UNIT 6.1 2010-III-10 contract law

UNIT 6.1 2010-III-10 contract law - ENGR 4760U Ethics, Law...

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Unformatted text preview: ENGR 4760U Ethics, Law and Professionalism for Engineers Unit 6.1.1 - Contract Law Version 2K010-III-10 Dr. J. Michael Bennett, P.Eng., PMP UOIT Unit 6.1 Contract Law Change Record s 2010-III-10 Initial Creation 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-2 Unit 6.1 Contract Law Course Outline 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. The Engineering Profession Ethics Engineering Law Intellectual and Industrial Property Conflict Resolution The Contracting Process Other Legal Issues for Professional Engineers Occupational Health and Safety Privacy Issues Legal Landmines in E-Commerce International Trade Environmental Laws and Regulations ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-3 2010-III-10 Unit 6.1 Contract Law Contracting for Engineers What is a Contract s An agreement between two people s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-4 Unit 6.1 Contract Law Five Elements of a Contract 1 Offer Made and Accepted s 2 Mutual Intent to enter into the contract s 3 Consideration s 4 Capacity to Contract s 5 Lawful Purpose s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-5 Unit 6.1 Contract Law Terms Courts will not overturn a bad business deal s Assignable Rights can be assigned without agreement of contractor. If you do not want this it must be expressly written into the contract contract s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-6 Unit 6.1 Contract Law 1 Offer Made and Accepted Offeror and Offeree s Contracts do not HAVE to be written s Offer may be withdrawn by offeror if not Offer accepted (unless irrevocable) accepted s Counter-offers common (roles reverse) s Acceptances must be clearly communicated s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-7 Unit 6.1 Contract Law Option Contract is irrevocable for a stated Option period period s Must offer something of value for this to Must hold hold s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-8 Unit 6.1 Contract Law Communications You should specify the medium (post) s Acceptance is effective when posted s Revocation is not until the offeree receives Revocation notice notice s Governing law takes hold (offeree uses the Governing law in that place) law s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-9 Unit 6.1 Contract Law 2 Mutual Intent Must have clear intent s Note that Letters of Intent that do NOT Note specify all details (ie imply that there will be further negotiation) are NOT contracts (Bahamaconsult vs. Kellogg Salada 1976 (Bahamaconsult s Words of Von Hartzfeldt Alexander Words important (the law does not recognize a contract to enter into a contract) contract s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-10 Unit 6.1 Contract Law 3 Consideration Essential unless it is sealed (mechanical Essential device or little red thing) device s normally $ but can be an exchange of normally promises, representing something of value promises, s Can be upturned if influence, duress, fraud Can can be proven can s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-11 Unit 6.1 Contract Law Irrevocable Offer One without consideration or a seal is One simply a gratuitous promise; it is not legally binding binding s When the offeror promises to hold an offer When open for a specified period, there MUST be separate consideration separate s This is usually achieved with a seal s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-12 Unit 6.1 Contract Law Equitable Estoppel Conwest case., Burrow/Subsurface s Will only do so if it will avoid an Will “obviously inequitable” result “obviously s Unfair and Inequitable is key s Each case will be decided on its own merits Each so BEWARE engineers doing contract management management s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-13 Unit 6.1 Contract Law Conwest v. Letain (SCC 1963) An option concerning mining claims owned by the optionor had a time limit. The An optionee had to take certain steps by a specified date in order to exercise his option. option. Before the expiry of the time limit, the optionor became aware that the optionee Before optionee could not fulfil his obligations by the expiry date. The optioner implied that the time for fulfilment was extended. However, the promise to extend was not accompanied by consideration. The optionor subsequently reverted to the original agreement and insisted on his contractual rights. original SCC ruled that it would be inequitable to permit the optionor to revert to the SCC inequitable original contract under these conditions. It ruled the the optionor should be estopped from reverting to his strict contractual rights. estopped There MUST be a seal or consideration to make a contract amendment There enforceable. The party that relies on such a gratuitous promise may seek relief. enforceable. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-14 Unit 6.1 Contract Law J. Burrow/Subsurface (SCC 1968) Here is a promissory note: SS promises to pay JB the sum of $42,000 at 6% interest, each month for 9 years SS and 10 months from April 1st, 1963, payable monthly on the first day of May, 1963 and on the first day of each and every month thereafter until payment, prior to complete payout of the loan. In default of payment of any interest payment or installment for a period of 10 days after the same, the note becomes due, the whole amount payable to become immediately due” becomes JB permitted many late payments. Eventually the two had a falling out and when JB the next payment was 36 days late, JB called the loan. the SS appealed under equitable estopple and won Because JB had disregarded the default conditions, SS had reasonable cause to Because believe that they would in this case too. believe KEY IS UNFAIR AND INEQUITABLE RESULT 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-15 Unit 6.1 Contract Law 4 Capacity to Contract Minors cannot, nor drunks nor lunatics s Drunks can weasel out if (1) the other knew Drunks of the drunkenness and (2) he repudiates the contract quickly s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-16 Unit 6.1 Contract Law Corporations Be careful s If it is beyond the powers of the corp. to If enter into the contract, it can be voided enter s Need to know the details of the Need incorporation incorporation s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-17 Unit 6.1 Contract Law 5 Lawful Purpose s Contract is unenforceable if x Illegal x Contrary to any statute 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-18 Unit 6.1 Contract Law Examples Bankruptcy act s Workman’s comp (minimum wage e.g.) s Bid-rigging s Waiver of Lien rights (Construction Lien Waiver Act) Act) s Contract requiring a licensed person who is Contract not (this can vary) (Kocotis v. D’Angelo) not s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-19 Unit 6.1 Contract Law Kocotis v. D’Angelo s An electrician who held to be a licensed one An (but was not) sued for materials spent. Judge ruled that since he was engaged in an illegal activity, a legal contract could not exist exist 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-20 Unit 6.1 Contract Law Case Laws s Calax v. Lepofsky x Building contractor unlicensed. Contract thus is Building illegal and unenforceable (any transaction tainted by illegality in which both parties are involved is beyond the pale of the law) involved s Monticchio v. Torcema (1979) x Contractor was not licensed to do drain work. Contractor But he could collect for material not illegal work work ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-21 2010-III-10 Unit 6.1 Contract Law Unenforceable .NE. Void Verbal agreement to convey property s Does not do so but cannot retain deposit Does cheque cheque s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-22 Unit 6.1 Contract Law Contract Rescission s The setting aside of a voidable contract. One that The looks legal but there may have been: looks x x x Misrepresentation Duress Undue Influence s s s 2010-III-10 Note that it cannot be done unless restitutio in Note integrum is possible. integrum If a minor, repudiation Note breach is NOT recission ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-23 Unit 6.1 Contract Law Misrepresentation False statement or assertion of fact s Note subtlety of fraudulent and innocent Note misrepresentation misrepresentation s 3 types of fraudulency (Derry v. Peek 1889) s x Knowingly x Without belief in its truth x Recklessly (careless of t or f) 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-24 Unit 6.1 Contract Law McKillop v. Pidgeon and Foley Engineer makes a 16% mistake in Engineer estimation on which P&F make their bid. Contractor rescinds and sues for Breach. Contractor s Township sues P&F for unlawful breac s He can rescind but not profit. s The Contractor should not have to do the The work of the engineer. Since there was no deceit involved, he could breach. deceit s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-25 Unit 6.1 Contract Law Duress (physical and economic) Is voidable s Actual violence must be directed at the Actual contracting party or relative contracting s Example of Gotaverken Systems and Example Cariboo Cariboo s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-26 Unit 6.1 Contract Law Gotaverken Systems and Cariboo Contractor agrees to put in a new recovery boiler for $26M Contractor during the shut-down period, working two 11-hour shifts. They are close to finishing when “gas-outs” cause people to get sick and the work is slowed down. The owner agrees to compensate him for his losses. But the contractor threatens to work only a 37 hour week unless the owner renegotiates the contract to a time and material basis. The owner claims he is holding a gun to his head. owner The court ruled that this was duress and could not do this The (more details but not important). (more 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-27 Unit 6.1 Contract Law Undue Influence s Can repudiate when the bargaining Can positions are unequal (husband and wife, parent and child) parent 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-28 Unit 6.1 Contract Law Mistakes s Rectification when both parties agree that a Rectification correction to the contract is needed (secretarial nature only). (secretarial 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-29 Unit 6.1 Contract Law Unilateral Mistakes s Imperial Glass v. Con Supplies 1960 BCCA x Offeror makes a mistake in the contract, Offeror quoting prices for goods to be delivered that are too low. too x Offeree knows this and accepts contract. x Court rules too bad. Offeror loses. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-30 Unit 6.1 Contract Law Belle River vs. Kaufman (HCJO 1977) Contractor submits a bid. Then realizes that Contractor he forgot to transfer a sum from a summary page to the adding machine. Attempts to withdraw contract. withdraw Plaintiff refuses and holds on to it for 30 days Plaintiff and then attempts to accept contract. Accepts another bid and sues for the difference. difference. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-31 Unit 6.1 Contract Law And the Envelope Please Judge rules for the contractor, noting that there was a Judge clerical error not an error of thought. Also the plaintiff had not submitted a formal contract to the contractor. contractor. States that a “just and reasonable man will not insist States upon profiting by the other’s mistake”. upon “A substantial mistake must occur.” “Proof of that mistake must be strong and Proof convincing”. convincing”. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-32 Unit 6.1 Contract Law Appealed to the OCA 1978 Agreed and established the following Agreed principle: principle: “An offeree cannot accept an offer that he An knows has been made by mistake and that affects a fundamental term of the contract”. affects 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-33 Unit 6.1 Contract Law Ron Engineering v. The Queen A mistake similar to Belle River was made. The contractor mistake submitted a tender along with a bid deposit of $150,000 to the Water Resources Commission of North Bay. The contractor had omitted an amount of $750,000 out of a total bid of $2,748,000. Attempted to withdraw the tender before opening but failed. Informed the plaintiff an hour after opening and also with a telegram. WRC refuses to return the $150,000 and Ron sues to get it back. Ron There was no doubt about the error, the next lowest bid being There $3,380,4645. The judge ruled in favour of the WRC. $3,380,4645. On appeal, Ron wins, quoting Belle River. But SCC overrules On again. again. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-34 Unit 6.1 Contract Law In the Offer to Tender this clause existed …..if his tender is withdrawn before the ..if Commission shall have considered the tenders or before or after he has notified that his tender has…been accepted,….the Commission may retain the tender deposit for the use of the Commission and may accept any other or none tender…. accept WRONGO for RON 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-35 Unit 6.1 Contract Law Result of Ron Engineering An advertisement for tenders is an offer that is An accepted when a tender is submitted and a contract is formed that precludes the contractor from withdrawing his bid contractor People, this is BIG. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-36 Unit 6.1 Contract Law Contract A and B CA puts the onus on BOTH to obey. s Bruinsma v. Chatham C removes an item Bruinsma NO. NO. s Still murky (Peddleson v. Liddell 1981) Still mere omissions (here a seal) that can be corrected without affecting the rights and obligations of both parties are OK. obligations s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-37 Unit 6.1 Contract Law Examples Bruinsma v. Chatham s Peddlesden v. Liddel s Mawson Gage v. R s Gloge Heating v. Northern s Forest CM v. C&M Elevator s Westgage v. PCL Cons s Chinook Aggregates v. Abbotsford s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-38 Unit 6.1 Contract Law Bruinsma v. Chatham C (Ontario) A number of tenders were submitted number (Contract As). (Contract Subsequently the owner deleted one item Subsequently which made Party B the winner instead of Party A. Party Party A sues and wins because the right to Party because change items in the tender was NOT included in the RFP. included 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-39 Unit 6.1 Contract Law Peddleson v. Liddell (BC 1981) Contractor accepts a bid and bid bond from a sub. Contractor But sub forgets to seal the bond. But The Sub was prepared to do so but the contractor The chose another. Sub sues and WINS. chose “a mere omission that could have been corrected mere without affecting the rights and obligations of the parties should be permitted”. parties 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-40 Unit 6.1 Contract Law Mawson Gage v. R (FCC Trial Div A 1987) Sub prepares an estimate based on plans received from the Sub contractor. contractor. Several pages were missing from the plans, the owner’s error. Sub informs both and tries to resolve the problem with no Sub success. success. Sub signs and completes the work. Then he sues the owner in Sub tort for losses arising from negligent misrepresentation. tort Sub wins: “otherwise the owner would have been unjustly otherwise enriched”. enriched 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-41 Unit 6.1 Contract Law Gloge Heating v. Northern (ACA 1986) Sub telephones a tender to the Prime minutes before the Sub tenders close (common practice to avoid bid-shopping by general contractors). general Sub had made a big mistake. He advises Prime after closing. Sub Prime refuses to permit the Sub to adjust tender. Sub refuses to do the work. Another Sub does so for $340,000 extra. extra. Prime sues and wins. Court rules that telephone bids are as good as written ones. In Court this specific usage! (note parole rule in general). this 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-42 Unit 6.1 Contract Law Forest CM v. C&M Elevator (AR 1988) Prime requests a quote from a sub and submits a bid to the Prime owner. owner. Alas, one elevator is missing. Prime contacts owner and Alas, attempts to withdraw. attempts Owner re-tenders and sues for the difference, claiming Owner breach. breach. Owner wins because of Contract A approach. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-43 Unit 6.1 Contract Law Westgage v. PCL Cons (CLR 1987) Subs can be disadvantaged when Prime and Owner negotiate Subs different terms. different PCL picks lowest of 3 bids. But Owner and Prime renegotiate PCL terms for a reduced price and reduced completion time. The Sub is not consulted. The Sub is then asked to lower its bid and refuses. Work is given Sub to another Sub. to Court rules for Prime, stating “ renegotiation of the contract Court terms amounted to counter-offering and that released the Prime from the obligation to the Sub”. Prime 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-44 Unit 6.1 Contract Law Chinook A. v. Abbotsford (lowest always best?) (BCCA 1989) Abbotsford asks for bids for a gravel crushing contract. It is known for favouring local companies (hardly unusual). known But it includes the clause “lowest or any tender will not But necessarily be accepted”. necessarily Chinook wins because there was no tender clause saying how Chinook the bids would be evaluated (and therefore it defaults to the lowest). the 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-45 Unit 6.1 Contract Law Mo Megatech v. Carlton s Acme v. Newcastle s Kencor v. Saskatchewan s North American v. Fort McMurray s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-46 Unit 6.1 Contract Law Megatech v. Carlton (O 1989) Plaintiff’s was 2nd lowest. Lowest failed to follow the tender Plaintiff’s guidelines. guidelines. Plaintiff fails because of the clause “lowest or any tendered”. Reversal of Chinook! 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-47 Unit 6.1 Contract Law Acme v. Newcastle Similar. Acme was the lowest bid. Had the “lowest or any” Similar. clause. clause. But the next lowest had a completion time much earlier and But would employ more local folks. The earlier completion date would save the town $25,000 in rent. date Acme loses because “custom and usage cannot prevail over Acme the express language in the tender documents”. the 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-48 Unit 6.1 Contract Law Kencor v. Saskatchewan Includes this clause “refuse to accept any tender, waive Includes defects or technicalities or…accept any tenders that the Department considers to be in the best interest of the Province”. Province”. Court ruled that this language was too vague to be Court meaningful. meaningful. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-49 Unit 6.1 Contract Law North American v. Fort McMurray Contains the words “reserves the right to reject any or all Contains tenders or to accept the tender most acceptable to the interests of Fort McMurray”. interests Lowest sues and loses because wording here is clear enough. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-50 Unit 6.1 Contract Law Contract interpretation Contra proferentem s Parol evidence rule (no verbals except in Parol unusual circumstances) (Pym v. Campbell) unusual s A contract can be amended at any time if s x 1) both sign x 2) the essential contract elements are still 2) present present 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-51 Unit 6.1 Contract Law Contra Proferentem If a contract is ambiguous, it will be construed If or interpreted against the party that drafted the provision. the 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-52 Unit 6.1 Contract Law Parol evidence rule Where the contract is entirely written and the Where language is clear, extrinsic evidence is NOT admissible to vary, add or contradict the written word. written If a condition is agreed upon verbally but is If not included in the written contract, the condition is not part of the contract. not 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-53 Unit 6.1 Contract Law Pym v. Campbell (1856) In the negotiations of the contract, the parties agreed verbally In that the purchase of the invention rights would be conditional on the approval of two engineers. Only one agreed and Pym sued. agreed The court ruled that “no addition to or variation from the The terms of a written contract can be made by parol”. terms 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-54 Unit 6.1 Contract Law Implied terms “The Moorcock” s “Markland v. Lohnes” says building Markland contracts imply contracts s x Mats and workmanship proper quality x Work carried out properly x Will fit the purposes intended x Done in reasonable time 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-55 Unit 6.1 Contract Law The Moorcock (HoL 1889) Owner docks the steamship Moorcock at a dock on the Owner Thames. The tide goes out and the ship is damaged. Thames. Courts ruled that there was an implied term in the contract Courts (that the vessel be safe at low tide). (that 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-56 Unit 6.1 Contract Law Markland v. Lohnes (NSCA 1973) Even in the absence of express terms building contracts have Even at least these implied terms at x Materials and workmanship be of proper quality x Work carried out properly x Will fit the purposes intended x Done in reasonable time x Without undue delay 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-57 Unit 6.1 Contract Law Discharging Contracts Performance s Agreement to Discharge (mutual axing) s Discharge pursuant to Express Terms Discharge (bankruptcy) (bankruptcy) s Discharge by Frustration s Discharge by Breach s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-58 Unit 6.1 Contract Law Discharge by Frustration Something gums up the works like a war s Note force majeure concept Note force s Metropolitan Water v. Dick, Kerr (1917) Yes s Davis v. Fareham No s Swanson v. Manitoba No s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-59 Unit 6.1 Contract Law Metropolitan Water v. Dick, Kerr (HoL 1918) Contract of 6 years entered into in 1914. In 1916, the Contract Ministry of Munitions stops the work (because men needed in the Great War). needed Example of discharge by frustration. Note the difference Example between this and force majeure which this was not. force 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-60 Unit 6.1 Contract Law Davis v. Fareham (HoL 1956) Davis has a contract to build 78 houses in 8 months but it Davis takes 22 months instead. takes There was an acute labour shortage. Neither was in breach of contract. HoL refused to accept frustration, just that conditions made HoL the contract more onerous than contemplated. the 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-61 Unit 6.1 Contract Law Swanson v. Manitoba (MCA 1963) Prime forces to work in the winter months because the site Prime was not ready for the summer period which he had planned on. Argued Frustration. on. Lost. Some delay is to be expected in any construction Lost. project and this should be reflected in the bid price. project 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-62 Unit 6.1 Contract Law To Breach or not to Breach Breach is a cause of discharge only if it is Breach purposeless for the innocent to proceed further with performance further s Breach leading to termination ONLY if Breach substantial performance is prevented substantial s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-63 Unit 6.1 Contract Law Repudiation When one tells the other its over it is When repudiation repudiation s Non-defaulting can continue or can assume Non-defaulting that contract has been discharged by R that s ND party can claim damages but with ND reasonable dispatch reasonable s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-64 Unit 6.1 Contract Law Breach Remedies Quantum meruit as much as is reasonably Quantum deserved (equitable remedies) deserved s Hadley v. Baxendale (1854) s Damages have to be mirandized! s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-65 Unit 6.1 Contract Law Hadley v. Baxendale (HoL 1854) The plaintiffs had a broken mill shaft and the defendants agreed to carry it The to its manufacturer for repairs. Through the defendant’s negligence, the delivery of the shaft was delayed causing lost profits for which Hadley sued. Hadley They lose because they did not inform the defendants of the possibility of They lost profits if the redelivery of the shaft was to be delayed. lost “damages should flow naturally from the breach or be reasonably damages foreseeable by both parties at the time of entering into the contract” foreseeable “if the these special circumstances are wholly unknown to the party if breaking the contract, he at the most could only (be liable) for the amount of injury that would arise generally (and not specially). amount 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-66 Unit 6.1 Contract Law Breach of Contract Note the difference between condition and Note warranty warranty s Condition is MANDATORY and leads to Condition breach breach s Warranty warrants damage s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-67 Unit 6.1 Contract Law Damages Direct s Indirect (lost profits for example) or Indirect perhaps a fine perhaps s Eschew “indirect or consequential” Eschew damages in any contract damages s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-68 Unit 6.1 Contract Law Duty to mitigate s Penalty clauses (liquidated damages) s Quantum Meruit Alkok v. Grymek s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-69 Unit 6.1 Contract Law Alkok v. Grymek (SCC 1968) Owner had a contract that stipulated that milestone payments Owner were to be released “upon the Architect’s certificate” where he would be sure the Subs had been paid. The contractor could not do this, the Architect would not seal. As well, the owner and the architect complained that there were defects in the construction and it was delayed. The owner repudiated the contract and engaged others to complete the work. work. Contractor sues the owner and wins, because the failure to Contractor satisfy the Architect was not an essential breach, justifying essential the repudiation. The evidence of defective workmanship or delay did not go to the root of the contract (details missing here). The contractor succeeded on a quantum meruit basis quantum to recover his costs. to 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-70 Unit 6.1 Contract Law Substantial Compliance Missed a few things. Is entitled to be paid the Missed contract price minus these things missing contract s Doctrine of substantial compliance Doctrine substantial s Facts must substantiate that the contract Facts deficiencies are minor and do not go to the heart of the contract heart s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-71 Unit 6.1 Contract Law Fairbanks Soap v. Sheppard s (1951 OCA) Contractor had substantially complied with Contractor the contract the s There were minor defects, remediable There without excessive cost without s Ruled for defendant as he was in substantial Ruled compliance compliance 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-72 Unit 6.1 Contract Law Dakin & Co. v. Lee (1916 KB 566) Same idea and a basic case. Judge ruled s “where a building or repairing contract has where been substantially completed, although not absolutely, the person who gets the benefit of the work which has been done under the contract must pay for that benefit” contract s Judge deducted the costs to remediate Judge ($600) ($600) s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-73 Unit 6.1 Contract Law Specific Performance Court can require this to remedy a piece of Court the contract the s Normally a specific order s Selling an antique car for example and Selling reneging on contract reneging s Courts will not grant this if they have to Courts supervise the work (most engineering services fall in here) services s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-74 Unit 6.1 Contract Law Injunction – restrains a party from doing something like a breach of contract like s Has to have a negative covenant (a promise Has not to do something) not s In a non-competition agreement, promise In not to compete for a period of time within a defined geographical area, is a negative covenant covenant s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-75 Unit 6.1 Contract Law Fundamental Breach (FB) It renders an exemption clause ineffective It in case of a FB in s Harbutt’s Plasticine v. Wayne’s Tank and Harbutt’s Pump. Exclusion cost of £2,300. Fire cost 2,300. £170,000 s BUT Photo Production (really a case of due BUT diligence) diligence) s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-76 Unit 6.1 Contract Law Harbutt’s Plasticine v. Wayne’s Tank and Pump (HoL 1970) Contract for the design and installation of storage tanks for Contract stearine. Part of the contract involved designing a plastic pipeline wrapped with electrical heating tape; it was to liquefy the stearine so that it could flow from one point to another. The contact also contained a clause “limiting the contractor’s liability to £2,300. The actual loss was £170,000. 2,300. The pipe sagged, cracked, the stearine leaked and the place The burned down. The contractor was ruled to be in fundamental breach of the contract. breach Was used in many cases in the seventies in Canada but look out! 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-77 Unit 6.1 Contract Law Photo Production (HoL 1980) Company has a contract with a security company. Contract has Company the clause “under no circumstances shall the Company be liable for any injurious act by any employee of the company….” company….” One of the geezers starts a fire at night which gets out of control One and causes £615,000 in damage. HoL ruled that the defendant could rely on the exclusion clause HoL and that this was not a fundamental breach (was overturned twice before this) twice “That primary obligation is modified by the exclusion clause”. 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-78 Unit 6.1 Contract Law FB Exempting clauses do not avail him when Exempting he is guilty of a breach which goes to the root of the contract (Murray v. Sperryroot Rand) s See also Beaufort v. Chomedy (1980) s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-79 Unit 6.1 Contract Law Murray v. Sperry-Rand (HCJO 1979) Piece of farm machinery failed disastrously Piece but there was an exclusion clause (not responsible for anything that goes wrong) responsible s Does not avail. s “exclusions cannot avail when they are guilt exclusions of a breach which goes to the root of the contract” contract” s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-80 Unit 6.1 Contract Law Beaufort/Belcourt v. Chomedy Aluminum (SCC 1980) Beaufort sticks in an exclusion to the standard lien clause Beaufort which CA agrees to. Then Belcourt fails to pay CA, fundamentally breaching the contract. CA puts on the lien anyway BB sues because the contract expressly says “releases and renounces all privileges or rights and all lien rights now existing or that may hereunto exist……upon… rights any monies due ..to the contractor.” Both OAC and SCC agree that the failure to pay the sub, CA, Both was a fundamental breach and the waiver does not prevail, as this would not be “fair and reasonable”. as 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-81 Unit 6.1 Contract Law Hunter Engineering v. Syncrude (SCC 89) 2010-III-10 Syncrude had contracted with Hunter, and later with Allis Syncrude Chambers, for the supply of gear boxes to drive the bucket wheel conveyor belts that transport sand for the oil extraction plants in Fort McMurry. The contracts stipulated that Ontario law was to apply. AC had an exclusion clause that denied the application of all other warranties (including that of Ontario) application The bull gears failed shortly after installation. Syncrude had the The boxes rebuilt and sued both for tort. The express warranties had expired. expired. Hunter was held liable (implied warranty of fitness) but AC was Hunter excluded. Reasons were that the contract was clear enough and that there was no evidence of unconscionabilty. The breach did not go to the heart of the contract. not ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-82 Unit 6.1 Contract Law Client-Engineer Contract : Agency Relationship Client is principle, engineer is agent s Must stay within the authority agreed upon Must by the contract by s Remuneration should be clear s If not, quantum meruit applies s Kidd v. Mississauga Hydro example s ‘Reasonable man” applies s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-83 Unit 6.1 Contract Law Kidd v. Mississauga Hydro (OHCJ 1979) Engineer proposes to undertake a study and estimates the clerical Engineer costs to be $5,000. In fact they turn out to be $14,447. He sues for the difference for And loses. Quoting Hedley-Byrne, Lord Reid wrote “a And reasonable man, knowing that he was being trusted, …, has 3 courses of action open to him. He could keep silent or decline to give the information or advice being sought; he could give an answer with a clear qualification that he accepts no responsibility for the answer or he could simply answer without any such qualification. If he chooses the last, he must be held to have accepted some responsibility with the inquires which requires him to exercise such care as the circumstances require.”Michael Bennett Ethics, Law and Professionalism Winter 2010 require.” 2010-III-10 ©Dr. 6-1-84 Unit 6.1 Contract Law Limiting Liability s Can and should limit liability to the amount Can of the professional liability insurance of 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-85 Unit 6.1 Contract Law Concurrent Liability in Tort & Contract Yikes! s The answer is now yes after s x Dominion chain (too complicated) x BC Rail (overhead wires, sc) x B.G.Checo v. BC Hydro (clearing bush) 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-86 Unit 6.1 Contract Law Dominion Chain v Eastern (OCA 1976) DC enters into a contract with both a contractor and an DC engineer to construct a factory. 5 years after the construction, the roof develops leaks, after the guarantee period. The trial judge dismissed the action against the contractor because of a clause limiting the contractor’s liability. But he concluded that the damage was 75/25 for the contractor/engineer, as they were both jointly and severally liable to the person suffering damage. severally However, overturned by the OCA. The separate contract However, allowed the contractor to escape liability. allowed Engineer takes to the SCC and loses 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-87 Unit 6.1 Contract Law BC Rail v. CP Consulting Services Contract was to design and build an overhead contact system in Contract a tunnel for electrically-powered locomotives. The services were expressly stated to be performed with reasonable skill, care and diligence. The contractor was also bound to ensure that any subs also conform to those services. The design was subbed out. The sub did not test or gather data of its own nor ask for reports of geological import which would have disclosed that there was an enormous amount of percolating water in the area. percolating 14 months later, there was extensive corrosion damage. Won as 14 this was a clear breach of the contract this 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-88 Unit 6.1 Contract Law B.G.Checo v. BC Hydro (SCC 1993) Contract to install transmission lines. The contract stipulated Contract that the right-of-way had to be cleared first. It was not and the contractor sued for breach and tort. the Considered negligent misrepresentation. BCH knew that their Considered sub had not cleared the brush adequately but they did not disclose this to the bidders disclose Won; BCH was concurrently liable in both contract and tort. Thus this is no longer a speculation! 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-89 Unit 6.1 Contract Law Duty of Honesty Fraud (section 380 of the Criminal Code of Fraud Canada) repudiates contract, damages awarded for tort of deceit plus jail awarded s Section 426 (principal-agent) and duty of Section good faith good s Bribes 3 Kickbacks 3 (both called secret commissions) 3 Section 121 illegal to give gifts to gov folks 3 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-90 Unit 6.1 Contract Law Construction Contracts Engineer acts as overseer between owner Engineer and contractor and s Can do the following s x Prepare payment certificates x Do sign-offs on work x If delays, determine the appropriateness of If extending time for completion extending 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-91 Unit 6.1 Contract Law Mo Duties x Decide if contractor should be put in breach x Determine values of contract changes x Determine if subsurface conditions are Determine significantly different from requirements significantly x In emergencies, control contractor for safety of In workers workers x Inspect progress of work and reject work Inspect outside the contract outside 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-92 Unit 6.1 Contract Law Cases s s s s s Must act “judicially” dictated by his own best Must judgment judgment If you interfere too much you can be sued for If damages; if not enough, for concurrent tortfeasing (D&D) (D&D) Brennan paving Kamlee and Oakville Croft v. Terminal (even though engineer made an Croft honest mistake) honest ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-93 2010-III-10 Unit 6.1 Contract Law Brennan Paving v Oshawa (OCA 1953) s Must act both as an agent for the owner and Must also as a quasi-judicial certifier between the 2 parties parties 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-94 Unit 6.1 Contract Law Kamlee v Oakville (SCC 1960) Oakville repudiated the contract because Oakville they did not like the decisions of the engineer engineer s SCC ruled “the decision of the engineer SCC shall be final and binding upon both contracting parties as to the interpretation of the specifications and as to the material and workmanship” workmanship” s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-95 Unit 6.1 Contract Law Croft v Terminal Construction (OCA 1959) s Ruled that the engineer’s figures would Ruled govern the payments, even if the engineer had made an honest mistake) had 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-96 Unit 6.1 Contract Law Demers v. Dufrense (SCC 1976) Contractor failed to put in reinforcing rods Contractor into a caisson and it exploded into s Engineer was required to supervise Engineer contractor, did not and was 50% culpable (cost of $1,400,000) (cost s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-97 Unit 6.1 Contract Law Detailed Specifications Keep notes s Never start without detailed drawings s Trident Cons v. Wardrop s x Faulty drawings by engineers lead to disaster. Faulty Contractor does not have to redo specs; that’s what the engineer is paid for what 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-98 Unit 6.1 Contract Law Primes and Subs Privity of contract s Each level is protected s Best to have provisions of main boilerplated Best down to subs down s Contractor is responsible for subs s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-99 Unit 6.1 Contract Law Claims of account of delay (owner does not Claims move fast enough) move s Claims of interference (subs on each others’ Claims turf) turf) s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-100 Unit 6.1 Contract Law Compliance with Notice Provisions If there are delays, the contractor MUST If notify the owner in writing as soon as they are seen (30 days) are s Corpex v. Canada (dam, damn bad soil) s See Doyle v. Carling too s But Stevenson v. Vancouver LRT and But “constructive notice”. Minutes deemed OK “constructive s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-101 Unit 6.1 Contract Law Corpex v Canada (SCC 1977) s s s A clause that said “reimbursement of additional clause expenses conditioned on written notice of the claim being filed within 30 days after noticing the adverse soil conditions. adverse Sure enough, the Crown did not provide accurate Sure information. Corpex waited until the end of the contract and sued. contract Lost because to the notice of 30 days provision ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-102 2010-III-10 Unit 6.1 Contract Law Doyle v Carling Okeefe (BCCA 1988) Claimed “impact costs” because of delays, Claimed interference, changes of work orders. interference, s Waited until the end of the contract to sue Waited and does not prevail. Must do it when the problem occurs problem s 2010-III-10 ©Dr. Michael Bennett Ethics, Law and Professionalism Winter 2010 6-1-103 ...
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