Contract Law

London Drugs
•    The bailor sueing the bailee in negligence (tort)
•    The most obvious way to invoke the contractual defence is to show that one is a party to the contract.
o    Must determine whether the employees were parties to the contract.
o    On what legal theory can we make the employees party to the contract?
•    3 standard routes:
•    assignment – wouldn’t work
•    agency – the most obvious route.  A claim that when the bailee entered into the contract with the bailor, it did so as an agent for the employees.
o    True that the employees would have to show that they gave consideration, but there would be nothing (theoretically) to stop the consideration of the bailee being shared by the employees – promising safety of the chattel.
o    If this was argued (we don’t know) the answer was likely that yes, it is poss. for the employer to contract on the behalf of the employees, (as well as itself), and for the consideration for both to be the same, but all depends on intention.
o    In this case, the court “must have” concluded (or perhaps was already clear to the lawyers) that it did not happen this way.
•    trust – would work, supposeing there was some factual basis to make the argument – again, intention.  Courts are reluctant to conclude that there is an agency or trust rel. without pos. evidence of intention.
o    This is because these arguments would get around many legal arguments.  It would, if acccepted easily, be a cure-all.
o    Could transform failed gifts (without delivery) into binding agreements by saying that the donor was agreeing to hold the gift in trust for the giftee.
o    Similarly, in the law of contrats could save many third parties from plight of third parties simply by making them parties – by saying that someone else entered into the contracts on their behalf.

•    3rd parties are non-parties.  They are usually helpless and hopeless.
o    In this case, the SCC changes their status – only in the employment context. (very important).
o    Ioccobucci puts much emphasis on the identity of interest between the employer and employee.
o    “relaxes” the rule.  Does not overthrow.
o    In order to relax the doctrine in this context, gives 2 criteria:
•    1)  Parties must have intended (either explicitly or implicitly) that the employees shold benefit from the limitation of liability clause.
•    Ioccobucci finds an implied intention.  This is not that they would be parties, but that despite not being parties, they may benefit from the clause – identity of interest
•    2)  Must be in the performace of their duties, and in performance of the duties contemplated by the contract.

Insurance issue:
•    Courts are aware that the provision
•    Charges the warehouse enterprise with a maximum liability of $40.
o    The warehouse is being charged a much lower premium because of this limitation of liability clause.
o    Places the onus on the bailor to obtain insurance coverage.
o    This provision is really about who has the burden of insuring.
o    It makes sense that the owner of the goods (who knows what’s in the crate, etc.) has the responsibility for insuring it.
•    Carriers have similar contracts.

What, in effet, is the bailor here trying to do?
•    Having benefitted from a low storage-rate, based on accepting the risk on itself, it is now trying to shift the responsibility back onto the bailee.
•    Trying to have it both ways.
•    The employees will not have insurance.
o    Many tort cases are in actuality about insurance.

Is this a good decision or a bad decision?
(in a tort-sense)
•    The real purpose of tort-law is to visit punishment on the tort-feasor, so as to force [them] to ‘clean up [their] act’
•    Hank and Dennis are off the hook…
•    Is this a flaw in the case?

Laing Property Corp. v. All Seasons Display Inc.
•    Not bailor-bailee (and bailee’s employees), but tenant-landlord (and landlord’s emloyees)
•    Contract in question is a lease.
•    Page 400 – Insurance clause.
o    The landlord wants to ensure that the tenant has insurance.  This ensures that if the tenant is a future tort-feasor, the landlord and other tenants can collect damages against them
o    Also in the landlord’s name so that benefits can be collected.
o    Also absolves the landlord from responsibility for any loss, damage, or expenses.
o    Waivor of subrogation.
•    Even if the landlord’s carelessness causes the mall to burn down, and the tenant’s insurance covers the tenant, and under common law the insurance company could sue the landlord for recovery, the tenant has waived this right.
•    The landlord’s employees’ negligence did cause the mall to burn down.
•    The tenant’s insurance company “sues everyone in sight”
o    Sues the landlord (fails), and also its employees.
•    In Greewood Shopping Plaze, the SCC denied the employees any rights under the mall’s contract with the tenant…
•    Here, the B.C. C.A. follows London Drugs as far as it can, and distinguishes Greenwood Shopping Plaza…
•    Greenwood:  Even though at the heard of both cases is a lease (and not a contract of bailment) and does not invoke employees, the B.C. C.A. says that in the lease here, it is a lease, but it has other services mentioned – says that the promotion services meant that the promotion service in question, which needed to be performed by employees (similar to services in London Drugs), meant that the employees were contemplated by the lease.
o    Then apply the two factors in London Drugs to relax the doctrin of privity vis-à-vis employees
o    Was there intention to include the employees?  Did they intend the waivor of subrogation to extend to the employees?
o    It is not express, so must look for implied intention
o    Page 404 – give the intellible basis for finding implied intention – para 99 & 100.
•    1)  Is there identity of interest between the employee and employer as to the performance of the employers’ contractual obligations?  Ie:  the services must be performed by the employee.
•    2)  Did the tenant, in entering into this contract, know that the services could only be performed by human employees?
o    Repeated at para. 115.
•    In all of these cases, the relaxation of the privity rule is for a defensive purpose.
o    It is to act as a shield for a third party.
o    In no case has the courts relaxed the privity rule to allow a third party to sue on a contract.
o    This would require contract.

Law Reform Act  http://www.gnb.ca/0062/pdf-acts/l-01-2.pdf
•    In a contract between A & B that promises a benefit to C, this says that C can sue on the A-B contract to which it is not a party.
•    A & B can prevent this if they say so in the contract.
o    4(1) – a person who is not a party to a contract, but who is intended to receive some peformance under it may enforce that performance by claim for damages or otherwise.
o    Here, can likely be express or implied.  If implied, would use the rule from Laing (or London Drugs).
o    4(3) – may change their contract, but if it causes any loss to C, and C has incurred expense or undertaken an obligation in the expectation of performance, C may recover loss from any party to the contract who ought to have known that the expenses would be or had been incurred or that the obligation had been or would be undertaken.
•    NB has briefly but substantially abolished the privity problem.
•    England’s approach, a few years later (page 411) also greatly abridged the privity problem, but took the opposite approach – did it in great detail instead of sweepingly.
o    This is only part of the English statute.
•    Not sure what effet this prosiion will ultimately have.  Relatively unlitigated as of yet – do not yet know its implications.

Review – Tuesday, 12:30 in 2A
Monday – also review.  Structured.

Consumer Product Warranty and Liability Act (NB) http://www.gnb.ca/0062/acts/acts/c%2D18%2D1.htm ss 1, 2, 4, 5, 7, 23-26

•    2(3) – seems to be saying that one cannot sign away the rights assigned to you in the act.
•    24 - Where there is a contract for the sale or supply of a consumer product, the parties cannot agree to exclude or restrict any warranty or remedy provided by this Act except as provided in sections 25 and 26.
o    this section qualifies s. 2(3) – qualify only in accordancw w/25 & 26
•    25(1) – Subject to subsection (4), where there is a contract for the sale or supply of a consumer product, the parties may agree to exclude or restrict any remedy provided by this Act for breach of an express warranty, but such agreement shall be ineffective to the extent that it is shown that it would not be fair or reasonable to allow reliance on such agreement.
•    25(3) - In determining whether it would be fair or reasonable to allow reliance on an agreement to exclude or restrict any remedy provided by this Act for breach of an express warranty, regard shall be had to all the circumstances of the case.
•    so exclusion is possible as long as it is ‘fair and reasonable’
o    this is where Wilson J. got her language in Hunter v. Syncrude
o    This is the legislature’s response.  Judges do have the auth. to modify contracts in which consumers have signed away their rights.
o    In doing so, must strive for ‘fairness and reasonability’
•    This is more supple than Denning’s ver. of Fundamental Breach, which was an automatic exclusion of the limitation of liability clause.
•    Very little litigation on this act, considering its ubiquity
o    2 poss reasons:
•    The act is so effective that business parties settle rather than go through litigation while knowing that they have treated the consumer unfairly or unreasonably.
•    Consumers are foolish and lazy, especially those who have been foolish enough to sign away their rights in the first place.
•    Professor Door (?) is the drafter of this act.  Just retired from UNB.

Hong Kong Fir Shipping Co. v. Kawasaki Kisen Kaisha Ltd.
•    There is only one context in all of contractdom in which the sub-classification of contract terms is relevant.
o    warranty; condition
o    However, in context of remedies available to victim it is important. If victim of breach of “condition” then you have lrger selection of remedies/options than of warranty.If you are the victim of a beach of a condition, then more options are available.
•    can treat the contract as at an end; can sue for damages
o    Whereas, the victim of a breach of warranty has no other option but to make a claim for damanges – cannot cease to perform the contract.
•    For most contexts – it does not matter.
•    This case concerns a charter (of a ship).
•    When the vessel was leased, the price of shipping was high, but then went down.
•    Reason for high price of charters at this time:  Egypt nationalized the Suez Canal; formed crisis between England/France, and Egypt.  Invaded Egypt, which sank vessels in the Suez Canal.  Voyages between The Atlantic and Asia therefore took much longer.
•    To get out of the contract, tried to claim that the vessel was unsatisfactory and unseaworthy.
o    Diplock ¶2 page 576 – famous sentence for comment on final exams – look up synallagmatic
•    “human prescience being limited, it seldom does so exhaustively and often fails to do so at all.”
•    ¶3 – does the occurrence of the event deprive the party who has further undertakings still to perform of
o    If it was that kind of a breach, as to deprive the victimized party of the whole benefit, then it is a breach of a condition.
o    If it doesn’t deprive of the whole benefit, then it is the breach of a warranty
•    ¶9 – in real life, cannot classify all contract terms into just conditions and warranties.
o    supposed to classify at the point of formation
o    cannot with certainty classify all the terms as such.
•    Ex:  If buying a blue car and got a red car – difficult to say that you were deprived of the full benefit of the contract.
•    Diplock says in ¶10 – “No doubt there are many simple contratual undertakings, sometimes express but more often because of the very…”
o    There are obviously some contractual terms which are conditions
o    And there are some that are conditions
•    ¶11 – come that are of a more complex character
o    Saying that there is a 3rd class of contract term.
o    suggests that it is numerous.
o    cannot say whether or not  breach of it would deprive the victimized party essentially of the full benefit of the contract.
o    Must be classified not a priori, but from the actual consequences of the actual breach.
o    Will turn out to be condition-like, or warranty-like.
•    So we have, at the formation of a contract, conditions and warranties
•    Or they are innominant terms (or complex terms) which are divided into condition-like, or warranty-like – these are classified from the perspective of the breach.

•    In regards to this contract, says that the term that was breached was seaworthiness.
o    can be more or less substantial – depending on the situation (a hole in the hull or engine trouble)
o    Cannot tell at the formation who substantial the breach will be.

Sail Labrador Ltd. V. “Challenge One” (The)
•    SCC had to ask itself whether the contract had within it a term tatamount to a “time is of the essence” provision.
•    This is a common provision.
•    Nothing expressly in the contract to this effect.
•    SCC said ‘no’.  Did not think there was anything to that effect in the contract.
•    Though the breaching party had breached the contract, hadn’t breached a condition…

Page 654 – Misrepresentations and Warranties
•    There are 2 problem areas in Contracts where trouble tends to lie:  Exemption clauses; Pre-contractual words
•    Pre-contractual words:  For instance, the sales person may say something to induce the customer to enter into the contract.  This ‘something’ may turn out to be false.
o    Cutomer wishes to say that while there is nothing wrong with the contract per se, something happened prior to it that is relevant.
o    Evidence rule – where you have an apparently complete contract, extrinsic evidence is not admissible for modifying or contradicting the contract.
o    And yet we have seen situations where evidence does do this, but is being intro’d for another purpose.
•    The words that the ‘sales person’ utters outside the contract, but which critically induce the contract (page 654) might have 1 of 3 classifications:
o    1)  Puffery:  Words which have no legal significance.  They are mere puffery.  Ex:  “This is the best used car in Fredericton.”
o    2)  Misrepresentation:  looks like a statement of fact.  In Gallant v. All State, the assertion that the buckwheat would kill off the weeds were a statement.  If they induced the customer to enter into the ccontract, and if the words were false, then they are called a tortious misrepresentation.   Falls under tort.
o    3)  Warranties (promises):  If the words are not words of statement, but are of promise, those words (if they have legal consequence) can have consequence only in contract (the realm of promises).

Heilbut
•    Customer calls stock broker regarding the launching of a new rubber company.
•    Stock broker:  “We are.”  – entire case turns on these words.
•    Customer agrees to buy 6,000 shares
•    Company turns out not to be shares in what could legitimately be called a rubber company.
•    Does not sue the  company – it is insolvent.
•    Customer sues the stockbroker.
•    Not complaining about anything inside the contract.  He did get the shares.  He didn’t want the shares.
•     “We are” – could be a statement of fact, giving rise to liability, if at all, in tort.
•    Misprepresentation.
o    Could be a promise (warranty), giving rise to liability, if at all, under contract.
•    Problem in giving these words sig. in contract – a naked promise is valueless…
•    page 662 – At trial, the jury found that the company could not properly be called a rubber company.
o    Pre-contractual utterance was false.
o    D’s did not make a fradulant representation.
o    Did find that the SB did promise that it was a rubber compnay.
•    HoL is stuck with the findings of the jury – in particular that there was no fraud. misrepresentation here.
•    Seems that at trial, P argued that “We are” was a misrepresentation – argues under tort law.
o    If one can succeed that “we are” is fradulant misrepresentation, then can get damages.
o    in 1913, the only other type of misrepresentation was “innocent misrepresentation” – remedy is not damages.  It is a return to pre-contractual situation.
•    Only remedy avail. for innocent misrepresentation is recision; calling off the contract.
o    Here, cannot be rescinded, as has already been carried out.
•    If took the tort route, the only buttom to press would be fraudlant misrepresentation but then would be faced with the reality that fraud is extremely difficult to prove, because the courts have a high threshold to accept that the D. was guilty of fraud.

For tomorrow, read this case.
Read Dick Bentley, & Murray