Contract Law — CA Study Note

01. Overview

Canadian contract law sits at the intersection of inherited common law tradition and an increasingly indigenous doctrinal development driven by the Supreme Court of Canada. Its foundations — offer and acceptance, consideration, certainty of terms, and the primacy of bargain — were settled in a series of late nineteenth- and early twentieth-century decisions of the Supreme Court that mapped closely onto English authority. Since the 1990s, and with accelerating momentum after Bhasin v Hrynew [2014] 3 SCR 494, the Supreme Court has pursued a distinctly Canadian path: recognising an organising principle of good faith performance, curbing the worst abuses of standard-form contracting through unconscionability, and refining the interpretive methodology for commercial contracts in Sattva Capital Corp v Creston Moly Corp [2014] 2 SCR 633.

This note covers the core syllabus topics: offer and acceptance; consideration; certainty; the Bhasin duty of honest performance; breach and remedies; and unconscionability as elaborated in Uber Technologies Inc v Heller [2020] 2 SCR 179. Throughout, the foundational Supreme Court cases listed above anchor the doctrinal narrative. Students should aim to move fluently between classical principle, modern development, and the critical debates those developments have generated.

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02. Historical Development

The inherited framework

Canadian private law inherited the classical English law of contract almost wholesale following Confederation. The early Supreme Court cases reflect that inheritance directly. In Webber v Cogswell (1877) 2 SCR 15, the Court treated the existence of a valid offer, acceptance, and consideration as non-negotiable prerequisites of enforceability, applying the analysis that would have been familiar to any English common-law court of the same era. Similarly, Cosgrave v Boyle (1881) 6 SCR 165 applied orthodox offer-and-acceptance reasoning without any distinctly Canadian gloss.

The late Victorian and Edwardian Supreme Court refined these principles across a succession of commercial disputes. Kelly v Imperial Loan & Investment Co (1885) 11 SCR 516 engaged questions of contractual capacity and the conditions under which an agreement is binding, establishing that capacity is a threshold requirement inseparable from formation. Bell v Macklin (1887) 15 SCR 576, Dunsmuir v Loewenberg, Harris & Co (1900) 30 SCR 334, and Hastings v Le Roi No 2 Ltd (1903) 34 SCR 177 each elaborated on the mechanics of acceptance and the timing and communication rules that govern when a contract comes into existence.

Early twentieth-century consolidation

The interwar period saw Canadian courts consolidating what was, in substance, a complete classical framework. Larson v Boyd (1919) 58 SCR 275 and Clark v Northern Shirt Co (1918) 57 SCR 607 addressed the intersection of offer, acceptance and conduct, affirming that acceptance must be unequivocal and correspond precisely with the terms of the offer. Landels v Christie [1923] SCR 39 and Ball v Gutschenritter [1925] SCR 68 examined consideration and the circumstances in which a promise will or will not be supported by adequate bargained-for exchange. Lingle v Knox Bros Ltd [1925] SCR 659 further confirmed that consideration must move from the promisee and must be something of legal value, not a mere moral obligation.

Mid-century and post-war developments

Langlois v Canadian Commercial Corporation [1956] SCR 954 and Chartrand v Tremblay [1958] SCR 99 introduced more searching examination of certainty of terms and the capacity of courts to supply missing contractual content, foreshadowing the later doctrine of implied terms. Brown v Gentleman [1971] SCR 501 and Cominco Limited v Bilton [1971] SCR 413 addressed breach and the measurement of damages, consolidating the compensatory principle.

The modern era

The trajectory changed dramatically with London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299, which extended the benefit of a limitation clause to employees of a contracting party, cutting through the strict privity doctrine. This willingness to subordinate formal doctrine to commercial good sense set the tone for what followed. Bhasin v Hrynew [2014] 3 SCR 494 then completed the transformation by articulating good faith as an organising principle of Canadian contract law, and Uber Technologies Inc v Heller [2020] 2 SCR 179 deployed unconscionability as a robust check on oppressive standard-form contracts.

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03. Core Principles

Offer and acceptance

A contract requires a meeting of minds manifested by an offer — a definite promise to be bound on specific terms — and an unconditional acceptance of those exact terms. The mirror-image rule, applied in Clark v Northern Shirt Co (1918) 57 SCR 607 and confirmed in Larson v Boyd (1919) 58 SCR 275, requires that acceptance must not introduce new terms; any deviation constitutes a counter-offer which terminates the original offer.

Acceptance must be communicated to the offeror. Hastings v Le Roi No 2 Ltd (1903) 34 SCR 177 confirmed that an uncommunicated intention to accept has no legal effect. An offer may be revoked at any time before acceptance, provided revocation is communicated: Dunsmuir v Loewenberg, Harris & Co (1900) 30 SCR 334.

Where an offeror stipulates that acceptance may be made by conduct or performance, acceptance is complete upon the performance of the stipulated act: Craig v Samuel (1895) 24 SCR 278. The postal acceptance rule — acceptance by post is effective on posting — was acknowledged in the early Supreme Court cases, though its application to electronic communications has been governed since the early 2000s by provincial electronic commerce legislation.

Consideration

Consideration is the exchange that distinguishes a contract from a bare promise. It must be sufficient (of some legal value) but need not be adequate (commercially equivalent). Early Supreme Court authority in Brownell v Brownell (1909) 42 SCR 368 confirmed that courts will not inquire into the adequacy of consideration, provided something of legal value has passed. Lingle v Knox Bros Ltd [1925] SCR 659 and Ball v Gutschenritter [1925] SCR 68 reinforced that past consideration — an act already performed before the promise is made — will not support the promise.

The rule in Foakes v Beer (1884) 9 App Cas 605 (HL) — that part-payment of a debt is not good consideration for a promise to accept it in full satisfaction — has been applied in Canada, though the equitable doctrine of promissory estoppel, rooted in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 and confirmed in principle in Canadian courts, can preclude the promisor from departing from a represented position where it would be inequitable to do so.

Certainty of terms

An agreement is unenforceable if its terms are too uncertain to permit the court to give them effect. Chartrand v Tremblay [1958] SCR 99 illustrates the principle: where a material term is left entirely open or subject to future agreement, the court may decline to treat the arrangement as a binding contract. The threshold, however, is not impossibly high — courts will imply terms to give business efficacy to a commercially sensible agreement, and Langlois v Canadian Commercial Corporation [1956] SCR 954 recognised that reasonable certainty, rather than perfect precision, is the standard.

Privity and its modification

The classical doctrine that only parties to a contract may sue on it or be burdened by it was applied without qualification in the early Supreme Court cases. London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299 represents the most significant judicial departure: the Supreme Court held by majority that employees of a warehousing company could rely on a limitation of liability clause in the contract between the company and its customer. Justice Iacobucci (for the majority) reasoned that the traditional rule produced injustice in modern commercial contexts and that the employees, as the very parties the clause was intended to protect, fell within a recognised exception. The decision stopped short of abolishing privity but created a principled exception for employees and, by extension, potentially for other closely connected third parties.

Good faith performance

Bhasin v Hrynew [2014] 3 SCR 494 is the foundational modern authority. The Supreme Court (per Cromwell J) held that there is an organising principle of good faith in Canadian contract law, and that from this principle flows a duty on each contracting party to perform their contractual obligations honestly. On the facts, Can-Am, the franchisor, had actively and dishonestly induced Bhasin (its dealer) to continue performing under an agreement that Can-Am had already decided not to renew — a breach of the honest performance duty. The organising principle does not impose a general duty of disclosure or require parties to subordinate their own interests; it does, however, require them not to actively deceive their counterparty.

Unconscionability

Uber Technologies Inc v Heller [2020] 2 SCR 179 revitalised unconscionability doctrine in the standard-form contracting context. The Court held that an arbitration clause in Uber's standard driver agreement — which required drivers to arbitrate disputes in the Netherlands under International Chamber of Commerce rules, at a filing cost that dwarfed the claimant's annual income — was unconscionable and thus unenforceable. The test for unconscionability, as restated by the majority, requires: (1) inequality of bargaining power; and (2) an improvident bargain resulting from that inequality. Both limbs were satisfied on the facts.

Breach and remedies

Breach occurs when a party fails to perform a contractual obligation without lawful excuse. The consequences of breach depend on the classification of the term: a breach of a condition entitles the innocent party to treat the contract as discharged and to claim damages; a breach of a warranty sounds only in damages; an innominate term is assessed by the gravity of the consequences. Brown v Gentleman [1971] SCR 501 and Cominco Limited v Bilton [1971] SCR 413 confirm the compensatory principle: damages are assessed to put the claimant in the position they would have occupied had the contract been performed. Remoteness limits recovery to losses that were a reasonably foreseeable consequence of the breach at the time of contracting.

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04. Statutory Framework

Canadian contract law is primarily judge-made, but several statutory regimes shape its application.

Sale of Goods Acts — each province has enacted legislation (modelled on the English Sale of Goods Act 1893) implying conditions and warranties as to title, description, fitness for purpose, and merchantable quality into contracts for the sale of goods. These provisions are not easily excluded by standard-form clauses, and their interaction with the Uber unconscionability framework is instructive.

Consumer Protection Acts — provincial consumer protection statutes (for example, Ontario's Consumer Protection Act, 2002, SO 2002, c 30, Sch A) impose mandatory terms, disclosure obligations, and cooling-off rights. They frequently render arbitration clauses void in consumer contracts, limiting but not eliminating the significance of Uber in pure consumer contexts.

Electronic Commerce Acts — provincial electronic commerce legislation, implementing principles from the UNCITRAL Model Law on Electronic Commerce, governs offer, acceptance, and the formation of contracts conducted electronically, specifying when electronic messages are deemed sent and received.

Limitations Acts — provincial limitations statutes prescribe the limitation periods within which actions in contract must be commenced. In Ontario, the Limitations Act, 2002, SO 2002, c 24, Sch B, imposes a basic two-year limitation period running from the date the claim was discovered.

The Civil Code of Québec — in Québec, obligations arising from contracts are governed by the Civil Code of Québec, CQLR c CCQ-1991, which codifies good faith obligations directly (arts 6, 7, and 1375 CCQ). The Bhasin organising principle operates in the common law provinces; in Québec, good faith is an express statutory obligation under the Code. This divergence is examined further in section 08.

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05. Landmark Cases

Bhasin v Hrynew [2014] 3 SCR 494

The most important contract law decision of the modern era. Cromwell J, for a unanimous Court, identified good faith as an "organising principle" — not itself a cause of action, but a principle from which more specific duties arise. The duty of honest performance is one such duty: it is a general doctrine of contract law, not merely an implied term, and it cannot be excluded by the parties. The case is essential on every contract law examination.

Uber Technologies Inc v Heller [2020] 2 SCR 179

A five-justice majority (Abella and Rowe JJ, writing jointly, with Wagner CJ and Karakatsanis and Martin JJ concurring in the result) held that the arbitration clause in Uber's standard agreement was unconscionable and therefore unenforceable. The clause systematically prevented Heller (and similarly situated drivers) from accessing any meaningful dispute resolution mechanism. The Court's restated unconscionability test — inequality of bargaining power plus improvident bargain — has wide application beyond arbitration clauses.

London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299

The Supreme Court carved a principled exception to privity, allowing employees to invoke a limitation clause for the benefit of which they were clearly intended third-party beneficiaries. Iacobucci J's analysis prefigured the purposive, contextual approach to contractual interpretation later confirmed in Sattva.

Sattva Capital Corp v Creston Moly Corp [2014] 2 SCR 633

Although principally an arbitration appeal, Sattva reoriented Canadian contractual interpretation methodology. The Court held that contractual interpretation is generally a question of mixed fact and law, and that the "surrounding circumstances" known to the parties at the time of contracting are admissible as interpretive context — even for written commercial agreements — without displacing the primacy of the text. This contextual approach shapes how courts approach ambiguous terms, implied terms, and the operation of entire agreement clauses.

Hastings v Le Roi No 2 Ltd (1903) 34 SCR 177

An early but doctrinal important case on the communication of acceptance. The Court held that an offeror must actually receive — or at least, that acceptance must be communicated — before a contract is complete, setting a boundary on what would later be elaborated as the postal acceptance rules and their modern equivalents.

Brown v Gentleman [1971] SCR 501 and Cominco Limited v Bilton [1971] SCR 413

These twin decisions of the early 1970s confirmed the compensatory principle in damages: the measure of recovery is the loss actually caused by the breach, assessed at the time of breach, limited to reasonably foreseeable consequences. Cominco in particular addressed the assessment of loss in commercial contracts, reinforcing that expectation damages (loss of bargain) are the primary remedy.

Larson v Boyd (1919) 58 SCR 275

Clarified the mirror-image rule and the effect of a counter-offer: an offeree who responds to an offer by proposing different terms destroys the original offer and cannot subsequently purport to accept it.

Landels v Christie [1923] SCR 39

Addressed consideration and the rule against past consideration in the context of a commercial arrangement, affirming that a promise made in exchange for something already given is unsupported by consideration.

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06. Doctrinal Analysis

The architecture of good faith after Bhasin

Bhasin established a two-level structure. At the higher level sits the organising principle: good faith is a standard underlying all contracts, informing the implication of terms, the interpretation of obligations, and the development of new duties. At the lower level sit specific doctrines through which the principle operates: the duty of honest performance (confirmed as a general doctrine in Bhasin itself), good faith termination obligations (addressed in subsequent cases), and potentially further duties yet to be recognised.

The duty of honest performance does not require disclosure of all material information; it prohibits active deception. The Court in Bhasin was careful to distinguish honesty from a broader duty of good faith performance akin to the Civilian obligation — the latter would require parties to act in the interests of the counterparty, whereas the former merely requires them not to lie. Critics (notably Professor Angela Swan) have questioned whether this distinction is as sharp as the Court suggests, and whether Bhasin effectively introduces a Civilian-adjacent obligation through common law reasoning.

Unconscionability: from Kelly to Uber

Kelly v Imperial Loan & Investment Co (1885) 11 SCR 516 engaged the foundational idea that equity will not assist a party who has taken unconscionable advantage of another's incapacity or vulnerability. The classical equitable doctrine required extreme vulnerability (such as mental incapacity or intoxication) combined with a substantially unfair bargain. Uber v Heller modernised this: the Court was willing to find the requisite inequality of bargaining power in the structural features of standard-form platform-economy contracts, where one party drafts the contract, the other cannot meaningfully negotiate, and the information asymmetry is acute. The shift from exceptional relief to a more generally available doctrine is significant.

Consideration and the adequacy rule

The proposition that courts will not inquire into adequacy of consideration — so long as something of legal value passes — creates tension with unconscionability, which effectively permits courts to examine whether a bargain was fair. Brownell v Brownell (1909) 42 SCR 368 and Ball v Gutschenritter [1925] SCR 68 illustrate the classical position. The tension is resolved, imperfectly, by treating the adequacy-no-inquiry rule as the default and unconscionability as a supervening equitable intervention applicable only where the structural conditions (inequality, improvidence) are both present.

Privity, third parties, and the London Drugs exception

London Drugs [1992] 3 SCR 299 created a principled but bounded exception to privity. Iacobucci J identified two conditions: (i) the limitation clause must, expressly or by implication, extend its benefit to the employees; and (ii) the employees must have been acting in the course of their employment and doing the very work contemplated by the contract. The exception has been applied cautiously. It has not been extended to create a general third-party enforcement right, and legislative reform (such as the Ontario Third Party Rights (Contracts) Act approach, which has been periodically recommended but not enacted at time of writing) has not supplanted it.

Certainty and implication of terms

The Supreme Court's treatment of certainty in Chartrand v Tremblay [1958] SCR 99 and Langlois v Canadian Commercial Corporation [1956] SCR 954 illustrates the line between an agreement that is merely incomplete (which a court may complete by implying terms) and one that is so uncertain as to be void. The Sattva methodology, which directs courts to read contracts against their commercial context and the parties' objectively ascertained intentions, reduces the number of contracts that fail for uncertainty, because courts are empowered to resolve apparent ambiguities by reference to surrounding circumstances.

Contractual interpretation: Sattva

Sattva Capital Corp v Creston Moly Corp [2014] 2 SCR 633 holds that contractual interpretation is ordinarily a question of mixed fact and law, attracting a deferential standard of review on appeal from arbitral awards. More importantly for contract doctrine, the Court endorsed a contextual approach: the goal is to ascertain the objective intention of the parties from the words of the contract, read in the context of the surrounding circumstances. Evidence of surrounding circumstances is admissible to illuminate the meaning of the text but cannot be used to contradict or vary clear language. Entire agreement clauses accordingly remain effective to exclude pre-contractual representations, but do not render surrounding circumstances wholly irrelevant to interpretation.

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07. Debates & Criticism

Does Bhasin go far enough — or too far?

The academic reception of Bhasin divides along broadly two lines. On one side, scholars such as Professor Lionel Smith (McGill) argue that the recognition of good faith as an organising principle is a modest, overdue acknowledgment of what courts had long been doing sub rosa through implied terms and interpretive generosity. On this view, Bhasin simply makes explicit what was already implicit, and the limitation of the positive duty to honest performance is appropriate judicial restraint.

On the other side, Professor Angela Swan has argued (in her leading Canadian contract law text) that the distinction between an "organising principle" and a rule of law is unstable, and that once the Court commits to good faith as foundational, it will prove difficult to prevent lower courts from expanding it into a general duty to act reasonably or to subordinate one's interests to those of the counterparty. The subsequent evolution of Bhasin in lower courts — some of which have found good faith violations on facts the Supreme Court might not have endorsed — lends credibility to this concern.

A third position, associated with comparative scholars, questions whether the common law/civil law divergence the Court sought to preserve is defensible. If Québec law (under the Civil Code) imposes a genuine duty of good faith performance (arts 6, 7, 1375 CCQ), and if the common law duty is converging toward it, why maintain the formal distinction?

The unconscionability debate post-Uber

Uber v Heller attracted significant commentary on whether the majority's restated test represents a coherent doctrinal advance or an intuition-driven expansion. Justice Brown (dissenting in the result on different grounds) expressed scepticism about the majority's willingness to use unconscionability to invalidate an arbitration clause that had not yet been shown to be procedurally defective in operation. The deeper criticism is that the Court used a private law doctrine (unconscionability) to achieve what is better characterised as a regulatory objective — protecting a category of workers from an abusive contracting practice — and that contract doctrine is an imprecise tool for that purpose.

Consideration and the reform question

Consideration as a doctrinal requirement has long been criticised as arbitrary — it excludes gratuitous but commercially significant promises from enforcement for reasons disconnected from the reasonable expectations of the parties. The Law Reform Commission of Canada examined this question; several provincial law reform bodies have recommended moving toward an intention-to-be-legally-bound test that would reduce reliance on the technicalities of consideration. No province has yet enacted such a reform, and the Supreme Court has declined to abolish consideration judicially, leaving the doctrine intact but subject to qualification through estoppel and good faith.

Standard-form contracts and the limits of assent

Uber v Heller is part of a broader judicial and scholarly conversation about whether classical offer-and-acceptance reasoning can cope with mass-market standard-form contracting. If a party signs (or clicks through) a document of which they cannot realistically have understood the terms — a phenomenon courts have long acknowledged — the fiction of mutual assent strains credibility. The alternative — treating standard-form contracts as presumptively governed by reasonable implied terms rather than the drafter's chosen terms — risks undermining contractual certainty. The Court in Uber steered a middle course: it did not re-write the standard form but used unconscionability to excise the most oppressive clause.

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08. Comparative Perspective

Québec civil law

The most significant comparative dimension for Canadian students is the Québec civil law. Under the Civil Code of Québec, articles 6, 7, and 1375 impose obligations of good faith on parties to a contract at every stage — formation, performance, and termination. Unlike the common law organising principle in Bhasin, the Civilian obligation is directly enforceable as such, not merely through derivative specific duties. Canadian constitutional arrangements and the bijural federal legal system mean that federal legislation must respect both traditions, and that Supreme Court decisions such as Bhasin — whose factual matrix was drawn from Alberta common law — do not automatically alter Québec law.

The United States: Restatement and the UCC

American law does not recognise consideration-free enforcement of promises to the same limited extent that Canadian promissory estoppel does, but the UCC § 1-304 (formerly § 1-203) imposes a duty of good faith in the performance and enforcement of every contract governed by the Code. The Restatement (Second) of Contracts § 205 extends a parallel obligation to all contracts. Notably, American courts have generally treated good faith as implying a duty not to act in bad faith rather than an affirmative duty of positive co-operation — an approach broadly consistent with the Bhasin formulation, though reached through different doctrinal channels.

England and Australia

English law has, to date, declined to recognise an overarching duty of good faith in contract performance, maintaining instead that implied terms and specific equitable doctrines (such as estoppel and relief against forfeiture) address particular instances of bad faith conduct without requiring a general principle. The House of Lords decision in Walford v Miles [1992] 2 AC 128 — rejecting a general duty to negotiate in good faith — remains authoritative in England, and the English courts have declined to follow Bhasin. Australian courts occupy an intermediate position: the New South Wales Court of Appeal in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 implied good faith terms in construction contracts, but the High Court has not definitively settled the question.

International instruments

The UNIDROIT Principles of International Commercial Contracts (2016 edition) and the United Nations Convention on Contracts for the International Sale of Goods (CISG) — to which Canada is a party — both recognise good faith as a general principle. CISG art 7(1) directs that the Convention be interpreted with regard to the observance of good faith in international trade. This international convergence lends support to the direction taken in Bhasin, though the doctrinal mechanisms remain distinct.

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09. Essay Approach

A strong contract law essay will typically require the student to (a) identify the correct doctrinal framework, (b) apply it rigorously to the facts, (c) note unresolved tensions, and (d) reach a justified conclusion. The following structured approaches are offered for each major topic.

Offer and acceptance questions

1. Identify whether there is a definite offer — distinguish invitations to treat from offers (Cosgrave v Boyle; Webber v Cogswell).
2. Examine acceptance: is it unconditional and in the exact terms of the offer? (Mirror-image rule: Clark v Northern Shirt Co; Larson v Boyd.) Has it been communicated? (Hastings v Le Roi No 2 Ltd.)
3. Address revocation: has the offer been revoked before acceptance? (Dunsmuir v Loewenberg, Harris & Co.)
4. Consider the mode of acceptance — conduct (Craig v Samuel), post, or electronic means.

Consideration questions

1. Establish whether something of legal value moved from the promisee (Lingle v Knox Bros Ltd; Ball v Gutschenritter; Brownell v Brownell).
2. Check for past consideration (Landels v Christie).
3. Apply promissory estoppel if consideration is absent but a clear representation has been relied upon.
4. Flag whether Bhasin's good faith principle could supplement or qualify a strict consideration analysis.

Good faith / Bhasin questions

1. Identify the organising principle and distinguish it from a general cause of action.
2. Isolate the specific duty in issue: honest performance, or a more developed duty (disclosure, good faith termination).
3. Apply the facts: was there active deception or merely the exercise of a legitimate contractual right? Bhasin itself drew a firm line — exercising a contractual non-renewal right without disclosure is not itself a breach; lying about the reason for doing so is.
4. Consider whether the duty can be excluded. The Court in Bhasin indicated it cannot; but the outer limits of this proposition (what precisely cannot be excluded) remain underdeveloped.

Unconscionability / Uber questions

1. State the two-part test: inequality of bargaining power + improvident bargain.
2. Assess inequality: is this a standard-form consumer or service agreement? Is there informational asymmetry? Uber v Heller is the paradigm; earlier authority (Kelly v Imperial Loan & Investment Co) addressed incapacity-based vulnerability.
3. Assess improvidence: does the impugned term substantially advantage the stronger party at the expense of the weaker in a manner inconsistent with reasonable expectations?
4. Address the remedy: does the unconscionable term void the whole contract or can it be severed?

Breach and remedies questions

1. Classify the term breached: condition, warranty, or innominate term.
2. Identify the available remedies: damages (expectation, reliance, restitution), specific performance, or injunction.
3. Apply the compensatory principle (Brown v Gentleman; Cominco Limited v Bilton): put the innocent party in the position they would have been in had the contract been performed.
4. Address remoteness and mitigation.

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10. Exam Traps

1. Conflating the organising principle with a cause of action. Bhasin explicitly holds that good faith is an organising principle, not itself a free-standing cause of action. The examiner will award marks for recognising this distinction and identifying the specific duty (e.g., honest performance) that gives rise to liability.

2. Treating past consideration as valid. A promise made in return for something already given or done is unsupported by consideration: Landels v Christie [1923] SCR 39. Students frequently overlook the timing requirement.

**3. Applying the Uber unconscionability test to ordinary commercial contracts between sophisticated parties.** The two-part test in Uber v Heller presupposes structural inequality; it does not apply between commercial parties of roughly equal bargaining strength. Misapplying it in that context will signal a failure to understand the doctrine's scope.

4. Assuming privity has been abolished. London Drugs [1992] 3 SCR 299 created a principled exception for employees in defined circumstances; it did not abolish privity generally. The trap is to state that third parties can always enforce contracts for their benefit.

5. Ignoring Québec law on a national law paper. In any question that could be set in Québec, the Civil Code governs obligations. The good faith obligation under arts 6, 7, and 1375 CCQ is directly enforceable; it is not mediated through an "organising principle" framework.

6. Applying the mirror-image rule without recognising the battle of the forms. Where each party submits its own standard terms, the classical mirror-image rule produces the "last shot" doctrine. This may be the correct analysis on the facts — but students must engage with it, not ignore the forms entirely.

7. Confusing the communication of acceptance with the postal rule. The postal rule is an exception; the general rule is that acceptance is effective when received. Hastings v Le Roi No 2 Ltd (1903) 34 SCR 177 confirms communication to the offeror is the default requirement.

8. Overlooking certainty as a formation issue. An agreement on all essential terms is necessary for contractual enforceability. If a question leaves a material term to be agreed later, consider whether the agreement fails for uncertainty under Chartrand v Tremblay or whether the court can save it by implying a term.

9. Misidentifying the standard of review in contractual interpretation. After Sattva, contractual interpretation in the context of an arbitral appeal attracts a deferential standard. On a direct court action, it remains a question of mixed fact and law. Students who simply state "de novo review" without qualification will lose marks.

10. Assuming a limitation of liability clause always fails against third parties. London Drugs establishes that it can succeed if the clause is intended by its terms to benefit employees acting within the scope of employment. The reflex application of privity as a bar is wrong on those facts.

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11. Q&A

Q1. Explain the distinction between an "offer" and an "invitation to treat" and explain why it matters.

An offer is a definite promise to be bound on specified terms, made with the intention that it shall become a binding contract on acceptance. An invitation to treat is a preliminary communication inviting the other party to make an offer — it cannot be accepted to form a contract. The distinction matters because only an offer can be accepted: if what purports to be an acceptance is in truth an offer (because the original communication was only an invitation to treat), no contract has been formed. The early Supreme Court cases, including Cosgrave v Boyle (1881) 6 SCR 165 and Webber v Cogswell (1877) 2 SCR 15, confirm that courts look to the objective intention of the party making the communication, not to their subjective state of mind, to determine on which side of the line it falls.

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Q2. Can a party to a contract lie to its counterparty about a material matter without breaching any contractual obligation?

Not in Canadian law after Bhasin v Hrynew [2014] 3 SCR 494. The Supreme Court there held that the duty of honest performance is a general doctrine of Canadian contract law: a party must not lie or knowingly mislead its counterparty about matters directly linked to the performance of their contract. On the facts, the franchisor's dishonest concealment of its intention not to renew was a breach of this duty, even though the non-renewal itself was contractually permitted. The duty cannot be excluded by the contract. Note, however, that Bhasin does not impose a duty of disclosure or require a party to volunteer information; it prohibits active deception only.

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Q3. Anna agrees with Bob that Bob will paint her house for $5,000. Before Bob begins, Anna tells him she cannot pay more than $4,500 and Bob agrees. Bob completes the painting. Can Bob sue for the outstanding $500?

This is the classic consideration problem arising from modification of a contract. Bob's promise to accept $4,500 was given without fresh consideration from Anna — she was already obliged to pay $5,000, and Bob's performing the original work was past consideration relative to the new promise. Under orthodox consideration doctrine (Lingle v Knox Bros Ltd [1925] SCR 659; Ball v Gutschenritter [1925] SCR 68), Anna's "promise" to pay only $4,500 is unsupported by consideration and is not binding: Bob can sue for the full $5,000. However, if Anna can establish that she relied on Bob's promise to her detriment, promissory estoppel may arise and may preclude Bob from insisting on the original sum, at least temporarily. The application of Bhasin's good faith principle does not independently resolve the consideration issue, but it might inform the court's assessment of whether Bob acted in good faith in subsequently demanding the full sum.

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Q4. A standard-form employment agreement contains a clause requiring all disputes to be resolved by arbitration in a foreign jurisdiction at a cost that effectively precludes the employee from bringing a claim. Is the clause enforceable?

Applying Uber Technologies Inc v Heller [2020] 2 SCR 179, the clause is likely unconscionable and unenforceable. The two-part test requires: (1) inequality of bargaining power, and (2) an improvident bargain flowing from that inequality. An employee presented with a take-it-or-leave-it standard form contract is in a position of structural inequality. An arbitration clause that imposes prohibitive filing costs — effectively immunising the stronger party from accountability — is improvident from the employee's perspective in a manner directly analogous to the facts of Uber. The clause should be severed; the remainder of the agreement will stand.

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**Q5. How does the Sattva approach to contractual interpretation differ from the classical parol evidence rule?**

Under the classical parol evidence rule, a written contract is taken to embody the entire agreement of the parties, and extrinsic evidence is inadmissible to add to, vary, or contradict its terms. Sattva Capital Corp v Creston Moly Corp [2014] 2 SCR 633 does not abolish the parol evidence rule but qualifies it in respect of the "surrounding circumstances" known to both parties at the time of contracting. Evidence of such circumstances is admissible to assist in identifying the meaning of the language the parties used — it illuminates the text rather than replacing it. It does not, however, allow a party to adduce evidence of prior negotiations or subsequent conduct for the purpose of establishing what the contract means. Entire agreement clauses remain effective to exclude pre-contractual representations as a matter of contract, though they do not render all surrounding circumstances inadmissible as a matter of interpretation methodology.

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12. Further Reading

Case law

• Bhasin v Hrynew [2014] 3 SCR 494 — the starting point for any examination of good faith in Canadian law; read the full reasons of Cromwell J.
• Uber Technologies Inc v Heller [2020] 2 SCR 179 — the leading modern unconscionability authority; the joint reasons of Abella and Rowe JJ and the concurring reasons of Karakatsanis and Martin JJ together illuminate the scope of the doctrine.
• London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299 — essential reading on privity and the principled exception for employees.
• Sattva Capital Corp v Creston Moly Corp [2014] 2 SCR 633 — the modern framework for contractual interpretation.

Secondary sources

• Angela Swan, Jakub Adamski & Annie Y Na, Canadian Contract Law (4th ed, LexisNexis, 2018) — the leading treatise; indispensable for doctrinal analysis and academic commentary on Bhasin.
• Stephen M Waddams, The Law of Contracts (7th ed, Canada Law Book, 2017) — authoritative and historically oriented; especially valuable for consideration and formation.
• John D McCamus, The Law of Contracts (2nd ed, Irwin Law, 2012) — rigorous doctrinal analysis, particularly strong on good faith and remedies.
• David Lametti, "The (Virtue) Ethics of Private Property: Underpinnings and Implications" — for comparative and theoretical context on good faith and the civilian tradition.
• Lionel Smith, "The Rationality of Good Faith" — a defence of the Bhasin approach from a leading comparativist perspective.

Legislation

• Civil Code of Québec, CQLR c CCQ-1991, arts 6, 7, 1375 — good faith obligations in Québec.
• Consumer Protection Act, 2002, SO 2002, c 30, Sch A — Ontario's consumer contracting framework.
• Limitations Act, 2002, SO 2002, c 24, Sch B — Ontario limitation periods.
• United Nations Convention on Contracts for the International Sale of Goods (CISG), arts 7, 14–23 — Canada's international sale of goods obligations and good faith in international trade.
• UNIDROIT Principles of International Commercial Contracts (2016 edition), arts 1.7, 2.1.1–2.1.22 — a useful comparative and theoretical reference point.