Law 410 CONTRACTS BUCKWOLD

Transcription

1 Law 410 CONTRACTS BUCKWOLD 1

2 FORMATION: Is there a contract? In order to have a contract, you must have: o Capacity to contract: Note that minors can enforce a contract against adults, but adults cannot enforce against minors. o Consensus ad idem ie meeting of the minds : Parties must be in agreement to the same terms. Offer & acceptance Certainty as to terms o Consideration: Parties must have exchanged value not necessarily money, but what they deem to be value. 2 types of contract: o Bilateral: promissory offer by X + acceptance by Y entailing a reciprocal promise E.g. X offers to sell car to Y for $5000 (offer). Y agrees to by the car (acceptance) = Contract! Which includes: Express terms (e.g. price, model, payment, etc.) Implied terms (implied on basis of presumed intention) o Unilateral: promissory offer by X + acceptance by Y through performance of requested act(s) E.g. X offers to give Y a sandwich if Y dusts X s house (offer). Y dusts (acceptance) = Contract! Which includes: Express terms Implied terms (see above) TERMS OF CONTRACT Note: As a general rule, terms of a contract are those expressly established by the offer plus terms that may be implied. (See MJB Enterprises for more on implied terms) Does lack of subjective knowledge of the terms of an offer preclude recognition and enforcement of an unknown term? No. If the terms are readily accessible, then signing the contract (or clicking I accept ) constitutes agreeing to them. Rudder v. Microsoft Corp Class action lawsuit against Microsoft; Microsoft said that they can only be sued in Washington due to a clause in the member agreement Contract was online clicking of I agree Rudder argued that anything that must be scrolled down to see is akin to fine print in a contract and needed to have emphasis Issue: Was this term enforcable? Decision: Yes! Ratio: Clicking in an electronic contract I accept constitutes consensus even if the contract was not read, provided that the terms are readily accessible The term was readily available and plainly written, not hidden away. Scrolling is like turning pages. Anyone clicking I accept should know that they are agreeing to the terms Policy: Commercial certainty 2

3 What approach to identification of terms may be taken where inconsistent form documents exchanged between parties are interpreted on a holistic basis? A party cannot rely on a term that was not drawn to the attention of the other party See Tywood Industries below (pg. 7). OFFER Is the statement an offer or invitation to treat? o If it is an invitation to treat, there is no contract unless it is followed by offer + acceptance o If it is an offer, then the acceptance of it is a contract Is the statement an offer to be bound upon performance of an act? Potentially. If a reasonable person would read the statement as a contract, then the court is likely to consider it a unilateral contract. The consideration of the plaintiff is established by the performance of the act. Canadian Dyers Association Ltd. v. Burton CD alleges that Burton formed a contract with them to sell land; they want performance Bartering on price, CD sends B a cheque for $500 with request for preparation of deed Deed prepped by B s lawyer, who indicated willingness to close in several days (nov. 1); on nov. 5, B s lawyer contacted CD claiming that there was no contract Issue: Was there an offer to contract & was it accepted? Date of contract is oct. 21, when B replied saying that a price was the lowest he was prepared to accept so is this a contract or an invitation to treat? Traditional principle a price quote is an invitation to treat, not a contract Decision: Court decided that in this case, there was a contract, and the general rule does not apply Depends on intention depends on the language used and the circumstances of the particular case. In context of previous communications, and the fact that B cashed the cheque from CD, it was an offer Ratio: Rules of offer & acceptance are not always followed. The court often considers other factors and circumstances. It must be determined objectively. This is a bilateral contract exchange of promises, but no immediate performance on either side (exchange of promises is consideration) Carlill v. Carbolic Smoke Ball Co. C purchased a smoke ball from a drugstore; ball was made by CSB In ads, CSB promised 100 pounds if anyone got the flu while properly using the ball also stated that they put 1000 pounds aside for the purpose C got the flu Issue: Does this ad constitute an offer to contract? CSB argued not a contract b/c ad was too vague, and you cannot contract with the whole world it was a mere puff, not intended to be contractually binding Decision: Court deemed it to be a contract. Court looked at it from the point of view of someone viewing the advertisement, and determined that it would look like a contract. The fact that 1000 pounds were in the bank supported this. By using the ball (performance), C consented to this contract. In this case, verbal acceptance is not required because it was dispensed with by the offerer. 3

4 It was important that C bought and used the smoke ball because she believed the ad to be true, and that was the effect that CSB was going for Ratio: Intention may be established objectively, by how a reasonable person would read the potential offer. Consideration is also established by C s performance of the act (buying and using the smoke ball). When is an offer effectively communicated? Is an offer capable of acceptance when it is known to the offeree but has not been communicated as an offer? No. A party cannot be bound by an offer unless there is intent to contract. There must be communication showing an intention to be bound Blair v. Western Mutual Benefit Assn. Corporate secretary had been working for a long time, someone suggested at a board meeting that when she retired, she should receive 2 years worth of pay as retirement pay. She was not told directly, but she transcribed the minutes, which were signed by the president of the company Issue: was this an offer? Decision: no she was not directly given an offer by the company, so it was not deemed to be contractual. She had no reasonable grounds to think that they were going to follow through. Also, she did not retire on reliance on the offer, so it was not a response to the offer. Ratio: a party cannot be bound by an offer without intention to contract, and merely having the knowledge of an offer is not enough. There must be communication showing intention to be bound. Note: it may have been different if she had resigned as a result of the contract, because then it could be argued that she regarded it as a contract and she accepted it. When does an offer terminate? An offer terminates if it is withdrawn, or if it lapses (either at a time stipulated in the offer, or in a reasonable time ) Must withdrawal of an offer be communicated? If so, how? Yes; the offeree must know about the withdrawal Is a withdrawal communicated by mail effective on posting? No. A revocation must be communicated to the offeree to be effective Byrne v. Van Tienhoven Issue: When is the revocation of an offer effective? Revocation was mailed before offer was received, but revocation was received after acceptance was sent Decision: A revocation that is not communicated is not a revocation at all! No revocation by law here. Offeree relies on the assumption that his acceptance is effective, so he must be made aware if the offer is revoked. In this case, he sold the tin plates to someone else. Ratio: Postal acceptance rule does not apply for revocation. Note: Relative risk/consideration of offeree is taken into account. 4

5 Can an offer be accepted once the offeree knows that the offeror no longer intends to contract if withdrawal has not been directly communicated? No; there is no consensus. Dickinson v. Dodds Dodds makes an offer to Dickinson to sell land open for acceptance until Friday morning Dickinson discovers that Dodds has sold land Thursday night, so he sends acceptance Issue: Could the offer be terminated? Decision: Yes. Offeree knew that the offerer no longer considered the offer open for acceptance (b/c of his action) Ratio: Cannot accept an offer if you know that the contractor has already contracted with someone else no consensus. If an offer is made open for acceptance until a certain time, it can still be withdrawn before that time, anytime before it is accepted. If an offer stipulates a time for acceptance, can it be withdrawn before the time has arrived? Yes. Can a promise to perform (offer) on the fulfillment of an act (acceptance) be withdrawn after the act has been undertaken but before it is completed? No. As long as there is performance of the requested act, the offer in a unilateral contract cannot be withdrawn Errington v. Errington and Woods Man purchased a house in his own name for his son and daughter-in-law. They were told that the down payment was a gift, and if they paid the mortgage payments, the house would be theirs. The father dies, and the state wanted possession of the house Issue: Was there a contract? Decision: Yes, but they only got the house after the payments were finished. Ratio: The offer in a unilateral contract cannot be withdrawn as long as there is performance of the requested act When does an offer lapse if it has not been withdrawn? An offer is open either for the time stated in the offer or a reasonable time (taking into account normal business practice, individual circumstance, demand for subject matter, etc.) unless it is withdrawn Barrick v. Clark Issues: Can the period of an offer be extended by request? Was the offer still open for acceptance when P accepted? Decision: Offer had lapsed before acceptance. The period of an offer cannot be extended by request unless seller offerer agrees D stated as soon as possible in the offer, and wanted $2000 paid by Jan.1. By the time that P replied, it would have been impossible to close by that date. There was lots of demand for the land Ratio: An offer is open for either the time stated in the offer or a reasonable time, as long as there is no withdrawal of the offer. Reasonable time takes into account normal business practice, individual circumstance, subject matter, demand for subject matter, etc. 5

6 ACCEPTANCE Unilateral Contracts Does the performance of a requested act (or restraint from a requested act) constitute acceptance in a unilateral contract? Yes. See Carlill v. Carbolic above (pg. 2). Is intention to accept required in a unilateral contract where the requested act is performed? Is motive relevant? Intention to accept is required in a unilateral contract, but the offer does not need to be the main motive for action Williams v. Cawardine Offer of a reward to anyone providing information leading to the arrest of the murderer of C s brother, advertised by handbill Issue: Does doing the requested act in itself constitute acceptance in this case? Decision: Yes. she knew about the offer. Although she may not have been doing it solely for the money, it was a consideration in her mind. She knew about the offer and performed Ratio: to accept an offer, one must only know about the offer and perform. The offer need not be the main motive for the action R. v. Clarke Offer of reward from Crown for information leading to the arrest and conviction of several individuals C provided information In this case, he provided the information to clear his name in regards to the murder The courts determined that since he was not considering the offer at all at the time, it was as if he didn t know about it cannot accept if you don t know Relies on Clarke s evidence which states that he wasn t thinking of the reward at all Ratio: there must also be an intention to accept. Normally, we would assume that doing the act is an intentional acceptance, but here Clarke rebutted that with his own testimony Does a response to an offer that includes terms different from those of the offer constitute an acceptance? What is the effect of a counter-offer? A response to an offer that has different terms is a counter-offer, not an acceptance A counter-offer terminates the original offer, unless it is renewed Livingstone v. Evans Evans contacted Livingstone for sale of land for $1800 L replies send lowest price. Will pay $1600 E cannot reduce price L accepts 6

7 Issue: is L s first reply a counter-offer that rejected (and therefore terminated) the original offer, or was it an inquiry about changing the terms? Decision: it was a counter offer. Issue 2: Is cannot reduce price a renewal of the original offer? Decision: Yes. Ratio: A counter offer terminates the original offer, unless it is renewed. Where documents containing inconsistent term were exchanged, how is the issue of consensus addressed? Should documents and circumstances be considered holistically to determine the parties reasonable expectations, or should the rules of offer and acceptance prevail? Offer and acceptance rules: Use the terms of whoever got the last blow in (submitted the last form with different terms that was in turn accepted). Modern Evaluation (holistic): Look at the whole process, all of the forms and determine where a consensus was reached on all material points. Butler Machine Tool Co. v. Ex-Cell-O Corp. Seller sends quote w/terms and conditions Buyer sends order w/tear off slip that order is accepted by seller on the buyer s terms and conditions Seller returns the slip Seller then ups the price upon delivery buyer sued Issue: Under whose terms was the contract made? Decision: The buyer s terms prevailed The seller returned a slip stating its acceptance of the buyer s terms directly Principle: Traditionally, the offer sets the terms. If an acceptance sets new terms, it is, in fact, a counter-offer (Offer and acceptance approach) Ratio: Terms and conditions of both parties are to be construed together. If the terms do not agree, they may have to be scrapped and replaced by a reasonable implication (Lord Denning s holistic approach) Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd. Request for quote from buyer back of form had terms and conditions with no reference to arbitration Seller sends quote back has their terms and conditions with no mention of arbitration clause of not being bound by any other terms on PO. Seller sent revised quote w/same terms Buyer sends PO with terms and conditions stating that accepting the order is subject to its conditions (acceptance copy not returned by seller) any controversy to be settled by arbitration Issue: Which terms prevail, and specifically, do the last terms prevail? Decision: No. Basically Lord Denning approach they could not reasonably conclude that both parties agreed to those terms. The terms were printed on the back. Ratio: A party cannot rely on a term that was not drawn to the attention of the other party, or you can reasonably conclude that the other party assented to it Can silence or inaction constitute acceptance giving rise to a contract? Yep. If a reasonable person would assume that acceptance was imposed, using an objective standard test, it could constitute a contract. In these cases, it may be necessary for a party to disavow acceptance. 7

8 Saint John Tug Boat Co. v. Irving Refinery Ltd. SJ was keeping tugs standing by for IRL for a premium. IRL continued to renew the contract IRL switched presidents, SJ continued the service under the assumption that without hearing otherwise, the contract would be renewed IRL denied acceptance of continuing to pay the standby fee, and they refused to pay the invoice charges Issue: Did silence constitute acceptance of the continued offer? Decision: Yes. o While normally silence would not mean acceptance, in this case it was deemed that SJ would reasonably believe that IRL wanted to renew. o IRL also continued to accept and reap the benefits of the service with the knowledge that the service was rendered for their benefit Ratio: If a reasonable person would assume that acceptance was imposed, using an objective standard test, it could constitute a contract. In these cases, it may be necessary for a party to disavow acceptance. The existence of a previous relationship, invoicing, etc are important here If an offer stipulates a mode of acceptance, can it be accepted by other means? Yes, but if acceptance is not in accordance with the terms of the offer, it must be in accordance with the objective of those terms. Eliason v. Henshaw Buyer offered to purchase flour, requested that acceptance be sent by carriage to Harper s Ferry. Seller accepted, but sent acceptance by mail to office in Georgetown Issue: Was the letter to Georgetown a valid acceptance? Decision: No. The buyers specified that acceptance be sent by carriage so that they would know when to expect it, and therefore when to buy from someone else. B/c the acceptance was sent to another place, they did not receive it in time, and they bought from someone else. Ratio: Acceptance must be in accordance with terms of the offer, or the objective of the terms When is acceptance communicated by mail effective? Postal Acceptance Rule: Acceptance is complete as soon as the letter is posted when the circumstances are such that it must have been within reasonable contemplation of the parties that post might be used as a means of communicating acceptance. The postal rule does not apply when contract specifies that acceptance must reach the offeror or if its application would produce large amount of inconvenience and absurdity. Look to see intention of the parties. If there is no evidence of intention, fall back on the postal acceptance rule. Holwell Securities v. Hughes Letter of acceptance to purchase land was sent, but was lost in the mail. Issue: Did plaintiffs exercise option to purchase by sending the letter if it was not received? Decision: No. 2 ways to come about it: o First, the option clause stated give notice, which means that the party must actually know. 8

9 o Second, court deemed that the postal rule does not apply when contract specifies that acceptance must reach the offeror or if its application would produce large amount of inconvenience and absurdity. Look to see intention of the parties. If there is no evidence of intention, fall back on the postal acceptance rule. Ratio: Postal rule does not apply under the above mentioned circumstances stated in the reasons Postal Rule: Acceptance is complete as soon as the letter is posted when the circumstances are such that it must have been within reasonable contemplation of the parties that post might be used as a means of communicating acceptance. This was a good rule for the times b/c they had done everything they could do (no instant communication) When an acceptance communicated electronically (i.e. instantaneous means of communication) effective? If acceptance is effective on receipt, what constitutes receipt? Instantaneous communication rule: Contract is made where and when it is accepted/received where the acceptee resides The responsibility of ensuring that acceptance is received is dependant on which end the court deems had greater knowledge about and control over potential communication failure Brinkibon Ltd. v. Stahag Stahl Und Staahlwarehandelsgesellschaft mbh Parties were in two different countries, buyers in England & sellers in Vienna A telex containing a counter offer was sent from Vienna to England acceptance by telex back to Vienna English courts can only hear litigation if contract was made in England Issue: Where was the contract of sale made? Instantaneous communication rule: Contract is made where it is accepted/received where the acceptee resides Telex (fax) is not exactly instantaneous Decision: Contract was made in Vienna o Intended place of acceptance should be determined by intention of the parties, accepted business practice, and where the risk should lie o Who should be responsible for ensuring that the acceptance was received? Here, court determined that when someone sends a telex message, the sender has the greater control and knowledge about potential communication failure, so has the responsibility of ensuring it was received Ratio: Acceptance must be received for the contract to be made instantaneous communication rule (but does not cover everything!) TENDERING CONTRACTS Does a contract arise on submission of a tender in response to an invitation for tenders? Yes! What are the obligations of the tenderer? After a tender is submitted, the tenderer cannot revoke the bid without being in breach of a contract R. v. Ron Engineering & Construction (Eastern) Ltd. RE submitted a tender and bid deposit to government of Ontario 9

10 RE forgot to include over $ worth of costs in their bid They called gov t and requested that the bid be revised due to the mistake not revoked, only revised. This was done before the tender was accepted Issue: Was there a contractual obligation created by the submission of the tender? Decision: Yes o SCC determined that the tender process itself is a contract ( Contract A ) with terms set by company calling for bids, and by submitting a bid, RE agreed to the unilateral contract call=offer, tender=acceptance. In contract B, tender=offer, acceptance by owner. o RE was bound by contract A, so could not revoke the offer without being in breach and losing their bid deposit. Policy?: If RE could revoke a tender, it may undermine the whole tender process What are the obligations of the person inviting tenders? There is an implied term that the person inviting tenders can only accept compliant bids, regardless of any privilege clause M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. DC called for tenders, MJB was the second lowest bid Lowest bid did not comply fully with specifications (qualified filler price with a note), but was still accepted Tender docs included a privilege clause stating that the owner need not accept the lowest, or any, bid Issue: Does the privilege clause allow the owner to accept a non-compliant bid? Decision: No o In the situation, people would generally assume that only compliant bids would be accepted. If noncompliant bids are accepted, then there is no point to outlining terms in the call for tenders. o Bids are expensive, and no one would make one. Thus, the term was deemed to be intended by both parties. o Although the clause said that they do not have to accept any bid, if they do accept a bid, it must be compliant. Damages are the expectation principle (where the would defendant be if contract had not been breached). Court deemed on a balance of probabilities that MJB would have gotten the contract if the non-compliant bid was not accepted, so they got profits equaling what they would have made from the contract. Ratio: There is an implied obligation to accept only compliant bids. The court can imply terms in a contract. CERTAINTY IN CONTRACT FORMATION Formation of a contract requires both parties to agree to be bound by set terms. Thus, there can be no consensus if terms defining parties obligations are not clear. o Are the language used and circumstances of the case such that it is possible to conclude that the parties reached a consensus? I.e. they must have reached agreement on all material points of their transaction/relationship. Does a contract arise where material terms of the agreement are vague? What principles of interpretation should be applied? If the material terms are too vague, a contract cannot exist 10

11 However, if it is clear that both parties intended for the agreement to be a contract, the court will try to interpret the words used so as to make it a contract R. v. CAE Industries Ltd. Gov t tried to get a private sector operator to run an air base negotiated with CAE. Letter from gov t to CAE to induce CAE to agree to purchase and operate the aircraft maintenance base. CAE is concerned that they won t make enough money, so the letter from gov t was assuring them that they would have a certain level of business. CAE didn t have enough business to turn a profit, and CAE sued gov t for breach of contract. Gov t argued that the terms were too vague. Issues: Was there intention to form a legally binding commitment? Were the terms too vague to constitute a contract? Determine intention objectively what did CAE reasonably believe? Focus on part (c) of letter- what does best effort or set aside mean? Decision: There was intention, and the terms were not too vague o Court read the phrase in context with the rest of the letter. It was determined that set aside meant that gov t would ensure that hours/year w/out going out to tender. o Best effort meant that, subject to qualifications, meant that the gov t would leave no stone unturned. Ratio: If it is clear that the parties intend to enter into a contract then the court should try to give meaning to the words used so as to make it a contract Note: For the remedy, CAE has to prove how many man hours of employment they would have had if gov t had given their best effort Can a contract exist where a material aspect of the parties agreement is to be determined in the future? Traditionally, no (May & Butcher), b/c it is too uncertain. Now, if the court deems that the agreement is sufficiently certain, a contract may exist (see below). May & Butcher Ltd. v. R. After WWI, gov t has army surplus and enters into agreement w/mb to sell all of the tentage to them as it becomes available. The precise amount of tentage was unknown at the time So, in the contract, the amount of tentage, the price (b/c they don t know the condition of the tentage), and delivery was TBD later on. So, they agreed to agree in the future Issue: Is an agreement to agree on a material issue a contract? Decision: No cannot agree to agree on a vital term of a contract o An agreement to agree is not a contract b/c you don t know what the obligations will be not enough certainty. o Court would not imply a term that it was a reasonable price b/c there was no agreement stating that. If they had said nothing about price, they could have implied a term, but the agreement said that they would agree to agree on it later. o Although there was a provision for arbitration in the case of disagreement, that only holds if there was a contract, which there wasn t Ratio: The time to determine issues of formation is at the time the agreement that is alleged to be a contract is made 11

12 When is an agreement to agree to terms in the future sufficiently certain to be recognized as a contract? When the court has sufficient machinery (aka an objective standard) to determine the reasonable expectations of a contract, the court will enforce the contract. Two sources of objective standards - a formula provided by the parties and the reasonableness standard. Court must either have machinery or be able to imply a standard of reasonableness in order to enforce contracts with terms TBD in the future Hillas & Co. v. Arcos Ltd. Hillas agrees to buy lumber from Arcos in a future lumber season. There is an option to have delivery, but Arcos did not deliver, arguing that they were not contractually obliged b/c there was a lack of specificity regarding the price and grade of wood. Issue: Was there a contract when the material terms are not fixed? Decision: There was a contract (trial said yes, COA said no, HOL said yes) o There was no set price, but there was an objective standard to determine it. There was a price list available, so there was machinery to allow a determination of price with sufficient certainty. o Standards of softwood lumber read this in context. The option was part of a larger agreement that used a reference to fair specifications. If they cannot agree on fair specifications, the law may imply a reasonable standard (objective standard), which provides the required machinery o Time of delivery was not uncertain. Even if it was, they can fall back on the Sale of Goods Act Ratio: When the court has sufficient machinery (aka an objective standard) to determine the reasonable expectations of a contract, the court will enforce the contract. Two sources of objective standards - a formula provided by the parties and the reasonableness standard. Note: This is different from May v. Butcher b/c here there is machinery to base the price on. Policy: In this case, Hillas had clear reliance on the option, so it was clear that the option itself was part of their consideration of the contract. Foley v. Classique Coaches Ltd P bought land from D at a given price, but also included the term that P would buy all gas from D at a price to be determined Decision: There was a contract. o Followed Hillas v. Arcos o If the parties clearly intended to enter into a contract, then the court should attempt to enforce it o Implied the term that the gas must be sold at a reasonable price and be of reasonable quality implied objective standard. So, the failure to establish all terms fully does not necessarily nullify the agreement. o Arbitration provision provided the machinery for interpreting what is reasonable Ratio: Court must either have machinery or be able to imply a standard of reasonableness in order to enforce contracts with terms TBD in the future. Policy: P would not have sold the land to D if D had not agreed to buy gas from them; thus, it was a large part of the consideration of the contract Can an agreement to reach terms in the future be enforced as an agreement to negotiate ( process contract)? Yes, in certain circumstances. Competing authorities, and SCC has not made a decision on it. There is some reluctance of courts to enforce an agreement to negotiate, but it happens. SCC implies a duty to perform, but not to negotiate. 12

13 Does a promise to negotiate in good faith create sufficient certainty to give rise to a contract? Sufficient certainty may be found in a duty to negotiate in good faith, but not necessarily will be Test: To imply a term of good faith (Empress Towers): o Parties must have both considered it and intended it to be a term o There must be an objective standard to measure An agreement to agree can be a contract provided that the terms/obligations are sufficiently clear and objective. Best efforts is better than good faith for an enforceable contract. Also, make sure there is an objective standard if possible. An agreement to negotiate in good faith can be a contract given that the parties both intended to do so, and there is an objective standard (good faith & objective machinery) in which to measure. Empress Towers Ltd. v. Bank of Nova Scotia BNS was renting from ET. BNS had a right to renew the lease once for 5 years with the same terms, with exception to the rent. The rent was to be renegotiated and agreed upon by both parties. If they could not agree, the contract could then be terminated by either party. BNS gives ET notice to renew w/rent suggested by an independent assessment. ET does not respond for an extended time, and when it does, it wants $15K up front, and new terms (including a 90 day termination provision) Issue: Does an agreement to contract at a market rate, as mutually agreed constitute a contract? Decision: Yes; it was contractually enforceable. o This was not an agreement to rent at market rate, due to the provision to agree on the rental price, but their was an implied term that the parties would negotiate in good faith to reach agreement on market rent, and the agreement would not be unreasonably withheld o This standard was deemed to be sufficiently objective to avoid uncertainty. Good faith = best efforts to reach agreement o Parties clearly intended to be committed to negotiate on rent, so by not attempting to negotiate at all, ET was in breach o The agreement was to agree on market rate, so they had an objective standard in which to measure the sincerity of the parties efforts Ratio: An agreement to negotiate in good faith can be a contract given that the parties both intended to do so, and there is an objective standard (good faith & objective machinery) in which to measure. Wellington City Council v. Body Corporate (Wellington)(New Zealand Case) Facts: City owned a number of properties, had leases with many people, and had an agreement to negotiate in "good faith" (this was an expressly stated term). Distinguishable from Mannpar and Empress b/c this was a new contract rather than a renewal. Issue: Is an agreement to negotiate in good faith a contract? Decision: No. o 2 contracts process contract (agreement to negotiate), and primary contract (actual contract) o Breach of the process contract requires a failure to try, but not necessarily a failure to agree o Good faith only requires the parties to be honest, but not reasonable, so it is not an objective standard Ratio: An agreement to agree can be a contract provided that the terms/obligations are sufficiently clear and objective. Best efforts is better than good faith for an enforceable contract. Also, make sure there is an objective standard if possible. 13

14 Can a promise to negotiate in good faith be implied? A duty to negotiate in good faith may be implied, but not necessarily will be (Wellington) A duty to negotiate in good faith may be implied where an objective standard exists against which to measure performance of the duty. (Empress Towers, compare Mannpar) The implied term is based on the officious bystander or business efficacy test; i.e.the intention of the parties determined objectively. See MJB Enterprise. A duty to negotiate in good faith will not be implied in the absence of a clear intention to create a binding contractual obligation. (Mannpar) *Also see Wellington above. Mannpar Enterprises Ltd. v. Canada Gov t grants M a 5 year permit to remove sand and gravel from a reserve. He has a right to renew for another 5 years w/renegotiation of the royalty rate and surface rental Gov t does not allow him to renew, and M argues that they are in breach to negotiate Issue: Is this enforceable? Should a term to negotiate in good faith be implied? Decision: No. o Gov t had obligation to respect the needs of the band on the reserve, so they did not commit to negotiate b/c they needed permission lacks the clear intention to be bound o There was no clear objective standard against which to measure good faith efforts no market rate Ratio: While there may be an implied duty to act in good faith, the court must analyze facts on a case by case basis to find it, and there must be an objective standard Courts are less likely to enforce an agreement to negotiate that is not a right to renewal in a previous contract Is there a contract where parties have reached agreement on the primary terms of the transaction but they contemplate the execution of a more detailed written agreement? No. Bawitko Investments Ltd. v. Kernels Popcorn Ltd. K is franchisor, B is franchisee. Parties orally agreed on some of the terms in their agreement both parties agree on that. Issue: Is a preliminary agreement a contract when the parties agree to execute a more complete contract at a later time? Decision: No. o Must have clear intention on both ends that the agreement should be binding still negotiating o The parties had not agreed on all essential provisions of the contract there were still major terms left to be decided Test for a binding contract: o Parties agree on all essential terms and provisions o Intention to be bound Note: There are cases in which courts have found a contract in a primary agreement tends to be determined based on facts Parties will often do primary negotiations subject to later contract 14

15 REMEDIES: What does the victim of breach receive? DAMAGES Available to victim of breach as of right, but if no loss is proven, they are nominal Damages are expectation what the victim of breach would have received had the contract been performed How can the award be quantified when the victim of breach cannot establish that there would have been a profit if the contract were performed? If the victim of breach cannot prove a profit if the contract were performed, he only gets nominal damages. Onus is on defendant to prove it if the plaintiff is running a loss Bowlay Logging Ltd v. Domtar Ltd. Domtar was to provide trucks for Bowlay lumber; Domtar did not provide trucks Bowlay was losing money in the contract Bowlay asked for reliance interests ($ spent in contract) Issue is what damages should be Decision: they received expectation interests, not reliance Ratio: A plaintiff is entitled to recover expenditures, but only to the extent that they would have had them if the contract was performed Onus is on defendant to prove that plaintiff was running a loss if that is the case Rebuttable presumption: presumption that plaintiff would at least have recovered expenditures if contract was performed Limitations Principle: plaintiff must prove their loss to receive expectation interest. If not, they are left with only a reliance claim. If defendants can prove that plaintiff was running a loss, only nominal damages are awarded Is the victim of breach entitled to recover all losses that can be proven to have been caused by the breach? Are any losses too remote to merit compensation? What principles govern? Loss must be reasonably foreseeable or communicated at the time of contract Reasonably foreseeable does not rely on what the defendant actually thought about, but what would have been foreseeable to him if he had thought about it Must take imputed knowledge (knowledge that a reasonable person in position of defendant would know) and actual knowledge (based on what defendant was told) into account. Any special circumstances must be communicated Other factors to consider when evaluating risk allocation: Type of contract sale v. carriage, etc. Subject matter of contract new BMW v. old dodge Character of parties do they possess expertise? Price paid by parties Usual practice of custom in this type of contract Insurance coverage for risk Hadley v. Baxendale Mill shaft was to be delivered by courier to the mill courier was late Issue: was plaintiff entitled to damages for loss of profits from shutting mill down due to the breach? Decision: No. Only nominal damages were awarded, because the loss was not foreseeable to the defendant 15

16 Ratio: Loss must be reasonably foreseeable or communicated at the time of contract in order to receive damages Note: Vicarious liability of employees for a company was not developed at the time of this case Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd. Facts: Newman sold boiler to Victoria, late delivery Issues: Were damages from lost laundry service recoverable? Were damages from loss of a lucrative dying contract recoverable? Decisions: Damages from lost laundry service were recoverable; damages from the dying contract were not Ratio: Reasonably foreseeable does not rely on what the defendant actually thought, but what would have been foreseeable if they had thought about it. Ratio 2: Must take imputed knowledge (knowledge that a reasonable person in position of defendant would know) and actual knowledge (based on what defendant was told) into account. Special circumstances must be communicated Note: This was an engineering firm selling a product, rather than a courier delivering it; thus, they are expected to have some special knowledge & know more than a courier would Are damages recoverable to compensate for intangible injuries such as loss of enjoyment or injured feelings? Is one of the objects of the contract to secure a psychological benefit? If so, apply the compensation principle, subject to: a) the ordinary principles of remoteness (i.e. Was mental distress within the reasonable contemplation of the parties?) b) determination of whether the degree of suffering warrants compensation Vorvis v. Insurance Company of British Columbia (1989 SCC) Aggravated damages = damages for mental suffering associated with a breach of contract. Punitive damages = damages to punish the party in breach for reprehensible conduct. Ratio: Subject to the peace of mind exceptions, damages can only be awarded in either category where the conduct of the party in breach constituted an independent actionable wrong. Fidler v. Sun Life (2006 SCC): Breach was insurance company s obligation to provide Fidler s disability pay. Issue: is Fidler entitled to additional damages for mental distress resulting from the breach? Decision: Yes. She received aggravated damages (but not punitive ones). Mental suffering was a clearly foreseeable consequence from breach of the contract. She did not have to establish an independent actionable wrong (tort). Punitive damages were rejected as the behaviour of the insurance company was not particularly malicious. Ratio: mental distress may be treated as any other loss rather than punitive or aggravated damages. 2 requirements: o Emotional well being must be an expected outcome of the contract o Person must have experienced mental suffering must not be too remote Are damages recoverable to punish the defendant for breach (punitive damages)? Requirements for Punitive damages: 1. Conduct must be an independently actionable wrong i.e., based on a cause of action independent of the primary breach of contract. 16

17 But the cause of action need not constitute a tort. Per Whiten, can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation. Primary breach = breach of promise to pay benefits separate breach = breach of good faith duty 2. Conduct must be deserving of punishment because of its shockingly harsh, vindictive, reprehensible or malicious nature. Whiten v. Pilot Insurance Co. Fire in Whiten s household; insurance company tried to get out of paying them. Issue is whether or not Whitens are entitled to punitive damages. Insurance company breached the duty to pay for Whiten s total loss. Must have an independent actionable wrong for punitive damages (Vorvis v. ICBC). Court awarded damages based on a breach of duty to act in good faith. This is the duty to act fairly in assessment of the claim, and was deemed to be an independent actionable wrong Ratio: court will grant punitive damages when there is an independent actionable wrong. Not acting in good faith is an independent actionable wrong This term is applicable when there is a relationship of vulnerability on one end, where one party has limited bargaining power. Additionally, the conduct must be deserving of punishment because of its overly indecent nature. Could the plaintiff reasonably have avoided some of the losses for which compensation is claimed? The Duty to Mitigate (Loss) Defendant cannot be called upon to pay for avoidable losses Avoidable losses are those that the plaintiff could have avoided by doing what was reasonable in the circumstances upon learning of the breach. The duty to mitigate therefore arises at the date the contract is breached, but mitigating action may be delayed if that would be reasonable in the circumstances (Asamera Oil.) The plaintiff may not delay taking action on the basis of a claim to specific performance unless there is a substantial and legitimate interest represented by specific performance Asamera Oil Corp. v. Sea Oil & General Corp Baud corp. lent shares to Brook, who was required to return them in December Brook sold the shares in Issue: What is Baud entitled to? The value of the shares varied greatly. (see ppt) Decision: the value of the loss is based on the date that the plaintiff should have purchased shares to mitigate the loss. Baud implicitly had the funds to buy shares. Although the price fluctuated, at certain points, it was stable enough that court determined it was reasonable to mitigate At a certain point, plaintiff should have either purchased shares or pursued litigation. It is at this point that the shares are valued. This duty may change depending on the financial position of the plaintiff and what is reasonable under the circumstances. In the event that the breach leaves you with resources to achieve performance elsewhere, you have a duty to do that (mitigate) If not, then you may or may not have this duty, depending on financial circumstances Ratio: Plaintiff must take all reasonable steps to mitigate the loss, and he is not entitled to damages for avoidable loss 17

18 If Baud had a legitimate legal claim to specific performance, they would not have had to mitigate SPECIFIC PERFORMANCE (EQUITABLE REMEDIES) Under what circumstances is specific performance or an injunction available as an alternative to damages? Plaintiff must prove that the subject matter of the contract is unique Only available when damages do not provide adequate remedy Specific performance is never granted for employment slavery-like. Occasionally, court will prevent D from working for anyone else if he quits, but even this is very rare John E. Dodge Holdings Ltd. v Ontario Ltd Dodge was contracted to purchase a piece of land from D Must get approval to subdivide land, which the sellers could not get Sellers then could not sell the land this was deemed a breach of contract despite informing P in advance Issues: When is a victim of breach entitled to specific performance? What is the date of the actionable wrong? Was the property unique? Traditionally, specific performance was always available when the contract involved a sale of land b/c every piece of land is unique but not anymore Date of wrong is the date that P knew that contract would not be fulfilled. It is at this point that the uniqueness of the land should be examined Note: P did not have duty to mitigate if they have a legal claim to specific performance Decision: The land was deemed unique, and specific performance granted Due to location (purpose of land to P was to build hotel), land was particularly well suited Ratio: P is entitled to specific performance if he can prove that the subject matter of the contract is unique. Is an order for specific performance precluded by a recognized defence? Yes: a) Mutuality: only award specific damages if we would award them to the other party if roles were reversed b) Misrepresentation & mistake: SP is not granted in cases of misrepresentation or mistake c) Conduct of Plaintiff: plaintiff must behave well against defendant d) Hardship: if SP causes unnecessary hardship, it may not be granted CONSIDERATION What is required to establish consideration in a promise? There must be obligations for both parties (Dalhousie College v. Estate of Arthur Boutilier) There must be consideration of the benefit gained from the other party when doing the promised action, not just a simple exchange of benefit (Brantford General Hospital Foundation v. Marquis Estate) The Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier, Deceased pg 157 (1934 SCC) Man sent letter promising to donate $5000 to Dalhousie for some general college things (buildings, teaching, etc) 18

19 Issue: Is the promise enforceable as a contract? Decision: No. o No consideration b/c Dalhousie did not promise to do anything o Although it says consideration of subscriptions of others, that is between B and others, not Dalhousie o Letter was only terms of a gift, which is unenforceable Ratio: A promise to give a gift is not a contract, even if it is conditional. There must be obligations for both parties. Note: This would have been different if the College had promised to build a specific building or do something specific if the money was given Brantford General Hospital Foundation v. Marquis Estate pg 161 (2003 ONSC) M promised to give $1 million at the rate of $200K/year for 5 years. After the first year, she died. The remaining $800K was not paid Issue: Is the promise to rename the hospital enough to establish consideration? Decision: No. o Evidence showed that M did not consider that at all in her decision o She did not request it, nor was it agreed to as a bargain o Although she donated the money for the hospital to build a new wing, there was no direct promise from the hospital to do so no bargain. Ratio: There must be more than an exchange of benefit for consideration to be established. There must be consideration of the benefit when doing the promised action. Can an implied promise account for consideration? Yes, although if it is impossible to identify any actions or failure to act that would constitute a breach of contract, then no obligation was undertaken (Wood v. Lucy, Lady Duff-Gordon) Wood v. Lucy, Lady Duff-Gordon pg 182 (1917 American) Agent was given absolute right to market LDG s products in return for LDG getting half of the profits. He said that he would report to her regularly. LDG argued that this is not a contract b/c he does not actually have to do anything. Issue: Is this a contract? Decision: Yes. o Court implied a term for agent to market products o B/c he promised to report to her, he did have duties Ratio: Need obligations on both sides for consideration, but an enforceable obligation may be found in an implied promise. Terms will be implied when a reasonable person would have agreed to it. Note: If it is impossible to identify any actions or failure to act that would constitute a breach of contract, then no obligation was undertaken. Can an act done before the making of a promise ever constitute consideration in some circumstances? Traditionally, no. If the plaintiff did the labour for the defendant voluntarily, and out of his own will, he cannot recover any monetary compensation for his actions. However, if the labour is performed at the request of the 19

20 defendant, and if a promise of compensation follows the labour, the plaintiff is entitled to recover it (Lampleigh v. Brathwait) Promises supported by past considerations are only enforceable to the extent that the value of the promise is proportionate to the benefit. Eastwood v. Kenyon (1840) Young orphan is to inherit property when she comes of age Guardian spent money on her education, maintenance and support Normally court could imply that woman would repay guardian (which she promised to do) A young man falls in love with the girl, becomes engaged, and offers to pay the guardian instead goes back on promise later D won court deemed that past consideration is no consideration at all in regards to enforcing a contract. Lampleigh v. Brathwait pg 185 (1615 All ER) D committed a murder, requested P to do his best to obtain a pardon from the King for him. P rode around and got the pardon. After, D was so thankful that he offered to pay D 100 pounds. However, D did not pay argued that since action was before promise, there was no consideration. Issue: Is there consideration here? Decision: Yes. o There is an obligation to pay a reasonable sum for the service rendered, as it is between strangers (Lady Duff-Gordon) o By agreeing to the 100 pounds, P gives up his right to sue for (or receive/bargain for) a reasonable sum this is P s consideration o D s consideration his promise to pay Ratio: If the plaintiff did the labour for the defendant voluntarily, and out of his own will, he cannot recover any monetary compensation for his actions. However, past consideration is good consideration when an act is performed at the request of the other party or when there is reasonable expectation for compensation. Note: Promises supported by past considerations are only enforceable to the extent that the value of the promise is proportionate to the benefit. Can an act of forbearance (a promise not to sue in return for a settlement) constitute good consideration? Yes. In addition, even if the person did not actually have the right to sue, the forbearance can be good consideration as long as the person honestly believed that he had the right (Callisher v. Bischoffsheim) Callisher v. Bischoffsheim pg 171 (1870 English) P intended to sue gov t for shorting him money. D offered to give P bonds so he would not pursue his legal action. The securities were not delivered, and P took action against D. P s original claim was not an actual claim, but both parties though that it was. Issue: Is a promise to forbear legally binding even if the settlement is based on a dubious claim? Decision: Yes. o P honestly believed that he had a cause of action he thought that the right that he gave up in the settlement was worth something 20