Contract Law

Privity

•    If C is a stranger to a contract between A & B, then C must fail legal action

•    In a contract between A & B in which C is a beneficiary, the A-B contract contemplates C.  C is still a third party, but not a stranger – is actually named in the agreement.
o    Beneficiary – the recipient of a benefit under the contract.
o    Our system of law treats the third-party beneficiary the same as the third-party stranger.
o    1861 case established this.
o    in earlier cases, C coud sue on the contract
o    once contract theory evolved, C became a victim of the quest for theoretical purity.

•    If A & B form a contract with A working as an agent for C, then C is not a mere third-party beneficiary.  C is a party.  A is not.
•    If A & B have a contract which has not yet been performed (any contract creates private rights – rights are property; choses in action), A has rights against B, and can, if A chooses, “alienate” their rights against B to another party.  Can sell or give incorporeal rights (assign).
o    C gains the rights to what A assigns C.
o    A-C contract.  A had rights under the A-B contract, but sold them to C = assignment.
o    Question:  What rights does C have under the A-B contract?  Suppose B breaks the promise – Can C sue?
•    Equity will allow C to sue B.
•    A is still in the original contract, but so is C.  C could sue B, but might have to sue B using A’s name.
•    Superficially, case would be A v. B,  but would actually be C sueing B.  This is how equity works in this situation.
•    Now there is a statute in every province which simplifies this situation.

Third A-B-C relationship:
•    The trust example
•    A & B have a contract (if unperformed, then each have subsisting rights against the other.  Rights are property.  Choses in action.)
o    A may hold the property (the right against B), not for his or her own benefit, but for the benefit of C.
•    A – trustee (of contractual rights)
•    C – beneficiary of the trust.
•    Referred to as cestqui que trust
o    If A does not act as a vigilant trustee, sueing B for unperformed actions, then C can unequivocally sue B.
o    Here, dealing with property – in the eyes of equity, A’s rights do not belong to A at all.  Belong to C.  Not suing on basis of contract.  Sueing for property.  A has legal title, C has equitable title.

New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd.
•    There was a view that courts do not have the authority to change the privity rule, and says that the onus is on the legislature to change it.
•    The tide turned a little in New Zealand Shipping (page 381 onwards)
•    House of Lords, though unwilling to change the rule, softened up on recognizing trust and agency to get around the rule.
o    Did not change the rule – signalled a softening.

London Drugs Ltd. v. Kuehne & Nagel International Ltd.
Page 385
•    Goes much futher than New Zealand Shipping
•    Does in private law something that is rarely seen – grapples with the doctrine itself.
•    Interesting discussion on the issue addressed by Simonds (not the place of the court to change even judge-created laws).
•    SCC addresses the question.  Iocobucci J. says that judges can make incremental changes, but not large changes in well-accepted private-law rules.
•    Agrees that major changes to this would have to come from legislatures – in Canada, this means each provincial legislature, due to the Constitution.
•    Contract between A & B, which agrees that in certain circumstances, B will not sue C.  Shield promise.  Exemption promise.
o    Contrast to contract such as insurance policy where the goal is to confer a benefit on C.
•    Limitation of liability clause.  C’s defence would be based on the contract between A & B.
o    Court reasons that letting C defend itself is less radical than conferring a benefit on C.
•    London Drugs is a bailment case.
o    The bailee is a corporation – a warehouse.
o    Corporations can operate only through human agency – human beings.
o    The employees are negligent in handling the bailor’s chattel.
o    They are tortfeasors
o    The bailor sues the bailee – the human employees of the bailee.
o    Page 385 – the liability clause.
•    The bailor did not pay the additional charge to cover warehouse liability
•    Means, in effect, that the bailor took the risk on themselves.
•    In the suit against the employer (the warehouse) the warehouse was covered against liability by this clause, and was liable for only $40.
o    What of the employees?  Question of whether they were shielded.
o    Note:
•    1)  The reciprocity objection:  would allow a person to sue on a contract when that person could not be sued on the contract.
•    Lack of reciprocity
•    This is a trad. objection allowing C to sue as a third party.
•    2)  A & B contract.  One of the rights is to change their contract (though this is sometimes tricky -  need consideration).  As soon as one says that C acquires a right under A-B contract, that seems to inhibit A & B’s right to alter contracts.
•    The law does not allow us to destroy other people’s rights.
o    Iacobucci J. addresses these issues.
•    Says that rather than trying to find a way around the privity problem, will instead change the doctrine of privity.
•    Do not think that he tries to find that the warehouse contracted on the right of its employees.
•    Does not find any rel. in privity between the bailor and the bailee’s employees
•    Allows the employees to have rights even though they are not in privity
•    Says that in an employment situation, when A deals with B, knowing that B has employees, and that the actions can only be carried out by the employees, to give B’s employees certain rights under the A-B contract is not so very radical (should not take the bailor by surprise).
•    Much turns on C being an employee of B.
•    Paragraph 46, page 395.
o    “I am of the view that employees may obtain such a benefit if the following requirements are satisfied…
•    limitation of liability clause must, expressly or impliedly extend its benefit to employees
•    the employees seeking the benefit of the clause must have been acting in the course of their employment and been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred.
o    Said that the bailor was promising the bailee that if the bailee’s employees committed a tort, they would be shielded from liability above $40
•    ends up (on page 397) saying that by implication, the promise to the bailee covered not just the bailee, but also the employees (note – not saying that the bailor promised the employees – promised the bailee).
•    Cannot find the promise expressed – finds it implied.
•    Top of 397 – employees were not to benefit?  Says the language of the clause means inevitably that the employees were not covered.
•    The test of intention here, then, is a very shallow test.
•    Believes, on the facts, that when the bailor and bailee did contemplate (though not expressed) that the employees would be shielded from liability.
•    In the context of employment, employees can raise defences to lawsuits – the SCC has made an enormous practical and symbolic inroad into the doctrin of privity.
•    NOT saying that the employees were parties to the contract – saying they were intended beneficiaries.
•    As such, can invoke this defensively as a shield.  Still would not allow this to be used offensively.
•    The reason courts do not take the trust or agency argument and make them cure-alls is just because they would be cure-alls

Read up to Law Reform Act for next day.
Monday’s class will be review.
Can have another review class on Tuesday – 12:30pm tentatively

Writing
•    Contracts do not have to be either written or oral
o    They can be party written or party oral.
•    All common law jurisdictions have adopted some form of the Statute of Frauds
•    To what does the statute of Frauds apply?
o    What contracts are caught by the contracts?
o    What contracts are within the statute?
o    Chiefly 2 types in ordinary practice that are caught:
•    Contracts of guarantee (or suretyship)
•    When one is a guarantee or surety, one is making oneself answerable for someone else’s legal debts or wrongs
•    One says that even thought one is not the tortfeasor, one will pay the victim for the tortfeasor’s actions
•    The law looks at this as rare, and therefore wants to be very sure that someone did mean to do this – wants to see it in writing.
•    Explains why contracts of guarantee have to comply with the statute of frauds.
•    Banks take the most guarantees – want everything in writing anway.
•    Contracts in issue of land
•    Contracts in sale of fee simple have to be in writing, obviously enough
•    The statute is not confined to fee simple
•    It is confined to interest in land
o    Profits a prendre, etc.
•    Not validly conveyed unless it complies with the statute.
•    Lawyers get sued a lot because they forget that an option to obtain land is an interest.
o    If not done in writing, does not comply with statute of frauds.
•    Keep in mind that statute of frauds applies not only to FS and life estates (and fee tail), but also to anything that is an interest in land, including the option.

•    In most provinces, there is another category – “contracts not to be performed within a year.”
o    The jurisprudence is an exotic one
o    The drift is that if the contract could possibly be performed within a year, then does not apply.
o    Only contracts that could not possibly be performed within a year.

•    If a contract must comply with the Statute of Frauds (page 233)
o    “No action shall be brought…”
•    Note:  Unless the contract is in writing
•    Does not mean that the whole contract in question has to be in writing, only that enough of it has to be in writing.
•    Likewise, signed does not mean “signed” necessarily.  Can be printed, pre-printed on a letterhead – the court might well say that this is enough.
o    Could even be on a cheque – even if in the memo “re: purchase of land” might be enough to satisfy the memorandum in writing requirement
•    Law requires that certain narrow categores are satisfied, but once they are, makes them easy.
•    Quite easy on finding that the requirement has been met, in order to not simply fail valid contracts on technicalities.
o    Make the satisfaction extremely elastic.

•    “No action shall be brought” are the most elastic words of the statute.
o    Can’t sue on such a contract
o    Says plaintiffs cannot sue on such a contract
o    Doesn’t say, “there isn’t such a contract”
o    Logically, implies that the contract is there, but cannot be invoked affirmatively.
o    If somehow a defendant could defend him or herself based on this contract…
•    For example, to explain why they built their castle on Blackacre
•    The defendant could invoke the existence of the contract
o    Might be able to raise an estoppel based on such an agreement, but cannot sue on it.  Another example of a shield but not a sword.

•    Original Statute of Frauds said that contracts above a certain value had to be in writing.
o    Was taken out of the SoF and put into Sale of Goods Act
o    Was a nuisance, because the value probably hadn’t changed since 17th century.
o    The English figure was originally £10 – was, in the 17th century, a staggering amount.
o    Was translated, like many, many English statutes, into $40CA.
o    Most provinces (like NB) have repealed it.
•    Ontario only in 1994.

First propostion:      Few have to be in writing
Second proposition:     Even if yours does, courts are liberal in interpretation.
Remember that contracts which have to comply with the statute that fails with the statue, does not fail as a contract, but just means that pl.’s cannot sue.

Doctrine of Hard Performance
•    A judge-created exception
•    Even though a contract may be caught by the statute, and non-compliance has happened, still, if one falls within an exception, the court will say that you did comply
•    The doctrine of hard performance
•    If can show that the contract has been performed in part by the time of a law suit, then will not be out of luck.
•    Creates a category of contract that otherwise would fail on a technicality, that do not fail on a technicality

Doctrine of hard performance – says that if the plaintiff can show that the alleged contract was partly performed so that it cannot be explained what the parties did except to say that they did it under contract, then the court will use what was done as existence of that contract.

Page 238 – example

Deglman v. Guaranty Trust Co. of Canada and Constantineau [1954]
•    The aunt thought that she promised to give her nephew the house in exchange for his little services.
•    He did do the services – years later, she died, but the will did not note that the house should be left to him
•    He sued the estate
•    The court noted that even though she thought she was giving him the house, she was in fact entering into a contract with him
o    His consideration was the services rendered.
o    A contract made within a lifetime take precedence over a will.
•    Page 239, the court turns to the doctrine of hard performance.
•    SCC says no – in order for an action to count as hard performance, must be uniquely referable to the existence of that alleged contract.
o    must have an unequivocal character.
o    Only way to account for the behaviour must be to resort to the existence of a contract.
o    Says the nephews actions do not constitute this.

•    This case emphasises that the doctrine of hard performance is interpreted quite narrowly.
•    Page 240, send him away with the consolation prize of $3000 (a great sum at the time)
o    We will come back to this in January to look at remedies.

•    The notes after the case show that English courts have moved away from the idea that the acts must be unequivolcally attributable to the existence of a contract.
o    Page 241-242 Steadman v. Steadman case.
o    Say that we must interpret on the balance of probabilities.
o    Yes, must be referable unequivocally, but we judge this on the balance of probabilities.
•    This considerably lowers the barrior to finding hard performance.
•    Bottom of page 242-243-244
o    Loosening of hard performance in Canada?
o    Editors imply that the Canadian courts will follow the English courts, but haven’t done so yet.
•    Even if a contract is caught by the statute, even if one hasn’t literally caught by the statute, then the doctrine of hard performance still gives hope.
o    Oral evidence is admissable to explain what the contract was, once courts have accepted the doctrin of hard performance as applicable.

Third Parties – Privity

Contract between A & B
A promises B the title to car for $1000
B promises A $1000 for title to car
•    A does convey to B the title to the car
•    B has not paid A $1000
•    A meets B to discuss
•    C is a bystander.  Decides on his own to sue B as a promise-breaker to force him to keep his promise.  May even establish a foundation for the suing of promise-breakers.
o    C v. B
•    Will not win.  C is not the promissee.
•    A contract is a private arrangement between [A & B]
•    Each has assumed obligations voluntarily
•    C is not in privy to the contract.
•    C did not give consideration.
•    Cannot enforce any promise against any promisor without consideration

A promises that when B dies, will pay a benefit to C.
B promises to A to pay premiums during his lifetime.
•    B dies
•    A does not pay the benefit to C (the beneficiary)
o    C v. A
•    Promise broken
•    2 objections:
•    C is not the promissee
•    C did not give consideration

•    The common law treats perfect strangers and intermeddlers (as in example 1) the same as beneficiaries.

What if one person makes travel arrangments for a group, and one of that group is the victim of a breach of contract, from the carrier, for instance.
•    Only a person who is party to a contract can sue – Dunlop Tyre
o    Page 378-379 – HoL invited to overturn Dunlop Tyre
•    Lord Denning sitting at this time
•    Would have relaxed the doctrin of privy to allow the intended beneficiary to sue – minority
•    Answered by Viscount Simonds
•    “For to me heterodoxy, or as some might say, heresy, is not the more attractive because it is dignified by the name of reform.  Nor will I easily be led by an undiscerning zeal for some abstrat kind of justice to ignore our first duty, which is to administer justice according to law, the law which is established for us by Act of Parliament of the binding authority of precedent.”

Free Agent
Must understand 3 analyses.
Not really exceptions to privity problem
Mean, in fact, that if they are true, there is no privity problem.
•    1)  Agency – if in a contract between A & B, it turns out that A was acting for someone else (for example, a corporation)
o    principal
o    C is the corp.
o    In fact, C was always a party to the contract.  It was never an A/B contract.  It is a C/B contract.
•    2)

For next class, read notes page 381
Read case page 384
Read London Drugs page 385