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Contracts Outline Part I

Chapter One Remedies
Background The most common remedy is damages (other remedies include specific performance.) Promise present assertion of future intentions. Contract collection of promises. Contracts are entered into because they are viewed as beneficial to both parties. Exchanges are a part of contracts. Most of our law of contracts developed in English common law (Court of Kings Bench) also, the Courts of Equity (chancery). Litigants could choose between the remedy of damages in the common law courts, or more extraordinary remedies (like injunction or specific performance) from the court of equity. The two courts were joined in the late 1700s.

I. The Compensation Principle (Sally Wertheim rule)

The damages awarded should put the in the same position had the contract been performed. The compensation principle is more than restoration. It seeks to protect the expectation interest. s Damages are awarded on the basis of to what extent the would be better off had the contract been performed. This is not restoration to pre-contract conditions. Peevyhouse v. Garland Coal & Mining Co. (1963) (Okla. S.C.) - Suit for damages, ($25 000) breach of contract. : clause of the lease included a promise to do restorative work at the end of the lease. Cost of work was $29,000. HELD: the point of the contract was economic benefit and the value of the land would not have been added to significantly if the work was done. stated they would not do the work if they got the award, so to award would be economic waste, and unjust enrichment. In the absence of a stated structure and purpose of the contract, the courts will impose their own. No attention was paid to the amenities interest of the Followed the compensation principle, not the negotiation process and . nature of breach, like minority. Maybe if the asked for specific performance or stated the money would be used for that, like in had Radford v. De Froberville [1977], they might have gotten it. (both sides can use the Sally Wertheim rule, its not as clear as it might appear) Ruxley Electronics & Construction Ltd. v. Forsyth, [1996] (House of Lords) : builder suing for cost of building, countersues because pool is 9 shallower than contracted for. Forsyth had sued, was awarded 2500 pounds, on appeal by builder, got 21,560 pounds. Amenities value vs. market value. The H of L ask about the nature of the agreement, applying a test of reasonable subjectivity (conclude that reasonable person would not rebuild the pool). They conclude that damages are compensatory not punitive and restore the trial award of 2500 as a loss of

a pleasurable amenity. Give consideration to s loss of enjoyment, and weigh it against the doctrine of economic waste. Consumer surplus. Victory Motors v. Bayda, [1973] (Sask. D.C.) refused to take delivery of a car he ordered, sold it to another customer, and now seeks loss of commission on one sale. Applied general rule that measure of damages is the estimated loss directly and naturally arising in the ordinary course of events from the buyers breach of contract (Sale of Goods Act, 50(2)) rather than current marketprice at the time of breach. English cases cited: Charter v. Sullivan where there was a shortage of cars, fixed price so no real loss of profit since lots of customers. W.L. Thompson Ltd. v. R. Robinson (Gunmakers) Ltd. supply exceeded demand, so profit limited only by the number of customers. Decision: damages = profit loss. Damages = $360.78 (price of car cost) profit on sale of trade in. Fuller and Purdue article. The Reliance Interest in Contract Damages 3 main interests in contracts: Restitution interest prevention of unjust enrichment. The in reliance on the promise of the has conferred some value on the . Return of that value is restitution. Reliance interest on reliance of the s promise, the has changed their position. The may not get the benefit, but the suffers a loss because of the breach. Ex. Hiring a land surveyor on a sale of land contract. Expectation interest give the value of the s performance. Objective is to put the plaintiff the in as good a position as he would have had if the performed. Compensation for future anticipated gain. Restitution and reliance are corrective justice while expectation deals with distributive justice. Why protect expectation interest? - it is just court enforcement of a code of conduct the parties have created themselves. - Economic or institutional duty. - Future expectation may have a present value. (Credit economy) - Justice theory. We should have rules that compensate ppl for lost promises. - Business arrangements are worthy of protection. The courts will first protect restitution and reliance, then expectancy. Usually relate expectancy to market values (amenities, enjoyment, aesthetics) Also called consumer surplus. Posner article. Sometimes breach is involuntary (cost of performance is not reasonable) or voluntary because performance is not efficient (which is the same as involuntary from an economic standpoint). Parties can choose between performance of contracts or compensating for damages (Holmes dictum on the duty to keep a contract) Liquidated damages can contract in the payment for breach. Relational values.

Remedies should not promote economic waste, they should only deter inefficient breach. [However, this approach seems to promote breach of contract in some cases where it would be economically more beneficial to just compensate the ] The amount of compensation should be limited. Doctrine of Remoteness of damages damages awarded for losses suffered that are not too remote.

II. When Do We Stop An Award Of Damages? Remoteness

Hadley v. Baxendale (1854) (Court of Exchequer) Common carrier case. Issue: REMOTENESS Loss of profits from failure to deliver on time. (Expectation interest) : : Broken shaft, employee of takes it to s for delivery to be used as an example for new shaft, there was a delay despite words that it was urgent and a deadline given. RULE (about the determination of damages): Naturally occurring damages that are fair and reasonable according to the usual course of things. (Objective criteria) Such as may be reasonably supposed to be in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. (Subjective) If special circumstances were NOT communicated or known, then use the first rule above, but if they were known or communicated, then the second rule applies. Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd., [1949] (Kings Bench C.A) Sale of goods case. : Because of the s breach of contract in severely delaying the delivery of the boiler, not lost only normal profits, but several very lucrative dying contracts. The forseeability threshold is lower than probable, it is a serious possibility or on the cards. OVERRULED by Heron II. It was held that was responsible for normal loss of profits, but not with regard to the lucrative contracts because the special circumstances of them were not communicated. (This still HOLDS) Koufos v. Czarnikow Ltd. (The Heron II), [1969] (House of Lords) : ship chartered to carry sugar deviated and was 9 days late in delivering. This caused the sugar to be sold at much lower price because by then the market price had fallen. Held: the court awarded damages for the loss due to the fall in market price as it was not too remote to be recoverable as damages. (Application of the 2 nd rule in Hadley). The knowledge of fluctuating market prices and the importance of the date of sale was imputed on the . It was foreseeable as likely to occur in a large multitude of cases. NOT lowering of the threshold as in Victoria Laundry.

III. Some Problems in Awarding Damages

Anglia Television Ltd. v. Reed, [1972] (H of L Lord Denning) Damages sought for expenses incurred both before and after the contracted was made. Profit loss : hard to determine, so lost expenditure instead. Denning ruled there is an election. : made arrangements for the filming of the play (hired director, stage manager, etc) and expended some money, THEN they found to play lead. When found he could not fulfill his contractual obligations because of a double booking they sued for $$ expended because project had to be abandoned. Held: at the time entered into the contract, he must have known about all the expenditures, (2 nd rule in Hadley: knowledge was imputed to him) and so is liable for damages. (2750) Bowlay Logging Ltd. v. Domtar Ltd., [1978] (B.C.S.C) : failed to provide trucks as promised and stopped logging. Completion of the contract would have resulted in a loss to the (about $125,000). HELD: had onus to show that full performance of contract would have resulted in losses exceeding the claimed expenditures, (unjust enrichment) which they did, so no order for damages can be made. Only nominal costs can be ordered, which were here. (exception to Anglia Television.) The law of contracts does not compensate bad bargaining. Horne v. Midland Railway Co. (1873) (Exchequer chamber) Common carrier case. breach since failed to deliver shoes on time. Sues for difference in price on resale of shoes. : : had been given notice of the delivery deadline, but they were a day late, and shoes were refused by the buyer. had to sell the shoes a price considerably less than what buyer was going to pay. HELD: did not know about the lucrative nature of contract, as a common carrier they provide service for a relatively low price. entitled to loss of profits, but not extraordinary loss of profits since did not have knowledge of the exceptional nature of the shoe contract. Unless they are given notice, and a chance to refuse to accept liability, no more than nominal damages can be awarded. No ability to refuse the shipment, there is a public policy issue re: common carriers. Cornwall Gravel Co. Ltd. v. Purolator Courier Ltd. (1978) (Ontario Reports) failure to deliver before the deadline and the contract was lost. : : Not a common carrier, but a private carrier. The tender was to be delivered by a certain time, which it wasnt. even said they would drive it down to TO if couldnt be delivered by noon. lost a $70,000 contract due to the failure to deliver on time. knew the document was a tender and driver promised timely delivery. HELD: was ordered to pay $70,000. Knowledge of employee is knowledge of employer. special circumstances were communicated, so was held to have known the damages which would reasonably flow from a breach of contract.

Canlin v. Thiokol Fibres Canada Ltd. (1983). (On. C.A.) Sales of goods case. : said the material was of a particular quality and it was far below that. marketed the covers as that quality and lost business due to the poor quality covers and replacement. claims loss of profits and loss of future profits. says the loss of future profits not a foreseeable consequence of breach of warrantee. Court held that contemplate foresee and that it is unreasonable that could not or did not foresee the consequences of breach. Assessment of future profits not too remote because commercial contracts are made with an eye to future profits. The test is one of reasonable foreseeability or contemplation (Hadley v. Baxendale). i. Special circumstances including lost enjoyment and similar claims Traditionally, the courts have been reluctant to compensate for non-pecuniary interests in breach of contract cases. The reason is because they are not interests in the minds of contract makers (Posner). However, in special circumstances enjoyment may certainly be a factor in damages, as well as mental distress. Jarvis v. Swans Tours Ltd., [1973] (C.A., Denning) booked a Swiss ski holiday with . s brochure promised many special features, most of which were not as advertised. Because these features were missing or misrepresented, felt his holiday was ruined. Only got 2 weeks vacation a year. Issue: Can recover damages for loss of enjoyment? HELD: Because the contract was one for a holiday, enjoyment is naturally the subject matter, so in cases such as these, the courts can award damages for loss of enjoyment. The award should be an estimate that represents the lost enjoyment and entertainment. Weinberg v. Connors (1994) (Ont. Gen. Div) loved kittens and ran an adoption agency for cats. Had a contract to ensure cats were well taken care of. breached the contract by failing to notify about cats wellbeing. Damages sought for emotional upset. HELD: By an application of the rule in Hadley v. Baxendale, damages will be awarded where the loss suffered is reasonably foreseeable. This applies to even non-material injury. The emotional upset was foreseeable given the contract and comments relating to the cats adoption. Damages s awarded for her travel expenses, phone bills and $1000. ii. Employment Contracts Employers can dismiss for cause. If not for cause, then can give reasonable notice or a severence package in lieu of reasonable notice. If the severence is less than reasonable notice, then an employee may bring an action for damages. Some employees have also sought mental anguish damages, which is a common action in torts, but not contracts. 3 factors in awarding compensation (pecuniary damages): 1. length of service 2. age of employee

3. his/her position with the employer (status) Our courts started awarding modest non-pecuniary damages in the 1980s in employment law. Vorvis v. Insurance Corporation of British Columbia, [1989] (S.C.C) dismissed by . Initially they said with cause, but the trial judge found there was no cause. only received one month of severance pay for 8 years of service. History of problems with one supervisor who was unnecessarily harsh in dismissing the . sought damages and aggravated for mental distress. These are unique and separate from punitive damages. They are designed to compensate for loss and suffering. HELD: aggravated damages will be awarded where the breach/actions are also alternatively actionable. They are compensatory. (i.e. in torts or under EA). That is not present here. Punitive damages are non-compensatory, and are available where the dismissal behaviour is harsh and malicious conduct. This is usually missing from business arrangements because they are purely economic. Damages given for only lost wages, no aggravated, no punitive. Wilson J. in dissent says that the aggravated damages flow naturally from the dismissal, so given, but no punitive. Wallace v. United Grain Growers (1997) lured from his secure job, promising job security, but they dismissed him after 14 years. suing for wrongful dismissal as well as mental anguish and distress. He was 59, couldnt get another job. The courts used the independently actionable test from Vorvis. The court recognized the special nature of employment contracts, but it was a guarded approach. was awarded 24mos salary in lieu of notice. This included some elements of damages, for the nature of the dismissal. The independently actionable wrong doesnt have to be in torts, it can be in contracts. (Broadened the meaning of the test from Vorvis) Kempling v. Hearthstone Manor Corp. [1996] (Alta. C.A.) breached sale of condo contract. sued for mental distress because of dream home loss, and loss suffered by uprooting lives to move. Court applied the Hadley v. Baxendale remoteness rule, especially the special circumstances branch. Found that there was actual knowledge blended with that of imputed knowledge. Awarded $7500 for mental distress. Whiten v. Pilot Insurance Co. had a series of reports negating the arson allegation but pursued it anyway. The lawyer for the was particularly aggressive in generating the expert report on the fire. Issue: at appeal, the only issue was punitive damages. The jury had awarded $1 million. The court held that punitive damages are not compensatory. 2 elements (per: Vorvis): 1. independently actionable wrong 2. harsh, malicious conduct. The court reduced the punitive award to $100,000. Until this case, the highest award was $50,000. There was an obligation to act in good faith, which the didnt (independently actionable wrong in contracts, so doesnt need to be in torts) Minority didnt want to interfere with the jury award.

IV. Special Compensation Rules

i. uncertainty and damages The determination of damages is open and closed at trial. Not looked at again in subsequent appeals. One way to fix or address this issue is for the courts to assess the value of the chance lost. (this happens in the oil well drilling cases) Base it on the sporting chance or gamble. This is a difficult thing to do to assess the damages. There is clearly no certainty in these cases. Even reliance interests may not be protected, and specific performance could be seen as economic waste (Posner).

V. Equitable Damages
Fungible = replaceable. Equity has a different set of remedies from the common law. These include injunctions and specific performance. One early remedy was recision which was basically nullifying the contract because it was entered into by fraud, etc. The courts of Chancery would only award damages if the common law was (legally) inadequate. They followed the clean hands doctrine where the to have clean hands to get equitable had remedy. Sale of lands cases usually got specific performance because the goods were not fungible, so damages are inadequate. This has also been extended to other non-fungible goods. HOWEVER, there has been a recent movement away from specific performance even in these cases. SCC said it is a presumption, but not a matter of right. In Domowicz they said it was to be decided on a case by case basis. The downside is an absence of predictability. Doctrine of Mutuality: If a remedy is available to one party, it is available to the other. In Canada, one is bound to the contract once you enter, unlike the UK where you can gazump until the surveys and title searches are done. i. Relational contracts and remedies Discrete arrangements have focus on uniqueness. Relational arrangements are more long-term. The remedy of damages may not be the best solution because it may fail to take into account the value of the relationship. Each party relies on each other in a long-term way, so equitable remedies (specific performance, injunction) may be more appropriate. Employment contracts, collective agreements are relational and in union/management cases, reinstatement orders are often given. In these cases, the benefit of co-operation is recognized and so is built into the contract. Sky Petroleum is a case of a relational contract. The court gave an interlocutory injunction because of the special relationship between the parties.

Warner Bros. Pictures Inc. v. Nelson, [1937] (Ch. Div. UK) was an unknown actress and so entered into a very locked and binding movie contract with Had positive and negative covenants. . The courts stayed away from enforcing positive covenants on the basis of public policy (wont force a relationship) but are more comfortable enforcing negative ones. sought an injunction to prevent from acting in another companys production in breach of her contract. The court granted the injunction for 3 yrs, essentially enforcing the positive covenant because the negative one would have prevented her from earning a living in any way.

VI. Reasonableness in the face of contracts (mitigation of damages)

Payzu Limited v. Saunders, [1919] (Kings Bench) the contract had a number of transactions in it and a credit factor. The demanded cash payment after the failed to make a payment on time, refused so failed to deliver the silk. Issue: had duty to mitigate of damages? The court found that had duty to mitigate, could and should have by accepting s offer for payment in rather than going out and buying the product elsewhere. Their losses would have been less had they paid cash, so the damages should be limited to those incurred because of the credit arrangement. The damages didnt naturally arise from the breach because could have mitigated. White and Carter (Councils) Ltd. v. McGregor, [1962] (House of Lords) cancelled the contract, but it was before even had a chance to make the advertising up. refused to accept the cancellation and went ahead and made the ads and put them up and then sued. The contract had an acceleration clause (moving forward the 3yr deal to be due as a whole). This was a claim for specific performance (payment) of the entire contract. Upon breach have 2 choices: 1. accept the repudiation and sue for damages with a duty to mitigate. 2. Not accept, perform your part and then sue for full effect of contract. However, the option is just as to the date as at which damages are to assessed. (i.e. at repudiation, or in the case of the second choice, the date at which performance was to occur.) argues that did not have to, and should not have performed the contract. Majority decided that the choice really does exist and not just about the time of breach. There is no obligation to mitigate if they have a legitimate interest in protecting the specific performance. This is based on the unique facts of the case. Asamera Oil Corp. Ltd. v. Sea Oil & General Corp., [1979] (S.C.C.) shares loaned to solidify position. Shares not returned. Baud Corp. loaned shares to Brook (pres. and CEO of Asamera) as security so he could buy more Asamera shares. the main action is Baud suing Brook for return of the shares. This is like specific performance, but : claim converted to damages because 1. Shares are ordinary goods, and 2. Brook didnt have shares, his broker did. Did Baud have a duty to mitigate? Who assumes the risk of market flux? Is the rule in loans the same as in sale of goods delivery cases? Baud said: damages at $46.50, highest price of shares. Brook said: damages at 29 cents, that was price at date of breach.

Court ruled that Baud shouldnt have been forced into the market because 1. Brook had control as CEO of Asamera, 2. injunction sought stopping the sale of shares so available (?) 3. and this was not like a buyer/seller case because no asset in hand (i.e. nonpayment for the goods). The market is too uncertain to find a time for Baud to have gone out and mitigated. However, there is no absolute rule that a disappointed lender of shares can do nothing and claim damages at highest price, but also NO absolute rule to mitigate at any particular time. Even in cases of where specific performance is sought, there is a duty to mitigate unless have some fair, real and substantial justification for holding back and doing nothing. Courts set the damages at $6.50 per share. (did the speculating!) Does not have to be date of breach or date of trial.

Chapter Two The Kinds of Promises the Law Will Enforce

Some promises may deserve protection of expectation interest, while others may only get reliances. This is dependent on the particular circumstances of each case. At one end we have purely commercial interactions and at the other, purely social and in the middle we have different combinations of each. Four factors that indicate the existence of a strong pressure to enforce:

1. contract arises out of a commercial exchange (two elements here)

2. one party has performed and seeks courts help to either get damages or performance (prevention of unjust enrichment) 3. there is strong evidence that the promise was made with deliberation (nature and consequences) 4. one party has relied on an undertaking given by the other in circumstances where this reliance requires protection. Sometimes cases dont fit neatly into these categories and the courts may stretch these rules. Also, circumstances may trump the availability of enforcement and the contract will not be enforced. Doctrinal requirements for enforcement

1. Writing. Some kinds of contracts have to written to be enforced. Gives terms, indicates
deliberation.

2. Consideration or equivalent. Exchange transactions, transfer of values. Ordinarily, the

courts will not enforce gift promises (dont want to make gifts into serious contract). Seal can be replacement for consideration. 3. Intention to create a legal relationship. Reasonable expectation that the promise could be enforced in court. 4. Privity of contract. Third parties cant enforce contracts. Fuller article. Consideration and Form Functions performed by legal formalities: Formality evidentiary function. Writing is of value to parties in court.

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Cautionary function Writing may serve this function because if signing then realize they are getting into something serious. Channelling function if have document that follows some form, can sort it out from those that dont, so know which are enforceable vs. which are not. If dont have form, then have to use less certain criteria to sort it out. (we have not yet accepted form as a stringent criteria in Canada) These 3 functions overlap.

I. The Requirement of Writing The Statute of Frauds

Oral agreements are also enforced, but some types of agreements require writing. These were first set out in the Statute of Frauds (1677). Actions in debt in the court of common pleas evolved to cases heard in the court of Kings Bench. To avoid ecclesiastic penalties (for lying), rules of evidence developed, and from this, writing of contracts. The Statute is only 8 paragraphs long. Section 4 is the principle section outlining which contracts require some writing. a) Executor of estate making personal promise to pay obligations of estate. b) Guarantor of someone elses promise. c) Promises as to consideration of marriage. d) Upon any contract for sale of land, alienation, etc. Mountstephen v. Lakeman (1871) (Queens Bench) Lakeman makes promise (orally) to Mountstephen that he will be paid for work. Court rules that the Board of Health didnt order the work, Lakeman did (therefore, no 3 rd party debt) so the statute didnt apply, and therefore doesnt need to be in writing to be enforced. The courts do not require a full contract. Notes or memorandums will do as well in common law. In Equity need sufficient acts of part performance, this was a way to get around the Statute. In cases of oral agreements, where disappointed buyer, possession or acts of renovations or deposit were all part performance. (As well as paying of taxes or insurance). The Doctrine of Part Performance (from Equity) will allow enforcement of oral agreement even if writing is required by statute. Both common law and equity had ways of getting around the formality of the Statute.

i. Unjust enrichment.
The prevention of unjust enrichment was also a way of enforcing promises despite the Statute of Frauds. Deglman v. Guarantee Trust Co. of Canada, [1954] (S.C.C.) Nephew of deceased woman who owned 2 houses. : : Executors of aunts estate. : Aunt promised her nephew that if he continued to help her out, did chores, ran errands, etc. for her, she would leave him one of the houses. She died without putting it in her will, he sues the executors for the house.

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raised the Statute, relied on the doctrine of part performance. The oral contract was a finding of fact, in sale of land cases where one party has died, writing is important. Court denied specific performance, but found that the services rendered were not gifts and awarded compensation on the basis of unjust enrichment. Restitution interest protected since statute forbids protection of expectation interest. The acts were not unequivocally attached to the land, so no part performance. Boone v. Coe (1913) (Kentucky C.A.) Oral lease. Not family like Deglman. Caught by Texas Statute of Frauds. breaches lease, but since couldnt enforce contract, sued for costs of moving to Texas. suffered loss (reliance interest), but the did not get any benefit, so could not compensate Have . to find a loss to and gain to .

II. Promises that will be denied enforcement: unfairness

The Port Calendonia [1903] (Admiralty Div.) Unfairness, inequity of the contract (oral) overrides form, consideration, etc. Unfairness economic duress, unfair bargaining position. The court puts a greater obligation on the higher party. Contracts with consideration or under seal are much stronger candidates for enforcement than those without formality.

III. Formal Contracts: Deeds

Re/Max Garden City Realty v. 828294 Ontario Inc. (1992) (Ontario C.A.) No red wafer, but a circle with word seal under. changed his mind about paying the vendor. Issue was whether the document was under seal or not. Court concluded that when you see the indicia of a seal, it is under seal. Since a seal is adequate consideration, no other consideration required. An adherence to form. At common law, seal is recognized, but equity does not necessarily recognize a volunteer, that is, someone who gave nothing for the equitable remedy. Nominal consideration or a seal may not be enough at equity.

IV. Consideration
Closely tied to commercial exchanges. We can infer intention by: - Writing - Seal - Payment for promise (CONSIDERATION) - Deliberateness

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The more indicia you have, the stronger the case for enforcement. Consideration is the conferring of a benefit upon the promisor. Very often, it is the promisee who wants to enforce an agreement. What is consideration? Something of value in the eye of the law moving from . to Can be benefit to or forbearance/detriment to . buying of the s promise. Can be a return promise the price paid for something merits enforcement. When the courts look at doctrine of consideration, they look for something tangible. Historical roots in English society. Commercialism and exchanges. Flow of value. Thomas v. Thomas (1842) (Queens Bench) wife. : dead mans executors. : Not a commercial exchange. Deathbed promise to give wife his house. Executors let her stay because of promise, but later sought to evict her. Oral testamentary gift, but after death, executors and widow made agreement for her to pay ground and rent and did repairs. Motive (what testator wanted) is not the same thing as consideration. Consideration is something of value moving from to . There is reliance, some unjust enrichment and consideration here, so the promise is enforced. White v. Bluett (1853) (Exchequer) Father lent son money. Son complained he wasnt treated as well as other kids, father said if he quit complaining, he wouldnt enforce the note against him. Issue: Is stopping complaining sufficient consideration for the promise made? The courts said NO. The promise not to complain was of no value because the son had no (legal) right to complain. Commercial test of consideration, so the promise is unenforceable. Hamer v. Sidway (1891) (NY C.A.) Uncle promises to give nephew $5000 if he refrains from drinking, gambling, etc until 21. No form. Not sure of deliberation (need more info). Nephew abides by promise. At age 21 he reminds uncle of his promise, which uncle acknowledges. Uncle dies without perfection of promise, nephew seeks enforcement. says no consideration because no detriment, but court says if we get into that test, too sticky. Courts will not ask if had the value gives benefit, enough that some forbearance occur, that some bargain occur. Nephew gave up a legal right, that is sufficient consideration, not going to question the adequacy. i. Consideration and gift promises

Can an exchange of promises be good consideration? Some say no because no detriment, but promises do have value (ie. land flipping). Some promises are a lot like gifts, though, and there is an interest in keeping these separate. Sufficient if something done/given by it is enough. Peppercorns are enough! ,

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We should not try to turn gifts into contracts. Easy to perfect a gift, (if wanted to do it, would have) so courts want to keep it separate. Dont want to turn a gift into something it was never intended to be. The doctrine of consideration sometimes is stretched. Will call lots of things consideration to enforce a contract when truly they are something else. Deliberateness, forbearance, an act or other promise. ii. The problem areas

The doctrine of consideration will not make render an unenforceable contract enforceable, but it can make an otherwise enforceable contract unenforceable. Past consideration (things done before the promise was made) is no consideration. Roscorla v. Thomas (1842) (Queens Bench) Horse sold and paid for. Later promise made that horse was sound and free from vice, this was found to be untrue, sued for breach. Court said unenforceable promise because no consideration. Past consideration (payment for horse) was no consideration for the subsequent promise of soundness. iii. Note on infants and bankrupts and Statute of Limitations

Contracts at common law of infants are voidable. Infancy Until age 18 in Ontario. Promises during infancy of now adults of non-necessaries that the adult now affirms are enforceable even though all past consideration. The affirmation needs to be in writing. Promises to pay debt after statute of limitation has come into force: if debtor confirms the debt and promises to pay, then the debt is revived and enforceable. The subsequent promise needs to be in writing (cautionary function). Discharged bankrupts work the same way, but in reality, many bankrupts who have been discharged want to do business again with their creditors and may say they will pay debts. In absence of do business with me and Ill pay debts consideration, need writing. iv. Mutual promises

A promise for a promise is good consideration. There is a difference between unilateral and bilateral promises. Great Northern Railway v. Witham (1873) (Common Pleas U.K.) Price lists. This case can also be found under offer and acceptance. GNR needs supplies so asked suppliers for tenders for what goods they have and at what price. The language of the tender given was a promise to supply at a specific price. refused to fill orders, sues for breach. Defence: No consideration. IT was all one sided, both parties not bound. Court found that there was an agreement and construed the tender as a contract. Essentially if you order, I will provide X stuff at Y price The acceptance and performance were all rolled into one, so there was consideration. Performance and consideration in one move. Tender was offer. Bernstein v. W.B. Manufacturing Co. (1921) (Supreme Judicial Court of Mass.) Purchase and sale of goods. disappointed seller. had accepted some goods and rejected others. pleaded a :

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want of mutuality since could have ducked out of the order whenever they wanted, so it was lacking mutuality. The courts agreed. Wood v. Lucy, Lady Duff Gordon (1917) (NY C.A.) She gave exclusive right to use her an name for a fixed period of time. During the contractual period, she put her name on other goods without giving profits. alleged there was no mutual obligation moving from to , so no contract. Court stepped back, looked at entire contract and implied an obligation. (If the courts want to enforce a promise, they will imply consideration. Reasonable best efforts to find clothing to put her name on was the consideration.) s v. Going transaction adjustments

Grew in a haphazard way in English law, and out of isolated transactions. Yet, we take these rules and almost forcibly apply them to modern relational contracts. In relational type contracts, cant spend their lives in litigation. Getting on with business and making profit are far more desirable. Adjustments are made daily to preserve the relationship. ex. 1. Contractor and subcontractor who suddenly cant do it for agreed price. ex. 2. $7500 in settlement of a $10 000 debt. What consideration? Both these examples should not be enforceable according to doctrines of past consideration, consideration and sufficiency of consideration. However, there may not be fresh consideration, but there is value in practicality. How can these be transferred to legal consideration? Harris v. Watson (1791) (Admiralty) Ship was in danger and master of ship ( ) and made agreement that he do extra work to keep it from running aground. He did the work, didnt pay. Case was resolved on purely policy reasons. Because one person can exercise some duress (can), the courts wanted to inhibit sailors from extracting promises from masters once out to sea and to encourage sailors to do their jobs, so the promise was not enforced. Stilk v. Myrick (1809) Another ship case. Based entirely upon the doctrine of consideration, not on public policy grounds. Ship had some desertions, so extra work. Court concluded that desertions, sickness, etc and extra work are all part of the first, original agreement, no fresh consideration and not being asked to do any more work than already contracted for, so not entitled to splitting of the deserters pay. Raggow v. Scougall (1915) (Kings Bench) One of the terms of the employment was that if s business fell off, could terminate the contract without penalty. Orders dropped off and a new written agreement made with lower salary and return to old salaries after war was over. Ongoing transaction adjustments would say no consideration so entitled to old salary. BUT: court said this was a case of recision and novation. The fresh consideration was the giving up of the old salary in return for the manufacturer not going out of business. He had no obligation to continue their employment, so new agreement with new consideration. Stott v. Merit Investment Corp. (1988) had client who traded in gold futures. He failed to keep an account in good standing so sold 2 of his contracts. Client whined, supervisor set it right s on postdated cheque, which bounced. Though it was Douglas who caused the loss, was held liable (made him sign agreement) and had to pay back money they lost.

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HELD: bona fide claim in minds of both parties at time they entered into the agreement, and that is good consideration (forbearance). Also actual consideration too (not to fire Not examining the ). adequacy so long as there is something of a claim. Implied forbearance (by to not sue to give up any claim. ) THE TEST: The compromise of a potential claim to a cause of action or defence is good consideration, even if later turns out it was legally meritless, provided: 1. The claim or defence to claim is reasonable 2. The person giving up the claim has a bona fide belief in its chance of success (no blackmail) 3. There has been no concealment of material facts. Gilbert Steel Ltd. v. University Construction Ltd. (1976) (Ont. C.A.) written agreement for delivery of steel. First 2 done and paid for, but at 3 rd, prices go up. Agree to new price, go up again, agree again, but then dont pay. (oral agreements.) says no new K because no fresh consideration. HELD: for on basis of Stilk v. Myrick (gratuitous promise). arguments of implied recision and novation (not pleaded in statement of claim) and credit s extended as consideration both failed. Also not estoppel because that would be using it as a sword. Williams v. Roffey Bros. & Nicholls [1991] (UK C.A) 3/4th of renos done. Doctrine of substantial performance. Courts found for because practical benefit is there. This would be upset if there were duress or its elements. RULE: Practical benefit (without duress) is good consideration. Foakes v. Beer (1884) (H.L.) got judgment against entered into an agreement to pay it and off in installments without interest. When this was completed, Beer sued for interest. The question was if accepting smaller payment was sufficient consideration. Court found that had not provided any consideration and was taking less than she was entitled to. Therefore, says the court, she can sue. In what circumstances would accepting less payment be good? 1. Do it under seal. 2. Pay by cheque instead of by cash (Foot v. Rawlings) 3. Get less, pay earlier, 4. Consolidation of creditors. Now we have the Mercantile Law Amendment Act, which states that part performance when expressly accepted by the creditor, shall extinguish the obligation without any new obligation. vi. Contracts With a Third Party

Ex. B and C have contractual agreement. A says to B if you perform your obligations to C, Ill pay you. Then A doesnt pay. Claims no consideration because already obligated to do those things. Courts disagree. Say that consideration given to C is good consideration for this promise.

V. Reliance as a Basis for the Enforcement of Promises

Central London Property Trust Ltd. v. High Trees House Ltd. [1947] Denning gives birth to a new doctrine (equity), that of reliance or promissory estoppel. Reliance used since cant find consideration. Can use estoppel as a sheild (defence) not a sword. Denning says we need: 1. Intention to create legal relations

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2. The person making the promise knew it was going to be acted upon 3. The person receiving the promise indeed acted upon it. Combe v. Combe [1951] Husband promised wife L100/a but never paid it (7yrs) She for L675. HELD: she cannot forfeit her right to sue (claim maintenance under Family Law) , so no consideration from her. Court rules against wife but hints that outside matrimonial relations the forgoing a lawsuit is good consideration. Estoppel is defined as the legal bar that prevents the person from asserting or claiming a fact that is inconsistent with the position the person perviously took. It is to be used as a shield and not as a sword. D & C Builders v. Rees [1966] took lesser sum for work done because pressured by and needed the money. Should estoppel apply and stop them from claiming whole? Equity says it would be unfair to NOT give them whole. Have to determine if there was true accord and satisfaction. Weigh the fairness. Though this is equitable it makes estoppel uncertain. Though they agree that commercial pressure is not enough for duress: - Relative position of parties - Degree of independence - Particular financial situation Re Tudale Explorations Ltd. and Bruce (1979) Tuldale gave exploration rights to Teck. Provided details and mining and stocks, etc. Teck thought he had a 60 day extension, but Tudale granted a 30. By the time the length of the extension was clear to Teck, it was too late. Teck had acted upon this representation to its detriment and Tudale did not give sufficient notice. As they had relied on Tecks promise, Teck was not allowed to withdraw the offer. (estoppel as shield because Tudale is estopped from raising the defence of saying the option ran out). Walton Stores v. Maher (Aus. H.C.) proprietary estoppel = where party was claiming an interest in land. Had all elements (of K) but no consideration. Estoppel used as a sword because claim with interest in land. Reliance to detriment and implied promise. Straight issue of fairness. Sloan v. Union Oil of Canada [1955] During the selling of one company to another, termination benefits didnt come with new company, but told that they would. In order to accept this offer (have it travel with new company) he must give consideration above and beyond his work. HELD: reliance was due to companys action. Consideration: In return for not quitting, we will pay you termination allowance if you are fired before the end of your contract. He stayed on until dismissed, so the courts enforced the unilateral contract they saw was created. Three criteria for finding estoppel. 1. Must be a representation or conduct to the effect of a change in legal relations. 2. There must be reliance. Difficult question is what counts as reliance. 3. Even in the realm of variance, estoppel cannot be used as a sword, only a shield. Skidmore v. Bradford (1869) uncle buying warehouse for nephew, who signed the agreement. HELD: signing put nephew under liability, which is good consideration for uncles promise. So, uncles estate must pay the balance on the warehouse. Dalhousie College v. Boutelier [1934] promised a significant amount of money towards their campaign. He died before he could execute the gift and brought an action to claim it. The school tried to frame reliance on the consideration in the letter; in order to keep up new buildings, etc. Court ruled that the promise need not be upheld. They also didnt raise enough in subscriptions (donations) from others like letter said (which might have been good consideration). Difference

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between this an Skidmore? There the nephew actually had his name on the deed and needed the money.

V. Intention to Create Legal Relations

There must be an intention to create a legal relationship. In family relations, the intent as not assumed will not happen today. There is only a PRESUMPTION against intention to create legal relations between family members. (Balfour v. Balfour). Jones v. Padavatton [1969] mother bought house for daughter to live in while she studied law. She never got degree, so mom wanted house back. If court assumes no intention to create legal relations, then no cause of action for daughter. If do assume intention, then what are the terms of the agreement? HELD: she had improved the property, and had those interests protected, but no expectation interests. Onus on daughter to overcome the Balfour presumption. Courts figured out the terms and found the daughter breached. Kleinwort Benson Ltd. v. Malaysia Mining Corp Bhd. [1989] (UK) Comfort letter. Provided to give one said assurances, but short of promises. HELD: Not find future obligations in the sentence of it is our policy and says it cannot be held to legal effect, only moral obligations. Additionally, the company issued the comfort letter at the same time it was refusing to enter into a contract of joint and several liablity or give a warranty.