1. Former U.S. administrative law judge Roy Pearson famously sued a local dry cleaner over a lost pair of pants. Among other things, he sought $2 million for mental distress and discomfort as well as $15 000 for a rental car he said he would need in order to drive to another dry cleaner outside his neighbourhood. Pearson claimed, for example, that the dry cleaner owners committed fraud by not living up to the sign in their window that stated “Satisfaction guaranteed.” According to Pearson, this guarantee was
unconditional, he was by no means satisfied, and the defendants had thereby committed an unfair trade practice. How should a judge interpret the “satisfaction guaranteed” sign?35
2. Louise purchased a shrink-wrapped piece of software from a local software developer. She used the software properly but, much to her dismay, the product contained a virus that destroyed the hard drive of her computer. When Louise looked in the software packaging, she found a card that contained a number of terms of conditions, including a limitation of liability clause. Is this term a part of the contract, or can Louise argue that she is not bound by it? Explain.
3. Ms. Weir was engaged by Canada Post to deliver advertising flyers for a five-year term. She was entitled to payment on a per-piece basis. The contract provided that Canada Post could terminate the agreement on 60 days' notice if it changed its ad flyer distribution system and “alternatively, Canada Post may in its sole discretion terminate this agreement immediately on giving written notice to the Contractor.” Payment per piece became costly for Canada Post, and two years later it instituted a new payment system based on packages (containing several pieces).36 Is Canada Post entitled to terminate the contract with Ms. Weir? What evidence is relevant? Is it a contract at all when one party has so much discretion?
4. Kristin signed a user agreement with Hagel's Cable, Inc., upon installation of high-speed Internet service in her home.
Included in the agreement was a provision that the agreement could be amended at any time, and that customers would be notified of changes on Hagel's website, by email, or through regular mail. Hagel's later added a clause to the agreement that any right to commence or participate in a class action suit was waived. The agreement, including the new clause, was posted on its customer support website, and a notice was posted on the main website that the agreement had been amended. Kristin has continued using the service since this time. However, she now wants to join a class action suit that is alleging a number of breaches of the agreement.37 Will the clause in the amended user's agreement prevent her from bringing such an action?
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Did she receive adequate notice of the amended term? Does the fact that the user agreement relates to Internet services make a difference in whether the notice was adequate? How is this situation similar to the Rudder v. Microsoft Corp. case discussed in this chapter?
5. Jason and Floë booked a two-week vacation in the Caribbean with The Nation's Vacations Inc. (“Nation”), having reviewed Nation's brochure regarding destinations there. The brochure also contained an exclusion of liability clause, which stated:
Please review with care the terms and conditions below as they govern your purchase of travel services from Nation. Your booking with Nation constitutes acceptance of these Terms & Conditions.
… Liability
Liability for suppliers: Nation makes arrangements with third-party suppliers who provide travel services such as flights, accommodation, and car rentals. Nation endeavours to choose the most reputable suppliers but is not responsible for their acts and omissions. Disappointed customers must sue those third party suppliers directly for any loss or damages.
…
Nation assumes no responsibility for any claim, loss, damage, cost or expense arising out of personal injury, accident or death, loss, damage, inconvenience, loss of enjoyment or upset caused by Nation's third party suppliers.
The brochure itself was designed to open to the page quoted above when flipping through the brochure from back to front. It was in easy-to-read font and with the emphasis indicated above. Though Jason and Floë had spent about 90 minutes reading over the brochure before booking their vacation package,
they say that they did not know about the exclusion clause. Moreover, Jason, a construction firm manager, says that he does not know even what an exclusion clause is, so reading it would have been pointless in any event.
When Jason and Floë arrived at the Caribbean resort, they were immediately disappointed. Though the resort was a 4-star resort as advertised by Nation, Jason and Floë say that when they went to eat dinner in the resort buffet restaurant, they found the conditions to be unhygienic because, among other matters, several small tropical birds were walking around on the floor of the restaurant, having gained access through open doors. At a later point, a cat strolled into the restaurant and, they say, defecated in the corner though the resort disputes this. Jason and Floë also claim that the bathroom in their suite was unhygienic and the staff were uniformly unfriendly, even hostile. Jason and Floë hotly refused management's offer of a free room upgrade and demanded to be flown home immediately. The resort made those arrangements. Jason and Floë left the next day. Jason and Floë have now sued Nation for breach of contract, seeking, among other matters, reimbursement for their flight to and from the resort as well as ground transportation and accommodation costs.38 Nation says it delivered the requested travel services contracted for and in any event has successfully limited its liability through the exclusion clause.
What do you think a judge will say?
6. Lunar Inc. had developed a mechanism that harnessed heat from the sun. What the company lacked, however, was a method for storing the heat until it was needed. Trays-R-Us had developed a unique tray that appeared to solve this problem, so the parties entered into negotiations. It was agreed that Trays would sell the trays to Lunar at a set unit price per tray for a term of one year. No particular sales volume for the year was agreed upon or guaranteed. After the trays were produced, however, Trays discovered that they leaked and were unable to hold any solar heat owing to a design flaw that could not be fixed. As a result, Trays refused to fill any orders for the trays placed by Lunar. Lunar sued for breach of contract, alleging that there was an implied term in the contract that Trays would make trays available to Lunar as required.39 Does the business efficacy rule require that such a term be implied in the contact between Trays and Lunar? Do you think that such a term might have been left out on purpose? How can a business avoid having terms implied into a contract?
7. The decision of Wiebe v Bobsien, discussed earlier in this chapter, went on to appeal and at that level, the dissenting judge would have found for the vendor. According to the dissent, the conditional agreement was unenforceable because its scope was too uncertain. The dissent stated:
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I think this case falls in that category of incurable uncertainty. What term should be implied? A term requiring the purchaser to make all reasonable efforts to sell his house sounds alright. … [but] it leaves unresolved the question of whether he must sell at the price he can get, on the market, in the time allotted, or whether he is entitled to insist that the sale can only take place at a price he considers reasonable and is willing to accept.
I think that what the parties usually intend by this type of clause is the second alternative. That is, that the purchaser is only committed to sell his own house if he gets the price he has in mind. The reason is that in the residential housing market the purchaser is likely to be unfamiliar with the market, but he is almost sure to know how much cash he has and what size of mortgage he can count on being able to service.
… The way to deal with this problem in the real estate market is for the form of subject clause to state the price and the essential terms upon which the purchaser must sell his own house. Then a court would have no trouble in implying a term that the purchaser must make all reasonable efforts to sell at that price and on those terms. And the court could assess whether the purchaser had made reasonable efforts to do so.
Do you think that the dissent is asking for too much precision and detail in a subject to clause. Why or why not?
8. Trackers is three days late in delivering the tracking to Coasters. Amritha now wants to rely on the clause in the contract that Trackers will pay $5000 for each day that the tracking is late, and she is claiming that Trackers owes Coasters $15 000.
However, Trackers points out that Amritha has not been inconvenienced by the late delivery, because construction on the roller coaster had already been delayed by two weeks. It has been a week and a half since Trackers was able to deliver the tracking, and Coasters has still been unable to use it. Is Amritha entitled to rely on the clause and collect the $15 000? Do you need any additional information to make your decision?
For more study tools, visit http://www.NELSONbrain.com .
Footnotes
1. Stephanie Ben-Ishai & David R Percy, eds, Contracts: Cases and Commentaries, 8th ed (Scarborough, ON: Carswell, 2009) at 113.
2. Ibid at 503.
4. GHL Fridman, The Law of Contract in Canada, 5th ed (Toronto: Carswell, 2006) at 467.
5. For a case that follows this analysis, see Dawson v Helicopter Exploration Co, [1955] SCR 868.
6. Fridman, supra note 4 at 477.
7. Ibid at 475.
8. For discussion, ibid at 479.
9. For a discussion of sale of goods legislation, see Chapter 23 as well as GHL Fridman, Sale of Goods in Canada, 5th ed (Scarborough, ON: Carswell, 2004).
10. RSO 1990, c S1.
3. By Order dated July 30, 2010, of the Supreme Court of the Northwest Territories, a civil action was certified as a class action in Anderson v Bell Mobility Inc, 2010 NWTSC 65. See also, Landy Marr Kats LLP, “Notice of Class Proceeding:
To: Bell Mobility Customers”, online: Landy Marr Kats LLP
<http://www.thetorontolawyers.ca/PDFs/anderson_v_bell_notice_of_class_proceeding.pdf>. Note that Bell's application to strike the statement of claim was dismissed by an appellate court in Anderson v Bell Mobility Inc, 2009 NWTCA 03.
11. (1984), 9 DLR (4th) 496 (BCCA).
12. See, for example Alberta Evidence Act, RSA 2000, c A-18 ss 41.1–41.8; Evidence Act, RSNS 1989, c 154 ss 23A-23H (Nova Scotia); Evidence Act, RSO 1990, c E.23 ss 34.1(1)-34.1(11) (Ontario); Electronic Evidence Act, RSPEI, c E-4.3 (Prince Edward Island) and Manitoba Evidence Act, CCSM c E150 ss 51.1–51.8. For discussion of UEAA legislation in Canada, see Charles Morgan & Julien Saulgrain, E-Mail Law (Markham: LexisNexis, 2008) at 130–132.
13. 2008 NBCA 28.
14. Such a clause must contain sufficient detail; otherwise, it will be unenforceable owing to uncertainty. For discussion of such clauses, see Gwilym Davies, “Some Thoughts on the Drafting of Conditions in Contracts for the Sale of Land” (1977) 15:2 Alta L Rev 422.
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15. Not all conditions precedent operate within the context of a contract, however, and this is where the law can become somewhat confusing. As a rule, conditions precedent will bind the parties to a contract if the condition itself is reasonably certain and objective. Conditions that are tied to whim, fancy, or extreme subjectivity as in “I'll buy your house if I decide that I like it” do not bind the parties because they essentially have no objective content. These are known as illusory conditions precedent and leave the parties free to do as they please, since there is no contract between them. For obvious reasons, illusory conditions precedents are rare. For discussion and case law on this point, see Ben-Ishai & Percy, supra note 1 at 317–52.
16. It is beyond the scope of this text to discuss the issue of waiver of conditions precedent. For an assessment of this particularly thorny problem, see Gwilym Davies, “Conditional Contracts for the Sale of Land in Canada” (1977) 55:2 Can Bar Rev 289.
17. The classic test for foreseeability in contract, discussed further in Chapter 9, is stated in Hadley v Baxendale (1854), 9 ExCh 341: Where two parties have made a contract which one of them has broken, 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 either arising naturally, i.e., … such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated.
34. See Harvey McGregor, McGregor on Damages, 18th ed (London: Sweet & Maxwell, 2009) at para 13–013.
18. See Fraser Jewellers (1982) Ltd v Dominion Electric Protection Co et al (1997), 34 OR (3d) 1 (CA). Note that Abrams v Sprott Securities Ltd (2003), 67 OR (3d) 368 (CA) distinguished Fraser Jewellers by narrowing the proposition in three ways: first, the Fraser proposition depends on the absence of misrepresentation by the party seeking to rely on the written agreement (the party seeking to rely on the clause had no legal obligation to draw it to the other party's attention); second, it depends on there being no special relationship between the parties; and finally, a person cannot rely by way of estoppel on a statement induced by his or her own misrepresentation.
19. (1989) 68 Alta LR (2d) 145 (QB).
20. Ibid at 155.
21. (1999), 47 CCLT (2d) 168 (Ont SCJ).
22. Ibid at 173.
23. Morgan & Saulgrain, supra note 12 at 10. In the U.S. decision of Ticketmaster Corp v Tickets.com, 2000 US Dist Lexis 4553 (Dist Ct, CD Cal 2000) for example, a California court found that without a positive gesture, such as clicking on an “I accept” button, there was no contract between the parties. Mere use was insufficient.
24. Canadian Real Estate Association v Sutton (Quebec) Real Estate Services Inc, [2003] JQ no 3606 (CS).
25. Morgan & Saulgrain, supra note 12 at 15.
26. Century 21 Canada Ltd Partnership v Rogers Communications Inc, 2011 B.C.J. No. 1679.
27. Kanitz v Rogers Cable Inc, (2002) 58 OR (3d) 299 (Sup Ct).
28. Morgan & Saulgrain, supra note 12 at 10–11.
29. Aspencer1.com Inc v Paysystems Corporation, [2005] JQ no 1573 (CS).
30. For further discussion, see Derek Hill, “‘Click-wrap’ online contracts generally considered enforceable”, Law Times (4 August 2008) 12.
31. Ibid
32. 2007 SCC 34.
33. Michael Geist, “Dell Case Sets Standard for Online Contracts”, (31 July 2007) online: Michael Geist
<http://www.michaelgeist.ca/content/view/2141/1/>.
35. There are multiple Internet stories on point. See, for example, Dan Slater, “The Great American Pants Suit, R.I.P.”, The Wall Street Journal (18 December 2008) online: Wall Street Journal Law Blog< http://blogs.wsj.com/law/2008/12/18/the-great-american-pants-suit-rip/>. For a basic statement of the facts of the claim, see Manning Sossamon, “The Facts of Pearson v. Chung”, online: Manning Sossamon<http://www.manning-sossamon.com/pantfacts/>. For the trial judge's decision, see Pearson v Chung, 644 F Supp (2d) 23 (Dist Ct DC 2009) online: DC Courts
<http://www.dccourts.gov/dccourts/docs/05CA4302PearsonFindings.pdf>. Following an unsuccessful appeal, it appears that Pearson has now abandoned his lawsuit, see Manning Sossamon, “The Facts of Pearson v. Chung”, online: Manning Sossamon<http://www.manning-sossamon.com/pantfacts/>.
36. Based, in part, on Weir v Canada Post Corp (1995), 142 NSR (2d) 198 (SC).
37. Based, in part, on Kanitz v Rogers Cable Inc, (2002) 58 OR (3d) 299 (SC).
38. Based, in part, on Eltaib v Touram Ltd Partnership, 2010 ONSC 834.
39. Based, in part, on Solar U.S.A. Inc v Saskatchewan Minerals, [1992] 3 WWR 15 (Sask QB).
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Chapter 8 : Non-Enforcement of Contracts (pp. 165-192)
Non-Enforcement of Contracts: Chapter Objectives Objectives
After studying this chapter, you should have an understanding of why enforcement of contracts is the norm
the exceptional circumstances in which contracts are not enforced which contracts must be in writing and why
Non-Enforcement of Contracts: Chapter Overview
DAJ/AMANA IMAGES/JUPITER IMAGES
Business Law in Practice
Martha Smith bought a fitness club in downtown Toronto and renamed it “Martha's Gym.” She invested $50 000 of her own money and financed the remainder through a business loan from the local bank. Martha tried to attract a large clientele to the facility, but the volume of business failed to meet her expectations. She began to run short of cash and fell behind in her monthly loan payments to the bank. Eventually, the bank called the loan, which had an outstanding balance of $20 000. The bank told Martha that unless she paid off the entire balance in two weeks, it would start seizing assets from the fitness club.
Martha convinced her elderly parents, Mr. and Mrs. Smith, to help her by borrowing $40 000 from the same bank. She explained that through such a cash infusion, she would be able to retire her own loan with the bank and use the balance as operating capital for her business. Martha assured her parents that the problems at the fitness club were temporary and that by hiring a new trainer, she would be able to quickly turn the business around.
Martha and her parents went to meet Kevin Jones, the branch manager, who had handled Mr. and Mrs. Smith's banking for over 35 years. Kevin said that he would give the Smiths an acceptable interest rate on the loan—namely, 8 percent—but insisted that the loan be secured by a mortgage on their home. Since the Smiths had no other means of paying back the loan and the house was their only asset, they were nervous about the proposal, which they did not fully understand. However, they did not want Martha to go through the humiliation of having her fitness equipment seized and sold at auction.
For his part, Kevin was tremendously relieved that the Smiths had come in to see him. Kevin was the one who had approved Martha's ill-fated business
loan in the first place, and he had failed to ensure that it was properly secured. He saw this as an opportunity to correct his own error and get Martha's loan off his books altogether.
Kevin had the mortgage documents prepared and strongly encouraged the Smiths to sign, saying that this would protect Martha's assets from seizure. He also told them that to a large extent, signing the mortgage was just a formality and that he was confident that nothing would come of it.
In the end, the Smiths decided to put their trust in Kevin that he would not let them enter into a contract that could bring about their financial ruin. They simply signed the mortgage. Immediately, $20
In the end, the Smiths decided to put their trust in Kevin that he would not let them enter into a contract that could bring about their financial ruin. They simply signed the mortgage. Immediately, $20