Contract Law

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

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.