Canadian Faces Inc.

v Cosmetic
Manufacturing Inc.

Case Link
Facts

 Canadian Faces Inc (CFI) are looking to create a new cosmetic lines. The principals of CFI
are siblings with very little cosmetic manufacturing.
 Cosmetic Manufacturing Inc (CMI) is in the business of manufacturing, marketing, and
distributing cosmetics.
 CFI sought the services of CMI to manufacture, distribute, and initially assist with
marketing a product called NeoDerm.
 On April 7, 2006 the principals of CFI met with the owner of CMI to discuss the products
 CFI took very detailed notes of the meeting; CMI took no notes
 CMI & CFI entered into a contract
 CMI would manufacture and assist with the distribution of NeoDerm on television shopping channels
 CFI paid CMI for the production of a portion of the product
Facts

 During the April 7, 2006 meeting the principals of CFI took extensive notes of what transpired.
 On April 10, 2006 one of the principals sent an email to CMI to confirm the agreements that they had come
to during the previous meeting.
 On April 13, 2006 another principal sent an email to CMI and requested that they advise CFI if any of the
agreements were not accurate. CMI never responded.
 Following the meeting the principals spoke on the phone with the owner of CMI several times, during which
they made notes of what transpired during the calls.
Facts

 The product was not advertised or distributed through a shopping channel

 In court the parties disagreed with what happened at the meeting on April 7, 2006
 Emails were produced as evidence to demonstrate the communication between
the parties, and the agreement
 The judge found the CFI owners to be clear, straightforward, and consistent
 The judge found the CMI owner to be unbelievable, wavering, and contradictory
 The judge determined that the testimony from CFI was to be preferred
Issues

 Was there a breach of the contract?

Breach of Contract

 CFI fulfilled its payment obligations to cover the initial costs of production
 CFI was later asked, without prior agreement, to make additional payments
Breach of Contract

 The Court accepted the idea that CMI produced more than 5000 products for each
of the 7 lines of NeoDerm
 CFI only saw small quantities of these products
Breach of Contract

 CFI argued that the contract that was signed and dated June 5, 2006 is the valid
contract
 CMI argued that a subsequent contract that was signed and dated June 30, 2006 is
the valid contract
Breach of Contract

 The parties had email evidence that detailed the arrangements for the June 6,
2006 contract
 These included payment terms, amounts, relationship between the parties, and
other details
 CFI signed and notarized the June 6, 2006 contract and sent it back
 CFI stated they had never seen the June 30, 2006 contract prior to the Court date
Breach of Contract

 CMI claims that the June 30, 2006 contract is valid & counterclaims against CFI
stating they breached their obligations
 The June 30, 2006 contract had validity issues including witness signatures, the
changes made to the original contract
 The Judge ruled that the June 6, 2006 contract was the valid contract
 CFI never saw the June 30, 2006 contract, and therefore it was invalid
 CMI created it to avoid financial obligations, and force them on CFI
Breach of Contract

 CFI argued that CMI breached the contract as they did not advertise their product
on a specific shopping channel
 CMI argued that they were not obligated to advertise on that specific channel as
there was no provision in the contract
 CFI stated that if the contract is interpreted as a whole, CMI’s obligation to
advertise CFI’s product can be derived from that interpretation
Breach of Contract

 Law: interpretation of a contract has the goal of arriving to and understanding the
parties objective intentions at the time the contract was made
 Terms of a contract can be implied by statute, custom, or by the court as a matter
of fact
Breach of Contract

 The intention of the parties was for CMI to broadcast CFI’s product on a
shopping channel
 The judge came to this conclusion from CMI’s actions, where they attempted to
enter into a contract with a shopping channel network, and there was no other
reason for them to do so, but to fulfill this obligation in the contract
Damages

 CFI claimed out of pocket expenses and loss of future profits

 Loss of future profits are difficult to prove
 Without accurate projections, a history of sales, and contingency plans, the court
decided against awarding loss of future profits in damages
Mitigation

 Law: plaintiff is not expected to take every possible avenue to reduce the loss
caused by the defendant’s breach. He is required to take all reasonable steps to
mitigate his loss and may recover loss incurred in taking reasonable steps even
though he did not succeed.
 The burden of proof to demonstrate that the plaintiff failed to mitigate damages is
on the defendant.
Mitigation

 CMI claimed CFI failed to mitigate their damages by not picking up the product
held at CMI’s warehouse and selling it themselves
 CFI states that they attempted to find other avenues to sell the products, but were
unable to find any that were financially feasible
 Court decided that CMI failed to demonstrate that CFI failed to mitigate their
damages
Questions

 Why was the June 30, 2006 contract invalid?

 Based on what you have learned from class, what type of a breach was the June 6,
2006 contract? Why?
 What would you advise CMI do in the future to avoid another lawsuit?