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Western University
Law 2101
Mysty Sybil Clapton

Commercial Law CONTRACTS CONTRACTS: AN INTRODUCTION Contract has 2 functions: facilitate exchange and separate legal from moral - Need a law of contract where dollar value is very high and where services are spread out over time (ex- ivey building) – ensures each side they will be paid - separates out legal from moral – contract tells us which promises we made are binding/not binding in law- nobody really thinks that every promise we make are legally binding Its judge made law because – thats the way its always been done and its practical because human conduct is always changing Special contracts: sale of goods act, consumer protection actvery narrow areas - Protects from liability for unrequested goods and services.- don’t have to pay for unwanted gifts (charity gifts in the mail) 3 things you have to prove to sue someone - Offer and acceptance - Consideration- you paid for that promise to be binding - Intention to create legal relations- each party had an intention to create legal intentions **EXAM**Offeror/promisor: the one making the offer. Offeree/promisee: the one to whom the offer is made. Requirements of an offer Include: - Inclusive Terms - Outward Directed Expression - Sufficiently Certain - Objective - Time Requirements - Willingness to be Bound SM Waddam, Intro to the Study of Law - Law of contracts is concerned with expectations induced by the conduct of others - The expectations are induced by promises and agreements - The chief criterion of enforceability has been the bargain, an agreed exchange. - Law of contracts involves a continuous tension btw stability, certainty, and predictability on one hand and fairness, equity, and justice in the individual case on the other GHL Friedman, Law of Contracts - Promises are fundamental - He undertakes to limit his future freedom of action, and to that extend may be said to have accepted an detriment - Contract= promise for promise CONTRACT FORMATION: OFFER Corbin on Contracts - Offer is an expression by one party of his assent to certain definitive terms provided that the other party involved will also express his assent to the same terms. - An offer creates a power of acceptance in the offeree - An offer must be an expression of will or intention o Must lead the oferee reasonably to believe that a power to create a contract is conferred upon him - Offer isn’t operative unless it justifies another person in thinking that it is directed towards him for his acceptance - The offer must contain ALL the terms of the contract Time Requirements - Offer must come before acceptance - There is no offer/acceptance if both are said at the same time - They must be a response to each other - Two identical offers sent by different parties to one another do not make a contract but rather are cross-offers both awaiting acceptance. Offer vs Invitation to Treat ▪ The common law makes a distinction between an offer, which if accepted, would form a contract, and a mere invitation to treat. ▪ An invitation to treat is a statement that is designed to elicit an offer from the party to whom it is addressed. Pharmaceutical society of Britain v Boots Cash Chemist - The sale took place when the customer put the item in their basket. Why? - Offer: The display of merchandise with a price was an offer made by Boots. - Acceptance: it was accepted by the customer when they put the item in their basket. - Therefore: the sale was not under the supervision of a pharmacist since the pharmacist could not refuse to accept the customers payment. - The sale did not take place until the goods were paid for at the cash register. Why? - Invitation: The display of priced goods was an invitation to treat. - Offer: The customer made an offer to the cashier. - Acceptance: which the cashier accepted under the supervision of the pharmacist. Hence, the pharmacist could refuse to sell (not accept the offer of the customer to purchase) if there was a problem. - H: The interpretation put forward by Boots is the correct one. - The display of merchandise with a price (either in person, in an advertisement or in a catalogue) is generally considered an invitation to treat rather than a offer. - Something with a price tag is an invitation to treat not an actual offer - You make an offer to till person , till person accepts your offer and contract is complete - If you go to a store and take it to a till- they can refuse to sell it to you - They can refuse to take your offer at the till Storer v Manchester City Council - There was a bunch of contracts made for house signings - A new office came into power and said that these contacts can no longer take place - Some people were allowed to go through with it because they had already exchanged contracts - MR storer had gone through extensive communication with town before new office o He was pretty much confirmed o All the paper work was signed- there was offer and acceptance o Form headed “agreement of sale for house” - Issue was whether he could still get the house even though they didn’t formally exchange contracts - The contract was confirmed by the offer and acceptance - It doesnt matter if there was no formal exchange - Take aways o Whether or not there has been offer /acceptance will be judged objectively o WHAT WOULD A REASONABLE PERSON ASSUME? Would they think there was an offer o It doesnt matter what people THOUGHT they were doing o You look to what someone said and did o Matters what outside person interprets 2 types of Contracts - Bilateral contract- promise exchanged for promise- traditional style - Unilateral contract = Promise exchanged for an act. The acceptance would be actually doing the act o Law doesn’t care if you have mixed motives  act for a promise o when its an act for a promise- the promise must be known by the offeree- must be offer then acceptance - Both contracts are equally enforceable - Must give an promise for a promise ; or a act for a promise Carlil v Carbolic Smoke Ball co - Smoke ball co promised to pay 100$ to any who caught a flu if they used the smoke ball properly, as directed 3 times a day = in an advertisement - Woman used it, but caught a flu- she sued saying where is my 100$ - Defendants arguments 1. Too vague. o 2. It was a puff. (Ex. AXE body spray ads)  Exaggeration o 3. No sane business person would make this “offer”.  If a person chooses to make extravagant promises he prob does it because it pays him to make them- he has to keep them o 4. Contract with the World.  This is allowed  It is legally permissible to make an offer to the world. o 5. No acceptance.  Sometimes acceptance can be done through the performance of the act itself  Common sense- lost dog sign for a reward- there is never a notification saying yes I will look for your dog - A unilateral contract (promise for act) is just as enforceable as a traditional contract (promise for promise). - Where the offer indicates, performance of the requested act can constitute with notification of acceptance - It is within the power of the offeror to dispense with notification of acceptance. **imp** - It was intended to be understood by the public as an offer which was to be acted upon - She is owed 100 CONTRACT FORMATION: ACCEPTANCE Requirements of an acceptance - clear and unconditional - communicated to offeror in compliance with terms stated in offer - made with knowledge of offer (motive is irrelevant) - made in response to offer (i.e., not a “cross-offer”)- cant be at the same time Livingston v Evans 1. Offer to sell land for 1800 2. Reply: lowest cash offer, will give 1600 cash 3. Cannot reduce price 4. Guy paid 1800 - Question was whether the counter offer was in law a rejection of the offer - General principle that a counter offer destroys original offer because it implies different terms - But in this case he implied that it was a renewal of the original offer - Although a counter offer can kill the original offer, the offeror can renew the original offer. Can silence in response to an offer ever amount to acceptance? Scammel and Nephew v Ouston - Promise to exchange money for car - But car was in bad condition - The language used was too obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention - There is no contract to agree - Contracts to agree or to negotiate are not sufficiently certain enough to be enforced - Too vague - Their agreement was inchoate and never got past the point of negotiations - It is a fundamental principle of contract formation that the offer which states the contractual terms must do so with sufficient definitiveness. acceptance must be communicated clearly to the offeror acceptance must be communicated to offeror in accordance with terms set out in contract- ex- let me know by email, if done by phone it doesnt count CONTRACT FORMATION: TERMINATION OF OFFER Termination of offer done by: - counter-offer by offeree (as we saw in Livingstone v. Evans) o negotiation kills offer and original agreement - rejection by offeree o once you reject offer, you cant go back and try to accept it - lapse of offer (either by deadline passing or a reasonable time elapsing). - revocation by offeror o offeror can revoke the offer before contract is signed o as a general rule, an offer can be revoked (withdrawn) at any time before it is accepted o notice of the revocation must be given and must actually be received by offeree o although revocation must be communicated to offeree, it need not be communicated by the offeror (Dickinson v. Dodds) Dickinson v Dodds - Plaintiff was offered a house but didn’t at once signify his acceptance - He had a deadline to submit his acceptance - Instead of waiting till the deadline, the defendant agreed to sell the property to another person - A person who has given to another a certain time within which to accept an offer is not bound by his promise to give that time - If a man who makes an offer dies, the offer cannot be accepted after he is dead - When a person to whom the offer is made knows that the property has been sold to someone else, its too late for him to accept the offer - A promise to hold an offer open for a certain time is unenforceable unless there is consideration for the promise - Knowledge that would be sufficient to indicate revocation to the reasonable person, even if indirect, rude, and impersonal, invalidates the power of acceptance Silence doesnt count as acceptance unless I say that my silence counts as an acceptance (felthouse v bindley) - But you cant say that if i dont hear from YOU then you have bought the house CONTRACT FORMATION : CONSIDERATION - A contract consists of an exchange of exchange of promises, acts or acts and promises as a result of which each side receives something from the other - There has to be some material advantage passing to or promised by one party before a promise given in exchange can be regarded as a contract - No consideration=no contract - Consideration is either a benefit to promisor or a detriment to promisee - Consideration can be an act or a promise - “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other.” - Currie v. Misa - “An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” - Dunlop v. Selfridge Hammer v Sidway - Uncle promised his nephew 5000 if he didn’t drink or smoke until he was 21- accepted - When he was 21, his uncle refused to pay - Def says that the contract was without consideration to support it because the use of liquor not harmed but benefitted the plaintiff - Considerationeither some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the others - Plaintiff had the legal right to drink and he gave up this right—thats a detriment he suffered - Uncles owes 5000 Wood v Lucy Lady duff Gordon - Lady is very popular and gives endorsements to clothing lines- makes big profits of this - Her assistant was able to place her endorsement on clothes but he would make 50% of the profits she made from the contracts he earns - Defendant broke that contract - She says that there was no contract because the plaintiff doesnt bind himself to anything – so no consideration - The promise is that he will use reasonable efforts to place the defendants designs- implied - Implication is that the plaintiffs business will be used for the purpose for which it is adapted Charity case - X promises to give $1000 to charity. - X does not pay. - Enforceable promise? - No b.c they didn’t pay for your promise Fence example - On Monday, Y paints X’s fence. - On Tuesday, X loving the job that Y had done promises B $100 for having painted A’s fence. - Y says “I accept”. X then refuses to pay Y the promised $100. - Enforceable promise? - No b.c past consideration doesnt work Money for Money - X & Y enter into an agreement whereby X promises to give Y $10,000 in return for a promise by Y to give X 2 cents. - Enforceable promise? - Its not binding because a consideration has to be separate and distinct - Cant give money for money because then its just considered a gift Peppercorn example - X & Y enter into an agreement whereby X promises to give Y $10,000 in return for a promise by Y to give X a peppercorn. - Enforceable promise? - Yes, doesnt matter what consideration is Happy example - Promise to be happy - X and y enter into an agreement whereby x promises to give y 10 000 in return for a promise by y to be happy - Enforceable promise? - Not binding! Rules for consideration - 1. consideration need not be adequate (a “peppercorn” will do) - 2. consideration must move from the promisee and be separate and distinct - 3. “past consideration” is not valid consideration Promissory Estoppel **EXAM** Promissory Estoppel- Where A makes a gratuitous promise (one not supported by consideration to B and B subsequently relies upon that promise to B’s detriment, B may be able to enforce A’s promise. - If you rely on the promise made to you, and its taken away, then the Promise may be partially enforceable - There must be a preexisting legal relationship - There must be a change in the contract. Because you relied on the promise, that was made to you. It can be enforced - You can only use estoppel. Can only be used as a shield. - This law is pretty controversial- - Central property Trust v High Trees House Ltd - During the war the two companies negotiated that rent for a unit would go down from 2500/year to 1250/year because of issues dealing with the war - The landlord claimed that the rent was 2500 about 10 years later, after the war was over - Tenant argued that the agreement for the rent to be 1250 applied to the whole term of the lease,99 years - When a promise is made and is intended to create legal relations, the promise must be honoured - These promises should be enforceable in law even though no consideration has been given by the promisee - In this case, the promise was understood by all parties only to apply under the conditions prevailing at the time when it was madesince those conditions no longer exist the rent is payable in full __________________________ INTENTION TO CREATE LEGAL RESPONSIBILITY - For an agreement to be enforceable as a contract, the parties must have intended to create legal relations. This is an objective test. - Presumtions on intentions of creating contract o In social settings, the parties are not trying to make a contract and they rely on each others good faith – Balfour v Balfour o In commercial arrangements there is a presumption that the parties intended to create legal relations. Rose and Frank v. Crompton o For business decisions, if you say “in honour only”, there is no legal relationship. assumption that business decisions are in good faith Merritt v Merritt - Husband and wife- husband cheats on wife - Wife and husband decide to divorce - They make an agreement saying husband pays her and she uses the money for household items, and they agreed that she would get entitlement to the house after 5 years - After 5 years she asked for title to the house, he said no - But THERE WAS A CONTRACT - Exception to presumptionsWhen not living in peace, goodwill, harmony or amenity the family presumption doesnt exist Balfour v Balfour - Wife and husband agreements don’t consititute for contracts because the parties did not intend that they should be attended by legal consequences - The agreement must have the intention of carrying out legal obligations Rose and Franky Cpy v JR Crompton and Brothers - Possible for the parties to come to an agreement by accepting a proposal with the result that the agreement concluded does not give rise to legal relations - The reason of this is that the parties do not intend that their agreements shall give rise to legal relations - In social and family matters, such an intention is implied, while in business matters, the opposite result would occur - In commercial arrangements there is a presumption that the parties intended to create legal relations - Fobasco v cogan Fobasco v. Cogan - Season ticket holder of jays - Every year the plaintiff would sell defendant 10 season tickets - They had a falling out, and plaintiff asked for season tickets and defendant said no - Plaintiff sued. - Was there an intention to enter into legal relationship? - No, it was an informal deal among business people. It was “in honour only” - He didnt get tickets _________________________________ MISREPRESENTATION AND CONSUMER PROTECTION - Odometer been rolled back on car even though said 20 00km - These pre-contractual statements can fall into five categories: o Puffs  Mere sales talk- doesn’t count. Contract still exists o Terms of the Contractual relationship (aka Warranties, Collateral Contract)  Collateral warranty- your promise  Contract- the actual contract  1. You must find offer and acceptance and consideration • The acceptance and the consideration are you entering into the main contract to purchase the car  2. You must have promissory intent- You have to prove that the representation (the car has only 20,000 km) was meant to have contractual force. Hard to prove. 4 things to determine this • 1. The purchaser makes it clear that she regards the matter (the kms) as so important that she would not contract without the assurance by the salesperson; • 2. The salesperson is stating a matter that should be within his knowledge and of which the purchaser is known to be ignorant. Thus it was reasonable for the purchaser to rely on their skill or special knowledge; • 3, To what extent is the accuracy of the statement -- the truth of what is promised -- likely to affect the whole reason for entering into the main contract; & • 4. Most important: Assumption of risk. Could you reasonably assume that Salesperson guaranteed that fact? • Basically, if it was a guarantee, then you have a collateral warranty • All factors are determined objectively, court doesn’t have to find all 4 to be true- its a holistic exercise • You get expectation damages- They put you in the position you would have been in had the promise been true. Heilbut, Symons v Buckleton - Plaintiff sought relief in damages against defendants in respect to two contracts whereby the def undertook to procure for the plaintiff, and the plaintiff undertook to accept the allotment of 5000 and 1000 shares in a company - Plaintiff: “I understand that you are bringing out a rubber company?” - Defendant: “We are”. - the claim was based on allegations that the plaintiff had been induced to enter these contracts through the false and fraudulent representation of the defendants - Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law o They must be proved strictly- collateral contracts are RARE - There is an absence of any evidence to support the existence of a collateral contract in this case - A person is not liable in damages for an innocent misinterpretation, no matter in which way the attack is made - In this case, there was no promissory intent since the defendant’s answer was merely a “statement of fact” and “a reply to a question” not a promise. - Must prove that the representation was either part of the actual contract or a collateral contract - TAKE AWAYS o In order to find a collateral warranty you must find promissory intent. o The test for promissory intent is objective. o It is difficult to prove a collateral contract. o Fraudulent Misrepresentations;  If you cant sue them for collateral contract, you might be able to sue for fraud  You need to prove 5 things  1) Representation of fact made by salesperson;- hard to show this  2) Representation is untrue, inaccurate, or misleading;  3) Fault: the salesperson knew that the representation was false or was reckless to the truth;most importantif the salesman later found out what he said was untrue, he has to call the customer right away and tell him it was untrue  4) The misrepresentation must have caused the purchaser to enter the contract;  The courts will presume that you relied on the misrepresentation  5) Must prove that you suffered some sort of damage from the lie  Courts are very strict in applying fraud  Courts don’t care if customer was contributory negligent  the fact that the   purchaser could have investigated but did not does not preclude the purchaser from bringing this claim.  You can get damages or common law recission (you can give the car back and get your money back if they lied about km on car) (you can give the car back no matter what condition its in) o Negligent Misrepresentations;  Requirements  1) Representation of fact made by salesperson;  2) Representation untrue, inaccurate, or misleading;  3) Fault: The salesperson did not take reasonable care in making the statement or in the research leading up to making the statement. - Prove that they breached the standard of care  4)The misrepresentation must have caused the purchaser to enter the contract.  5) There must also be a Duty owed by the salesperson to the purchaser. In order for there to be a duty there must be an assumption of responsibility by the salesperson (you can trust me!) and reasonable reliance by the purchaser. – must prove that you had a special relationship with the sales person  6) Damage  Remedy is damages o Innocent Misrepresentations.  Is a representation made without an intention to deceive and without negligence.  You can give it back but only in the condition you got it in and if you do it really quickly  Equitable Rescission: (but only if you can return the thing purchased in the condition in which it was purchased and you exercise your right to return it promptly). Redgrave v Hurd - Defendant agreed to buy the law practice, and after realizing it was worthless, refused to pay for it - Argument was that he had been induced into making the purchase through the plaintiffs false representations about the law - The effect of false representation is not got rid of on the ground that the person to whom it was made was negligent o It doesnt matter if the person was negligent, you cant make false claims - Where there was evidence that he didn’t know that the false claim was false, and he relied on the information, and it was a material statement, then this is sufficient grounds for rescinding the contract - He cant get damages but he gets rescission since the fact that he was negligent doesnt matter and the reliance on the defendants statements is inferred - TAKEAWAYS o Contributory negligence does not disentitle them from rescission. o Reliance will be inferred where the plaintiff acted on material misrepresentation in entering into a contract. o Damages are not available for innocent misrepresentation. o Equitable rescission is only possible where: restitution of the consideration given is possible.- where you can give what you purchased back o An unreasonable delay (doctrine of laches) may disentitle one from receiving rescission. Murray v Sperry Rand Corporation - Plaintiff was thinking about buying a new tractor for his farm - He read the brochure and talked to the Church (distributor) and was assured that the tractor would be perfect for this farm - Church went to his farm to check it out and said that the tractor would do exactly what the brochure said it would - When he bought the tractor, it didn’t work at all- defective machine - He sued - The representations made were made for the single purpose of inducing the plaintiff to buy the machine - The representations made to the plaintiff were collateral warranties - Failure of the machine was a breach of the warranties - Should the manufacturers also be liable even though there was no contractual relationship btw them? (due to the promotional voice of the brochures) - The dealer induced a sale through the use of the brochure and thus acquired liability - TAKEAWAY o A person may be liable for breach of warranty notwithstanding the absence of another contractual relationship. Consumer Protection Act - Gives enhanced remedies to consumers - S14-17 describes all the way consumers could be taken advantage of - S18 said you can return what you got - You can give stuff back even if its damaged - Only applies to consumers- someone acting for personal purposes ________________________________ MISTAKE - 4 categories for mistake (misunderstanding, integration, obligation, assumption) o Misunderstanding/Mistake in Terms  Each party thinks something different about important terms in the contract  Where there is a mistake in terms, and its a reasonable interpretation of the contract, there is no contract Raffles v Wichelhouse - Agreed that the plaintiff should sell cotton arriving from Bombay on a ship called “peerless” - The defendant refused to pay once it got there because he said he wanted it from another ship called “peerless” - There was an ambiguity between plaintiff and defendant - There was no consensus and no binding contract between then - Defendant won - TAKEAWAYS o If some essential element of the contract could have two different meanings when viewed objectively, then there is no contract. o If the misunderstanding is merely subjective then there is a contract on the reasonable interpretation of the terms. OBJECTIVELY VIEWED  Example- if you order a deluxe pizza and it only has cheese you can return it because deluxe has an objective meaning o Mistake in Integration  Contract was written down wrong  The usual remedy is rectification.  Rectification means that the court will correct the contract and then enforce the correct meaning. o Mistake in Obligations/Performance  someone does something that they arent legally allowed to do, but they think they are allowed to do  EX- You pay your VISA bill twice, can you recover the money you paid extra?  Remedy = restitution.  That would be an unjust enrichment- have to prove • An enrichment to one; • A corresponding deprivation in another; & • No legal reason for the enrichment. (i.e. no contract, agreement, gift or statue justifying why the other person should have the money). • But, if you already spent your unjust enrichment “in good faith” you don’t have to give it back o Mistake in Fundamental Assumption  Test: 1) mistake must be implicitly shared between the parties; and 2) be fundamental to the existence of the contract.  No contract because both people assumed something was false  If only one person makes the mistake, you cant get out of the contract  It doesnt matter if the other person knew the truth and didnt tell you  Doesnt work when • When the contract is to buy something you already own you cant purchase something you already own. If someone stole something and tried to sell it back to you it doesn’t work. • When the thing purchased is already destroyed before the contract. Scott v Coulson - Life insurance case where the defendant agreed to sell insurance policy for a guy called AT Death - Both plaintiff and def assumed he was still alive - But he was in fact dead - There was a common mistake and the contract was one that cant be enforced Sherwood v Walker - Controversy surrounding the construction of a contract for the sale of the cow - Both parties agreed to sell the plaintiff a cow 80$ - When he went to get the cow, he was refused it - The cow was in fact a breader making it worth much more than both parties thought - A party who has given an apparent consent to a contract of sale may refuse to execute it, or he may avoid it after sale has been made, if the assent was made upon a mistake of material fact, such as the subject matter of the sale, the price, or some collateral fact materially inducing the agreement; and this can be done when the mistake is mutual. - One party thought that he could make the cow fertile, and one party thought that the cow wasn’t fertile. - If the fact that the cow bread is important enough to have avoided the transaction then the contract doesnt hold - The mistake of the parties went to the whole substance of the agreement- the cow would have been worth way more if both parties knew she was a breeder - Decision was that the def couldn’t get out of the contract because the mistake wasn’t shared- walker thought that the cow could be fertile _____________ BREACH OF CONTRACT AND REMEDIES - Specific and monetary damages - Specific remedies include a decree of specific performance ordering the defendant to perform her promises, and an injunction ordering the defendant to refrain from doing what she promised not to do- court makes them do what they said they would - Court chooses whether they get specific damages or monetary - Court will order specific performance only whether damages are inadequate (damages wont allow you to buy substitute) - Specific performance is reserved for things that are special ex- sale of real estate b.c each part of property is special; piece of personal property is very special - Cant get specific performance where they will be involves in ongoing supervision (court doesnt want to be referee) - Monetary remedies- damages- aim at compensating the plaintiff by measuring her loss in money - Usually, the damages are a set of money that will put the plaintiff back into the same position he would be in if the contract had been performed - The duty to keep a contract at common law means a prediction that you must pay damages if you don’t keep it Warner Brothers v. Nelson [1937] K.B. - Betty Davis signed a contract with Warner Bros. before she became famous - This contract provided that she would render her acting services exclusively to Warner Bros. - She later found the contract to be unfair and she fled to the UK to work - Warner Brothers wanted the English Court to order specific performance to stop her - Issue: Is Specific Performance the proper remedy? - Warner brothers said ORDER her to work for us- b.c of breach of contract - Betty Davis’ talents are unique - Damages are thus inadequate - Damages flowing from the breach would be difficult to measure - If you are dealing with a contract for personal service or work, requiring diligence and close contact between the parties, the court will not order specific performance - The courts will order the breaching party to not work for anyone else for a reasonable period of time - when you are dealing with a contract for personal service or work, requiring diligence and close contact between the parties, the court will not order specific performance - BUT - Courts say that she couldnt work for anyone else as an actress for a reasonable period of time - She could work in other jobs that did not require her to use her acting skills - TAKEAWAY o The Courts will not order specific performance in a contract for personal service. o The courts will order the breaching party not to work for anyone else in the chosen field provided the breaching party would be able to support themselves in another occupation (Detroit Lions v Dublinski) Sally Wertheim v Chicoutimi - In giving damages, the plaintiff should be placed in the same position as he would have been in if the contract had been performed 5 Types of Damages 1. Expectation Damages - Amount of money that simulates contract performance - Puts you in the position you WOULD have been in had the contract been fulfilled - Expected Benefit from contract – expected costs under contract = damages - If the person has negative damages according to formula- he is awarded nominal damages- 40$- recognizes your rights have been violated Peevyhouse v. Garland Coal and Mining Company - Peevyhouse leased part of their farm to Garland Co. for five years - Under the lease, Garland Co. would be able to get coal and Peevyhouse would be entitled to a share of the royalties - Garland Co. performed all required actions under the contract except filling in the pits - The cost of performance of filling in the pits was $30,000 - The decrease in value of the property was $300 - The farm was worth approximately $3,500 - Could they get 30 000 for breach of contract? Or could they get 300? - Peevyhouse should be awarded $300 - No rational property owner would spend so much money to only raise the property value by $300 - The “remedial work” provisions of the contract, including the clause requiring Garland Co. to fill in the pits, were secondary provisions - To order the company to pay the full $30,000 would be akin to punishment - Got 300 despite what the dissenter said 2. Gain-based Damages - damages based upon the breaching side’s gain- Disgorgement AG v Blake - The plaintiff was a former spy for the UK - In 1944 he signed an undertaking not to divulge any official information gained through his employment - Between 1951 and 1970 he was a double agent, exposing valuable information to the Soviet Union - In 1961 he was convicted of spying and sentenced to 42 years in prison - In 1966, the Soviet Union helped him escape - In 1989 he wrote an autobiography, which was a criminal offence - The publishing contract was to pay him £150,000 - The U.K. government sued the spy for £150,000 - Issue: Could the government get disgorgement as a remedy for breach of contract? YES - The plaintiff could get disgorgement where: o Expectation Damages or specific performance are inadequate. o The relationship between the parties should have a confidential character. o The plaintiff has a legitimate interest in preventing the defendant from profiting from the breach - he coudnt get specific performance b.c the book was already published - Hardly ever have awards that are gain based 3. Issues of Consequential Loss/Remoteness - What if your loss is that you cannot put the thing you contracted for to the use you were going to? o Example: You wanted the toys because you wanted to sell them to another buyer for $15,000. o Without consequential losses, damages would be limited to $5,000 - Sometimes u can, sometimes u cant - Basically remoteness in contract law - The courts have concluded that consequential losses are recoverable where the losses “may reasonably supposed to have been in the contemplation of both parties at the time of the breach” - The test is “whether the defendant could have reasonably have had in their contemplation, as a serious possibility or not unlikely, that the failure to live up to the contract would lead to the loss complained of” **EXAM** Hadley v. Baxendale - The plaintiff owns a mill and a mill shaft breaks and all production stops - The plaintiff asks the defendant to take the shaft to the manufacturer - The delivery is late and the factory loses £300 in profits and sues the defendant - The defendant only knew that the plaintiff was having a shaft transported from the mill to the manufacturer - Damages were too remote since the defendant did not know that this was the only mill shaft. Because he did not know, it was not a serious possibility the mill would be idle - there were many other plausible reasons why the shaft might be sent on: o To be repaired before a spare one broke; o To be sent back to the engineer who made it; o Because there were other problems with the other machinery and it could not be used. Victoria Laundry v. Newman - Plaintiff was a drycleaner - Inquired about a boiler - Wanted the boiler in june - Def doesnt delivery the boiler until NOVEMBER - Plaintiff sues def for 2 losses - Didnt make regular high season profits - Govt came in july and drycleaner lost profits of the govt contract - Answer: they can recover on the high seasoned profits; they cant recover on govt contract Heron II - Ship owner with lots of sugar that belongs to plaintiff - Def said they will deliver the sugar to the special sugar market - Sugar arrives 9 days late- but sugar was traded for a very high price until they arrivedàprice of sugar went down - He sued the ship owner - Could the ship owner determine that their failure to deliver will result in a loss? - àhe could recover, its in the reasonable that price of sugar will go up and down. It wasnt too remote 4. Intangible Losses - An intangible loss is a loss that does not have any apparent economic value - Traditionally, courts refused to award damages for such mental anguish or emotional suffering in breach of contract cases Jarvis v Swans Tours -
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