CONTRACTS LAW. Fall 2015 CAN IQRA AZHAR

Transcription

1 CONTRACTS LAW Fall 2015 CAN IQRA AZHAR

2 Contracts CANs Fall 2015 Iqra Azhar 1 1. Table of Contents 1. FORMATION OF A VALID CONTRACT... 5 Offer and Invitation to Treat... 5 Canadian Dryers Association v Burton... 6 Pharmaceutical Society v. Boots... 6 Carlill v. Carbolic Smoke Ball Co Goldthorpe v. Logan... 7 Tenders... 8 Harvella Investments Ltd. v. Royal Trust Co of Canada... 8 R. v. Ron Engineering & Construction (Eastern) Ltd... 8 M.J.B. Enterprises Ltd. v. Defence Construction... 9 Double N. Earthmovers Ltd v. City of Edmonton... 9 Communication of Offer Blair v. Western Mutual Benefit Assn Williams v. Carwardine R. v. Clarke Revocation (Termination of Offer) Dickinson v. Dodds Byrne v. Van Tienhoven Errington v. Errington and Woods Dawson v. Helicopter Exploration Co Livingstone v. Evans Lapse of Time (Termination of Offer) Barrick v. Clark Manchester Diocesan Council v Commercial and General Investments ACCEPTANCE The Postal Rule: Household Fire v. Grant Holwell Securities v. Hughes Brinkibon v. Stahag Stahl ProCD v Matthew Zeidenberg Eliason v. Henshaw Silence St. John Tug Boat Co. v. Irving Refinery Ltd Felthouse v. Bindley... 17

3 Contracts CANs Fall 2015 Iqra Azhar 2 Battle of Forms: Butler Machine Tool v. Ex-cell-o Corp Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd Tekdata Interconnections Ltd v. Amphenol Ltd CERTAINTY OF TERMS R. v. CAE Industries Ltd Incompleteness and Agreements to Agree May & Butcher v. R Hillas v. Arcos Ltd Foley v. Classique Coaches Good Faith (Bhasin v Hrynew) Agreements to Negotiate : Case Law Empress v. Bank of Nova Scotia Manpar Enterprises Ltd. v. Canada Wellington City Council v. Body Corporate Bawitko Investments Ltd v. Kernels Popcorn Ltd INTENTIONS TO CREATE LEGAL OBLIGATIONS (RELATIONS AND FORMALITIES) Balfour v Balfour Rose and Frank Co v. JR Crompton and Bros Toronto Dominion Bank v Leigh Instruments Ltd Canadian Taxpayers Federation v Ontario Minister of Finance Formality: Contracts Under Seal and the Requirements of Writing Royal Bank v Kiska Delgman v Guaranty Trust ENFORCING PROMISES CONSIDERATION Thomas v Thomas Governors of Dalhousie College v The Estate of Arthur Boutilier Wood v Lucy, Lady Duff Gordon Past Consideration Eastwood v Kenyon Lampleigh v Brathwait Performance of Existing Duties A Duty Arising Under a Contract between the Promisee and a 3rd Party Pao On v. Lau Yiu Long... 30

4 Contracts CANs Fall 2015 Iqra Azhar 3 A Duty Arising Under a Contract Between the Promisor and the Promisee Stilk v Myrick Gilbert Steel v. University Construction Ltd Greater Fredericton Airport Authority Inc. v. Nav Canada William v Roffey Bros PART PAYMENT: A Duty Arising Under A Contract Between The Promisor And The Promisee: Promises To Accept A Lesser Payment Section 43 Part Payment Foakes v. Beer Re Selectmove Foot v Rawlings Process Automation Inc. v. Norstream Intertec Inc. & Arroyave Value in the eyes of the law - Compromises and Forbearance to Sue D.C.B. v Harold J. Arkin and Zellers Inc PROMISSORY ESTOPPEL Waiver General Principles of Promissory Estoppel Hughes v. Metropolitan Railway Company Central London Property v. High Trees House Collier v. P & M J Wright Elucidation of Principles John Burrows v. Subsurface Surveys D & C Builders v. Rees Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance WJ Alan v El Nasr The Post Chaser Shield or Sword Combe v. Combe Walton Stores (Interstate) Pty. Ltd. v. Maher M. (N.) v. A. (T.A.) PRIVITY OF CONTRACT Tweddle v Atkinson Dunlop Pnewmatic Tyre co ltd v Selfridge & co Beswick v. Beswick Exceptions to the Doctrine of Privity... 44

5 Contracts CANs Fall 2015 Iqra Azhar 4 London Drugs Ltd. v. Kuehne & Nagel International Ltd Edgeworth Construction v ND Lea Associates Fraser River v. Can-Dive... 45

6 Contracts CANs Fall 2015 Iqra Azhar 5 1. FORMATION OF A VALID CONTRACT Elements of a Valid Contracts lack of these makes the contract VOID 1. Agreement (Offer and Acceptance) 2. Intention to create legal relations 3. Certainty of terms 4. Consideration (Promise must be bought in some way to be enforceable) Offer and Invitation to Treat An offer consists of an indication, by words or conduct, that the person making it the OFFEROR is willing to accept a legal obligation to do, or to refrain from doing, something if the person to who it is addressed the OFFEREE agrees to its terms. Doesn t require further negotiation An invitation to treat is a preliminary step in negotiations an invitation to another person to make an offer/ An express willingness to negotiate Invite to treat can specify the type of offer (bid) required (ex: fixed price OR auction) Importance of distinction because only an offer is capable of acceptance. You can t accept an invitation to treat. General Rule: Giving a mere price quote, or placing good on display, or publishing an advertisement is NOT an offer but an invitation to treat 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) o Unilateral contract is made where there is complete performance (Errington v Errington) 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) the law distinguishes bw offer and invit to treat Offer can be accepted Treat invitation to negotiate, cant be accepted Adverts are not offers, they re invitations to treat o EXCEPTION: But its possible that sometimes an advert is an offer ie carbolic smoke ball/goldthorpe

7 Contracts CANs Fall 2015 Iqra Azhar 6 Canadian Dryers Association v Burton Post-contractual conduct of the seller may indicate an offer valid of acceptance Facts: P asked D twice (a year apart) for the lowest price of sale (1$,650). The second time was treated as an offer and accepted. A $500 cheque was sent, the D sent a draft deed and said they would close on the 1 st of the following month. On Nov 5 th, the P said there was no offer and returned the cheque. Issue: Whether the statement of the lowest price constitutes an offer to sell Rules: The mere quotation of price is not an offer, it s an INVITATION TO TREAT (allows that person to make an offer now). Sending a quotation is not binding, it s the basis of negotiation Test for distinguishing an offer from a mere quotation of price: 1. Apply an objective test of the words and actions of the parties involved to determine if they constitute an offer or an invitation to treat. 2. Check the language used, the specificity of the advert focus on the intention (usually objectively ascertained) of the parties and the circumstances Analysis: The D s actions (sending the deed) show that he regarded the first letter as an offer and the second as making a contract. Why is offer and acceptance important in contract formation? Offer and acceptance provides an indication that the parties have consented to the transaction You need offer and acceptance to constitute a contract in CL In communication, you have to be able to clearly identify in the correspondence that this is an offer and this the acceptance Pharmaceutical Society v. Boots Display of goods in a store is an invitation to treat Facts: D pharmacy where customers selected the articles from the shelf & then pay at the cashier. Some of the products, according to the Pharmacy and Poisons Act, had to be sold under the supervision of a pharmacist. The Society argued that displays of goods were an "offer" and when a shopper selected and put the drugs into their shopping basket, that was an "acceptance". Therefore because no pharmacist had supervised the transaction at this point, Boots was in breach of the Act. Boots argued that the sale was effected only at the till. Issue: when the agreement of sale takes place. Whether its when the customer places the item in their buggy or when they go up to the cashier to pay it. Rule: Goods on a display are invitation not an offer; the customer makes an offer when they take the goods to the register.

8 Contracts CANs Fall 2015 Iqra Azhar 7 Judgement: The Court held that the display of a product in a store with a price attached is not sufficient to be considered an offer, but rather is an invitation to treat. The sale takes place at the till and that it where the pharmacist is there to supervise, thereby not in violations of the respective legislation Carlill v. Carbolic Smoke Ball Co. (Unilateral contract; public advertisement; acceptance by performance; offer can be made to large group or indiv; EXCEPTION CASE: Advert is an offer) Facts: D made an advert in the newspaper to compensate anyone who used their product and still caught the influenza. They said they put money in the bank, which indicates their commitment to the offer to satisfy their promise Issue: 1) Whether acceptance of an offer has to be clearly expressed to the offeror, in the case of an advertisement? 2) Is notice of performance enough of a notice of acceptance? by using the machine did they implicitly agree to the contract - YES Rule: An advertisement can constitute a unilateral contract, which can be accepted by fulfilling the conditions of the contract; no formal acceptance required. Acceptance is complete when you satisfy all the conditions. Rule regarding silence: you can accept unilateral contract by silence through performance of conditions Analysis: The contract was not with the whole world, but rather with those who fulfill the stipulated conditions. The only condition was using the smoke ball, not the taking of the influenza. If one used the ball before the ad and got the flu there would be no contract. Inconvenience sustained by one party ) at the request of another is enough to create a consideration judge thinks its consideration enough that the plaintiff went through the trouble of using the smoke ball Goldthorpe v. Logan Implied promise offeror bears the risk of extravagant promises unilateral contract; EXCEPTION CASE: Advert is an offer Facts: Logan had ad guaranteeing the results of full and permanent hair removal procedure. P gets hair removed through several treatment but the result is unsatisfactory. P claims damages suffered due to negligence Issues: Whether an advertisement declaring a guarantee constitute an offer that, if accepted, results in the creation of an enforceable contract? Rule: An advertisement constitutes an offer that can be accepted on the terms it proposed, no matter how extravagant the promise. Analysis: The advert says it s a guarantee, which the court treats as an offer. So there was a breach of contract because the D did not fulfil their promise. The D made promises that were absolute and unlimited they were reckless and rash without regard to what was required or suggested.

9 Contracts CANs Fall 2015 Iqra Azhar 8 Tenders The tendering process is characterized by two contractual stages. At the first stage, the owner issues a tender, in response to which bidders submit bids. This creates a first contract "Contract A" between the owner and every compliant bidder. At the second stage, when the owner accepts a bid, a second contract "Contract B" is formed. This is the actual contract to supply the equipment or to perform the work that was the subject-matter of the tender. A bidder's bid thus constitutes both an acceptance and an offer. It constitutes an acceptance of the owner's offer to receive and consider tenders, and it simultaneously constitutes an offer to perform the tendered contract. It s a 2 part contract formation: An invitation to tender is treated as an offer 1. Contract A: Submission of a valid tender (bid) is acceptance of the offer. It s an actual contract and can be breached. The courts can imply terms into this contract. Treat it as any other contract!! 2. That tender (bid) that is chosen is the basis for forming an actual contract to do the work (Contract B) made bw the owner and only one of the bidders (the one chosen to contact with) If you have a winning bid, you subsequently enter into contract B Harvella Investments Ltd. v. Royal Trust Co of Canada (Tenders; auction, referential bid; fixed bidding) Facts: Royal Trust invited Harvella and a 3P to make offers to purchase shares. The invitation said that the highest bid would be accepted. Harvella offered a fixed bid, 3P made referential bid (after Harvella previously submitted a higher bid). Harvella sued for breach of contract, saying referential bid was invalid Issues: Whether the D s offer to purchase shares was a fixed bidding sale or an auction sale Rule: The invitation is controlling the nature of the offer -> the invitation invited only fixed bids, not referential. So it controls what the offer should look like Analysis: Although the invitation to treat isn t an offer, it doesn t mean that its legally insignificant (though its still not binding) The judges said the D was bound to accept the higher original offer (the plaintiff) R. v. Ron Engineering & Construction (Eastern) Ltd (The terms of contract A can be binding; Sets out contract A/B process) Facts: RE submitted a tender with a deposit (as required). After the tender closed, RE realized they made a mistake and sent in the wrong bid. They informed the owner of the mistake and tried to have the offer changed. The change was refused, the contract was given to another company, and the owner kept Ron Engineering's bid deposit. Ron Engineering sued to get their deposit back Issue: (a) whether the acceptance of a call for tenders for a construction job could constitute a binding contract. - YES (b) Whether the contractor was allowed to withdraw his bid and recover his deposit -NO Rule: Bids at once become irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made, if such terms so provide.

10 Contracts CANs Fall 2015 Iqra Azhar 9 Analysis: This was a unilateral contract. The invitation to tender is an offer, the submission of bid in response to that invitation is acceptance of that offer. Then it becomes a contract. So the contract you enter into on the basis of invite to tender, says that you can t get your money back. The P went into court thinking that an invitation to tender could be treated as an invitation to treat, not invitation to offer. M.J.B. Enterprises Ltd. v. Defence Construction (Privilege clause; valid bid only; Tenders Facts: D invites tenders for construction project. MJB has the second lowest offer. A schedule was missing in the invitation for tenders, & the prices of the tender bids did not reflect their material costs. There was also a clause in the tender docs called the privilege clause which said that its wasn t necessary that the lowest/or even any tendered would be accepted. The tenderer that was accepted, had included a note saying that their price didn t reflect the material costs and if that was the case their costs were higher. MJB said that this note invalidated the tender. But the D said it was merely a clarification of the bid. Issue: Whether the inclusion of a privilege clause in the tender doc allows the person calling for tenders (owner) to disregard the lowest bid in favour of any other tender, including a non-compliant one? Was there a contract A in this case and what obligation did it impose on the owner? Rule: (i) A privilege clause is only compatible with accepting compliant bids. (ii) In the absence of a privilege clause, you are most likely to be bound to accept the lowest offer. Analysis: The implied obligation was to accept only a compliant tender. It was an invitation for valid tenders.a contractor submitting a tender is not at liberty to negotiate over the Terms of the tender docs (as lowest bidder did in its note) Judge says even tho privilege clause isn t ambiguous, it has to be read in harmony with the rest of the Tender Doc. Since the respondent did breach its obligation to the appellant and others that it would only accept compliant tender Contract A breached Double N. Earthmovers Ltd v. City of Edmonton No duty to investigate compliance; duty to treat bids fairly; A discharged when B is entered Facts: City awarded contract to rival company despite non-compliant bid Issue: Whether the City breached a contract with P by awarding the tender to a non-compliant bid - NO Rule: When owner accepts compliant bid and enters Contract B, Contract A is fully discharged and owner has no further obligations to unsuccessful bidders.

11 Contracts CANs Fall 2015 Iqra Azhar 10 Communication of Offer Offers need to be communicated in a way that the reasonable person would consider to be capable of acceptance and the offeree is able to respond (Blair Mutual) Offers can be communicated to an indiv or a large grp of ppl, (You can t object by saying that the grp was too large Carbollic Smoke Ball) You must intend to accept an offer (Williams v Cowardine) BUT you can t intend to accept unless you are aware of the offer (R v Clarke) If the circumstances are such that you must have been aware of the offer and you fulfilled the act required, then it will be presumed you intended to accept (Williams v Cowardine) But if you say you have no knowledge of the offer and/or didn t to accept, then the court won t presume intention to accept (Clarke) Blair v. Western Mutual Benefit Assn (Must be effective comm. of an offer w/ the intention to deliver the offer capable of acceptance) Facts: Blair was a secretary and was asked to transcribe meeting notes in which it was said that if she retired she d get a retirement fee. She took that resolution as an offer. Though it was never communicated directly to her. When she retired they said there was no promise of a retirement. Issue: Whether there was communication of an offer? Was the meeting resolution an offer - NO Rule: For an offer to be valid, it must be communicated to the person intended to accept it and must be communication in a reasonable way capable of acceptance. Analysis: The use of the A s tech services (to transcribe notes) can t be meant as an intention to communicate the offer. But the offer wasn t communicated in a way that gave her the option of accepting it (therefore, not an offer) No way of acceptance was created in the offer Williams v. Carwardine (Must be aware of offer if you intent to accept as long as you are aware of it & fulfill the conditions, intention to accept presumed and other motives don t matter) Facts: P responded to a public ad (handbill) offering reward to info that leads to the discovery of the murderer of D s bro (P s husband was involved in murder). P thought she didn t have long to live and wished to clear her conscience (motive). Issue: Whether a contract was formed even though P didn t confess to claim reward? (P wants reward now even tho she didn t know of it before) Yes, unilateral contract formed Rule: The motive of an indiv in accepting the contract offered has nothing to with their right to recover [the reward] under the contract because is it difficult to OBJECTIVELY ascertain Analysis: P clearly performed the terms of the offer [provided info abt murder]. And she must ve known bc the ad was posted all over town. A contract was formed with any person who performed the condition, regardless of their motivation

12 Contracts CANs Fall 2015 Iqra Azhar 11 R. v. Clarke To accept a contract thru performance, you have to intend to accept, & to do this you must have knowledge of the offer Facts: Clarke wants the Crown to pay a reward it had offered for info leading to the conviction of a murderer. But he gave it while he was under investigation himself for murder. It was uncertain whether he was thinking about the reward at the time he provided the information. And then later decided to claim the reward Issue: Whether there was a valid contract? NO, Rule: You cannot accept an offer you don t even know exists, or that you have forgotten exists Analysis:The law treats intention to accept as significant but the motive behind acceptance immaterial BECAUSE: At the time of giving the info, the reward wasn t on his mind (tho he was previously aware of the award he forgot) Contracts involve voluntarily assumed obligations, you can accept obligations that you aren t aware of because you aren t even aware of the existence of the offer. Thus you can t accept it Acceptance should mirror the terms of the offer, if it deviates, it will be seen as a counteroffer Revocation (Termination of Offer) Rejection is a response to an offer. It destroys/terminates the original offer, although it may be revived by the offeror. (Livingston v Evans) Nature of a counter offer counteroffer also terminates/destroys an original offer. Counter offer is not an acceptance, its in essence a rejection TEST for counter offer vs request for info: whether a reasonable person in the position of the recipient would regard the response to the offer as introducing a new term into the bargain and not as a clean acceptance of the offer. o Material nature of the term introduced [See Livingston v Evans] if you change the price of the item, that s a counter offer Effect of a counter offer is to destroy the original offer Dickinson v. Dodds You can revoke an offer expressed or implied any time prior to acceptance; must be communicated beforehand directly/indirectly; No binding promise to keep offer open Facts: D made an offer to sell property to P but then accepted an offer from another buyer. P found out D was selling to someone else, then tried to submit his own acceptance of offer Issues: Is an offeror bound to not revoke the offer and sell to someone else? No, someone else accepting is an implied revocation of your offer of acceptance Rule: a) An offeror is free to withdraw their offer at any point until the offeree has accepted it, so long as the offeree has not provided any sort of consideration. b) An offeree must have knowledge of a revocation, but explicit communication is not required.

13 Contracts CANs Fall 2015 Iqra Azhar 12 Analysis: A promise to keep an offer open is not binding on the offeror, they can revoke it anytime. If the offeree wants the promise to keep it open off, then they have to provide consideration to prove they will accept the offer Byrne v. Van Tienhoven Revocation of an offer doesn t have effect until communication of the revocation is received by the offeree; Postal Rule Facts: D made an offer on the 1 st which was received by P on the 11 th and immediately accepted by telegram. But on the 8 th the D had sent a revocation of the offer which was received by P on the 20 th, after P has already agreed to sell shipment to a 3 rd party. So P sued for breach of contract for failure to deliver Issue: 1) Whether withdrawal of offer has any effect until it is communicated to the person to whom the offer was made- NO 2) Whether sending a letter of withdrawal is a communication to the person to whom the letter is sent NO. Postal rule doesn t apply (only applies to acceptance of offer) Rule: Revocation is only effective once it has been communicated to/received by the offeree Errington v. Errington and Woods Unilateral contract; Exception to revocation: you can t revoke on part performance w/o giving a reasonable amount of time to fulfill performance requirements Facts: Father offers to purchase house on the condition that his daughter and her husband pay off the mortgage upon which he would transfer house to them- couple made payments. They couldn t keep up with the payments, so the father paid those too. Father dies, Errington wants possession of the house Issue: Can a unilateral contract be revoked after the death of the offeror Rule: A unilateral offer cannot be revoked once the offeree entered on performance of the act requested; but it would cease to bind him if the offeree left the requested act incomplete or underperformed Analysis: Fathers contract was unilateral and he wasn t bound to transfer the house to them if they failed to pay the installments. He didn t promise the house in return for paying the mortgage instalment Dawson v. Helicopter Exploration Co (Bilateral contract; Offer could only be accepted by the requested performance of an act) Facts: D approached P about mining area of his land - wanted to take him there - P in military so needed helicopter provided by D - P waited for response in arranging helicopter - D responded said they changed their minds and were not going to go - later D contracted with another party for the development of the land Issues: Whether there was a valid contract established through the correspondence? -YES The issue was of performance. One had to perform in order for the other to perform Rule: the offeror in a bilateral contract cannot revoke the contract for want of performance if he or she fails to discharge his or her complimentary obligation to perform.

14 Contracts CANs Fall 2015 Iqra Azhar 13 Analysis: Court is saying this was a promise for a promise. One s obligation was to take into the land, the others was to pay 10% this is the contract Livingstone v. Evans (REJECTION & ACCEPTANCE; A counter-offer is a rejection of the original offer; a mere inquiry of price is not) Facts: Evans wrote to Livingstone proposing to sell a piece of land for $1,800. Livingstone wired in return "Send lowest cash price. Will give $1600 cash." Evans responded with "Cannot reduce price." Livingstone then wrote to accept the original offer of $1,800. Evans no longer wanted to sell to Livingstone, Livingstone sued for specific performance Issue: a) Whether the 1 st telegram from L was a counter offer? - YES b) If so, did this counter-offer constitute a rejection of Evans offer and free Evans from it? - YES Rule: when an offer has been rejected it is thereby ended and it cannot be afterwards accepted without the consent of the one who made it. Analysis: You can t accept an offer once it s cancelled. The offeror can make a new offer, it would have to be a new contract Distinguish bw a mere request for info and a counter offer (a rejection of the offer, and proposes diff terms) In this case there was a counter offer A counter offer rejects the original offer Lapse of Time (Termination of Offer) Barrick v. Clark An offer is open for the period of time specified/or a reasonable amount of time Facts: P makes offer on D s property. D makes counteroffer. That letter isn t received by P but by his wife who requests that D hold the offer for 10 days. On the 10 th day D accepted offer from someone else but on the 10 th day P had also sent a letter of offer/acceptance and deposit cheque. Issue: what was the reasonable time that the offer could ve been left open for? Rule: The offer is open for the period of time specified in the offer, otherwise its open for a reasonable amount of time assessed Analysis: Case demonstrates that an offer may be terminated if the time passes Reasonable time depends on the circumstances of the case and the terms of the communication bw the parties

15 Contracts CANs Fall 2015 Iqra Azhar 14 Manchester Diocesan Council v Commercial and General Investments An offer must be accepted within a reasonable amount of time or it can be considered refused/withdrawn Issue: Is an offer refused simply by not responding to it within a reasonable amount of time? YES Rule: Identifies 2 theoretical bases for the rule that an offer is open for acceptance only for a reasonable time 1. There s an implication that if an offer isn t accepted within a reasonable time, it must be treated as a withdrawal. 2. Or if an offeree doesn t accept an offer within a reasonable time for acceptance, then its treated as a refusal ACCEPTANCE A contract isn t complete until the offerree indicates their acceptance of the offer. It completes a contract and signifies the end of negotiations The offeree s acceptance is the consideration for the promise. BUT consideration and acceptance are not the same. You can accept an offer by performing an obligation you already promised. But that s not consideration in the eyes of the law Who may accept? Only the person to whom the offer is addressed How is offer accepted? Oral, writing, conduct (referable to offer and unequivocal) Communication of acceptance Crucial because its constitutes the consideration of the offerees acceptance acceptance must be unequivocal, absolute and unconditional Acceptance involves a manifestation of an intention to be bound. That intention is objectively ascertained Objective test principles can be qualified or deviated in some circumstances. Ex: of the offeree knows the offeror doesn t intend to make an offer, but still accepts. The court won t hold that as a contract Acceptance should be consistent with mode of acceptance suggested by the offer o If offer says to accept by post, that s what you do o Offeror controls mode of communication and form of acceptance required The Postal Rule: a posted letter of acceptance takes effect at time of posting (from CL) Rule only applies to acceptance, NOT revocation Rule doesn t apply where its application would be grossly inconvenient Doesn t apply if its addressed to someone else accidently by the offeree

16 Household Fire v. Grant Contracts CANs Fall 2015 Iqra Azhar 15 Facts: D applied for shares in P s company. P sent the allotment letter to D but it was never received. But D kept receiving credit on his account w/o knowing. Then company went into liquidation. The liquidator applied for the sum sued for from the D. but the D refused to pay bc he wasn t a shareholder Issue: When do acceptances becoming binding when they are sent via mail? - It s a complete final and binding contract once an acceptance of an offer is POSTED Rule: The offer is accepted when the acceptance [letter] is placed in the mail/posted, not when the offeror receives the acceptance Analysis: Judge decides to treat the post office as the agent of both parties So, as soon as the letter of acceptance was delivered to the post office, the contract is made as complete and final and absolutely binding. Holwell Securities v. Hughes (Postal rule exceptions: If notice is expressly required OR if its application would produce inconvenience and absurdity.) Facts: D granted P 6 month option to purchase property & stated that the option had to be exercised by notice in writing. P s lawyer sent letter of acceptance to D by mail, but it was never delivered. D refused to sell P the property Issue: What constitutes notice - The postal rule does not apply in situations where a notification of acceptance has been specified. [RULE] Analysis: The postal rule does not apply where an express term in the offer specify that acceptance must reach the offeror; or if its application would produce manifest inconvenience and absurdity; or if having regard to all the circumstances, the negotiating parties cannot have intended that there be a binding agreement until the party accepting the offer had in fact communicated acceptance Brinkibon v. Stahag Stahl (Instantaneous communication; multi-jurisdiction; Acceptance by fax is effective upon its receipt) Facts: The appellants (buyers) sued the respondents (the sellers), an Austrian company, for breach of an alleged contract for the supply of steel. There was a provision which said that the buyers must show the contract was made within the jurisdiction Issue: Where is a contract created when it is between parties in two jurisdictions? Rule: In cases of instantaneous communication, 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.

17 ProCD v Matthew Zeidenberg (Shrink Wrap; electronic license agreements) Contracts CANs Fall 2015 Iqra Azhar 16 Facts: 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) Issue: Did Zeidenburg breach license agreement with ProCD? - YES Rule: Shrink-wrap licenses are enforceable, unless their terms are objectionable on grounds applicable to contracts in general Analysis: A vendor can invite acceptance of offer through conduct. A buyer can accept by performing the acts the vendor proposes to treat as acceptance ProCD proposed a contract that a buyer would accept by using the software after reading the licence. Zeidenberg did, he had to always see the license displayed on the screen before using the software and click accept A buyers accepts goods when after an opportunity to inspect, he fails to make an ineffective rejection ProCD did offer an opportunity to reject if the buyer found the licence terms unsatisfactory Eliason v. Henshaw (Offeror s Control; The offeror can stipulate the time and the manner of acceptance) Facts: 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 Issue: Whether there was a contract? NO, E has the right to dictate terms upon which they would purchase flour unless complied with they are not bound by them Rule: Offeree must follow the terms of the offeror (time/place/manner of acceptance) for an acceptance to be valid and binding. Analysis: the contract specifically mentioned to which place the offer was sent, constituted an essential part of the Ps offer. So an accepted communicated at a diff place than in the offer, imposes no obligation binding on the D Silence Silence cannot be acceptance Exception: when offeree is silent but takes the benefit of the offer (St. johns tugboat) St. John Tug Boat Co. v. Irving Refinery Ltd Positive conduct indicating acceptance will show there was acceptance Facts: 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

18 Contracts CANs Fall 2015 Iqra Azhar 17 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 Issue: Whether a party s actions/conduct can imply their acceptance of an offer Rule: conduct unaccompanied by any verbal or written undertaking can amount to acceptance of an offer so as to constitute a contract Analysis: TEST for determining if conduct = acceptance: The test is objective. Despite intentions, the conduct is still of a reasonable person SJTB were essentially serving Irving a new offer every time they sent them an invoice and kept the tugs on call, and that Irving continued to imply acceptance by their continuation of using the service. Felthouse v. Bindley Silence does not constitute acceptance in a bilateral contract Facts: P and his nephew had diff prices for the horse. P wrote letter to his nephew offering to split the difference, telling him when to send the horse and that if he didn t hear anything back by march 25, then he d consider the horse his at 30 pounds and 15 shillings. Nephew sent no reply. On feb 25 th nephew held an auction sale of his farming stock and told D (Bindley) to reserve the horse though, but D forgot and the horse was sold. Issue: Whether the nephew had accepted P s offer to constitute a binding contract? NO At the time of sale, who was the owner of the horse? Rule: You cannot impose silence as a means of acceptance on the offeree Acceptance cannot be assumed if there is no notification of acceptance, or implied acceptance through action present. Analysis: What the nephew did wasn t enough bc of the lack of communication, the other party wasn t aware, as they should be, that the nephew was accepting the offer Battle of Forms: RULE in Battle of Forms cases the traditional offer and acceptance analysis must be adopted unless the documents passing between the parties and their conduct show that their common intention was that some other terms were intended to prevail The paradigm battle of the forms occurs where A offers to buy goods from B on its (A s) conditions and B accepts the offer but only on its own conditions Two approaches to resolving battle of forms problems 1) Traditional offer and acceptance approach. The first letter sent was the offer, the second was a counter offer, but the contracted concluded on the acceptance of the last letter (offer accepted) term is put forth last without objection is final last shot doctrine has been explained as meaning that where conflicting communications are exchanged, each is a counter-offer, so that if a contract results at all it must be on the terms of the final document in the series leading to the conclusion of the contract

19 Contracts CANs Fall 2015 Iqra Azhar 18 2) Second approach is to examine all the docs passing bw the parties and then determine from the conduct of the parties and transaction as a whole which terms the parties accepted and agreed on. So focus on the point at issue, in this case the price variation, and then determine from the conduct and transaction as a whole this is the mechanical approach Butler Machine Tool v. Ex-cell-o Corp Facts: 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 Issue: which form, or which part of which form, is a term or condition of the contract? Is the price variation clause a term of the contract? - NO Rule: Term is put forth last without objection is final Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd Facts: D s invitation to tender was Sept 19, 1977, titled a request for quotations, on the back were 13 T&C, none dealing with arbitration. One term said no modification of the condition of sale. P sent revised proposal w/ same T&C submitted on Nov 7. Then two purchase orders from D on Jan 6 and July 3 w/ diff T&C(including arbitration clause). The P didn t sign or return the purchase order. But delivered the good still. The conduct of both parties indicates that neither party considered any terms other than those found on the face of the docs Issue: Whether the arbitration clause was part of the contract? NO. The arbitration clause was too important not to pay attention too. So its not binding Rule: One cannot sneak terms into contracts without proper notification Tekdata Interconnections Ltd v. Amphenol Ltd Facts: Tekdata bought connectors for harnesses from Amphenol. T said some connectors were delivered late and weren t fit to sell and said the contract of purchase was on its order. Amphenol said no, the terms of the purchase contract were on its acknowledgement of purchase order and those terms excluded/limited its liability for any breaches of contract Issue: Whether the traditional offer and acceptance analysis be displaced by reference to the conduct of the parties over a long terms relationship Rule: According to traditional view, unless any other docs were passed bw the parties, that would be the final contract terms - So even tho their conduct suggested T s terms were to apply, A s terms must apply

20 Contracts CANs Fall 2015 Iqra Azhar 19 CERTAINTY OF TERMS If an agreement is to be enforced as a contract the parties to it must have reached agreement on all its essential terms which must be expressed with sufficient clarity to permit enforcement. If the terms of an agreement are incomplete, unclear, ambiguous or uncertain it will often be assumed that the parties did not intend their agreement to be legally binding, or that they have not yet reached a final agreement. EXCEPTION: Courts will tolerate a degree of imprecision in commercial agreements (Hillas v Arcos) o Business ppl/layman can proceed on the basis of trust and business customs o Courts are sensitive to this fact that not everyone can t be legally precise, so they tolerate a degree of imprecision in commercial agreement o Doesn t always mean that uncertainty = void contract the courts will strive to save these agreements if possible There is a close relation bw certainty and an intention to be bound or intention to create legal relations. [R v CAE Industries] o Where parties intent to be bound, they express themselves clearly with precision bc they understand they are assuming certain obligations or imposing certain obligations on themselves SOMETIMES Courts can imply terms into the contract to save the agreement -> like saying the price should be a reasonable price, usually based on Sale of Goods Act that is market value at the time Sale of Goods Act RSBC 1996 c. 410 s. 12(2) If the price is not determined in accordance with subsection (1), the buyer must pay a reasonable price. Usually market value. Reasonable price is a question of facts depending on the circumstances Sources of Uncertainty 1. Absence of essential terms (e.g. price,, nature of good, quantity, delivery date) [Ex: May & Butcher] Ex: if the parties are silent (on the price for ex. If they agree to agree. That s not definite) or they omit to include essential terms in the contract 2. Ambiguity and vagueness in expression or internal contradictions (e.g. best efforts, good faith, act honorably ) 3. Failure to complete the contracting process (e.g. subject to contract informal agreement to be reduced into writing at a latter date performance preceding contract, agreement to agree [Bawitko Investment] An agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours (good faith). There is a duty of honest performance which requires the parties to be honest with each other in relation to the performance of their contractual obligations (see Bhasin v Hrynew)

21 Contracts CANs Fall 2015 Iqra Azhar 20 R. v. CAE Industries Ltd Vagueness; Commercial contract; Court says they can resolve uncertainty by method of interpretation, by finding the meaning of the words Facts: Negotiation in 1969 bw Cdn govt and CAE abt govt taking over and running an air base no longer used by Air Canada. The negotiations stated that 700,000 hrs of direct labour per annum were required for the operation of the base. Govt said it could only provide 40,000-50,000, but it would try its best efforts to get addition work from other govt depts.. And crown corps to meet the 700,000 hrs. Then 1971 the workload at maintenance decreased and CAE sued for breach of contract. Issues: 1) Whether they intended a contract by the first letter In the end the court says, YES there s a binding contract bw the parties. By looking of the circumstances of the two commercial parties. They had also performed part of the contract 2) Was the contract vague, uncertain or incomplete? Judge says NO the contract isn t so vague/incomplete so as to render is unenforceable o It doesn t leave anything unsettled that was necessary to settle bw the parties Court says that an intention to enter into the contract is essential to forming a contract Rule: (a) an intention to enter into a contract is an essential element of a valid contract and that such intention may be gathered from the circumstances surrounding the contract. (b) The fact that parties cast their agreement in an unusual form will not prevent a court from giving effect to it. Through a process of interpretation the court will find meaning to the words and phrases used by the parties, including words that appear vague at first sight. Analysis: So in this case best efforts = best endeavours leave no stone unturned best efforts created a broad obligation to secure for CAE aircraft repair and overhaul work up to 700,000 Incompleteness and Agreements to Agree May & Butcher v. R an agreement to agree is not a contract Facts: Arrangement for purchase of tentage - terms of arrangement left price to be subsequently agreed upon from time to time as tentage became available Issue: Whether or not the terms of contract were sufficiently defined to constitute a legal biding contract bw the parties NOT BINDING, You can t agree to a contract that hasn t determined the vital terms of the agreement yet Rule: Agreement to agree on a price is not an enforceable contract

22 Hillas v. Arcos Ltd Exception case; Commercial agreement; Contracts CANs Fall 2015 Iqra Azhar 21 Facts: P agreed to buy 100,000 standards of timber from D agreement included provision stating P should have option of entering contract with D for purchase of timber the following year with a 5% reduction price D refused to sell to them the following year Issue: Whether the option provision reproduced above was a binding agreement Yes Rule: Courts will tolerate a degree of imprecision in commercial agreements Analysis: 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 This is an instalment contract goods delivered in instalment. So they don t want to fix the prices so they can account for any extra shipping costs or something that may arise per shipment Foley v. Classique Coaches ( reasonable price overcomes uncertainty; past performance to determine contract) Facts: D operate fleet of motor coaches. They agree to purchase land from P. Sale made subject to D entering into a supplemental agreement to purchase all the petrol required for their service station business from the P. Petrol to be sold at a price agreed to by the parties in writing from time to time. Then D tried to get out of the contract to buy petrol elsewhere Issue: Does the fact that no price is quoted mean that the contract was void for uncertainty? - NO Rule: Past performance will indicate that a contract is binding (reliance interest). Analysis: Court saved the transaction bc the parties had been performing the transaction already for 3 years, so there was something to save The parties believed they already had a contract. There was an underlying transaction already Good Faith (Bhasin v Hrynew) Good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance this organizing principles underlies all the applicable situations. It exemplifies the notion that in carrying out the obligations of the contract the parties must have appropriate regard of the legit contractual interests of the other parties don t enforce unreasonable obligations, or try and take advantage of the other party How does the organizing principle manifest itself o It manifests itself in existing doctrines like implied terms situations where relationships continue to be relevant o New situations may arise in which you may want to impose this standard and act in good faith o Good faith is an organizing principle that is a standard in all these cases

23 Contracts CANs Fall 2015 Iqra Azhar 22 Rule: That there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations. (Bhasin v Hrynew). It applies to all contracts entered into intentionally. Agreements to Negotiate : Case Law Empress v. Bank of Nova Scotia Facts: The first lease bw Empress and BNS expired and a new lease was made which included a renewal clause, which said basically that the for every renewal term the rent cost would change to the market rental prevailing at the time of the renewal terms OR be mutually agreed upon by both parties. So when they renewed in 1989, the Bank suggested a rental rate of $5,400.No written reply from ET was received. Bank sent letter again saying it was willing to negotiate and it was advised this was current market rental rate. ET said ok. Issue: Whether the renewal clause was void either for uncertainty or as an agreement to agree. Yes Rule: agreements to agree cannot be enforced Analysis: The mutual agreement also means that there s an implied term that the landlord will negotiate in good faith with the tenant to reach an agreement on market rental AND that the agreement won t be unreasonably withheld. Basically: negotiate in good faith and not withhold agreement unreasonably best efforts. But Empress didn t Manpar Enterprises Ltd. v. Canada Facts: Manpar (M) had 5 yr term contract with the crown to remove and sell sand and gravel located on a Native reserve (Skyway Indian Band). Also included a renewal terms, this indicates both parties expected the operation to last over 10 yrs. But when Manpar tried to renew contract, renegotiations failed. So Manpar sued for damages Issue: Was the renewal clause void for uncertainty? YES, court can t imply terms unless both parties had that in mind Rule: the implication of a term into a contract can (in this instance a duty to negotiate in good faith) only be made if it is the case that both parties would be likely to agree that such a term should be implied (i.e. officious bystander test). Analysis: The matter of future renewal, if any, was purposefully left intentionally at large to be renegotiated. No enforceable agreement arose out of the language of the renewal clause. There was no duty to negotiate in (ie like fair market value ) Wellington City Council v. Body Corporate (New Zealand case; cannot enforce agreements to negotiate in good faith because god faith is subjective and cannot be measured (lack of certainty) Facts: Parties had a process contract which obliged P to negotiate in good faith and for not less than market value with D Issue: Whether there was a legally enforceable contract NO Rule: An agreement to agree lacks necessary certainty and is thus unenforceable