Contracts (Nadler) - 2017 PDF

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Very detailed and organized course notes, include notes from class and assigned readings. Important notes for exams are included....

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CONTRACT LAW FINAL EXAM SUMMARY Table of Contents 6

REMEDIES THE EXPECTATION MEASURE OF DAMAGES FULLER AND PERDUE, “THE RELIANCE INTEREST” PITCHER V SHOEBOTTOM HAWKINS V MCGEE THE RELIANCE MEASURE OF DAMAGES BOWLAY LOGGING LTD V DOMTAR ANGLIA TELEVISION V REED PROBLEMS IN MEASURING DAMAGES COST OF PERFORMANCE OR ECONOMIC VALUE? GROVES V JOHN WUNDER CO JACOB AND YOUNGS V KENT PEEVYHOUSE V GARLAND & MINING CO. RUXLEY ELECTRONICS V FORSYTH RADFORD V DE FROBERVILLE UNCERTAINTY CARSON V WILLITTS CHAPLIN V HICKS LOST VOLUME SALE OF GOODS ACT THOMSON LTD V ROBINSON LTD CHARTER V SULLIVAN REMOTENESS OF CONSEQUENTIAL LOSS BRITISH COLUMBIA SAW MILLS CO. V NETTLESHIP HADLEY V BAXENDALE HORNE V THE MIDLAND RAILWAY COMPANY VICTORIA LAUNDRY V NEWMAN INDUSTRIES THE HERON II THE ACHILLEAS CORNWALL GRAVEL CO. LTD. V PUROLATOR COURIER LTD. RIVERS V GEORGE WHITE KINGHORNE V THE MONTREAL TELEGRAPH MUNROE EQUIPMENT SALES LTD. V CANADIAN FOREST PRODUCTS LTD. SCYRUP V ECONOMY TRACTOR PARTS SPECIFIC PERFORMANCE FALCKE V GRAY COHEN V ROCHE SKY PETROLEUM LTD V VIP PETROLEUM LTD CO-OPERATIVE INSURANCE SOCIETY V ARGYLL STORES (HOLDINGS) LTD WARNER BROS. PICTURES V NELSON INTANGIBLE INJURIES ADDIS V GRAMOPHONE JARVIS V SWAN TOURS LTD

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HEYWOOD V WELLERS VORVIS V INSURANCE CORP. OF BRITISH COLUMBIA FIDLER V SUN LIFE ASSURANCE CO. PUNITIVE DAMAGES WHITEN V PILOT INSURANCE CO MITIGATION OF LOSS PAYZU LIMITED V SAUNDERS CONTRACT FORMATION: OFFER & ACCEPTANCE OFFERS AND PRELIMINARY NEGOTIATIONS DENTON V GREAT NORTHERN RAILWAY COMPANY JOHNSTON BROTHERS V ROGERS BROTHERS HARVEY V FACEY GRINGER & SON V GOUGH AND BOYER AND CO V D & R DUKE PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V BOOTS FISHER V BELL LEFKOWITZ V GREAT MINNEAPOLIS SURPLUS STORE STORER V MANCHESTER CITY COUNCIL THE POWER OF ACCEPTANCE SHATFORD V B.C. WINE GROWERS LTD MANCHESTER DIOCESAN COUNCIL V COMMERCIAL & GENERAL INVESTMENTS LARKIN V GARDINER ROBAPHONE FACILITIES V BLAKE DOMINION BUILDING CORP V THE KING FELTHOUSE V BINDLEY LUCY V MOUFLET WHEELER V KLAHOT DICKINSON V DODDS ELIASON V HENSHAW MANCHESTER DIOCESAN COUNCIL V COMMERCIAL & GENERAL INVESTMENTS (AGAIN) HYDE V WRENCH BUTLER MACHINE TOOL CO V EX-CELL-O CORPORATION LTD TIM V HOFFMAN BRISTOL, CARDIFF, AND SWANSEA AERATED BREAD CO. V MAGGS HARVEY V PERRY ACCEPTANCE AND UNILATERAL CONTRACTS WILLIAMS V CARWADINE THE CROWN V CLARKE CARLIL V CARBOLIC SMOKE BALL COMPANY ERRINGTON V ERRINGTON DAWSON V HELICOPTER THE OBJECTIVE THEORY OF CONTRACT FORMATION RAFFLES V WICHELHAUS HENKEL V PAPE HOBBS V ESQUIMALT AND NANAIMO RAILWAY CO. CONTRACT FORMATION: THE DOCTRINE OF CONSIDERATION THE BASICS HAMER V SIDWAY

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ALLEGHENY COLLEGE V NATIONAL CHAUTAUQUA COUNTY BANK WHITE V WILLIAM BLUETT ELEANOR THOMAS V BENJAMIN THOMAS GREAT NORTHERN RAILWAY CO. V WITHAM RE: THE GLOUCESTER MUNICIPAL ELECTION PETITION TOBIAS V DICK AND T. EATON CO. WOOD V LUCY, LADY DUFF-GORDON PAST CONSIDERATION LAMPLEIGH V BRATHWAIT KENNEDY V BROUN PAO ON V LAU YIU LONG RASCORLA V THOMAS MILLS V WYMAN PRE-EXISTING DUTY HARRIS V WATSON STILK V MYRICK HARTLEY V PONSONBY NEW ZEALAND SHIPPING CO JUSTICE HOLMES, “THE COMMON LAW” SMITH V DAWSON RAGGOW V SCOUGALL AND CO GILBERT STEEL LTD V UNIVERSITY CONSTRUCTION LTD WILLIAMS V ROFFEY BROS GREATER FREDERICTON AIRPORT AUTHORITY INC V NAV CANADA FOAKES V BEER ONTARIO MERCANTILE LAW AMENDMENT ACT THE SEAL INTENTION TO CREATE LEGAL RELATIONS BALFOUR V BALFOUR MERRIT V MERRIT ONTARIO FAMILY LAW ACT JONES V PADAVATTON ROSE AND FRANK CO V J.R CROMPTON & BROTHERS PRIVITY OF CONTRACT TWEEDLE V ATKINSON DUNLOP TYRE V SELFRIDGE BESWICK V BESWICK MULHOLLAND V MERRIAM LONDON DRUGS V KUEHNE & NAGEL FRASER RIVER PILE AND DREDGE V CAN-DIVE SERVICES MISTAKE AND FRUSTRATION MISTAKE AS TO TERMS STAIMAN STEEL LTD V COMMERCIAL & HOME BUILDINGS SMITH V HUGHES MISTAKE IN FUNDAMENTAL ASSUMPTIONS BELL V LEVER BROTHERS SHERWOOD V WALKER

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SOLLE V BUTCHER MAGEE V PENNINE INSURANCE CO GREAT PEACE SHIPPING V TSAVLIRIS SALVAGE MILLER PAVING V B GOTTARDO CONSTRUCTION FRUSTRATION PARADINE V JANE TAYLOR V CALDWELL KRELL V HENRY CANADIAN INDUSTRIAL ALCOHOL COMPANY V DUNBAR MOLASSES FAIRNESS IN CONTRACT UNCONSCIONABILITY POST ET AL V JONES ET AL LLOYDS BANK LIMITED V BUNDY CREDIT LYONNAIS BANK NEDERLAND NV V BURCH MACAULAY V A. SCHROEDER MUSIC PUBLISHING CO LTD. PRIDMORE V CALVERT WOODS V HUBLEY DETRIMENTAL RELIANCE AND ESTOPPEL HUGHES V METROPOLITAN RAILWAY CENTRAL LONDON PROPERTY TRUST V HIGH TREES HOUSE LTD JOHN BURROWS LTD V SUBSURFACE SURVEYS OWEN SOUND PUBLIC LIBRARY BOARD V MIAL DEVELOPMENTS D&C BUILDERS V REES COLLIER V P & M J WRIGHT (HOLDINGS) LTD COMBE V COMBE

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Remedies -

Person complaining that there is a breach of contract = complaining party, innocent party, promisee, plaintiff Person breaching contract = breaching party, promisor, defendant

“And it is the general intention of the law that in giving damages for breach of contract the party complaining should so far as it can be done by money be placed in the same position as he would have been in if the contract had been performed…” [Wertheim v. Chicoutini pg. 27] The Expectation Measure of Damages Fuller and Perdue, “The Reliance Interest” -

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Three remedies for contract breach: o (1) Restitutionary Measure of Damages  Get back whatever your transferred to the breaching party for them to do the promise (i.e. return the deposit)  Available whether or the transfer occurred b/c of a contract (i.e. if you pay too much on your phone bill you get the extra back)  Independent from the Expectation MofD  can get both, or one without the other o (2) Reliance Measure of Damages  Putting the promisee in the pre-contract position: A relying on the promise fences his backyard in anticipation of a pool being built. Might thing he’s entitled to the cost of the fence as he spent the money in reliance of the promise o (3) Expectation Measure of Damages [Wertheim]  Promisee has the right to be in the position he would have been if the contract was performed – pool company has to build the pool for the agreed upon price or pay difference between agreed upon price and buying a substitute pool [value of the bargain or benefit of the contract] The expectation measure of damages is the default rule for awarding damages o Require special reasons to move to the reliance measure o BUT if you transfer something of value to someone and get nothing in return you will ALWAYS be able to get it back (deposit will always be returned – Restitutionary MofD) Nominal damages = a token amount of money (could be just $1) to represent that a contract was breached Consequential losses = things that go beyond the value of the contract (i.e. distress, time loss etc.) Part performance = when work on a promise/contract stops half way through The victim of a breach is entitled to the expectation measure whether or not he partly performed his part of the bargain (i.e. would still get the Expectation MofD if he hadn’t given the deposit) o If the contract is “wholly executor” – just an exchange of promises with no action (i.e. nothing has been built, no deposit made, just the promise created) then the victim is still entitled to the Expectation MofD) Victim is entitled to the Exp. MofD whether or not they do anything in reliance of the promise The Expectation Measure of Damages is mean to compensate for the loss value of the bargain, NOT punish the breaching party (i.e. amount should not exceed value of contract – very rare for an added punitive element to be part of the damages)

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Pitcher v Shoebottom Shoebottom agreed to sell Pitcher a piece of land at a certain price. Before the deal closed (land title transfer) Shoebottom sold the land to someone else. -

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Expectation damages Promisee not entitled to receive the land he was promised Awarded the amount of money that will enable him to go and buy a substitute piece of land for market value (value at time contract was supposed to close, not time case goes to court) General rule: party to be put in position they would have been in had the contract been completed (through a monetary measure) = Obligation to perform or pay Reliance costs not compensated for (i.e. what plaintiff spent on investigating the land title) b/c if the contract had been fulfilled that money would have been spent anyways o Collecting both reliance + expectation = better off than if contract was performed No money for costs plaintiff would have had to still spend for contract either (i.e. land survey costs) o If the contract was completed P would have had the land and spent the money investigating title (already done) and doing the land survey (not done yet b/c didn’t have land) o Title = reliance cost vs. Survey = future cost. No recovery for either. o Therefore you deduct saved future costs and don’t give reliance costs = monetary position plaintiff would have been in had the contract happened

When recovering the expectation measure of damages you do not recover reliance. Hawkins v McGee Hawkins was a teen with a badly burned hand that had a scar and was contracted. McGee was a military doctor who had watched people perform skin grafts – asked parents and Hawkin to perform the surgery. Said new hand would be 100%. Surgery fails and it is more deformed than before. At trial: McGee found not negligent in performing surgery (no tort claim). Hawkins therefore sued M on the “100% good hand” statement and said it was a breached contract. Jury at trial agrees it is a contract and awards $3000 for pain and suffering. Judge says that’s too high and verdict should be thrown out unless he takes $500 only. Hawkins does not take $500 and verdict set aside. Both H and M appeal – H wants $3000 and M wants case thrown out. -

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Should not be awarded damages for pain and suffering. That would be looking backwards, giving money if the surgery never happened Contracts is forward looking = what position would H be in had contract been fulfilled o Difference in value between what was received and what was promised o Machine analogy used (dif between a perfect hand and the hand H got)  Difficulties with analogy include: no substitute hand on the market, personal feelings about having a non-functional hand, no market value for the loss Value ended up in the range $5000 The fact that his hand was already disabled before doesn’t matter – in tort it would because you would want to put him in the position before the surgery. But in contract it’s not relevant because the important thing is what’s the value between the good hand and the hand he got if you’re putting him the position had the contract been fulfilled. Can have tort and contract lawsuits at the same time

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Case illustrates the difference between the two:  Tort = undoing harm if defendant is responsible  Contract = expectation measure; monetary value of what was promised

SEE LECTURE HIGHLIGHTS SEPT 13 FOR FULLER ARTICLE/DIFFICULTIES WITH CONTRACT LAW

Why is a private agreement between two people where they commit to do something they were not legally obligated to do before not legally enforceable? -

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(1) Morality of Promising o Moral duty to keep a promise – contract law = enforcement of this duty o Expectation measure of damages o But if contract law was really about forcing people to keep their promises it is very unlikely that contract law would be ok with letting people pay their way out of their moral duty to keep said promise (2) Protection of Reliance [market promotion – Fuller’s argument] o Everything we do is the result of human cooperation – which could be undermined by a lack of trust o Trust in transactions o But if people can’t trust one another to hold up their end of the bargain than they won’t do their part and the benefits to be had from cooperation will never be realized o When people know that they can safely rely on their agreements this will promote and facilitate an efficient market – economy relies on this o Fuller says that the full sum of someone’s reliance is difficult to prove and measure (what they’ve done and all the opportunities for other contracts that a person has given up) – reliance therefore becomes too difficult an idea to quantify; hence expectation measure becomes the most effective way to compensate someone for their reliance (3) A Rights-Based Account [respecting individual rights] o To agree to pay someone for something or give them something in return is completely different than just taking  To do this is a recognition of the other party as the owner of that property  “I recognize you are not a thing or a tool for my purposes…”  I will have to negotiate with you for something I want that is yours o Once I have recognized another person as an end rather than a means I can’t just take that back and change my mind without wronging the other person  If I take it back I deny them their status as an end o Denying another person’s status as an end = a wrong in private law o The disappointed person has a right to the value of what was promised. Anything less allows the breaching party to treat her as a means rather than an end. o On the rights based account the significance of the interaction between the two parties on the contract provides all the reasons for justifying the contract  We therefore do not have to ask whether there was any reliance, about efficiency, or about the morality of keeping one’s word, don’t have to ask about good social policy – all the reasons lie in the significance of the interaction between the promisee and the promisor o How do we fix the wrong? Get the breaching party to pay the value of what was promised. As soon as we require this we require the breaching party to recognize the innocent party as an end rather than a mean. We don’t have to do anything more than this to address the wrong. We don’t have to repair any and all hardship that the breach may

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have caused the disappointed parties; don’t have to fix all the setbacks they may have incurred.  Explains why the plaintiff in pitcher v. shoebottom only got the value of the land and not the costs of investigating title, which he will have to do again The Reliance Measure of Damages A complaining party cannot recover both expectation and reliance damages, but can a party ask for the reliance measure of damages instead of the expectation costs? Bowlay Logging Ltd v Domtar Bowlay was asking to be put into the position they were in before the contract was made – had entered into a losing contract with Domtar. Total value of the contract was $150 000 and Bowlay had spent over $200 000 and the work was not yet finished. B claims that D’s breach forced them to abandon the project that entitled them to claim the wasted expenditure (reliance loss) -

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If the defendants hadn’t of breached the plaintiffs would have lost more money, so really the breach has saved B from further losses Contract remedies are meant to compensate for losses that are a result of the breach, not just all losses no matter origin Expectation measure remains the rule o In losing contracts we deduct expected loss from the expectation award (in this case it resulted in $0 in damages) Awarded nominal damages ($25) to recognize there was a breach

In the case of a losing contract you cannot recover more in the way of reliance damages than you would be entitled to recover through the expectation MofD. The reliance MofD is not an alternative to the expectation MofD in the case of a bad bargain. When can you use the reliance measure of damages? Anglia Television v Reed Plaintiffs were making a film and made many arrangements in advance (i.e. find a location, hire a director, etc.). All did this before getting the leading man. Eventually hire Robert Reed, who backs out of contract. Anglia could not find a replacement and abandoned the film. Sues Reed for damages. -

AT claimed as damages the full expense of the film b/c all those expenses were occurred and lost as a result of the contract Claim for the reliance interest (i.e. director fees, set designer) instead of the expectation measure (profits for the film) since they have no idea what the profits would have been Reed’s lawyers say they can only recover for expenses that AT incurred after the contract was finalized Lord Denning goes opposite of Bowlay and says that a victim of a breach can always choose the reliance measure if he wants to, even if the contract was not profitable (finds for AT) How to reconcile the conflict: o Anglia is different than Bowlay b/c we don’t know the profits here and Bowlay was obviously a losing deal o In regards to precedent AT is a House of Lords decision and therefore not binding. Bowlay is BC CA.

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Could reconcile Denning’s obiter and the decision in Bowlay by saying that a plaintiff’s recovery on the basis of the reliance interest cannot exceed the expectation MofD. - Denning says its reasonable to use the reliance measure where profits are uncertain - Also says that recovery from pre-contractual expenditures is alright as long as the expenses were in the contemplation of the parties at the time of contract formation, and they were within the contemplation of the parties that these expenses would be wasted if the contract was breached  Dissenting Essay (to AT): A.I. Ogus, “Damages for Pre-Contractual Expenditure” - Anglia Television didn’t incur the expenses of directors, designers etc. in reliance of Reed – they incur them on the hopes of getting an actor like Reed - No causal connection between the contract and expenditures - Concluded: when we award the reliance measure of damages the amount recoverable is always limited to the expenses incurred after the contract was made; pre-contractual expenses cannot be recovered - Professor persuaded by this argument - Professor also persuaded by Whadam: o Assuming the contract would not have been a losing one, give the plaintiff the benefit of assuming that he would have at least broken even (profits be at least equal to expenses) o Prof likes this b/c it makes the timing of the expenditures relevant o Could give plaintiff all wasted expenses (including pre-contract) on the assumption they would have broken even o Prof does not think the facts of AT apply to Whadam’s point (does not think they should have got pre-contract expenditures) o Implication of Whadam:  Even in the cases where profits aren’t certain we’re not really using the reliance measure of damages  When we award pre and post contract expenditures we’re actually trying to protect the expectation interest o

When defendant’s breach makes it impossible to prove plaintiff’s profits the plaintiff may be able to recover for losses. However, we also notice that when he recovers for both pre and post contract expenses it can be interpreted as acting on the expectation principle and not reliance principle when assuming the plaintiff would have broken even.

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Rules so far: o Expectation measure – general rule for contract remedies o Can’t recover expectation + reliance o Have to deduct complaining party’s saved costs from expectation reward o In the case of a losing contract the expectation measure sets the upper limit on what can be recovered in terms of reliance

Problems in Measuring Damages Cost of Performance or Economic Value? Going to market and buying a substitute performance or putting you in position you would have been in had the contract been performed? (2 ways of looking at the expectation MofD)...