Rectification -
Is an exception to the PER, PER does not apply here.
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The judicial alteration of a written K to make it conform to the true intention of the parties when, in its original form, it did not reflect this.
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Equitable doctrine based on notion of relief from unjust enrichment. P has to prove parties were in complete agreement about the terms but that they were recorded incorrectly (look at INTENT).
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Burden on P to show clear and convincing evidence and rebut the inference of a bad bargain.
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Not mistake in assumptions, just recording mistakes.
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Rectification is to be distinguished from mistake in assumptions.
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Principle is thus limited to narrow circumstances where contracting parties agreed to all the terms but had made a mistake when putting these terms into writing.
USA v. Motor Trucks -
D contracted with P to make explosive shells for government. K had termination clause stipulating that if the war ended K was terminated. At end of war, settlement was negotiated which included amount in respect of land and buildings. A new K entered into regarding costs of buildings as D had to add facilities. In K had clause that stated all property listed in Schedule A upon termination goes to government BUT in the schedule lands and buildings not listed in K. P brings action to have them included (rectification).
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Court looked at whether intention of parties (via word and actions) was to include property. Here, Statute of Frauds requires written agreement for transfer of lands. If clause excluded b/c of mutual mistake, rectification can be ordered. If parties intended clause to be in K but inadvertently omitted, then rectification possible. Carelessness (or unilateral error) does not afford guilty party a defence. Found was intention to include them.
Minors
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Historically, K entered into by minors could not be enforced (void). Now: minors do not have the capacity to K but K to buy necessaries are binding if they pay reasonable price (arose from statute; Sale of Goods Act). Onus on person selling item to prove good is necessary. But K ratified after the child becomes an adult are enforceable.
Forfeitures and Penalty Clauses
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Penalty: Excessive liquidated damages that a K purports to impose on a party that breaches; fixed dmgs unrelated to actual loss. A penalty is a sum which a party agrees to pay or forfeit in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as security… to insure that the person injured shall collect his actual damages.
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Penalties are not enforceable UNLESS are equal to damages suffered.
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Penalty Test: is it excessive and punitive?
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Liquidated damages: an amount contractually stipulated as a reasonable estimation of actual damages to be recovered by one party if the other party breaches (often arise in non-competition clauses; i.e., restraints on trade); bona fide estimate of loss.
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Where the terms of a K specify a sum payable for non-performance, it is a question of construction whether this sum is to be treated as a penalty or as liquidated damages. The difference in effect is this: the amount recoverable in case of a penalty is not the sum named, but the damage actually incurred. The amount recoverable as liquidated damages is the sum named. A judge will not necessarily accept the phraseology of the parties; they may call the sum specified ‘liquidated damages’, but if the judge finds it to be a penalty, he will treat it as such. Job of the courts not the parties to decide the true sum that is payable.
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Q: What’s the difference b/w penalty and LD?
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A: (1) If the sum payable is so large as to be far in excess of the probable damage on breach then penalty. (2) If the same sum is expressed to be payable on any one number of different breaches of varying importance, then probably penalty. (3) Where a sum is expressed to be payable on a certain date, and a further sum in default of payment being made, this latter sum is prima facie a penalty, b/c mere delay in payment is unlikely to cause damage.
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Forfeiture: lose right under contract to recover deposit or part-payments. A provision stating that, under certain circumstances, one party must forfeit something to the other. Sometimes can be considered a penalty.
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Forfeiture Test: is it unconscionable?
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If there is forfeiture clause: buyer in default can not recover deposit $ unless the clause is a penalty or it would be unconscionable for seller to retain $ (Stockloser).
Shatilla v. Feinstein -
Shatilla bought wholesale dry good business from Feinstein with clause that Feinstein could not be involved in any competition in area for 5 years and if so, was to pay $10,000 for each breach (contract specifically stated sum was not a penalty). Feinstein did breach and Shatilla sought to recover on the covenant.
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Principle: law allows parties to fix amount of liquidated damages to be paid in case of breach but does NOT allow penalties.
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If genuine pre-estimate of losses then is liquidated damage. If sum is fixed in excess of damages, assume it is a penalty. Whether LD or penalty ultimately depends on the circumstances of each case.
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When the damages are capable of being repeatedly breached, presumption of penalty (Test: is payment applied for every breach?). Presumption can be rebutted by showing parties considered different amounts of damages per breach and arrived at fair estimate.
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When sum is said to be liquidated damages but is payable upon more than one breach, some of which results in inconsiderable damage, court may decline to construe it as liquidated damages but rather treat is as a penalty.
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Nature of breach is also important: if a manager of competitor then breach is serious. If he is a salesclerk, the breach is less serious.
H.F. Clarke Ltd. v. Thermidaire Corp. Ltd. -
Clarke agreed to be sole distributor of products made by Thermidaire and agreed not to sell competitors products. Clarke breached. K said in event of breach Clarke is to pay LD in amount equal to ‘gross trading profit’ realized through the sale of competitive products.
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SCC said was penalty because amount grossly excessive and punitive ($92,000 v $240,000) and just because P agreed to it foolishly does not mean “should be left to rue its unwisdom”.
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Does not matter what parties set out as LD if excessive or unreasonable-courts will substitute for a ‘genuine estimation of loss’.
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If you overestimate loss, it is seen as a penalty and it is void; if you underestimate loss, court will hold you to it. Is that fair?
Result is punitive not unequal bargaining power.
Stockloser v. Johnson [Forfeiture] -
Johnson sold a plant and machinery to Stockloser in installments. Clause said if P defaulted on a payment D could take back possession of property and keep all installments. P and D entered into similar second agreement. P breached. D gave notice of rescission on both K. P wants return of installments on the basis that the clause is penal in nature.
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Court: D not trying to extract punishment or extort; just trying keep $ he has in his possession. No extortion or oppression, just a forfeiture clause. Clause was penal in nature but not unconscionable for seller to retain $. LOOK AT WHAT INNOCENT PARTY LOST NOT WHAT OTHER PARTY GAINED.
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If there’s no forfeiture clause and there’s a breach: K remains open and buyer can perform, or if K is rescinded, buyer can recover $ spent minus cross claim for damages. Seller can sue for breach.
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If there is a forfeiture clause: party in default cannot recover deposit $ unless the clause is a penalty or it would be unconscionable for other party to retain $.
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Claim in equity is available when:
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Clause is penal in nature (as above cases)
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Would be unconscionable for seller to retain $ - sum is out of proportion.
In this case, neither and defendant can keep $.
Note: there is no difference between penalty and forfeiture-really same thing but have different tests; with penalty question is; is it excessive and punitive and with forfeiture, is element of unconscionability.
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