CONTRACTS

Fall 2015

JENNA DAVIS

THOMPSON RIVERS UNIVERSITY LAW 3030

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Is there an intention to create legal obligations?

Unclear intent? Family relationship? Commercial relationship?

2 Is there communication of an offer?

Not a puff or invitation to treat?

Has it been revoked, rejected, or has there been a significant lapse of time?

3 Is there acceptance of the offer?

Was there a counter-offer?

Was there silence?

Acquiescence?

Was it through mail or an instantaneous mode?

4 Is there certainty of terms?

Any vague terms?

An agreement to agree?

An agreement to negotiate?

Anticipation of formalization?

5 Is there consideration? If not, is there a seal or a chance for promissory estoppel?

Is it past consideration?

Is the consideration simply based on pre-existing duties?

Is it an agreement to accept less?

6 Are the parties’ privy to the contract?

If not, is there another way they could be privy (executor, employee, etc)?

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Contents Introduction to Contracts ........................................................................................................................... 6

Offer ........................................................................................................................................................... 6

Offer – Offer and Invitations to Treat ..................................................................................................... 6

Canadian Dyers Association Ltd. v Burton, (1920) 47 OLR 259 ........................................................... 6

Pharmaceutical Society of Great Britain v Boots Court of Appeal [1953] 1 QB 401 ............................ 6

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.). ..................................................................... 7

Goldthorpe v Logan, [1943] 2 DLR 519 ............................................................................................... 7

Offers - Tenders: ..................................................................................................................................... 7

Tenders - Contract A and Contract B:.................................................................................................. 8

Privilege Clause: .................................................................................................................................. 8

Harvela Investments Ltd v Royal Trust Co. of Canada (C.I.) Ltd (1985) HL .......................................... 8

R. (Ont.) v. Ron Engineering, [1981] 1 S.C.R. 111, SCC ........................................................................ 8

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619 ............................... 9

Double N Earthmovers Ltd. v. Edmonton (City), [2007] 1 S.C.R. 116, 2007 SCC 3 ............................. 10

Canadian Pacific Hotels Ltd. v. Bank of Montréal, [1987] 1 S.C.R. 711 .............................................. 10

Communication of an Offer: ................................................................................................................. 10

Blair v Western Mutual Benefit Association, [1972] 4 WWR 284...................................................... 10

Williams v Carwardine [1833] EWHC KB J44 ..................................................................................... 11

R v Clarke (1927) 40 CLR 227............................................................................................................. 11

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.). ................................................................... 11

Termination of an Offer: Revocation ........................................................................................................ 12

Dickinson v Dodds (1876) 2 Ch D 463 ................................................................................................ 12

Byrne v. Van Tienhoven (1880) C.P.D. 344 ........................................................................................ 12

Errington v Errington Woods [1952] 1 KB 290 ................................................................................... 12

Dawson v. Helicopter Exploration, [1955] S.C.R. 868 ........................................................................ 13

Termination of Offer: Rejection ................................................................................................................ 13

Livingstone v Evans (1925) Alberta SC .............................................................................................. 13

Termination of an Offer: Expiration of Offer............................................................................................. 13

Barrick v. Clark (1951) SCR 177 ......................................................................................................... 14

Manchester Diocesan Council of Education v. Commercial & General Investments LTD (1969) ...... 14

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Acceptance ............................................................................................................................................... 14

Livingstone v Evans (1925) Alberta SC .............................................................................................. 14

Battle of Forms ..................................................................................................................................... 15

Butler Machine Tool Co. v. Ex-Cell-O Corp [1979] 1 W.L.R. 401 ........................................................ 15

Tywood Industries LTD. v. St. Anne-Nackawic Pulp and Paper Co. LTD. (1979), 100 D.L.R.: ............. 15

Shrink Wraps ......................................................................................................................................... 15

ProCD v. Matthew Zeidenberg and Silken Mountain Web Services Inc. 86 F.3d 1447 (US CA 7th Cir.,

1996): ................................................................................................................................................ 15

Acceptance through Positive Conduct and Acquiescence:.................................................................... 16

Acceptance through Silence .................................................................................................................. 16

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.). ................................................................... 16

Dawson v. Helicopter Exploration, [1955] S.C.R. 868 ........................................................................ 16

Felthouse v Bindley (1862), 11 CB (NS) 869, 142 ER 1037 (Ex. Ch.) ................................................... 17

Saint John Tug Boat Co. v. Irving Refinery LTD [1964] ....................................................................... 17

Acceptance - Offeror’s Control ............................................................................................................. 17

Eliason v Henshaw (1819) US ............................................................................................................ 17

Communication of Acceptance: Mail and Instantaneous Modes .......................................................... 17

Household Fire and Carriage Accident Insurance Co v Grant (1879)................................................. 17

Holwell Securities v. Hughes [1974] England .................................................................................... 18

Brinkibon LTD v Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH [1983] (England) ............... 18

Certainty of Terms no. 1 ........................................................................................................................... 18

Vagueness ............................................................................................................................................. 18

R v CAE Industries Ltd., [1985] 5 WWR 481, 20 DLR (4th) 347 .......................................................... 19

Incompleteness and Agreements to Agree ........................................................................................... 19

May & Butcher Ltd. v R, [1934] 2 KB 17 ............................................................................................ 19

Hillas & Co., Ltd. v Arcos, Ltd. (1932) ................................................................................................ 19

Foley v Classique Coaches Ltd. [1934] 2 KB 1 .................................................................................... 20

Sale of Goods Act-Ascertainment of Price, ss. 12, 13 ........................................................................ 20

Certainty of Terms no. 2 ........................................................................................................................... 20

Agreements to Negotiate...................................................................................................................... 20

Bhasin v. Hyrnew, 2014 SCC 71: ........................................................................................................ 20

Empress Towers Ltd. v. Bank of Nova Scotia [1991] BCCA **Most recent and prominent ............... 21

Mannpar Enterprises Ltd. v. Canada (1999) BCCA ............................................................................ 21

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Wellington City Council v. Body Corporate 51702 (2002 NZ CA)....................................................... 21

Anticipation of Formalization ................................................................................................................ 21

Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991 Ont CA) ..................................................... 21

Intention to Create Legal Obligation ......................................................................................................... 22

Balfour v. Balfour [1919] ENG CA ...................................................................................................... 22

Rose and Frank v. JR Crompton Bros. (1923) England CA ................................................................. 22

TD Bank v. Leigh Instruments Ltd. (1999 On CA) ............................................................................... 22

Canadian Taxpayers Federation v. Ontario (Minister of Finance) (2004) (Ont Sup. Court) ............... 22

Family Law Act SBC 2011 .................................................................................................................. 23

Formality (Seal and Requirement of Writing) ........................................................................................... 23

Royal Bank v. Kiska (1967 Ont CA) .................................................................................................... 23

Dynamic Transport Ltd. v. O.K. Detailing Ltd. (1978 SCC) ................................................................. 23

Law and Equity Act (B.C.) s. 59 (*) ..................................................................................................... 23

Enforcing Promises ................................................................................................................................... 24

Doctrine of Consideration ..................................................................................................................... 24

Nature of Consideration.................................................................................................................... 24

Thomas v. Thomas (1842) 2 QB 851.................................................................................................. 24

Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier (1934, SCC).................. 24

Wood v. Lucy, Lady Duff Gordon (1917) New York ........................................................................... 24

Past Consideration ............................................................................................................................ 25

Eastwood v. Kenyon (1840 QB) ......................................................................................................... 25

Lampleigh v. Brathwait (1615) K.B. ................................................................................................... 25

Forbearance of Suit ........................................................................................................................... 25

D.C.B. v. Zellers Inc. (1996) 138 D.L.R. (4th) 309 ............................................................................... 25

Pre-existing Duties ............................................................................................................................ 26

Pao On v. Lau Yiu Long (1980, PC) ..................................................................................................... 26

Stilk v. Myrick (1809) (Eng K.B.) ........................................................................................................ 26

Gilbert Steel v. University Construction Ltd. (1976) Ont CA .............................................................. 26

Williams v. Roffey Bros. (1990) Eng CA ............................................................................................. 27

Greater Fredericton Airport Authority Inc. v. Nav Canada (2008) NB CA .......................................... 27

Promises to Accept Less .................................................................................................................... 27

Foakes v. Beer (1884) Eng HL ............................................................................................................ 27

Re Selectmove Ltd [1995] Eng CA: .................................................................................................... 28

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Foot v. Rawlings [1963] SCR 197 ....................................................................................................... 28

Law and Equity Act (R.S.B.C. 1996, c. 253) s. 43 ................................................................................ 28

Process Automation Inc. v. Norstream Intertec Inc. & Arroyave, 2010 ONSC 3987 .......................... 28

Promissory Estoppel ................................................................................................................................. 29

General Principles ................................................................................................................................. 29

Hughes v. Metropolitan Railway Company (1877) 2 AC 439 (Eng HL) ............................................... 29

Central London Property v. High Trees House (209) ......................................................................... 30

Explanation of Principles of Estoppel .................................................................................................... 30

John Burrows v. Subsurface Surveys [1968] SCR 607 ........................................................................ 30

D & C Builders v. Rees [1966] 2 QB ................................................................................................... 31

Giving Notice: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. [1994] 2 S.C.R.

490 .................................................................................................................................................... 31

W.J. Alan & Co. v. EL Nasr Export and Import Co. [1972] QB 189 ..................................................... 31

The Post Chaser [1982] QB ............................................................................................................... 31

Shield or Sword ..................................................................................................................................... 31

Combe v. Combe [1951] Eng KB ........................................................................................................ 31

Walton Stores (Interstate) Pty. Ltd. v. Maher (1988) ALJR (Australia) .............................................. 32

M. (N.) v. A. (T.A.) (2003) BC CA ........................................................................................................ 32

Privity of Contract ..................................................................................................................................... 32

Basics .................................................................................................................................................... 32

Tweddle v Atkinson [1861] EWHC QB J57 (ENGLAND) ...................................................................... 32

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1 (ENGLAND – HL) ....................... 32

Beswick v Beswick, [1968] AC 58 (ENGLAND) ................................................................................... 32

Exceptions to Privity of Contract ........................................................................................................... 33

London Drugs Ltd. v Kuehne & Nagel International Ltd., [1992] 2 SCR 299, 97 DLR (4th) 261 .......... 33

Edgeworth Construction Ltd. V. N.D. Lea & Associates Ltd (1993) SCC ............................................. 34

Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd, [1999] 3 S.C.R. 108: .................................... 34

Conditions Precedent ............................................................................................................................... 35

BC Law and Equity Act....................................................................................................................... 35

Turney v Zhilka, [1959] SCR 578 ........................................................................................................ 35

Beauchamp v. Beauchamp [1973] 2 OR 43 (Ont CA)......................................................................... 36

Barnett v. Harrison, [1976] 2 SCR 531 ............................................................................................... 36

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Introduction to Contracts -contract: an agreement to do something (or not do something) in exchange for someone else doing or not doing something -the agreement is the basis for judicial intervention (you agreed to, so the court can force you to) -goal: to put you in the position that you would be in if the contract was fulfilled -3 underpinnings: -freedom of contract (can make any contract you want – does not need to be fair or wise) -objective reasonable person (what would they think the deal was about?) -contracts generate strict liability (faultless – no one has to act wrongly) -essential elements: offer, acceptance, certainty, consideration

Offer Offer – Offer and Invitations to Treat -offer: formal offer to enter a contract -objective reasonable person will look at facts (from recipient’s POV) to determine if it was an offer -what words were used? -did they act like they were bound afterwards? -look at previous dealings -invitation to treat: invitation for someone to make an offer or negotiate

-quotation of price is usually just an invitation to treat -hallmark of determining if offer was made: -readiness to sell -puff: throwaway statement, sales talk – no intention to be bound -two types: -bilateral (exchange of promises): both sides must accept -unilateral (exchange of an act for something else): performing act is usually acceptance

Canadian Dyers Association Ltd. v Burton, (1920) 47 OLR 259 Facts: Defendant gave a price to Canadian Dyers; they wired $500 deposit; Burton’s lawyer prepared a deed and gave closing date; later, Burton’s lawyer returned the deposit and said there was no actual contract because there was no offer. Issue: Was there an offer? Decision: There was an offer. Defendant’s wording indicated a readiness to sell – he said he was prepared to accept an amount and that “if it were anyone else” he would charge more. The actions afterwards (lawyer preparing deed) indicated that defendant knew he had entered a contract.

Pharmaceutical Society of Great Britain v Boots Court of Appeal [1953] 1 QB 401 History: Trial court said pharmacy was within guidelines. Pharmaceutical Society appealed.

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Facts: Boots was a self-serve pharmacy. Customers took the item off the shelf, then purchased them at cashier under the supervision of registered pharmacist. Pharmaceutical Society claimed the customers needed to be supervised when they took item off shelf. Issue: Does the display on the shelf constitute an offer? If so, is the contract completed when the item is placed in the basket? Or when purchased at till? Decision: Appeal dismissed. Pharmacy acting within guidelines. Display of items on shelf is not an offer. The contract is completed when purchased. If placing item in basket was an indication of offer, then customer could not change their mind after selecting an item and shop keep could not negotiate or refuse to sell an item to a customer if the item was already in their basket. Ratio: Goods on display are an invitation to treat (not an offer).

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.). Facts: Carbolic placed ad that anyone who used the Smoke Ball properly and still got sick would be given 100 pounds. They mentioned that money was in the bank for this purpose. Carlill bought one, used it, and got sick. She sued to receive 100 pounds. Issue: Was this an offer? Or a puff? Can an offer be communicated to everyone? Decision: An objective reasonable person would see this as an offer. The statement about the money in the bank indicated seriousness and readiness. The offer can be interpreted as being an offer to anyone in that area of London during that year. If the offeror wants it to be more narrow, they need to narrow the conditions.

Goldthorpe v Logan, [1943] 2 DLR 519 History: Goldthorpe made claim for negligence and failed. She appealed. Facts: Logan placed ad guaranteeing facial hair removal. Goldthorpe responded to ad and met with nurse practitioner. She was told again that the results were guaranteed. Her results were unsatisfactory. Issues: Was their negligence on the part of Logan that caused loss/damage? Was there a contract between Logan and Goldthorpe? Decision: No evidence of negligence. No evidence of stimulation of hair growth either. Yes, there was a contract. The nurse reiterated the guarantee. The ad contained no caveats. A “guarantee” is considered to be a serious promise. She should be refunded and given $100 damages.

Offers - Tenders:

-owner: person who owns the project being built -tenderers: person submitting bids

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-tenders are complex documents (putting together and evaluating costs a lot of money) -discusses materials, who will do it, how it will be done, quality control, engineering, etc -owner asks tenderers submit their offer -owner accepts 1 offer, then they move to Contract B -tenderers sometimes have to submit a deposit

-they have to be ready and willing to do the work, and if it turns out they weren’t, the owner can keep the deposit (because evaluating the bid would have cost the owner money)

-there is an implied obligation to only accept bids that comply with the terms of the call for tender

Tenders - Contract A and Contract B:

-submitting a bid is accepting unilateral Contract A, and making an offer to bilateral Contract B -so the owner has 10 Contract A’s and 10 offers for Contract B -contract A is unilateral: I promise to fairly assess your tender if you submit one -submitting a tender creates a contractual agreement (to protect fairness of bidding process) -contract B: construction contract

Privilege Clause:

-clause that allows owner to do what they want – there are many different types of clauses -gives the owner the right to accept a bid other than the lowest -example/ you can take a higher bid simply because they have a better reputation -privilege clause does not allow owner to take non-compliant bids -protects them from being sued on breach of Contract A if they accept a bid that is not the lowest

Harvela Investments Ltd v Royal Trust Co. of Canada (C.I.) Ltd (1985) HL -claimed a call for tender is an invitation to treat – which was removed from Canadian law after the Ron Engineering case

R. (Ont.) v. Ron Engineering, [1981] 1 S.C.R. 111, SCC History: Ron sued to have deposit returned. Company was allowed to keep deposit. Ron appealed.

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Facts: Ron submitted a tender to build a project. He realized he miscalculated and asked to change his offer. Company refused, took another bid, and refused to pay deposit back. Ron sued for return of deposit. Issues:

1. Was the contractor entitled to keep the deposit? 2. Is there a contract completed during the tendering process?

Decision: 1. Yes. 2. Yes. Contract A forms when tender is submitted. By submitting a tender, the tenderer is

accepting Contract A and making an offer to enter into Contract B. When a Contract B is chosen, all other Contract As are extinguished.

Ratio: Introduced Contract A and Contract B

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619 History: In SCC, on appeal from Alberta Court of Appeal. Facts: Defence invited tenders. MJB was the lowest valid bid (lowest was non-compliant). They were not chosen. The chosen bid (Sorochan) was technically non-compliant. The Tenderers document contained a privilege clause stating they did not have to choose lowest bid. MJB brought action saying they should have received the job. Issues:

1. Does a privilege clause allow the owner to disregard the lowest bid? 2. Can only complying bids be accepted? 3. Is there an implied obligation to only accept compliant bids?

Decision: 1. Yes. 2. Yes. Accepting a non-compliant bid is a breach of contract A with all other tenderers. 3. Yes. The owner would not include the requirements if they did not care if the bids met those

requirements. Holding: Because of the privilege clause, they did not need to give MJB the job. However, on a balance of probabilities, they probably would have. Award MJB $398,127.27. Ratio: There is an implied obligation to not accept non-compliant bids. A privilege clause does not allow the owner to accept non-compliant bids.

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Double N Earthmovers Ltd. v. Edmonton (City), [2007] 1 S.C.R. 116, 2007 SCC 3 History: Facts: Edmonton put out call for tenders. Had complex requirements on age of equipment and requirement to provide serial numbers. The accepted bid had equipment that was not 1980. Double N sued saying the bid was not compliant, therefore their bid should have been accepted. Issues:

1. Can they waive non-compliance for not supplying matching licences? 2. Can they waive non-compliance for having 1979 equipment, not 1980? 3. Does the owner have an implied obligation to investigate whether bids are in fact compliant? 4. Do obligations under Contract A survive after Contract B is started with another party?

Decision: 1. Yes. The lack of matching licenses was trivial non-compliance (wouldn’t affect ability of bidder to

perform contract B; doesn’t affect fairness to other people – does not give a competitive advantage; there is no fundamental difference between 1979 equipment and 1980 – they cost the same and run the same)

2. The bid appeared to be compliant on its face (they promised to rent 1980 equipment). -even though the tenderer was lying, the promise made it so that the bid was technically compliant (but owner could sue for breach if desired)

3. No, there is no duty to investigate compliance (it is impractical, and bidder is legally obliged to fulfill the promise)

4. No, contract A is fully performed when Contract B starts. -Contract A is extinguished at this point. -an unsuccessful builder is not privy to Contract B -this is necessary to protect freedom of contract – need to be able to negotiate contract and change things throughout

Canadian Pacific Hotels Ltd. v. Bank of Montréal, [1987] 1 S.C.R. 711 -test for implying obligation into a contract -based on an industry custom -based on the nature of a specific contract -based on intentions of the parties (from the POV of the reasonable objective person)

-is it obvious to the parties that something was part of the deal, even if it was not mentioned? (what would a reasonable person think?)

-does the deal make business efficacy? Sometimes this can be a basis to imply obligation.

Communication of an Offer:

Blair v Western Mutual Benefit Association, [1972] 4 WWR 284 Facts: Blair worked there for 30 years. She was asked to transcribe the minutes of a meeting and it said that she would receive $8000 retirement pay. This information was not given to her as a promise. They refused to give it to her when she retired. She sued. Issues: Was the offer communicated to Blair? Decision: No, it was not communicated to her, therefore the company does not have to pay. When it was communicated to her, it was not intended to be an offer, therefore not capable of being accepted. There is no evidence she resigned because of the belief she would be paid. There was no change in existing legal relationships. Ratio: For an offer to be valid, it must be communicated to the person in a way that would suggest the

communicated offer is capable of being accepted.

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Williams v Carwardine [1833] EWHC KB J44 Facts: Carwardine was murdered and it was determined that Williams was at his home the evening he died. A handbill was publishing offering a reward in exchange for information. Mary was beaten and thought she would die, so to ease her conscience, she made a statement which led to the conviction of the murderer. Issue: Was she induced by the handbill to provide the information? And therefore forming a contract? Decision: Her ulterior motives were irrelevant. The offer was communicated to her as an offeree; she did the act, therefore she was completing the unilateral contract. This was a valid contract; she should be rewarded.

R v Clarke (1927) 40 CLR 227 Facts: Clarke was put on trial as an accessory to murder. Clarke gave essential information to the Crown that allowed them to prosecute 2 criminals. After giving the information, someone told him to obtain a reward for giving information. Issues: Was there a contract between Clarke and the Crown? Decision: There was no contract because there was no “consensus of mind” because Clarke did not mentally agree to the offer. He did not give the information in order to receive the reward, he was protecting himself from a murder charge. Ratio: In order to accept a contract through performance, you must intend to accept the offer (and must know it exists)

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.). Facts: Carbolic placed ad that anyone who used the Smoke Ball properly and still got sick would be given 100 pounds. They mentioned that money was in the bank for this purpose. Carlill bought one, used it, and got sick. She sued to receive 100 pounds. Issue: Was this an offer? Or a puff? Can an offer be communicated to everyone? Decision: An objective reasonable person would see this as an offer. The statement about the money in the bank indicated seriousness and readiness. The offer can be interpreted as being an offer to anyone in that area of London during that year. If the offeror wants it to be more narrow, they need to narrow the conditions. Example: If you were out of the country when the ads were posted and they were removed before you returned, you cannot be accepting the contract. You have to be aware of the offer and done an act in response to the offer.

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Termination of an Offer: Revocation -there is no binding promise to keep an offer open (unless there is a deposit) -you are allowed to revoke it at any time (expressly or impliedly) -revocation MUST be COMMUNICATED

Dickinson v Dodds (1876) 2 Ch D 463 Facts: Dodds made offer to Dickinson and promised to keep it open until Friday; before Friday, Dodds sold to Alan; Dickinson found out about the sale, and tried to then accept the offer. Issues: Was Dodds obligated to keep the offer open? Decision: The promise to keep the offer open was non-binding. He was allowed to revoke. He impliedly revoked the offer by selling it, and the revocation was indirectly communicated to Dickinson through a 3rd party. Ratio: Offers can be revoked, as long as they are communicated.

Byrne v. Van Tienhoven (1880) C.P.D. 344 Facts: Tienhoven mailed offer to sell boxes of plates; Byrne accepted immediately Oct 11; Tienhoven sent revocation on Oct 8, which was not received until Oct 20; Byrne brought action for breach of contract for failure to deliver. Issues:

1. Does the withdrawal of an offer have any effect until it is communicated? 2. Is mailing the withdrawal considered communication? Or only when it is received?

Decision: Judgement in favour of Byrne. There is a binding contract. 1. Uncommunicated revocation is not considered a revocation. 2. There is no indication that the parties agreed that mailing revocation would be sufficient.

Therefore, a binding agreement was entered into on October 11 and revocation was too late. Ratio: In order for mailing a revocation to be considered legally acceptable, there must be express of implied agreement that it is sufficient.

Errington v Errington Woods [1952] 1 KB 290 Facts: Father offers to purchase house on the condition that daughter/son-in-law pay off the mortgage, then he would transfer the house to them. Couple made payments; father dies; his widow wants possession of the house (tries to revoke the offer). Issues: Can the widow revoke the offer even though steps have been taken towards acceptance? Decision: Contract is valid and cannot be disregarded. This is a unilateral offer with multiple steps of performance. As long as they have started performing, and continue to perform reasonably, it cannot be revoked. Ratio: Once you enter into multi-step performance, you must be given time to get to the acceptance stage. Revocation cannot occur if performance is being performed.

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Dawson v. Helicopter Exploration, [1955] S.C.R. 868 Problem: Dawson wanted to accept, but couldn’t without their cooperation. Facts: Heli Exploration contacts Dawson and wants him to take them to his land and if they like it, they will develop it and give him 10%. Dawson says to tell him when they find a pilot, and he will leave work. Dawson finds out they got someone else to take them there and are developing. Issues:

1. Was it a bilateral or unilateral contract? 2. Was there a valid offer and acceptance?

Decision: Judgement in favour of Dawson 1. Could be interpreted as bilateral (to benefit Dawson) or unilateral (to benefit Heli). If it was

bilateral, acceptance would be when Dawson promised to go whenever they were ready – this would mean it had been accepted, and revocation was too late. If it was unilateral, acceptance would be when Dawson went with them – this would mean there was no acceptance, and the revocation would be valid. In this case, it is bilateral.

2. It was bilateral, therefore the acceptance occurred when Dawson agreed to go with them. There was valid offer and acceptance, so revocation was too late.

Termination of Offer: Rejection -Counter offer: type of rejection -Mere inquiry: asking a question about or discussing the offer – not a rejection -hallmark of a counter-offer: making a new proposal

Livingstone v Evans (1925) Alberta SC Facts: Evans’ agent wrote to Livingstone offering to sell land for $1800. Livingstone wrote back saying “Send lowest cash price. Will give $1600 cash.” Evans’ agent responded saying he would not reduce price. Livingstone immediately accepted $1800 offer. Issues: Was the plaintiff’s counter-offer a rejection of the defendants’ offer? Decision: There was a binding contract to sell. Specific performance ordered. Livingstone’s telegram was a counter-offer. BUT the defendant’s response that he would not reduce the price meant he was “still standing by [his original price] and, therefore, still open to accept it.” The refusal to lower price was an implied new offer from Evans.

Termination of an Offer: Expiration of Offer -offeror can stipulate how long offer is open for -if this is not specified, the offer is open for a reasonable about of time

-context; nature of goods; market volatility (fluctuation of product value); words and conduct of parties (indicators of if they want deal made quickly or slowly)

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Barrick v. Clark (1951) SCR 177 History: Clark wanted specific performance; trial: dismissed; Sask C of A: reversed decision; Barrick appealed to SCC. Facts: -Barrick is executor of EJ Barrick estate. -Oct 30: Clark offered to purchase for $14,500 -Nov 15: Barrick said we will accept 15,000 cash. “If you agree send $2000 deposit” -Nov 20: letter was delivered, but he was out of town for 10 days and wife asked them to keep deal open until they heard from him -Dec 10: Clark agrees to pay 15,000 and sends $2000 -But on Nov 30th Hohmann offered $15,000 cash -Dec 3: Barrick accepted -when Clark wrote to Barrick on Dec 11, barrack responded on the 12th agreeing to return $2000 -Clark wanted specific performance Issues: Did Clark communicate acceptance within a reasonable amount of time? Decision: Time limit was not specified. Have to look at individual circumstances – farm land does not fluctuate in price, and the letters indicated a desire to close quickly. Therefore, the acceptance was not sent in a reasonable amount of time. Judgement for Barrick. Ratio: To determine how long offer should remain open: context; nature of goods; market volatility (fluctuation of product value); words and conduct of parties (indicators of if they want deal made quickly or slowly).

Manchester Diocesan Council of Education v. Commercial & General Investments LTD (1969) Ratio: If you don’t accept it within a certain amount of time, the court will imply that you rejected it. Every offer has an implied term that it will not remain open forever.

Acceptance Unilateral contract: accepted through an act Bilateral contract: accepted through a promise

Livingstone v Evans (1925) Alberta SC Facts: Evans’ agent wrote to Livingstone offering to sell land for $1800. Livingstone wrote back saying “Send lowest cash price. Will give $1600 cash.” Evans’ agent responded saying he would not reduce price. Livingstone immediately accepted $1800 offer. Issues: Was the plaintiff’s counter-offer a rejection of the defendants’ offer? Decision: There was a binding contract to sell. Specific performance ordered. Livingstone’s telegram was a counter-offer. BUT the defendant’s response that he would not reduce the price meant he was “still standing by [his original price] and, therefore, still open to accept it.” The refusal to lower price was an implied new offer from Evans.

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Battle of Forms If multiple forms are exchanged during negotiations, which form is supreme? Global approach: if you want an unusual, important clause to be part of the deal, you must bring it to the other party’s attention.

Butler Machine Tool Co. v. Ex-Cell-O Corp [1979] 1 W.L.R. 401 Procedural History: Butler sued to receive extra money. Butler won. Ex-Cell-O appealed. Facts: Butler offers to sell machinery, and includes a price escalator clause in the document. Ex-Cell-O accepts, but says they will buy on their own terms. Butler signs contract (without price clause), then attaches a letter saying they are doing the deal based on the terms they already mentioned. When machinery is delivered, Butler asks for additional money according to price variation clause. Ex-Cell-O refuses to pay and sues. Issue: On whose terms was the contract made? Decision (Denning): Appeal allowed. Judgement for Ex-Cell-O. Sometimes the first shot wins, when the seller sends an offer with specific terms and conditions, BUT usually the “last shot” wins. Sometimes neither shot wins – all the shots need to be considered. In this case, we need to look at all shots. Says the act of attaching the letter did not adequately bring that clause to their attention and therefore there was no meeting of the minds on that clause. Ratio: In a battle of the forms situation, the Denning approach (look at all shots) is usually taken. Any clear changes need to be brought to the other party’s attention. Clauses will not be considered part of the deal if they were not brought to the attention of the other party.

Tywood Industries LTD. v. St. Anne-Nackawic Pulp and Paper Co. LTD. (1979), 100 D.L.R.:

Issue: Under whose conditions was the contract formed? Ratio: You cannot sneak terms into a contract with notifying other party.

Shrink Wraps

ProCD v. Matthew Zeidenberg and Silken Mountain Web Services Inc. 86 F.3d 1447 (US CA 7th

Cir., 1996): Facts: ProCD sells SelectPhone database. They sell to private customers for $150, and commercial users for more. Every consumer copy has a license agreement inside shrink-wrap and an on-sceen license agreement when program is loaded – says it can only be used for non-commercial purposes. Zeidenberg bought consumer copy and used for commercial re-sale. Issues: Do buyers of software have to obey the terms of shrink-wrap licenses? Decision: terms were binding. Injunction ordered. Two parties cannot agree to something that one party is unaware of, but one of the terms Zeidenberg agreed to upon purchase was that the transaction was subject to a licence. He is not bound by purchasing the software, but they are bound when they click “I agree” when loading software. If he didn’t like the terms, he could return product.

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Acceptance through Positive Conduct and Acquiescence: -acquiesce: allowing conduct to occur without protesting -example/ allowing the boats to continue to be on standby without protesting -positive conduct: using something supplied to you -example/ using the boats -easier to prove with positive conduct -trying to prove acceptance through acquiescence is much more difficult -deceptive acquiescence: deceived the other party into thinking contract was accepted -proving that someone doing nothing constitutes acceptance -generally speaking, silence doesn’t constitute an offer (Felthouse), but there are so exceptions (Saint John Tug Boat)

Acceptance through Silence

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.). Facts: Carbolic placed ad that anyone who used the Smoke Ball properly and still got sick would be given 100 pounds. They mentioned that money was in the bank for this purpose. Carlill bought one, used it, and got sick. She sued to receive 100 pounds. Issue: Was this an offer? Or a puff? Can an offer be communicated to everyone? Decision: An objective reasonable person would see this as an offer. The statement about the money in the bank indicated seriousness and readiness. The offer can be interpreted as being an offer to anyone in that area of London during that year. If the offeror wants it to be more narrow, they need to narrow the conditions.

Dawson v. Helicopter Exploration, [1955] S.C.R. 868 Problem: Dawson wanted to accept, but couldn’t without their cooperation. Facts: Heli Exploration contacts Dawson and wants him to take them to his land and if they like it, they will develop it and give him 10%. Dawson says to tell him when they find a pilot, and he will leave work. Dawson finds out they got someone else to take them there and are developing. Issues:

3. Was it a bilateral or unilateral contract? 4. Was there a valid offer and acceptance?

Decision: Judgement in favour of Dawson 3. Could be interpreted as bilateral (to benefit Dawson) or unilateral (to benefit Heli). If it was

bilateral, acceptance would be when Dawson promised to go whenever they were ready – this would mean it had been accepted, and revocation was too late. If it was unilateral, acceptance would be when Dawson went with them – this would mean there was no acceptance, and the revocation would be valid. In this case, it is bilateral.

4. It was bilateral, therefore the acceptance occurred when Dawson agreed to go with them. There was valid offer and acceptance, so revocation was too late.

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Felthouse v Bindley (1862), 11 CB (NS) 869, 142 ER 1037 (Ex. Ch.) Facts: Uncle Felthouse discussed buying Nephew Felthouse’s horse; there was a miscommunication about currency; Uncle sent counter-offer letter Jan 2 offering to split the difference and said if he agreed that he did not need to respond and should just send the horse; Nephew did not respond; Feb 25 Nephew had auction and told auctioneer to hold the horse; Auctioneer (Bindley) forgot and sold the horse anyway; Feb 27 Nephew wrote uncle and said horse was sold by Bindley; Uncle sued Bindley Issue: Can you accept an offer by silence? Decision: Nephew had not accepted the offer (counter-offer offering to split difference); Bindley cannot be held accountable for selling the horse because it was still the nephew’s property; Silence is not acceptance. Ratio: Silence is not acceptance.

Saint John Tug Boat Co. v. Irving Refinery LTD [1964] Facts: Irving contracted Saint John to supply 2 smaller tug boats and to keep 1 larger (Rockswift) on standby; they would pay $450/day even if they didn’t use Rockswift; both parties agree there was verbal agreement to start on June 13 1961 for 1 month; Rockswift was on standy and they were billed monthly until February 1962; Irving refused to pay from July 13 1961 onwards because they said they never agreed to extend the contract. Issues: Did Irving’s conduct constitute a continuing acceptance of an offer? Decision: Damages awarded to Saint John. Iriving must have known the boat was on standby, so they must have known Saint John expected to be paid. Positive conduct: they used boat occasionally; they protested the 10% tariff in contract, but didn’t protest the entire contract Ratio: Conduct can prove acceptance through silence. Conduct must be fairly significant – they protested an aspect of the contract.

Acceptance - Offeror’s Control

Eliason v Henshaw (1819) US Facts: Eliason asked acceptance to be sent by wagon to Harper’s Ferry. Henshaw sent acceptance by mail carrier to Georgetown. Henshaw sued for non-performance. Issues: Was the offer accepted in the right time, place, and manner? Decision: Appeal rejected. There was no acceptance – not accepted within proper time, not accepted at right place, and not accepted in correct manner. Ratio: Offeree must follow the terms of the offeror in order for the acceptance to be valid and binding.

Communication of Acceptance: Mail and Instantaneous Modes

Household Fire and Carriage Accident Insurance Co v Grant (1879) Facts: Grant offers to buy shares; Household Fire sent notice of allotment of shares in the mail; Grant never received it; Household Fire went into liquidation and liquidators came after Grant for money; Grant refused to pay and said that he was not a shareholder. Issues: Was the mailing of the letter of allotment enough to constitute acceptance? Decision: The contract was binding. Grant was a shareholder. Acceptance is effective when put in the mail because the post office is an agent for both sides (so you are providing their agent with acceptance when you bring it to the post office). Ratio: Acceptance can be sent the same way the offer was sent (if offer is sent by mail, acceptance can be sent by mail).

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Holwell Securities v. Hughes [1974] England Facts: Hughes issued a grant to sell a property; it contained a clause saying there must be notice in writing within 6 months to exercise the option; Holwell sent a letter exercising the option, but it was lost in the mail. Issue: Was the option to purchase exercised when Holwell sent the letter (even though Hughes did not receive it)? Decision: Usually the post-box rule applies, but in this case it can be overridden because the seller wanted “notice in writing”. Notice means “knowing” in Latin – so they had to make it known in order for the option to be properly exercised. Rule can also be overridden in the application would be absurd or grossly inconvenient (example/ if you stipulated you wanted it to be sold within 12 hours, it would be obvious that you did not want the post-box rule to apply). Ratio: Post-box rule can be overridden in some circumstances. Option: the right by the potential buyer to have the offer remain open for a period of time -If the option is exercised according to its terms and conditions, a binding contract is created. -The seller must sell and the buyer must buy.

Brinkibon LTD v Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH [1983] (England) Issues: What does “receive” mean when it comes to instantaneous acceptance (email, etc)? When the computer gets the message? Or when the offeror reads it? Decision: Contract is complete when acceptance is received. Need to look at 3 criteria to determine what received means: intentions of the parties; business practices; fairness of where the risks should lie.

Certainty of Terms no. 1 Certainty: -we need to know what the parties are agreeing to -necessary to adjudicate and to determine remedies -3 elements that require certainty: -subject matter -price -date of performance -types of uncertainty: vagueness and incompleteness

Vagueness Vagueness: -courts need to detmine if they can give the word meaning, or if it needs to be thrown out -need to find definite meaning -test for finding definite meaning:

-look at contract wording; look at industry custom; look at whether parties intended to be bound

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R v CAE Industries Ltd., [1985] 5 WWR 481, 20 DLR (4th) 347 Facts: CAE is contemplating buying gov’t base; they need 700,000 hours or more to make money; gov’t promises them 50,000 hours and says they will use “best efforts” to find the extra hours; CAE sues stating gov’t didn’t use best efforts; gov’t says “best efforts” is too vague Issues: Did they breach contract by failing to use their best efforts to find the 700,000 hours? What is “best efforts”? Decision: Best efforts clause is not too vague given the circumstances (serious matter, serious parties, intention), and is upheld. Best efforts means: best endeavors; leaving no stone unturned. Must be able to find a “definite meaning”: -meaning from the objective reasonable persons’ standpoint -look at: wording, industry customs, parties’ intentions to be bound

Incompleteness and Agreements to Agree

Incompleteness: there are missing terms

Agreements to agree: contract is made based on the idea that they will determine an aspect of it later

Giving meaning to reasonable price: court has to be able to give meaning to what a “reasonable” price is if they want to save the contract – subject matter matters (May: surplus army tents are hard to put a price on; Foley v Classique: reasonable gas prices can be determined)

In BC, agreements to agree are not binding – but this is different if it falls under the Sale of Goods Act

May & Butcher Ltd. v R, [1934] 2 KB 17 Facts: Buying used surplus army tents; agreed on everything except for price; contract includes an agreement to agree on price and contains an arbitration clause Issues: Is an agreement to agree acceptance? Decision: Price is an essential element of contract, so there needs to be a clear expression of price for contract to be valid. Ratio: Agreement to agree generally not valid. Main elements of a contract cannot be left uncertain (based on agreement to agree) – price, subject matter, and date of performance.

Hillas & Co., Ltd. v Arcos, Ltd. (1932) Facts: Contract included 3 aspects of alleged uncertainty – there was no date of delivery; said they will purchase “100,000 standards”; said they will pay 5% lower than price list. Issues: Is this contract certain and valid? Decision: Contract valid. There was clear intention to be bound, and all terms could be given a definite meaning. -Delivery date: Not uncertain – time frame can be implied. Parties obviously intended a reasonable time. There is custom standard that indicates it would be received in 1930-1931 timber season. -100,000 standards: Not uncertain. It is obvious it would be Russian standards (particular class of wood). -Price list: Not uncertain. Russian gov’t has a price list for timber, so it has a definite meaning. Ratio: In order to be a certain and valid contract, the date, price, and subject matter must be specified.

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Foley v Classique Coaches Ltd. [1934] 2 KB 1 *(opposite conclusion to May v Butcher – so had to distinguish the case)

Facts: Classique agrees to sell Foley petrol station if Foley will keep buying gas from them for 3 years; the price is to be agreed upon “from time to time”; there is an arbitration clause if disagreement arises about price. Issues: Does the absence of an exact price invalidate the contract? Decision: Agreement is valid. Arbitration clause is valid. -Case should be decided like Hillos (not May) because there is a clear intention to contract. -In this case, the price of gas was certain – it can be compared to other gas stations. -Business efficacy: they sold the station cheaper based on agreement to buy gas for 3 years – if the courts removed the selling gas aspect of the contract, then it would be imposing an unfair contract on seller (make it so they sold gas station for cheaper for no reason). Ratio: Sometimes essential terms can be left up to an agreement to agree – if there is an external market measure; if it is fair; if intention is clear.

Sale of Goods Act-Ascertainment of Price, ss. 12, 13 **** SUPREMACY OVER COMMON LAW

-applies to goods sold in BC (not services or land) -deals only with the assessment of price -section 12: -agreements to agree are not void 1. price may be set by: a) contract; b) left to be set as agreed; c) determined by course of dealing 2. if price is not determined, buyer must pay reasonable price 3. reasonable price is dependent on circumstances -section 13:

1. can agree to sell on the terms set by third party, but if the 3d party doesn’t, the agreement is voided 2. the agreement is not voided under s 1 if the goods have been delivered 3. if the 3rd party is prevented by either party from making a valuation, the party not in fault may bring action for damages against party in fault

Certainty of Terms no. 2 Agreements to Negotiate

If court decides an agreement to negotiate is binding, all they can do is tell the parties to sit

down and negotiate in good faith

o If the negotiations are unsuccessful, they have discharged their duty and the contract is

done

Bhasin v. Hyrnew, 2014 SCC 71: Facts: Bhasin sold investment products for Can-Am. They had agreement that auto-renewed for 3 year terms unless either party gave notice to the contrary. Can-Am started restricting plan to merge Bhasin’s agency with Hyrnew’s agency (without Bhasin’s knowledge). Hynrew was selected to audit Bhasin’s records and Bhasin refused to let him. Can-Am gave notice of non-renewal and Bhasin sued. Issues: Did Can-Am breach their agreement when they failed to perform honestly? Ratio: There is an implied obligation to perform all obligations in good faith (this means absence of bad faith – can’t lie/deceive).

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Empress Towers Ltd. v. Bank of Nova Scotia [1991] BCCA **Most recent and prominent Facts: Bank of NS rented from Empress. If tenant wished to renew lease, they could do so at the “market rental prevailing” “as mutually agreed by both parties.” Bank proposed a new price ($5400) and Empress did not accept/reject under the day before the lease expired – said $5400 was acceptance but they wanted $15,000 outright and to switch to month-to-month lease. Issues: Did Empress have the duty to negotiate in good faith? Did they fulfil this duty? Analysis: There is an implied obligation to negotiate in good faith (especially in the case of renewal clauses because you usually pay slightly more for the right to renew). Empress did not negotiate in good faith. If it simple “renewal at market rate”, the court can usually put a price on it – but “as mutually agreed upon” changes it. Decision: Empress did not negotiate in good faith. Judgement for Bank. Ratio:

1. Courts will strive to uphold agreements to negotiate if there appears to be a strong intent to contract.

2. When sophisticated commercial parties are involved, courts are inclined to believe serious intent is present.

3. In agreements to negotiate between commercial actors, there are two implied obligations: to negotiate in good faith; agreement with not be unreasonably withheld. (However, there is no obligation to agree.)

Mannpar Enterprises Ltd. v. Canada (1999) BCCA Facts: Crown gave Mannpar permit to remove and sell sand/gravel on Indian Reserve. Clause 7 said contract would run for 5 years, then could be renewed if performance was satisfactory and royalty/rental rates did not decrease. Both parties knew it would take 10+ years. Crown refused to negotiate and contract expired. Mannpar sued for damages. Issues: Was there an implied term to negotiate in good faith? Decision: Duty to negotiate in good faith cannot be implied – the language in the contract showed Crown had intention of ensuring scope was broad enough to refuse to renew due to requirement to maintain a fiduciary duty with Band. Ratio: If there is reference to a market measure, duty to negotiate is sometimes enforceable. If not, it isn’t.

Wellington City Council v. Body Corporate 51702 (2002 NZ CA) Ratio: There is a lack of certainty in agreements to negotiate in good faith because good faith is subjective and cannot be measured.

Anticipation of Formalization

Anticipation of formalization: agreeing on things with the intention of formally writing contract

later

Can be binding if all the essential terms have been settled on.

Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991 Ont CA) Facts: they had discussed elements of a contract and intended to formalize it in writing; before that was done, one party decided not to go through with it. Decision: There wasn’t agreement on all important elements – therefore it was not binding. You can only contract now to contract later if all elements are decided and the later events are simply reducing the agreements to writing.

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Intention to Create Legal Obligation **this is the first thing to consider on an exam

Hallmark: Would an objective reasonable person think they could sue if the other party did not

follow through with their promise?

Spouses: If there is a signed, written, and witnessed agreement between spouses/former

spouses to divide property under s 92 of the Family Law Act, then the courts do not look at

intentions.

o If it is missing one of the elements (written, signed, witnessed), then you move to the

precedent set in Balfour

Balfour v. Balfour [1919] ENG CA Facts: Agreement was made in non-turbulent times to give the wife an allowance while husband was at sea. Several months later, husband asked for divorce. She wants the money. Issues: Is an agreement between a husband and a wife a contract? Analysis: Decision: No contract. No intention to create legal obligation. Ratio: In family relations, there is a presumption against serious intention to create legal obligation (usually motivated by affection, not intention to create binding deal). Therefore, the wife would need to prove the husband had intention.

Rose and Frank v. JR Crompton Bros. (1923) England CA Facts: both parties signed contract saying the “arrangement was not a legal agreement, subject to legal jurisdiction in court” Decision: The lack of intention was explicitly stated, therefore it is not binding. Ratio: In commercial relationships, there is a presumption that this is an intention to create legal relations (unless it is explicitly stated otherwise).

TD Bank v. Leigh Instruments Ltd. (1999 On CA) Facts: Leigh is owned by Plessey. TD is lending money to Leigh (which is financially struggling) and asks Plessey for assurance that they will pay them back if Leigh goes under. Plessey gives comfort letter saying “Leigh will be managed in such a way as to meet their financial obligation”. Leigh went bankrupt and TD wants to go after Plessey for money. Issues: Is a comfort letter binding? Did Plessey intend to create legal obligation with TD? Analysis: Decision: Not binding. No intention – they did not say they would pay it back and both companies are commercial entities which should be familiar with comfort letters. Ratio: Comfort letters are usually deliberately designed with the intention NOT to create an enforceable contract.

Canadian Taxpayers Federation v. Ontario (Minister of Finance) (2004) (Ont Sup. Court) Facts: Mr McGuinty said during an electoral campaign that he would not raise the taxes. He then raised

the taxes and the Taxpayers Federation sued.

Issue: Did he intend to be bound? Was it binding?

Decision: No. A reasonable person would know that he was not intending to create a binding contract.

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Family Law Act SBC 2011 Section 3(1): person is a spouse if they are married (or formerly married); or have been living in a

marriage-like relationship for 2 years or [except for parts 5 and 6] has a child with the person

Section 3(2): includes former spouse

Section 3(3): starts on date they began living together or date they got married (whichever is earlier)

Section 92: spouses can make an agreement respecting the division of property and debt

Formality (Seal and Requirement of Writing) Seals are no longer necessary. If there is a seal, then consideration is not a requirement.

Contracts do not need to be written (except for land and guarantees – Law and Equity Act)

Royal Bank v. Kiska (1967 Ont CA) Facts: There was no gummed wafer on the guarantee, but they printed “seal” and Kiska signed beside it. Document also said “signed, sealed, and delivered” and make other references to seal. Issues: Was this a proper seal? If not, was there consideration? Decision: This is not a proper seal. But there was consideration. Ratio: Seal must be a “gummed wafer” (something stuck on).

Dynamic Transport Ltd. v. O.K. Detailing Ltd. (1978 SCC) Discusses when contract does not describe the property involved

Bleakly and Smith: House number was not included, but he only owned 1 property on that street… so it

was obvious what he was talking about.

Tourney and Zaihla: Description of property involved confusion over whether it was 60 acres (minus 2)

or 65 (minus 2). Not clear enough.

Law and Equity Act (B.C.) s. 59 (*) **just for sale of land

***just because you satisfy the Law of Equity Act, this does not mean you have a contract (it is

necessary, but not sufficient)

A contract for sale of land is not enforceable unless 1 of these things happens: 59(3) (a) contract must be in writing, signed and have a reasonable description of the subject matter (b) person denying contract did something that indicates a contract, or they acquiesced OR (c) reliance would lead to inequitable result 59(4) payment counts as positive evidence that contract exists Guarantee: promise to be liable if another defaults or does not perform 59(6) a guarantee is not enforceable unless:

(a) Signed by guarantor or indemnitor (or their agent) (b) Guarantor or indemnitor has performed act that indicates guarantee exists

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Enforcing Promises Doctrine of Consideration

Consideration: exchange of promise/act of value in exchange for promise/act of value

o Mutuality of undertakings

Do not need to have commercial value – the value just needs to stem from the fact that benefits

are conferred on each other; there is mutual loss; or one benefits and one loses

Consideration is a necessary element (unless there is a seal [Kiska] or promissory estoppel)

Two components:

o Value in the eyes of the law (does not need to be economic value)

o Consideration must flow from each party (Thomas)

Nature of Consideration

Thomas v. Thomas (1842) 2 QB 851 Facts: Thomas verbally said his widow could live in his house as long as she remained a widow. His estate entered into contract with her that she would pay $1 annually, maintain the home, and taken possession. She lived there for several years, but then the estate refused to transfer titled. Issues: Was there consideration? Decision: Agreement was binding. Promise to pay $1 and to maintain the home is something of value – therefore there was consideration. Ratio: Consideration requires exchange of value, but the adequacy of the value is irrelevant. There must be a mutuality of exchanges.

Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier (1934, SCC) Facts: Boutilier promised to pay Dalhousie for the purpose of “enabling the school to improve and keep

pace with growing needs”. He died without making the payment.

Issues: Was there consideration?

Decision: There was no consideration because Dalhousie did not promise to do anything specific in

exchange for the money.

Wood v. Lucy, Lady Duff Gordon (1917) New York Facts: Lucy (designer) employed Wood (marketer) to have exclusive interest in entering into contracts

where her indorsement would be placed on others’ designs. They would equally share profits. Lucy

placed her endorsement on products without telling him/sharing profits. Wood sued for damages.

Issue: Even where there is no direct promise, can a contract be “instinct with obligation” and therefore

binding?

Ratio: A promise to represent the interests of a party (promise Wood made) is consideration.

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Past Consideration

consideration cannot be something given or promised in the past (must be fresh consideration)

Eastwood v. Kenyon (1840 QB) Facts: Sutcliffe died and left his estate to infant daughter (Sarah). Eastwood (Sarah’s guardian) borrowed

money to pay for her education and she said she would re-pay when of age. She never did. Sarah

married Kenyon and Kenyon also promised to pay him back. Kenyon never paid back and Eastwood

sued.

Issues: Is past consideration sufficient?

Analysis: Court cannot enforce mere promises. Eastwood did not know Kenyon would eventually offer

to pay back – so there was no reciprocity in the acts.

Decision: No contract. Consideration not valid.

Ratio: Past consideration is no consideration – no reciprocity.

Lampleigh v. Brathwait (1615) K.B. Facts: Brathwait asked Lampleigh to go secure a pardon from the King for him. They didn’t discuss money before he left. When Lampleigh returned, Brathwait said he would give him 100 pounds, but never paid. Issue: Is past consideration valid? Decision: Binding. Lampleigh asked him to do it – so this was consideration enough. Ratio: Past consideration can be valid if:

(a) original act was done at other party’s request (b) when the request was made, it was understood that there would be compensation

Forbearance of Suit

D.C.B. v. Zellers Inc. (1996) 138 D.L.R. (4th) 309 Facts: Plaintiff’s child shoplifted. Sellers threated to sue parents and says if mom pays $200 they will not sue. Mom pays, then later finds out that they could not have sued. She wants $200 back. Analysis: General forbearance to sue is valid consideration, but:

1. If the forbearing parties knows their claim is invalid, forbearance is invalid. 2. BUT if they do not know if it invalid, it can be valid consideration (even if they were doubtful

lawsuit was valid) 3. Invalid forbearance can be consideration if:

a. Forbearer thought it was valid b. Claim is reasonable c. Forbearer legitimately intends to pursue the claim

4. If payment is already made in exchange for forbearance, then forbearance will be valid consideration.

Ratio: Forbearance to sue is valid consideration in some cases. Invalid forbearance is sometimes not consideration. If payment is already made, forbearance is consideration, even if claim was invalid.

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Pre-existing Duties

Promising to do what you already promised to do is generally not consideration

Is it a 3 party deal? May want to look at Pao v Long.

o If the same promise is made to a different party, this is valid consideration

You have a choice of applying Williams, Skilk, or Greater Fredricton

o If there is no clear practical benefits between parties – choose Fredricton AND argue

why it should be followed

Pao On v. Lau Yiu Long (1980, PC) 3 actors: Shing On (owned by Pao On); Fu Chip (owned by Lau Long); Fu Chip’s shareholders

3 agreements: 1. They would swap shares. Shing (Pao) promised not to sell stocks w/in 1 year. 2. Agreement between Shing and Fu Shareholders. 3. Shing and Fu shareholders scrap 2nd agreement. New agreement: Fu shareholders agree to

indemnify Shing any losses they suffer from holding shares. In exchange, Shing promises to enter into contract 1.

Issues: Was there valid consideration for agreement #3?

Decision: There was valid consideration (b/c to a 3rd party)

Ratio: Promising to do what you already promised to do is valid consideration WHEN promise is made to

a third party.

Stilk v. Myrick (1809) (Eng K.B.) Facts: Stilk was employed as seaman. Two seamen deserted ship and captain told remaining crew that they could split the extra wages if they continued to work. Afterwards, he refused to pay Stilk the extra. Issues: Was there valid consideration? Decision: No consideration from Stilk. Myrick was making a fresh promise (more money), but Stilk had already promised to sail boat under original contract. Ratio: Promising to do what you already promised to do is not consideration.

Gilbert Steel v. University Construction Ltd. (1976) Ont CA Facts: Steel has contract with University to build universities. During contract, steel prices increase. Steels asks University to have escalator clause put in. University agrees, but then refuses to pay. Issues: Was there consideration? Decision: Promise not binding. Fresh consideration from University, but Steel was just promising to continue supplying steel.

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Williams v. Roffey Bros. (1990) Eng CA Facts: Roffey (contractor) hired Williams (sub-contractor). Williams is not going to complete on time, and Roffey has penalty clause if it is not finished on time. He tells Williams he will pay him more if they work overtime and finish on time. Williams finished on time; Roffey refused to pay. Issues: Is there consideration? Decision: There was valuable consideration. Agreement is enforceable. Ratio: Rule that promising to do what you already promised is not consideration can be overridden if they prove:

1. There were practical benefits flowing to both parties. (Can be basic – like contractor is freed up for a new job sooner if it gets done).

2. There must not have been any economic duress.

Greater Fredericton Airport Authority Inc. v. Nav Canada (2008) NB CA Analysis: Commercial parties frequently vary their contractual obligations. As long as there is no economic duress, we should assume the commercial parties intended the promise to be enforceable. Ratio: Drops practical benefit aspect of Williams v Roffey Bros; says a promise to do what you already promised to do can be mutually binding if: there was no economic duress.

Promises to Accept Less

The re-paying party is simply doing what they already have to do (but not giving as much) – so

this is not binding

Foot v Rawlings: there must be new consideration – “you owe me $100, but if you give me $5

and a stick of gum than the contract is satisfied.” The stick of gum is new consideration.

Promises to accept less can be binding if:

o Fall under Law and Equity Act

o Promissory Estoppel

o Offering something new

Foakes v. Beer (1884) Eng HL Facts: Foakes owed Beer money and there was court order to pay it. Beer said she would give him time if he paid 500 now and 150 in July and 150 in January until it is paid off. She said if he followed agreement she would waive interest. Foakes paid all off, but then she brought action to receive interest. Issues: Was there consideration? Decision: There was no fresh consideration (he was just promising to pay what he already owned). She can demand interest. Ratio: Payment of a lesser sum is not satisfaction of payment of a greater sum, even if you have an agreement.

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Re Selectmove Ltd [1995] Eng CA: Facts: Selectmove was deducting tax from employee paycheques, but not forwarding the money to the government. When caught, they proposed that they would pay upcoming ones on time and slowly pay back the old debt. Collector said he would seek approval. Several months later, Crown demanded payment of all debt. Analysis: -Crown argued Foakes – payment of a lesser sum is not satisfaction of a contract -Selectmove argued Williams v Roffey – there were practical benefits flowing to each, so this should be consideration. Decision: Court was bound by Foakes case – so decided that, even if there is a practical benefit, payment of a lesser sum is not satisfaction of contract Ratio: Even if there is a practical benefit, payment of a lesser sum is not satisfaction of contract.

Foot v. Rawlings [1963] SCR 197 Facts: Rawlings owed Foot money from promissory notes. Foot said he would lower interest rate and payments if: he paid on the 16th every month; gave him 6 months of post-dated cheques at a time; and all the cheques cleared. Foot said he needed the money to live, and wanted to help Rawlings. They agreed and payment plan worked for over 2 years, then Foot sued for the remainder of the debt. Issues: Was there consideration in the agreement to accept/pay less? Analysis: Decision: Post-dated cheques were new consideration – agreement is binding. Ratio: If an agreement to accept less involves an aspect that was not present in the initial contract, then this is new consideration and the agreement is binding.

Law and Equity Act (R.S.B.C. 1996, c. 253) s. 43 **undoes Foakes v Beer in British Columbia IF there is express agreement 43: If a creditor EXPRESSLY accepts part payment, this is binding (even if there is no new consideration).

Process Automation Inc. v. Norstream Intertec Inc. & Arroyave, 2010 ONSC 3987

Ont has same Law and Equity Act as BC

This case recognizes that the Act does not mention the issue of undue pressure

Even in cases that should fall under Law and Equity Act, if there is undue pressure (low standard

and ordinary meaning), then Foakes v Beer still applies

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Promissory Estoppel Stops you from taking back a gratuitous promise

o If you agree to accept less, the other party pays less, you can technically sue to get the

full amount even though you promised – BUT promissory estoppel will see it as unfair

and consider the gratuitous promise to be binding (cannot sue for full amount)

Equitable doctrine motivated by fairness and flexibility

Four elements:

1. Must be existing contractual relationship.

2. Must be clear representation or promise that he intended to be bound to the promise of not

suing. (Typically needs to be express – but a very, very clear implied promise can sometimes

be acceptable.)

3. Other party (raising estoppel) must rely on other party’s promise.

Sask River Bungalows: you can take back the promise if it is done before the other party

relies on it

4. It must be inequitable to go back on promise.

Post Chaser: adds that we need detriment

It is a shield, not a sword. It protects you from the other person trying to collect more money

after saying they would accept less.

Estoppel does not take the right away. The courts will acknowledge the right, but won’t enforce

them.

General Principles

Hughes v. Metropolitan Railway Company (1877) 2 AC 439 (Eng HL) Facts: Hughes demanded tenant (Railway) repair property within 6 months. Tenant mentioned buying the leasehold and that want to defer commencing repairs while negotiations go on. Negotiations broke down. 3 days before repairs were due, railway wrote to say they would start repairs. 9 days later (april 28), served eviction notice. Railway completed repairs in June. Landlord sued to enforce eviction. Analysis: Fulfilled the 4 elements for promissory estoppel:

Existing relationship

Hughes entered into negotiations, which was a representation that 6 month period had not started.

Railway did not do repairs – obviously relied on promise

Eviction would be inequitable Decision: 6 month period should have begun when negotiations broke down (December 31). Repairs were done within 6 months – so, for equity reasons, court will not enforce eviction. (They do have the right to kick them out – but it would be inequitable).

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Central London Property v. High Trees House (1947 KB) Facts: Central granted High Trees tenancy for 99 years at rate of £2500/year (under seal). There were war conditions and High Trees could not rent out all flats; the two parties agreed to decrease rent to 1250. This continued for 4 years. In 1945, Central saw all flats were rented and wanted to increase rent again and demanded £7916. Issues: Was the promise to lower price binding? Analysis: Promise was understood by all parties to only apply under current conditions. Decision: The reduction of price was binding until all flats were rented (beginning of 1945). From then on, rate was 2500/year. Previous to that, reduced rate was all that was owed. Ratio: A promise intended to be binding, intended to be acted on, and actually acted on is binding. This is where the 4 elements come from:

1. Must be existing relationship 2. Must be clear promise or representation that promisor intends to be bound 3. Reliance by promise 4. Must be inequitable to allow promisor to go back on promise

Explanation of Principles of Estoppel

John Burrows v. Subsurface Surveys [1968] SCR 607 Facts: Subsurface was paying Burrows installments. Payments were often late, but Borrows accepted them anyway. Subsurface’s payment was 36 days late; they had falling out and Burrows demanded full sum. Analysis: Would a reasonable person think the acceptance of the late payments was a friendly indulgence, or acceptance that they will not pay on time? Decision: There was no reason to Subsurface to believe that initial contract was not binding. Judgement for Burrows. Ratio: Equitable defence (estoppel) can only be invoked if there is an intention to affect legal relations (if one party thinks the original contract would not be enforced).

[Grab your reader’s attention with a

great quote from the document or

use this space to emphasize a key

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Summary:

If you have a promise to accept less than is already owed, Foakes and Beer says it is not enforceable. To

get around this is where they are promising something different (cheque vs. cash, peppercorn, etc.) or

on an accelerated time span (Foot and Rawlings). The other way to get around the Foakes and Beer

situation is the BC Law and Equity Act s.43: if I expressly agree to take less that is binding. This is a

statutory removal of the requirement. The third way is promissory estoppel- if I promise to accept less,

and you act on that promise then it would be inequitable for me to go back on that promise and I will be

estopped from going back on my promise

Foakes Beer = find consideration

Foot Rawlings/Law and Equity Act = waive consideration

Estoppel is diff

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D & C Builders v. Rees [1966] 2 QB Facts: Rees owed D & C money. D&C was facing bankruptcy so accepted Rees’ offer to pay £300 to settle. Now they are suing to receive still owing sum. Decision: Decision to accept less was made under duress – so it is not binding. D&C can demand the full amount. Ratio: A promise made under duress should not be estopped.

Giving Notice: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. [1994] 2

S.C.R. 490 Issue: If a gratuitous promise is made, then I change my mind, can I go back to the original agreement?

Yes, if:

1. Notice is given to the promise

2. The notice is given before the promisor relies on the gratuitous promise

W.J. Alan & Co. v. EL Nasr Export and Import Co. [1972] QB 189 Issue: Does the reliance on a gratuitous promise need to be to the promisee’s detriment? Decision: Only need reliance simpliciter, do not need to prove you were harmed by reliance. ****changed in the Post Chaser

The Post Chaser [1982] QB ***

Facts: Plaintiff agreed to sell palm oil to defendant, who contracted to sell to further sub-buyers. Contract required declaration to be made to buyer have ship sailed. No declaration was provided for 1 month. Buyer initially accepted documents, but after sub-buyer rejected, the buyer rejected as well. Seller wants the contract to be enforced. Analysis: Essential element of estoppel is lacking – the sellers relied on the buyers representation (initial acceptance), but the rejection was not inequitable. Decision (Goff): Judgement in favour of buyer Ratio: You only need reliance simpliciter (no requirement to show detriment), but further states that it is inequitable to take a promise back if it causes detriment. (Detriment in reliance is not necessary, but detriment is required to prove inequity – not necessary in step 3, but is necessary in step 4).

Shield or Sword

Combe v. Combe [1951] Eng KB Facts: After divorce, husband agreed to pay wife £100/year. He never paid. She never brought it to divorce court. 6 years later, she brings action. Decision: He did not request her forbearance, so there was no consideration. (If he requested the forbearance, he would be receiving a benefit and there would be consideration) Ratio: Promissory estoppel cannot be used to create new actions (as a sword). It can only be used to prevent a party from enforcing legal rights if the enforcement would be unjust (as a shield).

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Walton Stores (Interstate) Pty. Ltd. v. Maher (1988) ALJR (Australia) Ratio: Australia allows promissory estoppel to be used as a sword – but this does not occur in Canada or Eng.

M. (N.) v. A. (T.A.) (2003) BC CA Facts: M promised to pay the balance of A’s mortgage if she would come live with him in Canada. Relying on that promise, she quit her job and moved. He didn’t pay off her mortgage – only loaned her $100,000. A week later, M evicted A from his house and she can’t find work. Analysis: There is no indication that M intended the promise to be legally binding, nor that A thought it was binding. This was a marriage-like relationship. Decision: Judgement in favour of M. He is not bound to pay her mortgage. Ratio: Promissory estoppel should only apply when promisor induces promise to assume promisee is intended to affect their legal relations and knows the promisee will rely.

Privity of Contract Basics

Privity: inclusion in a contract or exclusion from a contract (who is in the contract and who isn’t)

People that are not privy to a contract cannot try to enforce it (sue)

Tweddle v Atkinson [1861] EWHC QB J57 (ENGLAND)

Facts: Father of bride and father of groom both say that when they get married, each father will give money to the children. The kid sues his father-in-law when he does not give them the money. Issue: Can the son be considered privy to the contract because the whole purpose of the contract is to provide a benefit to him (therefore he has a direct interest)? Decision: He is not privy to the contract. Cannot sue.

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1 (ENGLAND – HL)

**first recognition of privity as privity Facts: Dunlop sells tires to Dew wholesale, and Dew sells them to Selfridge. Dunlop tells Dew they can’t sell tires below list price, so Dew also tells Selfridge they cannot sell below list price. Dunlop tries to directly sue Selfridge for selling below list price. Decision: Can’t sue. “Our law knows nothing of a right of a 3rd party to recover damages.”

Beswick v Beswick, [1968] AC 58 (ENGLAND)

Facts: Peter (old, sick man that Denning is sympathetic towards) sells coal business to nephew. Nephew stops making payments when Peter dies (even though he is supposed to continue paying widow). Issue: Can the widow (executor of estate) sue? Decision: Yes. Ratio: Administrator of estate has privity to deceased’s contracts.

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Exceptions to Privity of Contract

Sometimes employees can benefit from protection clauses in contracts between employer and 3rd party. (London Drugs)

o Test (London Drugs): Did the parties intend to extend the benefit to them?

Expressly? Impliedly? If so, were they in the course of employment? What is the commercial reality?

o In looking at employment, Edgeworth added question of close identity of interest.

Administrator of an estate has privity to the deceased’s contracts (Beswick)

London Drugs Ltd. v Kuehne & Nagel International Ltd., [1992] 2 SCR 299, 97 DLR (4th) 261

**test for exception for employees Facts: London Drugs gave Kuehne a transformer to store. Kuehne’s employees are negligent and it breaks. In the contract between LD and Kuehne, there is a limitation of liability clause. Issue: Can the employees of Kuehne benefit from the limitation of liability clause? Or could LD sue the employees in tort to get all the money back (not just the $40 the clause specifies)? Decision:

1. Does the clause extend to employees? Impliedly, yes. An entity cannot physically move a transformer, so it is clear the contract would be fulfilled by employees.

2. In course of employment? Yes. They were doing what they were directed to do. 3. Commercial reality? It would be commercially absurd to think warehouse workers could

be personally responsible for millions of dollars if they damaged an expensive item. Warehouse workers cannot refuse to touch expensive products, and it is not custom for them to personally contract with 3rd parties or obtain personal insurance.

Ratio: This exception operates as a defence (it is a shield not a sword). They cannot sue under the contract – but can use the exception as a shield if employer had a limited liability clause and someone tries to sue employees. Exception where employees can take advantage of a clause:

1. Does the clause extend to the employees? a. Expressly? b. Impliedly?

2. Were employees acting in the course of employment? And doing what they were supposed to be doing?

3. What is the commercial reality?

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Edgeworth Construction Ltd. V. N.D. Lea & Associates Ltd (1993) SCC

**added “close identity of interest” to employment test Facts: Engineers prepared report on behalf of the government, and Edgeworth relied on the report and entered into a fixed price contract with the Ministry of Transport. Afterwards, realized it would cost more than report indicated. Government had a non-reliance clause saying the report was for general information and was not guaranteed to be accurate. Edgeworth wants to sue Engineers, but they say the non-reliance clause extends to them. Issue: Does the non-reliance clause extend to the engineers? Decision: No. Applied LD test and to answer question 1, they asked if there was a close identity of interest. The identity of interest between government and engineers was not close – therefore benefit was not impliedly extended to them. Ratio: Independent contractors usually don’t have a close identity of interest (but they sometimes do). They are able to negotiate their own contracts. They also have the ability to avail themselves of independent insurance, and usually do.

Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd, [1999] 3 S.C.R. 108:

**when a right “crystalizes” Facts: Can-Dive rents boats from Fraser River, and then rents them to others for scuba diving. Fraser has insurance on boats – there is a subrogation clause (between Fraser and Insurance) that allows the insurance company to directly sue whoever is responsible for the damage. There is also a waiver for charterers (under Insurance and Fraser contract). Can-Dive (charterer) damages boat, and Insurance wants to sue them. Issue:

1. Can Can-Dive benefit from immunity clause? 2. Can Insurance and Fraser remove the clause from the original contract so that a third

party cannot benefit from it? Decision:

1. Yes. It was expressly extended to them and they were in the course of employment. 2. No – Can-Dive’s right was crystalized. There is freedom of contract – so they can change

the contract (and third party can’t object). BUT after their right “crystalized”, they cannot take the clause out.

Ratio: Crystallization of a right occurred when it becomes a potential defence (when you could rely on it). When damage is done (or money is lost in misrepresentation), crystallization occurs and right can no longer be removed.

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Conditions Precedent The contract is subject to something happening

o Example/ you say you will buy someone’s house IF your house sells

If your house sells, you have to buy their house

If your house does not sell, then the contract goes away

o Example/ you will buy house subject to financing

If the benefit if solely for your benefit, and you decide to waive it (even though the condition

precedent did not occur):

o Canada generally:

if it is a true condition precedent, you cannot waive it

if it is an ordinary precedent, you can waive it

o Different in BC because of the Law and Equity Act****

Section 54: if it is solely for your benefit, you can force the contract through

even if precedent condition does not happen

BC Law and Equity Act

**this makes distinction between “true condition precedent” and “original precedent” irrelevant in BC

54 If the performance of a contract is suspended until the fulfillment of a condition precedent, a party to the contract may waive the fulfillment of the condition precedent, even if the fulfillment of the condition precedent is dependent on the will or actions of a person who is not a party to the contract if

(a) the condition precedent benefits only that party to the contract, (b) the contract is capable of being performed without fulfillment of the condition precedent, and (c) where a time is stipulated for fulfillment of the condition precedent, the waiver is made before the time stipulated, and where a time is not stipulated for fulfillment of the condition precedent, the waiver is made within a reasonable time.

Turney v Zhilka, [1959] SCR 578 Facts: Turney wants to buy land from Zhilka subject to zoning. Turney can’t get zoning, but says it wants to waive it anyway and force the contract through. Issue: Can you waive condition precedent that is solely for your benefit? Decision: Cannot be waived – it is a true condition precedent. To determine if it is a true condition precedent:

1. Is it a future uncertain event? 2. Is the decision in the hands of a 3rd party?

If it is a true condition precedent, it cannot be waived (except in BC).

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Beauchamp v. Beauchamp [1973] 2 OR 43 (Ont CA) Facts: Deal to buy is subject to obtaining funds “in 2 phases”. Buyer gets funds in 1 phase, so seller tries to end contract on basis that condition precedent was not met. Buyer tries to waive clause. Issue: Can you waive condition precedent? Decision: Deal should go through. Not even necessary to waive the clause – just need to interpret it properly (the condition precedent was to get the mortgage – it is irrelevant if it happened in one shot or two). It is waivable regardless – the decision is not fulling in the hands of a 3rd party (because participation by Beauchamp is necessary to obtain mortgage).

Barnett v. Harrison, [1976] 2 SCR 531 Ratio: continue to follow rule in Turney v Zhilka.