Flawed information: dol/fraud/misrepresentation | January 14th / 16th, 2024

Questions to consider:
●​ Consent flawed due to misrepresentation: consent not properly “enlightened”
●​ Remedies: Contract voidable / relatively null
●​ Additionally: Damages?
●​ Negligent misrepresentation: tortious & contractual liability in the common law

Creighton v Grynspan [1987]

Jurisdiction: QCsu

Facts:
●​ Grynspan offered to purchase Creighton’s property, which included a strip of land
belonging to the city
●​ Negotiations follow and a contract is signed
●​ Grrynspan discovered that the definition of the plot does not conform to the description
in the negotiations, and thus refuses to purchase the property
●​ Grynspan sues Creighton as Creighton ‘wilfully’ misrepresented the true situation

Issues:
●​ Was the contract invalid due to fraud?

Holding:
●​ Yes

Reasoning
●​ Creighton ought to have drawn Grynspan’s attention to the true situation
●​ Grynspan could have checked, but can't be blamed for being defrauded
○​ Grynspan was led to believe that Creighton had acquired the strip of land, and
always made it clear that he wanted that strip
○​ Silence and willful misleading are fraud, as Creighton knew the importance of
this strip of land to Grynspa
○​ Grynspan would not have offered to purchase the land if he had known the true
situation, thus his contract is null due to fraud (CCQ: Art. 1401)
●​ Note that the court noted that the law of fraud shouldn't be used to protect people
from all imprudence”

Ratio:
●​ If a party intentionally falsely represents the contract, then the party has committed
 fraud, and the contract is relatively null

Tremblay v Les Petróles Incs [1961]

Jurisdiction: Quebec

Facts

●​ Tremblay agreed to lease a garage business from Les Pétroles at the cost of $2,500 a
month
●​ Les Pétroles told Tremblay the business had revenues of $350,000 a year, implying
profits of $20-25,000 per year
●​ However, the garage had been operated at a loss for the last six years
●​ When Tremblay asked to see the financial records for the garage, Les Pétroles claimed
they were destroyed in a fire or consolidated with other stores but did show Tremblay
sales figures for gas
●​ Tremblay signed the lease and operated the business for several months, then realized
the constant losses

Issues

●​ (1) Was there fraud?

●​ (2) Did Tremblay confirm the contract despite fraud?

Holding

●​ (1) Yes;
●​ (2) No

Reasoning

●​ Tremblay would not have entered the lease if he knew the true financial state of the
garage
●​ Thus, he is entitled to annulment unless he confirms the contract (CCQ: Art. 1419 and
1420)
●​ Once the plaintiff has shown fraud, the burden is on the defendant to show
confirmation
●​ Confirmation must be from the perspective of a ‘reasonable observer’
●​ The behavior must show that the party wanted to be bound by the contract
●​
●​

Dissent
 ●​ There was fraud, but Tremblay confirmed the contract by his actions
●​ Even after realizing that the garage operated at a loss, he bought uniforms, took out a
hypothec on it, etc.

Ratio

●​ If a party intentionally falsely represents the contract, then the party has committed
fraud, and the contract is relatively null

Bisset v Wilkinson [1927]

Jurisdiction: UK

Facts

●​ The defendant was the purchaser of land, which was purchased by the claimant for the
purpose of sheep farming
○​ During the purchase process, the claimant informed the defendant that the land
being purchased was capable of sustaining 2000 sheep
■​ However, after the purchase, the defendant discovered that this was only
possible if very careful land management was carried out
●​ The land as it stood could not sustain this number of sheep
●​ The defendant, therefore, sought to rescind the contract on the basis that the claimant’s
statement was a misrepresentation

Issues

●​ Is the contract voidable for misrepresentation?

Holding

●​ No

Reasoning

●​ The claimant’s statement was nothing more than an ‘opinion’ as to the capacity of
the land, based on the claimant’s knowledge of farming, together with the defendant’s
knowledge of the current stock
●​ The defendant had not been able to demonstrate that the land was not capable of
carrying the 2000 sheep that the claimant had stated, and therefore the contract could
not be rescinded
Ratio

●​ Opinions are not misrepresentation and do not render the contract voidable

Esso Petroleum Co. Ltd v Mardon (1976)

Jurisdiction: Common Law, Uk

Facts:
●​ Esso bought a new site for a service station
●​ When they purchased it, they estimated that it could sell 200,000 gallons of petrol a
year
○​ However, building regulations made them put the pumps on the back of the
property, which considerably lowered the amount that could be sold, but no
change was made to the estimate
●​ They leased the site to Mardon and assured him that contrary to his skepticism, the site
could sell 200,000 gallons a year
○​ However, it did not sell anywhere near this amount
○​ Esso realized this and renegotiated the contract, but even that did not properly
assess how much could be sold
●​ Consequently, Mardon refused to pay Esso for the lease and eventually Esso cut off
Mardon’s petrol supply when he stopped paying

Issues:
1.​ Is the contract voidable for misrepresentation?
2.​ Can Mardon recover damages under contractual liability?
3.​ Can Mardon recover damages under tortious liability?

Holding:
●​ 1. No; 2. Yes; 3. Yes.

Reasoning

●​ The contract could not be void for misrepresentation as the statement was an ‘estimate’
of future sales rather than a statement of ‘fact’, but it was alleged that there was a
breach of a collateral warranty and that the statement amounted to a negligent
misstatement
○​ Contractual liability:
■​ Need contractual warrant
●​ Esso’s argument:
○​ Contractual warranties are necessarily associated with the
 contractual measure of damages (i.e., the expectation
measure)
○​ The ‘expectation measure’, however, would be damages
for falling short of a guaranteed throughput of 200,000
gallon
○​ Yet, it cannot be demonstrated that Esso promised the
outcome of a throughput of 200,000 gallons
○​ Therefore, contractual recourse is unavailable
●​ Lord Denning's argument:
○​ Indeed, Esso did not guarantee the throughput of 200,000
gallons
○​ However, a reasonable observer would find that Esso
promised that its representations are based on due
diligence
○​ To this promise, the ‘expectation measure’ can be applied
■​ Mardon is to be put in the position as if Esso had
done due diligence
■​ In this case, Esso’s representations would have
been accurate and Mardon would have known
about the limited prospects for success and not
entered into the lease
■​ He therefore must be put in the position as if he
had never entered into the contract in the first
place
○​ The fact that Esso did not guarantee the outcome of a
throughput of 200,000 gallons is therefore not an
argument against the availability of contractual recourse
○​ This case is distinguished from Bisset v Wilkinson
because each party was 'equally able to form an
opinion’ in that case
●​ Consequently, although counsel for Esso submitted that the
guarantee was not a ‘warranty’ but a future ‘estimate’,

Ratio:
●​ Future ‘predictions’ can be ‘warranties’ if they are given with the intent to induce
another party to enter into a contract, and they are relied upon in the decision to
enter into the contract
○​ These are known as collateral (contractual) warranties
●​ The Hedley Byrne Doctrine applies to contract law as well
○​ When two parties in a ‘special relationship’ are parties to a contract, the party
with ‘special knowledge’ has a duty not to be negligent in the representations
that they give to the other party

Andronyk v. Williams , [1985] M.J. No. 148

 Andronyk v Williams (1985)

Jurisdiction: CML, Manitoba

Facts:
●​ Andronyk sold Williams a plot of land but made a misrepresentation about the amount
of land that was suitable for cultivation
●​ Although this was not included in the written agreement, the oral representation
induced Williams to contract
●​ In the written contract, Willams said he relied solely on his own inspection independent
of any representation of Andronyk in entering the contract, even though he hadn’t done
a thorough inspection

Issues:
●​ (1) Is the contract voidable for misrepresentation?
●​ (2) If not, could Mardon recover damages under ‘contractual’ liability?
●​ (3) Could Mardon recover damages under ‘tortious’ liability?

Holding:
●​ 1. No; 2. No; 3. No

Reasoning:
●​ “Misrepresentation” gets you out of a contract, which allows rescission and put the
parties in the position as though they hadn't entered the contract
●​ Conversely, “breach of contract” allows for both rescission and damages for
breach of contract
○​ ‘Breach’ and ‘recission for misrepresentation’ are separate issues
●​ The rescission of the contract does not take away any right of action to sue in torts
for ‘deceit’ or for ‘negligent misrepresentation’, but there is no contractual right to
sue for breach of a contract that has been set aside
○​ Need to have a warranty to have a contractual claim for damages for
misrepresentation
●​ In this case:
○​ The statement was found to be one of ‘opinion’, not of fact (so no collateral
warranty), thus there is no entitlement to contractual damages
○​ Williams's conduct also ‘affirmed’ the contract by taking positive acts that
made unwinding the contract impossible thereby forfeiting the right to rescind
the contract
■​ There is no restitution (i.e., taking away a gain or enrichment that is
inappropriate) where a contract is ‘affirmed’
 ■​ Need fraud or negligence to have a right to tortious liability, not mere
factual misrepresentation
■​ Statements of ‘opinion’ are not matters of fact and do not come within
the Hedley Byrne doctrine
●​ Consequently, there were no contractual and tortious liabilities in this case

Ratio:
●​ There can be no restitution where a contract is ‘affirmed’ by conduct, even though it’s
rejected by words
●​ If misrepresentation was a collateral warranty, damages for breach can be pursued, or
rescission, but not both

CC Q Arts. 1398 1401, 1407

●​ Article 1398 (Capacity to contract)
○​ 1398. Consent may be given only by a person who, at the time of manifesting
such consent, either expressly or tacitly, is capable of binding himself.
●​ Article 1401 (Requirements for a valid contract)
○​ 1401. Error on the part of one party induced by fraud committed by the other
party or with his knowledge vitiates consent whenever, but for that error, the party
would not have contracted, or would have contracted on different terms.
●​ Article 1407 (Effect of a contract)
○​ 1407. A party whose consent is vitiated has the right to demand the nullity of
the contract; in the event of an error caused by fraud, fear or injury, he may
request , in addition to nullity, damages or, if he prefers that the contract be
maintained, request a reduction of his obligation equivalent to the damages which
he would have been justified in claiming.

Class 5: Spontaneous Mistake: error | January 21st, 2025

Rawleigh v Dumoulin [1926] RCS 551

Jurisdiction: Quebec, Civil

Facts:
●​ The appellant company, before selling its manufactured goods to pedlars, required a
contract of guarantee to be signed by two persons who bound themselves to pay all
sums of money due or to become due by the pedlar
●​ The respondents signed such a contract for the benefit of Charland, who fraudulently
 represented to them that it was merely a letter of reference
●​ Later, Charland went into bankruptcy and the appellant sued the respondents for the
amount then owing by Charland
●​ At the trial the respondents testified that Charland induced them to sign the documents
on these representations and that they had signed it in error as to the nature of the
contract
○​ It was proved that they signed the contract without reading it

Issues:
●​ Is the contract voidable for error or fraud?

Holding:
●​ The contract is voidable due to error, not fraud

Reasoning:
●​ The fraud of Charland was not a valid defence as to the appellant company had not
participated in it
●​ The contract was nevertheless invalidated by reason of this error:
○​ The plaintiff didn’t know he had to pay Charland’s debt
○​ The plaintiff would not have entered into the contract ‘but for’ the error

Ratio:
●​ Fraud vitiates consent only if the party seeking to enforce the contract was aware of the
fraud, otherwise it's error
●​ A substantial error can vitiate consent

Huot v Ouellette (1981) CS 872

Jurisdiction: Quebec

Facts:
●​ Huot signed an offer to buy Ouellette’s property
●​ A few days later, a notary informed Ouellette that there is a gas line (servitude) under
the property, but H signed the hypothec in the meantime because the notary suggested
that Gaz Metropolitan would probably be able to cancel the servitude
●​ Huot’s wife had a phobia of gas, and the notary was not able to arrange to have the gas
line moved, so Huot refused to buy the property
○​ Huot claimed return of his deposit (restitutionary claim) and damages claiming
 that they should have been told about the gas line
●​ Ouellette counterclaims damages because he had bought another house, and had sold
this house at a loss
○​ He needed money quickly to finance his new house, so he wants the contract
upheld

Issues:
●​ (1) Was Ouellette obliged to tell Huot about the existence of the gas line?
●​ (2) Does the existence of the gas line constitute a sufficient reason to nullify
●​ the contract?

Holding:
●​ (1) No; (2) Yes

Reasoning:
●​ An error forms a defect of consent where it is excusable and where it is in respect to:
○​ The nature of the contract
○​ The substance of the prestation
○​ An essential element
●​ The judge accepted the psychiatrist’s evidence that the wife would have no hesitation
about the sale if the gas line was not there
○​ Given his wife’s phobia, it would be impossible for Huot to undertake the
hypothec to buy the property
●​ It was impossible for the court to conclude that Huot or his wife knew or were
presumed to know about the gas line before the notary told them
●​ Even if there was a contract, it was “executed” in error (lacked an essential element)
●​ Where the error is “excusable”, the contract is nullified, and damages assessed
under torts
○​ Both parties lost out, so Ouellette only condemned to pay back Huot’s deposit

Ratio:
●​ A substantial “excusable” error can vitiate consent and nullify the contract

CCQ Art. 1400

1400. Error vitiates the consent of the parties or of one of them where the error relates to the
nature of the contract, to the object of the prestation or to any essential element that determined
the consent.

An inexcusable error does not constitute a defect of consent.

Spontaneous mistake misunderstandings & mistaken assumptions | January 23rd, 2025

Raffles v Wichelhaus (1864)

Jurisdiction UK

Facts
●​ The defendant bought from the plaintiff cotton to arrive "ex-peerless meaning” n
October, while the plaintiff intended "ex-peerless" to say the ship that arrived in
December
○​ They were two different ships
●​ When the ship arrived in December, the defendant refused to pay the plaintiff, so the
plaintiff sued for breach of contract
Issues
●​ Was a contract formed?

Holding
●​ No

Reasoning
●​ The terms of the contract were too ambiguous as the parties didn’t agree as to what
‘ex-peerless’ meant

Ratio
●​ For a contract to be formed, essential elements of the contract need to be precise
so both parties are aware of what the terms mean

Sherwood v Walker (1887)

Jurisdiction: US, CML

Facts
●​ Walker contracted with Sherwood to sell a cow for $80, both believing the cow was
infertile
●​ Walker was a dairy farmer and for the cow to produce milk, it needed to be fertile
 ○​ Consequently, the cow was useless to Walker, so he sold it to Sherwood for a
low price to use it for beef
●​ However, when Walker was about to hand the cow over to Sherwood, he noticed the
cow was pregnant, so he refused to deliver the cow arguing it was worth a lot more
●​ Sherwood brought a replevin action (an order to repossess property detained by the
defendant)
Issues
●​ Was there a mutual mistake in the assumption that permits the contract to be void?

Holding
●​ Yes

Reasoning
●​ This is not a case of ‘misunderstanding’ as both agreed on the sale and purchase of the
same cow
●​ However, this was a case of mutual mistaken assumption because Walker would not
have entered into the contract except upon belief that the cow was incapable of
breeding
○​ It was a mutual mistake that both parties believed the cow was infertile
●​ Extension of the res extincta doctrine:
○​ The contract referred to a different object altogether
●​ The court made a distinction between when the object is different in kind and when it’s
just of different (lesser) quality
●​ Only mistakes to an object being “different in kind” can make the contract the
void
●​ The cow sold had in fact 'no existence'
○​ There was no contract to sell the cow as she "actually was" (i.e., pregnant)
●​ The sold cow was considered fundamentally “different in kind” than what the
parties thought she was (i.e., infertile)
○​ Consequently, the contract was void
Ratio
●​ Where there is a mutual mistake in assumption as to the substance of the contract and
the object of the contract is fundamentally different in kind than what the parties
agreed to, the defendant has a right to rescind the contract
 Bell v Lever brothers

Jursiciton: Uk, CML

Facts
●​ Lever Brothers was a company that owned most of the shares of another company,
Niger, which traded cocoa commodities
●​ Lever Brothers contracted Bell and Snelling to act as chairman and vice- chairman
respectively of the Niger's board of directors
●​ Both Bell and Snelling then secretly traded cocoa using their own money, which was a
behaviour that breached their employment contract, and would have justified
terminating their positions on the board
●​ Niger later amalgamated into another company and because of this, Lever Brothers
terminated Bell and Snelling's appointments
○​ Lever Brothers was not aware of the secret trading at the time of the termination
of Bell and Snelling
○​ Lever Brothers then agreed to pay the men a severance package to compensate
them for the termination of their services
●​ Lever Brothers later discovered the men's secret trading activities and sued Bell and
Snelling to rescind the compensation agreement and seek repayment of the money, on
any of three grounds:
1. Fraudulent misrepresentation because Bell and Snelling had a duty
to disclose their activities
2. Fraudulent unilateral mistake on the same basis
3. Common mistake: if there was no fraud, then both parties mistakenly
believed that the contracts could only be determined by consent
●​ Lever Brothers argued they would not have given Bell and Snelling a severance
package if they have been aware of the secret trading

Issues
●​ (1) Was the compensation contract voidable for fraudulent misrepresentation?
●​ (2) Was the contract void for mistake?

Holding
(1) No; (2) No

Reasoning
●​ The misrepresentation and unilateral mistake claims failed because the pair had no duty
to disclose their secrete trading to Lever Brothers
○​ Therefore, there was no fraud or misrepresentation involved when the pair
 failed to disclose their activities
●​ Res extincta doctrine:
○​ The mistake was that Lever Brothers could have fired Bell and Snelling
without a severance package given they breached their hiring contract with
Lever Brothers when they had secret trading activities
●​ However, if want the termination contract to be invalid, need to show a mistake in
assumption in the termination contract, not the hiring contract
●​ Unlike Sherwood case, the court found a mistake as to the ‘quality’ of the
contractual subject matter (i.e., it was not fundamentally “different in kind”)
●​ The result of making the contract void would mean Lever Brothers have entered into a
termination contract that would be less expensive (i.e., without severance packages,
thus lower ‘quality’)
●​ This does not render the contract void

Ratio
●​ Where the object of the contract is fundamentally different in quality than what the
parties agreed to, the defendant has a no right to rescind the contract

Miller Paving Ltd v Gottardo Construction Ltd 2007

Facts:
●​ Miller Paving Ltd. ("Miller") supplied aggregate materials to B. Gottardo Construction
Ltd. ("Gottardo") for a highway extension project
●​ In December 2001, both parties signed a Memorandum of Release, acknowledging that
Miller had received full payment for the materials supplied
●​ However, in January 2002, Miller discovered it had failed to invoice Gottardo for
approximately $480,604 worth of materials delivered between June and September
2001. Miller issued a new invoice, but Gottardo refused to pay, leading Miller to sue
for the outstanding amount.

Issues
1. Whether the common mistake regarding the unpaid invoice justified setting aside the
Memorandum of Release.
 2. Whether Miller could recover the outstanding amount based on the doctrines of
common mistake or unjust enrichment.

Holding
●​ The Ontario Court of Appeal dismissed Miller's appeal, upholding the trial court's
decision that the Memorandum of Release remained binding despite the common
mistake.

Procedural history:
●​ Miller sued Gottardo for payment of materials delivered.
●​ The Ontario Superior Court dismissed the action. Miller appealed.
●​ The Ontario Court of Appeal dismissed the appeal.

​
Reasoning
●​ The court applied the doctrine of common mistake, referencing Bell v. Lever Brothers
Ltd. and Solle v. Butcher. It concluded that:
○​ 1. The contract did not become "essentially different" due to the mistake, as
required by Bell.
○​ 2. Under Solle, the mistake was due to Miller's own oversight, and the contract
allocated the risk of such errors to Miller.
​
Ratio
●​ A contract will not be set aside for common mistakes if the contract itself allocates the
risk of the mistake to one party, and the mistake does not render the subject matter
essentially different from what was agreed upon.
●​ This case emphasizes the importance of accurate billing practices and the binding
nature of mutual releases, even in the presence of common mistakes, especially when
the contract assigns the risk of such errors to a specific party.

Class 7: Public Policy/ordre public and “community values” | January 28th

Michael Sandel, “What Money Can’t Buy,” 1998 Tanner Lectures, Brasenose College,
Oxford, 93-103.
Introduction
●​ Three cases illustrating the extension of markets:
○​ Commodification of books
○​ Privatization of prisons
○​ Commercialization of governments and universities
●​ Argument: Extension of markets to these areas is largely harmful and should be resisted

Two objections: coercion and corruption

●​ Two objections to market valuation and exchange:

○​ Coercion:
■​ Arises when people engage in market exchanges under severe inequality
or dire economic necessity
■​ Market exchanges may not be as voluntary as they seem
■​ Example: A peasant selling a kidney or cornea to feed their family is
coerced by their situation, even if the exchange is technically voluntary
○​ Corruption:
■​ Points to the degrading effect of market exchange on certain goods and
practices
■​ Some goods or practices lose moral value when bought and sold for
money
■​ Example: The sale of human body parts may be inherently degrading,
regardless of bargaining conditions or wealth
●​ Each objection reflects a different moral ideal:
○​ Coercion:
■​ Based on the ideal of consent under fair conditions
■​ Not necessarily an objection to markets themselves, but to markets
operating in unjust conditions
■​ Would not be an issue in societies with fair background conditions
○​ Corruption:
■​ Based on the moral importance of the goods at stake
■​ Applies regardless of fairness or equality in the background conditions
■​ Not addressed by ensuring fair bargaining conditions
●​ Example of two objections in prostitution:
○​ Coercion objection: Selling sex under pressure of poverty or addiction is
coercive
○​ Corruption objection: Prostitution is intrinsically degrading, even when done
voluntarily in a fair society
●​ Conclusion ⇒ The argument from corruption is not reducible to the argument from
coercion
●​ Legal prohibition of commodification:
 ○​ Even if a good should not be bought or sold, it’s a separate issue whether it should
be legally prohibited
○​ Legal prohibition of commodification may have costs that outweigh the benefits,
and alternative solutions may exist
○​ Focus is on morally objectionable commodification, which should influence its
legal permissibility

The case of surrogate motherhood

●​ Commercial surrogacy involves a woman being paid to carry a child for a couple unable
to conceive, and then giving up the child after birth.
○​ Some argue commercial surrogacy is morally similar to baby-selling because the
woman is paid for relinquishing the child.
○​ Defenders argue it is more like selling sperm, where a woman is compensated for
her reproductive capacity, not for selling a child.
○​ If it’s morally permissible for men to sell their reproductive capacity (e.g., sperm),
why not for women to sell theirs?
●​ Baby-selling can, in some cases, be less morally problematic than contract pregnancy.
○​ Example: Dr. Thomas J. Hicks, a country doctor, sold babies in the 1950s-1960s,
offering a morally complicated practice.
■​ He avoided abortions for young women, sometimes persuading them to
carry the child to term and placing the child with loving adoptive parents.
■​ The moral good of avoiding abortion and placing the child with a family
can outweigh the moral wrong of selling a child.
●​ Commercial surrogacy is a $40 million industry in the U.S., where brokers help infertile
couples and women willing to carry children for pay.
○​ Surrogates are paid about $10,000, and the broker collects a fee, making the total
cost per child over $25,000.
○​ While surrogacy promises benefits to both parties, it does not always go smoothly,
as in the Baby M case, where the surrogate changed her mind and wanted to keep
the child.
●​ The Baby M case showed the moral complexity of surrogacy:
○​ A lower court ruled that Mr. Stern hired a woman for a service, but this
overlooked that the contract involved renouncing parental rights.
○​ The New Jersey Supreme Court declared the contract invalid, comparing
commercial surrogacy to baby-selling and arguing that it was morally
problematic.
●​ If commercial surrogacy is equivalent to baby-selling, the question arises: why is
baby-selling morally wrong?
○​ Two main objections: coercion and corruption.
 ■​ Coercion: Critics argue surrogacy is not fully voluntary, as women may
not be fully informed about the emotional bond with the child, making it
unfair to hold them to their contract after birth.
■​ Corruption: Critics argue that surrogacy corrupts the moral goods and
social norms associated with pregnancy and parenthood, as they should
not be commodified.
●​ In the Baby M case, the Sterns’ lawyers argued that the surrogate’s consent was informed
because she had previous children, but this does not necessarily prepare someone for the
emotional experience of giving up a child after carrying it for nine months.
●​ Even a fully informed, voluntary surrogacy contract is morally problematic because
certain things should not be treated as commodities.
○​ Argument that certain goods should not be valued monetarily, especially those
connected to human dignity and relationships.
●​ Surrogacy turns children into commodities, using them as instruments for profit rather
than recognizing them as people worthy of love and care.
○​ Women's bodies are treated as factories, with payment made to discourage
bonding with the child.
●​ Surrogacy contracts require women to repress any parental love, turning their labor into
alienated labor.
○​ Pregnancy and childbirth should promote emotional bonds, but contracts disrupt
this, leading to a loss of personal connection with the child.
●​ The objection assumes that certain goods should be valued in specific ways, such as
pregnancy and childbearing.
○​ This is a qualitative judgment about what is appropriate, not just a matter of
determining market value.
●​ Consent-based objections avoid judging the intrinsic worth of the goods exchanged but
fail to address the moral issues with voluntary, commercial surrogacy.
○​ The voluntary nature of contract pregnancy makes it worse than other instances of
baby-selling, as it encourages women to intentionally become pregnant for profit.
●​ The common defense of surrogacy through the sperm-selling analogy might be
problematic.
○​ If surrogacy commodifies pregnancy, we may also question the moral
permissibility of sperm-selling.
●​ Sperm banks, particularly those near prestigious universities like Harvard, commodify
male reproductive capacity.
○​ The marketing of sperm based on intelligence or prestige treats procreation as a
product for profit, similar to surrogacy.
●​ Case of Dr. Cecil Jacobson:
 ○​ Scandal where an infertility doctor used his own sperm for insemination without
patients' knowledge, leading to moral concerns about the detachment between
male sexuality and fatherhood.
○​ This raises questions about whether fatherhood should be something men actively
engage in rather than donate.

Brasserie Labatt Ltd v Villa [1995]

Jurisdiction: QC

Facts:
●​ Labatt dismissed Villa for failing to comply with a mutually agreed-upon term of
employment stating that he was to live permanently in Montreal with his wife and
children
●​ Villa moved to Montreal, but his wife and children did not
●​ Labatt dismissed Villa solely for failing to comply with this term of employment and
not for any other reason
●​ Villa sued for wrongful termination and argued he did not breach the contract because
the term of employment was against public policy, thus considered null
●​ He argued he was discriminated against given that he was married

Issues:
●​ (1) Was the term of employment requiring Villa’s family to move valid?
●​ (2) Was his dismissal valid?

Holding:
●​ (1) No
●​ (2) No

Reasoning:
●​ The term of employment was invalid and severed from the contract
○​ Damages were awarded for wrongful termination
●​ The action of not moving his family did not breach the contractual obligation since the
clause was deemed invalid as it was contrary to public order (CCQ: Art. 1373)
○​ Employers cannot impose contractual obligations on the employees’ conduct of
their marital and family life (QC Charter Art. 5)
○​ The clause was also discriminatory based on civil status, as it doesn’t apply to
unmarried employees (QC Charter Art. 10)
●​ The invalidity of the particular clause of the contract did not render the rest of the
 agreement null, leaving Villa with the opportunity for recourse (CCQ: Art. 1438)
Ratio:
●​ A term of contract that is against public order may be rendered null
●​ An invalid clause may be served without affecting the rest of the contract

Sheehan v Samuelson 2023

Facts:
●​ The claimant is 23 years old, a se worker and peer support counselor for those engaged
in sex work
●​ Claimant charged $2100 for her services. Defendant paid $200, and refused to pay
remainder
●​ The Claimant charges hourly rates for services advertised on LeoList.
●​ On January 26, 2022, at 1:29 a.m., the Defendant contacted the Claimant on LeoList to
arrange a meeting.
●​ The Claimant agreed to an outcall service to the Defendant’s apartment for $300/hour,
plus transportation costs. No deposit was paid.
●​ At 2:23 a.m., the Claimant took an Uber to the Defendant's apartment, where she
stayed until about 9:30 a.m.
●​ During her stay, they consumed alcohol and cocaine (provided by the Defendant) and
engaged in sexual activity.
●​ The Defendant gave the Claimant his bank card to withdraw $2,100 (7 hours of
companionship) but the card did not work.
●​ The Defendant repeatedly promised payment, claiming issues with his card and PayPal,
and sent $300 via PayPal, though a second payment was not received.
●​ The Claimant threatened to contact law enforcement if payment was not made within
12 hours.
●​ The Defendant did not testify. The Claimant's evidence remained consistent under
cross-examination
●​

Issues:
●​ Can a sex worker sue to recover unpaid fees from a client?

Holding

Reasoning

●​ The Claimant, a sex worker, advertised her services on LeoList, quoting $300/hour for
outcall services.
○​ The Defendant initiated contact, agreed to the rate, and arranged an Uber for the
Claimant, signaling acceptance of the contract.
○​ The Claimant spent 7 hours with the Defendant, expecting $2,100 in payment.
 ○​ The Defendant's bank card failed to provide access to funds. He later sent $300
via PayPal but left $1,800 unpaid.
○​ The court found a valid contract existed, with offer, acceptance, and
consideration, but the nature of the claim required further analysis due to its
relation to sexual services and potential illegality.
○​ This case is noted as the first in Canada to address the enforceability of a
contract for sexual services.
●​ Defendant argues that under sec 281.6, it is an offence to obtain for consideration the
sexual services of a person
●​ The Supreme Court of Canada’s decision in Canada (Attorney General) v. Bedford
(2013) struck down provisions of the Criminal Code that criminalized aspects of sex
work, such as keeping a common bawdy house, living off the avails of prostitution, and
communicating in public for the purposes of prostitution.
○​ The Court found these provisions unconstitutional because they created
dangerous conditions for sex workers and violated Section 7 of the Charter of
Rights and Freedoms, which guarantees the right to life, liberty, and security of
the person.
●​ In response to Bedford, the Canadian government introduced Bill C-36, the Protection
of Communities and Exploited Persons Act (PCEPA), which came into effect in 2014.
○​ Bill C-36 criminalized the purchase of sexual services but decriminalized
selling them, aiming to shift the burden of criminality from sex workers to
clients and third parties.
○​ The law included provisions intended to protect sex workers from exploitation,
such as prohibiting third parties from profiting from sex work unless they
provide legitimate services (e.g., security or bookkeeping).
●​ The recognition of sex work as a legal economic activity by Bedford affirmed the rights
of sex workers to operate within a framework of safety and dignity, akin to other
businesses.
●​ Courts in Canada have adopted a more nuanced approach to contracts related to sex
work, recognizing their enforceability in some contexts to ensure fair treatment and to
prevent exploitation:
○​ Contracts must not violate public policy or involve illegal acts.
○​ Legitimate agreements for services such as security, advertising, or
administrative support have been upheld where they promote safety and
transparency.
●​ The evolving legal landscape reflects a balancing act between protecting public
morality, ensuring safety and autonomy for sex workers, and addressing concerns about
exploitation and human trafficking.

In the Matter of Baby M., 109 N.J. 396 (1988).

 In the matter of baby

Jurisdiction: US

Facts:
●​ Mrs. Whitehead agreed to carry Mr. Stern’s baby for $10 000
●​ The surrogacy contract they signed stipulated that as soon as the baby was born, she
would take all necessary steps to terminate her maternal rights in the child
●​ Though she did not want to, Whitehead turned the baby over to the Sterns after its birth
●​ The Sterns gave the baby back to her when she said she could not live without it,
believing she would give the baby back to them
●​ Mrs. Whitehead fled with the baby, so Mr. Stern filed a complaint seeking enforcement
of the surrogacy contract

Issues:
●​ Is surrogacy a valid contract?

Holding
●​ No

Reasoning
●​ The surrogacy contract was declared void, but Mr. Stern awarded custody due to
best interests of the baby
○​ Paying money to a surrogate is thought to be against public policy (babies
should not be commodified, so consent is irrelevant)
●​ Custody granted to the father only because it was found to be in the best interests of the
child
●​ Parental rights of Mrs. Whitehead not terminated and the adoption by the stepmother is
voided
○​ Mrs. Whitehead did not give valid consent
○​ She did not have all the required information, not having had the baby and not
knowing how she would react when the baby was born
●​ “Coercion of contract” – The agreement can only occur after birth, and after the birth
mother has been offered counseling
●​ The law prohibits giving or accepting money in an adoption as the selling of babies
exploits all the parties involved
●​ The “best interests of the child” should settle custody disputes, not contracts
●​

CCQ Art. 541.1-541.6.

 ●​ Art. 541.1: General Principle - Establishes that a person may be liable for damages
arising from the violation of an obligation (contractual or extra-contractual).
●​ Art. 541.2: Damages for Loss or Harm - If a person violates an obligation, they must
compensate for the loss caused. This includes both the actual damage and any potential
profit that the victim has lost.
●​ Art. 541.3: Contributory Fault - If the person harmed contributed to the damage, the
compensation may be reduced. Courts look at how much fault is attributable to the
victim.
●​ Art. 541.4: Liability for Faults - Liability extends beyond direct violations and includes
situations where the fault is based on negligence or lack of due care.
●​ Art. 541.5: Mitigation of Damages - A party suffering damage is expected to take
reasonable steps to mitigate the harm or minimize it as much as possible.
●​ Art. 541.6: Contractual Damages - When there's a contractual breach, the party at fault
must compensate for the harm caused. This could involve actual loss or the lost benefit
(profit) the non-breaching party expected.

Background (optional): CBC The Current: Should surrogate mothers be paid for their labours?
https://www.cbc.ca/radio/thecurrent/should-surrogate-mothers-be-paid-for-their-labour-1.460039
7 (or read the transcript!).

Class 8: Matters of Fairness: Unconscionability, ledsion, unfair clauses | January 30th, 2025

Harry v Kreutziger [1979]

Jurisdiction: BC, CML

Facts:
●​ Harry, an inexperienced, hearing-impaired Indigenous fisherman with a grade 5
education, sold his fishing boat, to which a very valuable fishing license was attached,
for a quarter of its worth ($4500 instead of its $16 000 value)
●​ Kreutzinger assured him he would be able to procure another license, which wasn’t
true, and aggressively pressured Harry to complete the sale, which he finally did
●​ When Harry discovered that he could no longer get a comparable fishing license, Harry
sued for unconscionability

Issues:
●​ Was the contract voidable for unconscionability?
Holding:
●​ Yes.

Reasoning:
●​ The contract was rescinded, and the parties were ordered to return their
prestations
●​ Principles of unconscionability differ from those of undue influence:
○​ Proof of ‘inequality in bargaining power’ in the position arising out of the
ignorance, need, or distress of the weaker party
○​ Proof of ‘substantial unfairness’ of the bargain obtained by the stronger party
(improvident bargain)
●​ The respondent was in a far superior position in terms of experience, education, and
knowledge of the value of a commercial fishing license
●​ This transaction, seen as a whole, is sufficiently divergent from commercial
standards of morality that cause it to be rescinded
●​ Equitable remedy is to set aside the contract

Ratio:
●​ Inequality of position and substantial unfairness leads to unconscionability and
voidable contracts

Heller v Uber Technologies Inc. 2020

Jurisdiction: Ontario, CML

Facts:
●​ Mr. Heller was a driver for UberEats
●​ To become a driver, Mr. Heller had to agree to an “adhesion contract”
●​ The contract had an “arbitration clause” stipulating that any legal problem Mr. Heller
had with the company must be resolved by the International Chamber of Commerce in
the Netherlands
○​ The agreement meant Mr. Heller wasn’t allowed to sue the company in
Canadian court
○​ When Mr. Heller agreed to the contract, he didn’t know how much arbitration
would cost as the contract didn’t say anything about this
○​ He later found out that it would cost him almost $15,000 just to start the
process, which didn’t include legal fees, travel costs, or lost wages
 ●​ When Mr. Heller claimed Uber was breaking the terms of the contract and Ontario
employment law, he sued Uber
○​ His lawsuit was about whether he and other drivers were employees of the
company
●​ Uber argued Mr. Heller couldn’t sue in Ontario courts because he had agreed to go to
“arbitration clause”
●​ Mr. Heller argued the arbitration clause was “unconscionable” and thus the contract
should be void

Reasoning:
●​ The agreement saying an UberEats driver had to go to arbitration instead of suing
in an Ontario court was so unfair as to render it voidable
●​ Courts should decide if an arbitration clause is unfair
●​ The court applied the Harry v Kreutzinger criteria:
○​ 1. Proof of ‘inequality in bargaining power’ in the position arising out of the
ignorance, need, or distress of the weaker party
■​ When one party has no choice, or doesn't understand what they are
signing, their bargaining power is weaker
■​ Mr. Heller didn’t know any of the terms to arbitration when he agreed to
the contract
■​ The use of standard form alone is not enough, but it can contribute to
the inequality as their use may further impair a party’s ability to protect
their interests
○​ 2. Proof of ‘substantial unfairness’ of the bargain obtained by the stronger
party
■​ In this case, the court held that upholding the arbitration agreement
would deny Mr. Heller access to a remedy because there would be no
way he could even have his arguments heard in the Netherlands without
paying most of his yearly income
●​ Thus, the arbitration agreement was “unconscionable” as to render it invalid
○​ Courts use unconscionability to protect weaker parties in contracts from
stronger parties
○​ Courts can set the agreement aside if a stronger party gets too much of an
advantage
●​ The result meant Mr. Heller could continue his lawsuit in Ontario courts

Ratio:
●​ Contracts formed under “unconscionability” are voidable
 Tercon Contractors Ltd v British Columbia [2010]

Jurisdiction: British Columbia, CML​

Facts:
●​ BC issued a request for proposals to build a highway, which was limited to six
participating companies
●​ The request for proposal included an “exclusionary clause” which waived BC’s
liability for any compensation of any kind to the companies participating in the
proposal
○​ This clause had the effect of preventing proponents from suing BC for damages
if it breached the terms of the proposals
●​ BC ultimately selected a proponent by the name of Brentwood
●​ In violation of the terms of the proposal, Brentwood had formed a joint venture with
another construction company not included in the original six to strengthen its proposal
●​ When Tercon learned of this, it brought an action in damages against BC fo having
breached the terms of the proposal

Issues:
1.​ Is the exclusionary clause valid?
2.​ Can Tercon sue for damages?

Holding:
●​ 1. No
●​ 2. Yes

Reasoning
●​ The test for assessing the validity of an “exclusion of liability clause” has three
steps:
○​ 1. As a matter of interpretation, did the parties intend for the clause to apply to
the factual situation of the breach?
○​ 2. If yes, was the clause unconscionable at the time the contract was made?
○​ 3. If not, should the clause still be held invalid due to public policy concerns?
●​ The onus here is on the party seeking to avoid the clause to demonstrate an abuse of
freedom of contract that outweighs the very strong public interest in general contract
enforcement
●​ The exclusionary clause here applied to costs incurred relevant to the request for
proposal, but a Tercon lost to a bidder that was not part of the proposal
●​ Thus, the costs were not incurred as a result of participating in the proposal, but as a
result of BC selecting an ineligible bidder
●​ BC has broken an implied duty of fairness to the bidders
Ratio:
●​ “Exclusionary clauses” that are “unconscionable” are voidable

CCQ Arts. 1405-1408, 1437-1438, 2332

●​ 1405. Except in the cases expressly provided by law, lesion vitiates consent only with
respect to minors and persons of full age under tutorship or under a protection mandate.
●​ 1407. A person whose consent is vitiated has the right to apply for annulment of the
contract; in the case of error occasioned by fraud, of fear or of lesion, he may, in addition
to annulment, also claim damages or, where he prefers that the contract be maintained,
apply for a reduction of his obligation equivalent to the damages he would be justified in
claiming.
●​ 1406. The injury results from the exploitation of one of the parties by the other, which
results in a significant disproportion between the parties' performances; the very fact that
there is a significant disproportion gives rise to a presumption of exploitation. It may also
result, when a minor or an adult under guardianship or protection mandate is involved,
from an obligation deemed excessive in view of the person's financial situation, the
benefits they derive from the contract and all the circumstances
●​ 1408. Le tribunal peut, en cas de lésion, maintenir le contrat dont la nullité est demandée,
lorsque le défendeur offre une réduction de sa créance ou un supplément pécuniaire
équitable.
●​ 1437. An abusive clause in a consumer or adhesion contract is null and void or the
obligation arising from it is reducible. Any clause which places the consumer or member
at an excessive and unreasonable disadvantage, thereby going against what good faith
requires, is abusive; in particular, a clause which is so far removed from the essential
obligations arising from the rules usually governing the contract that it distorts the
contract is abusive
●​ 1438. A clause which is void does not render the contract invalid as to the rest, unless
it appears that the contract must be considered as an indivisible whole. The same applies
to the clause which is without effect or deemed unwritten.
●​ 2332. In the case of a loan of a sum of money, the court may pronounce the nullity of the
contract, order the reduction of the obligations arising from the contract or revise the
terms and conditions of the performance of the obligations to the extent that it finds that,
having regard to the risk and to all the circumstances, one of the parties has suffered
lesion.
Consumer Protection Act ss. 8- 9

8. The consumer may demand the nullity of a contract or a reduction in his obligations
thereunder where the disproportion between the respective obligations of the parties is so great
as to amount to exploitation of the consumer or where the obligation of the consumer is
excessive, harsh or unconscionable.

9. Where the court must determine whether a consumer consented to a contract, it shall
consider the condition of the parties, the circumstances in which the contract was entered into
and the benefits arising from the contract for the consumer.

Slush Puppie v 153226 Canada Inc., 1994 R.J.Q. 1703 (C.Q.)

Jurisdiction Quebec

Facts
●​ Slush Puppie provided a slushie freezer to a depanneur on the contractual condition
that the depanneur only use Slush Puppie products
●​ Slush Puppie had the right under the contract to test the product an unilaterally decide
whether the depanneur had conformed to the conditions of the contract
●​ There was a $2500 penalty if Slush Puppie found the client in default
●​ Slush Puppie came to the store one day, and took away the freezer to test it, and found
the client in default
●​ They didn’t provide any proof, but are suing based on the clauses of the contract that
allow them to do this
Issues
●​ Should the clause be annulled for being abusive?

Holding
●​ Yes

Reasoning
●​ Slush Puppie wanted to rely on the contractual provision that stated that tests
conducted by Slush Puppie are taken to be conclusive and cannot be contested by the
store
○​ Thus, Slush Puppie refused to disclose how the testing work
●​ This provision is abusive because it relieves Slush Puppie of all burden of proof of
establishing a breach of the contract by the store (CCQ: Art.
 1437)
●​ The clause is excessively and unreasonably detrimental to the adhering party

Ratio
●​ Abusive clauses are relatively null

CVL - Prent Constantin v 9013-9116 QC

Jurisdiction: QC

Facts
●​ Parent-Constantin booked a vacation and got sick before it
●​ The travel agency sold them cancellation insurance but says it was only limited to $500

Issues
●​ Is the cancellation clause abusive?

Holding
●​ Yes

Reasoning
●​ A “non-cancellable” clause is null if the seller also offers cancellation insurance
●​ The non-cancellation clause is excessively severe to be considered abusive (CCQ:
Art. 1437)
●​ Travel agency suffered no loss from cancellation

Ratio
●​ Abusive clauses are relatively null

Incorporation of terms: Discrepancies between written and oral agreement | February 6th,
2025

Thornton v. Shoe Lane Parking Ltd., 1971 2 Q.B. 163 (C.A.).

 Thornton v Shoe Lane Parking

Jurisdiction: UK

Facts:
●​ The plaintiff parked his car in a public garage where he obtained a ‘ticket’ from the
entrance parking machine which listed terms on the back, one of which stated the
garage owner was not to be held liable for injuries occurring in the garage
●​ The plaintiff suffered injury in the garage, and sued for damages
●​ The defendant argued he was exempt from all liability based on the terms on the back
of the ticket (an exclusion clause)

Issues:
●​ Were the terms on the back of the ticket (Exclusion clause) part of the contract?

Holding:
●​ No

Reasoning
●​ The exclusion clause was not part of the contract:
○​ The contract was formed when the ticket was printed by the machine and
thus, could not be altered by the words written on the back of the ticket,
especially for the defendant to exempt himself from all liability
●​ The garage owners did not give “reasonable notice” to exempt themselves from
liability

Ratio:
●​ The contract is formed when the ‘ticket’ is printed
○​ Thus, “reasonable notice” about the “exclusion clause” must be given prior
to the ticket being printed for it to be part of the contract or else the exclusion
clause at the back of the ticket after being printed is a post-contractual
modification

Tilden rent a car v Clendenning [1978]

Jurisdiction: Ontario

Facts:
●​ Clendenning rented a car from Tilden in Vancouver and signed a contract giving him additional insurance
coverage
○​ However, he signed the contract without reading it
 ●​ Clendenning was in a car accident and was found guilty of impaired driving
○​ However, he denied having been impaired in a civil suit
●​ The insurance contract contained an “exclusionary clause” which lifted coverage for damages caused while breaking
the law and driving impaired

Issues:
●​ Is the exclusionary clause voidable?

Holding
●​ Yes

Reasoning
●​ The transaction was carried out informally in which the clerk witnessed that C did not
read the contract
○​ Thus that fact that he signed the contract is not an objective indication that he
was assenting to the terms of the contract
●​ The exclusionary clause removes coverage for someone who parks in a no- parking
zone, drove even 1 mph over the speed limit, or had a single drink
●​ The exclusionary clause is thus incompatible with the overall purpose for which
the defendant entered into the contract
●​ Given that Tilden did not do this, the clause was in small print on the back of the
contract, and the clerk made no effort to draw C’s attention to the clause, the
clause was deemed voidable

Ratio:
●​ When the offeror witnesses that the offeree did not read the contract, then the signature
does not serve as an objective indication of assent
●​ Where a clause is incompatible with the offeree’s purpose for entering into the contract,
the offeror must take reasonable steps to make the offeree aware of the clauses to rely
on them

McCutcheon v David MacBrayne Ltd

Jurisdiction: UK

Facts
●​ McCutcheon asked his brother-in-law to ship a car by MacBrayne’s car ferry
●​ MacBrayne did not require the brother-in-law to sign an exclusion clause that placed
the risk of loss on the owner of the car if something happened to the ferry
●​ The ferry then sank, and the car was destroyed
●​ MacBrayne argued he was not liable because the terms of the exclusion clause applied
 as the brother-in-law had previous dealings with MacBrayne and had signed the
exclusion clause in the past

Issues:
●​ Was the exclusion clause part of the contract?

Holding: No

Reasoning
●​ The exclusion clause was not part of the contract, so MacBrayne was liable for
damages
●​ The agreement was made orally, and a party cannot be bound to the terms of a
document just because the party would have signed the document if presented with it
●​ McCutcheon could not be bound by a clause based on previous dealings when he did
not have knowledge of the terms
○​ previous dealings are only capable of importing a term into a later contract
where knowledge of the terms is established, and the parties agree to them

Ratio
●​ “Reasonable notice” about the “exclusion clause” must be given for it to be part of
the contract
○​ In oral agreements, parties cannot be bound to the terms of a written document
just because they would have signed the document if presented with it
○​ Knowledge of the terms need to be established for them to be binding

British Crane hire Corporation ltd v Ipswich plant hire ltd 1975

Jurisdiction: UK

Facts:

●​ The defendant agreed to rent a crane from the plaintiff over the phone.
●​ Soon after delivery, the plaintiff sent a form for the defendant to sign, stating that the
defendant was responsible for any damages.
●​ Before the form was signed, an accident occurred.
●​ The plaintiff argued that the terms on the form applied, making the defendant liable for
damages.

Issues:
 ●​ Were the terms part of the contract?

Holding:

●​ Yes.

Reasoning:

●​ The terms were incorporated into the contract, making the defendants liable for
damages.
●​ Both parties were in the same trade and had equal bargaining power, so the defendants
ought to have known that the terms shifted the risk onto them.

Ratio:

●​ In oral agreements, parties are not bound by the terms of a written document simply
because they would have signed it if presented.
●​ However, if a party has knowledge (or ought to have knowledge) of the terms, those
terms become legally binding.

Interpretation | February 11th, 2025

GR Hall, “The Eight Fundamental Precepts of Contractual Interpretation”, May 2015

1.​ WORDS AND THEIR CONTEXT:

○​ Contractual interpretation is all about giving proper meaning to the words selected
by the parties themselves to govern their relations, understood within the context
in which they are used.
○​ CCQ: Art. 1425-1426
2.​ CONTRACTS ARE TO BE CONSTRUED AS A WHOLE WITH THE MEANING
GIVEN TO ALL ITS PROVISIONS:
○​ This is the first aspect of context.
○​ Disputed language is interpreted within the context of the language of the
agreement as a whole.
○​ CCQ: Art. 1427
3.​ THE FACTUAL MATRIX:
●​ The second step of the context.
 ●​ Disputed agreements are interpreted within the context of the factual matrix (i.e.,
surrounding circumstances) that gave rise to the contract.
○​ The exceptions are previous negotiations, subjective intention of parties,
and background facts not made reasonably accessible to all parties at the
time of contracting (Sattva case).
●​ CCQ: Art. 1426
4.​ ORGANIZING PRINCIPLE OF GOOD FAITH:
○​ Underlying contract law is good faith, including the duty of honesty in performing
contractual obligations.
○​ CCQ: Art. 1375
○​ Bhasin and Soucisse cases.
5.​ INTERPRETATION IS AN OBJECTIVE EXERCISE:
○​ CML contractual interpretation seeks to give effect to what the parties objectively
manifested by the words used, not by what is subjectively intended (officious
bystander).
○​ However, CCQ: Art. 1425-1426 requires a more subjective analysis.
6.​ COMMERCIAL EFFICACY:
○​ Commercial contracts are interpreted in a manner that promotes business efficacy
(Lucy case).
7.​ EVERY EFFORT SHOULD BE MADE TO FIND A MEANING:
○​ Courts should be reluctant to hold contracts void for uncertainty.
○​ CCQ: Art. 1428
8.​ A CONTRACT IS TO BE INTERPRETED AS OF THE DATE IT WAS MADE:
○​ Unlike statutes or the constitution, the interpretation of which can change over
time, the meaning of the contract is fixed at the date of formation.
○​ CCQ: Art. 1387

CVL - Agence du Revenue QC v Services environnementaux AES / Riopel [2013]

Jurisdiction: QC

Facts:

AES

●​ Parties transferred interests to escape tax consequences.

●​ Tax advisors made mistakes, prompting CRA and ARQ to issue notices of assessments.
●​ Shareholders agreed to correct documents and applied to rectify original documents
that did not affect their true agreement.
Riopel

●​ Parties alleged that the corporate planning documents they had signed did not reflect
their true intention.
●​ The document, part of a transaction designed to avoid tax implications, contained an
error that had not been disclosed by the parties' attorneys.
●​ After realizing their error, professionals consulted changed the nature of the
contemplated transaction without informing the parties.
●​ AES and Riopel requested rectification pursuant to CCQ: Art. 1425 (common
intention), which provides that contractual interpretation should focus on the common
intention of the contracting parties as opposed to the literal expression of that intention.

Issues:
●​ Should the contractual interpretation focus on the common intention of the contracting
parties or the literal expression of that intention?

Holding:
●​ Common interpretation of the parties

Reasoning:

●​ CCQ: Art. 1425 was sufficient to allow the type of rectification requested by the
appellants.
○​ The modification of the documents met the “true intentions” initially conceived
by the parties
●​ Courts can allow the correction of a document containing a contract where there is a
divergence between the common intention of the parties and the declared intention of
the act.
○​ The internal (common) will of the parties overpowers their declared will.

Ratio:
●​ The parties to a commercial transaction that is governed by QC CVL may ask the
courts to rectify errors made in their agreement to better reflect their common intention.

CVL - Jean Coutu v AG Canada

Jurisdiction: QC

Facts:
●​ Jean Coutu wanted to freeze the value of its U.S. subsidiary to reduce adverse tax
consequences.
●​ Upon obtaining professional advice, the corporation executed a series of planned
 transactions, but the corporation’s advisors made errors, resulting in an unexpected
income inclusion.
●​ Jean Coutu requested rectification pursuant to CCQ: Art. 1425 (common intention),
which states that contractual interpretation should focus on the common intention of
the contracting parties rather than the literal expression of that intention.

Issues:
●​ Should contractual interpretation focus on the common intention of the contracting
parties or the literal expression of that intention?

Holding:
●​ Literal expression of that intention (s0 what was written in that contract)

Reasoning:
●​ A general intention of tax neutrality cannot give rise to a common intention and serve
as a basis for modifying the written documents expressing that agreement.
○​ Since the written documents accurately expressed the specific transactions that
were agreed to, no modifications were possible under CCQ: Art. 1425.

Ratio:

●​ Rectification will not generally be available to taxpayers who have agreed to a specific
tax plan and then experience an unintended tax consequence.
○​ Thus, parties cannot rectify errors made in their agreement to better reflect their
common intention.

CML - Sattva v Crestol [2014]

jurisdiction: British Columbia

Facts

●​ The parties agreed that Crestol owed Sattva $1.5 million and that Sattva was entitled to
be paid the value of the fee in shares of Cresto
●​ The dispute centered on the date on which the price of the Crestol shares should be
determined
●​ Based on the price adopted by Crestol, Sattva would receive $9 million fewer shares
 than if the price it believed was correct had been used.

Issues

●​ Should contractual interpretation focus on the common intention of the contracting

parties or the literal expression of that intention?

Holding

●​ The words of an agreement and the factual context in which those words should be
understood.

Reasoning​

●​ The court ruled in favor of Sattva and addressed two key contract interpretation issues:
a.​ The proper approach to contract interpretation involves reading the contract
as a whole, considering both the words of the agreement and the factual
context in which those words should be understood.
b.​ The interpretation of a contract is a mixed question of fact and law.
●​ The “factual matrix” consists only of objective evidence—all knowledge that both
parties had or reasonably ought to have had at or before the date of the contract.
●​ However, there are limits:
○​ It does not include the subjective intentions of the parties.
○​ It does not include evidence regarding pre-contractual negotiations, such as
prior drafts of the agreement.

Ratio

●​ Courts interpret the words of an agreement and the factual context in which those
words should be understood.

Sample Problem

Implied terms / implied obligations of good faith in civil law | February 13th, 2025

Ouellet v 3092-3122 Quebec Inc [2000]

Jurisdiction: Quebec
Facts:
●​ The plaintiff was a car salesman who made an oral contract with the car sales company
where he would receive a commission for the cars he sold and if he responded to a
company questionnaire
●​ Two years later, the plaintiff quit his job, and was told he was not getting the money
from his contract as it wasn’t ‘customary’ in the selling of cars, so the plaintiff sued for
breach of contract

Issues:
●​ Was the ‘custom’ an implied term (CCQ: Art 1434)

Holding:
●​ Yes

Reasoning:
●​ The practice does not meet the requirements of usage (custom) and imposes an
unfair solution
○​ Thus, the custom does not meet the criteria for an enforceable “implied”
obligation

Ratio:
●​ For a practice an “implied custom”, it must be well known and practiced at large

A(M) v Stations de la Vallée de St-Sauveur Inc (2010) QCCA

Jurisdiction: Quebec

Facts:
●​ The appellants enrolled their old son in ski lessons and who then suffered injuries
during the lessons due to lack of supervision
●​ The parents sued the ski resort to seek compensation for harm occurred

Issues:
●​ (1) Was the source of the damages owed to the plaintiffs extra-contractual (tort) or
contractual in nature?
●​ (2) Did the defendants have an “implied” contractual obligation to provide safe
supervision?

Holding:
●​ (1) contractual; (2) yes
 Reasoning:
●​ The defendants had an “implied’ contractual obligation to safe supervision (CCQ:
Art. 1434)
○​ The ski resort and instructor failed to fulfill their obligations due to fault on
their part (CCQ: Art. 1458)

Ratio:
●​ Courts can find an “implied” obligation in a contract where it is according to the
contract’s nature and equity/law (CCQ: Art. 1434)

The Moorcock (1889)

Jurisdiction: Uk

Facts:
●​ The defendant, owner of a dock, agreed to let the plaintiff land its ship on its dock in
exchange of a fee
●​ The defendant did not have any right to the riverbed adjoining the dock and had not
assessed whether it was safe for the ship to stop there
●​ The riverbed was uneven, and this caused damage to the plaintiff’s ship at low tide
●​ The plaintiff sued the defendant for breach of contract arguing the defendant had
implicitly warranted that the riverbed was safe

Issues:
●​ Was safety of the riverbed an implied term in the contract?

Holding:
●​ Yes

Reasoning
●​ The defendant had ‘implicitly’ warranted that the riverbed was safe
●​ The plaintiff could not have used the dock in the manner which the contract
stated without the boat resting on the riverbed
○​ Therefore, the defendants must have “implicitly” represented that they had
taken reasonable care to ensure that the condition of the riverbed would
not damage the ship (officious bystander)
●​ Since the defendants had no control over the riverbed, their duty was not to make it
safe, but at least to check whether it was safe

C.c.Q. 6, 7 and 1375

H. Dedek/M.J. Schermaier, “Bona Fides” in Encyclopedia of Ancient History:
https://ssrn.com/abstract=3686010

●​ Bona fides is a Roman legal term with both subjective and objective meanings
○​ Subjective meaning: An excusable but mistaken belief that the person alienating
property is its rightful owner
■​ Example: If Seius sells Titius’ house to Gaius, Gaius cannot acquire
ownership in the usual way since Seius is not the owner
■​ If Gaius truly believes Seius is the owner, the law allows ownership
through lapse of time (usucapio)
■​ Twelve Tables may have contained a rule for this, but bona fides likely
emerged in the 2nd century BCE as part of the formula to protect
possessors during usucapio (actio Publiciana)
○​ Objective meaning: Used in legal formulae where one party demands
performance from another
■​ Creditors could claim damages (interest) through iudicia bonae fidei
(actions granted by the praetor)
■​ The judge assessed obligations based on the standard of bona fides
■​ The open-ended formula allowed judges discretion in balancing
contractual interests
■​ Bonae fidei iudicia applied to contracts such as sale (emptio venditio),
leasing (locatio conductio), mandate (mandatum), and partnership
(societas)
■​ These contracts influenced modern contract law through Justinian’s Digest
●​ Origins of bonae fidei iudicia
○​ Unclear but possibly developed in the edict of the praetor peregrinus (who
handled disputes between Romans and non-Romans)
○​ Based on the universal duty to honor promises (fides), a principle in ius gentium
○​ Praetor peregrinus enforced contracts created by consensus alone, without
formalities or rituals
○​ Fides also played a key role in Roman relationships (e.g., patron-client, fiduciary
relationships)
○​ Breach of fides could lead to infamia (loss of legal and social status)
○​ Additional legal actions were sometimes granted to address breaches of faith
○​ These actions may have inspired the praetor peregrinus to introduce bonae fidei
iudicia
●​ Related concepts and references
○​ Actio (legal action)
○​ Praetor’s edict (legal framework established by praetors)
 ○​ Scholarly works on bona fides and its role in Roman and European contract law

Dunkin Brands Canada v Betico (2015)

Jurisdiction: Quebec

Facts:
●​ When Tim Horton's entered the QC market, the effect was a dramatic decline in
Dunkin' Donuts' sales
●​ The Dunkin' Donuts franchisees brought an action against their franchisor for breach of
contract claiming losses of $9 million for failing to take reasonable steps to protect and
enhance the brand in the face of competition

Issues:
●​ Did the franchisor owe an obligation of ‘good faith’ to franchisees?

Holding:
●​ Yes
​
Reasoning:
●​ The court held the Franchisor had an obligation to protect and enhance the brand
○​ The franchisor owed an obligation of good faith (CCQ: Art. 1375)

Ratio:
●​ Contracts must be made in ‘good faith’

Class 13: Implied Obligations of good faith in the CML | February 18th, 2025

Bhasin v Hrynew (Good faith SCC)

Facts:
●​ C markets education savings plans to investors through retail dealers called enrollment
directors, like B
●​ B and C had a contract effective from 1998 for a three-year term with an automatic
renewal unless one party gave six months' written notice to terminate
●​ H, another enrollment director, was a competitor of B and attempted to merge their
agencies but B refused
 ●​ C appointed H as the provincial trading officer (PTO) to audit enrollment directors’
compliance with securities laws after concerns from the Alberta Securities
Commission.
●​ H, being a competitor, conducted audits of B's confidential business records, which B
objected to
●​ In June 2000, C discussed a restructuring plan with the Alberta Securities Commission,
which included B working for H’s agency, without informing B.
●​ C misled B by claiming that H, as PTO, was obligated to keep information confidential
and responded vaguely when B inquired about a merger.
●​ When B refused to allow H to audit his records, C threatened to terminate the 1998
Agreement and issued a notice of non-renewal in May 2001.
●​ After the contract term ended, B lost the value of his business, and most of his sales
agents were recruited by H’s agency.
●​ B sued C and H for breach of contract and civil conspiracy.

Put simply…
●​ C markets education savings plans through enrollment directors like B.
●​ B’s contract with C automatically renewed every 3 years unless terminated with 6
months’ notice.
●​ H, a competitor of B, was appointed by C as a provincial trading officer (PTO) to audit
enrollment directors.
●​ B objected to H auditing his records.
●​ C planned a merger involving B without informing him, misleading him about H’s
confidentiality.
●​ C gave notice of non-renewal after B refused H’s audit.
●​ B sued C and H for breach of contract and civil conspiracy.

Procedural history
●​ The trial judge found that C breached the implied duty of good faith, H intentionally
induced the breach of contract, and both were liable for civil conspiracy.
●​ The Court of Appeal allowed the appeal and dismissed B’s lawsuit.

Holding:
●​ The appeal with respect to C should be allowed and hte appeal with respect to H
dismissed

Reasoning:
●​ Good faith performance in contracts is unclear in Canadian law but needs to be more
coherent and just.
○​ Two steps to improve:
 ■​ Acknowledge good faith as a general organizing principle of contract
law.
■​ Recognize a duty to act honestly in performing contracts.
●​ Good faith requires parties to act reasonably and honestly, not capriciously or
arbitrarily.
○​ The principle doesn’t require loyalty, just that one party shouldn't undermine
the other’s legitimate interests in bad faith
●​ Principle of good faith should evolve incrementally in specific cases while respecting
commercial certainty and freedom of contract.
●​ Commercial self-interest is allowed, but honesty is key—lying or misleading the other
party is prohibited.
●​ A new duty of honest performance requires parties to avoid misleading each other
about contractual obligations, without requiring loyalty or full disclosure.
●​ This duty does not limit a party’s ability to pursue its interests but ensures fairness and
a minimum standard of honesty.

Case Outcome:
●​ C breached its duty of honest performance by misleading B about non-renewal and H’s
role.
●​ B is entitled to $87,000 in damages.
●​ C’s actions were dishonest, and the trial judge’s findings support this conclusion.
●​ No liability for inducing breach of contract or civil conspiracy with H. Claims against
H were dismissed.

C.M Callow Inc. v Zollinger (2020)

Facts:
●​ Baycrest (a group of condominium corporations) had two contracts with C.M. Callow
Inc. (Callow): a winter maintenance contract and a summer maintenance contract.
○​ The winter contract had a clause allowing Baycrest to terminate if Callow failed
to provide satisfactory service, or with 10 days' notice for other reasons.
●​ In early 2013, Baycrest decided to terminate the winter contract but didn't tell Callow
right away.
○​ Over the spring and summer, Callow believed the winter contract would be
renewed, so it did extra work beyond the summer contract, hoping this would
help secure the renewal.
●​ In September 2013, Baycrest informed Callow that the winter contract was being
 terminated.
○​ Callow sued Baycrest for bad faith, arguing it had been deceived by Baycrest
into performing extra work with no intention of renewing the winter contract.

Procedural history
●​ The trial judge agreed, saying Baycrest acted in bad faith by withholding the
termination decision and misleading Callow. Damages were awarded to Callow.
●​ The Court of Appeal disagreed, ruling the duty of honest performance didn’t extend
beyond the winter maintenance contract. It found the deception related to a potential
new contract, not the existing one.

Holding (Cote dissent): the appeal should be allowed and the judgment of the trial judge
reinstated

Reasoning:

Wagner Cj and Abella, Karakatsanis, Martin and Kasireir JJ

●​ Baycrest misled Callow into believing the winter maintenance agreement wouldn't be
terminated.
○​ The duty of honest performance requires that parties not knowingly
mislead each other about matters directly related to the contract's
performance.
●​ The duty of honest performance applies to all contracts and emphasizes the manner in
which rights or obligations are exercised.
○​ It’s not about whether the right can be exercised, but whether it is exercised
dishonestly
●​ There's no obligation to disclose everything, but if one party creates a false impression,
they must correct it.
○​ Baycrest misled Callow by not correcting his assumption that the contract
would be renewed.
●​ The duty of honest performance is linked to other good faith duties, like exercising
discretionary powers honestly.
○​ These duties aim to ensure fairness and prevent arbitrary actions in contracts.
●​ Baycrest had the right to terminate the contract with notice but had to do so honestly.
○​ Using the termination right dishonestly led to damages for Callow.
●​ Misleading behavior can include lies, half-truths, omissions, or silence, depending on
the context.
○​ In this case, Baycrest misled Callow through their actions and failure to
correct the false impression
●​ Breaching the duty of honest performance results in damages based on the expectation
of interest.
○​ Callow should be compensated as if the contract had been performed honestly.
 ●​ Baycrest’s actions directly affected the performance of the winter maintenance
agreement because their dishonesty was tied to the termination clause.
○​ They misled Callow, which impacted how he performed under the contract.
●​ Baycrest didn’t have an obligation to disclose its intentions but was required not
to mislead Callow when exercising the termination right.
○​ By failing to correct Callow’s mistaken belief, they breached their duty of good
faith.
●​ If Baycrest had corrected the false impression, Callow would have had the opportunity
to secure another contract.
○​ The failure to correct the misrepresentation caused a loss of opportunity, which
was compensable in damages.

For reference: Callow v Zollinger Case in Brief

Class 14: Taking stock - Formation, Content | February 20th, 2025

Bruker v Marcovitz (2007)

Facts:
●​ The parties married in 1969; Divorce proceedings began in 1980.
●​ Three months later, they negotiated a Consent to Corollary Relief, which included a
clause (Paragraph 12) stating they would appear before rabbinical authorities to
obtain a Jewish divorce (get) immediately after their civil divorce was finalized.
●​ The civil divorce was finalized in 1981.
●​ At that time, the husband (M) was 48 years old, and the wife (B) was 31.
●​ Under Jewish law, a wife cannot obtain a get unless her husband consents.
●​ Despite the wife’s repeated requests, the husband refused to provide a get for 15 years.
●​ By the time the wife was finally able to seek legal action, she was almost 47 years old.
●​ The wife sued for damages for breach of the agreement.
●​ The husband argued that:
○​ His agreement to provide a get was not valid under Quebec law.
○​ He was protected by his right to freedom of religion from being forced to pay
damages for failing to provide a get.

Procedural history:
●​ Trial Court Decision:
○​ The judge ruled that the agreement was valid and binding.
○​ A claim for damages due to a breach of this civil obligation was within the
 jurisdiction of the civil courts.
●​ Court of Appeal Decision:
○​ The husband’s appeal was allowed.
○​ The court found that the obligation to provide a get was religious in nature.
○​ Since it was a moral obligation rather than a legal one, it was unenforceable by
civil courts.

Holding:
●​ The appeal should be allowed
○​ The trial judge’s damages award stands—no reason to interfere.

Reasoning:
●​ A case involving religious aspects is not automatically non-justiciable.
○​ Enforcing agreements that remove religious barriers to remarriage helps address
gender discrimination and prevents unfair bargaining in civil divorce.
●​ The agreement (Paragraph 12) meets all requirements under the Civil Code.
○​ The husband’s promise to provide a get was part of a voluntary exchange of
commitments with legal consequences.
○​ Courts are not interfering in religious doctrine but enforcing a contractual
obligation.
●​ The husband cannot use religious freedom (s. 3 of the Quebec Charter) to avoid
liability for breaching a contract.
○​ Religious freedom must be balanced against competing rights and public
interest.
●​ The husband’s religious rights do not outweigh the wife’s right to equality,
autonomous choice in marriage/divorce, and contractual enforcement.
○​ Public interest supports enforcing valid contractual obligations.

Dechamps and Charron JJ dissenting

●​ Courts can rule on disputes involving religion if the claim is based on a violation of
civil law.
○​ Courts must remain neutral and avoid deciding between religious vs. secular
laws.
●​ The wife had full civil rights under Canadian and Quebec law—she could remarry and
her children would have equal civil status.
○​ Her claim was entirely based on religious rules, which courts should not
enforce.
○​ The state should not promote religious norms—this is for religious authorities
to decide.
●​ Clause 12 (agreeing to give a get) was included in a corollary relief agreement, but this
 did not make it a civil obligation.
○​ The promise to give a get was a personal moral commitment, not an enforceable
contract under Quebec law.
○​ A valid contract requires an object under Art. 1412 C.C.Q., and this promise
lacked a legal object.
●​ Courts cannot enforce religious obligations or impose damages for failing to follow
religious law.
○​ Freedom of religion does not mean forcing someone else to perform a religious
act.
○​ Recognizing the wife’s claim would contradict secular family law and impose
religious law in civil courts, which is unconstitutional.

Class 15: Supervening events, changed circumstances | February 25th, 2025

CCQ Arts. 1439, 1470, 1453, 1456, 1693, 1694

1439. A contract may not be resolved, resiliated, modified or revoked except on grounds
recognized by law or by agreement of the parties.

1470. A person may free himself from his liability for injury caused to another by proving that
the injury results from superior force, unless he has undertaken to make reparation for it.
Superior force is an unforeseeable and irresistible event, including external causes with the same
characteristics

1453. The transfer of a real right in a certain and determinate property, or in several properties
considered as a universality, vests the acquirer with the right upon the formation of the contract,
even though the property is not delivered immediately and the price remains to be determined.

1456. The allocation of fruits and revenues and the assumption of risks incident to property
forming the object of a real right transferred by contract are principally governed by the Book on
Property.

1693. When an obligation can no longer be performed by the debtor, due to force majeure and
before he is in default , he is released from this obligation; he is also released from it, even when
he was in default, when the creditor could not have benefited, in any case, from the performance
of the obligation due to this force majeure; unless, in either case, the debtor has expressly taken
charge of cases of force majeure. The burden of proof of force majeure lies with the debtor.
1694. A debtor released by impossibility of performance may not exact performance of the
correlative obligation of the creditor; if the performance has already been rendered, restitution is
owed. Where the debtor has performed part of his obligation, the creditor remains bound to
perform his own obligation to the extent of his enrichment.

Otis Elevator Co ltd. c A. Vigilone & Bros inc

Facts:
●​ Under a contract in 1973, Otis Elevator Company Limited agreed to supply and install
two elevators in a building that the defendant was constructing in St-Léonard.
●​ The hoistway and other structures were to be completed by the defendant within four
(4) months of signing the contract
●​ Otis Elevator committed to having the elevators operational within eight (8) months of
the contract date
●​ There was a clause of the contract (P-1) that basically stated:
○​ that neither party would be liable to the other party for any loss, damage, or
delay due to any cause beyond the party's reasonable control, including but not
limited to, strikes and lockouts
●​ That neither party would be liable to the other party for any loss, damage, or delay due
to any cause beyond the party's reasonable control, including but not limited to, strikes
and lockouts

Issue:
●​ Was the strike a superior force that excused Otis from performance?

Holding:
●​ Not a superior force but the clause deals with strikes and releases Otis from obligation

Reasoning:
●​ The Trial Court applied articles 1072, 1200, and 1202 of the Civil Code and concluded
that Otis had not proven an absolute impossibility to fulfill its contractual obligations
and was therefore not released from them.
●​ While strikes are not generally considered force majeure, in this case, both parties
explicitly agreed in the contract that strikes would qualify as force majeure. The
Court should respect their agreement
○​ The contract already defined situations where the debtor would not be at fault
○​ Since a strike caused the delay, this was sufficient to establish a lack of
reasonable control over the situation.
●​ The appellant is thus not responsible to the respondent for such the delay because it
was a cause outside the reasonable control of the appellant

Ratio:
●​ Beyond impossibility, the CCQ does not recognize hardship or impracticability as
 excuses
●​ In absence of superior force clause, it would have found against Otis because the strike
is not a superior force
●​ No liability in cases where a contract has a term that a would-be non- superior force to
be a superior force

Krell v Henry [1903]

Facts:
●​ Krell advertised his flat for rent to view King Edward VII's coronation processions.
●​ Henry agreed to rent it for June 26 and 27 for £75.
●​ Henry paid a £25 deposit and was to pay the remaining £50 on June 24.
●​ The coronation processions were canceled due to the King's illness.
●​ Henry refused to pay the remaining £50 and demanded his £25 deposit back.
●​ Krell sued Henry for the unpaid balance.
●​ The court ruled that there was an implied condition that the processions would happen.
●​ Since they didn’t, there was a "total failure of consideration", and Henry was not
required to pay.
●​ Henry also won his counterclaim and got his £25 deposit refunded.
●​ Krell appealed the decision

Issue:
●​ Was the defendant obliged to pay the rent despite the fact that the processions did not
take place as planned?

Holding:
●​ No, the appeal was dismissed

Reasoning:

Spencer Bower KC for the plaintiff

●​ The contract was absolute and did not include an implied condition that the procession
must take place.
●​ The subject matter of the contract (the room) was still in existence and available for
use.
●​ The defendant assumed the risk that the procession might not occur.
●​ The contract merely granted the right to use the room, not a guarantee of the event.
●​ Taylor v. Caldwell applies only when the subject matter is physically destroyed, which
is not the case here.
●​ Courts should not imply conditions unless absolutely necessary.

Duke Kc and Richardo for the defendant

 ●​ The contract was based on an implied condition that the coronation procession would
take place.
●​ The purpose of renting the room was frustrated when the event was canceled.
●​ Taylor v. Caldwell applies because the fundamental basis of the contract ceased to
exist.
●​ The high rental price was clearly tied to the expectation of viewing the procession.
●​ The contract should be discharged due to frustration, as its main purpose was
undermined.

Application to this case

●​ Doctrine of frustration
○​ A contract can be discharged if an unforeseen event makes its fundamental
purpose impossible to fulfill.
■​ The room was hired specifically to view the King's coronation
procession.
■​ The cancellation of the coronation removed the essential basis of the
contract.
○​ Even though the contract did not explicitly state that the procession was a
condition, it was understood as the central reason for hiring the room.
■​ The contract’s value depended on the event occurring.
■​ Without the coronation, the contract lost its commercial purpose.
●​ Performance was not physically impossible, but the contract was still frustrated
because the underlying purpose was defeated.
●​ Extrinsic evidence
○​ Can be admitted to determine the nature and qualities of the subject matter of a
contract.
○​ Necessary to identify the persons and things referred to in the contract.
○​ Supported by Lord Campbell’s judgment in Mcdonald v. Longbottom.
●​ Parol evidence admissible to show that the purpose of the contract was to rent rooms
for viewing the coronation procession.
○​ If both parties knew this purpose, frustration applies when the procession
is canceled.
●​ Principle from Taylor v. Caldwell
○​ The doctrine of frustration does not require the physical destruction of the
subject matter.
■​ A fundamental condition necessary for performance failing to exist
is sufficient.
■​ Justifies the non-payment of the remaining balance for the rented rooms.
●​ Romer L.J. questioned whether the parties considered the risk of the coronation not
occurring.
○​ Ultimately agreed that the contract was frustrated because this risk was not
contemplated.

●​ The appeal was dismissed.

 ●​ Stirling L.J. and Romer L.J. concurred with Vaughan Williams L.J.
●​ The case followed the principle of Taylor v. Caldwell.

Davis Contractors Ltd V Fareham Urban District Council [1956]

Facts:
●​ Davis Contractors Ltd (Appellants) vs. Fareham Urban District Council (Respondents)
●​ Davis Contractors Ltd agreed to build 78 houses for Fareham Urban District Council.
●​ Contract was signed on July 9, 1946, for a fixed price of £92,425 and completion
within 8 months.
●​ The tender included a covering letter (March 18, 1946) stating that the contract was
subject to adequate labor supply.
●​ Due to labor shortages, construction took 22 months instead of 8 months.
●​ Davis Contractors argued that:
○​ 1. The contract price was conditional on labor availability due to the March 18
letter.
○​ 2. The contract was frustrated (rendered impossible or radically different from
what was agreed).
○​ 3. They should be entitled to extra payment on a quantum meruit basis (fair
compensation for work done).

Issue:
●​ (1) Are the appellants entitled to more money on the basis of quantum meruit?
●​ (2) Was the contract overridden by the letter in the tender?
●​ (3) Was the contract frustrated due the shortage of labour that caused a long delay in
the performance of the contract?
●​ (4) Whether the contract included a condition on labour/material availability from a
March 18, 1946 letter.

Holding:
●​ 1. No; 2, No; 3. No
●​ Appeal dismissed
○​ Lord Radcliffe agrees the appeal fails.
○​ Two main grounds were presented, but neither succeeded.

Reasoning

Lord Radcliffe
●​ The formal contract (July 9) was meant to summarize prior negotiations.
●​ The appellants argued that the March 18 letter was part of the “said tender.”
●​ Lord Radcliffe disagrees, stating:
○​ The “said tender” refers only to the signed form of tender.
○​ The letter was merely a cover letter, not part of the tender itself.
○​ The respondents never accepted the qualification suggested in the letter.
●​ The appendix in the form of tender referenced the March 18 letter.
○​ However, its purpose was to list material price variations, not labour/material
conditions.
○​ Any references to material prices might have been incorporated, but the letter as
a whole was not.
○​ The later price schedule (May 20) superseded the March 18 letter in contractual
significance.
●​ Appellants argued that a shortage of labour/materials frustrated the contract, requiring
additional payment.
○​ The arbitrator ruled in their favor, but Lord Radcliffe disagrees based on legal
principles.
○​ Frustration applies only in specific legal circumstances where a
fundamental contract assumption fails.
■​ Courts must determine if parties based their contract on an implied
condition that a state of affairs would continue.
■​ Frustration is not easily invoked to dissolve a contract.
●​ The doctrine is rooted in contract law, limiting obligations when unforeseen events
occur.
○​ Courts interpret contracts based on the parties’ intentions at the time of
agreement.
●​ Lord Loreburn’s definition:
○​ If a contract implicitly assumes a condition will persist, and it ceases,
frustration may apply.
○​ However, courts do not have an “absolving power” to void contracts arbitrarily.
●​ The appellants argue that before completion, the original contract became incapable of
being performed in its true sense.
○​ They claim it was replaced by a new arrangement entitling them to payment on
a quantum meruit basis rather than the contract sum.
○​ The contract was initially an eight-month contract, but due to unforeseen
circumstances, it took 22 months to complete.
○​ The key issue ⇒The delay was caused by insufficient labour and material
supplies, which the parties originally expected to be adequate.
●​ The arbitrator found that the contract's basis was removed before completion.
○​ The contractor should not be bound to the original price due to the extended
period.
●​ Court’s Rebuttal:
○​ These findings are conclusions of law rather than fact.
○​ Frustration applies when circumstances unforeseen by both parties make
performance impossible, not merely inconvenient or unprofitable.
○​ The delay was foreseeable and could have been addressed with contractual
stipulations.
 ■​ Contractors inherently assume the risk of delay when they submit a
tender.
■​ Legal terms cannot be misused to invoke frustration for financial
hardship.
●​ The principle of frustration was misapplied.
○​ Contractors must include explicit conditions in fixed-price contracts to account
for potential delays.
○​ The correct legal approach is to ensure contractual risks are properly allocated
upfront rather than relying on frustration to escape an unprofitable contract.

Lord Somervell’s Agreement:

●​ Supports Lord Reid’s opinion on the definition of frustration.

●​ Expresses regret that the Court of Appeal did not clarify the distinction between facts
and conclusions.
●​ Notes that contracts are based on expectations, but unmet expectations do not
necessarily mean frustration.
●​ Quotes Lord Sumner in Larrinaga & Co. v. Societe Franco-Americaine des Phosphates
de Medulla: Contracts function like commercial insurance, with each party assuming
risks

KBK No. 138 ventures Ltd v Canada Safeway Ltd

Facts:
●​ Canada Safeway Ltd. (Safeway) owned a property in East Vancouver and was selling it
for $8.5 million, advertising it as a redevelopment opportunity.
●​ The property was zoned C-2, allowing a maximum Floor Space Ratio (FSR) of 3.22
(or 2.5 for residential).
●​ KBK No. 138 Ventures Ltd. (KBK) wanted to build a mixed-use condominium. They
learned that the realistic FSR would be 2.3 to 2.5.
●​ On October 28, 1996, KBK agreed to buy the property for $8.8 million (or $38 per
square foot based on actual FSR). They paid a $150,000 deposit.
●​ On November 29, 1996, the city changed the zoning rules, reducing the FSR to 0.3,
which made KBK's planned project impossible.
●​ On March 13, 1997, KBK claimed the contract was no longer valid because the
purpose of the deal was destroyed by the re-zoning and asked for their deposit back.

Issue:
 ●​ whether or not an agreement between the parties for the sale of land has been frustrated
and is void so that the appellant must return the $150,000 deposit that it received
pursuant to the contract of sale.

Holding
●​ The judge agreed that the contract was frustrated (because the purpose was destroyed)
and ruled that KBK was entitled to a refund of its $150,000 deposit under B.C. 's
Frustrated Contract Act. Safeway had already sold the property to someone else for
$5.4 million.

Reasoning:
●​ Frustration of Contract:
○​ Occurs when an unforeseen event significantly changes the nature of the
contract, making it unjust to hold parties to the original terms.
■​ The event must not be caused by either party and the contract must not
account for it.
●​ Test for Frustration:
○​ 1. The event must occur after the contract is formed and must drastically alter
the performance of the contract.
○​ 2. It cannot be self-induced, and the change must be permanent.
○​ 3. The change must not have been foreseeable.
●​ Davis Contractors Ltd. v. Fareham U.D.C.:
○​ Established the "radical change in obligation" test
■​ frustration occurs when an event makes the contract radically different
from what was initially agreed upon.
●​ Application to Real Estate Contracts:
○​ Canadian courts have applied frustration to real estate contracts, even though
there's debate in England.
○​ Events must make the performance of the contract fundamentally different
from what was contemplated.
●​ Krell v. Henry:
○​ Sets conditions for frustration
■​ the foundation of the contract must be considered, and the event
preventing performance must be unforeseeable.
●​ Victoria Wood Development Corp. v. Ondrey:
○​ Court ruled frustration didn’t apply when a statute changed land use, as the
contract's foundation (selling land) remained intact.
●​ Current case
○​ The purpose of the agreement was the sale of property, but also included
 intentions for redevelopment.
○​ Safeway's advertisement and clauses in the contract made clear KBK's intent to
redevelop, which distinguishes it from Victoria Wood.
○​ The contract was structured with KBK’s goal of condominium development in
mind, making frustration more applicable in this case.

Supervening events, changed circumstances (cont’d) | March 18th, 2025

HR Sainsbury Ltd v Street 1970

Facts:
●​ The defendant was a farmer, and the plaintiff was a grain dealer.
●​ On July 1, 1970, they signed a contract.
●​ The defendant agreed to sell "about 275 tons" of barley from his farm to the plaintiff.
●​ The estimated yield was 1.5 tons per acre.
●​ The defendant's farm had 182 arable acres, which was expected to produce 275 tons.
●​ The agreed price was £20 per ton.
●​ Due to bad weather, the barley harvest in England and the United States was poor.
●​ The defendant's actual crop yield was only 140 tons.
●​ Throughout July and August, barley prices rose rapidly.
●​ The defendant breached the contract by:
○​ Selling 100 tons to another grain dealer at £27.5 per ton.
○​ Keeping 40 tons for himself.
●​ The plaintiff was forced to buy barley elsewhere at £30 per ton.
●​ The plaintiff sued the defendant for breach of contract.

Issue:
●​ Does the crop shortfall absolve Street of his contractual obligation to deliver the 140
tons of crop he grew at a regular price?

Holding:
●​ NO

Reasoning:
●​ The judge assumed it was an implied condition that if the defendant, through no fault
of his own, failed to produce the full estimated crop, he would not have to pay damages
for the shortfall.
○​ However, the judge rejected the defendant's argument that failing to produce the
entire crop should release him from the entire contract.
●​ The judge found it unreasonable to imply a term that would allow the defendant to
 be free from all obligations simply because he could not deliver the full estimated
amount.
○​ The parties had estimated the yield using a conventional figure of 1.5 tons per
acre, suggesting they did not intend for the contract to end if the yield fell short.
●​ The defendant argued that just as the contract set an upper limit of 275 tons, it should
also have a lower limit, freeing him from the contract if he could not meet it.
○​ The judge rejected this argument, stating that even if the upper limit benefited
only the buyer, it was not a reason to imply a lower limit that would release the
seller.
●​ The judge referenced Howell v. Coupland (1876), where a farmer was excused from
delivering more potatoes than his land produced. However, the judge distinguished it
from the current case.
●​ The Sale of Goods Act (Section 5(2)) allows for contracts dependent on uncertain
contingencies, but Sections 6 and 7 on the destruction of goods did not apply to
growing crops.
●​ The judge noted that the form of the condition (precedent or subsequent) made no
difference to the substance of the matter.
●​ The judge emphasized that the implied condition should reflect the presumed
intention of reasonable parties.
●​ He referenced Benjamin on Sale and the United States Sales Act, which allow buyers to
accept partial delivery in cases of partial destruction or deterioration.
●​ The judge concluded that the authorities did not compel a ruling in the defendant's
favor.
●​ The judge ruled in favor of the plaintiffs and awarded them £1,050 in damages.

Churchill Falls Corp. v Hydro Quebec 2018

Jurisdiction:
●​ Quebec

Facts:
●​ In 1969, Hydro-Quebec and the Churchill Falls agreed to build a power station on the
Churchill River in Newfoundland and Labrador
●​ Hydro-Quebec agreed to buy most of the electricity at fixed prices price for 65 years,
whether it needed it or not
●​ By 2009, the price of electricity was much higher than it had been forty years before
●​ Hydro-Quebec was taking advantage of the low rates and selling electricity to
customers outside Quebec at higher prices
●​ Churchill Falls didn’t think this was fair that Hydro QC was making a lot of profit and
argued it should be able to share the profits
●​ In 2010, when Hydro-Quebec refused to renegotiate the contract, Churchill Falls asked
the courts to force it to
Issues:
●​ Did Hydro-Quebec have a good faith obligation to renegotiate?

Holding:
●​ No

Reasoning:
●​ The SCC did not get involved, arguing this was a private law dispute between private
individuals, so contract stands
●​ The contract was not unfair at the time of formation
●​ Hydro-Quebec does not have a duty to renegotiate the contract, even though the
contract proved to be an unanticipated source of profits
●​ Moreover, the contract cannot be overturned absent an overriding error
●​ Thus, neither good faith nor equity could justify renegotiating a binding contract
●​ This is not a case of ‘hardship’, although the SCC does not entirely reject the doctrine
in QC CVL
○​ Hardship requires a party to suffer because it gets less than expected
○​ The court held Churchill Falls got what they bargained for, which prevents
courts to intervene with the good faith doctrine, even when Hydro-Quebec were
more enriched as they sold electricity to high prices
●​ Hydro-Quebec didn’t have an obligation to re-negotiate under good faith
○​ Good faith doesn’t mean Hydro-Quebec had to re-negotiate just because there
was an unexpected change in electricity prices
○​ This was not a ‘relational’ contract
■​ This would mean that they would have to share the risks and benefits
●​ Also, no court ever found that a duty to cooperate meant a party had to give up some of
its profits just because the other party wasn’t profiting as much
●​ Thus, the SCC confirmed that courts should not change contracts or force parties to
renegotiate them if this would upset the balance the parties originally agreed to
○​ The supervening event of Hydro QC making lots of profit was not enough to
mandate an adjustment of the contract

Ratio:
●​ Courts can’t force parties to re-negotiate contracts
●​ Supervening events don’t automatically mean that Hydro-Quebec had to share its
profits from the Churchill Falls power station

Intro breach and remedies | March 20th, 2025

CCQ Arts. 1590-1604

Helge Dedek, “From Norms to Facts: The Realization of Rights in Common and Civil
Private Law” (2010) 56 McGill LJ 1
●​ Introduction
○​ When courts determine the scope and content of a contract, they draw from
various sources:
■​ Communications between the parties.
■​ Mandatory legal rules (e.g., public policy, illegality).
■​ Default rules.
■​ Procedural and substantive standards governing contract construction.
○​ PICC 5.1.1: Express and Implied Obligations
■​ Contractual obligations may be: (1) Express; (2) Implied.
○​ PICC 5.1.2: Implied Obligations
■​ Implied obligations arise from:
●​ The nature and purpose of the contract.
●​ Practices established between the parties and usages.
●​ Good faith and fair dealing.
●​ Reasonableness.
○​ PICC 4.8: Supplying an Omitted Term
■​ When a contract lacks an essential term:
●​ A term appropriate to the circumstances is supplied.
■​ Factors considered in determining the term:
●​ Intention of the parties.
●​ Nature and purpose of the contract.
●​ Good faith and fair dealing.
●​ Reasonableness.
○​ DCFR II.-9:101: Terms of a Contract
■​ Contract terms may derive from:
●​ Express or tacit agreement.
●​ Rules of law.
●​ Practices and usages.
■​ When a contract lacks a necessary term, courts may imply one based on:
●​ Nature and purpose of the contract.
●​ Circumstances of conclusion.
●​ Good faith and fair dealing.
■​ Implied terms should reflect what the parties would have likely agreed
upon.
■​ Deliberately unregulated matters cannot be supplemented by courts.
○​ CESL 66: Contract Terms
■​ Contract terms are derived from:
●​ Party agreement (subject to mandatory rules).
 ●​ Usages or practices (Article 67).
●​ CESL rules if no contrary agreement exists.
●​ Terms implied by Article 68.
○​ CESL 68: Implied Contract Terms
■​ When a matter is unregulated:
●​ Courts may imply terms based on:
○​ Nature and purpose of the contract.
○​ Circumstances of conclusion.
○​ Good faith and fair dealing.
■​ Implied terms should reflect what the parties would have likely agreed
upon.
■​ Deliberately unregulated matters cannot be supplemented.
○​ Background: Autonomous vs. Heteronomous Standards
■​ Autonomous standards: Derived from the will of the contracting parties.
●​ Contracting seen as private ordering, free from state interference.
●​ Courts ideally enforce the contract as willed by the parties (lex
contractus).
■​ Heteronomous standards: Derived from external legal principles.
●​ Courts rely on dispositive laws, usages, and standards of good faith
and equity.
●​ These standards supplement or guide the interpretation of the
contract.
■​ Contract construction
●​ Courts translate actual communications into a juridical construct.
●​ This defines the parties’ normative relationship.
●​ Courts rely on both:
○​ Autonomous expressions of intent.
○​ Heteronomous standards (good faith, equity).
○​ Content of the Contract
■​ Courts use three main techniques:
●​ Hermeneutical elucidation: Interpreting the parties’
communications.
●​ Supplementation through default rules:
■​ Codified statutes.
■​ Judge-made law.
■​ Usages.
●​ Ad-hoc responses:
○​ Filling perceived omissions based on:
■​ Actual or hypothetical will of the parties.
○​ The distinction between these techniques is fluid:
 ○​ Judge-made solutions may become default rules over time.
○​ The process moves from:
■​ Autonomy (party freedom) to heteronomy
(judicial intervention).
○​ Heteronomous standards (e.g., good faith) may influence
both:
■​ Interpretation of existing terms.
○​ Common Law distinctions
■​ Common Law Distinctions:
●​ Terms: Contractual obligations.
●​ Representations: Pre-contractual statements.
■​ Implication of Terms:
●​ In law: Courts apply statutory or judge-made rules.
●​ In fact: Based on presumed party intent (business efficacy &
officious bystander tests).
●​ By custom/usage: Recognized trade practices.
■​ Key Cases:
●​ Luxor (Eastbourne) Ltd v Cooper (1941): Differentiated
implication in law vs. fact.
●​ Belize Telecom (Lord Hoffmann): Emphasized contract’s
reasonable interpretation.
●​ Marks and Spencer plc v BNP Paribas: Reaffirmed distinction
between implication and interpretation.
■​ Contract Law & Good Faith
●​ Traditionally, English law resists a general good faith principle.
●​ Historical views:
○​ Lord Mansfield (1766): Applied good faith universally.
○​ Sheppard (1663): Linked contracts to equity.
●​ Modern developments:
○​ Yam Seng Pte Ltd v International Trade Corp Ltd: Implied
good faith based on intent.
○​ Limited adoption in lower courts; UK Supreme Court
remains unconvinced.
■​ Historical Context
●​ Contract theory emerged in the 18th century, influenced by
continental legal thought but without Roman law inheritance.
●​ Judges used implied terms to fill contractual gaps.
■​ Key Evolution:
●​ The Moorcock (1889): Established business efficacy & officious
bystander tests.
 ●​ Breach of warranty shifted from tort to contract law.
●​ Common law historically implied obligations based on reason and
justice (Blackstone).
●​ Civil law
○​ Civil law does not have an exact counterpart to the common law’s "implication of
terms" doctrine.
■​ Contracts are classified into "types," each with default rules and norms.
■​ Civil law integrates contracts into a broader framework of codified norms,
good faith, and equity.
■​ The German concept of Schuldverhältnis expresses this deeply embedded
normative relationship.
■​ Civil law has a richer set of default rules due to its Roman law heritage.
○​ Finding Duties:
■​ Interpretation of contract content is based on party communications.
■​ "Gap-filling" is often framed as an extension of interpretation.
■​ Civil law courts tend to "discover" obligations rather than add terms.
■​ Code civil (Art 1135, now 1194) states that contracts include obligations
arising from equity, usage, and law.
■​ Good faith (équité) plays a key role, distinguishing civil law from
common law.
○​ Dividing Lines in Interpretation:
■​ The distinction between interpretation and external gap-filling is debated.
■​ Some argue that interpretation should be separate from applying external
standards.
■​ Others argue that concepts like good faith and usage blur this distinction.
■​ Legal scholars suggest that any interpretation beyond the explicit wording
is normative.
○​ Historical Context
■​ Gap-Filling Evolution:
●​ The concept of "suppletive" interpretation developed in the 19th
century.
●​ Earlier Roman law traditions relied on presumed intentions (e.g.,
condicio tacita).
●​ Grotius introduced "objective" promise interpretation beyond
explicit wording.
■​ Contractual Will vs. Nature:
●​ Civil law balances party autonomy with external normative
obligations.
●​ Domat emphasized that contracts bind beyond express terms due to
equity, law, and usage.
 ●​ The Roman tradition assumes contracts inherently impose duties,
informed by commutative justice and good faith.
■​ Post-Codification Theories:
●​ Codifications (e.g., Code civil 1804) emphasized party intent as the
basis for obligations.
●​ Default and equitable effects of contracts were viewed as implicitly
agreed upon.
●​ German doctrine also framed non-express obligations as "tacitly"
agreed to.
●​ International instruments
○​ 1. Terminology and System: ‘Terms’
■​ PECL separates contract ‘content’ from its ‘interpretation’ (Chapter 5).
■​ DCFR and CESL follow this pattern, placing ‘terms’ in chapters on
‘content.’
■​ PICC takes an alternative approach:
●​ ‘Supplying omitted terms’ (PICC 4.8) is under ‘interpretation.’
●​ ‘Implied obligations’ (PICC 5.1.1, 5.1.2) are under ‘content.’
■​ Civil law sees omitted terms as interpretation; common law requires a
‘covenant of good faith’ to imply terms.
■​ Distinctions between interpretation, implication of terms, and obligations
are blurred.
○​ 2. Hybrid Substance (1): Overview
■​ PECL systematically separates ‘interpretation’ (Ch. 5) and ‘implication of
terms’ (Ch. 6).
■​ Art 6:102 fills contractual gaps beyond mere interpretation.
■​ PECL blends common law ‘implied terms’ with civil law standards (e.g.,
Art 6:248 BW, Art 1194 Code Civil).
■​ Sources of implied terms in PECL:
●​ (a) Intent of the parties
●​ (b) Nature and purpose of the contract
●​ (c) Good faith and fair dealing
■​ Unlike DCFR, PECL does not require terms to reflect a ‘hypothetical will’
of the parties.
○​ 3. Hybrid Substance (2): Good Faith
■​ Good faith in civil law:
●​ Interprets contracts intrinsically.
●​ Supplements agreements externally.
●​ Creates collateral duties within contracts.
■​ Art 6:102 combines common law and civil law approaches:
●​ Incorporates ‘implication in law’ (nature of the contract, equity).
 ●​ Uses ‘implication in fact’ (intent of the parties).
■​ DCFR and CESL continue this trend but provide more judicial clarity.
○​ 4. DCFR & CESL on Implied Terms
■​ DCFR II.-9:101 (3) and CESL 68 (1) state that implied terms fill only
unintentional omissions.
■​ Sources of implied terms:
●​ PECL: Intent of parties, nature of contract, good faith.
●​ DCFR/CESL: Remove intent, add ‘circumstances of contract
conclusion.’
■​ DCFR/CESL require implied terms to be ‘necessary’ to prevent excessive
judicial power.
■​ Courts must justify whether they are interpreting or supplementing
agreements.
■​ Judicial discretion in filling contractual gaps remains controversial in
DCFR’s pluralistic framework.

Hong Kong Fir v kawasaki Kisen Kaisha 1962

Facts:
●​ Plaintiffs (shipowners) chartered a ship to the defendants (charterers).
●​ Contract terms:
○​ Ship was to be "fitted for ordinary cargo service."
○​ Owners promised to maintain the ship in a "thoroughly efficient state."
○​ Charterers agreed to pay hire but were excused from payment during repair
time.
●​ Voyage Issues:
○​ Departed Liverpool in February 1957, bound for Osaka.
○​ Ship suffered repeated engine failures and had an incompetent crew.
○​ Reached Osaka on 25 May, but took 15 weeks to be repaired and ready for sea.
○​ Off-hire for 5 weeks during the journey.
●​ Repudiation and Legal Actions:
○​ 5 & 6 June, 27 July: Charterers repudiated the contract, alleging breach.
○​ 8 & 12 August: Owners treated the contract as wrongfully cancelled by the
charterers and claimed damages.
○​ 11 September: Charterers again repudiated.
○​ 13 September: Owners formally accepted the repudiation.
●​ Market Conditions:
○​ Between contract formation and repudiation, sea freight rates fell sharply.
○​ Defendants could charter another ship at less than half the original rate.
●​ Owners issued a writ against the charterers, claiming damages for wrongful
 repudiation.
○​ Charterers’ counterclaims:
■​ Alleged breach by owners due to the ship’s unseaworthiness and lack of
due diligence.
■​ Claimed the charterparty was frustrated by breakdowns, repairs, and
delays.

Procedural history:
●​ Judge Salmon J. ruled in favor of the shipowners, awarding damages for breach of
contract.
●​ Diplock L.J.’s judgment (agreed upon by others) upheld the trial decision, ruling in
favor of the shipowners.

Reasoning:
●​ Synallagmatic Contracts:
○​ Every synallagmatic contract involves the question of when a party is relieved
from further performance due to unforeseen events.
○​ These events may or may not be expressly stated in the contract itself.
○​ In some cases, statutes like the Law Reform (Frustrated Contracts) Act, 1943,
address events that relieve parties from performance.
●​ A party can be relieved from further performance if the event deprives them of
substantially the whole benefit of the contract.
○​ This test applies whether the event results from a breach by one party or not.
■​ If the event occurs due to one party’s default, they cannot rely on it to
avoid performance.
●​ The non-defaulting party may choose not to treat the event as a
discharge from their obligations.
■​ If the event is not due to either party’s fault, both parties are generally
relieved from further performance.
●​ The event is then treated according to the Law Reform
(Frustrated Contracts) Act, 1943.
●​ Precedent
○​ Early cases like Pordage v. Cole and Thorpe v. Thorpe focused on whether
non-performance was a "condition precedent" to the other party's obligations.
○​ Boone v. Eyre (1773) clarified that where mutual covenants form the whole
consideration of the contract, a breach of such covenants discharges the other
party’s obligations.
○​ In Jackson v. Union Marine Insurance Co. Ltd. (1874), it was recognized that
the event, not the breach itself, could discharge a party from further obligations.
●​ Simple undertakings (conditions) result in a discharge if breached, but some complex
contractual undertakings cannot be neatly categorized as conditions or warranties.
●​ Clause 13 of the charter party exempts shipowners from liability for delay due to
unseaworthiness unless it results from the shipowner’s lack of due diligence.
 ○​ Mere unseaworthiness or delay, unless it results in frustration, does not deprive
the charterer of substantially the whole benefit of the contract.
●​ The judge must evaluate if, at the time of the purported rescission, the delays and
unseaworthiness would deprive the charterers of the intended benefit from
further performance of their obligations.
○​ If the delay or unseaworthiness falls short of frustrating the contract, the
charterers cannot rescind the contract based on these grounds.

Cehave NV v Bremer 1975

Jurisdiction: UK

Facts:
●​ A written contract to sell fruit pellets contained the express stipulation, "shipment to be
made in good condition"
○​ However, some of the pellets were not all in good condition when shipped
●​ Nonetheless, they were, on arrival, still fit to be used for the purpose the buyer had
intended and although they were worth less than they should have been, they could still
have been re-sold at a reduced price
​
Issues:
●​ (1) Was there a breach of ‘condition’?
●​ (2) Was the buyer entitled to repudiate the contract and reject the goods?

Holding:
●​ 1. No; 2. No

Reasoning:
●​ The sellers were not in breach of the implied conditions as to fitness for purpose and
merchantable quality
●​ The express stipulation in the contract was not a condition and the sellers' breach of it
had not been serious enough to go to the root of the contract
●​ Though there was no breach of ‘condition’, and the buyer was not entitled to
‘repudiate’ the contract the buyer is entitled to ‘damages’
○​ The breach was not “fundamental”

Ratio:
●​ Need a “fundamental” breach of contract to terminate it

John D. McCamus, The Law of Contracts, ch. 16: Anticipatory Repudiation

 ●​ Condition: A term whose breach goes to the root of the contract, and whose breach gives
the other party the right to terminate the contract and sue for damages
●​ Warranty:A stipulation of lesser importance whose breach only allows for damages
●​ Traditional Approach pre-Hong Kong Fir:
○​ Look for contractual terms would explicitly spell out consequences of breach of
terms which categorizes them as ‘conditions’ or ‘warranty’
●​ Hong Kong Fir:
○​ Shows how using the classification above has problems:
○​ If something is seen as a ‘warranty’, regardless of how disastrous the breach of
this provision was, it could only lead to damages, and not termination of the
contract
○​ If classified as a ‘condition’, any breach, no matter how minor, could be used to
terminate the contract
○​ The solution was to create a third category of terms which, if breached, could
entitle the other party to either terminate or collect damages in light of the
circumstances, and based on the effect of the breach
●​ Things to determine when considering if a term warrants the right to termination:
○​ The proportional effect of the breach on the total value of performance. Whether
problems of the sort had been anticipated by the parties or were within the range
that would be reasonably anticipated.

Specific Performance | March 25th, 2025

Construction Belcourt Ltee v Golden Griddle Pancake House [1988] - CVL

Facts

●​ The owners of a shopping centre have requested specific performance to enforce the
continuous operation provision of a lease and compel a tenant who ceased operations to
reopen and operate its restaurant
●​ The tenant alleges misrepresentation and counterclaims the cancellation of the lease.

Issues:

●​ Should specific performance be granted when it involves a positive obligation? (i.e.,

reopen the restaurant)
Holding:​
Yes

Reasoning:

●​ Golden Griddle’s demand for lease cancellation of the lease on the grounds of
misrepresentations was rejected by the court
●​ Specific performance:
○​ The original lease subjected the tenant to a penalty for failing to operate its
business continuously, as well landlord had the right to obtain injunctive relief
○​ According to the contract, the injunction would be appropriate, but just because
a stipulation in an agreement permits one to seek injunctive relief that does not
automatically create a right to such a remedy.
○​ CCQ: Art.1065 provides the creditor of the obligation with the right, at his/her
option, to require specific performance of the obligation, subject only to the
qualification that the situation be one of the cases (cases which admit of it).
○​ It is not the role of the court to pre-determine the creditors recourse, but rather
to respond to his/her election
●​ Courts did not consider subjective factors such as hardships or personal consequences.
●​ Golden Griddle cannot obtain relief from its obligation to operate on the grounds that it
had failed to generate a satisfactory level of sales.
●​ Judgment condemned them to pay damages for not paying rent, as well an injunction
was granted ordering them to reopen the restaurant.
●​ However, CVL courts cannot enforce “personal services.”
○​ It violates too much personal freedom.

Ratio:

●​ A court may be reluctant to order an injunction if compliance cannot be easily

measured, but where the act (or series of acts) can be readily defined and subsequently
assessed, a court will not hesitate to issue the order.

CML – Co-operative Insurance Society v Argyll Stores

Facts:

●​ The defendants signed a 35-year lease in 1979 with the plaintiffs to operate a
supermarket, and the lease contained a covenant to keep the premises open for retail
trade during the usual hours of business.
●​ In 1994, the defendants announced they would be closing the losing business, and the
plaintiffs offered a rent concession, and without reply, the defendants closed and
 stripped the business.
●​ The plaintiffs brought action ordering them to perform the covenant and maintain the
business.

Issues:

●​ Can specific performance be used in this case?

Holding:​
No, only damages.

Reasoning:

●​ Argyll admitted their breach and consented to an order for damages to be assessed
●​ A decree of specific performance is a discretionary remedy:
○​ Specific performance should only be used where damages prove to be
inadequate
○​ Specific performance is an equitable remedy, which is at the judge’s discretion
rather than a right to specific performance.
●​ The defendant who didn’t want to run the business anymore now must do so and the
seriousness of a finding of contempt for the defendant means that any application to
enforce the order is likely to be a heavy and expensive piece of litigation.
●​ An objection to the injunction was that there would be injustice by allowing the
plaintiff to enrich himself at the defendants’ expense:
○​ The loss the plaintiff must endure by complying with an order for specific
performance may be far greater than that the defendant will lose from a broken
contract.
○​ It is not in the public interest for the courts to require someone to carry on a
business at a loss if there is any plausible alternative by which the other party
can be given compensation.

Ratio:

●​ Specific performance should only be used where damages prove to be inadequate.

●​ The settled practice of courts not granting a mandatory injunction requiring the
carrying on of a business is based upon the possibility of wasteful litigation and the
possibility of the unjust enrichment of the party seeking the injunction.

Warner Bros. Pictures v. Nelson, 1937

Jurisdiction: UK

Facts:
●​ The defendant (Davis) agrees to perform solely and exclusively for Warner, but ends up
breaching the contract.
●​ The contract has a negative covenant:
○​ Davis agrees that during the term of the contract she will not engage in any
other work without the written consent of the producer (negative obligation).
○​ However, she left the country and did not want to be exclusive with Warner
Brothers.
●​ The plaintiff was asking for specific performance of the restrictive covenant not to act
for another company.
●​ They didn’t ask for a mandatory injunction for her to fulfill her obligations to act for
them.

Issues:
●​ Will specific performance be granted in favour of a negative obligation in a contract?

Holding:
●​ Yes

Reasoning
●​ The injunction was granted for three years and only in England.
●​ The general rule is that courts will not enforce specific performance of a positive
covenant of personal service:
○​ Positive obligation: obligation to render services.
■​ The court should not force employees to remain in an employment
relationship against their will (positive obligation).
■​ Cannot order someone to act as it would infringe their personal liberty.
■​ Thus, no mandatory injunction will be issued, and damages would be a
more appropriate remedy.
○​ However, it’s reasonable here to impose an injunction because it only restricts
her from working for a motion picture company and it is the only effective
remedy for the breach:
■​ Negative obligation: obligation not to work.
■​ A negative obligation of not working for competitors is also not
enforced by courts if there are no other practical alternatives.
■​ Courts will not enforce negative clauses if they would force them into
starvation or to act out the positive clauses (service only).
●​ However, pushing her out of her industry provides her with other practical alternatives,
 it’s not the same as being forced to work for Warner Brothers.
●​ Such an injunction would not force Davis to go back to Warner Brothers.
●​ An injunction was granted but only insofar as it prevented Davis from acting or
performing for another in the same industry.
●​ The term relating to “no employment of any kind” was severed and did not form part of
the injunction.
●​ Damages are not the more appropriate remedy:
○​ The parties explicitly recognized in the contract the appropriateness of an
injunction over damages.
○​ Also, damages would be very hard to evaluate (because of the nature of her
work).

Calculating damages | March 27th, 2025

Hawkins v McGee (1929)

 Facts:
●​ Before the surgery, the surgeon ‘guaranteed’ the success of the surgery and repeatedly
solicited the plaintiff about the ability to give a ‘perfect’ hand
●​ However, the surgeon failed to provide a ‘100% perfect hand’ as promised prior to the
surgery, so the plaintiff sued for breach of contract
●​ The surgeon argued he did not intend for the pre-surgery exchange to be contractual
●​ The trial court held that a contract had been formed and breach of contract occurred
○​ The plaintiff was entitled to recover for the pain/suffering that has been caused
by the surgery and the injury sustained due to the surgery

Issues:
●​ (1) Was a contract formed?
●​ (2) If so, was there a breach of contract?
●​ (3) If so, how are the damages calculated?

Holding:
●​ (1) Yes
●​ (2) Yes
●​ (3) Placing the plaintiff in the position had the contract been fulfilled

Reasoning:
●​ There was a “reasonable basis” that the surgeon’s words be accepted as a contract
(reasonable person standard)
●​ However, the Court of Appeal disagreed with the trial court’s compensation calculation
and argued the remedy in terms of contract law is to put the plaintiff in the position as
if the contract had been performed, not to compensate for the injuries sustained (which
is torts law)
○​ Thus, compensation was the difference between the value of a perfect hand (had
the promise been fulfilled) and the value of the present condition

Ratio
●​ Determining whether a contract has been formed and breached requires using the
‘reasonable person’ standard
●​ Remedy in terms of contract law is to put the plaintiff in the position had the contract
had been performed

L.L. Fuller / William R. Perdue, “The Reliance Interest in Contract Damages: 1” (1936)
●​ PURPOSES PURSUED IN TYPES OF CONTRACT DAMAGES:
○​ Restitution interest:
■​ Plaintiff conferred some gain on the defendant in reliance of their promise
which the defendant broke
■​ Can get back what you loss
 ■​ The authors argue this should be the minimum
■​ Object: prevention of unjust enrichment
■​ The strongest case for relief: unjust impoverishment and unjust gain
○​ Reliance interest:
■​ Plaintiff changed his position based on the defendant’s promise
■​ Object: putting the plaintiff in the same position before s/he entered the
contract (i.e. had the contract not been made)
■​ Covers both ‘losses caused’ and ‘gains prevented’, which is more than
restitution
■​ Reliance is restitution + other losses relied on
■​ It is allowed as an alternative measure in the case expectancy is uncertain
○​ Expectation interest:
■​ Putting the plaintiff in the position s/he would have been in had the
contract been performed
■​ Often entails positive losses, not ‘gains prevented’
■​ We compensate the plaintiff by giving him/her something s/he never had
■​ The “injury” is a construction of contract law
■​ This is the standard used by courts
○​ In moving from the first two to the third, we move from the realm of ‘corrective
justice’ to that of ‘distributive justice’
■​ Not returning to the status quo, but bringing into being a new situation
■​ The ‘normal’ rule of contractual damages is to award the value of
expectancy (i.e., the lost profit), which is essentially compensating a
victim for something s/he never had
○​ They essentially explain that we enforce something that we don’t in fact yet have
●​ POLICY REASONS FOR PROTECTING ‘EXPECTATION INTEREST’:
○​ Psychological reasoning:
■​ The breach of a promise arouses in the promisee a sense of injury, an
attitude of expectancy
○​ Will theory reasoning:
■​ Contracting parties execute a kind of legislative power, so legal
enforcement is a mere implementation by the state of private law already
established
○​ Economic/institutional reasoning:
■​ Credit economy:
●​ In our society, credit is a pervasive institution where expectations
of future value have become, for purposes of trade, present values
●​ Thus, the breach of a promise work as an ‘actual’ diminution of the
promisee’s asset
 ○​ Actual’ in the sense that it would be so appraised according
to modes of thought which enter into the very fiber of our
economic system
■​ The argument against this reasoning:
●​ it is a fallacy; a promise has value because it is legally enforced,
not the other way around
●​ Credit system itself is based on judicial intervention.
○​ Juristic reasoning:
■​ Courts must have considered it wise to protect ‘expectation interest’
■​ Curing and preventing harms resulting from reliance
■​ promoting/facilitating reliance on business agreements
○​ Circular support:
■​ The law measures damages by the expectancy in part because society
views the expectancy as a present value
■​ Society views the expectancy as a present value in part because the law
gives protection to the expectancy
●​ THE DIVERGENCE OF MEASURE AND MOTIVE AND THE PROBLEM OF
MIXED MOTIVES:
○​ What are the ultimate motives for enforcing contracts?
■​ It’s difficult to identify
■​ The court may not be pursuing just one purpose and protecting just one
interest in enforcing a contract
●​ It could be protecting more than one interest and simply choosing
the most convenient measure of damages even if it differs from
that suggested by interest protected
●​ The measure and motives often diverge
○​ However, sometimes there are mixed motives

Security Stove & Mfg. Co. v. American Ry. Express Co., 51 S.W. 2d 572 (Mo. Ct. App.1932)

Security Stove & Mfg. Co. v. American Ry. Express Co., 51 S.W. 2d 572 (Mo. Ct.
App.1932)

Facts:
●​ Plaintiff manufacturer furnace equipped with a combination and gas burner
●​ The furnace and its components weighed around 1,500 pounds, and the shipment
needed to reach Atlantic City by October 8th.
●​ Plaintiff engaged the defendant to transport the furnace and equipment by express from
Kansas City to Atlantic City.
 ●​ On Oct 13, the defendant reported the missing package was in St. Louis and would
arrive by the 13th.
○​ Oct 16: Package finally arrived, too late for the convention.
○​ Defendant failed to deliver one of the essential parts (gas manifold) on time,
causing the plaintiff to miss the convention.
●​ Plaintiff sought compensation for express charges, hotel costs, wages, and booth rental,
totaling $801.50
○​ The court awarded the plaintiff damages for the expenses incurred due to the
delay.​

Issue
●​ Plaintiff sought damages from defendant (American Ry. Express Co.) for failing to
deliver a furnace exhibit on time to the American Gas Association Convention in
Atlantic City, New Jersey.

Holding
●​ The defendant was liable for the delay and the plaintiff was entitled to compensation
for the expenses caused by the failure to deliver the exhibit on time.

Reasoning
●​ The general rule is that damages for breach of contract are the loss caused by the
breach, often measured by the market value of goods at the time of delivery versus
when they should have been delivered.
●​ If the carrier is informed of special circumstances (such as a time-sensitive exhibition),
it may be liable for damages beyond the general loss.
●​ Plaintiff could recover expenses incurred in reliance on the contract, even if those
expenses would have been incurred in any event.
●​ The court affirmed that the plaintiff was entitled to recover damages for the expenses
incurred in reliance on the defendant’s failure to timely deliver the shipment, even
though the plaintiff didn't seek lost profits.
●​ The court emphasized the need for a method of estimating damages that best
compensates the injured party for their actual loss (in this case, the incurred expenses).

Ruxley Electronics v Forsyth [1995]

Facts:
●​ Ruxley agreed to build a swimming pool at Forsyth’s home
 ●​ The contract specified the depth of the pool was to be seven feet and six inches
○​ However, Ruxley completed the pool to a depth of six feet and nine inches
●​ Forsyth brought an action for breach of contract, claiming the cost of rebuilding the
pool to the specified depth
●​ Ruxley argued the pool was still safe for diving despite the breach and Forsyth had not,
therefore, suffered any damage in terms of a loss to the value of his home
●​ Moreover, given the cost of re-building the pool was £21,560, it would be unreasonable
and disproportionate to the loss Forsyth had suffered in not having the pool at his
desired depth
●​ Ruxley further contended that Forsyth had no actual intention of having the re-building
work conducted and he had not suffered any loss
●​ Forsyth argued that Ruxley had failed to perform his specific obligations under the
contract, and he should be entitled to damages which would place him in the position
he would have been in had the obligations been appropriately performed
●​ He asserted it was irrelevant whether he chose to use the damages for the re- building
work

Issues
●​ Does Ruxley have to pay damages?

Holding
●​ No

Reasoning
●​ Forsyth could not recover the cost of re-building because this would be more than the
loss he had suffered
●​ There are three methods of calculating damages:
○​ 1. Difference in value between both pools (i.e., difference in financial loss
(diminution of value))
■​ It was found there was no difference in value between the two pools, so
he would essentially get 0$ under this method
○​ 2. Calculating the amount to build the perfect pool (i.e., cost of destruction +
rebuilding (cost of cure)):
■​ The court found it was unreasonable to believe that Forsyth would use
the money to demolish the pool and build a new one
●​ Given that there was no difference in value between the two
pools, he would be getting an already good functioning pool plus
the damages, which is more than he contracted for
●​ Consequently, there would be unjust enrichment
○​ 3. Loss of amenity (enjoyment):
 ■​ He could recover for loss of ‘amenity’ (enjoyment)
■​ The pool was worth no less because of the breach but to awarding
nothing would render the contractual promise illusory, and so a nominal
award was appropriate

Ratio:
●​ There is a limit to the cost of cure; it must be ‘reasonable’

Scope and limits of contractual liability | April 1, 2025

CCQ Arts. 1607, 1611, 1613

Hadley v. Baxendale (1854), 9 Exch. 341.

UK

Facts:
●​ Hadley (flour mill owner) sent a shaft by Baxendale’s shipping company to be
replaced, which they agreed would be returned the next day
●​ However, Baxendale sent it by canal rather than rail which caused the shipping to be
delayed and the shaft to be received much later
●​ Hadley did not explain that without the shaft the mill could not operate and had to close
the mill for five days
●​ Hadley sued to get damages back for the loss of profits because the mill had to be
closed

Issues:
●​ Is Baxendale liable for the damages?

Holding:
●​ No

Reasoning:
 ●​ This was not a contract where Hadley was owed a ‘perfect’ product (i.e., damages =
difference between perfect and not perfect)
○​ Rather it’s that the delay caused further loss (consequential damages), meaning
exposure beyond what was promised promise
●​ If the service is not performed properly, Hadley can’t future profits (expectancy
interest)
●​ A non-breaching party is entitled damages arising naturally from the breach itself or
those that are in the reasonable contemplation of the parties at the time of contracting
○​ While the breach by the defendants was the actual cause of the lost profits of
Plaintiffs, it cannot be said that under ordinary circumstances such loss arises
naturally from this type of breach
■​ The plaintiff only told defendants that he wanted to ship a broken mill
shaft, not that urgency was needed or that profits were at stake
■​ The defendant had no way of ‘reasonably knowing’ that the breach
would cause a longer shutdown of the mill, resulting in lost profits
○​ Thus, the loss of profits can’t be considered a consequence of breach given that
reasonable expectations of sending of a broken shaft to third parties by a carrier
under ordinary circumstances would not produce the stoppage of the mill
●​ If special circumstances are known to both parties, damages owing from breach would
be those that would ordinarily follow under these circumstances
○​ Where special circumstances are not known by both parties, damages are those
that would be expected to arise from ‘ordinary use’
●​ Hedley test
○​ 1. Look for (actual) special knowledge has been communicated
○​ 2. If not, look for (imputed) knowledge is ‘naturally arising’ from the
contract or being within the ‘reasonable contemplation’ of the parties

Victoria Laundry v. Newman Industries Ltd., 1949 2 K.B. 528.

Uk

Facts:
●​ Newman Industries contracted with Victoria Laundry to deliver boilers, knowing that
Victoria wanted it for immediate use in a laundry business but didn’t know the precise
role for which the boiler was needed
●​ Newman was slow in delivering
●​ Victoria claims loss of profits they would have received had the boiler been delivered
on time, including the regular business that they would have enjoyed AND the
additional revenue that they would have earned because of several lucrative dyeing
contracts that they could have gotten
 ○​ Therefore, Victoria claims damages for loss of dyeing contracts that Newman
didn't know about, which is beyond the general recovery for lost business
●​ Victoria argued the losses would “reasonably foreseeably flow from the breach”, thus it
was not necessary to prove actual knowledge of the precise loss
●​ Newman argued they had no special knowledge of running a laundry business or that
the boiler was necessary for immediate profit making, thus they were not liable for lost
profits

Issues:
1.​ Can Victoria claim for loss of profits that they would have made were the boilers have
been delivered on time?
2.​ Could Victoria claim loss of the dyeing contracts?

Holding:
●​ Yes
●​ No

Reasoning:
●​ The court applied Hadley v Baxendale:
○​ Imputed knowledge vs. actual knowledge
●​ Where knowledge of special circumstances is relied on to enhance damages, this
knowledge must have been given to the defendant at the time of the contract in
circumstances where the defendant agreed to bear special losses connected with these
circumstances
○​ When parties are not ad idem in their contemplation, damages will be based on
the ‘ordinary use’
●​ More damages are awarded in cases where the defendant defaults in supplying a
self-contained profit-earning whole than when the defaults in supplying a part
○​ The boiler was a self-contained whole
●​ It was held that the suppliers would reasonably foresee that loss of business would
result from delayed delivery of an item like this
○​ The party in breach is an engineering company – they can be reasonably
expected to have foreseen that the boiler was supposed to be used and therefore
delay would cause harm
○​ Engineers had imputed knowledge about how the boilers would work and what
they would be used for
●​ However, the defendant would have had to know about the specific terms of the dyeing
contract for the plaintiff to recover damages for them
○​ It was not foreseeable that the breach would lead to further loss concerning the
dyeing contracts as they were not explicitly communicated at time of contract
●​ Consequently, Victoria could only recover losses which were in the reasonable
contemplation of the parties which included the loss of profit that could be expected
from the lack of use of the boiler, but the claimant could not recover for the loss of
the exceptionally lucrative contract since the defendant was unaware of this
contract
●​ This case is distinguished from Hadley because there was “ample means of
 knowledge” on the part of the defendant that a business loss of some sort would be
likely result from the defendants' default

Koufos v. C. Czarnikow (The Heron II), 1969 1 A.C. 350.

UK

Facts:
●​ A contract for the carriage of a cargo of sugar was delayed by 9 days
●​ The market price of sugar dropped following this delay due to the arrival of another
cargo of sugar
●​ The claimant sought to recover the difference from the defendant for their breach of
contract
●​ The defendant argued the damages were too remote since it was just as likely that the
market price could increase

Issues:
●​ Is the defendant liable for fall in market value (i.e., should damages include this fall)?

Holding:
●​ Yes
Reasoning:
●​ Underlying the CML rule is that damages will place creditor in the same position as if
the contract had been performed, Hadley considered to be too harsh in some cases, so it
stepped in to limit liability
●​ Under the second part of the Hadley Test, it was only necessary that the losses were in
the ‘reasonable’ contemplation of the parties as a possible result of the breach
○​ Since the defendant must have ‘reasonably’ known that market prices fluctuate,
the loss would have been in his contemplation as a possible result of the breach
○​ It was also ‘reasonable’ that the sugar would be sold in the market at market
price on arrival
○​ Need to look at industry custom/standard that would inform the reasonable
standard (i.e., would it be reasonable to not expect this type of compensation?)
●​ In cases like Hadley, or the present case, the crucial question is whether, on the
information available to the defendant when the contract was made, a ‘reasonable
person’ would have realized that such loss was sufficiently likely to result from the
breach of contract to make it proper to hold that the loss flowed naturally from the
breach or that loss of that kind should have been within the contemplation
●​ Modern ‘tort’ rules impose much wider liability
○​ The judges didn’t create a threshold for establishing ‘foreseeability’ but they
say that however low the threshold is in contract law, it is higher than in tort law
because in contract law, parties enter into the agreement voluntarily and can
 therefore plan for certain contingencies
■​ If parties know that losses might occur, then they are expected to
include appropriate clauses in contract to protect against losses
○​ Victoria Laundry goes beyond Hadley by bringing a tort concept,
‘reasonable foreseeability’, into the assessment of damages
■​ To use these notions from Victoria Laundry would be to extend liability
for breach of contract beyond what is reasonable
●​ Damages are considered too remote when the event is not unlikely
○​ Victoria Laundry was an erroneous departure from Hadley in that it allowed
damages where the loss was a serious possibility or a real danger instead of
holding that loss must be probable
○​ Thus, without relying on Victoria Laundry, and taking the principle from
Hadley into account, the loss of profit, in this case, would not be too remote
●​ Where the sale of goods is delayed, the rule is that damage is the difference between
the value of the article contracted at the time when it ought to have

Ratio:
●​ Damages for a breach of contract will be assessed based on events or circumstances
that the debtor considered not to be unlikely
○​ Need to look at industry custom/standard that would inform the reasonable
standard
●​ ‘Contract’ liability has a higher threshold than ‘tort’ liability

Transfield Shipping v Mercator (The Achileas), [2008] UKHL 48.

Jurisdiction: UK

Facts:
●​ Transfield contract with Mercator to have a ship for five to seven months and return it
no later than May 2nd
●​ Cargill then contracted with Mercator to have the ship on May 8th for four to six
months
●​ However, Transfield did not return the ship until May 11th
●​ Consequently, Cargill agreed to take the ship, but at a reduced price than what was
contracted for since the freight market had fallen sharply
●​ The question was how much Transfield should pay to Mercator for returning the ship
late
○​ Transfield argued they should only pay an amount reflecting the difference
between the first contract rate and the market rate for daily hire during the delay
○​ Mercator argued Transfield should pay the amount it lost on the new contract
because of the late return

Issues:
 ●​ Should Transfield only pay an amount reflecting the difference between the first
contract rate and the market rate for daily hire during the delay?

Holding:
YES

Reasoning:
●​ Damages for the late delivery were usually calculated by the difference between
markets rate and contracted rate for the period of late redelivery
○​ However, the intention of parties in relation to the assumed responsibility for
that risk should be considered
○​ The court agreed to extend the principle of Hadley and decided that the law
on ‘remoteness’ is not only concerned to protect the contractual bargain
but to set limits of liabilities
●​ It was not in the reasonable contemplation of Transfield that the breach would cause
the damages at the time contract was entered into
○​ The late delivery was an unexpected circumstance beyond the power of
Transfield as the volatile market conditions were not in the ‘reasonable’
contemplation of both parties
●​ Transfield should not pay for the loss of profits that Mercator would have had with the
contract with Cargill had the ship returned in time
○​ Transfield should not be liable for any loss, however enormous, when it had no
knowledge or control over what contract Mercator might be making next
○​ It must be in principle wrong to hold someone liable for risks for which the
people entering into such a contract in their particular market, would not
reasonably be considered to have undertaken
Ratio
●​ Damages are awarded for losses which could reasonably have been expected to be lost
arising from the breach

Ciment QC v Stellaire Construction [2002]

QC

Facts:
●​ A Hydro Quebec dam needed to be reconstructed
○​ Stellaire was hired to do the job, and Hydro engineers supervised while Ciment
was hired to deliver the cement
●​ A very specific type of cement was needed, which was uncommon in the industry, and
written into the contract with Ciment
●​ Stellaire came to pick up cement, but saw the word “silicone” so he asked about the
discrepancy and was told by Guimont it was the same thing
○​ Stellaire treated the product as cement, and it was used it in construction
●​ It was only after it dried that the error was realized by Hydro and a whole
 reconstruction was needed
●​ Stellaire sued Ciment for costs and loss of profits/insurance

Issue:
●​ Is Stellaire entitled to both the costs and the loss of profits?

Holding:
●​ No, only damages for the cost of rebuilding

Reasoning:
●​ Ciment faulted because both parties involved in obtaining the cement were unaware of
its difference with ‘silicone’
○​ Only Ciment was able to detect that error
●​ Stellaire should be entitled to costs associated with deconstruction and
reconstruction because the above fault was ‘foreseeable to the reasonable cement
dealer’ and was a direct and immediate consequence of the fault
●​ Stellaire must prove that the loss of profits was a direct and immediate consequence of
the breach (CCQ: Art.1607) and that it was foreseeable (CCQ: Art. 1613)
○​ It differs from the ECO standard because it is adapted to contracts where risks
should be foreseen and contracted for
○​ The determination is dependent on judicial discretion
○​ The test is whether the ‘reasonable’ contractor would have foreseen the
consequences of his actions stemming from the breach
○​ Direct and immediate are strongly linked to foreseeability
■​ The damage was not direct and immediate because the company’s
fragile state intervened, and it is not foreseeable that the ‘reasonable’
contractor would not know that his actions would lead to a loss of
insurance
○​ An exception to this rule comes through when there is intent behind the fault
■​ When there is bad faith, even if the damage is not reasonably
foreseeable, the bad faith/gross negligence party is still found to be
liable for whatever happens

Ratio:
●​ The quantum of contract damage must be a direct and immediate cause of the
contracting fault AND it must be reasonably foreseeable that such damages would
occur from that fault