BU 231 Class Notes
Terms
Action- the lawsuit
Cause of Action- type of lawsuit (tort)
Plaintiff/ defendant – parties to the action
Claim- the reason for the lawsuit
Damages- $$$
Prima Facie- on the face of it
Tort Law
The object of tort law is to place the injured party back in the position he/she
would’ve been, had the tortuous act not occurred
o Harm is a required element of any tort. The wrongful act must cause the
harm
o Our tort system today is fault based (some torts don’t require an element of
fault)
o When choosing a writ you need to make sure you find the one that best suits
your case because you may win a case under one writ but not another that
may even be closely related
Strict liability- some torts are still considered to be strict liability and therefore no
fault element is required. (public nuisance)
Intentional Torts
Nuisance:
o Public or Private
o Interference with the lawful use of public land or private land
o Need to prove Intent
Trespass:
o Entering someone else’s land without consent
o Harm must be caused
o Need to prove intent
Assault and Battery:
o Assault- Threat of violence to a person
o Battery- Unlawful touching of a person (without consent)
o You can have one without the other but they are usually together
Intentional infliction of Mental Distress:
o Intent to cause harm
o Recognizable physical or psychopathological harm must occur (person can’t just
claim they are distressed)
o Shows harm does not need to be physical
False Imprisonment
o Unlawfully restraining or confining another person
o Does not need to be physical (“manager shouts stop thief to innocent person”)
Malicious Prosecution
1 BU 231 Class Notes
o Reporting person to the police when there is no good reason to believe that
person committed a crime
o This is the next step to false imprisonment
Defamation
o Making an untrue statement that causes injury to the reputation of another
o Slander- spoken, libel- written
o The elements are: intent (maliciousness), statement made, statement false,
published to 3 party, must cause genuine and significant injury to the
reputation of the plaintiff
o Defenses: Statement was true or qualified privilege: statement made in good
faith and with honest belief in its truthfulness
Defenses to Intentional Torts
Consent
o Injured party consented to the act that caused the harm, there is no tort
o Absolute defense but must be genuine and informed consent
Self-defense
o The party asserting the defense needs to show that the self defense was
necessary and that no excessive force was used (pull a gun on someone who
punches you)
o Force for force
o Absolute defense
Necessity
o Defense to Trespass where the right of way was impassable
o No other option but to destroy property (tear down building to stop spread of
fire)
Volition
o Act must be voluntary
o I.e. Getting away with trespassing because someone else forced you onto the
property
Capacity
o Requirement of mental capacity to inform intent – if absent forms a complete
defense
Tort Law – Negligence
Negligence – is the careless causing of harm to the person or property of another
o Takes up the majority of tort law because most of the time people don’t
intentionally harm people
3 Part test for Negligence:
2 BU 231 Class Notes
1) The defendant owed the plaintiff a duty of care
2) The defendant breached that duty of care by falling below the standard of
care and
3) The defendant’s actions caused the injury
Duty of Care(DOC)
o Take reasonable care to avoid injury to others (must be foreseeable)
o Everyone has the duty to not injure their neighbour (good neighbour principle)
o Your neighbour is: Wherever you are you must be careful of those around you
o Test for DOC: 1) is there a close enough relationship that the act should have
been foreseeable 2) are there any considerations which ought to negative or
limit (scope, class of people it is owed, damages to which a breach of it may give
rise)
Standard of Care
o The reasonable and competent ordinary person on the young street subway
(lowest level of care)
o The professional standard of care
o The fiduciary
o Children (will be considered adults when engaging in adult activities – driving
car)
Causation
o ‘but for’ test
o Remoteness – element of forseeability need to be present at the time of the tort
o Things directly related- not a string of bad events
Vicarious liability
o Employers can be held liable for the tortuous actions of their employees
when the employee is acting in the course of his/her employment. (Employee
still liable)
Burden of Proof
o Plaintiff has the onus of demonstrating that the elements of a tort exist
o The onus then shifts to the defendant to prove valid reason why they didn’t and
use a valid defense
o Plaintiff can use Res Ipsa Loquitur – the thing speaks for itself, when there is no
other obvious explanation for the harm caused (barrel of flour example) –
defendant would need to prove why it was not possible for them to do it.
Defenses
Contributory negligence:
o The plaintiff in some way acted negligently and contributed to their own harm
o Only a partial defense
• Can occur in 3 ways
3 BU 231 Class Notes
Plaintiff can contribute to the incident that caused the injury
The plaintiff can expose themselves to a risk of injury
The plaintiff can fail to take reasonable steps to minimize the
injury after it has occurred (mitigation) * if they don’t mitigate
then it will reduce the amount the defendant must pay
Voluntary Assumption of Risk
o The plaintiff is engaged in an inherently risky activity
o Knew the risks and accepted them
o Complete defense
Illegal Act
o Where the plaintiff is harmed while engaged in an illegal activity
The role of insurance in business is to minimize the risk of loss due to tortuous
actions on the part of the employer or employees (vicarious liability)
3 Types of Damages:
1) Special – anything that can be calculated (broke leg and off work- thus loss of salary)
2) General – loss of a finger (may be a dollar amount assigned but there is an emotional
part as well)
3) Punitive – punishment (rare in negligence unless act is really bad)
Tort Law- Special duties, negligent misrepresentation and economic torts
Product Liabilities
o Difficulty in demonstrating negligence on part of manufacturer of goods
o Need to prove the product was defective and caused harm and then onus shifts
to manufacturer
o Ongoing duty to warn
• Dangerous products
• Products that are discovered to be defective
Occupiers Liability
o The special standard of care owed by persons who occupy property to persons
who enter those premises
o Occupier- person who has control over the property (person renting house)
o Invitee and licensee – owed the highest standard of care of the three
• Occupier has to remove any hazards of which he/ she is aware and those
hazards that he/ she ought to have been aware of
• Licensee – any person there for a lawful reason (mailman)
• Invitee –
o Trespassers- still owed a general duty of care (cannot set a bear trap on them)
Professional Liability
4 BU 231 Class Notes
o Professionals with certification in their field held to the standard of their field of
expertise
o Standard – the reasonably competent and diligent person in that field
o Doctors and lawyers hold one of the highest standards
Fiduciary Duty
o The highest standard of care
o Applies to those who stand in a special relationship of trust to another person
(parent, doctor, trustee)
Loss/ Harm
o requires that one party suffers some sort of harm, injury, or loss to his/ her
person or property
• Economic loss:
No one and nothing has been physically harmed but the plaintiff
has sustained an economic loss
Negligent misrepresentation
o A statement
o Can be fraudulent misrepresentation (intentionally made statement) or
negligent misrepresentation (carelessly made statement)
o Test: statement made, statement false, maker of statement owed duty of care,
hearer of statement acted on the statement, hearer of the statement suffered loss
as a result, are there any policy considerations to consider that may limit the
liability?
Economic Torts (not to be confused with economic loss)
Inducing Breach of contract
o Where one party induces another party to breach his contract with a 3 party
Unlawful interference with economic relations
o Where threats or other unlawful means are sued to convince one party to cease
doing business with another
Product Defamation
o Where one party intentionally makes untrue or disparaging remarks about
another’s product in advertising their own product
Passing off
o Representing one’s own product as that of another
Contract Law
Definition of a contract
o A promise, or set of promises, that the law will enforce
5 BU 231 Class Notes
Contract Formation
o How do you know when you have a legal contract?
o 7 elements are necessary for the formation of a contract
1. Offer
2. Acceptance
3. Consideration
4. Intention to Create Legal Relations
5. Capacity
6. Legality
7. Certainty of Terms
1. Offer
A tentative promise made by one party, subject to a condition or containing a
request to the other party
Must be definite and certain
It is intended to be binding on both of the parties as soon as it is accepted
Most common type of contract: Standard Form Contract (SFC)
The “Take it or leave it” offer
o Standard Form Contract
Advantages:
Highly efficient
• Fast
• Easy
Disadvantages:
• Inequality of bargaining power
• Little or no room to negotiate terms
Unusual or unexpected terms:
• Tilden Rent-A-Car Co. v Clendenning (19780, 18
O.R. (2d) 601
• The need to point out any unusual or unexpected
terms to the person signing the contract at the
time of contract formation or the term will be
struck from the contract by the court
No room for negotiation over terms of the contract
Counter offer
o Amending the contract in order to ‘accept’ the contract does not equal
acceptance
o This amounts to a rejection of the offer and a counter-offer
2. Acceptance
Final unqualified consent to the terms of the offer
6 BU 231 Class Notes
Must be communicated either by word or by conduct
Timing of Acceptance
oRevocation – offeror can revoke the offer any time up to acceptance
• Exceptions:
a. where an offeree has paid money to keep an offer open;
b. where the offer was made under seal
oLapse – where the offer stipulates a time by which the offer must be
accepted and that time passes
Communication of Acceptance
omethod of acceptance should be reasonable in the circumstances and
reasonable to the offer
• (i.e. responding by snail mail on a time sensitive offer is not
reasonable)
Jurisdiction
oLocation where the contract was formed is determined by where
acceptance is completed
oJurisdiction is important in aiding in determining what province or
country’s laws will govern that contract
3. Consideration
The price paid for the contract
ousually $$$$$, but doesn’t have to be
Price could be performance
Price could be in services/goods in trade
Gratuitous Promise
oNo consideration = no contract
Adequacy of consideration
oPast consideration = No consideration
Existing Legal Duty
oNo new consideration, so no new contract
Debtor/Creditor Rule
oFoakes v Beer (1884), 9 App. Ca. 605
oNo new consideration for promise to reduce debt = no new contract
oExceptions created to avoid unfair results
Mercantile Law Amendment Act, R.S.O. 1990 c. M.10, s.16
oAmended the rule in Ontario
Equitable Estoppel
oCourt exercising equitable jurisdiction to prevent a party from
denying his or her promise
7 BU 231 Class Notes
oAt present, can only be used as a shield not a sword (i.e. a defence not
a cause of action)
Seals
oAct of sealing a document meant that the covenanter adopted the
document as his/her “act and deed”
oSolemn promise
oNo consideration required
4. Intention to Create Legal Relations
Reasonable bystander test:
Did the outward conduct of the parties lack a serious intention to create legal
obligations?
5. Capacity
Some parties lacking the necessary legal capacity to enter contracts or
holding diminished capacity:
oMinors
• Provincial “age of majority” – in Ontario, 18 years of age
• Below 18 years a person is considered an “infant” in law
• Minors can enter into contracts
• Contracts would be enforceable by the minor, but not against
the minor
• Contracts for necessaries are enforceable
oMentally incompetent persons
oCorporations
oLabour Unions
oEnemy Aliens
oAboriginal Peoples
oBankrupts
Void vs. Voidable contracts
oVoid contracts – never existed; failed formation = no contract
oVoidable contracts – exist, but can be made void at the option of one of
the parties
6. Legality
The object of the contract cannot be illegal
oContracts illegal by statute, e.g.:
• Criminal Code
• Income Tax Act
8 BU 231 Class Notes
• Competitions Act
oContracts can also be illegal where they breach other Acts or
Regulations – e.g. practicing a profession without a license
Contracts illegal by Common Law or Public Policy
oContracts considered to be immoral, or a perversion of justice, or
prejudicial to the interests of the Canadian public
oHistorically, gambling fell into this category
oInsurance and stock exchange transactions are excluded
7. Certainty of Terms
Vague or incomplete agreements can be deemed “void” by a court, therefore
no contract was ever formed
Vague contracts:
oUsing terminology that is not clear e.g. “fair value,” “if satisfied”
Incomplete:
oLeaving necessary information out of the contract, e.g. the price of the
contract
Impeachment of Contracts
Rescission
o The setting aside of a contract because of some defect affecting its formation
such as mistake, misrepresentation, duress or undue influence
o Or, the discharge of the contract by the subsequent agreement of the parties
o It is NOT where an innocent party is discharged from his/her obligations
under a contract because of the other party’s serious breach of contract or
failure to perform under the contract
o Court’s decision that even though a contract has been formed, it should not
be enforced due to a defect
Object:
To place the parties as closely as possible back to their pre-
contractual positions
NOT damages
Mistake
o Generally, 2 types of mistake recognized in law:
o Mistake in the terms of the contract
o Mistake in assumptions about the subject matter of the contract
Typographical errors
Test: Would a reasonable bystander recognize it as a mistake?
If yes, then despite proper formation, K would not be enforceable – it
would be voidable at the option of the party that made the mistake
9 BU 231 Class Notes
o Mistake when reducing the terms to writing
Court may grant rectification, but only where:
1. Court is satisfied that there was a complete agreement;
2. The parties did not engage in further negotiations; and
3. The change in the written document appears to be an error in
recording.
o Mistake in Terms
Ambiguity – multiple interpretations of the same term
Raffles v Wichelhaus (1864), 159 E.R 375
A ship called “Peerless”
o Mistake in Assumption
Refers to the subject matter of the contract
Mistake in assumption as to the existence of the subject matter – K is
void
Mistake as to the value
Court will not interfere in a fluctuating market
Court will interfere if the mistake in value was present from the outset
o Hyrsky et al v Smith (1969), 5 D.L.R. (3d) 385
Land purchase for development
Parcel of land significantly smaller than believed to be
Court held that the mistake was so substantial as to change the quality
of the subject matter and granted rescission to the purchaser
rd
o Mistake AND Innocent 3 Parties
Usually occurs in situations of fraud
1. A sells to F
2. F sells to B
3. F takes the $$ and moves to S. America
4. A discovers mistake
5. Who suffers the loss?
If K is deemed void, then there was no K and therefore goods or
money must be returned to A
Title did not pass to F, but stayed with A
If K is deemed voidable, then there was a K and therefore goods or
money stays with B
Title did pass to F and therefore F could pass title to B
The innocent 3 party must be that – innocent
Must be a BFPVWN: Bona Fide Purchaser for Value Without Notice
o Non Est Factum
Another type of mistake = “Not my deed”
10 BU 231 Class Notes
Historical defence devised in a time when people were largely
illiterate
Claim of non est factum = this is not the contract I agreed to
Reliance on another person’s word that the document contains the
terms agree to
Works for the blind or illiterate
o Mistake in Performance
Where someone accidentally pays the wrong party, or overpays the
correct party
Funds cannot be kept as it would create an unjust enrichment
If a payment is negotiated in good faith and the payment is properly
made, and later the party making the payment discovers the claim
would not have been as high as that negotiated – cannot reclaim those
funds
Misrepresentation
o A statement/representation made during negotiation of a contract, before
formation of the contract, that turns out to be false
o Can be:
Innocent
Negligent
Fraudulent
o Elements
1. Statement/Representation
2. False
3. Intent (if fraudulent);
4. Duty of Care owed (if negligent)
5. Reliance
6. Caused Harm
o Experts:
Representation is a statement of fact NOT opinion
Expert opinions are considered to be a statement of fact
o Omissions:
Not necessarily a misrepresentation UNLESS there is a duty of utmost
good faith owed, e.g. fiduciary
Doctrine of Caveat Emptor applies (less so with consumer goods re:
Sale of Goods Act, s. 15)
o Omissions – Other Contracts that Require Disclosure
11 BU 231 Class Notes
Directors of companies owe a duty of utmost good faith to their
corporations
Partners in a partnership
Insureds to their insurance company
Professionals owe a duty to their clients and must disclose conflicts of
interest
Undue Influence
o The domination of one party over the mind of another to such a degree as to
deprive the latter of the will to make an independent decision
o K formed under undue influence would be voidable at the option of the
victim
o Special Relationships
Often fiduciary relationships
Special case – husband and wife
Need for ILA
o Dire Circumstances
Where one party is temporarily desperate and will agree to any terms
o Threat of Prosecution
Agreeing to terms to avoid prosecution of a family member
o Unconscionable Contracts
Arising from inequality of bargaining power – but the court is
reluctant to look at the bad bargain as being a result of
unconscionability
o Burden of Proof:
Plaintiff who desires to claim undue influence and have the contract
voidable at his/her option must show on a balance of probabilities
that:
1. There was domination by the other party in the circumstances
a) By showing the special relationship exists; or
b) That s/he was in desperate circumstances at the time of
contract formation
2. That the contract is unfair or disadvantageous to the weaker
party
o Duress
Actual or threatened violence or imprisonment as a means of coercing
a party to enter a contract
Contract would be voidable at the option of the victim
o Economic Duress
12 BU 231 Class Notes
Coercion and an illegitimate application of pressure
Pao On v. Lau Yiu Long [1980] A.C. 614
Gordon v. Roebuck (1992), 9 O.R. (3d) 1
1. Plaintiff must demonstrate that his will was coerced and that
the pressure exerted to do that was not legitimate, 4 factors:
a) Did the plaintiff protest?
b) Was there an alternate course open to the plaintiff?
c) Was the plaintiff independently advised?
d) After entering into K, did the plaintiff take steps to avoid
it
The Requirement of Writing – Contracts
Statute of Frauds
o The need for written evidence of certain types of contracts
o It was introduced in 1677 and still exists in Ontario
o Historically arose during civil unrest and disputes over long term contracts
(foggy memory)
Applies to these type of Contracts:
o Promise by an Executor of an Estate(Trustee) to pay a debt of the estate
Where an executor/executrix makes a promise to a creditor of the estate
to pay the creditor personally, that promise cannot be enforced by the
creditor unless it has been reduced to writing
o Guarantees
A conditional promise to pay the debt only if the debtor defaults
o Payment by a third party for the miscarriage of another
If a 3 party agrees to pay damages on behalf of another – then it is like
an indemnity (3 party paying guarantee) and does not have to be in
writing
rd
If a 3 party agrees to pay ONLY if the other party defaults, then it is like
a guarantee and must be in writing to be enforceable against the 3 party
o Contracts in consideration of marriage
Today contracts relating to marriage are governed by Family Law
Legislation, but must still be in writing to be enforceable
o Ratification of a minors contract
Once a minor reaches the age of majority a ratification (renewal) of the
contract must be in writing
o Agreement to be performed by either party in over a year
Exception 1: Where one of the parties is expected to perform within the
year, but the other is not
Exception 2: Indefinite time period set out in the contract
o Contracts concerning land
13 BU 231 Class Notes
Any transaction involving real estate must be in writing to be enforceable
(exceptions include: repairs, building a house, and room and board
arrangements)
Essential parts of the Memorandum (written document):
o Names
o Subject Matter
o Consideration (with the exception of a guarantee)
o Payment Details
o Signature of the paying party
o * Signature of the defendant in order to sue under the memorandum
What makes up a memorandum
o A piece of paper (it can be a letter)
o Does not have to be one document but cannot rely on oral evidence connecting
the multiple memorandum
Unenforceable Contracts
o A contract that still exists for other purposes, but neither party may not enforce
the details through court action
o * it is NOT void
o Contract still exists and can affect the legal interests of the parties
o Where they differ from Void contracts
Deposits
Recovery for Goods and Services
Subsequent Memorandums
Defendant must plead the statute
Effect of a subsequent oral contract on a prior written contract
Doctrine of Part Performance
o Performance begun by a plaintiff in reliance on an oral contract relating to an
interest in land, and accepted by the courts as evidence of the contract in place of
a written memorandum
o Necessary Criteria for Part Performance
Has to be a contract concerning land
Acts of performance have to clearly indicate the existence of a contract
respecting the land in question
Acts have to have been performed by the plaintiff (not the defendant)
Sale of Goods Act
o A requirement of a written contract for sales of goods
o Applied to any purchase of goods in excess of 10 British pounds (original act)
o It was repealed in Ontario but still exists in some provinces
o Avoiding the Act
14 BU 231 Class Notes
• Where there has been acceptance and actual receipt of the goods by the
buyer
• Part payment tendered by the buyer and accepted by the seller
• Earnest
Consumer Protection Act
o Protection of consumers
o Some agreements must be in writing, e.g. Direct Agreements under s. 41(1) in
excess of $50.00
o Writing must include such details as
o Detailed description of goods/services sold
o Itemized purchase price
o Name, address and contact information of vendor
o Notice of statutory cancellation rights
Interpretation of Contract
Ambiguity in Language
o Multiple Meanings
o Special Usage of Words (variations amongst cultures, language etc.)
Trade Customs
o Does the final price include materials or not? (discrepancies between norms)
Interpretation of Express Terms
o Strict Approach
• Dictionary Definitions or the plain (common) meanings of the words used
o Liberal Approach
• Looks to the intentions of the parties at the time of the contract formation
– the reason why the contract was formed in the first place
• Looks to the circumstances surrounding the specific contract negotiations
Credibility
o Issue of Evidence
• Judge must make determination as to whose story is more believable
• The more witnesses or other evidence available is great assistance in
making the determination
• Most contract negations do not occur conveniently before witnesses, but
are rather conducted between only the parties to the contract
o Often necessary to have a 3 party to settle the dispute
o Are judges better at determining credibility than the avg. person?
o Courts can make the contract void for uncertainty, but usually an effort to
enforce all contracts
15 BU 231 Class Notes
Parol Evidence Rule (PER)
o Extrinsic (not parole that means released early from prison)
o A rule preventing a party to contract from adding a term previously agreed upon
not included in the final written contract
o A party cannot go to court and introduce evidence that something outside of the
document was excluded from the contract
o Rule only applies to terms that a party is trying to have added to the contract
o Problems with the rule – effect on the SFC – won’t include “bonus clauses”
o How to get around the rule:
• Written document was not intended to embody the whole contract
• PER does NOT exclude oral agreement reached AFTER the parties have
entered into the written contract
• Collateral Agreement – separate agreement between the parties, but not
included in the written document – needs separate consideration
o Another exception to the PER
• Condition Precedent
Any set of circumstances or events that the parties stipulate must
be satisfied or must happen before their contract takes effect
Not to be confused with a “conditional acceptance”
Interpretation of Implied Terms
o A term that is not included in the contract, but as reasonable person would read
it would have thought to include it (term that was implied)
o Terms established by Custom
• Terms implied from long established practices in a particular industry
Privity of Contract
Privity of Contract
o The relationship that exists between the parties to a contract
o Tort fills the void left by privity of contract
Third Party
o Not in the contract but affected by it
Rule
o If there is no privity between the parties then there is no right to obtain legal
remedy based in contract law
o There may be opportunity to obtain legal remedy through tort law where
applicable
o Rule can have harsh results – therefore systems have been developed to get
around the rule
Novation
o The termination of one contract and the creation of a new contract with the
same or similar terms to introduce the 3 party to the contract
o Has the effect of releasing the original party to the contract
16 BU 231 Class Notes
Vicarious Performance
o Where a 3 party performs on behalf of the promisor who remains responsible
for proper performance
o Don’t confuse it with vicarious liability in tort law
o Eg. Corporation cannot act without an agent who is performing vicariously, but
the corporation remains liable for performance
Trusts
o Where property has been transferred to a person who administers the property
for the benefit of another
o The 3 party who is obtaining the benefit has a “beneficial interest” in the
property and has the right to enforce the trust agreement as the “true owner” of
the property
Constructive Trusts:
o The relationship that permits a 3 party to obtain performance of a promise
included in a contract for his or her benefit
o Original contract has to be meant to be irrevocable
• A trust must be permanent with no option for the donor of the trust
property to later change his/her mind
Exceptions to the Rule :
o Insurance
o Undisclosed Principals
o Contracts concerning land – tenancy agreements
o Special concessions to commercial practice
• Collateral contracts and Exemption Clauses
Assignment of Rights
Assignment of Rights
o A transfer by a party of its rights under a contract to a third party
o The right to enforce a contract has an independent value from the price of the
contract itself (the intangible right is what is being transferred)
o This right is referred to as a chose in action
o Tangible goods are referred to as chose in possession
Parties to the Assignment
o The promisor
o The assignor
o The assignee
*Equitable Assignment :
o The original assignor is left a party to the transaction therefore in order to
enforce the contract all three parties must me bade party to the legal action
17 BU 231 Class Notes
o
The effect of the Conveyancing and Law of Property Act in Ontario
o Where an assignment meets the requirements of the act, that is:
• The assignment was absolute (unconditional and complete)
• It was in writing
• The promisor received notice of it in writing
o Then it is a statutory assignment and the assignor is no longer bound to it
Notice to the Promisor
o ALL assignments require that the promisor be given notice of the assignment
o It is notice to the promisor that is required and NOT consent from the promisor
o If the promisor ignore the notice and pays the assignor, then the promisor will
be in breach and will be required to pay again to the assignee
Assignee’s Title
o The assignee cannot obtain a better title than the assignor
o The assignment is subject to any rights that the promisor had against the
assignee before the promisor received notice of the assignment
Negotiable Instruments
o Defined by the Bills of Exchange Act
o A written contract containing a promise express or implied to pay a specific sum
of money to the order a designated person or to bearer
o Includes
• Bills, Cheques, Promissory Notes
Negotiation
o The process of assigning a negotiable instrument
o Negotiable Instruments can be negotiated by simply signing the item where it is
made payable to a specific person or by just handing it over if it is payable to
bearer
o Parties to the negotiable instrument
o Promisor/Drawer
o Drawee
o Payee
o Holder – still subject to equities
o Holder in Due Course
18 BU 231 Class Notes
POST MIDTERM
The Discharge of Contracts
Discharge of a contract is the cancellation of the obligation of a contract, i.e. make
the K null and inoperative
Discharge by Performance
Most common method by which contracts are discharged
Where both parties to the contract perform their obligations under the contract
satisfactorily
Tender of Performance – an attempt by one party to perform according to the terms
of the K – stops interest from accruing from that point forward
Discharge by Agreement
Where the parties agree not to proceed with the contract
Waiver:
o An agreement not to proceed with the performance of a K already in
existence
o Can only occur when neither party has fully performed – consideration
becomes an issue where one party has performed
o Must be by agreement of both parties
Substituted Agreement:
o Can be an out of court settlement where one party offers to pay money in lieu
of performance
o Could be novation where the old K is discharged and a new K is entered into
in its place
Contract Provides for its Own Dissolution
o Condition Precedent:
• Neither party can perform unless a certain future event occurs
o Condition Subsequent:
• An uncertain event that brings a promisor’s liability to an end if it
happens
o Option to Terminate:
• Allows for termination of the K on providing notice to the other party
Discharge by Frustration
Courts now excuse parties for failure to perform their contracts in a wide variety of
circumstances where they are not at fault
Doctrine of frustration
19 BU 231 Class Notes
o Where the law excuses one party from performance when external causes
have made performance radically different from that contemplated by the
parties
Requirements of Frustration:
o Frustrating event must have been unforeseen
o Frustrating event must be outside of the control of the parties
o Frustrating event must occur AFTER the agreement was made
o Frustrating event must make performance impossible or purposeless
Where circumstances have changed and performance is now more onerous than it
ought to be is NOT frustration
Self-induced Frustration:
o Where a party wilfully disables itself from performing a contract in order to
claim that the contract has been frustrated
o This is NOT frustration – it is a breach of K
Effect of Frustration:
o Where one party has partially performed and the other party has not, then a
frustrating event can leave the performing party out of pocket
o Issue of fairness
Provides allocation of losses:
o Amount due or paid may be retained or recovered but no more than the
amount paid or due
o But if one party has performed and no money was paid or due, then the
performing party bears the loss
Sale of Goods Act R.S.O. 1990 c. S. 1
o Section 8: Where there is an agreement to sell specific goods and
subsequently the goods without any fault on the part of the seller or buyer
perish before the risk has passed to the buyer, the agreement is thereby
avoided
o Three conditions must first be present for this section to apply
First, the goods must be specific – that is , “they must be identified
and agreed upon at the time the sale is made.”
Second, the risk must still be with the seller – that is, the seller
must still be responsible for the safety of the goods.
Third, the cause of the frustration must be the perishing of the
goods
Where the Sale of Goods Act does not apply, then
The Frustrated Contracts Act applies in those provinces that have an Act, otherwise
The Fibrosa decision applies
o When a frustrating event occurs that the purchaser can reclaim any advance
payments or deposits made to the seller even if the seller has incurred some
expenses towards the completion of the contract. Meaning the seller has to
incur all expenses and repay the deposit, however if the seller had conferred
the slightest benefit to the buyer the seller could retain the whole deposit.
20 BU 231 Class Notes
Discharge by Operation of Law
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
o The bankruptcy and insolvency act operates to discharge a bankrupt debtor
from contractual liabilities after the processes of bankruptcy have been
completed. The debtor is discharged, however only if he qualifies for a
certificate stating that the bankruptcy was caused by misfortune and without
any misconduct on his part.
Limitations Act, S.O. 2002, c.24, Sch. B
o A debt or other contractual obligation that has been neglected by a creditor
for a long time becomes a statute barred – that is, the creditor loses the
right to bring an action on it. Each province has a limitations act setting out
the time at which the creditor loses its remedy.
Breach of Contract
Effect:
o May discharge the contract, but not always
Minor Breach:
o A breach of a non-essential term of the K or of an essential term in a minor
respect
Major Breach:
o A breach of the whole K or of an essential term, so that the purpose of the K is
defeated
Condition – an essential term of the K
Warranty – a non-essential term of the K
Breach of a condition allows the non-breaching party to opt for discharge of the K –
the breaching party remains bound
Breach of a warranty, both parties remain bound to the K, but the non-breaching
party can sue for damages where it has incurred a loss
How does a breach occur?
o Express Repudiation – declaration of intention not to perform;
o By rendering performance impossible;
o By failure to perform or tendering inadequate performance
Express Repudiation
o Options to non-breaching party
• Terminate K but reserve the right to sue for damages; or
• Insist on performance and wait for non-performance
o Anticipatory Breach
• Breach before performance is due
o Importance of timing
• K formation – K is binding from that point
One Party Renders Performance Impossible:
o Self induced frustration
o Contracts of personal performance (double-booking)
o Can be before or at time performance is due
Failure of Performance:
21 BU 231 Class Notes
o Can only occur when performance is due
o Can be total or partial failure
o Can be grossly inadequate performance
Doctrine of Substantial Performance
Performance that does not comply in some minor way with the requirements of the
contract
Prevents the non-breaching party from avoiding his or her performance
Exemption Clauses
A clause in a contract that exempts a party from liability for failing to perform some
or all of its contractual obligations
Risk Allocation
o Insurance
o Keeps costs low
o Problem: if used in SFC – inequality of bargaining power, puts risk on party
not willing or able to accept it
Defences:
o Inadequate notice
o Misrepresentation
o Non est factum
Fundamental Breach – goes to the heart of the K – court will strike down the clause
Remedies for Breach of Contract
Types of Remedies:
o Damages
o Equitable Remedies
o Quantum Meruit
Damages
A money award to compensate an injured party for the loss caused by the other
party’s breach of contract
Compensatory in nature
Purpose: to place the injured party in the position they would have been had the
contract been performed
Economic Breach
o Where it is economically advantageous to breach
Mitigation of Damages:
o Action by an aggrieved party to reduce the extent of its loss caused by the
breach of the other party
o The requirement to act reasonably
Must flow from the breach
Special circumstances:
22 BU 231 Class Notes
o The breaching party may not be held liable for additional damages arising
from special circumstances, where the breaching party was not made aware
of them
o Test: from past experience and knowledge between the parties, should the
managers have reasonably expected the loss at the time of K formation
Measurement of Damages
o The moment for determining whether damages were foreseeable is at the
time of making the contract not when the breach occurs
o At the time the contract is made the promisor is liable to uphold the promise
and the promisee becomes entitled to a continuous expectation of
performance until the time for performance arrives.
o In a breach of contract the court will include in its award of damages for
breach an amount equal to the expected profits on the aborted transaction
Expectation damages – an amount awarded for breach of contract
based on expected profits
Opportunity cost – the lost chance of making a similar contract with a
different promisor
Liquidated Damages – an amount agreed to be paid in damages by a
party to a contract if it should commit a breach
Penalty Clause – a tem specifying an exorbitant amount for breach of
contract, intended to frighten a party into performance
Equitable Remedies
Courts of equity
o Special non-monetary remedies given where damages are not sufficient
o Can order a party to perform the K
o Court orders other than money settlements
o E.g. Rescission
Discretionary in nature:
o Plaintiff must come to court with “clean hands”
o Action must be brought in a reasonable time
o No innocent 3 party involved
o Consideration must be commensurate with promise
o Cannot violate Principle of Symmetry
Specific Performance:
o An order requiring a defendant to do a specified act; usually to complete a
transaction
o Only for unique properties (real or personal)
o S.P. is almost never granted in employment or personal service K’s
o The uniqueness of land: Semelhago v. Paramadevan [1996] 2 SCR 415
Injunctions:
o a court order restraining a party from acting in a particular manner
o Need for a negative covenant in the K
o Injunctions are rare in employment K’s
Injunctions:
23 BU 231 Class Notes
o Injunction
o Interlocutory Injunction
• A temporary restraining order – to restrain immediate harm from
being done by a breach of contract
o Mareva Injunction
o Anton Pillar Order
Quantum Meruit
The amount a person merits to be paid for goods or services provided to the person
requesting them
What if the part performance is by the breaching party? Is the breaching party still
entitled to QM?
Enforcing a Judgement
The judgment:
o Order by the court requiring one party to pay to the other party damages, or
perform as per an equitable remedy
o The parties become:
• Judgment Creditor; and
A party who has obtained a court judgement for a sum of
money
• Judgment Debtor
A party who has been ordered by the court to pay a sum of
money
The steps to seize assets of the JD:
o Judgment must be registered with court;
o Writ must be filed with Sheriff’s Office – jurisdiction is important – JC
becomes Execution Creditor;
o An execution order must be made to the Sheriff and then;
o The Sheriff can levy execution – seizes and sells assets for the benefit of ALL
execution creditors
o NB some assets are exempt from seizure e.g. annuities and pensions
Sheriff’s Office:
o Must pay out all secured creditors first
o Takes a percentage for Sheriff’s fees
o Difference remaining is paid pro rata amongst all of the execution creditors
Garnishment Orders
o To access:
• Bank accounts
• Wages
• Accounts receivable
o Filed with Sheriff’s Office
• Payments made to Sheriff
• Sheriff distributes to Execution Creditors
24 BU 231 Class Notes
Writs have to be renewed regularly – every couple of years – to stay current as an
Execution Creditor
Judgments remain in effect for 21 years
Notice of the judgment can be placed on the various credit bureaux to affect the JD’s
credit rating and to notify anyone of the outstanding debt
Follow up:
o Examination in Aid of Execution
• Allowed annually
• Interview with JD under oath to determine assets, income, liabilities
and expenses of JD
• JD must bring in all documents related to assets, income, liabilities
and expenses
Bailments
A transfer of possession of personal property without a transfer of ownership
o Contractual
o Non-contractual
o Involuntary
Parties:
o Bailor
o Bailee
Nature of Bailment:
o Personal property (chattels) only – can include documents containing legal
rights
o NOT real property
o Transfer of Possession without transfer of title (ownership)
Benefits of Bailment:
o Contractual
Designed to benefit both parties
Bailment for value
o Non-Contractual
Can benefit either party or both parties
Gratuitous
• Where there is no consideration or intention to create a legal
relationship
Rights and Duties of Bailee:
o Tort or contract
o Contractual terms can determine the liabilities of the bailee
o ALL bailees have a duty of care – the standard of care will depend on the
nature of the bailment
o While there are elements of both K and tort law – bailments are governed by
their own rules!
Sub-bailments
o Receiving a bailment from a bailee
25 BU 231 Class Notes
o Punch v. Savoy Jewellers Ltd. (1986), 26 D.L.R. (4 ) 546
Standard of Care:
o Depends on type of bailment
o Lowest standard is for the grat
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