Contracts Winter Lectures PDF

Week 1 – (mis)Representation and Terms Remedies for breach of contract General principle is that you cannot compel someone to perform the contract Subject to the general exception for specific performance General rule is that the remedy for breach of contract is monetary damag...

Week 1 – (mis)Representation and Terms Remedies for breach of contract General principle is that you cannot compel someone to perform the contract Subject to the general exception for specific performance General rule is that the remedy for breach of contract is monetary damages meaning the loss the party has suffered as a result of the breach General principles o Generally, if one party breaches a contract, and refuses to carry on their contractual obligations, the aggrieved party will not be able to successfully request that a court order the breaching party to continue fulfilling their contractual obligations o Also means either party, both beaching and aggrieved, cannot simply choose to walk away from the contract – they must carry on with their contractual obligations o Even if you have been aggrieved by a breach of contract, you cannot simply choose to treat the contract is done and finished and walk away from it o Only recourse the aggrieved party has is to sue for damages (i.e. losses resulting from breach) o Damages are equivalent to loss Example o John and Jane have contract where jane agrees to walk John’s dog every Monday, Wednesday and Friday at 5pm for $20/week from Jan to June 2025 o Jane does not show up on Wednesday and is in breach of contract o Based Soley on Jane’s failure to show up, can John treat the contract as void, tell Jane to forget about the rest of the term and refuse to pau her going forward? ▪ Generally speaking, answer is NO ▪ John’s recourse would be to bring an action for breach of contract and claim damages in the form of losses suffered as a result of Jane’s failure to show up on Wednesday as she was contractually obligated to do Ask yourself, what loss did I suffer from the other party not fulfilling their obligation Expectancy Principle  Contract damages are NOT awarded as punishment General rule is that contract damages provide substitute monetary compensations for loss resulting in breach Position I had been if the person did their obligation “It is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed.” - Sally Wertheim v Chicoutimi Pulp and Paper, 1910 JCPC Entirely based on loss John and Jane Example o Did John have to find someone else to walk the dog, what was that dog walker fee due to it being short notice? o What if John could not find a replacement, he had to skip a class which he already paid for due to Jane not showing up, how much was that class? Court will always try to find a way to value the loss and its very rare they can’t Typical losses that you see in litigation o Lost profits – includes the possibility of loss of opportunity o Expense resulting from breach – delivery expenses, replacement parts, goods or services, costs associated with delays 3 limitations to Expectancy principle 1. Causation a. Directly caused by the breach b. Exists where the loss flows from the defendant’s breach– where the loss would not have occurred but for the defendant's breach (Hodgkinson v Simms, 1994, SCC) 2. Foreseeability a. Certain flexibility b. Goes hand in hand with causation c. Exists where the loss flows from the defendant’s breach– where the loss would not have occurred but for the defendant's breach (Hodgkinson v Simms, 1994, SCC) d. Question is were the losses foreseeable? e. Things that are far too speculative the courts will not entertain 3. Mitigation a. Means you as the person who has suffered the breach has to show steps you took due to the breach (i.e. finding another dog walker)  b. Must be some effort to mitigate damages and put yourself back into a position that would have been if the breach did not occur c. “The fundamental basis is thus compensation for pecuniary loss naturally flowing form the beach; but this first principle is qualified by a second... which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. [...]” d. “The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiff’s not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business” - Payzu v Saunders, 1919 Eng KB e. Courts will consider that the consideration was reasonable and not outrageous Mitigation Examples Manufacturers needs to deliver shipment of goods to customer for a tight deadline – contracted delivery company breaches by not arriving to make the delivery o Can manufacturer do nothing? ▪ Loss contract with customer, claim all damages resulting from this loss? ▪ Lay off employee and then claim damages for these layoffs? Realistic Commerical example o Manufacturer must make reasonable commercial efforts to find another delivery company and meet its deadline ▪ If the price of delivery is higher than contract with original delivery company, can claim the difference as damages ▪ Can claim other expenses associated with having to find another delivery company on short notice 20 ‘Terms of a contract’ Express terms (oral and written) o Some are both which makes it tricky  o What happens when there are oral statements that are made during negotiations or as explanation of the written terms – do they constitute terms of the contract? o Courts distinguish between contractual “warranties” and “representations” o Oral express terms of a contract ▪ Statements of fact can be made in, before, or during negotiation of a contract which are influential in bringing about the agreement but are no terms of the contract itself Implied terms Statutory terms Misrepresentation Representations are NOT terms of the contract but can be influential and/or significant inducing someone to enter the contract No common law obligations to negotiate a contract in good faith (but there is a qualification re carrying out a contract) Concept of misrepresentation acts as a check on negotiating behaviour People cannot make a material statement of present or past material facts that is untrue at the time it was made If that representation is of past or present material fact, it induced the contract and itis incorrect when it is made, it is a misrepresentation giving rise to the possibility of recission Remedy is recission not damages Elements of the definition of misrepresentation A: Statement of past or present fact It is not a promise or statement Difference of future intent Statement of fact o it was –1 degree yesterday Statement of future fact o it will be –1 degree tomorrow B: the statement is material The statement of past/present fact Certain types of statements are NOT must be important to the transaction misrepresentations Puffery Opinions Statement so future intent (i.e. promises) C: The past/present fact is untrue at the time it is made If circumstance change and the statement becomes untrue after contract, this is dealt with through the doctrine of frustration D: The statement is pre-contractual The statement occurs doing the negotiation process but IS NOT a term of the contract itself Matters because when it occurs affects the available remedies Misrepresentations are considered to create a defect in a contract's formation In other words, a contract was formed, but a falsehood was told, either innocently, negligently or fraudulently, which induced agreement Effect is that there was a defect in the formation of the contract o One of the parties entered into the contract relying on an untrue statement Intro to recission Remedy that is available for innocent and fraudulent misrepresentation is the remedy of equitable recission o Remedy for misrepresentation is NOT contract damages as a misrepresentation concerns statements of fact made during contract negotiations that persuaded you to enter into a contract but are not terms of the contract Does not mean that a contract was not created – it as all the element but that there is an underlying problem with hte basis on which consent was given Due to this defect in formation, misrepresentation is considered to render a contract voidable o At the opinion of the innocent party to rescind the contract o Innocent party also can choose to affirm the contract ▪ If you affirm then you acknowledge the misrepresentation but now cannot use recission to fight any unfairness because they had the option but chose to not rescind Difference between recission and damages In contrast to damages, liability for misrepresentation provides the innocent party with the equitable remedy of recission which acts to unmake the contract and put the parties back in the position they were in prior to the contract o Essentially going into a time amchine and acting as if the contract never existed – more often than not is how recission will play out o To wind back obligations and performance o Return property exchange through the transaction (i.e. car) Recission is primarily an equitable doctrine – equitable remedies are at the court’s discretion o The court can choose whether to order recission or not Damages for contract breach are not at the court’s discretion  o If a claimant establishes a breach form which it suffered a lose, the court must ussie the damages as of right o Damages must be proven as a matter of fact Innocent misrepresentation When someone innocently makes a wrong statement of fact, without agreeing that the fact is contractually guaranteed, they have not consciously chosen to ensure its truthfulness or pay damages o If they made an innocent mistake and never contractually guaranteed the accuracy of the statement, it seems unfair to make them pay damages Week 2 – Parol Evidence In some instances, one party will allege that there is an oral term binding the parties, in addition to the written terms of the contract o Innocent misrepresentation o Fraudulent misrepresentation Parol evidence rule – Intro Claimant wishing to demonstrate the existence of an oral warranty faces an additional hurdle – the Parol evidence rule Any evidence beyond the words of the contract itself Parol (extrinsic) evidence of oral terms is not admissible o For the purpose of varying or contradicting the written terms of the contract Where the terms of the contract are the product of negotiations between the parties of equal strength, Parol evidence rule may make some sense o If there is a negotiated agreement in writing between parties to a transaction, why would there also be some oral terms? Why wouldn't everything be in writing Example o Estimates for general contracting work – often create contracts that are a mix of both written and oral terms o Often negotiate an ‘estimate’ that includes general scope of work and price and when agreed upon it becomes the contract o Don't parties often discuss many of the ‘details’ of the work outside of the written estimates ▪ Timelines, materials, entry/access to premises, etc.  ▪ Not common to have partial written contracts (ex.the estimate) along with oral terms that qualify the written terms Rationale 1. To stop juries form being exposed to uncorroborated and prejudicial oral evidence, where the written document was probably more accurate a. Best example is subjective evidence of the parties 2. Presumption in favour of a written document provides clarity and finality for the parties 3. Logical reasoning a. If the parties came to a written agreement, why wouldn't they include all the terms of their obligations towards on another in the document? What about standard form agreement If you go to ‘discount rental car’ and sign the standard from contract for rental but discuss various terms with salesperson: o...does this capture the full interactions and intentions of the parties o Would the strict application of the rule lead to situations of unfairness o Do the oral terms (if any) better represent the intention of the parties Dealing with “boilerplate” entire agreement clauses Example o Contract shall constitute the entire agreement between the parties and shall not include any representation, promise or warranty other than those set out within this contract Disagreement in case law as to whether the parol evidence rule: 1. Always applies when a contract in in writing (for example, Hawrish) 2. Only applies when there is something to indicate the written terms represent the complete terms of the contract (ex. Lambert in Gallen) in which the case rules provide a strong but rebuttable presumption Factual matrix rule (Sattva Capital Corp) Has become accepted principal of legal interpretation generally o Contracts o Statues o Patents Used to interpret what the parties intended the words to mean (but without recourse to the subjective evidence of the parties) [Para 60] [para 61] SCC states in Sattva o “... The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing.” Parol evidence rule In hawrish the oral term contradicted some of the main terms of the contract In Gallen the contradiction was between a limitation of liability clause What would you have to do if you have BOTH an applicable limitaion of libaility clause AND a potential contradiction with the more specific terms Summary Parol evidence rule is a rile of evidence o Excludes oral evidence, the purpose of which is inconsistent with or contradicts the written terms of contract (Hawrish v BMO) Poses challenges to proving misrepresentation or warranty (although not insurmountable) Parol evidence may be introduced “only if the two may consistently stand together” (Hawrish) Gallen (BCCA) suggest that parol evidence rule is a strong presumption but is just that, a presumption, which can be rebutted (i.e. It is not absolute) o Strongest when the parol evidence demonstrates an oral term or related collateral ocntract that contradicts the terms of the written contract  o Middling strength where the oral terms subtract from or vary the written terms o Weaker where the oral term simply adds to the written terms Gallen also suggest that the presumptoion is strong when the contract is negotiated between the aprties, as opposed to a standard from contrac created by one party alone Week 3: Classification of Terms and Related Remedies Covered so far The negotiation process and misrepresentations o Statements that do not affect whether a contract was formed but that do suggest that the formation was on an improper basis, such that the contract is voidable (i.e. recission) Enforcing the contract – Once you can prove the formation of a contract (everything covered in the fall) o Determine what are the terms of the contract whether one has been breach o Express written terms o Oral terms – issues with enforcing oral rules when there is a written contract (parol evidence rule) General rule is that the remedy for breach of contract is damage, but cannot always be the case Where we are today Classification of terms determines the rights of the non-breaching party (i.e. the innocent party) on the occurrence of a breach Recall from a previous lecture o The innocent party cannot always walk away from the contract if there has been a breach, and their only recourse will be damages Especially the case when both parties have obligations to one another under the contract Example – Commerical Lease Assume tenant misses rent payment, but landlord has obligations under the lease, such as maintenance obligations for the leased space, provisions of utilities, etc.  If the tenant missed rent, can the landlord simply treat the contract as being done, change the locks OR must the land landlord keep up their end of the bargain and simply claim damages associated with the missed rent payment Breach and classifications of terms How can you tell if a contract term has been breached? o Most simply, a breach is a failure to perform a contractual obligation in the manner stipulated in the contract In some cases, it will be easy to determine that there was a breach Other cases there may be disagreement between the parties as to what the obligations entail and this whether they've been properly performed o Courts will turn to the principle of contract interpretation to determine what was required, and therefore whether the obligation was properly performed Question to look at with classification of term is to ask what rights does the innocent party have after the other party has breach the contract? o Can it stop performing? o Issue only arises where the innocent party still has obligations to perform o Question is how to determine the innocent party must keep performing or not Courts answer this question by classifying the type of breach at issue based on how serious the breach is The common law has developed a classification system to determine and differentiate between the importance of the breaches that may arise form different types of terms Classification of terms terminology Traditional distinction between types of contractual obligation is between conditions and warranties Historic distinction approach was to classify terms as either conditions or warranties and to provide innocent party with choices associated with that classification Condition Warranty  Term was a condition where the result of its A term was a warranty if the result of its breach was to deprive the innocent party of breach wouldn’t deprive the innocent party substantially the whole of what they were of most of what it had bargained for intended to received under a contract If term was classified as a warranty, the If term was classified as a condition, its innocent party had to continue performing breach was considered Repudiatory but could also sue from the losses o Allowed innocent party to chosen stemming from the breach (i.e. damages whether to keep performing and ONLY) affirm the contract or disaffirm the Meaning one contract, stop performing and then o Relevant to determining the sue content of a contract – Verbal statement that is a contract term representations vs warranties despite the existence of a written contract analysis (week 2) Not the same as in regard to oral o A contractual statement, the effect representations which is to promise that the A promise in a contract, the breach of statement is true, and gives rises which will give rise to an event which to liability if it is not true deprives the innocent party fo Meaning two substantially the whole benefit intended o Relevant to the classifications of by contract terms discussion in week three Allows the innocent party to affirm or o A contractual term that is not as disaffirm the contract important because its breach is not going to deprive the innocent party of substantially the whole benefit of the contract Classification of terms – the historical approach Because of the consequence of a breach of a condition imposed a greater loss than with a warranty, the breach was treated as repudiatory thus o The fact of undertaking a breach of this magnitude indicated to the innocent party that the breaching party no longer wanted to be the contract The innocent party could accept the repudiatory breach, and disaffirm OR the innocent party could affirm the contract, keep performing and just sue for damages Contrasting, due to the result of a breach of a warranty did not permit repudiation o The breach was no repudiatory and the innocent had no choice but to keep forming and sue for damages Determining where the breach will deprive of substaintlly the whole benefit of the contract 968703 Ontario Ltd v Vernon (2003), 58 OR (3D) 215 (ONCA) - Factors for determining whether deprived of substantially the whole benefit of the contract First, you have to look at what the innocent party contracted for From there you can determine whether the breach deprived them of most of that (those) benefit(s)  Some factors to consider o The ratio of the party’s obligation not performed to the obligation as a whole o The relationship of the part of the obligation performed to the whole obligation o The likelihood of repetition of the breach o The seriousness of the consequences of breach Consequences of the differnte types of breach Breach of an innominate or true condition is a repudiatory breach o The innocent party can then elect to affirm or disaffirm the contract Affirming – party is stating (either explicitly or through conduct) o “...despite this breach I wish to keep on going with this contract...” ▪ The innocent party must then keep performing but can also sue for the beach while performing Disaffirming – innocent party can choose to explicitly inform the breaching party of their intention to no longer continue the contract o “... because of your repudiatory breach, I no longer wish to be bound by this contract and so I will stop performing” ▪ The innocent party can then stop performing, inform the other party of disaffirmation and sue for breach of contract A contract is only discharged by repudiatory breach where the innocent party elects to acknowledge the repudiatory breach and disaffirm the contract o In other words, it is not the breach but the acknowledgment of the redundance that terminates the contract, its disaffirmation and the disaffirmation must be communicated o If the innocent party does not repudiate the contract (and communicate their decision relatively rapidly after breach), they are considered to have affirmed it and must keep performing Brach of a true or innominate warranty does not permit the innocent party to stop performing o Must continute to perform an only legal recourse is to sue for damages as they continue performing the contract What is the consequence of being wrong about whether the other party’s breach was of a true or innominate condition or warranty? What is the consequence for instance of the owners of HK Fir being wrong about whether the characterers had egaged in a repudiatory breach  o If you think the breach is repudiatory, and disaffirm and stop performing and it turns out that you are wrong, what situation will you now be in? Hypo – commercial lease Tenant is responsible for de-icing the space in front of their own entrance way... tenant fails do to so Landlord comes to you as their lawyer and says – “they breached the lease; this contract is done! I am going to move all of their stuff out to the space, change all the locks and re-rent the space to a new tenant...” Can the landlord do this? What the potential repercussions to the landlord? How would you advise the landlord? Material breaches and explicit contract terms It is quite often the case that parties explicitly set out in their contracts what are, and are not, considered material breaches o Example – like in Wickman, contracts often contain explicitly ‘default’ clauses which set out how breach's of contract are to be dealt with o Will occasionally state that certain types of breach are ‘material’ and allow for immediate termination the contract OR other steps of breaches require the non-breaching party to provide the breaching party an opportunity to remedy o Examples include Shareholder agreements and Commercial Leases Remedies of the party in default Even if a party is the defaulting party, does that always mean that they should have forfeit everything they may have done up to the point of the default? Somewhat like the question of breach of warranty – except on the other side For example – parties' contract for a construction project – for a lump sum payment o The builder completes 80% of the job but then there is a default (i.e. builder goes insolvent) o Should the other party simply be able to walk away, paying nothing? Deposits/down payments o When can the party that chooses to walk away from the contract demand that their payment be returned to them o A deposit generally undersood as a guarantee made to protect the other party against any sort of default o A partial payment – a payment towards the agreed contract price  Substantial performance o “In cases where the work has been completed, albeit with defects, the doctrine of substantial performance will apply, enabling the supplier to enforce the agreement, subject, of court, to the customer’s counterclaim for damages arising form the defence” Quantum meruit o Has origins in equity but is distinct from (although similar) to the equitable doctrine of unjust enrichment o Latin phrase that roughly means ‘to get what one has earned’ o Quantum meruit is a claim to the value of the work completed up to the date of the breach, in the event that the defendant has benefited from the supplier’s work o Law has moved away from the strict idea of creation of a ‘sperate contract’ as discussed in Sumpter ▪ However, the principle re accepting the benefit, as set out in Sumpter remains sound Stevenson v Colonial Homes Ltd [ONCA] Stevenson o “I do not consider that this case can be decided solely upon the fact that the contract was rescinded by the respondent upon the default of the appellant. Whether or not the appellant is entitled to the return of the $1,000, in the view I take of the case, depends upon whether the $1,000 was paid as a deposit or whether it was part payment of the purchase-price.” o “The contract between the appellant and the respondent should be critically examined to see if from it can be drawn the intention of the parties as to whether the $1,000 was to be a deposit or a part payment of purchase-price only.” o “While, as I have said, if the $1,000 were paid as a deposit, it would not be recoverable by the appellant, no authority was quoted nor am I able to find any which hold that the use of the words "down payment" is sufficient to impose on the payment the characteristics of a deposit.” o “I have no difficulty in coming to the conclusion that the $1,000 paid by the appellant on the execution of the contract was a part payment of purchase- price and that, even granting that the rescission of the contract has been brought about by the default of the appellant, the appellant is entitled to the return of his part payment, subject, of course, to the respondent's claim for damages for breach of contract.”  o “Where, as in this case, the contract is in writing and has been made on a printed form, drawn for its own use and supplied by the respondent, there seems to be no room to imply any terms in it which are to give rights to the respondent which are not clearly intelligible to the ordinary laymen to whom the contract will be submitted for signature.” Summary Tradiution common law distinguished between ‘warranties’ and ‘conditions’ with repsect to contract terms o NOTE – warranty is used in dufferent sense her then used in previous elcture (i.e. an oral statement, in addition to a written document, that forms part of the overall conract) o A warranty, if breached, does not permit the non breaching party to repudiate the contract – only demedy is damages o A condition, if breached, permits repudiation of the contract as of the time fo the breach Hong Kong Fir tells us that simply labelling terms as ‘conditions’ or ‘warranties’ does not work in the majority of cases o Does the occurrence of the breaching event deprive the party who has furter obligations still to perform of substantially the whole benefit of that which it was the intention of the parties that it shoud recieve? o If so, and the event occurs from the default of one party, this gives the innocent party the choice to stop performing and repudiate the contract Does the breaching party have an remedies? o Substantial performance – where the work has been completed, except with some defects/shortcomings, agreement is enforceable subject to customer’s ability to counterclaim for the amount of damages o Quantum meruiet – breaching party can claim value of work, in the event that the party has ebenefited from the work cimpleted to date ▪ As we have seen, possession alone does not prove benefit (Sumpter and Fairbacnks) Week 4: Duty of Honest Contractual Performance Theoretical underpinnings of common law of contract 1. Autonomy a. Right for everyone pursue their own best self interest  2. Self interest 3. Bargaining power a. Maybe not equal but not grossly unequal 4. Efficiency Challenges – Balancing out on equal powers, how much of these traditional notions exist today in common world of contracts Performance obligations good faith performance No general duty of good faith in contract negotiations o But in Bhasin v Hrynew, the SCC imposed two good faith related obligations regarding the performance of the contract No duty to negotiate in good faith o Duty is to carry out or perform the contract in good faith 20th century rise of instrumentalist view of the common law  “The judiciary has increasingly endorsed a trend to move away from a rigid insistence on the idea that since people are free to contract as they wish (which has, of course, never been true to more than a limited extent), the contracts they enter into are sacred. There is now more of a recognition of economic and psychological realities of contracting.” - page 4 Challenges 1. Are current contract principles sufficient to meet the changing realties of today's market? a. Do the rules developed in the era of the steamship work in a world dominated by internet tech and e-commerce? b. Maybe it is time to update them to coincide with how business is dealt with today 2. Do theories of contract match the realities of the way in which people contract a. To what extent is the relevancy of the principles that were born in the time of chartering steamships and buying a horse b. What are the privacy interests? - concern in the way people do business today 3. How does the law of contract affect power imbalances between the parties a. Majority of contracts now is a single individual negotiating with a large corporation b. To what extend should contract law respond to present day Challenges to the classical theory of contract law Page 6 – the work of Sunstein and Thaler (nudging) How are people really self-interested o Are Indvidual's rational o Is rationally ‘bounded’ by certain assumptions that we overlook in our idealized model of rational actor behavior Cannot operate in own self-interest unless the whole thing is bounded by good faith obligations Performance obligations Not formation documents o Leave contract kitchen and it is all about the performance There are contractual obligations relating to the performance of the contract, not the formation Bhasin v Hrynew Genral situation where duty of honest contractual performance may arise o Requires cooperating of the parties to achieve the objective of the contract o Exercise of contractual discretion o Contractual power is used to evade a contractual duty General classes of relationships where a duty of honest contractual performance arise o Employment o Insurer dealing with an insured’s claim o Tendering CM Callow Inc Many contracts (like statues) provide for the broad exercise of discretionary powers, but no exercise of power is ever unfettered In contract context, good faith act almost like the imposition of implied terms (but as SCC states, is not an implied term) to the contract, which limit the exercise of discretion Can't lie or mislead to actively subvert the other sides interests Cannot or actively mislead to deliberately undermine their legitimate interests Allowed to be self-interested but need appropriate regard to other side Summary SCC introduced two new legal concepts in Bhasin o General organizing principle of good faith ▪ Not a doctrine and rather a principle that will manifest in legal doctrines o Duty of honest contractual performance