Misrepresentation and Rescission

- AKA “avoidance”
- The setting aside of a K b/c of some defect affecting its formation such as
misrepresentation, duress or undue influence
- Damages  “The restoration of the parties to their pre-contract positions”

- Bars to Rescission
Rescission
o Laches  lapses of time (Leaf)
o Execution/performance of agreement  not categorical (Leaf)
o Affirmation  If, after becoming aware of misrepresentation,
representee affirms K anyways (words or conduct)

- If rescission isn’t available  argue that the statement is a term of the K

Successful misrepresentation = contract is set aside ab initio

- Each party returns to the other the benefits received
- 3rd party’s don’t necessarily need to return the thing
Misrepresentation must:
- (1) Be a statement of present or past fact that is false
o Sales talk (puffery) doesn’t count
o Also different from statements of opinion/belief  expert knowledge
can change opinion into fact (Smith v Land and House)
o Statements of future intentions = not actionable (Wales v Wadham)
Misrepresentations - (2) Be material to the decision to enter
o Likely to influence a reasonable person to make the K; OR,
o The person making the misrep. knows that it is likely to make this
particular person make the contract
o (Redgrave v Hurd)
- (3) Must induce the other party into the K
o Must be established that it acted as an inducement
o P who undertakes his or her own separate investigation = no reliance
on misrepresentation = no inducement
o No obligation for “due diligence” (Redgrave)
Facts:
- Solicitor A wants a partner for practice who will also purchase his home
- Solicitor B decides (eventually) to buy
- B asks for the annual average income generated by the practice
- A says around 3-400 pounds/year  he produces receipts that show income of
200
- B asks about the difference  A points to papers on desk and says they show
Redgrave v Hurd the additional business  B doesn’t look at them
(1881) Eng CA - B buys house and a share in the practice
“The Sale of a Lousy - B says practice is “utterly worthless”  alleges he was induced to enter
Solicitor’s Practice” Analysis / Ratio:
- Damages for misrepresentation need fraud or negligence
- Defence against misrepresentation:
o (1) P had knowledge of the facts contrary to the misrep.; OR
o (2) P showed “clearly by his conduct, that he did not rely” on it.

Conclusion: Solicitor B gets his money back.

 Facts:
- Ps offer to sell a hotel  hotel is leased to a person that they describe as a
“most desirable tenant”
- Ds agree to buy hotel  tenant goes bankrupt  Ds refuse to complete the
Smith v Land and
transaction b/c description of tenant was a misrepresentation
House Property Corp
Analysis / Ratio:
(1884) Eng CA
- “most desirable tenant” doesn’t equal a guarantee  but it does amount to an
“The Most Desirable
assertion that there were no problems in the past (and there were)
Tenant”
- Statement of opinion can act as fact when one party has superior knowledge
and the other party doesn’t
o Superior knowledge can result from expertise, exclusivity, etc.
Conclusion: Take your stupid hotel back.

Representations and Terms

Representation
- “A statement or assertion made by one party to the other, before or at the
time of contract, of some matter or circumstance relating to it”

When you want to find a “representation” a “collateral contract/warranty” (term)

- If there’s a bar to rescission (laches, status quo ante, execution)
- If client wants expectation damages

Representations and Factors to consider:

Collateral - (1) The importance of the truth of the statement
Contracts/Warranties - (2) Whether the party making the statement was in a better position to
ascertain the truth
- (3) Was the representee entitled to reasonably believe that the statement was
warranted (guaranteed)?
- (4) Did the representee make it clear that the matter was crucial?
- (5) Did the representor ask the representee to verify the matter?
- Ultimately  “Evidence of an intention by one or both parties that there
should be contractual liability in respect of the accuracy of the statement”
(Chitty citing Heilbut)
Facts:
- Ds = rubber merchants who had underwritten a large number of shares in
Filisola Company  wanted to sell the shares to the public
- Ps purchased a large number of shares from the Ds having been assured that
Filisola was a “rubber company”
- Statement not made fraudulently
Heilbut, Symons & Co - Rescission barred by execution of main contract
v Buckleton Analysis:
(1913) HL - If the statement that Filisola was a “rubber company” was found to be a mere
“That’s no rubber representation that induced entry into K  too bad, bar to rescission
company!” - If “warranty”  “a contract collateral to the main K to take the shares,
whereby the Ds, in consideration of the Ps entering into a K to take the
shares, promised that the company in Q was a “rubber company”
- A stringent “test” (later loosened slightly):
o “The existence of an animus contrahendi on the part of all the parties
to [the collateral contracts] must be clearly shown”
Conclusion: That’s no rubber company!
 Limitations on Rescissionary Relief

Facts:
- Buyer purchases a painting of Salisbury Cathedral
- Sellers say that it = a painting by Constable
- Receipt = “One original oil painting by Salisbury Cathedral by J. Constable, 85
(pounds)”
- 5 years later Leaf wanted to sell the painting  takes it to Christies  not a
Constable
- Takes it back to original seller  they insist it’s a Constable painting
- Leaf brings a claim in rescission
Analysis:
- Term of contract = painting done by Constable (Denning says “condition”)
o If condition  he could reject any time before he accepted
Leaf v International o If warranty  couldn’t reject, but could claim damages for breach
Galleries - Rule of a Condition (Term)
(1950) KBCA o The buyer holds “the right to reject for breach of condition”, but
“The Fake Constable “once the buyer has accepted, or is deemed to have accepted, the
Painting” goods in performance of the contract, he cannot thereafter reject, but
is relegated to his claim for damages”
o A “buyer is deemed to have accepted the goods … when after a lapse
of a reasonable time, he retains the goods without intimating to the
seller that he has rejected them”
- Rule for Rescission (for Innocent Misrepresentations)
o “Once the buyer has accepted or is deemed to have accepted, the
goods, the claim is barred.”
- 5 years plenty of time
- Concurring Opinion
o Restitutio in integrum is impossible in this case b/c painting is now
devalued
Conclusion: No dice.

Classification of Terms – Warranties and Conditions

“Warranty”
- A term of the contract, the breach of which may give rise to a claim for
damages but not a power to treat the contract as repudiated
o In this sense “warranty” describes the less important terms of a
Warranties contract
And
Conditions “Condition”
- A term that goes to the root of the contract, a breach of which gives rise to the
power to treat the breach as repudiatory and damages. The occurrence of a
condition operates to provide one or both parties with an excuse for non-
performance of its obligations under the contract
Hong Kong Fir Facts:
Shipping Co Ltd v - Hong Kong Fir owns a ship that they charter to Kawasaki for 24 months
Kawasaki Hisen - The charter party contained clauses:
Haisha Ltd o Owner would maintain the vessel in a state of seaworthiness
(1962) QBCA o No hire would be paid for time lost for repairs in excess of 24 hrs
“Charter Vessel o Such periods of time could be added to the length of the charter
Break Down” - Delivered to Kawasaki w/ old machinery and inept & understaffed engine room
 - Needed 5 weeks of repairs  voyage to Osaka  needed another 15 weeks of
repairs
Analysis:
- Condition
o “Every breach of such ... must give rise to an even which will deprive
the party not in default of substantially the whole benefit which it was
intended that he should obtain from the contract”
- Warranty
o “No breach can give rise to an event which will deprive the [innocent]
party ... of substantially the whole benefit”
- Intermediate Terms
o Somewhere in between  look to the effect of the breach  does it
deprive the innocent party “of substantially the whole benefit”?
- The defaulting party can’t just stop performance because they defaulted
- Parties can stipulate the difference in the K  look for words such as
“fundamental”
Conclusion: Appeal dismissed  it’s a warranty, not a condition.
Test for substantial / repudiatory breach:
- (1) The ratio of the party’s obligation not performed to the obligation as a
whole
968703 Ontario Ltd v
- (2) The seriousness of the breach to the innocent party
Vernon
- (3) The likelihood of repetition of the breach
(2000) ONCA
- (4) The seriousness of the consequences of the breach
- (5) The relationship of the party of the obligation performed to the whole
obligation
Facts:
- W enters into K with S that gave them exclusive right to sell S products in UK
- Clause in K stipulating that W “will use its best endeavours to promote” S’s
products
- Same clause stipulates that a named W rep (and named stand-in) must make
weekly visits to the 6 largest UK car manufacturers for duration of K
- Crucial:
o Cl 7(b) = “It shall be a condition of this Agreement that...”
o Cl 11 = K will last 4 years (potentially longer) and what to do in case of
a material breach
- W fails, on a few separate occasions, to make those weekly visits
Wickman Machine
- S repudiates
Tool Sales Ltd v L
Analysis:
Schuler AG
- Did Schuler have right to repudiate? (NO)
(1974) HL
- Must examine the contract as a whole to determine the meaning of
“The Clause of 1000
“conditions”  NOT enough to just call a term a “condition”
Visits”
- If finding a term is a condition, in the technical sense, leads to an
unreasonable result, courts are less likely to regard that as the intention
- If want to make something a condition in the face of absurdity, must be VERY
CLEAR
- Court’s analysis:
o Looks to cl 11  60 days to address a breach, should apply to
everything
o Pretty certain that one of those visits would be missed  no
provisions for death/retirement/illness  so makes sense to go to cl
11
Conclusion: Appeal upheld  finding for Wickham.
 Parties may make some matter that is apparently of very little important essential
Bettini v Gye - If they sufficiently express an intention to make a literal fulfillment of such a
thing a condition precedent, it will be one.

Option to Exercise of the

Type of Term Damages Restitution
Terminate Option
Yes (a) Affirm Yes No
Condition
(b) Disaffirm Yes Yes
Innominate (a) w/ Yes (a) Affirm Yes No
grave
consequences (b)Disaffirm Yes Yes
Innominate (b) No - Yes No
with less grave
consequences
Warranty No - Yes No

Contract Interpretation: General Issues

In the absence of statute  courts have broad powers to imply terms

- Examples of implying obligations of good faith
o Wallace (1997) SCC
 Majority  recognized an obligation, on an employer, of
“good faith and fair dealing in the manner of” dismissal
Implied Terms  Dissent (McLachlin J)  Not obligation, but an implied term
in employment contracts
o Keays v Honda (2008) SCC
 Where an employee can prove that the unfair manner of
dismissal caused mental distress that was in the reasonable
contemplation of the parties  possible award of dmgs
Facts:
- Case was about whether the court could imply a notice period into an
employment contract that failed to provide one (where the employer had to
give reasonable notice before termination)
Analysis:
- Three Bases Upon Which a Term may be Implied
o (1) Terms implied as a matter of custom/usage
 “Must be evidence to support an inference that the parties
Machtinger v HOJ
to the contract would have understood such a custom or
Industries Ltd
usage to be applicable”
(1992)
o (2) Terms implied as a matter of fact
“Reasonable Notice
 These are often implied as necessary to give business efficacy
of Dismissal”
to a contract
 Terms that the parties “would obviously have assumed”
o (3) Terms implied as a matter of law
 These are “legal incidents to a particular class of contract”
 Test is one of necessity  not “necessary” for the very
existence of the K, but for its fair functioning
 Must have regard to both “the inherent nature of a contract
and of the relationship thereby established”
 - Contracts are interpreted as a whole
- Specific terms and exact terms are given greater weight than general language
- Same word use = presumption of same meaning throughout K
- “Factual matrix” is relevant (Sattava)
Canons of
Construction - Construction Contra Proferentum
o If a provision has two reasonable meanings, the court should prefer
the meaning less favorable to the party drafting the contract language
o Unless  parties have equal bargaining power OR the K is otherwise
the product of negotiation rather than imposed by on on the other
Facts:
- Essentially, Creston Corp had to pay Sattva Corp a finder’s fee of $1.5 million in
shares
- The issue was the date at which this was supposed to happen  if it was
earlier the 1.5 mil would buy tons of shares, if later it would buy far fewer.
Analysis:
- Arbitrator found that it was an implied or express term that Creston would
use its best efforts to secure approval for the finder’s fee from the TSXV
o Creston didn’t  they told the TSXV that the finder’s fee was to be
paid in cash, when Sattva had never chosen to do that
o Sattva finds out about that in early June  Creston says then take the
shares, but valued at .70 per share
- “The overriding concern is to determine ‘the intent of the parties and the
scope of their understanding’” when interpreting a contract
o Read the contract as a whole
o Give the words used their “ordinary and grammatical meaning,
consistent with the surrounding circumstances known to the parties
Creston Moly Corp v
at the time of formation”
Sattva Capital Corp
 Surrounding circumstances are important but they “must
(2014) SCC
never be allowed to overwhelm the words”
“Shares Worth
 Surround circumstances include:
Millions (Maybe”
 Objective evidence of background facts at the time
of execution
 Knowledge that was, or reasonably ought to have
been, within the knowledge of both parties at or
before the date of contracting
- Parol Evidence Rule
o “Precludes from 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” (ie  the
subjective intent of the parties)
- Application to this case
o Arbitrator did examine document as a whole 
o Finder’s Fee (Clause 3.1) stated that the fee was to be paid based on
Market Price
o Market Price (defined in the Definitions section) said it should be
“calculated on close of business day before the issuance of the press
release”  aka at 0.15 per share

Standard Form Contracts & Exclusion Clauses: Incorporation

 - A problem with exclusion clauses in standard form contracts:
o No ability to negotiate
o Little ability to read/comprehend entirety of these contracts
o Raises issues of consent  is it informed?

- Advantages of Standardized Contracts:

o Reduces transaction costs
 Nearly infinite number of purchasing/renting/leasing
contracts would make it impossible to create these on a
case-by-case basis
 Saves people money from having to hire a specialist to create
Exclusion Clauses & these K’s
Standard Form  Consistency in these standard contracts =
Contracts courts/judges/lawyers are more familiar
 Creates more certainty for the courts
o Practically impossible for large chains to delegate authority to each
clerk in each store

- Disadvantages of Standardized Contracts

o Unequal bargaining power of parties to these contracts
 This is especially important when it relates to essential and
necessary services
o Almost unintelligible to most people (long and complicated)
o Even if you can read it  NO NEGOTIATION is possible.
Real issues of autonomy and consent  was the consent actually substantive?

Two Doctrines
- Inclusion / Incorporation
o Make this argument  “exclusion clause wasn’t a part of the
contract” (not a term)
Unsigned
- Reasonable notice
Documents
o If a person has no actual knowledge of the exemption clauses, the
person is still bound if there is reasonable notice that the ticket
contained conditions.
o Classic case  Parker (below)
Three options emerge from Parker
- (1) If the person receiving the document did not know that there was writing
or printing on it, he is not bound.
- (2) If he knew that the writing or printing contained or referred to conditions,
he is bound.
Parker v
- (3) If the party tendering the document did what was reasonably sufficient to
Southeastern
give the other party notice of the conditions, and if the other party knew that
Railway
there was writing or printing on the document, but did not know it contained
conditions, then the conditions will become the terms of the contract between
them.
o Looks for something OBJECTIVE, rather than subjective.
 “reasonably sufficient” is an objective standard
Thornton v Shoe Facts:
Lane Parking - T parks his car in a garage (never been before)  has meeting  comes back
- Gets hurt
- A sign that says “All Cars Parked at Owner’s Risk” OUTSIDE  you see it before
 you pay
o [This is important later, as the Court finds that customers should
know of this before paying for the ticket]
- Ticket says “... ticket is issued subject to the conditions of issue as displayed on
the premises”
- Some of these conditions are then on a post in the parkade, and other
contained in the office.
o Part of THESE conditions  D’s not liable for injury to the person
o This is important because you would only know of these AFTER
payment
Analysis:
- A party who wishes to incorporate a term into a contract by giving his
contracting party notice of them must satisfy 3 requirements:
o (1) Notice must have been given at or before the time of contracting
o (2) The terms must have been contained or referred to in a document
that was intended to have contractual effect.
o (3) Reasonable steps must have been taken to bring the terms to the
attention of the other party.
The more onerous the term, the more explicit it must be made to the potential
customer.
- “All I say is that it is so wide and so destructive of rights ... In order to give
sufficient notice, it would need to be printed in red ink with a red hand
pointing to it”
Facts:
- Mc gets his BIL McSporran (MS) to ship a car with MacB
- Ship sinks due to negligent navigation on MB’s employees
- MC & MS have used MB before
- Sometimes MB would have them sign a risk note, other times not
McCutcheon v David - This time the employee forgot
MacBrayne
Analysis:
(1964) HL
- TEST  “If two parties have made a series of similar contracts each containing
“Sunk Car Carrier”
certain conditions, and then they make another without expressly referring to
those conditions it may be that those conditions ought to be implied”
- Here the court rejects this argument because the course of dealing was
actually quite varied  A failure to follow a consistent practice can serve as a
ground for refusing incorporation

Traditional View
- where a party signs a document which he knows affects his legal rights, the
party is bound by the document in the absence of fraud or misrepresentation,
Signed Documents
even though the party may not have read or understood the document
(L’Estrange v F Graucob Ltd)
- AKA “Duty to Read”
Tilden Rent-A-Car Co Facts:
v Clendenning - C rents a car from T (which he had done numerous times prev)
(1978) CA - Paid for additional insurance
“Drunk Rent-A-Car - Didn’t read terms of the K  signed it in front of clerk
Driving” - On the front of the K = customer liable if used/operated/driven in violation of
any of the provisions of the contract
- Two of the provisions (not on front)  no drunk driving
- Accident when drunk (but not super drunk)
Analysis:
 - {Always argue this first} The clause wasn’t incorporated and thus isn’t
enforceable
- {Then begin with the procedural objections  time; where it was; how
readable it was; etc} They didn’t point out/specify the exclusionary clause and
so he assumed he would have had to “so intoxicated as to be incapable of the
proper control of the vehicle”
- Also, the font was small  written in an out-of-the-way place compared with
the general provision that was unmissable.
- It was clear to Tilden that the party didn’t read it  the time spent at the
counter doesn’t allow the consumer the time necessary to read it fully
- {Then argue substance}  Clause is TOO ONEROUS: it captures even those
that have ANY AMOUNT of alcohol, even a single sip.
 Too onerous  important because it’s unusual  so there
isn’t a consensual assumption of this risk  so unsusual that
his notice should have been explicitly connected to this
 So strict that it creates an internal contradiction within the
contract
o He argued that he pled guilty on advice of counsel and that he was
“capable of proper control”
Traditional rule applies UNLESS
- “... the party seeking to enforce the document knew or had reason to know
of the other’s mistake [then] the document should not be enforced”
- Context is important (judge distinguishes it from the formalistic, slower-
moving, commercial practice
- Important that (in addition to the employee seeing C not read it)  “The
clauses relied on in this case ... are inconsistent with the over-all purpose for
which the contract is entered into”
o Onerous clauses need more attn
- The party seeking to rely on “stringent and onerous” provisions must have
“taken reasonable measures to draw such terms to the attention of the other
party”
o “Reasonableness” is connected to how onerous the provision is
Karroll v Silver Star Facts:
Mountain Resorts - P breaks leg in skiing comp at Silver Star
Ltd - P alleges SS’s negligence in failing to ensure people off race track
(1988) - SS denies responsibility
“Ski Competition - P signed a document releasing SS from liability prior to race
Accident” - P argues that “she was given neither adequate notice of its content nor
sufficient opportunity to read and understand it”
Analysis:
Exceptions to the “No Read? Too Bad” rule in L’Estrange
- (1) “Where the document is signed by the plaintiff ‘in circumstances which
made it not her act’”
- (2) Where the agreement “has been induced by fraud or misrepresentation”
- (3) “Where the party seeking to enforce the document knew or had reason to
know of the other’s mistake as to its terms, those terms should not be
enforced” (Tilden)
o “Mistake” as to the understanding/knowledge of the substantive
provisions of the contract
“It is only where the circumstances are such that a reasonable person should have
known that the party signing was not consenting to the terms in question, that such
an obligation [to take reasonable steps to apprise the party signing of onerous terms]
 arises.”
- Factors that are relevant to this:
o (1) The effect of the clause in relation to the nature of the contract
 “If it runs contrary to the party’s normal expectations it is fair
to assume that he does not intend to be bound by the term”
o (2) The length and format of the K
o (3) The time available for reading and understanding

A bunch of facts (past history of being in races, easy to read BOLD clause heading,
clause is a logical part of dangerous activity) suggest that a reasonable person would
have thought P was consenting
o Procedural  easy to read; in bold
o Substantive  provision in line with the purpose
o Expectations  not an unusual requirement; had raced there plenty
of times before
Conclusion: For Silver Star.
Facts:
- About an arbitration clause
- Rogers can make amendments to agreement (so long as it’s posted in one of
the three listed ways  continued use seen as agreement to ammendments
- One amendment = arbitration clause  kills the opportunity for class-actions
Kanitz v Rogers
Analysis:
Cable
- K’s argument = no incorporation  didn’t receive “sufficient notice”
(2002) Ont SCJ
- Court says:
“Online Arbitration
o Lots of notice  3 ways
Clause”
 (1) On website
 (2) Initial K said they could do that (that itself is sufficient)
 (3) Clause is very clear
- Court also says an arbitration clause isn’t as burdensome as an exclusion
clause (lower threshold)

Standard Form Contracts & Clauses Limiting Liability

History
- Karsales  Doctrine of Fundamental Breach (no longer law)
o Seller sells car  when delivered is a total write off
o Seller tries to rely on exclusion clause (basically saying no guarantee
that any sold car would actually work as a car)
Limiting Clauses
o Court says “a breach of which goes to the root of the contract
disentitles the party from relying on the exempting clause”
- Hunter  Canadian case
o SCC agreed to get rid of “fundamental breach” doctrine
o But no clear answer on what replaces it
Tercon Contractors Facts:
Ltd V British - BC sends out a RFEI asking for interested parties in a potential construction
Columbia project
(2010) SCC - BC then decides to go ahead with the project, and asks ONLY THOSE WHO
“RFP Stuff” QUALIFIED through the RFEI process for RFPs
- BC then grants the contract to a company that had not qualified
- Tercon sues because of breach of contract (not fair that someone who didn’t
get past round 1 got chosen) and BC defends itself by pointing to an exclusion
clause
 The Tercon Test
- (1) “Whether as a matter of interpretation the exclusion clause even applies
to the circumstances established in evidence”
- (2) “Whether the exclusion clause was unconscionable at the time the contract
was made, ‘as might arise from situations of unequal bargaining power’”
o (i) Is there “an inequality of bargaining power” existing between the
parties; and,
o (ii) Did the “exculpatory clause constitute an unfair exploitation of the
inequality”?
- (3) “Whether the Court should nevertheless refuse to enforce the valid
exclusion clause because of the existence of an overriding public policy”
Analysis:
Majority
- For the majority, the test is answered in step 1
- Tercon’s claim shouldn’t be barred because the wording of the clause itself
restricts exclusion to claims arising “as a result of participating in [the] RFP” 
they differentiate this wording from claims that may result by “submitting a
Proposal”
- This is a very strict interpretation of the clause
- At the very least, they say, there is ambiguity  point to a rule that says
ambiguity is always decided AGAINST the drafter
Dissent
- (1) Disagrees as to the interpretation of “participating in [the] RFP” 
dissenting Justices find that this should encompass the entire process from
start to finish
- (2) Then looks to “unconscionability” (this is different than the standard test
of unconscionability, which would normally lead to recission of the K  HERE
it just leads to the non-enforcement of the term)
o Asks whether there was inequality of bargaining power at the time
the parties entered into the K
o Dissent says “no way this happened here”  Tercon is a big ass
company, with money for lawyers, with a history that included the
negotiation of contracts such as this, and in fact had experience
directly related to the facts of this case
- (3) Public policy considerations...
o “[P]ublic policy ‘should be invoked only in clear cases, in which the
harm to the public is substantially incontestable”
o Uses an example of Plas-Tex Canada Ltd v Dow Chemical of Canada
 Dow knowingly supplied defective plastic resin, relying on
the exclusion clause to protect them from action
o “Conduct approaching serious criminality or egregious fraud are but
examples of well-accepted and ‘substantially incontestable’
considerations of public policy that may override the countervailing
public policy that favours freedom of contract”
o “Proof [for this part of the test] lies on the party seeking to avoid
enforcement of the clause”

Duress & Undue Influence

Duress - Both duress & undue influence = rescission

- Duress mostly looks at the process of K formation
- Duress to person  threats of violence to person or family (gun to head) 
 contract is found VOID (not voidable) as duress to person vitiated consent
- Developed to duress to goods or property  threats to damage or take
other’s property; extortion payment required to release goods
- Then the beginning of the 80s saw the development of economic duress  a
threat not to fulfill a contractual obligation, so as to compel the victim to pay
or agree to pay something additional to secure performance
o Economic pressure was not enough.
- Famous early articulation of economic duress was in Pao On  “... a coercion
of will so as to vitiate consent ... [I]n a contractural situation commercial
pressure is not enough.”
o Older authorities held contract is void as it vitiated consent
o Modern approach is to find that contract VOIDABLE at the option of
the party who was the object of duress.
Three-part test

- (1) The variation must be extracted as a result of “pressure”

o This can be characterized as a “demand” or “threat”
o Can be “express or implied”
- (2) The exercise of that pressure must have been such that the coerced party
“had no practical alternative but to agree”;
o Practical alternative  if financial remedy is sufficient, then there is a
practical alternative
o no practical alternative when:
 (1) there is a change in the market that effects all other
Greater Fredericton companies (war so no supplies)
Airport Authority Inc  (2) where the party under duress is in other contracts where
v Nav Canada breach of those contracts is severe (financial remedy may be
(2008) NBCA available as an initial alternative, but future repercussions
would not be addressed)
- (3) Did the coerced party nonetheless “consent” to the variation
o (i) Was it supported by consideration?
 Not determinative, but a lack of consideration lends weight
to the idea of duress, while finding consideration lends
weight to the idea of it just being commercial pressure.
o (ii) Was it made “under protest” or “without prejudice”
o (iii) Did the coerced party take “reasonable steps to disaffirm the
promise as soon as practicable”?
- Access to independent legal advice

Defined by Henry J in Brooks v Alker (1975) Ont HC “… as the unconscientious use by

one person of power possessed by him over another in order to induce the other to
enter a contract”
Undue Influence
Two ways to prove
- (1) Show an “actual operating influence on the choice that was made”; or,
- (2) “prove a special relationship between the parties”.
Geffen v Goodman Facts:
Estate - Matriarch of family drafts a will living most of her estate (house) to her
(1991) SCC daughter who suffers from mental illness  also cuts out grandchildren of her
other children
- Everyone agrees that’s no good
 - Things go on, eventually it’s decided that Tzina would put the residence in a
trust for her life, with her brothers as trustees, and that she would retain the
right to dispose of the property by will
- Seems like Tzina not actually sure of what she had done via the trust  tried
to sell the property a couple of times, which was always defeated by the
attorney (?)
- Trust further provided that upon her death, the property would be divided
equally amongst all of Annie’s grandchildren  Tzina dies and leaves the entire
estate solely to her kids.
Analysis:
Two kinds of undue influence:
- Actual undue influence
o Work is to show that you were dominated
o Much more difficult situation
o Rarely brought
- Presumptive undue influence
o Guardian-ward
o Parent-child
o Trustee-beneficiary
o Doctor-patient
o Prospective spouses (undue influence in prenups)
o Solicitor-client

The test
- (1) “Whether the potential for domination inheres in the nature of the
relationship itself”
o Domination = “simply means to exercise a persuasive influence over
him or her”
- (2) Examine “the nature of the transaction”
o For commercial transactions  “the plaintiff should be obliged to
show ... that the contract worked unfairness either in the sense that
he or she was unduly disadvantaged by it or that the defendant was
unduly benefited by it”
o Non-commercial (gifts)  first step is enough
- Once the presumption is raised it is rebuttable (evidentiary burden shifts to
defendant)
o You need to show that there was an exercise of independent will /
decision making.
o Need to show that the gift / transaction was the exercise of
independent will
 Independent legal advice (STRONG evidence that may rebut)
 At the relevant time, there was actually little contact
between the parties
 She was the one who initiated most of the stuff
Wilson J = “in commercial contexts manifest disadvantage must be established”
Reasoning here is that in the situation of gifts, there is always “manifest disadvantage”
 the giver gets nothing in return
Royal Bank of Facts:
Scotland PLC v - Case arose as culmination of 8 separate appeals where wives had charged their
Etridge (No 2) interest in their houses as security for their husband’s indebtedness or the
“Wives as Guarantors indebtedness of their husband’s businesses
for their Husband’s - Later claimed that she had charged under the undue influence of husband
 Analysis:

- Need to show that they are “calling for explanation” (this is a reformulation of
the “manifest disadvantage” (p. 714)  crucially, this remains unsettled so
USE EVERYTHING (raise both “manifest disadvantage” and “calling for
explanation”)
o When the transaction is not readily explicable by the relationship.
o “Proof that the complainant placed trust and confidence in the other
party in relation to the management of the complainant’s financial
affairs, coupled with a transaction which calls for explanation” =
burden on plaintiff
- How to rebut the presumption
o Est. that the P’s act was the exercise of “a free and independent” will
o What about when they get “independent legal advice” (p 714)
 May be a strong factor, but it is neither necessary nor
Shitty Businesses” sufficient to rebut
 Needs to show that there is a “proper understanding” of the
transaction AND that they entered of their own free will
Steps to take:
- (1) Can Guarantor prove elements of undue influence against primary debtor
(spouse)
o Typically, easy  but spouses are not a part of the “automatic” list
- (2) The lender needs to show:
o (i) the guarantee is non-commercial &
o (ii) the guarantee is for primary debtor’s benefit? (It must be shown
that one of the spouses is using the loan for BUSINESS purposes)
- (3) Has lender taken “reasonable steps”
o Making sure that the spouse knows about what they’re doing
o Has the spouse obtained independent legal advice
o A disclosure of all relevant information
o Communicating directly with the guarantor

Unconscionability

Morrison v Coast Facts:

Finance Ltd - Morrison is a 79 y/o woman
(1965) BCCA - She was persuaded by two men to borrow 4200 from Coast Finance on a first
“Old lady duped by mortgage on her home, and then lend the money to them so they could repay
two assholes and a some money and buy two cars
bank” - Lowe was supposed to then pay the monthly repayments of $300 on her
account
- Morrison had no way of making the payments herself, and the house was her
only asset
- She received no independent advice  but she wanted and asked for help
- Two men don’t pay
Analysis:

Elements of unconscionability:
- (1) Proof of inequality in the position of the parties arising out of the
ignorance, need or distress of the weaker
- (2) Proof of substantial unfairness of the bargain obtained by the stronger .
 - Creates a rebuttable presumption
- Need to show “that the bargain was fair, just and reasonable” to rebut
The remedy here is unique:
- Typically, if you rescind the contract  then she doesn’t need to pay
(rescission will generally be the standard)
o If that is all done here (because the 2 aren’t part of the K) then she
doesn’t need to pay, but she would need to pay back all the money
she received from the bank
- Here, the Court rescinds the K without requiring her to pay back the payments
 essentially forcing the bank to go after the other two parties to recover
their losses (sometimes courts get creative)

Facts:
- Sons business sucks
- Father puts his house up as collateral (guarantee? something) so that his son
could have access to money/overdraft/something
- Does it once, to a partial amount (house worth 10K  puts up 5K)  his
solicitor says that’s the max
Lloyds Bank v Bundy
- Bank manager changes  sons business sucks more  needs more money
“A shitty son with a
- Bank manager goes to father’s house, IN FRONT OF HIS WHOLE FAMILY  no
shitty business”
time to think about it or obtain advice from his solicitor
- Puts up the value of his entire house
[A Broader View of
- Sons business collapses  bank tries to foreclose the house
Unconscionability]
Analysis:
Denning’s attempt to broaden/synthesize the law:
- “... there runs a single thread. They rest on inequality of bargaining power. By
virtue of it, the English law gives relief to one who, without independent
advice, enters into a contract upon terms which are very unfair or transfers
property for a consideration which is grossly inadequate...”

Harry v Kreutziger Facts:

(1978) BCCA - Harry is an Indigenous man living in Powell River
“Asshole wants boat - He is partially deaf, with a gr 5 education, and is held to be a “mild,
and won’t take no for inarticulate, retiring person” without much “experience in business matters”
an answer” - He owned a boat (worth little) that had a fishing licence attached to it (worth a
lot)
- K wants to buy it
- Harry, several times, refuses K’s offers
- Eventually K gets Harry to sell the boat for 4500, even though K knew the
boat/licence to be worth $16,000
Analysis:
In looking to the inequality of bargaining power the court looks to:
- Harry’s “education, physical infirmity and economic circumstances”
- PLUS that K “aggressively” pursued the deal despite knowing that the boat was
worth substantially more
- Also, K “guaranteed” that Harry would be able to get another fishing licence
(inducing him to sell)
- K’s arbitrary withholding of the $570 is also illustrative of the relationship of
dominance that K had over Harry
Lambert’s concurring opinion:
- Differentiates based on whether “it is sufficiently divergent from community
 standards of commercial morality that it should be rescinded”

Unconscionable acts or practices

8 (1) An unconscionable act or practice by a supplier may occur before, during or after
the consumer transaction.
(2) In determining whether an act or practice is unconscionable, a court must consider
all of the surrounding circumstances of which the supplier knew or ought to have
known.
(3) Without limiting subsection (2), the circumstances that the court must consider
include the following:
(a) that the supplier subjected the consumer or guarantor to undue pressure to enter
into the consumer transaction;

(b) that the supplier took advantage of the consumer or guarantor's inability or
incapacity to reasonably protect his or her own interest because of the consumer or
guarantor's physical or mental infirmity, ignorance, illiteracy, age or inability to
understand the character, nature or language of the consumer transaction, or any other
matter related to the transaction;
(c) that, at the time the consumer transaction was entered into, the total price grossly
exceeded the total price at which similar subjects of similar consumer transactions were
readily obtainable by similar consumers;
(d) that, at the time the consumer transaction was entered into, there was no
Business Practices reasonable probability of full payment of the total price by the consumer;
and Consumer (e) that the terms or conditions on, or subject to, which the consumer entered into the
Protection Act consumer transaction were so harsh or adverse to the consumer as to be inequitable;
[SBC 2004] (f) a prescribed circumstance.

Remedy for an unconscionable act or practice

10 (1) Subject to subsection (2), if an unconscionable act or practice occurred in
respect of a consumer transaction, that consumer transaction is not binding on the
consumer or guarantor.
(2) If a court determines that an unconscionable act or practice occurred in respect of a
consumer transaction that is a mortgage loan, as defined in section 57 [definitions], the
court may do one or more of the following:
(a) reopen the transaction and take an account between the supplier and the consumer
or guarantor;
(b) despite any statement or settlement of account or any agreement purporting to
close previous dealings and create a new obligation, reopen any account already taken
and relieve the consumer from any obligation to pay the total cost of credit at a rate in
excess of the prevailing prime rate;
(c) order the supplier to repay any excess that has been paid or allowed by the
consumer or guarantor;
(d) set aside all or part of, or alter, any agreement made or security given in respect of
the transaction and, if the supplier has parted with the security, order the supplier, to
indemnify the consumer;
(e) suspend the rights and obligations of the parties to the transaction.

Illegality & Public Policy

Illegality Two forms

- (1) Per se illegality  something is expressly illegal (i.e. the sale of human
tissue)  courts will find the contract void
 o In pari delicto rule  when the parties are in equal guilt  D’s
position is stronger
- (2) Illegality as a form of public policy
o Courts will almost never be willing to stray beyond the list of areas
 Restraints on alienation
 Contracts affecting marriage
 Contracts injurious to good government (sale of public off)
 Contracts injurious to admin of gov’t (sale of judge)
 Contracts involving immorality (sale of sex)
 Contracts to benefit from crime / illegal act
 Contracts in restraint of trade
KRG Insurance Facts:
Brokers (Western) - Shafron sold the shares in his insurance company to KRG, and kept working for
Inc v Shafron them as an employee under a series of contracts
(2009) SCC - Each of these K’s contained a restrictive covenant that stipulated that after
“What does leaving his employment Shafron would “not for a period of three years
‘Metropolitan City of thereafter, directly or indirectly, carry on, be employed in, or be interested in
Vancouver’ even or permit his name to be used in connection with the business of insurance
mean?” brokerage which is carried on within the Metropolitan City of Vancouver”
- Shafron leaves, begins working for another insurance agency in Richmond
- KRG brings an action claiming that Shafron was in breach of this covenant
Analysis:
Restrictive Covenants
- (1) Purchase / sale of business
o More reasonable b/c (1) payment of goodwill, (2) couldn’t sell a
business if the seller was in direct competition after sale
- (2) Employment Contracts
o “Justifies more rigorous scrutiny of RCs in employment Ks”
o Power imbalance b/t parties
There is a presumption that restrictive covenants are prima facie unenforceable
unless they are shown to be reasonable:
- Reasonableness in relation to (1) the interests of the parties and to (2) the
interests of the public
Determining Reasonableness
- Look to:
o (1) Geographic coverage
o (2) Period of time
o (3) Extent of the activity prohibited
- Terms of the RC must be unambiguous
- Onus is on the party seeking to enforce the RC
o How can you demonstrate the reasonableness of an ambiguous term?
Severance
- Applied to remove “illegal features of a contract so as to render the contract in
conformity with the law”
- Two-types:
o (1) “Blue-pencil severance”
 Only possible where “the judge can strike out, by drawing a
line through, the portion of the contract they want to
remove”: Transport SCC 2004
o (2) Notional Severance
 Where the court “reads down” an illegal provision
o Example from Transport  Criminal Code provided a statutory limit to
 rate of interest (60%); K exceeded that rate; clause was read down to
be 60%
 “This legislatively mandated bright line [of 60%] distinguishes
[this case] from those involving provisions, for example, in
restraint of trade, where there is no bright line”
General rule  An RC “in an employment contract found to be ambiguous or
unreasonable in its terms will be void and unenforceable”
General rule #2  “... the doctrine of notional severance does not apply in respect of
restrictive covenants in employment contracts”
Application to this case
- KRG’s principal himself said that the term “means different things to different
people”
- TJ = neither clear nor certain and thus unenforceable
Blue-pencil severance doesn’t apply
- (1) Should be applied “narrowly, and only in particular circumstances”
o Only apply BPS “if the obligation that remains can fairly be said to
be a sensible and reasonable obligation in itself and such that the
parties would have unquestionably agreed to it without varying any
other terms of the contract”: King BCCA 1989
- In this case both KRG’s factum and the BCCA held that that the intended
restricted area be the City of Vancouver “and something more”  BPS would
leave only the City.
o Plus there is no evidence that the parties would have
“unquestionably” agreed to remove the term without varying other
parts of the K.

Conclusion: Appeal allowed, trial judgement restored. (For Shafron)

Frustration

- Another example of an excuse from K’s obligations

- Close to mistake
o Mistake = inaccurate assumptions or lack of knowledge about
past/existing circumstances
- Frustration = “inaccurate assumptions about future circumstances”
- Sometimes hard to tell if a mistake or frustration analysis is appropriate
o Example of cancelled rock concert
 Concert cancelled when municipality discovers (two days
prior to planned show) that there are dangerous
Frustration
architectural flaws with venue
 If about future danger = frustration
 If about pre-existing flaws = mistake
- Frustration is a default rule
o Contracts will sometimes have a force majeure clause  those that
try to encompass many unforeseen future circumstances that would
impact the contract
 It will then come down to a question of interpretation to see
if the force majeure clause governs the situation at hand
Paradine v Jane Facts:
(1647 KB - P leases some land to J
“Traditional - J fails to pay  P sues
Orthodoxy = - J argues that an invasion from enemies of the King forced him off the lands
 - Couldn’t use the lands to raise the money necessary to pay rent
Analysis:
- Basically, K stipulated the rent  J signed it  J’s got to pay
Invasion? Too bad” - J has the potential to benefit from profit, so he should bear the costs of
potential losses
- No provision in the K, so too bad
Conclusion: P wins.

Facts:
- T and C enter into a K  T rents the Surrey Gardens and Music Hall from C for
4 days
- K includes stipulations as to what each of the two parties was supposed to
supply for the concerts
- Music Hall, day before first concert, burns down (no fault of either party)
- No express stipulation in K dealing with this potential eventuality
Analysis:
- General rule (a la Jane)  tough shit, you contract to do something you have
to do it, even if there is an unforeseen accident
- However, this only applies when the contract is “not subject to any condition
Taylor v Caldwell either express or implied”
(1863) QB o Basically, the whole contract was premised on there actually being a
“The shift to music hall to have a concert in, and that therefore that was an implied
‘Impossibility’ and condition in the contract
the Music Hall Fire” - The court looks to “personal contracts” (like if someone enters a contract with
a painter  if the painter dies or is struck blind, that would obviously make the
performance of the K impossible, and would thus “discharge” the other party
from payment”
- “... in all contracts of loan of chattels or bailments if the performance of the
promise ... becomes impossible because it has perished, this impossibility ...
excuses the borrower or bailee from the performance of his promise”
o Only when the “impossibility” does not arise from the fault of the
borrower
o Entitles to rescission
Conclusion: P excused from their obligations.
- Henry rents (for one day) an apartment with a “perfect view for the
coronation” of King Henry
- Henry pays half the money (40 or 50 pounds)  the King gets sick, and
coronation is delayed
- Krell sues after Henry doesn’t pay the rest
Krell v Henry
- Court moves from impossibility into frustration  not “impossible” to rent the
room (room still available)  but the purpose of the contract was frustrated
- Here, the court just kept the parties as is
o Henry already paid 50 pounds  didn’t get that back
o But Krell didn’t get any more either

Lord Radcliffe
- “frustration occurs whenever the law recognizes that without default of
Davis Contractors
either party a contractual obligation has become incapable of being
Ltd v Fareham Urban
performed because the circumstances in which performance is called for
District
would render it a thing radically different from that which was undertaken
by the contract”
 Facts:
- Safeway sells some property  “prime redevelopment opportunity”
- Property zoned a certain way  allows for certain floor space ratios
- KBK enters agreement to purchase  pays $150K as first installment
- Property randomly selected as part of rezoning scheme  drastically reduces
floor space ratio
- KBK wants money back  Safeway says no  Safeway sells to another for 3
mil less than original
KBK No 138
Analysis:
Ventures Ltd v
- Court says (factors considered)
Canada Safeway
o (1) Safeway advertised it as “prime re-development opportunity”
(2000) BCCA
o (2) Clause 1 of the K specified KBK’s intention to develop it for “mixed
“Prime
commercial and/or residential use”
Redevelopment
o (3) Clause 6.2 of the K shows that the purchase price of 8.8 million
Opportunity”
was explicitly connected to the floor space ratio
o (4) None of those clauses allocate the risk to KBK
- Distinguishes from Victoria Wood as there was more than “mere knowledge
of the vendor that land was being bought for development or even for a
particular kind of development” (see above points)
Is there “an intervening event and change of circumstances so fundamental as to be
regarded as striking at the root of the agreement and as entirely beyond what was
contemplated by the parties when they entered into the agreement”

5 (1) In this section, "benefit" means something done in the fulfillment of contractual
obligations, whether or not the person for whose benefit it was done received the
benefit.

(2) Subject to section 6, every party to a contract to which this Act applies is entitled to
restitution from the other party or parties to the contract for benefits created by the
party's performance or part performance of the contract.

Frustrated Contract (3) Every party to a contract to which this Act applies is relieved from fulfilling
Act obligations under the contract that were required to be performed before the
[RSBC 1996] frustration or avoidance but were not performed, except insofar as some other party to
the contract has become entitled to damages for consequential loss as a result of the
failure to fulfill those obligations.

(4) If the circumstances giving rise to the frustration or avoidance cause a total or
partial loss in value of a benefit to a party required to make restitution under
subsection (2), that loss must be apportioned equally between the party required to
make restitution and the party to whom the restitution is required to be made.

Damages

Expectation - “Expectation damages” are designed to put the aggrieved party into the
Damages position that it would have been in if it had received the full performance
promised (and had fully performed its own part of the bargain).
- Expectation damages make the plaintiff whole by paying the amount necessary
to approximate the value of full performance.
The objective is providing the plaintiff with a monetary equivalent of performance.
- Two ways to reach expectation damages
 o (1) Cover  this is the price of an actual replacement purchased as a
result of the breach
o (2) Market price

- Reliance damages are supposed to put the Plaintiff in a “break even” position
 the position they would have been in immediately prior to the breach
- They are backward looking  seek to establish the status quo immediately
prior to the breach
- A secondary form  serve as an alternative to expectation damages
o Most often available in situations when expectation damages (such as
loss of profit) are too speculative
Where a P may want reliance damages instead of expectation
- If the contract was going to be a losing K, or less profitable then thought, a P
may want to claim reliance damages
The Reliance Interest - Typically, reliance damages would not be awarded if they would put the P in a
better position than if the K had been performed
P can get these damages unless the D can prove that the P would have lost money
(losing venture) anyways

The scope on what you can rely on is limited:

- Recovery is always limited only to expenditures that are truly wasted, in the
sense that they would not have incurred those expenses “but for” the contract
- The fact that you can use something later usually precludes capital expenses
- Cannot recover expenses even absent the breach
McRae v Facts:
Commonwealth - After WW 2 tankers were shipwrecked off Papau New Guinea
Disposals Comm - Australian government sets up a system that sells the rights/location to
(1951) Aust HC tankers to speculative salvagers
“The Make Believe - This only guaranteed a tanker  not the shape of the tanker, or it’s
Oil Tanker” salvageability
- The Commission promises a tanker  this leads to the possibility to salvage an
oil tanker  there is no promise of whether it is salvageable, the size of the
tanker, etc.
o Only promise is that a tanker is there
- This is a risk that purchasers knowingly make  they gamble that the
investment on the salvage mission will be paid off by the shape/size of the
tanker
- In this case, not only was there no tanker, there was no reef on which the
made-up tanker was supposed to be breached on
Analysis:
General rule of uncertainty:
- The “mere difficulty in estimating damages [does] not relieve a tribunal from
the responsibility of assessing them as best it could”
General formula for expectation damages in a sale of goods:
- (1) The actual price of an alternative substitute (this is the most accurate way
 less speculation than the below) [Contract price versus Cover
(Alternative)]; or
- (2) The estimated / average cost on the market [Contract price versus Market]
Court says:
- The breach made it certain that you wouldn’t find anything so therefore 
- Burden shifts to the Commission to show that it would have been wasted in
any event (which they cannot show, just as P’s couldn’t prove value)
 “Where expectation damages are uncertain, and the injured party has lost funds in
reliance on the contract, the courts are willing to shift the onus of proof to the
defendant. The plaintiff is able to recover all of the funds it wasted in reliance on the
contract unless the defendant is able to demonstrate that those funds would have been
lost in any even had the plaintiff completed the contract. Where the defendant is able
to demonstrate that the plaintiff would not have recovered those expenses had the
contract been performed, because the contract was an unprofitable one for the
plaintiff, the plaintiff may not claim those expenses”

Once we established the right to reliance:

- Not permitted to recover all out-of-pocket expenses
- Recoverable wasted expenditure (fairly attributable to the project) as opposed
to capital expenditures (more general purchases that could relate just improve
the general capital value)

Facts:
- Sunshine Vacations granted license to operate 7 travel agencies in small Bay
stores in BC
- Reason they signed up for those ^^^ small stores was b/c Bay promised the
licenses to 4 larger Lower Mainland stores  promised they would withhold
the licenses from the travel agencies already operating there
- They didn’t do this  Bay remained in contract with other companies
Analysis:
Sunshine Vacations - Trial Judge awards both loss of capital (generally reliance) and loss of profit
(general expectation damages)
- The Bay Arguments:
o (1) Can’t be compensated for both (this is correct  reliance-based
damages are an alternative to expectation damages)
o (2) Sunshine would have lost money on the deal anyways (court says
too speculative  The Bay didn’t prove it’s case)
- CA  damages for loss of profit = too speculative, so they award loss of capital
(reliance damages)

- Generally, restitution is not a remedy for breach of contract

- P’s are confined to their compensatory damages and are limited to the loss of
the benefit of their bargain
- If the D happens to make a profit by preaching that exceeds the loss suffered
by the P, the law is typically indifferent about it
- This is partly to promote efficient breach
o In Bank of American Canada v Mutual Trust Co  SCC endorsed this
 “Efficient breach should not be discouraged by the courts.
Restitution Damages This lack of disapproval emphasizes that a court will usually
award money damages for breach of contract equal to the
value of the bargain to the plaintiff”
Restitution is typically awarded in cases of a losing contract with a down payment
- If a K was entered into as a part of fraud, misrepresentation, frustration etc 
the remedy is rescission but the Court can order restitution to put the parties
in the ex ante position.
o When you see rescission ALWAYS look for restitution
Restitution focuses on what has been retained by the breaching party
 Typically, expectation damages are the cost of what will actually need to repair the
damage
- But what about when the repairs are going to far exceed the value?
Expectation
No clear rule, but trying to strike a balance between unjust enrichment of P by
Damages and Cost of
overcompensation of P and unjust enrichment of D by overcompensating D
Performance (cost of
- In a partially built contract (10 floor high-rise and 5 floors built), what is it?
completion) Versus
o It will be cost of completion  if you only have half a structure built
Diminished Value
you will always choose to finish it  not like once it’s fully buildt(like
example above) and owner is likely to just pocket the money and
keep the built structure
Facts:
- Groves leases his gravel pit land to Wunder
- Wunder pays $105K, plus promises to leave the property “at a uniform grade,
substantially the same as the grade now existing at the roadway”  he gets
use of Groves gravel-screening plant, and gets to take away excess gravel and
sand
- Wunder deliberately breaches the K  he “removed from the premises only
‘the richest and best of the gravel’ and wholly failed ... ‘to perform and comply
with the terms, conditions, and provisions of said lease with respect to the
condition in which the surface of the demised premises was required to be
left”
- Cost of making the land a uniform grade = $60K
- Market value, of levelled ground land = $12K
- Actual value of land, as is (due to Depression) = $0
- Trial judge awards $12K plus interest, as that is what the value of the land
Groves v John would have been
Wunder Co Analysis (Majority):
(1939) Minn CA Courts reasons  three factors to go through
“Wilful Breach and - (1) Breach being willful  taking advantage of something that wasn’t yours in
Grading the Gravel the contract
Pit” - (2) General principle of awarding cost of performance in contracts of partial (or
non) construction  P may choose to improve property even if its not cost
effective (questions of allocation of risk within the contract and the structure
of the transaction)
- (3) Issue with economic waste  applies only in cases where it would involve
the destruction of the entire structure [not really a great distinction]  desired
performance would require any physical waste
Conclude  D’s are liable to P “for the reasonable cost of doing what” they had
promised to do.
Analysis (Dissent):
- No sign in this case “that this property was unique, specially desirable for a
particular or personal use, or of special value as to location or future use”
o Because it’s just normal property  goal of levelling it was to make is
ready for sale as normal property  therefore damages should only
be awarded for that amount

Chaplin v Hicks Facts:

(1911) KB CA - Manager (H) seeking actresses places competition in newspaper
“Loss of a Chance (at - Eventually whittled down to 50  of which he would choose final 12 to hire
being an Actress)” - C was one of 50  missed the letter asking her to show  sued
Analysis:
Court rules:
 - Can still calculate and award damages:
- Based on a 1-in-4 chance  she lost something to which monetary value
could be attached
- No market for opportunity  precision was not essential  all the jury had to
do was the best it could based on the available evidence
- [Distinguished from McRae  here there was a 25% chance, but there was
absolutely no way to show a 25% chance of success in McRae  even if there
was a 25% chance established in McRae that would still allow the D’s to
establish that there was a 75% chance of a losing venture  here there was no
“losing” side.]  chance needs to be “real and substantial”

Damages for Lost Chances

“[A] plaintiff can recover damages for a lost chance if four criteria are met.
- First, the plaintiff must establish on the balance of probabilities that but for
the defendant’s wrongful conduct, the plaintiff had a chance to obtain a
benefit or avoid a loss.
- Second, the plaintiff must show that the chance lost was sufficiently real and
Folland v Reardon significant to rise above mere speculation.
(2005) CA - Third, the plaintiff must demonstrate that the outcome, that is, whether the
plaintiff would have avoided the loss or made the gain depended on someone
or something other than the plaintiff himself or herself.
- Fourth, the plaintiff must show that the lost chance had some practical
value.”

Limitations on Expectation Damages: Remoteness (Foreseeability)

Hadley v Baxendale Facts:

(1854) - Ps = millers
“The Broken Crank - Their mill was stopped when the crank shaft broke
Shaft” - They needed to send the shaft to the engineers so that they could use it as a
pattern for the new one
- Ps hired D’s (carriers)
- P’s servant told the D’s clerk that the mill was stopped and the shaft needed to
be sent immediately (this is just one version of contested facts  one other,
had the clerk also relating the dire repercussions of not having the shaft)
- The clerk said if it was delivered by noon, it would be delivered to the
engineers by the following day
- P’s did so  but “by some neglect” the delivery of the crank shaft was delayed
 and therefore the working of the mill was also delayed
- P’s seek to recover the profits that they would otherwise have received if the
delivery of the crank shaft had occurred at the “normal” pace
Analysis:
- They suffered and are seeking “consequential” damages via the loss of profits
o This could be contrasted against the immediate damages  incurred,
say, by having to rent a replacement crankshaft
- Rule:
o Damages awarded as a result of breach of contract should be
 (1) Those “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” OR
 (2) “Such as may reasonably be supposed to have been in
 the contemplation of both parties at the time they made
they contract”
- If “special circumstances”  (ie mill is shut down w/o the shaft; or something
like the expectation of exceptional profits):
o Need to communicate by the P’s to the D’s
o If no communication the damages must equal “the amount of injury
which would arise generally”
- Look to the terms of the contract to determine which kind of damages are
available
- The Court says that there were two ways to recover the two kinds of damage:
o (1) the reasonable belief here (re: the first kind of “arising natural”)
would be that mills would have a substitute.
o (2) Clearly communicate the “special circumstances” that would give
knowledge to the breaching party the heightened risk of loss
[What needs to be foreseeable is the potential for loss, not the potential for breach.]
Conclusion: New trial ordered with new rule in mind (mill is probably screwed).
Facts:
- P’s wanted to expand their laundry business so they purchased a large boiler
owned by the Ds
- The D’s knew that the P’s were launderers and dyers, and that they required
the boiler for business use
- Ps agreed to take delivery on 5th of June, but the boiler was damaged during
dismantlement, and D’s delayed delivery until 8th of November
- Ps sued for the loss of expected business that would have occurred between
Victoria Laundry
the 5th of June and the 8th of November
(Windsor) Ltd v
Analysis:
Newman Indust Ltd
- Reasonable foreseeability test rests on the knowledge possessed by the
(1949) KB CA
parties at the time of contracting and is either one of two kinds:
“Launderers lose
o (1) In losses that “arise naturally...” knowledge of these losses is
regular business and
special contract” imputed to the breaching party as a reasonable person, even if she
does not actually know it: and
o (2) Exceptional losses (in contemplation of both parties). The injured
party must prove that the breaching party’s actual knowledge of the
special circumstances aggravating the injured party’s loss.
- When determining whether a particular loss is reasonably foreseeable, it may
be relevant to take into the particular knowledge/expertise of the defendant
Conclusion: Partial award (damages for lost regular business, not for the “special”
contract potential)

Intangible Injuries - Sometimes the type of harm is intangible

- Traditionally, these type of intangible harms (non-economic harms) were non-
recoverable
- Things have changed Jarvis v Swans Tours
o English solicitor promised an ideal vacation
o Everything falls apart  vacation sucks  none of the promises come
true
o Court says: “It was sufficient, if a major or important object of the
contract is to give pleasure, relaxation or peace of mind”
o If the purpose of the contract is to provide something mental  then
it may be recoverable
- Fiddler v Sun Life Insurance (SCC) p. 862
o Non-economic harm just follows the same rules as Hadley v
 Baxendale

Limitations on Expectancy Damages: Mitigation

- Mitigation is essentially about incentivizing the party claiming damages to go

find an alternative
- Commonly known as a “duty to mitigate”  but there is NO ACTUAL DUTY
- The injured party cannot recover damages for any part of her loss that she
could have avoided without undue risk, burden, or humiliation
- No compensation will be awarded for loss which arises as a result of a failure
by the aggrieved party to mitigate
- The burden of establishing that the injured party has failed to take
reasonable steps to mitigate the loss falls upon the breaching party
- If you had an opportunity to obtain a cover (an alternative), and you didn’t,
then the consequential damages won’t be covered
- The P cannot recover losses that could be reasonably avoided.
Mitigation o What is reasonable is a question of fact and the onus is upon the
defendant to demonstrate that the P could reasonably have avoided
a loss or was unreasonable in her conduct
o In assessing reasonableness, the context is important
 In a commercial context Ps must do what an ordinary
business person would do in the circumstances  they must
take actions that are consistent with their usual practices
 However, the P is not obliged to make extraordinary efforts,
to take serious business risks or gambles, or risk its
reputation or business relationships to reduce a loss
o A plaintiff may also recover additional costs reasonably incurred in
taking steps to mitigate a loss  these costs are recoverable even if
the attempt to mitigate is fruitless (so long as it was reasonable)
Asamera Oil Corp v Facts:
Sea Oil & General - Baud had lent 125K shares to Brook (president of Asamera) w/ agreement to
Corp return the shares in 1960
(1979) SCC - Brook had sold the shares in 1958 (but had other shares in the company)
“Lent Shares Should - In 1960 there was an injunction not to sell them
have been Returned” - The reason why the breach was in 1960 was because that was when they had
agreed to pay them back (he wasn’t found to have breached the agreement in
1958 when he sold the shares because, theoretically, he could have bought
them back)
- In 1960 shares worth = $0.29
- In mid-1967 value = $4.30
- At end-1967 value = $7.25
- 1969 = $46.50
- 1971 = $22
- Baud brought first action in 1960  held to be too early
- Next few years Brook urges Baud not to bring an action
- In 1966 he brings another action
Analysis:
- Why is it fair to ask Baud to mitigate the damages by purchasing stocks (a very
speculative “thing”)?
o It was their company  and so they have a kind of inside knowledge
of what the share prices will do in the future  not as speculative as
someone without that knowledge
 o Fine that it’s a bit of a gamble, as long as that gamble is made in good
faith, because if it’s a losing gamble you will be compensated for the
difference
- What about the fact that Baud was asked to mitigate his damages by buying
his alternative shares from Brooks  who was the breaching party
o It’s really a contextual question about how unconscionable the
breach was  how did it impact the injured party’s trust in the
breaching party?
o Part of the answer here was the time given to Baud  Court found
that he wasn’t required to purchase the stocks back immediately in
1960 (or even in the few years after) because of this
- “The creation of an ‘asset’ on a breach of contract cannot be an invariable
prerequisite to the operation of the principle that a party injured in by a
breach of contract must respond in mitigation”
Court holds
- Baud did have a duty to mitigate the damages  but a very generous time was
given to him in order to find alternative shares  taken into account Brooks
urging him not to take action in the years after 1960
- Ought to have bought shares while the price was still reasonably low  should
have mitigated in a reasonable time [THIS IS THE RULE]  6 years was a
reasonable time given
o In 1960s he thought he had an injunction
o Brooks asked him not to pursue an action
o Reasonable to wait, for attempts to mitigate, until there is an
unequivocal repudiation/breach

- Liquidated damages typically not that complicated: need to see the

breach and how to estimate the cost of the breach
Liquidated Damages
- Basically need to differentiate between “genuine pre-estimates” or
clauses that are put in in order to force performance
Super Save Disposal Facts:
Ltd v Blazin Auto Ltd - SSD has K w/ BA and another company to provide waste disposal services
(2011) BCSC - Part of their K’s contain a liquidated damages clause, where upon breach BA
agreed to pay, either:
o (1) sum of Customer’s monthly billing for most recent nine months, or
if none, the billing projected by Contractor (SS) for the first month, in
each case multiplied by nine; or,
o (2) the sum of amounts due to Contractor for the balance of the term
remaining on the agreement
- Clause also stipulated that it was a liquidated damages clause and not a
penalty
- BA and other customer don’t appear at court
Analysis:
- Enforceability depends “on whether it is a genuine pre-estimate of the
expected loss that a party will sustain in the event of a breach of contract or
a penalty clause so oppressive or unreasonable that equitable intervention is
justified”
o To be decided upon the terms of the contract and “inherent
circumstances”
o The parties’ characterization of the clause is not conclusive
o Factors to consider
 Relationship between the parties
  Equality of sophistication / bargaining power
 Type of contract (ie: signage contracts for custom-made signs
versus waste-disposal bin which can be reused)
 Length of contract
 Length of term remaining on the contract
 Whether breach occurred during a renewal period
 Any notice provided for re: termination
o The onus of proving that it is an unenforceable penalty lies on the D
- To Intervene or Not?
o “Judicial interference ... will be justified if enforcement ... results in
payment of a sum which is extravagant and unconscionable in
comparison with the greatest loss that could conceivably be proved”
o “... more likely to be enforced where the claim approximates the
amount to which the claimant would otherwise have been entitled”
- If it is an unenforceable penalty  claimant must prove damages regularly
and D can argue mitigation

Equitable Remedies

Sale of Goods (most things in this category are not unique)

- Need to prove something is rare, unique and not typically available in the
market, so you can get specific performance.
o (There is a slight change in the willingness of courts to award specific
performance in sale or services if it is an ongoing contract between
the parties. May be more of a willingness to award specific
performance.) This is a relatively newer development.

Next category is sale of shares (if shares are public, typically specific performance will
not be granted)
Specific Performance
- However, if they are privately traded, specific performance of the purchase
agreement is more likely to be specifically enforced because such shares are
hard to evaluate and substitute shares are not available from another source.
 
Next category is sale of land: Land traditionally has been considered unique: there is no
other thing the same. Each parcel of land has its own characteristics.
- Moving from a presumption that every land is unique to otherwise it is unique
that P can demonstrate there is no equivalent available

Personal services and those that require constant supervision will not be enforced.
John E Dodge Facts:
Holdings Ltd v - Magna sends letter to Dodge on March 6, 2000  some potential issues with
805062 Ontario Ltd the transaction (Dodge has agreed to purchase a lot of land)
(2003) ONCA o In this letter M points to other comparable properties, so that Dodge
can mitigate any losses by M’s potential breach of the agreement
- On April 28th M sends another letter, saying they’re going to try to do some
things
- On May 11th M sends final letter saying, nope, they are now for sure breaking
the agreement
- Dodge sues for specific performance (sell them the land)
Analysis:
- Specific performance will only be granted “if the plaintiff can demonstrate
that the subject property is unique in the sense that ‘its substitute would not
 be readily available’”
o It has a “quality that cannot be readily duplicated elsewhere. This
quality should relate to the proposed use of the property and be a
quality that makes it particularly suitable for the purpose for which it
was intended”
o Here = superior access, visibility, traffic patterns and locations
 Also better zoning designation (allowing for potential dining
hall  good thing for a hotel)
 Closer to Wonderland and other attractions (was a hotel)
- The time when a “determination is to be made as to whether a property is
unique is the date when an actionable act takes place and the wronged party
must decide whether to keep the agreement alive by seeking specific
performance or accept the breach and sue for damages”
o Here this was super important  the anticipatory repudiation only
occurred by the final May letter, after the comparable property had
been sold
- Before a P can rely on a claim for specific performance to insulate himself from
the loss of property, some fair, real and substantial justification for his claim
to performance must be found. Need to have a fair, real and substantial claim
for specific performance if not going to mitigate.

- An order of the court forbidding the D from doing something or requiring the D
to do a particular act
o Former = prohibitory injunction
o Latter = mandatory injunction
Injunctions - Types
o (1) Interim injunction  short period  to enable parties to prepare
for more thorough hearing  only successful where P can
demonstrate the existence of an emergency
o (2) Interlocutory Injunction 
Warner Bros Facts:
Pictures Inc v Nelson - Nelson (Bette Davis) is in a contract with Warner Bros
(1937) KB - Each term of the K = 52 weeks, w/ option for Warner Bros to renew (w/
increase in salary for Nelson)
- Clauses stipulating that Nelson would work for Warner Bros exclusively, and
refrain from working for any other company in the same capacities as she was
contracted for with Warner Bros
- Another clause = if Nelson breaks the K, Warner Bros can extend the term of
the K for the amount of time she broke it
- Nelson breaks the K  works for somebody else
- Warner Bros sues for a negative injunction (to stop her from working)
Analysis:
- “Courts will not enforce a positive covenant of personal service”
o “The mere fact that a covenant which the Court would not enforce, if
expressed in positive form, is expressed in negative instead, will not
induce the Court to enforce it”
- “The Court will attend to the substance and not to the form of the covenant”
- “Nor will the Court ... grant an injunction in the case of such a contract to
enforce negative covenants if the effect of so doing would be to drive the
defendant either to starvation or to specific performance of the positive
covenant”
- This is not a “restraint on trade” (ie stopping her from working altogether) 
 the injunction only covers her “services for or in any motion picture or stage
production”  this is the correct balance b/t protecting the P’s interests and
D’s
o No “evidence was adduced to show that, if enjoined from doing the
specified acts otherwise than for the plaintiffs, she will not be able to
employ herself both usefully and remuneratively in other spheres”

Good Faith in Performance & Justice Cromwell’s Lecture

- In the context of Bhasin what do you do? How do you give an effective remedy
for a failure to perform a contract in good faith?
Remedies - In the case of somebody lying  you need to try and figure out where the P
would have been had the lying not occurred.
In many cases, it will be very difficult to prove loss that directly resulted from the lie
Factos
- Bhasin was an enrollment director for Can-Am Financial Corp, starting in 1989
- Relationship “soured” in 1999, Can-Am did not renew the dealership
agreement with Bhasin
- Can-Am sold education savings plans through enrollment directors such as
Bhasin
- Bhasin was good at his job  got lots of awards
- In 1998 new agreement between Bhasin and Can-Am  not a franchise, but
some features similar to franchise agreements
o Bhasin could only sell Can-Am investment products
o Bhasin owed them a fiduciary duty
Bhasin v Hrynew o Bhasin could not sell/transfer/merge his operation without Can-Ams
(2014) SCC consent, which could not be withheld unreasonably
o Term of the K was for 3 years
 Termination on short notice allowed for misconduct/cause
 Clase 3.3 = K would automatically renew at the end of the
3-year term unless one of the parties gave six months
written notice
- Hrynew = another enrollment director, a competitor of Bhasin with
“considerable animosity between them”
- Hrynew pressures Can-Am not to renew Bhasin’s agreement (Hrynew had the
largest agency in Alberta) and they gave into that pressure
- Can-Am “repeatedly misled” Bhasin
Analysis:
The “Organizing Principle of Good Faith”
- “[P]arties generally must perform their contractual duties honestly and
reasonably and not capriciously or arbitrarily”
- Don’t seek to undermine the other party’s interests in bad faith

“The particular applications of the broad principle for particular cases are determined
by resorting to the body of doctrine that has developed which gives effect to aspects
of that principle in particular types of situations and relationships”

Duty of Honest Performance

“Requires the parties to be honest with each other in relation to the performance of
their contractual obligations”