Case

Meunier v. Cloutier,1984 CanLII 1929 (Ont. H. Ct. J.)

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In 1977, the plaintiff, Meunier, agreed to purchase St. Charles Hotel (Timmins) Limited for $190,000. The deal included a tavern and hotel in Timmins, Ontario. In coming to an agreement, both parties used the same lawyer, who previously worked as the legal advisor to the defendant, Cloutier. The purchaser did not seek out the services of a second lawyer.

The court quoted the following clause from the final agreement, which was executed in the lawyer's office:

Cloutier covenants that he will not, for a period of five (5) years from the date hereof, either directly or indirectly, carry on or be engaged in as principal, partner, associate or employee in a tavern or hotel business, within the corporate limits of the City of Timmins, and in case of a breach of this covenant, Cloutier shall pay to Meunier the sum of Fifty Thousand ($50,000.00) Dollars as liquidated damages and not as a penalty.

Meunier's recollection of when the parties met to execute the agreement included his response to this non-competition clause when the lawyer read it out loud. Meunier said that he was happy with the clause because it afforded him some protection. The court viewed Meunier's recollection as the more plausible.

After the sale, Cloutier moved to Florida where he met and married his second and present wife, May Cloutier. The Cloutiers lived a few years in Florida, during which time they took part in different business ventures. The proceeds from these ventures were split evenly between them. In 1980, they returned to Canada.

Cloutier accompanied his wife on a search for a new business in Sudbury, Kapuskasing, and, lastly, Timmins. Nothing came of their search in either Sudbury or Kapuskasing, and they eventually purchased, renovated, and opened the Maple Leaf Hotel business in Timmins in December, 1981.

The defendant's wife, May Cloutier, was the legal owner of the hotel. She was also aware of the non-competition clause in the sale agreement for the St. Charles Hotel, but she denied that her husband had any interest in the new hotel at all. However, the Cloutiers did admit that the defendant completed work required by the Liquor Licence Board to transfer licences of the new hotel. He also worked on renovations to the hotel, which included the basement, where a new dining room was opened. In addition, he set up the books for his wife in December, 1981, when the hotel began its operations.

The court found that the defendant was not involved in the operation of the business from the outset. He did carpentry work and was put on the payroll in late 1980 or early 1981, but he did most of the things complained of, which are normally associated with the running of a hotel, beginning in July, 1981, when his wife took ill. Even then, someone else was, officially at least, engaged in the management of the business.

The court found that most of the evidence presented led it to conclude that there was competition, and Meunier could have been affected. The period of time that the court identified was the nine months beginning around July, 1981, until the end of the five-year period in the agreement. During this time, Cloutier ordered supplies and was regularly present at the hotel, instructing staff, seating customers, and signing cheques and bank documents.

Cases and Discussion Questions

Case

Meunier v. Cloutier,1984 CanLII 1929 (Ont. H. Ct. J.)

Breach of Contract

What is breach of contract? What was the breach of contract alleged in this case?

1.Zippy Print Enterprises Ltd. v. Pawliuk, 1994 CanLII 1756 (BC CA)

[Note: Your instructor may assign this case as a Shared Writing activity.]

The defendants expressed interest in purchasing a Zippy Print franchise. They were presented promotional materials and met with a Zippy Print representative who told them that Zippy Print would conduct an in-depth market survey and feasibility study and investigate the market and competition in Prince George. The defendants were also assured that they would receive substantial support in training, in advertising, and in office management and that the purchasing of supplies would be done at a significantly reduced price through Zippy Print. These representations were incorrect, but the defendants relied upon them in making their decision to enter the franchise.

From the very beginning the gross sales were not as high as had been represented in the pro-forma and the cost of sales was much higher. The franchise ran into cash flow problems and almost immediately fell behind in its payments to Zippy Print. Once the arrears exceeded $50 000, Zippy Print terminated the licence agreement and sued for the arrears. The defendants counterclaimed alleging that the representations contained in the pro-forma statement and the representations regarding gross sales and cost of sales were made negligently.

The plaintiffs responded that the exclusion clause built into the contract between the parties excused liability for any misrepresentation. The exclusion clause stated that there were no representations other than those contained on the written agreement itself, but this provision had not been specifically brought to the attention of the purchasers.

Explain the arguments available to both parties. Were representations made that were subsequently relied upon? Must a party who wishes to limit its liability have to bring those limitations to the attention of the opposite party? What remedies might be sought by the defendants in this case?

2.Teleflex Inc. v. I.M.P. Group Ltd., (1996), 149 N.S.R. (2d) 355 (NS CA); 1996 CanLII 5603

Teleflex Inc., an American company manufacturing aircraft components, knew that I.M.P. Group Ltd. was negotiating with the Brazilian government to carry out a program for the turbinization of its Tracker aircraft fleet. Teleflex offered to supply necessary parts, to which proposal I.M.P. responded with a purchase order for 13 quadrant assembly sets at $27 500 each. The shipping schedule was to commence in March 1990. Included was a provision whereby I.M.P. could order a suspension of the work with a reasonable price adjustment, and a further provision whereby I.M.P. could terminate the order with payment to Teleflex for both completed and uncompleted work, according to a formula that factored in lost profits. Thereafter, Teleflex commenced manufacturing the quadrant assembly units.

In September 1989, Teleflex received the first of a series of notices from I.M.P. requesting postponement of delivery of the units. Teleflex acknowledged receipt of these stop-work letters, advising that in the event of termination its termination liability schedule "attached to our original proposal will apply." I.M.P. continued to experience difficulties in closing the deal with the Brazilian government and finally, in 1994, indicated it would not be requiring fulfillment of the purchase order.

Teleflex treated this as a termination notice and advised I.M.P. that it would submit a termination claim based on work performed to date. The claim amounted to US$229 576 for materials, overhead, and profit. I.M.P. countered that no monies were payable because the contract had been frustrated by the Brazilian government, and further, no quadrant assembly units were ever delivered by Teleflex.

Based on these facts, was the contract frustrated? Is any money payable to Teleflex? What factors affect your conclusion?

3.Meunier v. Cloutier,1984 CanLII 1929 (ON SC)

Cloutier returned to Timmins and purchased a hotel only a block away from the one he had sold to Meunier four years earlier. In doing so, he violated a non-competition clause prohibiting him from participating in the hotel business in Timmins for five years following the sale to Meunier. The original contract required him to pay $50 000 for such a breach as liquidated damages, and Meunier brought this action to recover that amount.

Assume that the plaintiff, Meunier, has not provided any evidence of economic loss. What factors will the court consider in light of Cloutier's argument that the clause was a penalty and should not be enforced? When is a non-competition clause unenforceable?

4.652013 B.C. Ltd. v. Kim,[2006] O.J. No. 423 (Ont. S.C.J.); 2006 CanLII 2892

The defendant rented six illuminated signs from the plaintiff. Upset that one of the signs was illuminated only sporadically, the defendant stopped payment. Later the defendant also complained that one of the signs was obstructed by trees. After repeated demands for payment, the plaintiff sued. The lease agreement contained an acceleration clause, so the plaintiff claimed the accelerated amount owing under the lease. The plaintiff established that the cause for the interrupted illumination was beyond its controlthe power supply was not its responsibility. The acceleration clause, when applied, resulted in an effective rate of interest of 26.8 percent.

Should the plaintiff recover judgment for the accelerated amount? What facts are relevant and what further facts would one need to predict the outcome of this case?