FORMATION OF A VALID CONTRACT 4 1. Offer and Invitations to Treat 4 Canadian Dyers Assn v. Burton (1920, H.L.) 4 Pharmaceutical Society v.

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1 FORMATION OF A VALID CONTRACT 4 1. Offer and Invitations to Treat 4 Canadian Dyers Assn v. Burton (1920, H.L.) 4 Pharmaceutical Society v. Boots Cash Chemists (1953, C.A.) 4 Carlill v. Carbolic Smoke Ball Co (1893, C.A.) 4 Goldthorpe v. Logan (1943, C.A.) 4 Tenders 5 R. v. Ron Engineering & Construction (Eastern) Ltd. (1981, SCC) 5 M.J.B. Enterprises Ltd. v. Defence Construction Ltd. (1951) 5 Double N Earthmovers Ltd. v. City of Edmonton SCC (2007, SCC) 5 2. Communication of Offer 6 Blair v. Western Mutual Benefit Assn. (1972, BC C.A.) 6 Williams v. Cowardine (1833, KB) 6 R. v. Clarke (1927, H.C.) 6 Carlill v. Carbolic Smoke Ball Co. (1893, C.A.) 6 3. Termination of Offer 7 Revocation 7 Dickinson v. Dodds (1876, C.A.) 7 Byrne v. Van Tienhoven (1880, CPD) 7 Errington v Errington and Woods (1952, C.A.) - Denning Case 7 Dawson v. Helicopter Exploration Co. (1955, SCC) 7 Rejection 7 Livingston v. Evans (1925, AB SC) 7 Lapse of Time 8 Barrick v. Clark (1951, SCC) 8 Manchester Diocesan Council of Education v. Commercial and General Investments (1969) 8 4. Acceptance 8 Livingston v. Evans (1925, AB SC) 8 Battle of Forms 8 Butler Machine Tool v. Ex-cell-o Corp. (1979, CA) - Denning Case 8 Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd. (1979, Ont., HC) 9 Shrink Wraps 9 ProCD v. Matthew Zeidenberg and Silken Mountain Web Services Inc. (1996, U.S. C.A.) 9 Silence 9 Carlill v. Carbolic Smoke Ball Co. (1893, C.A.) 9 Dawson v. Helicopter Exploration Co. (1955, SCC) 9 Felthouse v. Bindley (1862, N.S.) 9 Saint John Tug Boat Co. v. Irving Refinery Ltd. (1964, SCR) 10 Offeror s Control 10 Eliason v. Henshaw (1819, US) Communication of Acceptance: Mail and Instantaneous Modes 10 Household Fire v. Grant (1879, CA) 10 Holwell Securities v. Hughes (1974) 10 Brinkibon v. Stahag Stahl (1983, HL) Certainty of Terms no Vagueness 11 R. v. CAE Industries Ltd. (1986, CA) 11 Incompleteness and Agreements to Agree 11 May v. Butcher v. R. (1934, HL) 11 Hillas v. Acros (1932, HL) 12 Foley v. Classique Coaches Ltd. (1934, CA) 12 Sale of Goods Act - Ascertainment of Price Certainty of Terms no Agreements to Negotiate 13 Empress v. Bank of Nova Scotia (1991, BC CA) 13 Manpar Enterprises Ltd. v. Canada (1999, BC CA) 13 Wellington City Council v. Body Corporate (2002, NZ CA) 13 Anticipation of Formalization 14!1

2 Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991, ON CA) Intention to Create Legal Obligation 14 Balfour v. Balfour (1919, England CA) 14 Rose and Frank v. JR Crompton Bros. (1932, CA) 14 TD Bank v. Leigh Instruments Ltd. (1990, ON CA) 14 Canadian Taxpayers Federation v. Ontario (Minister of Finance) (2004) 15 Family Law Act SBC 2011, ss. 3 and Formality: Contracts Under Seal and the Requirement of Writing 15 Contracts Under Seal 15 Royal Bank v. Kiska (1967, CA) 15 Requirement of Writing (NOT ON EXAM) 15 ENFORCING PROMISES Doctrine of Consideration 16 Nature of Consideration 16 Thomas v. Thomas (1842, QB) 16 Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier (1934, SCC) 16 Wood v. Lucy, Lady Duff Gordon (1917) 17 Past Consideration 17 Eastwood v. Kenyon (1840, QB) 17 Lampleigh v. Brathwait (1615, KB) 17 Forbearance of Suit 17 D.C.B. (Plaintiff) and Harold J. Arkin and Zellers Inc. (Defendants) (1996) 17 Pre-existing Duties 18 Pao On v. Lau Yiu Long (1980, PC) 18 Stilk v. Myrick (1809) 18 Gilbert Steel v. University Construction Ltd. (1976, CA) 18 Williams v. Roffey Bros. (1990, CA) 19 Greater Fredericton Airport Authority Inc. v. Nav Canada (2008, NB, CA) 19 Promises to Accept Less 19 Foakes v. Beer (1884, HL) 19 Re Selectmove Ltd. (1995, CA) 19 Foot v. Rawlings (1963, SCC) 20 Law and Equity Act (R.S.B.C. 1996, c. 253) s Process Automation Inc. v. Norstream Intertec Inc. & Arroyave (2010, ON SC) Promissory Estoppel 20 General Principles 20 Hughes v. Metropolitan Railway Company (1877, HL) 20 Central London Property v. High Trees House (1947, KB) 21 Collier v. P & M J Wright (Holdings) Limited (2007) 21 Elucidation of Principles 21 John Burrows v. Subsurface Surveys (1968, SCR) 21 D & C Builders v. Rees (1966, CA) 22 Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. (1994) 22 W.J. Alan & Co. v. EL Nasr Export and Import Co. (1972, CA) 22 The Post Chaser (1982, QB) 22 Shield or Sword 23 Combe v. Combe (1951 CA) 23 Walton Stores (Interstate) Pty. Ltd. v. Maher (1988 Aus HC) 23 M. (N.) v. A. (T.A.) (2003 BC CA) Privity of Contract 23 Basics 24 Tweddle v. Atkinson (1861 QB) 24 Dunlop PneumaticTyre Co. v. Selfridge & Co. Ltd. 24 Beswick v. Beswick (1966;1968 CA;HL) 24 Exception 24 London Drugs Ltd. v. Kuehne & Nagel International Ltd. (1992 SCC) 24 Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. (1993 SCC) 25!2

3 Fraser River Pile & Dredge Ltd. v. Can-Dive Services (1999 SCC) Conditions Precedent 25 Turney v. Zahilka (1959 SCC) 25 Beauchamp v. Beauchamp (1973 CA) 25 Barnett v. Harrison (1976) 26 Law and Equity Act, BC, s 54 26!3

4 FORMATION OF A VALID CONTRACT 1. Offer and Invitations to Treat The hallmark of an offer is the readiness to sell Invitations to treat and puffs cannot be accepted because they are mere sales talk You can tell if something is an offer by the language and intention through the reasonably objective person in the place of the recipient (Canadian Dyers) Post-contractual conduct can be also be looked at (Canadian Dyers) Unilateral contract: a promise in exchange for an act - no need for notification of acceptance - performance of obligations and acceptance coincides (Carbolic) Bilateral contract: a promise in exchange for a promise (performance and acceptance do not coincide) You have to look at the nature of the offer to know if the contract is unilateral or not - whether the party who made the offer had the intention (either implicitly or explicitly) for notification of acceptance (Carbolic) Canadian Dyers Assn v. Burton (1920, H.L.) Post-contractual conduct of the seller may indicate an offer valid of acceptance - ORP in shoes of the buyer regard as an offer? F: C wrote B asking his lowest price on a property - B responded that his lowest price was $ buyer again asked for lowest price - B responded that the price was the lowest he d be willing to accept - treated as an offer and C sent B a cheque - deed sent and said he was prepared to close Dec 1 - in Nov B s solicitor sent back the cheque and said there was no contract I/C: Clear offer to sell? YES R: Courts look to language used in light of the circumstances and to the subsequent actions of both parties to determine whether what was communicated was an offer - ORP - there was a readiness to sell (hallmark of an offer) - plain wording was an offer ( I am prepared to accept ) Pharmaceutical Society v. Boots Cash Chemists (1953, C.A.) Display of goods in a store is an invitation to treat - offer and invitation are malleable concepts and what constitutes an offer depends on what ORP would say in circumstances F: Boots operated a pharmacy - when the pharmacy was open, the manager, the pharmacist, and one or more of the assistants were present in the room - the customer had to cash out with the cashier before leaving the room with any articles - the pharmacist supervised the poisons section and was permitted to refuse purchase to a customer at any time - two customers purchased medicine from the poisons section I/C: Offer? NO R: The display of items on the shelf is not an offer to sell (rather an invitation) b/c if you were to call it such, as soon as you put the item in your receptacle it would be considered acceptance of the offer - they would be bound to purchase that exact item - the court considers the practical implications of considering it an offer - b/c the consequences are undesirable, there is no way that the seller intended the display of the products to be an offer (freedom of contract) Carlill v. Carbolic Smoke Ball Co (1893, C.A.) Puffs are incapable of acceptance - in a unilateral contract communication of acceptance is not required; acceptance and performance of the condition occur simultaneously F: Carbolic put an add in the newspaper that said that a reward would be paid to anyone who contracted influenza after having used the ball three times daily for two weeks - also noted that the money was in a particular bank - Carlill bought the ball and used it as directed for almost 2 months when she caught influenza I/C: Offer? YES R: Carbolic put money in the bank - the ORP would have believed that it was an offer capable of acceptance - not puff (representative of the non-offer) - unilateral contract, therefore notification of acceptance not required but merely fulfilling of obligations Goldthorpe v. Logan (1943, C.A.)!4

5 Implied promise - offeror bears the risk of extravagant promises - unilateral contract F: G sought help through L for facial hair removal which she saw an ad in the paper for - consulted a nurse who was employed by L - told that her face could definitely be cleared and the results would be guaranteed and satisfactory - submitted to treatments which the results were unsatisfactory I/C: Contract? YES R: There is an implied promise when they use the word guarantee - the ORP would regard this as an implied promise that if it doesn't work they would get their money back - an advertisement constitutes an offer that can be accepted through the conduct of an individual - the offeror bears the risks of extravagant promises Tenders Problems with the English model b/c it allows the owner to do with bids as he pleases because they are simply just offers Bids take a lot of time and money to complete and there was no vehicle to impose restrictions on the owners b/c there were not in a contractual relationship - therefore Ron v. Ron created the idea of Contract A and Contract B Submission of a bid is not just the acceptance of contract A, but it is simultaneously the offer for contract B (Ron v. Ron) Court wanted to protect the integrity of the bidding process R. v. Ron Engineering & Construction (Eastern) Ltd. (1981, SCC) Contract A/Contract B F: Contractor submitted bid and a deposit - after tenders closed he realized he made a mistake - wanted to withdraw tender - contractor said that the tender was incapable of being accepted I/C: Contract? YES; tender cannot be withdrawn R: Tender may not be withdrawn if there was a contract b/wn parties - the call for tenders is an offer of a unilateral contract for Contract A - by submitting a bid, the tenderer is accepting the offer and simultaneously putting out an offer for Contract B, which the owner can then chose to accept or deny M.J.B. Enterprises Ltd. v. Defence Construction Ltd. (1951) Obligation to not accept non-compliant bids - OB test for implied terms F: Call for tenders was put out and awarded to lowest bid but which did not meet specifications required by instructions in the call for tenders - instructions also included a privilege clause saying that the lowest tender shall not necessarily be accepted I/C: Obligation to only accept compliant bids? YES, contract A breached by accepting a non-compliant bid R: Implied obligation to only accept valid tenders - privilege clause dow not override this obligation - Canadian Pacific Hotels established when you imply a term into a contract: you can imply a term based on looking at the presumed intentions of the parties, and by applying the officious bystander test - is it obvious according to the OB that the party intended the term? OB uses business efficacy: parties are going to be presumed to make deals that make business sense Double N Earthmovers Ltd. v. City of Edmonton SCC (2007, SCC) No duty to investigate compliance - duty to treat bids fairly - A is discharged when B is entered F: Call for tenders put out requiring 1980 equipment be used and providing registration number required - a tender is accepted not realizing until later that registration number provided in tender was a lie - owner attempts to change this requirement and form amended Contract B I/C: Breach of contract for accepting non-compliant bid? NO A: Martel (came after MJB) but told us that there is an implied obligation in contract A to treat bids fairly and not discriminate - allowed b/c it is trivial (b/c it doesn t cause unfairness to the other parties) - was a compliant bid (the promise to supply 1980 equipment was made) R: (1) Owner does not have a duty to investigate or look beyond face of bid to determine whether a bid is compliant; (2) only has duty to treat all bids fairly and equally; (3) When owner accepts compliant bid and!5

6 enters Contract B, Contract A is fully discharged and owner has no further obligations to unsuccessful bidders. (Martel case) 2. Communication of Offer Offers need to be communicated in a way that the reasonable person would consider to be capable of acceptance and to the person who purports to accept it (Blair Mutual) Can go to an individual or a class (not an objection to say that the group was too large - Carbolic) You must intend to accept an offer (Williams v. Cowardine) - but you cannot intend to accept unless you are aware of the offer (R. v. Clarke) If the circumstances are such that you must of been aware of the offer, and you fulfilled the act set out in it, than it will be presumed that you intended to accept (Williams v. Cowardine) But if you say you have no knowledge of it or you didn t intend to accept, it the court will not presume intention to accept (Clarke) Blair v. Western Mutual Benefit Assn. (1972, BC C.A.) Must be effective comm. of an offer with the intention to deliver the offer capable of acceptance F: Stenographer transcribed minutes of meeting stating if she retired she would be entitled to 2 years salary - never communicated directly tor her I/C: Communication of offer? NO - never communicated to the plaintiff in a way that would justify her treating it as an offer and accepting it (defective communication) R: For an offer to be valid, it must be communicated to the persons intended to accept it and must be communicated in circumstances that would suggest to an ORP that what is being communicated is an offer capable of acceptance Williams v. Cowardine (1833, KB) Must be aware of offer if you intend to accept - as long as you are aware of it and fulfill the conditions, intention will be applied and other motives do not matter F: Plaintiff responded to handbill offering reward to information that leads to the discovery of the murderer of defendant s brother, because she believed she did not have long to live and wished to clear her conscience I/C: Contract? YES - unilateral contract formed regardless of motive (fear of God s punishment rather than the reward) - contract made with anyone who fulfilled the condition of providing information R: You have to be aware of the offer if you intend to accept - as long as you are aware and fulfill the conditions it requires, then it is presumed you intended to accept and court will not scrutinize other motives R. v. Clarke (1927, H.C.) To accept a contract through performance, you have to intend to accept; to do this you must have knowledge of the offer F: Two people murdered - proclamation for reward issued - Clarke provided evidence to the Crown and later attempted to claim the reward upon suggestion of inspector - explicitly claimed that he had no intention to claim the reward I/C: Contract? NO Clarke dud not act on the faith of the proclamation or mentally assent to the offer until after any information was given Carlill v. Carbolic Smoke Ball Co. (1893, C.A.) Offers can be made to individuals or a class of people (no group is too large) F: (Duplicate) R: Offers can be made to individuals or a class - it is not an objection to say the class was too large!6

7 3. Termination of Offer Revocation Dickinson v. Dodds (1876, C.A.) You can revoke an offer expressly or impliedly any time prior to acceptance - must be communicated beforehand either directly or indirectly F: Defendant made offer to sell property to plaintiff however accepted offer from another buyer. Plaintiff became aware of defendant offering to sell property to another and then proceeded to submit acceptance of offer. I/C: Contract? NO - you cannot accept knowing that it had been sold to someone else (implied revocation) R: An offeror may revoke his offer at any time prior to acceptance - revocation must be communicated to offeree in order to be a valid revocation - revocation need not be express, it may be implied (performing act inconsistent with the offer) - expression of revocation does not have to come directly from the offeror Byrne v. Van Tienhoven (1880, CPD) Revocation of an offer does not have effect until communication of the revocation is received by the offeree F: D mailed an offer to buy tin plates from P - offer was received and accepted via telegram - D mailed revocation but was received after acceptance was sent - P sold plates to a third party on the assumption they had purchased them I/C: Contract? YES - revocation not valid R: Revocation of an offer does not have effect until communication of the revocation is received by the offeree. (i.e. mailbox rule does not apply to revocation) Errington v Errington and Woods (1952, C.A.) - Denning Case Exception to revocation: you cannot revoke on part performance without giving a reasonable amount of time to fulfill performance requirements F: Father offers to purchase house on the condition that his daughter and son-in-law pay off the mortgage- upon which he would transfer house to them - couple made payments; father died; widow wants possession of house I/C: Contract? YES - unilateral contract - cannot revoke on part performance R: Exception to the rule of revocation: you cannot revoke an offer if the party has started the path of performance - must give them a reasonable amount of time to fulfill the performance requirements Dawson v. Helicopter Exploration Co. (1955, SCC) In cases instinct with obligation, courts will distinguish contracts as unilateral or bilateral - whichever one would make the date of acceptance earlier F: HE approached D about mining area of his staked land - wanted to take him there - D in military so needed helicopter provided by HE - D waited for response in arranging helicopter - HE responded said they changed their mids and were not going to go - later HE contracted with another party for the development of the land I/C: Breach of contract? YES R: In relationships instinct with obligation, courts will strive to interpret a contract as bilateral or unilateral depending on which one would make the date of acceptance earlier to remove the possibility of revocation - interpret it as bilateral b/c there is a mutual exchange of promises Rejection Livingston v. Evans (1925, AB SC) A counter-offer is a rejection of the original offer; a mere inquiry is not.!7

8 F: E offered to sell land to L to which plaintiff replied with a counter-offer - L rejected counter offer and subsequently made agreement with third party for land. I/C: Contract? YES - cannot reduce price is interpreted as standing by the original price and therefore open to accept it R: Once an offer has been rejected it cannot afterwards be accepted - a counter offer is a rejection - what constitutes a counter offer or a rejection depends on the ORP - an inquiry is not a counter-offer - material changes (such as in price) are rejections Lapse of Time Barrick v. Clark (1951, SCC) An offer is open for the period of time specified - if not, it is open for a reasonable amount of time F: C offered to purchase land from B; B responded but C was away when letter arrived - his wife wrote to request offer be kept open for 10 days - upon his return 20 days later, C wrote to accept counter-offer but B had already sold land (after 13 days). I/C: Contract? NO - immediately upon acceptance, reply ASAP implied urgency which suggests a shorter period for acceptance - just b/c he said he would keep it open does not mean he had to R: The offer is open for the period of time specified in the offer - if not specified, it is open for a reasonable amount of time assessed by the ORP test dependant on 1) industry custom (volatility of price of goods; perishability of goods ex. land vs. stock) and 2) circumstances of the case (language; conduct of parties). Manchester Diocesan Council of Education v. Commercial and General Investments (1969) An offer must be accepted within a reasonable amount of time or it can be considered refused/withdrawn I/C: Is an offer refused simply by not responding to it within a reasonable amount of time? YES R: An objective assessment of the facts and the determination of whether an offeree should in fairness be regarded as having refused the offer, is necessary in determining if an offer has been refused A: If an offer is not accepted within a reasonable time then it must be treated as withdrawn - alternatively, if the offeree does not accept an offer within a reasonable time that it must be treated as having refused it - the time it takes for the offer to be accepted must be reasonable - if it is a reasonable amount of in light of the circumstances 4. Acceptance Livingston v. Evans (1925, AB SC) Duplicate case - can be used as acceptance reference F: Defendant offered to sell land to plaintiff to which plaintiff replied with a counter-offer. Defendant rejected counter offer and subsequently made agreement with third party for land. I/C: Contract? YES - cannot reduce price is interpreted as standing by the original price and therefore open to acceptance - inquiry is not a counter-offer Battle of Forms Butler Machine Tool v. Ex-cell-o Corp. (1979, CA) - Denning Case Use first shot analysis to determine terms only when it yields a clear result - otherwise look at the documents holistically and the intentions of the parties F: Butler sent an offer to E to sell some machinery - with it was a price variation clause - E replied and said they would order the machinery, but on their own standard terms which did not have a price variation clause - Butler replied on the tear-off slip from E's terms reading that they would accept the order on the terms and conditions stated therein - upon delivery B asked for more money on the basis of the clause I/C: Is the price variation clause included? NO - variation clause not included!8

9 A: E constituted a counter-offer when they changed the material price (b/c of no price variation clause) - historically Courts dealt with this by a last shot analysis (the person who fires the last shot and the other guy does not object, then that is the deal) or a first shot analysis, but Denning does not like this (he thinks the seller is trying to be sneaky so he applies his own rules - the escalator clause was not intended to be part of the deal because it was a material change, and if you are going to make a change of that grande scheme then you have to make the other party aware of it - there is no way that the parties both intended for it to be part of the deal R: Denning: it may be the first shot if you cant determine btwn the first shot and last shot analysis (but this must yield a clear result) - in situations where they do not yield a clear result, you look at all of the documents holistically Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd. (1979, Ont., HC) Application of Denning global approach - powerful clauses cannot be snuck in, need to draw attention to it F: St. Anne created an invitation to tender w/ conditions - Tywood replied with quotation w/ same Terms on reverse - when purchase order came from St. Anne, reverse side contained 19 Terms, including an arbitration clause I/C: Was the arbitration clause included? NO - not part of the deal A: Application of Lord Denning s global/holistic approach - conduct of both parties indicates that neither party considered any terms other than those found on face of documents important - what was important was the consummation of the business deal Shrink Wraps ProCD v. Matthew Zeidenberg and Silken Mountain Web Services Inc. (1996, U.S. C.A.) Shrink-wrap licenses are enforceable, unless their terms are objectionable on grounds applicable to contracts in general F: ProCD is the manufacturer of a software program - use price discrimination to charge consumers less than commercial users for profitability - company turned to contract by declaring that all software comes with restrictions stated in the enclosed license - Zeidenburg purchased a consumer package and ignored the license by reselling the product online for cheaper (as commercial) I/C: Did Zeidenburg breach license agreement with ProCD? YES A: Has never been a shrink wraps case in Canada - one cannot agree to hidden terms however, defendant agreed to purchasing the software and that the transaction was subject to a license (notice on box that terms inside) - Pro CD made offer when box placed on shelf, proposed contract to buyer that he would accept by using software after having read license at home - buyer accepts offer when after an opportunity to inspect, he fails to make an effective rejection (by returning) - transactions where exchange of money precedes communication of detailed terms are common e.g. Insurance, airline tickets, radio with warranty inside Silence Carlill v. Carbolic Smoke Ball Co. (1893, C.A.) Duplicate: you can accept unilateral contracts by silence through performance of conditions Dawson v. Helicopter Exploration Co. (1955, SCC) Duplicate: you cannot accept a bilateral contract through silence - silence is not acceptance Felthouse v. Bindley (1862, N.S.) Silence does not constitute acceptance in a bilateral contract F: F negotiated the purchase of a horse with nephew - different currencies created price confusion - uncle wrote offering to split the difference and if he heard no response he would consider the horse his at the set price - nephew did not respond but at an auction sale of his stock, he told the auctioneer to reserve the horse from!9

10 I/C: the sale - the auctioneer (B) forgot to do so and the horse was sold - the nephew thus wrote a letter to his uncle saying that the horse he had sold to him had been sold in the auction - uncle brought action against the auctioneer B Was silence acceptance? NO - Clear that the nephew intended to sell the horse to his uncle but did not communicate acceptance therefore it could not be binding Saint John Tug Boat Co. v. Irving Refinery Ltd. (1964, SCR) Positive conduct indicating acceptance will show there was acceptance - acquiescence can also amount to acceptance if it is deceptive F: SJ had a deal with Irving to supply them use of tugboats - with no firm arrangements having been made, SJ stated that they would only have two boats available unless special arrangements were made, and advised Irving to look elsewhere for help - SJ ended up having two more tugs available, and told Irving that they could use them if they paid $450/day to have them "on call" until a certain date - this date passed, and SJ continued to keep the tugs on call and Irving continued to use them for a few months - when billed for these months after the original end of the contract, Irving refused to pay I/C: Was silence acceptance? YES - Irving s conduct by using the tugs, and only objecting to the 10% while not objecting to anything else, indicates his acceptance A: ORP test - Would the ORP in the shoes of the offeror believe that the offeree has accepted notwithstanding the silence - the intention of the offeror is determined by which his conduct bears when reasonably construed Offeror s Control Eliason v. Henshaw (1819, US) The offeror can stipulate the time and the manner of the acceptance F: E wanted to purchase flour from H - terms of the agreement stipulated that H write by return of wagon - but the wagoner would not be returning - a response was written and dated a day later than the date received and sent to Georgetown on the next available wagon - E acknowledged receipt of the letter but said the response was too late and not returned by wagon I/C: Contract? NO - E had the right to dictate terms upon which they would purchase flour and unless complied with they are not bound by them A: E specified return acceptance via wagon to Harper s Ferry - the place to which the answer was to be sent constituted an essential part of the offer - the time to reply should not have been delayed beyond that ordinarily employed by wagons travelling this route - more importantly, the letter should be delivered to the correct place - no answer was at any time sent to the plaintiffs at Harper s Ferry. 5. Communication of Acceptance: Mail and Instantaneous Modes Household Fire v. Grant (1879, CA) Post Box acceptance rule: the offer is accepted when the acceptance is placed in the mail (posted), not when the offeror receives the acceptance F: Notice sent from H by post to purchase shares - letter never made it to G I/C: Contract? YES A: Principle that the minds of the two parties must be brought together by mutual communication. He harmonizes this by saying that as soon as the letter of acceptance is delivered to the post office, the contract is made binding - whatever medium the parties themselves chose to communicate will be used to assess when acceptance occurs Holwell Securities v. Hughes (1974) Post Box Rule does not apply: (1) if requirement of notice of acceptance is expressly specified or (2) if its application would produce inconvenience and absurdity!10

11 F: H granted HS a 6 month option to purchase a property, and stated that the option had to be exercised "by notice in writing - HS s lawyer sent a copy of the letter to H by mail, but it was never delivered - H refused to sell the property I/C: Contract? NO A: Generally the post box rule will apply if you use the post to send your offer - however it is not going to apply where it is stipulated in the offer that you want notification of acceptance - implicitly saying that he does not want the post box rule to apply - has a bit to do with intention - people do not intend to imply things that are absurd and inconvenient Brinkibon v. Stahag Stahl (1983, HL) Post box rule does not apply to instantaneous modes of comm. - cases must be resolved by (1) reference to the intentions (2) by sound business practices, and in some cases; (3) a judgement about where the risks should lie (who is it more fair to?) F: Appellants desire to sue Austrian co for breach of telex contract - must satisfy provision which says that the buyers must show that the contract was made within the jurisdiction I/C: When does acceptance become effective in instantaneous comm.? As per Entores Ltd. v Miles Far East Corp. the contract is only complete when the acceptance is received by the offeror, and the contract is made at the place where the acceptance is received A: No universal rules for instantaneous modes of comm. - the receipt rule: the contract is made where the acceptance is received (ex. telephone effective when the offeror hears I accept, telex is treated as instantaneous - when acceptances i comm. (same goes for text, , etc) 6. Certainty of Terms no. 1 Vagueness Uncertainty because it is too vague Terms which must be certain (for our purposes): Price, nature of the goods, manner of delivery R. v. CAE Industries Ltd. (1986, CA) Courts may ascribe meaning to words of an agreement where one or more terms are ambiguously expressed so long as a definite meaning can be properly extracted (from the parties objective intentions) F: Gov. of Canada negotiated with CAE for taking over aircraft maintenance base letter from gov stated loose terms about maintaining viable airspace in Winnipeg - also said they will use their best efforts to ensure the higher target of man hours met I/C: Is contract sufficiently certain to be enforceable? YES A: A deed shall never be void where the words may be applied to any extent to make it good - whether words are too vague is up to whether court can find reasonable meaning - Court says best efforts clauses means putting in your best endeavours, leaving no stone unturned - to find reasonable meaning we look to parties objective intentions (plain words, how outward actions show intentions (both prior to and after contract formed, commercial reality) - intention to create legal relations; the more intention there is by the parties, the more the court will be motivated to uphold the contract Incompleteness and Agreements to Agree May v. Butcher v. R. (1934, HL) (1) An agreement to enter into an agreement in which a critical part of the contract is left undetermined is no contract at all, (2) Price certainty is an essential requirement for binding contract (defined price is required, an agreement to agree is not sufficient) F: Arrangement for purchase of tentage - terms of arrangement left price to be subsequently agreed upon from time to time as tentage became available I/C: Contract? NO - agreements to agree are not agreements at all!11

12 A: Agreement to agree on price is no agreement at all - in the even they could not agree on price it would be sent to an arbitrator - but the arbitration clause does not cure uncertainty b/c there was no agreement and therefore it cannot be sent to the arbitrator Hillas v. Acros (1932, HL) When considering uncertainty, you cannot look at a passage or word in isolation, they must be read in context of whole contract, in given circumstances - reasonable time of delivery is implied by industry custom F: H agreed to buy 100,000 standards of timber from A agreement included provision stating H should have option of entering contract with A for purchase of timber the following year with a 5% reduction price A refused to sell to them the following year I/C: Was there a contract to enter into another contract in the future? YES - the clause is an integral part of the contract and therefore binding A: Argument was that the terms were uncertain b/c the standard, price, and delivery date was uncertain - but in reading the contract in its entirety the Court found that this was not the case - the prices were set out in price lists, would be in Russian standard b/c the seller was Russian, and the date of delivery could not be specified b/c it would have to be delivered in multiple shipments Foley v. Classique Coaches Ltd. (1934, CA) Each case must be decided on the construction of the particular document - reasonable price overcomes uncertainty F: Sale of land was made subject to the CC entering into a supplemental agreement to purchase all their petrol from F at a price to be agreed by the parties in writing from time to time - for 3 years CC purchased petrol from F until the thought they could purchase on better terms elsewhere I/C: Contract? YES - here court says agreement to agree is not too uncertain A: Parties actions show they believed they had a contract for 3 years - here, a reasonable price is implied - reasonable price overcomes uncertainty How to Reconcile the Above? Appreciate there is conflict here. How to deal with this: Foley is completely wrong (May & Butcher is a H.L. case and thus overrules) Or you could say Foley is not inconsistent The seriousness of intent makes Foley different (performing contract for 3 years motivates court to uphold contract whereas May and Butcher didn t have this intent and thus court didn t feel as motivated to uphold contract) A better way to reconcile might be that in May v. Butcher, court didn t want to cure the uncertainty by saying if you can t agree then it is a reasonable price but in Foley they did. Why? Maybe because tentage (old army tent) is a different subject matter then petrol In May & Butcher it was difficult to find a price because it was the first time tentage like this has ever been bought and sold before and therefore there is not a reasonable price In Foley, you can find a price for gas based on the price of oil and therefore you can come up with a reasonable price (as it is an independent metric) So perhaps Foley stands for the agreement to agree does apply if a reasonable price can be implied What about the arbitration clause piece? May & Butcher probably didn t lay down a solid foundation, it was only applicable to the wording in that particular clause Hunt says: Obiter statements are outside law in Foley the arbitration clause statements are obiter Sale of Goods Act - Ascertainment of Price If in BC and applies only to the sale of GOODS: Agreements to agree are not void and courts can imply a reasonable price First you have to decide if this act applies only to the sale of GOODS (as opposed to services, land, etc.) and must be in BC!12

13 Only applies to situations where you are trying to ascertain the price of goods in BC S. 12: Agreement to agree are valid - you can have an agreement to agree on price, and if you can t agree on price, the courts will imply a reasonable price S. 13: You can have an agreement to have a third party arbitrator to decide the price and if he does there is a deal, but if he cannot come to a price then there is no deal (unless of course of of the parties prevents him from making a deal, then there is still an agreement) 7. Certainty of Terms no. 2 Agreements to Negotiate Empress v. Bank of Nova Scotia (1991, BC CA) (1) Courts will strive to uphold agr. to negotiate if there is a strong intent to contract in the circ., (2) when there is sophisticated comm. actors, inclined to believe there is serious intent to contract, (3) agr. to agree between sophisticated comm. actors implies two obligations: (a) to negotiate in good faith and (b) agr. will not be unreasonably withheld F: Parties entered lease which stipulated Bank could renew for 2 successive 5 yr. periods provided it gave 3 months notice, and the "rental for any renewal period, which shall be the market rental prevailing at the commencement of that renewal term as mutually agreed between the Landlord and the Tenant" Bank exercised option to renew at proposed rate but received no reply from E - E finally responded saying it would allow Bank to remain month-to-month if paid $15,000 and proposed rent thereafter I/C: Agreement to negotiate? YES A: They specifically stipulate that they had to mutually agree and therefore the courts cannot impose a reasonable price - there is an external market metric (such as Foley in way of gas) - but in BC it appears the Foley does not apply and May v. Butcher would - to give the term business efficacy there is an obligation to try to negotiate and in good faith, and to not withhold agreement unreasonably - not obligated to reach an agreement but to at least try - bad faith is demanding $15,000 and renting to someone else at the market rate which the bank was prepared to agree (we are not told what good faith is) Manpar Enterprises Ltd. v. Canada (1999, BC CA) Bare agreements to negotiate are unenforceable - there is no contractual duty to negotiate in the absence of a benchmark or standard against which to measure the duty F: ME had a permit to contract with the Crown to remove and sell sand and gravel located on the reserve - there was a clause that said that they should have the right to renew for a further 5 years subject to satisfactory performance and renegotiation of the royalty rate and annual surface rental - both parties expected the operation to go over 10 years - despite M s repeated attempts at renewal, neither the dept nor the band were willing to do so before the expiry of the contract I/C: Duty to negotiate in good faith or too uncertain? NO - obligation to negotiate in good faith should not be implied here b/c there is no benchmark and is therefore too uncertain (what is the value?) A: The language in the contract shows the intent of the Crown was a broad scope b/c of having to maintain a fiduciary obligation to the Indian Band - there was also no benchmark such as in Empress ( market rental ) where the court could imply terms into a continuing lease - unless there is a benchmark or a standard by which to measure such a duty, the negotiation concept is unworkable Wellington City Council v. Body Corporate (2002, NZ CA) New Zealand Case: cannot enforce agreements to negotiate in good faith b/c good faith is subjective and cannot be measured (lack of certainty) F: The appellant and respondent had a process contract which obliged the Councils officers to negotiate in good father and for not less than the market value I/C: Legally enforceable contract based on the process contract? NO - agreement to negotiate in good faith are uncertain and therefore unenforceable A: Obligation to negotiate in good faith is different from an obligation to negotiate reasonably - in trying to reach agreement parties remain able to pursue their own interests within what is subjectively honest (rather!13

14 than objectively reasonable) - thus there is no certain objective criterion by which court may determine whether either party is in breach of the good faith obligation (unless contract specified how negotiations are to be conducted with precision, in which case it would be enforceable) Anticipation of Formalization Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991, ON CA) You can only contract now to contract later if what happens later is simply reducing to writing what you ve agreed on now - you need to have agreed on all important points (this case does not meet the rule) F: Negotiations for the purchase of Kernels Franchise I/C: Contract? NO A: If no agreement in respect to essential terms has been reached or the terms have not been agreed to with reasonable certainty, it can be concluded that such terms were to be agreed upon at a later date and until that time there is no enforceable agreement R: You can have a contract to formulate a contract in an anticipation formalization scenario - if there is clear intent to be bound and be bound immediately but you agree to reduce it to writing later in the exact terms that have been discussed - then there can be a contract - you can not leave anything out to be dealt with later 8. Intention to Create Legal Obligation May be the first thing you want to start with on an exam You need to be able to say by the objective reasonable person that there is intent to create legal obligations Three presumptions: social context presumption of no intent, commercial context presumption that there is intent, or there is no presumptions and intent is unclear Balfour v. Balfour (1919, England CA) [Social Context] In a social context, the presumption is that parties did not intend to create legal obligations (can be rebutted but this is your starting point) F: Plaintiff suing her husband for money due as an allowance He promised to give her this allowance each month for her maintenance until she returned to live with him I/C: Intention to create legal obligations? NO - the parties did not intend that they should be attended by legal consequences A: Assessed by the ORP R: (1) Where parties did not intend there to be legal relations/legal consequences, there is no binding contract; (2) There is a presumption that where agreement arises between spouses, there is assumed that there is no intention to create a contract - Court assumes parties when they make these promises were motivated by affection, not a serious intent to make legal consequences - this can be rebutted: if parties hate each other - can be more general: family, social exchanges ( exchange hospitality in their home ) Rose and Frank v. JR Crompton Bros. (1932, CA) [Commercial Context] Where the parties are commercial parties, there is a presumption that there is intention to create legal relations unless arrangement explicitly states otherwise F: R&F were the exclusive American distributor for JRC s paper products - the parties later signed a new document with a clause stating that the arrangement was not intended to be a formal legal agreement and would not be subject to legal jurisdiction - JRC terminated the agreement after deciding not to fill orders for some of their products - R&F sued for breach I/C: Contract? NO - no intention to create legal obligations as expressly stated in the agreement A: Gentlemen's agreement - only intended to be morally binding TD Bank v. Leigh Instruments Ltd. (1990, ON CA) Comfort letters are generally deliberately designed with the intention not to create enforceable obligations - but this can be rebutted by looking at the entire context, the factual background, and the wider comm. reality!14

15 F: TD is financing a subsidiary of a parent company Plessey, and L is the subsidiary - the bank opens a loan for L and they go bankrupt so the bank goes after P since L could not pay - P sent comfort letters to TD saying that their subsidiary company L be managed in such a way to meet their debts I/C: Contract? NO A: P argues that the comfort letters were considered puff - P formulated the comfort letters in a way that they were not responsible by saying be managed which suggests that they are passive as opposed to them taking active responsibility - they have interest in seeing them do the right thing but they are not going to ensure that they do it actively - as a matter of corporate law, subsidiaries are completely separate entities from the parent company - comfort letters have a moral purpose and rationale even if they are not binding Canadian Taxpayers Federation v. Ontario (Minister of Finance) (2004) Promises made by politicians (even in writing) during political campaigns are not enforceable because it is unreasonable that there would be any intent to contract F: Dalton McGuinty makes and signs a promise during election campaign not to raise taxes, he then raised taxes after being elected I/C: Contract? NO, not binding A: Making a spectacle of it looks like pretty strong intent but no reasonable person would say that it was intended to be binding Family Law Act SBC 2011, ss. 3 and 92 Under the Act, spouses wishing to divide assets in debts may do so and they will be binding (must be written, signed, and witnessed) - do not have to look at intention to create legal obligations S.3: Defines spouse as any person who is married to another or has lived in a marriage like relationship for a period of atlas 2 years - also includes former spouses S.92: Says spouses may make agreement in respect to the division of assets and debts and there is a binding contract (must be written, signed, and witnesses) Formality: Contracts Under Seal and the Requirement of Writing Contracts Under Seal Historically, promises had to be sealed for contract to be valid Today, a seal is not necessary but is still sufficient so if there is a seal, it is binding Note: If there is a seal, consideration is not required Royal Bank v. Kiska (1967, CA) The word seal is not sufficient to count as a seal - you need a seal in some form affixed to the document F: Bank brought action against Kiska who signed guarantee while there was no seal was attached, the word seal was printed next to the signature I/C: Contract? YES - but not b/c there was a seal, but b/c there was consideration A: No longer need to pour wax just a gummed wafer - need to physically affix something - by not having strict rules there would be uproar by its means around consideration - Laskin (dissent, but this is law now): formality should be preserved as it serves a purpose - seal, given under seal signed, sealed, delivered are not sufficient because they are anticipatory of a formality which must be observed, not a substitute for it - the printed word seal is merely an invitation to place a seal at that spot - it affirms the need of formality rather than dispensing with it Requirement of Writing (NOT ON EXAM) Just have to know that contracts for the sale of property have to be written, signed, and have a reasonably description of the subject matter!15

16 ENFORCING PROMISES A promise can be enforceable (1) as a contract, (2) as a deed, (3) by way of estoppel Contract: A promise is not a binding contract unless it forms part of an agreement in accordance with the principles of offer, acceptance, certainty, and completeness The fact that a promise is part of an agreement, however, is not sufficient to make it a binding contract The promise must always (1) be supported by consideration, and (2) the promisor must intend to create legal obligations [(3) requirement occurs in some cases where it must also be in writing] Deeds: A promise that is signed, sealed, and delivered is binding as a deed (which is a legal instrument distinct from a contract but with virtually the same legal effect) Estoppel Promises are potentially harmful social acts in that promises often inspire their recipients to act in reliance on the expectation that the promise will be performed The doctrine that is concerned with remedying this kind of promissory mischief is equitable in origin and is know as promissory estoppel 1. Doctrine of Consideration Something of value which the promisee promises in return for the promisors promise Some right, interest, profit or benefit accruing to one party or some forbearance or loss suffered - distinguishes contracts from gratuitous promises Does not need to have commercial value, only value in the eyes of the law This value stems from the fact that there have been benefits conferred on each other, mutual loss, or one benefit and one loss Aimed at the in exchange for part of our definition of contracts Consideration will be present whenever the parties do or promise to do something at the request of the other party The only exceptions to considerations are contracts under seal (Royal Bank v. Kiska) and promissory estoppel Nature of Consideration Thomas v. Thomas (1842, QB) Consideration must flow from each party - that something has value in the eyes of the law (economic value is not relevant) F: Prior to his death, Mrs. Thomas husband expressed he wished his wife to have the house in which he lived - defendant consented to carry out the intentions and entered agreement with Mrs. Thomas - agreement stated she would pay defendant 1 yearly towards ground rent defendant now claims there was no consideration I/C: Sufficient consideration? YES - her consideration was being able to stay in the house and his was making 1 A: Consideration exists if there is something of value in the eyes of the law (some benefit to P or some detriment to D) - here, Mrs. Thomas paid ground fee in exchange to stay in house - value does not mean economic value and it does not matter what is being exchanged (peppercorn theory), rather the mutuality of giving is what matters Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier (1934, SCC) Valid consideration requires not just that both parties do something but that they agree to do those things in exchange for one another s promises (must be mutuality) F: Boutilier promised to pay Dalhousie $5,000 in a campaign run by the university to raise funds with terms of payment "as per letter from Mr. Boutilier - no letter ever followed and Boutilier fell on hard economic times and could not pay - he acknowledged that he still intended to pay, and would do so when he could afford to - he died, and Dalhousie claimed against his estate for the money I/C: Consideration? NO - unless the promisor gets some specific benefit from a gratuitous promise, then there is no consideration!16