v. Baxendale (1854), 9 Exch. 341 (Flour mill shaft was 1. Ciment Québec inc. c. Stellaire (wrong type of cement led to
unreasonably delayed) bankruptcy)
• Hadley owned a flour mill and needed his mill-shaft repaired. • The lost profits of rebuilding the dam were deemed not direct
It had to be sent to the original makers to be copied. He sent not foreseeable to outsiders.
it via Baxendale, a common carrier. The delivery of the shaft • can only recover for cost of reconstruction
was unreasonably delayed and since the mill could not • Parties can be liable only for immediate and direct damages
operate without it, Hadley lost profits. that were foreseen or foreseeable at the time of contracting
• What damages can Hadley recover? None. (application of 1613 CCQ)
• Hadley did not adequately convey the consequences of • 1613 CCQ leaves it to the judges to determine where the line
breach of contract. There are many other scenarios for can be drawn between what is immediate and direct and
Hadley to have mill shaft delivered that do not involve what isn’t.
damages.
• If Hadley had made the importance of the timely delivery
known to Baxendale, they would have a claim for
consequential damages.
2. Victoria Laundry v. Newman Industries Ltd., [1949] 2 K.B. 528
(delivery for boiler delayed)
• Victoria Laundry bought a boiler from Newman but delivery
was substantially delayed due to the fault of Newman. As a
result, Victoria could not expand their business at a time
during which laundry services were in high demand.
Furthermore, Victoria could not bid on lucrative government
contracts because their old boiler did not have the necessary
capacity.
• Court found V could recover from lost profits but not
government contracts
3. Koufos v. C. Czarnikow (The Heron II), [1969] 1 A.C. 350 (sugar
market dropped)
• Czarnikow hired Koufos’s boat to carry sugar to Basrah, or
further on to Jeddah. Czarnikow intended to sell the sugar as
soon as they reached Basrah. Koufos did not know this, but
did know there was a market for sugar in Basrah. The boat
was unreasonably delayed and as a result of price
fluctuations, Czarnikow’s profit was lower than it would have
been.
 • K argued that while it was foreseeable market would
fluctuate, it wasn’t foreseeable market would drop sharply.
• What degree of likelihood is needed to establish
foreseeability? While judge is concerned threshold will get
lower, it is not necessary that it be more than likely (51%).
Accordingly, K had to realize that it was not unlikely sugar
market would drop (50/50 chance). Foreseeability must be
reinterpreted in terms of probability because foreseeability is
too broad.
4. Transfield Shipping v Mercator (The Achileas), [2008] UKHL 48 (CML)
• Transfield hired Mercator’s ship the Achileas and was meant
to have the ship back by a certain date because Mercator had
another contract. Mercator was forced to sign another
contract and missed out on rise in profits between the time
that Transfield did bring back ship.
• Transfield says they should only pay for the lost profits of the
days between when they were supposed to return the boat
and when they did, plus the market price difference for those
days, using the contract with the other party for the price
difference. But Mercator claims Transfield owes them the lost
profits from the contract they lost due to Transfield’s late
arrival (amounting to about $1.3 million).
• Court found drop was too exaggerated to be reasonably
foreseeable.
• Court emphasized the importance of parties imputed/ actual
knowledge highlighting the specific commercial context 🡪
which closely resembles the reasoning in Victoria Laundry,
and steers away from the unfortunate decision in the Heron.
Aggravated and Punitive Damages
Aggravated Damages (non pecuniary losses) 1458- Every person has a duty to honour his contractual undertakings.
• Aggravated damages are still compensatory. The circumstances may Where he fails in this duty, he is liable for any bodily, moral or material injury
be dealing with intangibles, but it’s still compensation for loss. he causes to the other contracting party and is bound to make reparation for
• Immaterial loss. the injury; neither he nor the other party may in such a case avoid the rules
• Generally, no recovery for distress unless it is part of/ purpose of the governing contractual liability by opting for rules that would be more
K (Ruxley; Jarvis) favourable to them
• See Hadley test to determine if punitive damages should be awarded
1607- “limits of liability”

1613- foreseeability and immediacy

Punitive Damages: Against tendencies of contractual law. Usually only done Punitive damages:
when prescribed by legislature or public policy goal • Meant to discourage repetition of conduct
• Marked departure from human decency (high threshold) (Whiten) • Punitive damages are awarded when:
o Breach of mere duty to preform or to render payment is not o If conduct is incompatible with objectives of the legislature
enough and (2) if it interferes with the achievement of those
• Independently actionable wrong: breach good faith w breach of K objectives
(Whiten). Require:
a) Implied duty of good faith 1621- Where the awarding of punitive damages is provided for by law, the
b) Independent actionable wrong, breach of mere duty is not amount of such damages may not exceed what is sufficient to fulfil their
enough preventive purpose. Punitive damages are assessed in the light of all the
c) Extreme bad faith appropriate circumstances, in particular the gravity of the debtor’s fault, his
patrimonial situation, the extent of the reparation for which he is already
liable to the creditor and, where such is the case, the fact that the payment of
the reparatory damages is wholly or partly assumed by a third person.
• Gravity: the most important element, to be determined based on
both the wrongful conduct of the wrong-doer and the seriousness of
the infringement of the victim’s rights
• Patrimonial situation: tailored to offender’s situation to insure
intended affect of statute
• Extent of reparation: the court must not award punitive damages
unless compensatory damages are not enough to discourage
repetition either because their amount is too small or because they
will have no impact on the debtor’s financial situation
• Third party payment: ensures that the amount of the award will
actually have the intended effect on the offender (i.e. won’t flow
from another source)

Guidelines on How to assess (Richard v Time):

1. Find the legislation (consumer protection, a1899, 1902, 1968)
a. Consumer protections act 272
b. 1899 CCQ- lessor cannot impose more onerous conditions on
person because they are pregnant/ have children (punitive
damages)
c. 1902 CCQ- lessor cannot harass a lessee. Can damage
punitive damages if that is the case.
d. 1968 CCQ- The lessee may recover damages resulting from
repossession or eviction in bad faith, whether or not he has
consented to it. He may also apply for punitive damages
 against the person who has repossessed the dwelling or
evicted him in bad faith.
2. Does the plaintiff have an interest in claiming punitive damages?
a. Falls within provision
3. How are damages to be awarded?
a. If conditions for awarding damages are not set out in
provision, refer to 1621

Richard v Time: reasonable observe→ no promise

- Consumer protection→ punitive damage to dissuade behavior. Prescribed by
legislature, deterrence/ protect consumer

Case Law Case Law

1. Jarvis v Swan Tours // CML // 1973 // (party vacation was boring) 1. Richard v Time // CVL // 2012 // sweepstakes mailer, CPA
• Facts: J booked a holiday with S, really shitty a. reasonable observe- no promise
• Issue: what damages can J claim? b. Consumer protection- punitive damage to dissuade behavior.
• Hold: aggravated Prescribed by legislature, deterrence/ protect consumer
• Reason: statements in brochures were warranties. J had right c.
to damages. Because vacation, object was relaxation and
peace of mind. Instead got distress
• Ratio: In cases where the object of the contract is amenities
or enjoyment, courts should award aggravated damages.
2. Whiten v Pilot Insurance // CML // 2002 // (withheld insurance
payout, accusations of arson)
• Facts: P denied W insurance for the burning down of his
house, litigation for 2 years/ got less than expected. Conduct
planned nad deliberate
• Issue: punitive damages?
• Hold: yes, 1M
• Reason: insurance company not acting in good faith →
punitive damages. Acted maliciously. Punishment can be a
legitimate objective of the civil law. Court will reward you for
calling out wrongful behaviour. We accept their windfall
because we see the good they did in calling out wrongful
behaviour.
3. Fidler v Sun Life // CML // 2006 // (withheld insurance benefit)
• Facts: F on disability. S, from private investigation, saw her
doing light work so took away benefits. Reinstated insurance
• Issue: what damages can F claim?
• Hold: aggravated but not punitive
 •Reason: F must show mental distress that was reasonably
foreseeable. F’s distress in the event of non-performance was
reasonably foreseeable at the time the contract was made
(insurance→ peace of mind was object of K) (Hadley test)
• Not punitive bc no bad faith
Liquidated Damages v Penalty Clauses
Liquidated Damages clauses are enforceable Penalty Clauses are valid in CVL: Dollar value on loss/ pre-emptive. Even with
it, can still be abusive and court can step in.
Penalty clauses are NOT enforceable.

Distinguishing between penalty vs liquidation 1622- A penal clause is one by which the parties assess the damages in
advance, stipulating that the debtor will suffer a penalty if he fails to perform
• Distinction: is the stipulation a bon afide attempt to pre-estimate
his obligation. A creditor has the right to avail himself of a penal clause
damages? If no→ penalty (when the sum is extravagant)
instead of enforcing, in cases which admit of it, the specific performance of
- Genuine attempt to be fair can become a penalty
the obligation; but in no case may he exact both the performance and the
- Compare what they were getting to what they were worth
penalty, unless the penalty has been stipulated for mere delay in the
(effect) (Clarke)
performance of the obligation.
- Look at this from a perspective of reasonableness/ concern for
fairness (Clarke)
- “A sum will be held to be a penalty if extravagant and • Penalty clauses are valid in CVL, but abusive penalty clauses shall be
unconscionable in amount in comparison with the greatest loss examined for reasonableness at the time of their execution
that could conceivably be proved to have followed from the
breach” (Clarke)
1623- A creditor who avails himself of a penal clause is entitled to the amount
Remedy: If a clause is found to be a penalty clause, it is struck from the of the stipulated penalty without having to prove the injury he has suffered.
contract, as if it hadn’t been included in the first place. Then you need to However, the amount of the stipulated penalty may be reduced if the creditor
prove your actual damages. has benefited from partial performance of the obligation or if the clause is
abusive.
• Judicial adjustments of the penalty clause shall be made in concreto
• Remedy: read down abusive amounts (consider what they would have
gotten if contract preformed properly (Verville)

Pros: deterrence, free will, quick process (no court) + cheaper

Case Law Case Law
1. H.F. Clarke v Thermidaire // CML // 1976 / 1. 151276 Canada Inc c Verville // CVL // 1994 //
• Fact: C exclusive distributor for T. C started selling • Facts: V rented a store for 5 years. Penal clause that he would pay
competitors. Liquidated damages clause that C owed T all all rent
profits of competitor (a lot). C wasn’t making much from • Issue: Penal clause valid? Amount collected?
• Hold: yes, 14600
it
 •Issue: penalty or liquid damages? • Reason: penal clauses are valid but reduce when found to be
•Hold: penalty abusive. C was able to find new tenant
•Reason: no logical relation to the damage suffered by T
(not fair estimate of T’s losses)
2. Cavendish Square Holding v El Makdessi // CML // 2015
• C bough share in advertising company. If M breached
certain covenants than would not be entitled to receive
final two instalments of C payments
• M argued penalty clause, but court ruled liquidated
clause.
• The true test is whether the impugned provision is a
secondary obligation which imposes a detriment on the
contract-breaker out of all proportion to any legitimate
interest of the innocent party in the enforcement of the
primary obligation” - primary obligation is the one that
arises from the contract to perform - secondary
obligation is what arises from breach of the primary
obligation the court develops a test of proportionality
between the two. Clause no longer needs to be a
genuine pre-estimation of damages.
• NOT yet adopted in Canada

Are third parties involved?

CML CVL
Privity of Contracts: Only a person who is party to K can sue (Dunlop) General Rule: Can grant a right. Has to be a benefit. Therefore, can claim
- 3rd party not part of contract bc no consideration. Merely beneficial damages c it’s a right. Cannot obligate a 3rd party
position. Did not confer any benefit on the other party in exchange
for the entitlement and thus has not brought the right to enforce the First Step
agreement. Consideration can flow from to a third party as long as it
flows from the promisee. 1440- A contract has effect only between the contracting parties; it does not
- Real rights are absolute rights (ex. ownership): protected sphere, affect third persons, except where provided by law
owner has a right against any person encroaching on that sphere; a
right against the world. 1441- If one of the parties dies, rights and obligations pass to his heirs, “if the
- Rights in personam are relative rights: an obligation ties two (or nature of the contract permits it. sucession→ rights transferred without
more) people together and creates a certain personal right (and a authorisation
duty on the other end)
UK right of third party K act 1442- The rights of the parties to a contract pass to their successors by
Ontario: Insurance Act particular title if the rights are accessory to the property which passes to
them or are closely related to it. Contracts do not always die with the person;
Case Law it is provided by law that we pass those on to heirs

1. Beswick v Beswick // CML (UK) // 1966, 1968 // shitty nephew Second Step
• Facts: old B sold company to nephew. After death, supposed to
give money to widow 1443- No person may bind anyone but himself and his heirs by a contract
• Issue: (1) Can OB’s wife sue in her own name? (2) Can she sue as made in his own name,but he may promise in his own name that a third
the executrix of OB’s will? person will undertake to perform an obligation, and in that case he is liable
• Hold: no, yes (prior court answered both in affirmative) for injury to the other contracting party if the third person does not
• Reason: if A makes a contract with B for the benefit of C, and B undertake to perform the obligation as promised. Can’t bind someone else.
breaks the contract to C’s detriment, A can sue to recover on C’s
behalf. A receives all damages/specific performance, that C is Third Step
entitled to, and must give any such rewards to C. Wife as
administrator of estate (CML). Reject equity argument to sue in 1444- A person may, in a contract, stipulate for the benefit of a third person.
her own name The stipulation gives the third person beneficiary the right to exact
• Damages: continue paying estate but not widow performance of the promised obligation directly from the promisor. Third
• Ratio: Third-party beneficiaries may not sue in their own name party may benefit, and only benefit, from this agreement (cannot create
for the enforcement of contracts. obligations) does this create a right on the part of the third party to demand
2. London Drugs Inc v Kuehne & Nagel International Ltd. // CML // payment from the debtor? Yes. example: life insurance! 3rd party can demand
1992 performance
• Facts: LD stored a transformer at KN’s warehouse. The storage
contract included an exclusionary clause that limited liability of 1445- A third person beneficiary need not exist nor be determinate when the
warehouse workers to $40 unless the property owner paid for stipulation is made; he need only be determinable at that time and exist
additional insurance. LD declined to do this. Two of KN’s when the promisor is to perform the obligation for his benefit.
employees negligently caused $33,955 in damage to the
transformer. LD sues the employees and also KN.
• Issue: Does LD’s liability policy cover its employees (3rd parties)? 1446- The stipulation may be revoked as long as the third person beneficiary
• Hold: yes has not advised the stipulator or the promisor of his will to accept it.
• Reason: employees excluded bc of privy doctrine. LD knew of the
clause and that employees would be handing the machine 1447- Only the stipulator may revoke a stipulation; neither his heirs nor his
• test: (1) the limitation of clause must (expressly or impliedly) creditors may do so. If the promisor has an interest in maintaining the
extend the benefit to the employee(s); and (2) the employees stipulation, however, the stipulator may not revoke it without his consent.
must have been acting in the course of their employment
performing the services provided for in the contract when the 1448- Revocation of the stipulation has effect as soon as it is made known to
loss occurred the promisor; if it is made by will, however, it has effect upon the opening of
the succession.
Where a new beneficiary is not designated, revocation benefits the stipulator
or his heirs.

1449- A third person beneficiary or his heirs may validly accept the
stipulation, even after the death of the stipulator or promisor.

1450- A promisor may set up against the third person beneficiary such
defenses as he could have set up against the stipulator.

CPA 53: A consumer who has entered into a contract with a merchant is
entitled to exercise directly against the merchant or the manufacturer a
recourse based on a latent defect in the goods forming the object of the
contract, unless the consumer could have discovered the defect by an
ordinary examination. The same rule applies where there is a lack of
instructions necessary for the protection of the user against a risk or danger
of which he would otherwise be unaware. The merchant or the manufacturer
shall not plead that he was unaware of the defect or lack of instructions. The
rights of action against the manufacturer may be exercised by any consumer
who is a subsequent purchaser of the goods.

CPA 54: A consumer having entered into a contract with a merchant may take
action directly against the merchant or the manufacturer to assert a claim
based on an obligation resulting from section 37, 38 or 39. Rights of action
against the manufacturer based on an obligation resulting from section 37 or
38 may be exercised by any consumer who is a subsequent purchaser of the
goods.