Contract Law

Waltons Stores (Interstate) Ltd. v. Maher

Facts:

•    Negotiating towards a lease
•    Waltons leads the prospective landlord to believe that there will be a lease.
•    As such, the landlord does what they have to do get the new building up on time for Waltons
•    New building 40% completed when Waltons walked away.
•    Landlord sues, alleging in effect that Waltons promised to enter into the lease, and that they should be estopped from walk away.
•    Council for Waltons held that there was no promise there.
•    Council had to construct the promise – this was done satisfactorily
o    However, looked like a mere promise
o    Reliance was non-bargained for.
o    Looks like Dalhousie
•    We are in the realm of promissor estoppel.
o    Though cast widely in High Trees, was reigned in in Combe v. Combe.
o    Promisee here is suing to have the promiser esoptted
o    Offensively…
o    Court acknoledges all of this
o    Promissory estoppel usually used as defensive equity, not offensive.
o    Concern is that if we allow ppl to sue on promises alone, then what is left of the doctrine of consideration
•    If we allowed ppl to use estoppel offensively, then in effect, we could be doing the very thing that Dalhousie was accused of doing – allowing the recipient of a promise to retrospectively convert what was meant to be a gratutious promise into an enforceable promise just by relying on it.
o    Would be getting into the business of enforcing gratuitous promises.
•    Will we require the doctrne of consideration or a seal to enforce promises offensively, or is there some other basis?
•    Para 22
•    Normally say, as per combe v. combe that we will not enforce promises offensively
o    However, these is a small area of jurisprudence where we do enforce promises based on nothing more than reasonable reliance.
o    Promissory estoppel
o    If the promisor has promised the promissee an interest in land (real property) and the promissee has relied on this to their detriment, then the law can enforce the promise.
•    They look at the U.S.
•    Second-class enforcement
o    Promise enforced to the extent that the promissee relied on it
o    Only so much enforcement as necessary.
o    Get the value not of the [ticket to florida].  Get the value of the [preparations one made for the trip].
o    In the U.S., the restatement (NOT A STATUTE) is accepted in some states.
•    Accepted generally that one can sue on estoppel.
•    Para 25, 26
o    Start making the point – (26) – make an important point
•    Having just said that in the U.S. they allow Ps to sue on the basis of nothing but an estoppel, they then observe that the words of s. 90 of the restatement, the substance is of promise enforcement.
•    Whereas they say in the Anglo-Australian context that estoppel is not about promise-enforcement, but about injustice prevention (prevention of unconscionability).
•    So does vary in its emphasis with American contract theory.
•    Links U.S> restatement of estoppel with obsession with consideration, and have in common promise enfircement.
•    Even estoppel section cast as if it were about promise enforcement (even though as we look at it (through high trees) that we look at the victim, not the promisor’s promise).
•    It is not that we so love promises that the law will enforce promises no matter what – it is that estoppel has at its root (for us) injustice prevention.
•    Then say something new:
o    Say that promise breaking itself is not unconscionable
o    Say that even the promissee’s reasonable reliance, per se, does not create unconscionability.
o    Why is this not unconscionable?
•    People in our culture just know that the law does not enforce gratuitous promises.
•    People know that reliance on such a promise is at one’s own risk.
o    Something more is required…
•    Making distinction between the sword and the shield
•    In trad. Estoppel, all one needs is a promise intended to be relied upon and relied upon.
•    Now say that to use estoppel offensively need more than this.
o    Whether they intended to create two sets of criteria for estoppel, they seem to have done so.
o    What is this ‘something more’ that is required.
•    In this case, say there are two special factors
o    1)  Sense of urgency because of the tenant’s timeline
o    2)  The tenant’s inaction when it knew the landlord was acting on the promise.
•    Say that the inaction acted as encouragement
•    In this case, doing nothing effected doing something.
•    Note para 25 – “The object of the equity is not to compel the promisor to fulfill the promise, it is to avoid the detriment which, if the promise goes unfulfilled, works to the detriment of the promissee.”
•    Conclusion:
o    The court does estop the tenant from denying that it has a lease with the landlord
•    (though of course they do not have a lease)
o    here, estoppel used as a sword.
o    “Is this just one of many semi-interesting cases which languih unnoticed, or is this considered to be important in the common law?  What is Waltons status in Canada?
Has enough time passed that we can conclude that the idea went nowhere?
Will want to, before the exam, reasearch the case – not whether it has been followed.
Is the hurdle so high (the two conditions) for unconscionability that the cases have just not come up since?

Formality
•    page 226
•    Begin with famous article by a famous U.S. legal realist from 1930s.  German origins.
o    Fuller – we have snippet of introduction
o    Taxonomy on variety of purposes of legal formalities.
o    Not all formaities serves all of these purposes
o    Identification of the three poss. functions
•    Formalities:  No set list – anything that the law requires you to do to have a binding contract:
o    Writing
o    Witnesses
o    Written
o    Handshake
o    Handshake with witnesses
o    Gov. licence, like a stamp
o    A seal
o    Witnessed by a notary
•    Fullers 3 functions:
o    Evidentary:  Something like a written contract generates physical evidence of what the agreement was.
•    A handshake, on the other hand, does not have much evidentary functions (unless, perhaps, it was in front of witnesses)
o    Cautionary:  the more elaborate the formality the law requires one to go through, the more the compeltion of it causes a person to acknowledge the importance of their agreement.
•    Ex:  If the law requires that an agreement be made in front of a lawyer, enforces the seriousness of the legal agreement.
•    To the extent that the formality is awkward or ritualistic, the parties have time for second-thoughts.
o    Channelling:  There could be the sort of formality which, if envoked, would tell the parties that they had the sort of agreement which the courts would enforce.
•    Suppose there were a way to make a gift promise enforceable – such as going to the gov. for a certain type of stamp.
•    A stamped contract then would be channelled into the realm of enforceability
•    We have this in regards to seals.
•    Seals put promises into the realm of enforceability.
•    The only formalities in the common-law tradition are the seal, and writing.
•    The seal is a positive formality.
•    If one seals one’s promise, the promise is destined for a certain outcome – it adds a positive result.
•    Writing is a negative formality.
o    In a certain narrow set of contracts, the law says that the contract can’t be enforced unless it is written.  This is negative – WON’T be enforced unless it is written.
o    The seal is the pos formality.
•    In other words, the common-law tradition puts very little emphasis on formalities
o    Fuller argues that the doctrine of consideration in itself is a type of formality.

Seals
•    A SPECIAL contract
o    This is the term
•    Also called a formal contract – in distinction from a normal contract – a “simple contract”
•    A deed – an instrument under seal.
•    The major significance is that the promissee of this promise has alonger period under which to bring action to enfore the promise, than if the promise were not under seal.
•    Under ordinary promise, have 6 years
o    BUT, under seal, in most provinces (except Ontario), the victim has 20 years with which to sue.
o    Good for the victim, but inconveneintly long – memories fade.
•    Rarely see lawsuits after so long
•    What constitutes a seal?
o    In the past, a seal was a blob of melted wax, into which something was impressed to make it obvious that it was one’s seal.
o    No seal is a seal unless it is one’s personal seal.
o    A blob of wax beside someone’s name is not a seal unless it is adopted as a seal and can be identified as such.
o    A thumbprint would do it.
•    Modern approach:
o    To have it pre-printed on the form – probably intended that the client be handed a seal to put on the document – can be purchased at stationary shops
o    Question arises:  What if the client does not do this?  What if the area to place the seal is there (page 250 – suggest L.S. is the latin for the place for the seal)
•    Is this then the seal?
•    This would defeat the cautionary function.
•    This comes up in the courts, and they go back and forth on the answer.
•    Question is, is this the client’s seal?
•    Doen’t count unless it is someone’s seal.  The client must have done something to adopt it.
•    Argument that signing beside it is enough for adoption
•    Courts reluctant to come to an answer on this.
•    Note recommendations of Ontario commission
•    In Foakes v. Beer
o    Hint at a side-light of the seal – if the parties made a contract under seal, it was the law that both sides could nt vary the contract, except by another contract under seal.

Next day:  will look at writing requirements just notes page 385

Tilden
•    The P here could have read the contract, but did not
•    How does he win?  He does not win on the theory that he went to trial on, but another.
o    He wins on the court’s reasoning that (¶s 13 & 14) an essential part of the test is whether the other party entered into the contract on the belief that Mr. Clendenning had agreed to the contract.
o    If it obvious to one party that though the other is signing they are not assenting to the contract (because there are parts that they don’t know about), the party cannot invoke the rule from L’estrange.
o    Tilden cannot rely on the parts of the contract which it has no reason to believe Clendenning assented to.
o    Waddens alludes to the doctrine of mistake, though this is not a mistake
•    The judges decide to give judgment that defeats the business party, but tries to assure the business world that the decision is not a significant change.
•    ¶17 – which sections are Clendenning subject to?  Not subject to the clauses which the judges believe the consumer would find surprising.
o    Tilden relying on clauses under which it keeps the $2 deductible, but is not obliged to pay out a claim.
•    Bell calls this a clever decision that is very much still a part of the law.

Hunter Engineering v. Syncrude Canada pp. 871-888.
•    In the wake of Photo Production, there was no extra weight given to “fundamental breach” of a contract, as all breaches were treated equally.
•    If on a true construction, a clause covered an incident, then it covered the incident, period.
o    Court in PP, however, noted that they had a clear conscience because what might be the least fair cases had already been covered by legislation.
o    Only commercial cases at common law remained.
•    SCC in Hunter Engineering (1989) takes a considered look at this idea.
•    The decision in Hunter is a 2-2 decision.  There is no majority / minority decision on this point.
o    On the issue of the place of fundamental breach in the modern law, there is a split.
o    everyone typically identifies Dickson J’s decision as the majority, but this is not so.
•    The clauses here are not totally unreasonable.  The purchaser, however, wishes to evade them
•    argument that the breach here is of a fundamental character, and so the limitation of liability clauses do not apply…
•    2 judges here like Photo Production, and would incorporate the decision into Canadian law.
o    ¶17 – Dickson J. says that fundamental breach should be an issue of contract contraction, and that the court should not disturb the bargain that the parties have struck.  He and La Forest go with the true construction model.
•    True construction – simply means that if the clause in question, given various tests of interpretation, still covers (on a fair reading) what happened, then it does cover what happened, and the parties will be left with the contract that they made.
•    This is a business-business case, but Dickson and La Forest do not make their decision turn on this.  They do not distinguish.
•    The effect of this would be to abolish the doctrine of fundamental breach in Canada.
•    Get hints of something else:  ¶17 (last sentence) – ‘the courts should not disturb the bargain that the parties have struck, and I am inclined to replace the doctrine of fundamental breach with a rule that holds the parties to the terms of their agreement, provided the agreement is not unconscionable.’
o    ¶28 – unconscionability again.  “only where the contract is unconscionable, as might arise from situations of unequal bargaining power between the parties, should the courts interfere with agreements the parties have freely concluded.”
o    doctrine of unconscionability – judges can ignore things they don’t like.  Trad. gets a very narrow construction.  Is confined to the narrowest circumstances.  usually, only legit. terrain is seen as inequality bargaining power.
•    if the bargaining power was grossly lopsided, the contract might be struck down by the courts.
•    Wilson J. and L’Heureux-Dubé J.
o    presents more than Dickson, and in a less than coherent order.
o    Says that she agrees with Dickson that fundamental breach as invented by Denning in the Car Sales (?) case and promoted by him in subsequent cases, that it has its problems.
•    agrees that not all the problem clauses in contracts are exemption clauses, but that the doctrine of fundamental breach deals only with limit. of liability or exemption clauses.
•    agrees that not all exemption clauses are unfair, but that the doc. of fund. breach means that if there is a fundamental breach, the exemption clause disappears altogether.
•    So agrees that there are problems.  Goes too far one way, not far enough in another.  But does not think we should go so far as to abolish it.
o    ¶42-43 – goes to trouble of pointing out that while the HoL in Photo Production could reach its decision with a clear conscience because the consumer cases were protected by legis., points out that there is no such legislation in Canada.
•    Wilson qualifies this ¶43 that many of the provs. had already taken care of limitation of liability clauses (contracts fall under prov. jurisdiction)
•    But doesn’t think that this is a completely adequate solution.  Still sees a role for the courts to protect parties who have been victims of some fundamental breaches.
o    ¶43 – ‘in affirming the legitimate role for the courts’; ¶47 “policy matters”; ¶? “residual powers” for courts.
•    saying that courts have a legit. role in invoking its residual power in contracts.  May be cases where freedom of contracts has gone too far, and that there may be a role of the court (even outside the doctrine of unconscionability) to remake a contract.
•    Says that she does not agree with Lord Denning’s approach.  The Doc. of Fund. Breach that she is about to try to save is not as it was articulated by Denning.
o    Denning’s said that if you have a fund. breach (going to the root of the contract; deprives the violated party of the whole benefit of the contract), there is an automatic consequence.  A rule of law kicks in to specify this consequence – that the limitation of liability clause disappears, meaning that the contract breaker can no longer shield themselves behind it from liability.
o    ¶33 – sentence 2 – quite wrong.  “One held that there was a rule of law that a fundamental breach brought a contract to an end…” wrong.  The contract did not come to an end – the limitation of liability clause came to an end.  That is all.
•    Says that her articulation of the doctrine of fundamental breach would be more nuanced:
o    that the courts would still have to classify a breach as fundamental or not, but that it just leads the court to ask a second question:
•    Would allowing the breaching party that has committed the fund. breach, to shield itself, lead to a result that was unfair or unreasonable?
•    Whereas Denning, having once classified a breach as fundamental, would immediately remove the lim. of liability clause, Wilson would say that once this classification is made, the next question is then asked.
•    would not, then, be looking at the moment of formation, but instead the result of the contract – an unfair or unreasonable consequence for a victim of a breach.
o    Says that even if there was a fundamental breach here, there is nothing so unfair as to invoke the doctrine.
•    Makes a reply to Dickson and his flirting with the doctrine of unconscionability:
o    ¶47 “Where there is no inequality of bargaining power, the courts should, as a gen. rule, give effect to the bargain freely negotiated by the parties”
•    ¶48 “To dispense with the doctrine of fundamental breach and rely solely on the principle of unconscionability, as has been suggested by some commentators, would, in my view, require an extension of the principle of unconscionability beyond its traditional bounds of inequality of bargaining power.”
o    The doctrine of unconscionability has trad. not been a result-based analysis, but instead a contract formation-based analysis.
o    questions how the court could say that a validly formed contract was unconscionable…
•    so cannot be a subs. for the doctr. of fund. breach, UNLESS admit to changing the doctr. of unconscionability.
•    Says that even if she could do that, she wouldn’t, because she finds this doctrine even more vague than the doctr. of fundamental breach.

•    ¶52 – Courts over the past 50 years have flirted with the idea that exclusion of liability clauses are worse than limitation of liability clauses.  This is a distinction that is difficult to make.  Limitation of liab. clauses can be so far-reaching as to practically equate them to exclusion of liability clauses.  Wilson J. here points out the same thing.

Conclusion:
The doctrine of fund. breach took hold in Canada, but here we have 2 judges who would abolish it, and 2 who would save it, but prune it.  (5th judge here stayed out of it).
Editors of the case book (note 2, 3, & 6) give us three cases where (note 7 as well?) a good idea can be formed of how lower court judges have handled this 2-2 decision of the SCC.  In effect, the judges seem to be taking what Dickson and Wilson said and synthesized them?  Seized on “unconscionable” in Dickson’s and “unfair and unreasonable” in Wilson’s, and began treating them as the same thing.
Note 2, page 885 – equates the two – says the diff is “unlikely to be large”.
The SCC has touched on fundamental breach in a # of cases since 1989.  It does rather seem that fund. breach is alive and well in Canada – perhaps saved by Wilson J. & L’Heureux-Dubé, but ppl still do use Dickson’s word, “Unconscionability”.
Fundamental Breach:  Dead in England, still kicking in Canada.  Party on, Fundamental Breach.  Party on.

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
•    Result of Ralph Nader’s critiques of the auto industry in the U.S. in the 60s making their way to the legislatures by the late 70s.
•    does not apply to services, except if goods are sold at the same time.
•    2(3)This Act applies notwithstanding any agreement, notice, disclaimer, waiver, acknowledgement or other thing to the contrary.
o    Seems to say that the consumer cannot contract themselves out of the Act.
o    Do have the  Sale of Goods Act, but can contract oneself out its benefit (without even realizing it).

Read the rest of the sections of the Act.  New Syllabus on TWEN.  Meeting tomorrow – reading assignment for tomorrow by email.