Contract Law

Remoteness
•    A great many reactions can be construed to have spawned from a single action.
•    The question is how many of these reactions are worthy of being compensated as the result of a broken contract
•    Out of necessity, many contract plaintiffs will be under-compensated.
o    Example. Page 48.
•    2 questions:  Practicality & Policy
o    the law says that there is an ambit of compensability within a certain ‘radius’ of a breach of contract.
o    There are consequences beyond this ambit where we do not try to translate reaction (result) into an award of money.
o    These four cases address “where we draw the line” in contracts

Hadley v. Baxendale
•    Historic case.  The other cases here explain  this case.
•    A carrier transporting revenue-producing chattel
•    In breach of contract, took took too long, causing lost profits.
•    P 50 – “object is to discriminate between that portion of the loss which must be borned by the offending party and that which must be borne by the sufferer.”
o    Almost an acknowledgment that contract law will under compensate the victim.
•    ¶3 – “The damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered [Rule 1] either arising naturally, according to the usualy course of things, from such breach of contract itself or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probably result of the breach  of it”
•    Rule 2:  “…id the special circumstnaces under which the contract was actually made were communicated by the plaingiffs to the defendents, and thus known to both parties, the damages resulting from the breach of tushc a contract which they would reasonably contemplate, would be the amt of  injury which would ordinarily follow from such a breach of contract under these special circumstances so known and communicated.
o    The relevant moment for the court to examin in this test is the moment of formation.
o    ¶3 key words:  Arising naturally; usual course of things; probable result
o    compensable consequences of the breach are those consequences which are probable.

Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. – p. 55
•    Newman Industries selling a boiler to the plaintiffs for £2,150.
•    Req’d boiler asap.
•    Ds promised to deliver on 5 June 1946.
•    Boiler damaged by contractors dismantling for transport – not repaird for 20 weeks
•    Ps sought to recover for loss of profits during the delay.  Proved they had extremely lucrative dyeing contracts as well as the normal business of launderers and dyers.
•    Trial judge gave judgment for the Ps for the costs incurred in a futile trip by the P to pick up the biler on 1 June, but disallowed claim for profits.
•    Special circumstances:  The lucrative contracts
o    Court says that there was no communication of these special circumstances and so does not fall under the rule.
o    What is imp. Is the attempt by Asquith L.J. to explain Hedley v. Baxendale
o    Apparenlty, forcing the victim to subsidize the defendant is a policy…
•    In the full version, says that Contract law compensates far fewer consequences than tort law.
o    “Reasonably foreseeable as liable” – this phrase from this case causes much consternation in the next case.
•    Puts into new words, the Hadley v. Baxendale formula
o    We will compensate the P for consequences of the breach which need not be probable consequences – need only be a serious possibility

Koufox v. C. Czarnikow Ltd. (“The Heron II”)
•    Transporting sugar.
•    No debate that the voyage took 9 days longer than it should have as a result of deviations made to other ports in breach of contract.
•    Load of 3000 tons
•    Because of another shipment that arrived in the interim, the price of sugar was down by the time this load arrived.
•    HoL uses this as an opportunity to review what the CA had said 20 years earlier in victoria laundry
•    Our editors have made the choice to include what other judges said in this case.  Most only include what Lord Reid said.
o    The “full flavour” leaves the case much murkier…
•    Lord Reid:
o    ¶6 – can the P recover as damages for breach of contract a loss of a kind which the d, when he made the contract, ought to have realized was not unlikely to result from a breach of contract causing delay in delivery.
o    Just as victoria laundry is the reasonably foreseeable as liable case, this is the ‘not unlikely’ case.
o    “Not unlikely” – not the same as ‘likely’.
o    If you stop reading with Lord Reid, would probably toss out Victoria Laundry altogether.  With the judges together, however, might see it as still somewhat useful.
•    Note page 66  - when drafting tentative replacement for Sale of Goods Act…

Canlin v. Thiokol Fibres Canada Ltd.
•    Facts:  sale of goods case.  Goods not suitable for purporse which would amt. to breach of contract under the Sale of Goods Act.
•    Statute says that in a contract for sale of goods, measure of damages is estimated loss directly resulting from loss from breach of… warranty?
•    Essentially a case on common-law remoteness sense, with sale of goods act trying to codify this principle.
•    T. judge held that the defendant had breached a warranty impled by the sale of goods act s. 15(1) – that the goods supplied would be “reasonably fit for their known and intended purpose.”
o    In add’n to the $93k for losses on the covers actually manufactured and sold in ’75, the t. judge included an award of $100k in respect of loss of profits for business for ’76-’80.
•    Note 2 – saying that the test is the same doesn’t mean that the recovery will be the same

•    Cases where the consumer was convinced to sign a contract which was induced by an oral statement inconsistent with the written contract.
•    Cases where the prod. was defective, and the consumer wants to sue based on the defect.
o    but has promised in a clause of the contract that they won’t complain of any defect in the product, or even that there was no defect in the contract.
o    In our legal system, people are “free to be foolish”
o    for the courts to simple “fix” this situation would be to do away with freedom of contract (that contracts are the will of the parties – not the state), then contract-law would not, in effect, exist anymore.
•    The will of the parties is the only difference between contract law and tort law.
•    The characteristic of all these cases is that in the written contract there will be a problematic clause
•    depending on what the limit is in a limitation of liabilty clause, it can practically be an exclusionary clause (for all practical intents and purposes).
o    Sometimes there are hints in the jurisprudence that courts should not come down as hard on limitation of liability clauses as they do on exclusionary clauses, however.
•    A consumer contract is a contract between a business and a consumer.
•    courts are more solicitous to the consumer than to businesses in a commercial contract – businesses are assumed to be on equal footing and ought to be able to take care of themselves.
•    the question is often whether the words of the clause are broad enough to shield the business from liability
•    If the judge cannot interpret a way to the desired solution, more drastic action may be taken…
•    some of the more intersting cases involve whether judges have another technique beyond interpretation
•    hint of this in Denning’s Thornton v. Shoe Lane Parking
•    resp. for a line of juris. which said that if the judge cannot interpret a way around a clause, can bring down the rule of law that says that judges can interpret a contract without out reference to the problematic clause.
•    “The clause will be void for unreasonableness”
•    Again, if this maintained, contracts could be thrown out the window.
•    [Handout – Clauses Excluding Liability]
o    in the omitted part, says, basically, but there there came along the super-clause.  The perfect limitation of liability clause (because had been so perfected by redrafting)
o    Thence came the rule of ‘fundamental breach’ in 1956.  If the big concern was guilty of a breach whih went to the very root of the contract, then it could not rely on the printed clause to exempt itself from liability.
o    says that to some it was a mistake, because it was elevated into a rule of law.
o    this is because once it becomes a rule of law, it must be put into the architecture of contract law – there is no place in contract law for such a principle, as it negates freedom of contract…
o    says it was a mistake for them to elevate it as such – says should have used it as a method of interpretation – the “true construction of the contract”

Photo Production Lrd. v. Securicor Transport Ltd.
•    Is the case that brings to an end in England the history and career of the doctrine of fundamental breach
•    in Mitchell [our handout], Denning is trying to resurect the doctrine.  It failed.
•    It is a commercial contract case, so the court has less pity here – easier for them to get rid of the doctrine.
•    say that as long as the company wasn’t negligent in hiring the guard, then even if the employee did set the building on fire, the co. would not be liable.
•    Judge here said that Denning’s attempt to resurect the doctrine of fundamental breach is a non-starter.
•    ¶16 – says that Harbutt’s Plasticine must be overruled.
•    ¶13 – says Parl. has taken a hand and passed the Unfair Contract Terms Act 1977 –parl refrained from legislating over the whole field of contract.  Court says that Parl. intentionally left commercial parties free to take their risks.
•    this made it easier for the judges to abolish the doctrine – the most troubling cases had been taken care of by legislation.
•    ¶19-20 – the provision in the contract which at first glace appears onerous, in fact is sensible.  The security company was receiving only 26p per visit in exchange for its freedom from liability.
o    placing the risk on the client company.
o    The security company has no knowledge of the value or fire-precautions, for example, of the plant.
o    context is imp here.
o    Rule in Canada Steamships:  If wishing to exempt oneself from liability, the words of the clause have an extremely high threshold of clarity.
•    This case says there is not and never was  doctrine of fundamental breach – cannot declare a clause void for unreasonableness.
o    all contract clauses are to be interpreted according to their true construction.
o    if the words are drafted broadly enough to cover an incident, then they simply do.

Tilden Rent-a-Car Co. v. Clendenning
•    Clendenning rented a car from Tilden, signed the agreement and purchased insurance.
•    Had an accident, and had had a drink or two (apparently not enough to cause a ‘loss of control’)
•    Pled guilty in criminal court to impaired driving (on the advice of his lawyer)
•    “customer shall be fully liable for all collision damage if vehicle is used, operated or driven in violation of any of the provisions of this rental agreement…”
o    the provisions are on the back ¶3 “in particularly small type and so faint… as to be hardly legible…”
o    “by any person who ahs drunk or consumed any intoxicating liquor, whatever be the quantity…”
•    can Clendenning get out of liability by being foolish?
•    ¶7 – stated that he hd known the full terms of the contract, he would not have agreed to it.  Bell does not believe him.
•    The other options avail. to him, car-rental wise, would have had the exact same provision.
•    Clendenning is, far from the ideal consumer, the typical consumer.
o    he is ‘everyman’ – he can read, but fails to.
•    The business party promises something, and tries to get away from delivering it.

For next day, Hunter Engineering, down to