1L Contracts Bible

Offer and Invitation to Treat

There are three main parts of a contract:

1.      Offer

2.      Acceptance

3.      Consideration

How to distinguish between an invitation to treat and contract formation:

·         Entering into a contract

o   There must be a distinction between simple bargaining and when the offer actually transpires.  There is no intention in simple negotiations to enter into a contract.

o   Power of acceptance is in the hands of the offeree.

o   When the offeror makes an offer, terms are usually attached.  There can only be acceptance if the offeree accepts those terms exactly as they were stated by the offeror. 

·         If there is a change in the terms, you have a counter-offer; at that point, the only offer on the table is the counter-offer. 

·         Mirror image rule = terms made by the offeror must match those that the offeree accepts.  This is necessary for the formation of a contract.

·         The distinction between an “offer” and an “invitation to treat” is contingent on the willingness of the offeror to be bound by the next communication made by the offeree, so long as the offeror’s offer hasn’t been withdrawn.  The offeror may withdraw the offer up until the time the offeree accepts or when the offer was stated to become stale.

	Canadian Dyers Association Ltd. V. Burton
Facts	Canadian Dyer’s asked the defendant for lowest price for 29 Hannah Avenue, to which he responded in subsequent correspondence, “[$1650] is the lowest I am prepared to accept […] if it were any other party I would ask more”.  The plaintiff treated the defendant’s words as an offer and sent a deposit for $500, as requested, and asked Burton to prepare a deed (a legal document that attaches to any piece with property, with which you transfer property from one party to the next).  The defendant prepared the deed and sent the draft back to Dyer’s, which included a closing date.  Five days after the closing date, the defendant’s solicitor wrote back saying there was no contract and returned the cheque for $500.
Issues	Was there a contract? Did the correspondence constitute an offer or invitation to treat?
Holding	The court held there was an offer and contract.
Reasons	While a mere quotation is not an offer (ie. “this watch is $500”), the words of the defendant, that “the price is the lowest I am wiling to accept” and “if it were any other party, I would ask for more”, made him bound to an offer.  The words used were critical.
Ratio	There can be no contract unless there is an offer to sell and an acceptance of that offer.  Whether or not there is an offer will depend on the language used and the circumstances of the particular case.  Courts can look to subsequent actions of the party to determine whether the an offer was made or not.
Comments	[1920], (HC Ont), p. 18-20.

	Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd.
Facts	Chemists’ Dept. was a pharmacy that had a section with poison.  Under the Pharmaceutical and Poisons Act in effect at the time, there was a pharmacist present at all time who could regulate if customers could purchase certain things.  The Pharmaceutical Society said that the pharmacy was not in compliance after two customers bought poisons they were not supposed to be able to.  The court in effect had to determine at what point in a retail setting an offer is made to the customer.  This particular case was an appeal after the Pharmaceutical Society lost at the trial level.
Issues	Was a contract completed as soon as the customer put the item in their shopping cart (as the Pharmaceutical Society argued)?
Holding	An offer is not completed when a customer put the item in the shopping cart; rather, it was simply an invitation to treat.  The sale was deemed to be affected by and under the control of the registered pharmacist because the act of taking something off the shelf and putting it into the shopping cart was not an acceptance of the offer.  An offer is done when the item is presented to the cash desk.  The transaction is not complete until the seller accepts the offer to buy.  The cashier ringing the item in is the acceptance.
Reasons	If the act of taking something off the shelf and putting it into a shopping bin constitutes an acceptance to offer, then the customer is unable to return the product to the shelf in the event they change their minds; they would have already made an offer.
Ratio	The act of taking something from a shelf does not amount to an acceptance of an offer because the goods on the shelf are an invitation to treat.  An offer to buy and acceptance to sell occurs at the cash register.
Comments	[1953], (CA), p. 20-23.

Unilateral Contracts

	Carlill v. Carbolic Smoke Ball Co. [1893], (CA) Makes                  Distinction made between bilateral contracts (the common exchange of promises) and unilateral contracts (a promise is made to a large mass of people and there is no promise in return).
Facts	Carbolic Smoke Ball had an advertisement that made an offer that they would give 100 pounds to people who used the Carbolic Smoke Ball for two weeks, three times daily, and caught the flu.  They said they were depositing the money at a bank for the contest.  Carlill followed the directions and caught the flu.
Issues	Was a contract formed when the plaintiff performed conditions set out in the advertisement?
Holding	Yes, a contract was formed.  This was an example of a unilateral contract.
Reasons	Bowen J. says “this is an offer made to the entire world”.  The acceptance is when anyone comes forward and performs the conditions on the faith of the advertisement.  Carbolic said it was not an offer made to the entire world, but “it was a mere puff”.  There was no intention to have legal relations; it was purely advertisement.  The Court said that it can’t be a mere puff when Carbolic said it was going to deposit money.  If you make extravagant promises, you have to be held liable for them.  The issue Carbolic raised was that there was no formal communication by Carlill of acceptance; the general law is that you have to communicate acceptance.  But, the court retorted, there was a unilateral contract, and acceptance is only done in the matter in which it was advertised.  So unless you say how acceptance is to come about, then you have to fulfill the reward.  In other words, if there were other conditions required, they had to be communicated, which they weren’t.
Ratio	Some advertisements can constitute offers where there’s an offer to the world at large which is accepted by an act carried out by the offeree in the mode required by the offerer. A unilateral contract is a contract in which there is a promise only on one side.  The consideration for which is not a return promise but the doing of some act.  On the other hand, a bilateral contract is a promise made on both sides.
Comments	[1893], (CA), p. 25-29.

	Goldthope v. Logan [1943], (CA)
Facts	There was an advertisement for an electrolysis procedure to remove hairs, and the buyer (Logan) took up the seller’s (Goldthorpe) “safe and permanent” guarantee.  Seller goes to buyer’s premises and is treated by employee of buyer.  Seller is not satisfied, so she brought an action on the basis of the advertisement.
Issues and Holding	1)       Is there any negligence on the part of the sellers that caused the damage?  No. 2)       Was there a contract between the seller and the plaintiff buyer?  Yes. 3)       If so, what is the result in law of a breach thereof on the part of the defendant?  See below.
Reasons	The advertisement was the offer; the act of going to the place of business is acceptance.  This was deemed a unilateral contract, and because the seller did not fulfill its guarantee there was a breach of contract.  Often, when looking for a remedy, courts will try to put the aggrieved party in the position they’d be in if the contract were fulfilled, which is what the court did in this case.
Ratio	The unilateral contract provides a technique to ensure the enforcement of promises made to the public at large.
Comments	Appeal: BUYER PLAINTIFF (Logan) v. SELLER DEFENDANT (Goldthorpe), [1943], (CA), pp. 30-35

The Tendering Process

• The tendering process is a process where an invitation for contractors to put forward bids for a project.  So the specifications are given for a project and they invite tender bids.
• The tendering process begins with the “invitation to tender” or the “tender call”, which sets out the nature of the project.  It also includes governing governing the submissions (ie. “you must submit it on Tuesday”).  One of the most common term is the privilege clause, which entitles the offerer to choose any bids it chooses, including one which isn’t the lowest offer.
• Before Rv. Ron Engineering, the tendering process used to be treated like an invitation to treat, where the bid that was submitted was an offer, and the process of accepting one of the bids and communicating to the winner was acceptance.
• But then it was found that those doing the tender bidding had no recourse in the event of a grievance.  R. v. Ron Engineering changed all this by Estey J. conceiving the tendering process as consisting of two contracts; contract A for the tendering process, and contract B for the successful bidder to execute the action.

	R. v. Ron Engineering & Construction (Eastern) Ltd. [1981],  (SCC)
Facts	The government makes a call for tenders, to which Ron Engineering misleadingly submits the lowest bid, which made it a erroneous offer which was disqualified, and thus lost their deposit to the government.  Ron Engineering claimed they were trying to withdraw their offer to amend it.
Issues	Was the contractor entitled to withdraw the tender and were they entitled to recover the deposit?
Holding	They are entitled to recover their deposit.
Reasons	Estey J. goes on to distinguish between contract A and contract B, which changes the nature of the tender call.  Now, when the offeror makes a call for tenders, a unilateral offer is made for contract A.  In effect, the terms become “if you accept, we enter into contract A”.  Contract B is entered into with the successful bidder.  Contract A is purely an administrative consideration, and the deposit is the consideration for contract A. In this case, contract A was entered into with Ron Engineering.  They didn’t enter into contract B.  The court then noted that the purpose of the deposit is to oblige the contractors to actually follow through with the construction project.
Ratio	A tender invitation and a tender bid are seen as being a unilateral contract that is brought into being almost immediately on the submission of the bid. Contract B, which deals with the terms and conditions of the building contract, is entered into subsequent to the formation of contract A.
Comments	CROWN v. TENDERER (Ron Engineering), [1981], (SCC), pp. 35-37 NOTE 4 on p. 37: We have subsequent cases that say “Ron Engineering is correct, but the initial contract A is not just a unilateral contract, but it’s a bilateral contract that creates obligations on both sides”.  It refers you to a Nova Scotia supreme court case that holds this proposition.  It goes on to talk specifically about privilege clauses: so the drafter of the invitation can alter the balance of the bilateral contract in its favour.

	Harvela Investments Ltd. v. Royal Trust Co. of Canada (C.I.) Ltd. [1986], HL
Facts	Defendant (Royal Trust) makes invitation to treat for others to purchase its shares, and said it would accept the highest bid.  Sir Leonard, a bidder, placed a referential bid with a condition that it have a bid that submits 101 000 above the next highest offer.  Harvela made the technical highest bid, which was of course superseded by Sir Leonard.
Issues	Was Sir Leonard’s referential bid valid?
Holding	It was not.
Reasons	Court says you can either auction through referential bidding or you can require fixed bids; and the court found this to be a fixed bidding auction because there was no statement in the invitation that the bidding would be referential.  This made Sir Leonard’s bidding invalid.  Also, when the highest bid is requested, it is implied that it is a fixed bid.
Ratio	A referential bid must be clearly and unambiguously authorized in the invitation to treat.
Comments	BIDDER PLAINTIFF (Harvela) v. SELLER DEFENDANT (Royal Trust), [1986], (HL), pp. 33-35

	MJB Enterprises Ltd. v. Defence Construction Ltd. [1999], (SCC)
Facts	Tender call made by defendant (Defence Construction), who accepted the bid of Sorochan (bid didn’t include all project possibilities), which turned out to be non-compliant.  Sorochan got the project anyway.  MJB (plaintiff) was the second lowest bid and sued.  The defendant argued that it exercised its rightful privilege clause.
Issues	Does the “privilege clause” allow the owner to choose a non-compliant bid?
Holding	No.
Reasons	So court essentially decides that the core issue issue is whether the intention of the parties was to focus only on compliant bids. The court says the privilege clause does not exempt a party to the obligation to accept only compliant bids.  For the defendant to have accepted a non-compliant bid was contrary to the express indication in the instruction for tenders.  The court found that, by looking at the intention of the parties and the rules, there was an implied term that only compliant tenders would be accepted.  The rules read in conjunction with the privilege clause suggests that the whole tender bid implied compliance.  Otherwise, why would you have rules?
Ratio	The privilege clause must be compatible with the obligation to accept only a compliant bid.  However, the privilege clause does allow the owner to pick a bid other than the lowest. Tender documents must express all the operative terms clearly.
Comments	BUYER PLAINTIFF (MJB) v. SELLER DEFENDANT (Defence Construction), [1999], SCC, pp. 38-46.

Communication of Offer

• An offer must be communicated so that it can be accepted.  The integral part is that the offeror knows he/she’s making an offer; there must be a meeting of the minds.
• For there to be a meeting of the minds, there must also be an intention to accept the offer.
• When the offer is communicated, it is often communicated with other details like terms and conditions.  For the offer to be valid, the parties must both agree with the terms and conditions.  If it differs in any way, it’s a counter-offer and the original offer is off the table.
• However, there are exceptions.  The intentions and actions of the offeror can also come into play and suggest certain things, like an offer, acceptance, or terms and conditions.

	Blair v. Western Mutual Benefit Assn., [1972], (BC CA), pp. 47-49
Facts	Plaintiff was a stenographer for the defendant who transcribed every meeting.  In one of the meetings, there was a resolution that, if she retired, she would be granted $8 000.  She only learned about the resolution through her job transcribing the minutes of the meeting, and no one communicated to her personally about this consideration.  She retired and expected $8 000 as per the resolution passed by the Board of Directors.  The defendant argues that because the offer was not communicated to her there was no offer.
Issues	Was the resolution to give the appellant employee at least two years salary upon retirement an offer accepted for valid consideration?
Holding	No.
Reasons	Just because the employee came across this information by her position in the company, it was not a validly communicated offer.  The resolution was simply an act made by the board of directors and did not put her in a position of acceptance.   McFarlane JA noted that there’s no evidence that P did actually accept the offer and therefore didn’t create a legally binding contract.
Ratio	1)       A communicated offer to one person cannot necessarily be reasonably understood to be an offer to another. 2)       If an offer is not communicated formally or otherwise to the other party then it cannot, on the facts alone, create or intend to create an offer capable of acceptance. ·         There must be an intention to accept that offer.  Courts generally assume, based on the conditions in the offer, that that person has the intention to accept the offer.
Comments	PLAINTIFF (Blair) v. Defendant (Western Mutual), [1972], (BC CA).

	Williams v. Carwardine [1833], (KB), pp. 50-51
Facts	The defendant (Carwardine) publishes an offer to anyone who is able to give information that leads to the discovery and conviction of the murders of his brother for 20 pounds.  This is a unilateral contract.  Four months after the offer was published, the plaintiff (Williams) came forward after she was severely beaten by the murderer.  Thinking she doesn’t have long to live and wanting to clear her conscience, she exposes the identity of the killer, which leads to a conviction.  D challenges P’s compliance with the conditions saying “her intention was not to fulfull the terms of the offer”; in other words, she wasn’t induced by the reward.
Issues	Was the plaintiff entitled to the reward, having given the information which led to the conviction of the murderer, even though she may not have been induced by the reward to give this information, entitled to the reward?
Holding	Yes, she was.
Reasons	The court found that the plaintiff is entitled to the reward because there was a contract that existed between P and D because P fulfilled the condition of the offer.  Also, P had knowledge of existence of the offer (as the court found that several advertisements of the reward were up and around P’s dwelling).  The judge also notes that motive, which the D said P did not have, is irrelevant.
Ratio	The motive of the informer in accepting the reward has nothing to do with his right to recover under the contract, but they must have knowledge of the offer.
Comments	PLAINTIFF (Williams) v. DEFENDANT (Carwardine), [1833], (KB).

	R. v. Clarke [1927], (Aust HC), pp 51-53
Facts	The Crown offers a reward for the arrest and conviction of a person responsible for murder.  Clarke provides the information that leads to the conviction of the murderers.  Without his information, there would have been no conviction.  The distinguishing fact in this case with that of Williams v Carwardine is that he had no intention of accepting the offer.  His motive was simply to clear himself of the charge of murder.  Recall that in order to have a contract, there must be a meeting of the minds, otherwise that you have no contract.  There was no meeting of the minds here.
Issues	Was there a contract established between the Crown and Clarke?
Holding	There as no contract established between the Crown and Clarke.
Reasons	They cite Williams/Carwardine and how that case merely determined that motive is not important.  The Court argued that the distinguishing factor in that case was that the informer knew of the offer and meant to accept the offer when she gave her information. The difference here is that Clarke, although he saw the offer, admitted that he either forgot about it or didn’t think about it when he gave his information to the Crown. Clarke rebut that presumption that there was an intention to accept the offer by virtue of his own admission that he forgot about the offer. But the Court said that there cannot be acceptance of an offer without knowledge of the offer.  And ignorance of the offer is the same, whether it is due to never seeing it or forgetting about it after hearing about it.  This is the distinguishing feature between R v Clarke and Williams.
Ratio	1) Where the offer invites conduct on the part of the offeree as the acceptance of the offer, the conduct must be undertaken not only with knowledge of the offer but with an intention to accept the offer.  2) The motive of the offeree in providing the conduct requested by the offeror is immaterial.
Comments

Acceptance

An offer provides the offeree with the power of acceptance.  In order for the offeree to communicate a valid acceptance, it has to be on the same terms and conditions of the offer.  If there is no acceptance to the same terms and conditions of the offer, then there is no consensus adidum.  If the communication of the offeree is on different terms and conditions as the original offer, that is deemed a counter-offer.  The counter-offer gives power of acceptance to the original offeror; so the roles reverse if the offeree makes a counter-offer.  In this case, not the power of acceptance is with the original offeror and the original offer is deemed to be off the table.  If the offeror does not accept the the counter-offer, there is no contract.  If they accept the counter-offer, there is a contract on the terms and conditions of the counter-offer.

Counter-offer

•  

	Livingstone v Evans [1925], (Alta. SC) Counter-offer doesn’t kill original offer because of language.
Facts	Defendant writes to plaintiff and offers to sell land for $1800.  The plaintiff replies and says “send lowest cash price, will give $1600” (which is the counter-offer).  Defendant says “Cannot reduce price”.  The plaintiff then accepts the original offer of $1800.
Issues	Was there a binding contract?
Holding	Yes, there was a binding contract.
Reasons	Cites Hyde v Wrench, which says the making of a counter-offer results in the rejection of the original offer.  You can use this case to prove that point.  But they distinguish Hyde from the case Stevenson, Jacques, & Co. v McLean because in Hyde the rejection of the offer was not a new proposal but a mere inquiry, and therefore the original offer was still on the table.  The judge argued that Hyde had established that making a counter-offer is a rejection of the offer.  They said that the plaintiff’s telegram in response to the offer consisted of a counter-offer AND an inquiry; the court interpreted the telegram as saying “we’ll 1600 or send your lowest price”.  The court said this put an end to the defendant’s liability under the offer unless it was revived by the telegram (which the court said it was).  This changed everything. The reason it was original offer was revived was because “cannot reduce price” meant they still stood by their original offer of 1800 and were willing to accept it.  “Cannot reduce price” signalled that the offer still stood at 1800.  The wording made the original offer still on the table.
Ratio	As an exception to the general rule that a counter-offer destroys the original offer, the Court may decide that the original offer is still open on the basis of the language used and the intermittent feelings of the parties.
Comments

Battle of the Forms

• Often in the course of negotiations, there are separate forms used by the buyer and seller.  Generally, when you look at the reverse side of these forms, you’ll see terms and conditions (TC).  Often times during these negotiations, the TC don’t match, and the question becomes “whose terms prevail?”
• The person who gets in the last show makes the counter-offer and therefore prevails.
• The act of acceptance is holding on to the goods.  If you send back the goods without accepting (immediately), then you’re not deemed to have accepted the TCs.  Last shot rule or performance rule.

	Butler Machine Tool Co. v Ex-Cell-O Corp. [1979], (CA)
Facts	The buyer (defendant) makes an inquiry to seller for the price of a machine tool.  The seller gives a quote indicating the price of 75 535 pounds.  The seller’s offer includes TC1 (terms and conditions) that say the price can change at the time of delivery to reflect the price at that time.  The buyer givens an order form with TC2 that did not include a price increase clause.  So the order form is deemed to be a counter-offer to TC1.  On the order form there is a tear off slip which acknowledges TC2 which they are to return to the buyer.  The seller does that in accordance with the quote for 75 535 pounds.
Issues	Was there a contract and on whose terms?
Holding	There was a contract and it’s on the buyer’s terms (TC2).
Reasons	The buyer’s TC2 are accepted because the seller signed off the tear-off slip agreeing to the terms and conditions; TC2 prevailed because the seller acknowledged them by signing the tear-off slip and sending it back to the buyer. The “counter-offer kills the original offer”. Lord Denning says the traditional approach is outdated and proposes an alternative analytical method that says the TC of both parties need to be construed together.  He says that if they can be reconciled in a harmonious fashion, then great.  BUT if they’re irreconcilable so much so that they’re contrary, the conflicting terms must be scrapped and replaced by a reasonable implication. Lord Denning goes on to say that the documents need to be viewed in terms of the whole, and that the June 5 document (when the sellers sent back the tear-off slip) is the decisive document and therefore the terms are on the buyer’s TC2.  The seller’s reference to the earlier offer was held by the court to be merely a reference to price the identity of the subject matter. So there are two ways to analyze the battle of the forms:   1) Traditional offer and acceptance.   2) Courts can look at the documents as a whole to make a determination as to which TCs prevail.
Ratio
Comments	Use Lord Denning’s approach when you’re DEFENDING THE SELLER.  If you’re DEFENDING THE BUYER, then use the traditional approach (LAST SHOT RULE).  Also note, Lord Denning’s approach is not law in Canada.

Mirror Image Rule for TCs

	Tywood Industries Ltd. v St. Anne-Nackawic Pulp & Paper Co. Ltd. [1979], (Ont HC)
Facts	An invitation to tender was called by defendant, whose document had 13 terms and conditions, none of which have an arbitration clause.  Plaintiff (buyer) replied with a quotation in letter form, but the reverse side contained 12 TCs, which also didn’t contain an arbitration clause.  Clause 12 of TC2 (TC of the buyer) essentially stated that the TC of TC2 are to prevail no matter what.  The plaintiff then submitted a revised proposal that had the same 12 conditions that were on the original.  The defendant then placed two purchase orders.  On the reverse side of the order form were TCs, one of which made reference to an arbitration clause.  So it was different from the revise proposal of the plaintiff. Neither purchase orders were signed by the plaintiffs nor returned to the defendant, but the goods were delievered to the defendant.  This act usually signifies acceptance.
Issues	Is the plaintiff (seller) bound to the conditions on the reverse side of the purchase order form to resolve disputes of arbitration even though they did not acknowledge those terms and conditions? Under the traditional approach, the answer would be YES. In this case, there were not bound because Tywood approaches the whole formation of a contract similar to the approach used by Lord Denning in Butler Machine.
Holding	No, they are not bound.
Reasons	This is a commercial transaction and terms may have been accepted but the conduct of both parties indicate that neither party considered any other terms than those found on the face of the documents (ie. Price and subject matter). Last shot rule prevails in Canada.  But Tywood, which is a spinoff of Butler, doesn’t follow this.  The whole basis was that they didn’t bring forth an arbitration clause.
Ratio	Where the TCs are not mere images, the intentions should be drawn to the TCs in order to make them binding; draw attention to TCs that both parties were operating under. Under the traditional analysis, however, there would be a strong argument that the defendant’s offer constituted the last shot and the defendant’s performance emphasized it.
Comments	Uses contract analysis in a way similar to Lord Denning, probably because both were determined in the same year.  But it is not the most prevalent view in Canada.  The prevalent view is the traditional doctrine.  Sometimes that will bring you to the same conclusion, but most of the time it will not.

Electronic

	ProCD v Matthew Zeidenberg and Silken Mountain Web Services, Inc. [1996] (US CA)
Facts	Software was purchased and the TCs are agreed to when you once installs the program.  This is a similar circumstance, but one of the TCs was that this program was limited to non=commercial purposes.  The defendant (Zeidenberg) used the software for commercial purposes and the plaintiff (ProCD) sought an injunction.
Issues	Is there a contract between ProCD and the defendant in that the defendant must obey the TCs of the shrinkwrap license. Note that this seems straight-forward, but back then it was rather novel. The question posed to the Court was “were the TCs in the program a contract such that the defendant had to comply to the terms not to use if for commercial terms.
Holding	Yes, a contract was formed.
Reasons	It was a contract where there was an exchange of money before the customer saw the TCs.  They talk about the UCC (which is the US version of the Sales and Goods Act) and how the UCC allowed for contracts to be formed this way. Here the defendant had no choice but to read the license to proceed into the program, and unless you accepted the TCs, the program would not allow you to proceed.  Whether you read them or not was irrelevant.  You had to signify acceptance under those TCs.  Under the UCC, the buyer has the ability to inspect goods before he either accepts them or rejects them.  The defendant has the opportunity not to use the product. They said the defendant tried the software, accepted the license and did not return the goods.
Ratio	1) The offeror may invite acceptance by conduct and may propose limitations on the kind of conduct that constitutes acceptance.  The offeree may accept the TCs by performing the acts that the offeror poses to treat as acceptance. 2) Computer software shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general..
Comments

Silence: Still Acceptance

	Dawson v Helicopter Exploration Company
Facts	Plaintiff has stake in mineral deposits in BC.  Defendant responds that he wants to try and buy some of P’s stake, to which P responds stating his interest.  D says “if you take me out to the mineral deposits and the lands are worth buying, I’ll give you 10% interest”.  D says he “hereby agrees”.  P responds stating if D can get (1) a pilot and (2) a release from the Navy, he’d have a deal.  D then calls the deal off.  REVIEW FACTS
Issues	Was there a contract that was binding?  Was it a unilateral or bilateral? Was the silence of the two year period (when D engaged another company to take them to the land) an abandonment of the contract? Was there a revocation of P’s unilateral offer or D’s unilateral offer?
Holding	There was a bilateral contract. There is no abandonment of the contract.  And there was no revocation of D’s unilateral offer.
Reasons	ESTEY: Letter of March 5 was an offer.  Letter of April 12 was acceptance. Says that, “although acceptance must be absolute and unequivocal, it need not be in express terms but can be implied from language and conduct”. There is no authority to hold that silence, on its own, signifies an abandonment of a contract.  Silence may be evidence of repudiation. RAND: The offeree’s first offer is for a unilateral contract. April 12 was acceptance but it was subject to performance by the offeree being granted leave from the Nacy.  Therefore it was a bilateral contract. MEJALLI NOTE: Here, there is a tendency of the courts to treat offers as bilateral contracts rather than unilateral ones where the language can so be construed.
Ratio	1) Silence alone does not constitute an abandonment of a contract, but rather you have to look at the circumstances of each case. 2) Acceptance must be clear but it need not be expressed.  Rather, it can be implied from the language and the conduct of the parties. 3) There is a tendency of the courts to treat offers as calling for a bilateral rather than a unilateral contract.  This is because unilateral contracts place the onus on one party.
Comments

	St. John Tub Boat v Irving Refinery  Silence can be a mode of acceptance.
Facts	D (Irving Refinery) employed the services of P (St. John) to keep tugboats on shore at all times to guide boats into a harbour. P offered these services, and D was asked to respond as to how to continue.  D makes a verbal agreement for tugboats to be continued to be on hand at all times for a month. After the end of this contracted period, they parties agreed to extend it for two months.  Near the end of this two month period, a new president took over D’s company.  P kept supplying tugboats and eventually, after D refused to pay, D brought an action to recover the money do on the invoices.
Issues	Whether or not D’s course of conduct (their acquiescence of action) during the months in question constituted a continuing acceptance of these offers so as to give rise to a binding contract to pay for the stand-by services of the tugboats at the rate specified in the invoices?
Holding	Yes, there was a contract during these months.
Reasons	The SCC construed the P’s actions of making the tugboats available after the contract ended as a new offer.  The terms of this offer were the same as the earlier two-month contract. The respondent here didn’t choose to discontinue the services, they just did nothing.  They didn’t challenge their presence being there, they didn’t bring them to the attention of anyone in P, they didn’t act to terminate the unnecessary services, BUT they didn’t pay for them.  SO leaving the tugboats on shore was the OFFER, and the silence was the ACCEPTANCE. So the court concluded that D’s conduct was sufficient of acceptance, and the trial judges’ judgment was restored.
Ratio	Sometimes acceptance can be inferred from the conduct of parties, as well as the words.
Comments	Note that this is contrary to the explicit communication we’ve seen.

Silence: No Acceptance

	Belthouse v Bindley Silence cannot be used as a mode of acceptance.
Facts	P is an uncle who agrees to buy a horse from his nephew, which ultimately turned out to contain a misunderstanding (guineas vs. pounds).  So there’s an agreement between them.  Uncle then makes counter-offer that says “if there’s silence, I’ll assume the horse is mine for 30 pounds”. The nephew has an auction for various things and the auctioneer (D) accidentally sells the horse even though he was told not to.  After the auction, the nephew writes P telling him what happened, and so the uncle then brought an action against D for conversion of the horse. At trial, the uncle won and was awarded 33 pounds (30 guineas).
Issues	Was there a contract between the uncle and the nephew such that the defendant sold the uncle’s property interest in the horse?
Holding	No, there was no contract.
Reasons	Because of the price misunderstanding, the Court said there was no complete bargain (agreement) and there was no intention for the uncle to pay 30 guineas.  Because the nephew didn’t say respond to P’s counter-offer, which had a condition for silence as acceptance, the court said there was no complete bargain between the two parties, and therefore no agreement.  So this case says you can’t have conditions that say something like “if you don’t respond, we have a contract”. The court acknowledged that that the nephew thought he sold the horse as well, but said that because he didn’t communicate his acceptance of the counter-offer.  So even if both sides believe there is a contract, you have to fulfill the complete requirements of a bargain, which includes communication of acceptance.
Ratio	You must communicate acceptance and silence is not a mode of acceptance.  BUT, remember, there are some situations where silence can be used as acceptance, like in the Tugboat or Dawson/Helicopter cases.
Comments	THIS CASE CONTRASTS WITH GOOD SILENCE.

Mode of Acceptance

	Eliason v Henshaw [1819], (US L Ed) Mode of acceptance specified by the offeror must be followed for acceptance.
Facts	The buyers wanted to buy flour, and wrote a letter to seller saying “please write by return of wagon to accept our offer”.  They gave the letter with the person who drove the wagon and desired acceptance by return of the wagon. Acceptance needs to be made with compliance of offeror’s offer. The day after the letter was received by the seller, he accepted it, but he sent the letter to Georgetown, misunderstanding the instruction, sending it a letter to the buyer’s premises, not with the wagon.  The letter arrives a month later. After receiving the letter, the buyer mails back a letter saying he didn’t want the flour anymore because he bought it from somewhere else, and because he didn’t receive the response by wagon.  The seller still sent the flour to the buyer and the buyer refused to accept it. Sellers bring an action against the buyer.
Issues	Did the sellers’ acceptance of the offer by mail, as opposed to the wagon, mean that the buyer was no longer obligated to purchase the flower?
Holding	Yes, they weren’t obligated.
Reasons	The court says the buyer contemplated receiving acceptance by wagon, and he knew how long the wagon’s journey was.  So when he stipulated the response by wagon, he stipulated that he wanted the wagon to return back with the flour.  So once the flour did not return with the wagon, they bought their flour elsewhere. The place the buyer stipulated the flour be sent was essential to the contract.  Because there was no return, there was no contract.  The acceptance was sent to Georgetown, and because the communication was sent to the wrong place, there was no contract.
Ratio	The offeror is the master of the offer and sets out the terms and conditions of the offer, which the offeree must accept on the TCs made by the offeror.  Any qualification or departure from those terms in validates the offer, unless it’s agreed to by the other party.
Comments

Communication of Acceptance

• Consensus adidum theory: there must be a meeting of the minds.  For this to happen, acceptance must be communicated to the offeror.
• There are two instances where silence constitutes an acceptance of an offer:
• 1) Conduct of the offeree
• Where silence of the offeree is reasonably understood by the offeror to indicate acceptance of the offer.  Here, it’s the conduct of the offeree that’s important, and it’s the conduct that signals the acceptance of the offer.
• 2) Cases where the offeror, in making his offer, has waived the requirement to communicate acceptance.   Not like in Belthouse where someone says “if you don’t respond, there’s an offer”, but rather in the manner of Carbolic Smoke Ball.  Here there’s no need to say to the offeror that “I’m going to comply with the instructions.
• As the master of the offer, the offeror is able to dicate whatever manner of acceptance is deemed appropriate, and that is incl

Postal Acceptance Rule

·                     Exception to the general principle that acceptance has to be communicated to the offeror.

·                     When you accept an offer in the mail, it’s at the exact moment you post the letter that acceptance was communicated, not the date the offeror receives the mail.

·                     To communicate the mail, the mail has to either be in a format that the offeror wanted you to reply in OR the offer must have been made by mail.

·                     If the acceptance is lost in the mail, it’s still effective against the offeror.  Why?  Because it took effect once it was placed in the mail box, and that’s when the contract was crystallized. 

·                     If the offeror decides to revoke his offer and he sends his revocation in the mail, if the offeree gets it before it before sending acceptance, the offer is revoked.  However, if he doesn’t and he sends his acceptance in the mail, the acceptance trumps the revocation because the acceptance takes place when it’s dropped in the mail.

·                     Jurisdictions:

o                  The jurisdiction in which the acceptance is mailed from is the legal jurisdiction that is intra vires.

·                     The postal acceptance rule doesn’t apply where it’s clear the offeror wants… VERIFY THIS

Postal Rule Does not Apply

	Holwell Securities v Hughes [1974], (CA)  A request by the offeror of “notice in writing” does not enact the postal acceptance  rule.  Here, the postal service rule does not apply.
Facts	Offeror (D) makes offer to offeree (P) for real estate.  Offeror said the option was open in writing for 6 months since the offer was presented.  Offeree hires a lawyer expressing a desire to purchase the real estate, and so it was mailed.  Letter was mailed never received by offeror.  Offeree is arguing that the Postal Acceptance rule should be applied; acceptance was done the day they mailed it.  So Offeree sues for specific performance of the real estate.
Issues	Did the plaintiff exercise an option to purchase the premises by posting a letter to the defenant which he never received?
Holding	No.
Reasons	You must comply stricty with the terms of the option.  And in this option there was a clause that said “notice in writing was required”.  Not acceptance in writing, but NOTICE in writing, thus eliminating the postal rule.  There was no contract.  Acceptance had to actually be communicated to the offeror. The court said the postal acceptance acceptance rule doesn’t apply where the offeror requires notice and it doesn’t apply where its application would produce manifest inconvenience and absurdity.  They say this manifest inconvenience is a wider principle and the postal service rule applies in situations where the negotiations between parties were clear in that the offeror wanted “notice by acceptance”. The court said here it was clear by way of the wording and negotiations of the parties that the offeror required notice by the offeree and not by way of writing.
Ratio	Where you have an option and it says “notice in writing”, the postal rule will not apply because the law relating to options is that the grantee must comply strictly with the conditions stipulated.
Comments

Postal Rule Does Apply

	Household Fire & Carriage Accident Insurance Co. v Grant [1879], (CA) Affirms postal acceptance rule.
Facts	Grant applies for shares in Household.  Notice of allotment is sent by Household but is never received by Grant.  The company goes into bankruptcy and they go after the defendant for the price they agreed to pay for the shares.  Defendant says he didn’t know he was a shareholder, so he declined to pay for the price of the shares. At the trial stage, two questions were left to the jury: i)                                                         Was the letter posted in the mail?  Yes ii)                                                       Was the letter of allotment received by the defendant?  No. Household won but Grant appealed.
Issues	Was there a contract despite the fact the defendant did not rcceive the letter of allotment?
Holding	Yes.  Trial decision upheld.
Reasons	Court said post office is agent for both parties, and as soon as a letter is delivered to the post office, the contract is made as complete.  The offeror, as the maker of the offer, can always avoid the postal acceptance rule by stating in his offer that he must receive communication of acceptance.  But in this case, that was a term of the offer. Here, the offeror trusted the post as a means of communication, so the onus is on the offeree that if he didn’t receive any communication in regards of the offer, he can make the inquiries of the offeror to see if he sent any acceptance. BRAMWELL DISSENT Thought that when there’s an offer, the acceptance must be communicated to the offeror.  Lacking any communication, there is no offer.  Unless the parties have specifically agreed that delivery of the acceptance letter to the post office would be a means of communicating acceptance, it would otherwise be unreasonable that the offeror would take the risk, particularly because it could be lost.
Ratio	If the parties have contemplated the post as a medium of communication for the contract, then the contract is completed as soon as the letter accepting the offer was put into the post regardless of the fact the letter was never received.
Comments	In today’s society, postal rule only applies where (1) offeror does not provide an additional mode of communication or (2) doesn’t apply where it would lead to an absurdity or inconvenience (example: if the mail people placed the letter in the wrong box) and (3) it only applies where the letter of acceptance is properly stamped and has a correct address.

Instantaneous Communication

·                     This concerns electronic communication, like e-mail, faxing, etc.

·                     Here, the rule is different from the post office rule.  Courts accept the general principle that when someone receives communication in instantaneous communication, that’s when the acceptance crystallizes.

·                     This begs the question of “what happens if it’s laying on someone’s fax machine but they haven’t looked at it yet?”  It’s acceptance the moment it comes out of the machine, but it’s the person accepting the message’s responsibility to read it.

	Brinkibon Ltd. V. Stahag Stahl und Stahl Warenhandelsgesellschaft, [1983], (HL)
Facts	The P are the buyers from the UK, and are suing the sellers (D) who are from Austria.  They sue for breach of contract in the supply of steel.  The first thing to be determined is the jurisdiction which is supposed to apply, so that’s the issue here. There are telephone conversations between the two parties and faxes between both.
Issues	Is an acceptance of an offer by telex from London but received in Vienna a contract made within the jurisdiction of the United Kingdom?
Holding	No, because the acceptance is received in Vienna, so jurisdiction of Vienna governs.
Reasons	WILBERFORCE J.: If the acceptance is sent by post or telegram, then it is completed when it is put in the hand of the postal agent in London, but we’re dealing with a telex here.  And a telex is treated like a phone conversation or other methods of instantaneous communication, so it is completed when it is received by the offeree.  But note, no universal rule can cover all instantaneous modes of communication.  If there’s a conflict, you should look at the intentions of the parties and sound business practices. OTHER JUDGE: Says telex should be treated like other forms of communication.  When a message has been received on an offeror’s telex, it is his responsibility to arrange for a prompt handling of the message. Another reason for this is to be a general proposition (the message is completed when it is received by the other party’s device) is so that the offeree can tell when the acceptance is received by the offeror.  So it makes more sense to say when its received by the offeror that the contract is formed, because if there’s a delivery failure, the offeree can know and send acceptance again.
Ratio	In cases of instantaneous communication, the contract is completed when received by the offeror and in the jurisdiction where the acceptance is received by the offeror, unless the failure of the offeror to receive the communication of acceptance sent by the offeree or from a defect in the communication with respect to which the offeror should be deemed to have assumed the risk.
Comments

	Rudder v Microsoft Corp [1999], (Ont. SC)
Facts	D was an online service provider, and they were located in Washington.  P was a subscriber of D’s group.  P claimed damages for breach of contract (a class action), breach of fiduciary duty, misappropriation and punitive damages together with accounting and injunctive relief (in other words, they brought an action). The contract which they said they breached was the “Member Agreement”, which required all members to approve electronically prior to using the service.  So the class of plaintiffs were all members to the agreement. The agreement had a clause that Washington was to be the jurisdiction; a jurisdiction clause.  P wanted the jurisdiction of Ontario to apply, arguing that the jurisdiction clause only read in portions because it didn’t show up on the first screen of the member agreement.  Therefore, it should be treated as fine print.
Issues	Was the contract formed on the basis of clicking on “I agree” icon on the screen? If so, did the acceptance apply to all the terms set out in the agreement, including those not read by the offeree.
Holding	Yes and yes.
Reasons	Court said, generally in Canada, there is a general deference given to form selection clauses (requiring the reader to know all TCs before accepting), unless there is a strong reason to override the agreement.  The burden of which lies with the plaintiff.  The threshold for this to apply must also go beyond mere inconvenience. Disagreed with P because, the Court said, it’s the offeree’s responsibility to read the terms.  The screen required users to read the terms. The court also found that there was no such fine print despite the fact that they couldn’t appear on the screen all at the same time. Court found in favour of D.
Ratio	Normal rules of contract formation that are applicable to agreement in writing are also applicable to agreements made in electronic forms. Acceptance may be communicated by simply clicking on “I agree” icon, and such acceptance is held to apply to all TCs, including those not read by the offeree.
Comments

Formation of Offer

Termination - Valid Revocation

·                     As long as the offer’s still out there, the offeror has the ability to revoke the offer.  It remains standing until the offer has been accepted by the offeree.  At the moment in time the offer is accepted by the offeree, the offeror cannot revoke the offer.

·                     When an offeror wants to revoke his offer, it must be communicated to the offeree.  The reasoning behind this is that if an offeree does not know the offer is revoked, in their mind it’s still capable of being accepted.  Furthermore, if knowledge of revocation was not required, the offeree could be relying on the offer.

	Dickinson v Dodds [1876], (CA)
Facts	Offeror (Dodds) sends memo to offeree (Dickinson) saying that he is agreeing to sell to the plaintiff property for 800 pounds.  The offer was said to remain open until Friday at 9 am.  On Thursday, offeree is informed by another party that the offeror was agreeing to sell the property to someone else. Offeree decides, since the offer was to remain valid until Friday, to accept the offer.  Does this formally in writing on Thursday with the offeror’s mother-in-law.  She forgets to give it to the offeror, but on Friday morning, the agent for the offeree saw the offeror and tried to give him a copy of the acceptance.  The offeror says it’s too late, saying he already sold to another party. Minutes later, the offeree tries to give acceptance, and he is also denied.
Issues	If an offer has been made for the sale of property and, before that offer is accepted, the offeror enters into a binding agreement to sell the property to somebody else, and the offeree receives notice of this, can he after that make a binding contract by acceptance of the offer?
Holding	No.
Reasons	The offer can not doubt be withdrawn before its acceptance.  Even in cases where it’s indicated it’d be open for a certain period of time, so long as it has not been accepted by the offeree.  In this case, before he communicated acceptance to the defendant, the offeree knew the property had been sold to a third party.  So because he had that knowledge, regardless that it didn’t come from the defendant, the court said there can be no consensus adidem; no meeting of the minds.
Ratio	1) An offer can be withdrawn before it is accepted, even if the offeror states that it will be open for a certain period of time, but that revocation must be communicated to the offeree. 2) A revocation maybe effective if the offeree learns indirectly that the offeror is no longer willing to stand by the offer.  That is the case because there can be no consensus adidem.
Comments	Revocation doesn’t have to be communicated by the offeror, it just needs to be known by the offeree.

Termination - Invalid Revocation

	Byrne v Von Tienhoven [1880], (CPD)
Facts	On Oct 1, offerors (defendant) mails out an offer to offeree (Byrne) to try and sell them 100 boxes of tin plates.  The offeree is in New York and gets the offer on Oct 11.  They immediately accept by way of telegram.  However, the offeror sent a revocation on Oct 8, which was received on Oct 20.  So: Oct. 1 offer Oct. 8 revocation Oct. 11 acceptance
Issues	Whether withdrawal of an offer has any effect until it is actually communicated to the person to whom the offer has been sent?  No. Whether posting a letter of withdrawal is a communication to the person to whom the letter is sent?  No; it is different from the postal acceptance rule.
Holding	No and no.  Offeree wins.
Reasons	It is a principle of law that an offer can be withdrawn before it is accepted, and it is immaterial whether the offer is expressed to be open for acceptance for a certain period of time. A non-communicated recovation isn’t revocation at all. The postal acceptance rule does not apply to cases of withdrawal of an offer, only acceptance.  The contract was therefore accepted and binding on Oct. 11.  This is because the accepting party has no reason to believe the offer has been withdrawn up to that point.
Ratio	1) The postal rule applies to acceptance, not revocation. 2) It is a principle of law that an offer can be withdrawn before it is accepted and it is immaterial whether or not the offer is expressed to be opened for acceptance for a given time frame or not.  3) An uncommunicated revocation is no revocation at all.
Comments

	Errington v Errington & Woods [1952], (?? CA)
Facts	Father buys house in his name for son and daughter-in-law, pays 200 pounds, mortgages 500.  Says title will be transferred once they pay all the instalments. A unilateral contract was made. Father dies, and his estate is trying to revoke the father’s offer.
Issues	If the daughter continues to pay all mortgage payments, will the couple be entitled to have the property entitled to them?
Holding	Yes.
Reasons	Father promised the house once they satisfied his conditions.  Court said a unilateral offer cannot be revoked once the couple started acting on the condition.  The only revocation in a unilateral contract once they make the payments is if they fail to make any payments.
Ratio	The promisor cannot revoke a unilateral contract if the offeree has started performance of the act that is required by the offer.
Comments

Termination – Lapse

	Barrick v Clark [1951] (SCC)
Facts	D to buy P’s farmland on Oct. 30; P gives offer.  D goes hunting and expects deal to stay open.  P sells to a third party.  D sues.
Issues	Given that there was no date for acceptance, what is a reasonable time for the offer to stay open?  Did the offer lapse? What point in time can the offeror go to sell to another party?
Holding	The court construed the contract as the offer lapsing.  They tried to understand what a reasonable time would be accounting for the character of the sale.
Reasons	TEST FOR REVOCATION: What constitutes a reasonable time will depend on the character of the sale.  They look at the circumstances of the offer, including the conduct of the party and the negotiations. ESTEY J.: The offeror’s offer didn’t specify a time for acceptance, but asked that a reply be given ASAP.  Offeree had reasonable time to make acceptance by posting an acceptance to that effect.  Estey focused on what “ASAP” meant in regards to the offer; considered the nature of the thing being sold. He concluded that the offeree didn’t respond in a reasonable time.  The closing date was only 2 weeks after the offeree’s acceptance; too soon to closing. So three things the Court looked at: ASAP, closing date, and down payment.
Ratio	When an offer doesn’t specify a time for acceptance, the offeree has a reasonable time within which to make his acceptance.  Nature of time depends on the nature of the subject matter, the normal business pratice, and the circumstances of the sale.
Comments

Formation of the Agreement: Certainty of Terms

In order for there to be a valid contract, the parties have to reach agreement on all essential terms; price, quantity, shipping terms, and delivery date.  These are examples of essential terms.  Their meaning within the contract has to be expressed with certainty.

When parties have not filled out these terms, then the agreement will fail for lack of certainty of terms.  It fails because there has not been sufficient consensus adidem.

When we talk about certainty of terms, you have to be careful to balance that requirement with that of business transactions.  There will be circumstances where parties cannot ascertain the certainty of things that will happen in the future.  This is usually the case in long term contracts, when there is a continuous supply of something.

A rigid application of this essential terms requirement could produce mischief, so you have to keep in mind when there’s a business transaction at play.

Vagueness

Vagueness applies in cases where there’s a contract and the terms are so vague that the court can’t give meaning to the terms.  These agreements fail for lack of certainty.  This is a situation where the parties can’t agree with the meanings of essential terms AND the courts can’t either.

Again, keep in mind we’re talking about essential terms of the contract.

	R v CAE Industries [1986], (SCC)
Facts	Negotiations were taking place for D to take over an aircraft base no longer needed by P. Three governors wrote to D agreeing to maintain present employment levels, contributing 7000 man hours per year.  Department of defence said it couldn’t guarantee 4000 hours a year, but promised to make their “best efforts” to make amends. P arranges for a subsidiary company to purchase the aircraft base.  The do this in 1971. Work load at the base diminishes.  D sues for breach of contract, wins at CA.  Now P is arguing that there was no contract for vagueness.
Issues	Was a contract intended?  Is the contract vague, uncertain, or incomplete?
Holding	A contract was intended.  The department of defence said it would make its “best efforts”. The contract is not vague.
Reasons	The important thing here is the use of the words “best efforts”. Regarding the first issue, the court said that there was an intention to make a contract, and this is evidenced in the fact that P began doing the work and the obligations were treated as binding by both parties. The onus of proof is on the person who is claiming there is no binding contract, and the onus is a heavy one. P did not meet that onus. The Court didn’t buy the argument that the contract was void for uncertainty and vagueness, as they said “before a contract fails on the grounds of uncertainty, every effort should be made to find meaning to the term. The Court was able to use the language to find a binding obligation.  “Best efforts” created a broad application to secure man hours.  The government didn’t have to sacrifice the contractual obligations of other projects and allocate the hours to CAE, but they did have to use their “best efforts” to “leave no stone unturned”.
Ratio	1) Government pronouncements may be binding rather than just a mere statement of intention. 2) The Court will use an objective test, the reasonable person test, to determine the government’s intention. 3) Contracts will not be held void for uncertainty if the terms can be meaningfully construed. 4) Public interest must be kept in mind in determining if a government contract exists.
Comments

Incomplete Terms

When you determine whether the parties have agreed to the essential terms of a particular agreement, there’s an assessment as to whether there are missing terms and whether those missing terms are so important that they warrant an agreement to fail.

In a commercial context, you’ll have to rely on the context of that industry to give meaning and intention to some terms.  In other scenarios, you may have a routine in the industry that requires specific essential terms to be agreed upon, and if the agreement misses these terms, there can be a failure of that agreement.

You’ll have to look at the circumstances of the industry, the practice of the parties or if the parties have entered into past agreements, and whether they are workable for those parties.

So there are many places to look if missing terms constitute the failure of an agreement.

	May and Butcher v R [1934] (HL)
Facts	Agreement was made for P to buy tents from D. D agreed to sell entire stock with the price and delivery times to be agreed on later. D changes its mind because of a change in board member. P sues bringing an injunction against D for selling the tents.
Issues	Whether or not the terms of the contract were sufficiently defined to constitute a legally binding contract between the parties.
Holding	No.
Reasons	P says there is a contract and terms are sufficiently defined. The court says it isn’t a legally binding contract.  There was never a legally binding contract because two parties entering into an agreement must define all essential terms. The essential term missing is price.  They said price was to be left to be settled in future.  Courts said this was an incomplete essential term. The court didn’t look at the delivery term, because that can be in a continuum. P argued Sales and Goods Act (SOGA) allowed for price to be fixed at reasonable price, but the Court didn’t buy this because the contract said the price would be determined from “time to time”, therein negating SOGA.
Ratio	1) A reference to a future agreement may not necessarily be construed as an intention not to be bound. 2) An agreement between parties to agree in the future on an essential term, such as price, is no contract at all.
Comments	Courts will always use a contextual analysis to see if the term is essential.

Not Incomplete Terms (Distinguished from May and Butler): Future Performance Contract

	Hillas & Co. v Arcos Ltd. [1932] (HL)
Facts	D gives P favourable terms to buy Russian timber at a reduced price.  There was an option of entering into a contract in the agreement, so if P wanted to elect to use the option, they would communicate it. P was entitled to a reduction of 5% of the official price. D ends up selling all of its timber to a third party.  D is arguing that the option was not certain enough, so there was no binding contract.
Issues	Was the option clause, from the first agreement, a binding agreement?
Holding	Yes.
Reasons	LOWER COURT REASONING: Said there was no binding agreement; it was a future agreement to agree so therefore no contract at all.  Appeal Court relied on May and Butcher where it was determined that if essential terms are missing, then the contract fails.  LORD WRIGHT: Says there are no uncertain terms in this agreement.  It was no dependent on any future agreement. Wright said the Courts have to look at the documents to construe an agreement, and this was enough to suggest a binding agreement. Clause 9, the clause that specified the reduced price, gave an offer.  All P had to do was exercise that offer.  They said this was a future performance agreement.  This agreement was the distinguishing factor which made the contract not fail for incomplete terms. The court read the contract as a whole and, from the entire reading, are able to ascertain what fair specification meant.  So in the exam, take the contract as a whole, not as piecemeal.
Ratio	1) A Court will strain to find a contract where common sense tells you that there is one. 2) In contracts for future performance over a period of time, parties may not be able, nor may they desire, to specify many matters of detail, such as delivery (but not limited to delivery), but leave them to be adjusted in the working out of a contract, and this is still a valid contract.
Comments	Distinguish this case from Butcher.  In Hillas, we have a future performance contract.

	Foley v Classique Coaches Ltd. [1934], (CA)
Facts	D agreed to purchase land from P.  This agreement was subject to D entering a supplemental agreement to purchase all petroleum from P.  The price was “a price to be agreed by the parties in writing from time to time”.  There was an arbitration clause. For three years, all gas was bought from P.  But after this, D began buying from elsewhere for cheaper. P seeks an injunction.
Issues	Was the supplemental agreement between the parties binding?
Holding	Yes, it was binding.
Reasons	D argues that the price, an essential term, was not defined, using the Butcher case. The Court says the parties believed they had an agreement and acted on it without any disputes.  The Court wanted to give effect to this agreement and said there should be a term that is read into the contract that the price is a reasonable price.
Ratio	Whether there has been a course of dealings in the past, missing terms, like price, may be applied and a reasonable price assumed.
Comments	This can be a rebuttal to Butcher.

Agreements to Negotiate

Agreements to agree.

When parties into agreements about the future, the question is whether those agreements to agree are enforceable by law.

From Hillas, we see Lord Wright talking about how agreements to agree can, in some circumstances can, in some circumstances, be enforceable.  In Canada, however, agreements to agree are not enforceable.

Lord Denning in Courtney v Fairburn says that Lord Wright has it wrong and says agreements to agree are unenforceable for two reasons:

            1) They’re so uncertain that courts can’t interpret them to make them enforceable.

2) If a court were to accept an agreement to agree, it’d be hard for the court to     estimate damages if there were such a breach. 

Lord Denning’s position is the reigning law in Canada.  Such agreements fall under this section because they fail for lack of certainty.

Valid Agreements to Negotiate

	Empress Towers Ltd. v Bank of Nova Scotia
Facts	There was a lease made between the two parties, first in 1972, which expired in 1984.  In 1984, there was a new lease that had a clause that said “renewal for any period shall be at the market rental price at the time”.  It was also subject to the mutual agreement of the parties. The tenant wanted to exercise the option to renew, and proposed a rate of $5400/month, determined with the help of appraisers as the market rental value.  The solicitors for the landlord write back and propose a month-by-month lease that begins with a $15000 deposit and have the rate of $5400/month apply thereafter. The plaintiff brought the case to the Court to repossess the tenant’s lease space.
Issues	Whether the renewal clause was void, either for uncertainty or what is fundamentally the same as an agreement to agree.
Holding	The renewal clause was not void.
Reasons	The Courts give the proper legal effect to any clause in the agreement that the parties understood and intended to have legal effect.  Here the Courts talked about what the mutual agreement under the renewal clause meant, and found that the reason the landlord made the clause was so they would not have to accept a rate lower than the previous lease agreement. Traditionally, an agreement to agree does not create an enforceable agreement or contract, but in this case they had something they could ascertain as definite, which was the “market rental rate”, and because this was a number that could be arrived at with some certainty, an obligation to have good faith negotiations implied seeking out this price. The Courts then mention two principles: the business efficiency test and the officious bystander test (you can only imply a term into a contract if, at the time the contract was entered into, both parties would have intended for that term to be inserted into the contract).  The Court held that the landlord did not negotiate in good faith.
Ratio	1) The courts will try, whenever possible, to give proper legal effect to any clause the parties understood and intended to have legal effect. 2) In a case where there is a standard by which to measure a duty, such as market value, the courts will imply terms of negotiating in good faith and not withholding agreements unreasonably to promote the business effiency test and the officious bystander principles.
Comments

Invalid Agreements to Negotiate

	Mannparr Enterprises Ltd. v Canada [1999] (BC CA)
Facts	P was given a five year permit to remove and sell sand and gravel off reserve lands. Had a renewal clause indicating a right to renew for a further five years; it was contingent on satisfactory performance and a renegotiation of the royalty rate and annual surface rate. Both parties expected the operation to last for ten years, which is how long they expected it to take.
Issues	1) Having regard to the language used to permit the agreement, was the renewal clause uncertain?  2) Ought there have to have been an implied term requiring the defendant to negotiate for the renewal or negotiate in good faith for the renewal?
Holding	1) Yes, it was uncertain. 2) No, because there was no contract, so it was unenforceable.
Reasons	Court looked at facts and language used by parties.  Wanted to see if both parties would have likely agreed to such terms.  They refer again to the officious bystander test; you can only apply a term into a contract if, at the time of the contract, both parties would have intended for that term to be included. A term can also be implied by the business efficiency test. The term “renegotiation” was used by the Crown to reserve a right to refuse to enter into any more negotiations; if the band wanted P gone, they had to be able to exercise that. The Court also noted that there was no arbitration clause either.
Ratio	1) Each contract must be looked at in the context of its own facts and the language used by the parties. 2) The implication of a term can only be made if it is the case that both parties would be likely to agree that such a term should be implied in order to satisfy the officious bystander test. 3) A term can be implied in a contract if is it found to be necessary by a court in order to give business efficacy to the contract.  A court will not, however, imply a term into a contract merely because the court may think that such terms would be reasonable or would likely be more satisfactory. 4) A duty to negotiate in good faith will not be implied into an agreement if there is no language that can provide an objective benchmark to measure such a duty as fair value or market value.
Comments

	Wellington City Council v Body Corporate 51702 (Wellington) [2002], (Aust CA) Agreement to agree is not enforceable
Facts	P breached a process contract (a contract that requires the parties to negotiate in good faith and not less than market value) and are being sued. There was a clause that the council officers will negotiate in good faith, and that council would sell their leasehold interest at no less than the current market value of those interests.
Issues	Was there a legally enforceable contract in existence?
Holding	No.
Reasons	The Court said there are two things; the process contract and the actual contract that was being worked towards.  The Court said the enforceability of contracts to negotiate will depend on the terms and specifity of those terms; if they’re sufficiently clear, than they’re enforceable. The Court says “good faith” is a subjective standard, and there is no objective criteria to decide whether each party is in breach of the obligation.
Ratio	1) The enforceability of contracts to negotiate will depend on their terms and particularly on the specificity of those terms.  2) For there to be an enforceable contract, the parties had to reach consensus on all essential terms or at least upon objective means of sufficient certainty by which those terms will be determined.
Comments	This isn’t law in Canada, but it’s an argument you can use. Lord Denning doesn’t like enforcing an agreement to agree because it lacks precision.

  

Anticipation of Formalization

Talking about negotiations where, after the negotiations, the parties are supposed to commit to the negotiation in writing.  The issue is whether the negotiation legally binding if a written document isn’t made.

Issues that arise:

            a) If the parties intended to be bound by the terms

            b) If those terms are sufficiently certain to give rise to a contract.

So this arises when parties have come to a level of inetent, agree on certain terms of the contract, but they have yet to formalize their agreement by making a written contract.

	Bawitko Investments v Kernels Popcorn [1991], (Ont CA)
Facts	P makes an oral agreement with D to open up a franchise.  Judge found they agreed on price, length of the contract, and renewal, and these terms were different than those found on the normal franchise contract.  There were four agreements. Both parties intended to draft a formal written agreement which never happened.  P then commenced an action.
Issues	Was the oral contract a complete and binding contract or was its enforceability subject to the parties’ subsequent agreement on all the terms and agreements to be contained in the contemplated written franchise agreement?
Holding	It wasn’t a binding contract.  There was no complete and enforceable contract.
Reasons	The parties didn’t agree on the essential terms of the contract, as there were those four agreements were not fully reached.  Because of this, legal obligations are deferred until a formal contract has been approved and executed, and the original agreement cannot constitute an enforceable contract.  So here the parties were found to clearly have contemplated a written document.  There was a draft agreement, but the Court said because it was a draft, there couldn’t be formal terms binding both parties.
Ratio	1) When all the essential provisions to be incorporated in a formal document are decided upon, and there is an intention that the agreement shall thereupon become binding, the parties will have fulfilled all the requisites for the formation of a contract.  The fact that a formal written document to the same effect is to be subsequently prepared and signed does not alter the binding validity of the original contract. 2) When the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon, or the contract is too uncertain or general to be valid, and is dependent on the making of a formal contract, or the understanding or the intention of the parties, even if there is no uncertainty as to the terms of their agreement,
Comments

Consideration

Consideration is an exchange of promises, and because there is one person who is the promissory making the initial promise, the promissee is the one giving the consideration.

On the exam, you’ll likely have to ask “is there consideration to support the promise?”.

Exchange and Bargains: No Consideration

	The Governors of Dalhousie College at Halifax v the Estate of Arthur  Boutiler [1934], (SCR) No consideration for Boutiler’s pledge despite of detrimental reliance
Facts	Promissor makes promise to give $5000 donation to promisee.  Promissor dies before paying amount. Promissee says the consideration is sufficient because of (1) the pledges made by others and (2) that the money go to the construction of new buildings.
Issues	Was there good and sufficient consideration to make a binding contract?
Holding	No.
Reasons	Court didn’t buy these arguments; the fact that others were making pledges cannot be used as considerations.  The Court also argues that the agreement didn’t preclude the College from expropriating the funds any way they wish, whether it be for the construction of new buildings or other  projects. So there was no request by the deceased to specifically use the money to construct new buildings and fulfill the needs of the growing constituency. The Courts said the way this promise was established was as a voluntary matter.  Something specific tied to the request of the promissor is necessary.  There must at least be some kind of objective.
Ratio	A charitable pledge, even though formally made and seriously intended, is considered to be a mere gift and even a detrimental reliance of the party to who it is made is not sufficient consideration.
Comments	A combination of this case and the following case (Brantford Hospital) are the current law in Canada.

	Brantford General Hospital v Marquis Estate [2003], (Ont. SCJ) Lady’s million dollar donation doesn’t have consideration
Facts	Woman promises to donate one million dollars to hospital.  Hospital offers to name the wing after the woman and her deceased husband; but the woman herself never specifically makes the request.  It was also subject to the Board of Director’s approval. In the pledge document, there’s no mention of the new unit being named after the woman or her husband. She dies and leaves a 800k outstanding. So the hospital is arguing that it’s consideration is that the hospital would be named after the woman and her husband.
Issues	Does the pledge constitute a legal and binding contract enforceable by law or does it fail for lack of consideration?
Holding	It fails for lack of consideration.  It is not a binding contract.
Reasons	The Court said the naming of the new unit cannot be used as sufficient consideration.  Especially considering it was never mentioned in the pledge and it was subject to approval by head director.  Also because it was never requested or made it a condition to the pledge that the new unit be named after her.
Ratio	For a pledge to be considered an enforceable contract, consideration must be shown.
Comments

Exchange and Bargains: Consideration Present

	Wood v Lucy, Lady Duff-Gordon [1917], (US NY) US decision; not binding
Facts	Promissor, Lucy, is a fashion designer who gives promisee the exclusive right to place endorsements and sell designs.  The Promissee promises in return to give promissor half of the profits and revenues. Promissor turned out to be putting her endorsement without his consent.  Promissee sues for breach of contract.
Issues	Was there consideration and, if so, can the contract be enforceable when there is no explicit promise made by the plaintiff?
Holding	Yes, there was consideration.
Reasons	The defendant made an implied promise for the promissee to get endorsements to create profits.  So the implied promise was to put in reasonable efforts to get a profit and then render that profit to promissor. Promisee’s promise was to pay half the profits that resulted from the exclusive agency agreement, and it was a promise to use reasonable efforts to bring profits and revenues.
Ratio	An implied promise of one party can be sufficient to constitute consideration for a contract, and to support a cause of action against the other party for breach of contract. Courts will reach to find something reasonable for the purposes of salvaging an enforceable contract.
Comments

Past Consideration: No Consideration

	Eastwood v Kenyon [1840], (QB)
Facts	The plaintiff promissor is a guardian of the promissee who paid for the promisee’s education when she was younger.  At the time, the promisee promised to pay the promissor back when she was older.  When the promissee grows up, she doesn’t make the payments. The defendant is the promisee’s husband, who agreed to pay back the amount with his wife.
Issues	Is there a binding contract for the amount due or does it fail for lack of consideration?
Holding	There is no binding contract because there is no consideration.  Past consideration is no consideration.
Reasons	The promissee’s promise was past consideration.  Moreover, the promissor’s promise was a voluntary gift that, although promised to be paid back, was not consideration to pay back the now existing promise.  There’s no binding contract for lack of consideration, it was just a past benefit not conferred at the request of the defendant.
Ratio	Past consideration is no consideration at all. A pre-existing moral duty does not confer consideration.  (This is done for policy reasons, as courts don’t want people making voluntary promises and then expecting repayments of gifts.
Comments

Past Consideration: Consideration Present

	Lampleigh v Brathwaite [1615], (KB)
Facts	D needed to get a pardon from the King.  Implores help from P to get pardon.  P says “I’ll do this” and puts in effort to ultimately get pardon for D.  D promises after the pardon to pay him 100 dollars, but eventually doesn’t pay.
Issues	Is there a contract or does it fail for lack of consideration?
Holding	Yes, there is a contract.
Reasons	A voluntary act, obviously, does not have consideration to uphold an action. On the other hand, if the act was completed at the request of the defendant, this would constitute sufficient consideration. IMPORTANT DISTINGUISHING ELEMENT: The request was made by D to do the thing that was promised.
Ratio	A request coupled with a promise to pay amounts to a binding contract even though the request and the promise are separated.
Comments

Peppercorn Theory: If something of value is exchanged in return of something of lesser value, then the contract is still enforceable.  The Courts won’t look at the adequacy of the consideration; whether the deal was fair.  Only that consideration is present.  In some circumstances though, if the disparity is so great to “shock the conscience”, consideration will not be found.

	Thomas v Thomas
Facts	Husband was going to give all of his estate to his brother.  On death bed, gives a house to his wife.  The brother agrees to fulfill husband’s wish, and give her possession of the house on the condition that she pays 1 pound yearly.  The brother dies, and the executors refuse to convey the property to the wife.
Issues	Was there an obligation to allow the wife to retain possession of the house under the contract?
Holding	Yes, there was an obligation.
Reasons	The real issue was whether the 1 pound was enough value in the eyes of the court to constitute consideration.  Court says that the annual one pound fee was “fresh apportionment of ground rent”; it wasn’t merely a gift.  This was enough to uphold the contract.
Ratio	Consideration may be something small as long as it is of some value in the eyes of the court. The consideration generally flows from the promisee.
Comments

Pre-existing Legal Duty

Where one person promises to do something for another in return for something, but they’re promising is something they’re already legally bound to do.  So consideration for one party is being used for another.

You can’t use what you’re legally bound to do as consideration for a new agreement.

Pre-existing legal duties also include public duties, so like police officers are obligated to tend to a crime scene.  Any money offered to him to tend to a crime scene will fail for want of consideration; public duty cannot be used as consideration.  This also includes public duties that civilians owe, like the responsibility to report a crime; you can’t pay someone to report a crime when it’s happening.

Duties Owed to a Third Party

Pao On v Lau Yiu Long allows promises made to one party good consideration for promises to another party.

	Pao On v Lau Yiu Long [1980], (PC)
Facts	First Contract: A side agreement is entered into between P and D to exchange shares in their respective companies. P was concerned that D’s shares might not hold value.  The parties then made a side agreement in which D guaranteed the value of their shares at a certain price; P would sell D’s shares back to D if the D’s shares went up, and if D’s shares went down, P would buy back their own shares.  This side agreement was with the shareholders (the third party). Second Contract: P threatened not to allow the transaction.  In reply, they made an agreement which substituted
Issues	Was there good consideration given in the given in the context of the second side agreement, or was it a promise to perform a pre-existing duty in want of consideration?
Holding	Yes, there was consideration.
Reasons	Quite simply: you can use your promise to one party as consideration to another promise.
Ratio	An act done before the giving of a promise (the second promise) to make a payment, or give a benefit, can sometimes be consideration for the promise. The requirements for this are that:       A) The act must be done at the promissor’s request (D’s)       B) Parties must have understood that the act was to be given in exchange for a payment or a conferment of some        benefit.       C) Payment or the giving of a benefit must have legally been enforceable had it been promised in advance.
Comments

Promises to Accept More

No Consideration

Courts will generally find that in cases where there is a promise to accept more in a contract, there is no consideration.  The only exception is when a promise to accept more is in consideration for finishing a project on time.

Stilk v Myrick: No consideration for crewmembers to make more money for a voyage.

Gilbert Steel:  No consideration for the increase in the price of steel claimed by promissor.

Greater Fredericton Airport Authority v Nav Canada: No consideration for

	Stilk v Myrick [1809] (Eng KB)
Facts	Two men abandon a ship, and the captain agrees to distribute the resulting surplus to each of the workers. When the ship returns home, the captain (D) refuses to pay sailors (P) the rest of the money.
Issues	Were the sailors entitled to a higher rate of wages?  No. Was there consideration for the promise to pay higher wages? No.
Holding	Rules in favour of the defendant, the captain.
Reasons	The agreement is void for want of consideration.  The promise of the captain did not have any consideration on the side of the remaining sailors.  The sailors also agreed before hand that they would do what they could if the ship were to come into an emergency. The two men abandoning the ship was some kind of emergency.
Ratio	The performance of a pre-existing contractual duty which is already owed to the promissory is no consideration for another contract
Comments	KEY: There was an article that formed the basis of a pre-existing legal duty.

	Gilbert Steel Ltd. v University Const. Ltd. [1976], (Ont CA)
Facts	Agreement for P (Gilbert  Steel, the builder) to build using fabricated steel.  The price in fabricated steel goes up after the agreement, and P wants to pass on the increase of price to D.  D agrees to pay the higher price.  There is another increase in the price of the steel, and an unexecuted contract is drafted by P. P is now suing D for the price of the increase in steel.
Issues	Was the agreement to pay the higher prices legally binding upon D or did the agreement fail for lack of consideration?  Failed for lack of consideration.
Holding	The defendant won because there was no consideration on the part of P for D to pay for the increase.
Reasons	So consideration cannot be used in cases where more money is required when the parties have already made an agreement.
Ratio	1) Promise to perform a pre-existing contractual duty already owed to the promissor does not constitute consideration without something more (same proposition as Slitk). 2) Where the parties have agreed to a mutual rescission of a prior agreement and the substitution of a new one, the new agreement is binding even though it may place increased burdens on one party alone.
Comments

	Greater Fredericton Airport Authority v Nav Canada [2008], (NB CA)
Facts	Federal government entered into an agreement with D to assume navigational responsibilities for all airports.  Later, P assumes the responsibility of overlooking D, as part of a new legislation, so not it’s between P and D. P suggests that D should relocate landing system onto another runway.  D replies that it would make more sense to just replace it with a new measuring distance system.  There was a dispute over who should pay for it. D refuses to relocate unless P pays for new equipment.  P agrees. But D goes out and buys the equipment, and then seeks payment from P.
Issues	Was the promise made by P to pay for the new equipment supported by consideration?  No, it wasn’t.
Holding	The airport authority is not obligated to pay for the new equipment.
Reasons	D promised nothing in return for P to pay for the equipment.
Ratio
Comments

Intention to Create Legal Relations

“Animus contrahendi” = intention to create legal relations.

These cases are about what facts can lead to an intention to create legal relations.

Domestic Arrangements

	Balfour v Balfour [1919], (Eng CA)
Facts	Husband makes promise to wife for 30 pound allowance per month.  They get divorced, and D (husband) refuses to pay. Trial judge found for wife, so this is the appeal by the husband.
Issues	Was there an intention  to create legal relations?
Holding	No.
Reasons	Relies on proposition that agreements in a domestic context do not constitute an intention to create legal relations.  These agreements are outside the realm of contracts altogether. Court argued that the onus is on the person trying to prove an intentional to create legal relations, and the wife failed that  onus.
Ratio	Closely associated parties (like domestic arrangements) will be presumed not to intend to create legal relations in the absence of clear evidence to the contrary.
Comments

Commercial Arrangements

Here, it is generally assumed that there is an intention to create legal relations in the absence of clear evidence to the contrary.

But parties can actually put clauses into their agreements which immune themselves from being legally bound.  This is possible.

There are also situations where a contract is negotiated, but it interrupted before it is formed.  The question in these cases is whether such arrangements were intended to be enforceable.  The reason the question arises is because you want to know if those preliminary agreements at that stage were to be enforceable before writing.