Contracts (Biukovic)Dec 2008

Introduction to Contracts................................................................................................................. 2Formation of the Contract...............................................................................................................2

Offer........................................................................................................................................... 2Offer and Invitation to Treat....................................................................................................2

Canadian Dyers Association Ltd. v. Burton, 1920.........................................................3Pharmaceutical Society of GB v. Boots, 1953 CA Eng..................................................3Goldthorpe v. Logan: 1943 ENG CA..............................................................................3Consumer Protection Act...............................................................................................3Carlill v. Carbolic Smoke Ball Co: 1893 ENG................................................................4Harvela Investments v. Royal Trust: 1985 HL...............................................................4R. v. Ron Engineering and Construction (Eastern) Ltd.: 1981 SCC...............................4MJB Enterprises Ltd. v. Defence Construction Ltd.: 1999 SCC.....................................4Double N Earthmovers Ltd v. City of Edmonton 2007 SCC 3........................................4

Communication of Offer.........................................................................................................4Williams v. Carwardine: 1833........................................................................................5R. v. Clarke: 1927 Australian H.C..................................................................................5

Acceptance................................................................................................................................. 5General.................................................................................................................................. 5

Livingstone v. Evans: 1925 Alberta S.C.........................................................................5Butler Machine Tools v. Ex-cell-o Corp: 1979 Eng CA..................................................5

Communication of Acceptance...............................................................................................6Felthouse v. Bindley: 1862 NSCA..................................................................................6Brinkbon v. Stahag Stahl: 1983 Eng..............................................................................6Household Fire & Carriage Accident Insurance v. Grant: 1879 ENG CA.......................6Holwell Securities v. Hughes: 1974 Eng CA..................................................................6

Electronic contract formation and related problems...............................................................7ProCD v. Mathew Zeidenberg and Silken Mountain Web Services: 1996 US CA.........7Rudder v. Microsoft Corp, Ont. S. C. (1999)..................................................................7Kanitz v. Rogers Cable Inc............................................................................................7Electronic Transaction Act, 2001...................................................................................7

Termination of Offer.................................................................................................................... 7Revocation............................................................................................................................. 7Unilateral Contracts................................................................................................................8Rejection and Counter Offer...................................................................................................8

Byrne v. Van Tienhoven: 1880 CPD..............................................................................8Dickinson v. Dodds: 1876 CA [indirect revocation]........................................................8Errington v. Errington and Woods: 1952 KB [unilateral revocation]...............................8

Lapse of Time........................................................................................................................ 8Barrick v. Clark (1951) SCC..........................................................................................8Manchester Diocesan Council v. Commercial Investments Ltd: 1970...........................9

Certainty of Terms...................................................................................................................... 9May & Butcher v. R.: 1929 KB.......................................................................................9Hillas and Co. Ltd. v. Arcos Ltd.: 1932 HL.....................................................................9Foley v. Classique Coaches Ltd: 1934 CA Eng...........................................................10Empress Towers Ltd. v. Bank of Nova Scotia: 1991 BCCA.........................................10Mannpar Enterprises Ltd. v. Canada: 1999 BCCA......................................................10Wellington City Council v. Body Corporate, 2002, N.Z. C.A........................................10Bawitko Investments Ltd. v. Kernels Popcorn Ltd, 1991, Ontario C.A.........................10

Intention to create legal relations..............................................................................................10Balfour v. Balfour: 1919 Eng CA..................................................................................11Rose and Frank Co. v. JR Crompton and Bros. Ltd.: 1923 Eng CA............................11Toronto-Dominion Bank v. Leigh Instruments Ltd, 1999, Ontario CA..........................11

Consideration........................................................................................................................... 11

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6.1 Nature of Consideration...........................................................................................11Thomas v. Thomas: 1842 Eng QB...............................................................................12Jones v. Padavatton, 1969, All ER..............................................................................12

6.2 Past Consideration..................................................................................................12Eastwood v. Kenyon: 1840 QB....................................................................................12Lampleigh v. Braithwait: 1615, Eng. K.B......................................................................13

6.3 Forbearance............................................................................................................13B. (D.C.) v. Arkin: 1996 Man QB..................................................................................13

6.4 Pre-existing Legal Duty...........................................................................................13Duty imposed by legal/public duty........................................................................................13Duty owed to a third party....................................................................................................13

Pao On v. Lau Yiu Long: 1980, PC..............................................................................13Duty owed to promisor.........................................................................................................14

Gilbert Steel Ltd. v. University Construction Ltd.: 1976 Ont CA...................................14Williams v. Roffey Bros & Nicholls (Contractors Ltd.): 1990 Eng CA...........................14Foakes v. Beer (1884) – Eng. HL................................................................................14Re Selectmove Ltd. [1995] English CA........................................................................15Foot v. Rawlings [1963] SCC.......................................................................................15

Waiver and Promissory Estoppel..............................................................................................15Central London Property v. High Trees House Ltd.: 1947...........................................16John Burrows Ltd. v. Subsurface Surveys Ltd.: 1968 SCC..........................................16D & C Builders Ltd. v. Rees: 1966 England CA...........................................................16Combe v. Combe: 1951, England KB CA....................................................................16Walton Stores v. Maher: 1988 Aus HC........................................................................16M. (N.) v. A.(A.T.), 2003, BC CA..................................................................................17

Privity of Contract..................................................................................................................... 17Tweedle v. Atkinson, 1861 B&S...................................................................................17Dunlop PneumaticTyre Co. v. Selfridge & Co. Ltd., 1915 AC HL................................18Beswick v. Beswick, 1966 Eng CA..............................................................................18Beswick v. Beswick, 1968 Eng HL...............................................................................18London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 SCC..........................18Fraser River Pile & Dredge Ltd. v. Can-Dive Services, 1999 SCC..............................18

Introduction to ContractsElements of a K (common law):

Consensual Agreemento Offero Acceptance

Consideration (something of value to law exchanged for promise) Intention to create legal relations (enter freely) Requirements of form (legality). More important in civil law. Maturity (age), Capacity (mental health), and Consent

Formation of the Contract

Offer

Offer and Invitation to Treat

Invitation to treat: A statement of willingness to entertain an offer; invitation to others to make an offer;

terms can still be determined; often a prelude to a K.

Offer: A promise to do or refrain from doing some specified thing in the future

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A final and definite willingness to enter into a K and be bound by its terms; not much negotiation, other side will just accept

General Rule: Giving a mere price quote or placing goods on shelf for sale or publishing advertisement

is not an offer but an invitation to treat: Pharmaceutical Society v. Boots

Exceptions: Need to consider: intention, conduct, surrounding circumstances to determine whether

price quote or ad is offer instead of invitation to treat: Canadian Dyers Association Ltd. v. Burton, Goldthorpe v. Logan

"Promise to world at large" to give something in return for performance of some action is not invitation to treat but a unilateral offer: Carlill v. Carbolic Smoke Ball Co

Tenders / Bids / Auctions: Invitation to treat can specify the type of offer (bid) required; e.g. whether fixed price or

auction bids: Harvela Investments v. Royal Trust In a formal tendering process, call for tenders is not just an invitation to treat but an offer

(to accept tenders); submission of valid tender is acceptance of this offer (contract A); the tender that is chosen is then basis for forming actual contract to do work (contract B); R. v. Ron Engineering, MJB Enterprises Ltd. v. Defence Construction Ltd.

If submitted tender is not valid (i.e. it does meet terms stated or implied in call for tenders) then it does not result in a contract (contract A): MJB Enterprises Ltd. v. Defence Construction Ltd.

In auction, auctioneer is making invitation to treat; those who are bidding are making offer; invitation or offer can be revoked before hammer is hit.

Canadian Dyers Association Ltd. v. Burton, 1920FACTS: Burton selling house, quotes price to P who sends deposit; Burton accepts deposit and sends deed but later refuses to acknowledge contract.ISSUE: Was there an offer? Yes, because of conduct of D.RATIO: a mere price quote is usually only an invitation to treat but to decide if there was an offer, need to look into the intention and conduct of the parties and the surrounding circumstances.

Pharmaceutical Society of GB v. Boots, 1953 CA EngFACTS: Boots is a self-service pharmacist; P charges Boots with selling without supervision; ISSUE: is displaying goods in a store an offer to sell? No, only an invitation.RATIO: merchandise display = invitation to treat; offer = at cash register; acceptance = taking customer's money

Goldthorpe v. Logan: 1943 ENG CAFACTS: P sees newspaper ad for hair removal with guaranteed results; goes thru with the procedure but it was unsuccessfulISSUE: Was there a K based on the ad? Yes, ad was an offer because it made explicit promises (guaranteed success) based on consumer’s performance.RATIO: general principle is that ads are invitations to treat but that depends on the language used and the conduct of the parties – can be an offer.

Consumer Protection Act Allows people to get out of certain K’s Stemmed from the misuse of standard form K’s

Carlill v. Carbolic Smoke Ball Co: 1893 ENGFACTS: D advertised that their smoke ball, if used properly, would prevent the user from contracting the flu; offered money if didn’t work; P used it as directed and still got the flu

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ISSUE: Was there an offer? Yes, it was a unilateral offer, not an invitation to treat, because of guarantee and reward.RATIO: if an ad promises something in return for performing certain actions then it is a unilateral offer made to the public, not an invitation, a K is only concluded with those that fulfill the conditions on the faith of the ad. No written notification of acceptance is required – performance is sufficient. "Plain meaning" interpretation; unrealistic, vague, non-intentional K can still be upheld.

Harvela Investments v. Royal Trust: 1985 HLFACTS: the R sent an invitation to the A and to Sir Leonard to bid on shares; the A offered $2,175,000 and Leonard offered $2,100,00 or $101,000 higher than the next bidder; R gave it to LeonardISSUE: was the sale a fixed bid or an auction? It was fixed, based on intention of seller.RATIO: the seller controls the type of bidding and the intention of the seller can be deduced through reading the provisions set out in the invitation to treat.

R. v. Ron Engineering and Construction (Eastern) Ltd.: 1981 SCCFACTS: contractor D wanted to withdraw bid after deadline because of mistake in costs;ISSUE: Is the D entitled to recover his tender deposit? No, he breached contract.RATIO: the tender process is a 2 contract process (A and B); the call for tenders is the offer and the bid submission is the acceptance; this leads to the formation of KA; entering into KA leads to the contractual obligation that if bid is accepted will enter into KB which is the construction K.

MJB Enterprises Ltd. v. Defence Construction Ltd.: 1999 SCCFACTS: the lowest bidder was non-compliant but was chosen anyway; the A says that privilege clause allows it to choose whomever they please.ISSUE: Does privilege clause allow them to accept a non-compliant bid? No, only allows them to choose between valid tenders.RATIO: two key points to remember: 1) notion of implied term of contract, in this case, that contract A must be a valid contract to be considered, 2) decision that privilege clause does not override the need to consider only valid contracts (implied terms of contract override explicit terms of contract).

Double N Earthmovers Ltd v. City of Edmonton 2007 SCC 3FACTS: City awarded contract to rival company despite non-compliant bidISSUE: By making KB with rival bidder's non-compliant bid, did City breach KA with P and breach obligation to treat all bidders with fairness? No, KA does not survive creation of KB so City has no contract or obligation to PRATIO: Not every failure to comply with tender requirements invalidates bid; not obligated to investigate bids

Communication of Offer

General rule: An offer must be explicitly and intentionally communicated in order to be valid

Rewards: Notices for rewards constitute a unilateral offer. Whoever has knowledge of the offer and

fulfills the stated requirements gets the reward regardless of motive: Williams v. Carwardine

Exception: if don’t act on reliance of offer (are not aware of offer or give no regard to offer) then not entitled to reward: R. v. Clarke

Williams v. Carwardine: 1833FACTS: the D offered reward for information regarding brother’s murderer; on deathbed, the P gave a statement that led to the conviction of the murderer; asked for reward and was denied

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ISSUE: Is P entitled to the reward? Yes, b/c was aware of offer although had ulterior motive for acceptingRATIO: acceptance of offer is legally binding agreement, regardless of the motives of acceptance

R. v. Clarke: 1927 Australian H.C.FACTS: reward offered for info regarding murderer; D snitched to save own skin; says that he was aware of the reward but forgot when he gave the informationISSUE: should the D get the reward even though he was not induced by the reward? No, must have some reliance on offer to get reward.RATIO: a person is not entitled to a reward if they did not act in any reliance on the offer; must be aware of the offer to get the reward; in general, acceptance has to be in response to an offer.

Acceptance

General

Counter-offers / Battle of forms: replying to offer with modified terms is a counter-offer (not acceptance); a counter-offer is

a rejection of the original offer (a mere inquiry is not a counter-offer or rejection); the original offeror accept counter-offer, make new offer or revive the original offer; an offer that has been rejected cannot later be accepted except with the consent of the offeror: Livingstone v. Evans

in battle of forms general rule is ‘last shot’ rule: there is a contract as soon as the last form is sent and accepted without objection; however, in cases of dispute over terms must reconcile totality of correspondence (look at all shots not just first shot or last shot): Denning in Butler Machine Tools v. Ex-cell-o Corp

Livingstone v. Evans: 1925 Alberta S.C.FACTS: D offers to sell P land for $1800; P counter-offers lower price; D replies that he cannot reduce the price; P writes accepting the offer but D sells to someone else.ISSUE: Was reply “can’t reduce price” a renewal of original offer? Yes, because reiterates original price.RATIO: a counter-offer is a rejection of the original offer but it is possible to revive an original offer by replying back to a counter-offer, depending on the surrounding circumstances. An offer that has been rejected cannot later be accepted except with the consent of the offeror; (note that a mere inquiry is not a rejection).

Butler Machine Tools v. Ex-cell-o Corp: 1979 Eng CAFACTS: buyer and seller send forms back and forth regarding price of a machine; when delivery comes the seller has increased the price and there is a dispute about it.ISSUE: Whose terms and conditions prevail? In this case, buyer’s terms prevailed since the seller finally signed and returned their form.RATIO: battle of forms: Lord Denning identifies several possibilities for courts:1. Last shot: K is concluded upon the terms of the last document sent and not objected to2. First shot: a contract is concluded upon the terms of the first document.3. All shots count and the court must discover its terms on an objective basis:a) K is concluded upon terms drawn from all the documents that have passed between the parties when the terms can be reconciled as to give a harmonious result; orb) if material points are not agreed upon, differences irreconcilable and K is not concluded

Which test prevails depends on circumstances; need to look at totality; courts have discretion to choose;

Communication of Acceptance

General rules:

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Acceptance must be communicated to offeror (silence is not valid acceptance): Felthouse v. Bindley

Recipient rule: acceptance is effective when received by the offeror (true for all instantaneous communication; e.g. phone, telex): Brinkbon v. Stahag Stahl

If an offeror has not insisted on one mode of acceptance, use mirror image rule: Manchester Diocesan Council v. Commercial Investments Ltd

Exceptions: Unilateral offers do not require communication of acceptance (acceptance is based on

performance): Carlill v. Carbolic Smoke Ball Mailbox rule: acceptance still needs to be communicated but is effective when it is

delivered to post office, not when received (true for non-instantaneous communications; e.g. mail, courier, telegraph): Household Fire & Carriage Accident Insurance v. Grant

Exceptions to mailbox rule: does not apply if it leads to absurdity or inconvenience; does not apply if the offer explicitly states that the acceptance must reach the offeror: Holwell Securities v. Hughes

Felthouse v. Bindley: 1862 NSCAFACTS: nephew offers to sell horse to uncle; the uncle makes a counter-offer; nephew intends acceptance but before can deliver horse it is accidentally sold at an auction; uncle sues the auctioneer.ISSUE: Was there a complete K between the nephew and the P (and therefore did P own the horse)? No, acceptance was not clearly communicated.RATIO: silence is not acceptance of an offer except specified; in general the offeror is in control of the mode of acceptance but the courts are reluctant to allow offeror to impose acceptance when a party is silent.

Brinkbon v. Stahag Stahl: 1983 EngFACTS: offer (by seller in Vienna) and acceptance (by buyer in London) sent by telex.ISSUE: Where was contract formed? The recipient rule applies, so K formed when acceptance received by sellers in Vienna.RATIO: General recipient rule applies to instantaneous communications such as telex.

Household Fire & Carriage Accident Insurance v. Grant: 1879 ENG CAFACTS: D makes an application to buy shares; P confirms the sale by a letter sent thru the post; the letter never made it to the D; company goes under and P seeks payment.ISSUE: was there a K here for the sale of shares? Yes, because of mailbox rule.RATIO: establishment of the mailbox rule – the K is complete when the acceptance is posted and the offeror is bound by that acceptance even if he never receives it (the post office was the agent of both parties).

Holwell Securities v. Hughes: 1974 Eng CAFACTS: Hughes sent a letter by post to exercise an option; it was never received; it was expressly stated in offer that acceptance must be received in writing; ISSUE: Does the postal rule apply and was there a K? No, postal rule does not apply because of specification that acceptance must be received.RATIO: postal rule should not apply if the offer explicitly states that the acceptance must reach the offeror or if it leads to an inconvenience or absurdity

International Convention on Sale of Goods, Art 18(2)(3) and 24Art. 18 (2) Acceptance of offer effective at moment when indication of assent reaches offeror. Not effective if not does not reach offeror within fixed time or reasonable time. Art. 18 (3) Assent may be signalled by act; acceptance effective at moment of act.Art. 24 Offer, declaration of acceptance, or any other indication of intention reaches addressee when made orally or delivered personally

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Electronic contract formation and related problems

ProCD v. Mathew Zeidenberg and Silken Mountain Web Services: 1996 US CAFACTS: D buys consumer version of ProCD software but uses for commercial purposes.ISSUE: Are license terms enforceable if inside of box ("hidden")? Is acceptance at time of sale?RATIO: License terms enforceable if user agrees to license; user must have opportunity to refund goods if don't accept license

Rudder v. Microsoft Corp, Ont. S. C. (1999)FACTS: P's class action suit against D for breaching contract by failing to provide reasonable or accurate info regarding user accounts and by charging users' credit cardsISSUE: Are users bound by terms of K when they are presented in electronic format?RATIO: Scrolling function analogous to flipping pages of K; if user clicks "I agree" twice without reading terms, still bound by them

Kanitz v. Rogers Cable Inc.FACTS: P filed class action against D for adding arbitration clause to K. Notice of change was prominent, but actual contract text was not. K states continued use of service constitutes acceptance of new terms.ISSUE: Is this unconscionable? No, b/c K in plain language and allowed for changes with proper notice; customers can be reasonably expected to navigate through website to view changes.RATIO: unconscionability test: i) inequality between two parties (yes – "take it or leave it"); ii) stronger preys on weaker (yes), iii) resulting improvident agreement (no)

Electronic Transaction Act, 2001Makes “click-through” contracts enforceable. Adopted in all provinces including Quebec. Electronic contracts treated same as non-electronic contracts. Email treated (by statute) as instantaneous although scholars think mail-box rule should apply – no precedent in case law. Parties are free to decide of they want to use e-modes, that’s fine, but need to be consistent and agree.

Termination of Offer

Revocation

General Rules: An open offer can be revoked any time before offer is accepted. The revocation of an

offer takes effect when it is communicated to offeree and mailbox rule does not apply: Byrne v. Van Tienhoven

Acceptance of offer by one party amounts to revocation of offer to all other parties; offer is dead (as if offeror had died) and revocation does not have to be directly communicated: Dickinson v. Dodds

General rule for unilateral contracts used to be that could any time before performance completed but now rule is a unilateral K cannot be revoked once performance has begun: Errington v. Errington

Other forms of rejection (by offeree) or revocation (by offeror): Explicit rejection or silence Counter-offer (terminates original offer) if offeror dies (or goes bankrupt) then offer dies with him/her; cannot accept after death Time lapse (explicitly stated or “reasonable” time): see next section

Unilateral Contracts

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Rejection and Counter Offer

Byrne v. Van Tienhoven: 1880 CPDFACTS: buyer accepts offer from seller before it receives revocation notice from seller (but after revocation notice was put in mail)ISSUE: Was revocation effective or did contract stand? The contract was binding because revocation received too late.RATIO: the mailbox rule does not apply to revocation; an offer can be withdrawn before it is accepted but communication of revocation, in order to be effective, has to reach the offeree before they accept the offer

Dickinson v. Dodds: 1876 CA [indirect revocation]FACTS: the D was selling house; made offer to P, specifying date that offer was open till; P found out indirectly that D offered house to another and who had accepted; the P gave his acceptance but D said it was too late b/c he had already sold it to another.ISSUE: Was the D bound to hold an offer open till date specified? Does the revocation have to be directly communicated to the affected party? No on both counts, the offer was revoked as soon as 3rd party accepted offer.RATIO: a promise to hold an offer open is not binding unless the consideration is provided in return; once offer is accepted by one party it is no longer open to other parties; in this case revocation can be communicated indirectly or even not at all; Errington v. Errington and Woods: 1952 KB [unilateral revocation]FACTS: father-in-law made a unilateral promise to give house to daughter-in-law as long as they made mortgage payments; he died; the estate owned the houseISSUE: Was the promise binding and if so did it survive his death? Yes, there was a unilateral K and the daughter-in-law was performing.RATIO: a unilateral K cannot be revoked once the offeree has started performing (even if offeror dies).

Lapse of Time

General Rules: An offer that is expressly stated to last for a fixed time cannot be accepted after that time;

and an offer that contains no express provision limiting its duration terminates after lapse of a ‘reasonable time’; determination of reasonable time is based on conditions and conduct within each case: Barrick v. Clark

It is offeror’s conduct and intentions that are relevant to determining if offer has lapsed

Barrick v. Clark (1951) SCCFACTS: A potential purchaser took 25 days to respond to an offer of farm land. By that time, the land had been sold to someone else.ISSUE: Was acceptance within reasonable lapse of time of offer? No, based on correspondence of this case, offeree took too long.RATIO: An offer will expire in a reasonable amount of time depending on the nature and character of the offer and normal business practices. Rule = Words + Conduct + Circumstances + Nature of the K.

Manchester Diocesan Council v. Commercial Investments Ltd: 1970FACTS: the P was selling property; D sent acceptance letter conditional on the approval of minister of Education; by time approval was given the D no longer wanted it.ISSUE: Was this a reasonable delay? Yes, the seller knew would take time and intended to stick with offer.

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RATIO: re-emphasis of last ratio; an offer must be accepted within a reasonable time based on conditions of each case; may be extended if the conduct of the offeree within that period indicates an intention to accept and this is known to the offeror.

Certainty of Terms

General rules: general rule is all essential terms have to be settled on to conclude a valid contract; a

bare agreement to agree is not binding: May v. Butcher, Bawitko Investments Ltd. v. Kernels Popcorn Ltd.

if terms are so vague and uncertain as to be unenforceable then contract is no good, but if can give terms meaning based on intent of parties then contract binding under those meanings: Hillas and Co. Ltd. v. Arcos Ltd.

however where possible courts will try to save contract by giving reasonable meaning to vague terms (softens May v. Butcher); this meaning must be based on some benchmark, formula or mechanism provided in the contract: Hillas and Co. Ltd. v. Arcos Ltd, Empress Towers Ltd. v. Bank of Nova Scotia

o exception: the actions and intention of parties can be enough to enforce a K that is missing an essential term such as price: Foley v. Classique Coaches Ltd

general rule is it is not sufficient for essential term to be ‘negotiated in good faith’ since this mechanism is too subjective: Mannpar Enterprises Ltd. v. Canada, Wellington City Council v. Body Corporate

Two latin rules:- contra proferentem: if terms are vague, interpretation goes against drafter of contract.- ejusdem generis: general terms should be interpreted to follow meaning of specific terms

Statutes:- Sale of Goods Act: provides guidelines for interpreting contracts if terms are not

specified. Section 12: if price not set (or means of determining price not set), buyer must pay “reasonable price”. Section 13: if third party fails to set price then contract is void unless goods have already been delivered.

May & Butcher v. R.: 1929 KB FACTS: wanted to buy tents but left price and dates open to negotiation from “time to time”; there was arbitration clause included; the two parties could not reach an agreementISSUE: Are the terms of the K sufficiently defined to constitute a legally binding K b/t the parties? No, an agreement to agree is not binding.RATIO: All essential terms must be defined; an agreement to agree is not binding;

NB: Not considered a good decision since this strict interpretation does not follow later decisions that recognize right to use of arbitration.

Hillas and Co. Ltd. v. Arcos Ltd.: 1932 HLFACTS: the D was to supply timber at price that would be determined according to published price list; D opted out and sold timber to another company; P sued for breach;ISSUE: Is the K enforceable? Yes, since vague terms can be given meaning and parties intended to be bound by K.RATIO: Where possible courts will interpret vague terms in context of whole contract; this meaning must be based on some benchmark, formula or mechanism provided in the contract; softens May v. Butcher

Foley v. Classique Coaches Ltd: 1934 CA EngFACTS: the D agreed to buy land from the P and buy petrol from them; the price of the petrol was not specified; after three years D went elsewhere for petrol

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ISSUE: Is the D bound to buy the petrol from the P? Yes, since had not objected for three years, K was still enforceable.RATIO: the actions and intention of parties can be enough to enforce a K that is missing an essential term such as price.

Empress Towers Ltd. v. Bank of Nova Scotia: 1991 BCCAFACTS: P leased to the D bank with an option to renew; the rental rates would be market value prevailing at the start of the renewal term as mutually agreed upon; D wanted to exercise their option to renew the lease but P stalled; ISSUE: was renewal clause in contract binding? Yes, even though price not set, since benchmark was given. Parties must negotiate in good faith.RATIO: this is exception to CL rule that duty to negotiate in good faith is not contractually binding; if there is a formula (market value) but no mechanism, then court can supply a mechanism (good faith).

Mannpar Enterprises Ltd. v. Canada: 1999 BCCAFACTS: P granted permit to extract gravel; there was a right to renew but price not set; D elected not to give P renewal; ISSUE: is the renewal clause binding? No, since price not set.RATIO: an agreement to agree is not binding without formula, benchmark or objective mechanism to determine rent; good faith is of no help.

Wellington City Council v. Body Corporate, 2002, N.Z. C.A.FACTS: P sued for breach by Council to negotiate in good faith to sell leased property. Council appealed.ISSUES: was duty to negotiate in good faith binding? No, too subjective.RATIO: a bare agreement to negotiate in good faith is not sufficient to enforce a contract; ‘good faith’ as a subjective concept is not legally binding. If contract specified clear objective mechanism for parties to follow then the process could be enforceable (e.g. tender contracts).

NB: in civil law countries, ‘good faith’ is a legal obligation. In common law it is not and whether it is enforced depends on very fine distinctions between cases (e.g. long term relationship, evidence of intent, presence of formula).

Bawitko Investments Ltd. v. Kernels Popcorn Ltd, 1991, Ontario C.A.FACTS: parties made an initial oral agreement to grant the franchise; talks broke down over written contract.ISSUES: was the oral contract a binding agreement to grant the franchise? No, because not all essential terms were agreed upon.RATIO: contract not formed until all essential terms are agreed on.

NB: certainty, intention and consideration are usually wrapped up together; if all three are present then court will be more likely to rule for binding contract.

Intention to create legal relations

General rules: an agreement will not constitute a binding contract unless it is one which can reasonably

be regarded as having been made in contemplation of legal consequences: Balfour v. Balfour

there is a strong presumption in social and family agreements that they are not intended to be legally binding unless they are expressly specified otherwise: Balfour v. Balfour

there is a strong presumption in commercial agreements that they are intended to be legally binding unless they are expressly specified otherwise: Rose and Frank Co. v. JR Crompton and Bros. Ltd

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consider all factors; intent, certainty, consideration and sophistication of parties, reasonable person test, to decide legality of agreement; e.g. comfort letters known by businesses not to be binding: Toronto-Dominion Bank v. Leigh Instruments

Balfour v. Balfour: 1919 Eng CAFACTS: P sued her husband for allowance money promised; they separated; husband did not pay; lower court found for wifeISSUE: was there a binding obligation? No, an agreement b/w a husband and a wife (when made while amicable) is one where there was no intention of legal consequences.RATIO: there must be proven intention of the parties to create an agreement with legal consequences in order for the courts to treat is as such and there is a presumption that an agreement b/t a husband and a wife is not such an agreement.

NB: definition of consideration given: “consideration, as we know, may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other.”

Rose and Frank Co. v. JR Crompton and Bros. Ltd.: 1923 Eng CAFACTS: the parties signed an ‘honourable’ agreement that was said not to be legally binding; D breaches agreement;ISSUE: Was the honourable pledge clause binding? No, because there was explicit intention not to be legally bindingRATIO: intent will usually be inferred in a concluded business contract, but not if there is clear language expressing otherwise.

Toronto-Dominion Bank v. Leigh Instruments Ltd, 1999, Ontario CAFACTS: ‘comfort letters’ were provided to Bank to assure them loans would be repaid; as a result Bank provided Leigh line of credit; debt not paidISSUE: Were comfort letters binding? No, based on circumstances and sophistication of parties it should have been understood that letters were not legally bindingRATIO: consider all factors; intent, certainty, consideration and sophistication of parties, to decide legality of agreement.

Consideration

6.1 Nature of Consideration

Consideration:An act, forbearance, or promise by one party to a contract that constitutes the price for which he buys the promise of the other.

General Rules: A consideration of some legal and economical value is required (unless contract is

formally made under seal, e.g. deed): Thomas v. Thomas Consideration must be sufficient but not necessarily adequate (must have some

economic value, but doesn’t need to be a realistic price for the promise it buys): Thomas v. Thomas

Consideration must move from the promisee; can be a benefit given to the promisor or a detriment or loss from the promisee: Thomas v. Thomas

Consideration must be ‘fresh’: i.e. it may be executory (future promise) or executed at time of contract (present act or forbearance) but must not be in past (except for certain exceptions – see next section)

If there is evidence of duress (coercion) or fraud (misrepresentation with intent to induce action) or undue influence, then is not good consideration: Pao On v. Lau Yiu Long

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Thomas v. Thomas: 1842 Eng QBFACTS: dying husband declared it was his wish that wife have the house; executors complied under condition she pay 1l a year for repairs and that she not marry again; after the co-executor died the D tries to evict her;ISSUE: Was the agreement b/w the P and the D legally binding? Was there consideration? Yes, because of 1 pound payment.RATIO: moral obligation (to respect wishes of deceased) is not consideration since does not move from promisee and does not have economic value, but payment of nominal fee is valid consideration. “Consideration means something which is of some value in the eye of the law.”

Jones v. Padavatton, 1969, All ERFACTS: daughter left good job in States to go to law school in England, mother promised support (first by monthly allowance then by providing house). After few years, relations break down and mother sues to get house back.ISSUE: Was there intention to be legally binding? Were the terms too uncertain to be binding? Is there good consideration?RATIO: family agreements are presumed not to be legally binding; terms too vague and uncertain cannot be binding;

NB: what daughter gave up, even if not a direct benefit to mother, does constitute good consideration (see next section).

6.2 Past Consideration

General rule: any act or forbearance that occurs before promise is given is not valid consideration:

Eastwood v. Kenyon

Exception: when following three conditions are met (taken from Pao On v. Lau Yiu Long):1. the act of the promisee must be done at the promisor’s request; see Lampleigh v.

Braithwait2. the parties must have understood that the act was to be remunerated by a payment or

the conferment or some other benefit, and; 3. the payment, or the conferment of benefit must have been legally enforceable had it been

made in advance

Eastwood v. Kenyon: 1840 QBFACTS: P was guardian of girl and spent $ on her education; she promised to pay the debt; Sarah married the D and he promised to pay but never did;ISSUE: was D’s (husband and wife) promise binding? No, because consideration occurred before promise.RATIO: the court says that moral obligation is nudum pactum (a voluntary promise without consideration); and past consideration is not valid consideration.

Lampleigh v. Braithwait: 1615, Eng. K.B.FACTS: D killed somebody; P rode around to get a pardon from the king at the request of D; the D then promised 100l for the P’s effort but never paid.ISSUE: should the P get the $ based on promise or was consideration past? Should get $RATIO: A past act is good consideration for a subsequent promise if that act was requested by the promisor and a reasonable person would expect to be paid.

6.3 Forbearance

General Rule:

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If there is honest and serious intention to sue, forbearance or settlement (two forms of compromise) can be valuable consideration at common law.

Exception: forbearance is not binding consideration in cases where the threatened claim is invalid:

B. v. Arkin

B. (D.C.) v. Arkin: 1996 Man QBFACTS: kids caught shoplifting in Zellers; mom pays fee in return for not being sued in civil court; finds out she could not be sued and seeks to recover money.ISSUE: Can she get money back? Yes, since agreement was not valid.RATIO: forbearance is not binding in cases where the claim is invalid; but if it is a valid claim then forbearance is good consideration; sets important precedent of exception to rule that forbearance is good consideration.

6.4 Pre-existing Legal Duty

Duty imposed by legal/public duty Promising to perform an act when already under a legal duty to perform is not sufficient

consideration to support another promise, but an act done, which is in excess of the legal duty, will be sufficient consideration Ward v. Byham

Duty owed to a third party The performance of an existing obligation to a third party is sufficient consideration to

support a promise between the promisor and promisee Pao On v. Lau Yiu Long [1980] A.C. 614: the past performance of a pre-existing

contractual obligation to a third party can be valid consideration if meets test for past consideration above

Pao On v. Lau Yiu Long: 1980, PCFACTS: P’s company agrees to sell out to D’s company in exchange for shares; the P agrees to hold on to 60% of the stock, with understanding that he get some protection in case the stock crashes; later makes protection deal with the D directly (not D’s company) but when stock does crash, D refuses to buy back shares;ISSUE: Was there valid consideration for side deal? Was this deal cut under duress? Consideration was valid and there was not undue duress.RATIO: a promise to perform, or performance of a pre-existing duty to third party can be valid consideration. Past performance can be consideration if three conditions are met:

1. The act of the promisee must be done at the promisor’s request2. The parties must have understood that the act was to be remunerated by a payment or

the conferment or some other benefit 3. The payment, or the conferment of benefit must have been legally enforceable had it

been made in advance

NB: there was commercial pressure to contract but this is normal business practice and experienced commercial parties should be able to handle it; there was no fraud, coercion or undue duress so as to vitiate consent.

Duty owed to promisor General rule is that promises made on basis of existing contractual duties already owed

promisor are not binding. There must be new consideration to support new promise. Stilk v. Myrick (promise to pay sailors more midway through voyage not binding). Hartley v. Ponsonby (sailors that brought ship back to port after other deserted were awarded their promised reward since they went above and beyond their normal duty.)

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A modification to a contract is invalid unless supported by new consideration or if original contract is rescinded: Gilbert Steel Ltd. v. University Construction

Pre-existing legal duty owed to the promisor may be a valid consideration for a subsequent promise if the promisor derives practical benefit from the agreement and if not given under economic duress: Williams v. Roffey

Agreement to accept lesser sum in satisfaction for whole amount is not good consideration (in creditor/debtor situation): Foakes v. Beer, and Re Selectmove (Canada)

Forms of payment other than cash can be ‘new’ consideration for agreements to repay debts: Foot v. Rawlings

Gilbert Steel Ltd. v. University Construction Ltd.: 1976 Ont CAFACTS: P entered into a written K with the D to deliver steel at fixed price; a new written K was subsequently entered into with a higher price; there was then an oral K for a second price increase;ISSUE: was the 2nd increase binding? No, there was no new consideration.RATIO: a modification of a K must be supported by new consideration (or by rescinding original contract and entering into whole new contract.)

NB: a good contract should include clause to allow such modifications to take effect, e.g. by automatically rescinding and reinstating contract.

Williams v. Roffey Bros & Nicholls (Contractors Ltd.): 1990 Eng CAFACTS: the D entered into a K to renovate 27 flats; the D was concerned would not finish in time so promised additional money for each flat finished;ISSUE: was there consideration for the D’s promise to pay an additional price per flat?RATIO: the benefit that the D received was sufficient for consideration – finish the construction on time and avoid penalty costs; no economic duress found here b/c it was the D that suggested the increase in $;

NB: This case has not been followed (yet) in Canada, but could be used to make distinction from general rule set by Gilbert Steel.

Foakes v. Beer (1884) – Eng. HLFACTS: Foakes owed $ to Beer who promised that she would not sue him as long as he made down payment and paid instalments; Foakes paid her back full amount; Beer sued him when he refused to pay interest.ISSUE: Was Beer’s promise binding? No, because agreement to pay lesser sum in satisfaction of whole amount (including interest) is not binding.RATIO: Agreement to accept lesser sum in satisfaction for whole amount is not good consideration; rule provides full protection to creditors, but can get around it using promissory estoppel; see High Trees (England) and Robichaud (Canada).

NB: this CL law rule has been overruled by legislation in many provinces; Law and Equity Act, s.43 in BC.

Re Selectmove Ltd. [1995] English CAFACTS: Selectmove proposed income tax repayment schedule; tax rep did not have authority to accept but said would ask supervisor; there was no response; Selectmove made some payments and wanted to enforce arrangement; Govt wanted full amountISSUE: Was repayment deal enforceable? No, since not clear acceptance and no consideration (confirms Foakes v. Beer).RATIO: General rule in Canada concerning pre-existing duty to promisor set by Gilbert Steel but be aware of English cases; if creditor/ debtor situation can apply Foakes; if goods and service contract situation then can apply Williams.

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Foot v. Rawlings [1963] SCCFACTS: made repayment deal including acceptance of lower interest in return for regular instalment payments; Rawlings sued for full amount part way through repayment; ISSUE: Was repayment deal enforceable? Yes, since there was slight modification of consideration.RATIO: Forms of payment other than cash can be ‘new’ consideration for agreements to repay debts, even if full amount is not repaid. The SCC circumvented Foakes v. Beer, which has generally been superseded anyway by Denning in High Trees

Waiver and Promissory Estoppel

Estoppel – A bar that prevents one from asserting a claim or right that contradicts what one has said or done before or what has been legally established as true.

Promissory Estoppel: Modern concept of promissory estoppel established by House of Lords in Hughes v.

Metro Railway Co Lord Denning developed the modern law of promissory estoppel in Central London

Property Trust Ltd. v. High Trees House Ltd., indicating that the following elements are required to found a promissory estoppel (referring to Hughes):

o a clear and unequivocal promise or representation as to future conduct which indicates that the promisor will not enforce all his rights under the existing contract with the promisee

o which the promisee relies on and which it would be unconscionable or inequitable for the promisor to revert and insist upon his full contractual rights

General rules of promissory estoppel:1. Existing legal relationship between the parties at the time the statement on which the

estoppel is founded was made: Combe v. Combe2. Sword or Shield - promissory estoppel can usually only be argued as a shield against

existing contractual rights, and not as a sword to create new rights: Combe v. Combe, Gilbert Steel Ltd. v. University Construction Ltd.

3. Inequitable to go Back - estoppel only enforced if it would be inequitable and unconscionable for promisor to go back on promise: D & C Builders Ltd. v. Rees

4. Promise - there must be a clear promise or representation made by the party, by words or by conduct, against whom the estoppel is raised, establishing her or his intent to be bound by what she or he has said: John Burrows Ltd. v. Subsurface Surveys

5. Reliance - there must have been reliance, by the party raising the estoppel, upon the statement or conduct of the party against whom the estoppel is raised; not necessary to show detriment, only inequity

Waiver: One party elects to forgo some legal right available to him in favour of the use of a

different right or ability to take a particular action Promissory estoppel used when it would be inequitable not to do; not if there is true

accord between parties: Foakes v. Beer Denning; “The principal of waiver is simply this: if one party by his conduct, leads another

to believe that the strict rights arising under the contract will not be insisted on, intending that the other should act on that belief and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so.”: W.J. Alan & Co. v. El Nasr Export & Import Co

Must have (1) a full knowledge of rights, and (2) an unequivocal and conscious intention to abandon them: John Burrows Ltd. v. Subsurface Surveys ("friendly indulgence" not waiver)

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Can retract waiver and revive waived rights if not inequitable and give reasonable notice: International Knitwear Architects Inc. v. Kabob Investments, Petridis v. Shabinsky (not enough notice)

Central London Property v. High Trees House Ltd.: 1947FACTS: P reduces the rent for D during the war b/c they could not fill the flats; when the war was over they were able to fill the flats; the P asks for the original agreed rent retroactively from when the flats were full.ISSUE: Is the promise to accept a lower rent enforceable? If so, for how long?RATIO: Denning decision establishing promissory estoppel; uses equity to get around strict Foakes v. Beer principle; a promise intended to be binding, intended to be acted on and in fact is acted on, is binding even if there is no consideration. Duration of promissory estoppel is determined by circumstances – in this case only for the duration of low vacancy.

John Burrows Ltd. v. Subsurface Surveys Ltd.: 1968 SCCFACTS: P selling business to D; payment by instalments except contract allowed P to demand full amount if the D failed to make payments on time; P allows some late payments but then gets fed up and demands full payment;ISSUE: Did the P relinquish his rights to original contract by initially allowing late instalment payments? No, because never intended to waive his rights.RATIO: waiving of rights must be clear and unequivocal; friendly indulgence cannot be regarded as intention to waive rights permanently;

D & C Builders Ltd. v. Rees: 1966 England CAFACTS: P owed money for work done for the D; D’s wife paid partial sum only and bullied P into signing a receipt that it was accepted as payment in full.ISSUE: Is the partial payment sufficient based on receipt? No, because promise was made under duress and equity only aids those with clean hands.RATIO: promissory estoppel only used when it would be inequitable not to do so; if there is not true accord between parties (e.g. if promise was made under duress) then estoppel is not applicable.

Combe v. Combe: 1951, England KB CAFACTS: 7 years after divorce wife claims instalments of money that was promised to her by husband during divorce.ISSUE: Can the wife use estoppel to enforce this promise? No, cannot use estoppel to enforce a promise where no legal obligation existed before.RATIO: Denning warns against stretching High Trees principle to create new legal obligations between parties where none existed before; this is more extreme case of trying to use estoppel as sword than in Robichaud

Walton Stores v. Maher: 1988 Aus HCFACTS: the A (Walton) wanted to lease land from R and wanted R to demolish building and begin new construction immediately; the R prepared lease and A said that they would notify R if had any objections within one day; the R started to demolish and erect the new building; 3 weeks later A told them that the lease changes were not approved;RATIO: promissory estoppel usually requires a pre-existing legal obligation but it can be used in the absence of that relation if there is a reasonable expectation of legal relations and a reliance on the promise such that it would be inequitable to not enforce it.Estoppel used as sword; can’t encouraging (even by silence) other party to act to their detriment based on your representation when unconscionable outcome will result.

NB: this precedent used in Canada but only in proprietary estoppel cases; is persuasive but not highly so; not followed yet in England;

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M. (N.) v. A.(A.T.), 2003, BC CAFACTS: Mr. M made promise to Ms. A. that would pay her mortgage in England if came to live with him in Canada; she did come but relationship broke down and he did not pay mortgage;ISSUE: Is promise binding? No, because no pre-existing legal relations and no reasonable expectation of legal relations.RATIO: BC decision upholding Denning view that estoppel not intended to use as sword where no legal relations pre-exist: court said “a necessary element of promissory estoppel is the promisee’s assumption or expectation of a legal relationship.”

Privity of Contract Only parties who have created K are parties to it; third parties cannot enforce obligations,

even if they receive all or part of the benefits of the K: Beswick v. Beswick Consideration must move from party entitled to sue upon K: Tweedle v. Atkinson Horizontal privity – third party closely connected: Beswick v. Beswick Vertical privity – chain of contracts: Dunlop Pneumatic Tyre v. Selfridge

Exceptions Statute in England (and Canada, in limited contexts) to allow third parties to enforce

contractual terms if they are the person or member of the class of persons for whose benefits the term was placed into K; limited statutes in Canada e.g. NB Land Reform Act

In employment K in Canada, third party employees can benefit from employer's limited liability clause if:1. parties in contract intended to confer the benefit of the contractual defense on a third

party (expressly or impliedly)2. employees acting in course of employment and performing K services at time of loss

Test from London Drugs Ltd. v. Kuehne & Nagel Int'l Ltd., applied in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd.

Circumventing privity Suit by party to K: Beswick v. Beswick, Jackson v. Horizon Holidays Ltd. Arguing third party ("C") is agent for B, thus party of K. Difficult to establish, must show

consideration, must accept burdens of promises. Furthermore, party cannot act in K in two capacities: Dunlop Pneumatic Tyre v. Selfridge

Collateral K Assignment: taking rights and duties of another party; forbidden for many K Subrogation: subspecies of assignment; involves transferring one's personal claim and

allowing another party to step in and sue for you: Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd.

Tweedle v. Atkinson, 1861 B&SFACTS: P was promised money from parents and in-laws; father in law did not payISSUE: Was P entitled to sue? No, K b/t two parents and "no stranger to the consideration can take advantage of a contract, although made for his benefit"; "natural love and affection is not sufficient consideration"RATIO: Consideration must move from party entitled to sue upon the K

Dunlop PneumaticTyre Co. v. Selfridge & Co. Ltd., 1915 AC HLFACTS: Dunlop (R) sold tires to Dew on agreement that 10% discount given only to those in motor trade and list prices would be upheld for others; Selfridge (A) bought from Dew and sold tires for below list priceISSUE: Can R sue A? No, only one K b/t R and Dew and no consideration from R to ARATIO: Only a person who is a party to K can sue on it; reiteration of ratio in Tweedle v. Atkinson

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Beswick v. Beswick, 1966 Eng CAFACTS: Company transferred to nephew on agreement that nephew support widow after uncle's death; nephew refused to pay widow past first instalmentISSUE: Can widow sue? Yes, as executrix of husband's estate she is contracting partyRATIO: Where a K is made for the benefit of a third person who has a legitimate interest to enforce it, it can be enforced by the third person in the name of the contracting party

Beswick v. Beswick, 1968 Eng HLISSUE: Can widow sue in personal capacity? No, only as administratrix of estate.

NB: Overturns 1966 decision, but widow still recovers. Remedy of specific performance inadvertently benefits her personal capacity anyways.

London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 SCCFACTS: A hired R to deliver transformer. R had clause limiting movers' liability unless additional charges paid. A did not obtain additional insurance. Movers damaged transformer.ISSUE: Can employees claim benefits of employer's contractual limitation of liability clause? Yes, i) if clause expressly or impliedly extends its benefits to employees; ii) employees acting in course of employment; iii) employees performing K services at time of lossRATIO: Depends on intention of parties. R's movers are third-party beneficiaries to clause, not subject to unlimited liability; doctrine of privity relaxed to meet commercial realities

Fraser River Pile & Dredge Ltd. v. Can-Dive Services, 1999 SCCFACTS: A's barge sank while chartered to R. A's insurance company Under K, A's insurer waived right of subrogation against R. A and insurer later brought negligence action against R, sought R's waiver of right to waiver of subrogation clauseISSUE: Is R, third-party beneficiary, entitled to rely on waiver of subrogation clause? Yes. London Drugs Test applies – all three conditions satisfiedRATIO: A and insurers cannot revoke unilaterally R's rights once they have developed into actual benefit

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