Must balance between enforcing promises (important for private ordering, economy, etc) and imposing unfair surprise that something said now imposes liability
Bargain theory = people assume a legal contractual obligation when enter into bargain i.e. offer, acceptance and consideration (i.e. commercial paradigm at core of contract law)
Bargain: classic structure required for the courts to view the promise as enforceable
Offer constituted by a set of necessary terms and conditions
Acceptance completes the K
Method usually involves some sort of payment
When offer and acceptance is made, we have a binding contract (time of K)
Offer and acceptance
Denton v. Great Northern Railway Company (QB, 1856)
Facts: Plaintiff follows issued schedule. Goes to station to get ticket only to find out the train was cancelled. Was a contract breached?
Decision: In favour of plaintiff
Reasoning:
Judges take the view that a contract was breached. Meaning the schedule was the offer, and showing up constituted acceptance.
There was a completed K. No train was a breach of the conditions of said K.
Fraud also a consideration in establishing liability
Notable mentions:
Alternative formulation of K: offer at counter, acceptance is issuing the ticket
Problem with plaintiff’s formulation: Sold out train constitutes a breach.
Johnston Bros v. Rogers (1899)
Decision: Telegraph deemed a quotation of prices and not an offer to sell flour at that price.
What plaintiff thinks is his acceptance, is actually an offer to make a K and the defendant replies with a counteroffer (which implicitly rejects the previous offer)
Lefkowitz v. Great Minneapolis Surplus Store (Minn SC, 1957)
Facts: Plaintiff told that the offers he saw in the paper were only open to women. Sues for breach of contract
Decision: The judge found that a contract had in fact been made by the advertisements and the ‘house rules’ imposed were arbitrary modifications that constituted a breach.
Argues that this was a unilateral contract (offers to the public at large)
Note: An ‘invitation for an offer’ is different from an offer – relevant to advertisements
Pharmaceutical Society v. Boots (QB, 1953)
Facts: Prosecution for violation of statute that required that sales of certain items can only be done under the observation of a pharmacist. Case needed to determine where the contract between the customer and the drug store was established. Pharmacy would be in violation of the law if the offer is putting the drugs on the shelf, and the contract is made when the customer’s accepts by taking it off the shelf.
Decision:
Court takes alternative formulation of contract: The drug on the shelf is merely an invitation. The contract is formed at the counter under pharmacist supervision.
Offer is putting the meds in front of the cash register, and acceptance is undertaken with the pharmacist at the cashier.
Problem with plaintiff’s formulation of K is that if customer takes a drug of the shelf, he can’t put it back because he’s already accepted.
Manchester Diocessan Council for Education v. Comercial and General Investments LTD (1969)
Principle to be drawn: offers are conditioned by reasonable time limits on acceptance, if overshot it can permit a withdrawal of the offer or construe a rejection of the offer
If the offer doesn’t stipulate a time for acceptance, the courts will infer a reasonable time
Larkin v. Gardiner (1895)
Facts: An action calling for specific performance of a sale of land.
Decision: Judge affirms that an offer can be rescinded before the acceptance has clearly been articulated because no binding contract was entered into.
Dickinson v. Dodds (1876)
Facts: Defendant made a limited offer in writing to sell property. Dickinson, on hearing, that Dodds was about to sell to another, tried to bind him with an acceptance that the defendant did not receive notice of until after the sale had been made to another third-party.
Decision: No contract made, thus no breach.
Reasoning:
While the plaintiff purported to accept within the time granted by the offerer, the court says that a separate options contract is needed to make a time frame binding
Affirms that the offerer has right to withdraw up to point of contract, which needs to be reasonably enforced upon the knowledge of both parties. No contract was made cause Dodd did not know of acceptance till he made another K.
Notable mentions:
This case suggests an exception to the rule that for revocation to be effected it must be communicated to you.
Eliason v. Henshaw (US SC, 1819)
Principle: Acceptance has to be on the terms of the offer. If different the acceptance is not binding, it is comparable to a counteroffer.
The party making the offer can usually control the method and terms of acceptance
Once you have a completed contract parties have no right unilaterally to insert terms.
Butler Machin Tool Co v. Ex-Cell-O Corporation (England, 1979)
Facts: Defendant, seller, makes offer for machine as per certain conditions, including a price variation clause. Buyer on delivery refuses to pay substantial price increase, as he claims the contract was made on terms of previous offer. Seller sues and wins award. Buyer appeals.
Decision: Appeal upheld for buyer.
Reasoning:
Contract is clear. But on whose terms? ‘Battle of forms’
Due to the fact, that the buyer proposed new terms, it constitutes a counter-offer that kills that original offer that had the price-variation clause
Notable mentions:
Common law solves the battle of the forms problems by an analysis of offer and acceptance analogy.
Uniform Commercial Code (American Law Institute, 1978): Additional terms in an acceptance are to be considered as additional to the contract not a counter-offer.
M.J.B Enterprises v. Defence Construction [1951] (SCC, 1999)
Facts: Defendant was accepting tenders to bid on a contract. Plaintiff put forward a proposal that fit within the guidelines, while a chosen plan did not. Plaintiff sues.
Ruling by Iacobucci:
An invitation to tender gives rise to K obligations to select among the compliant bids
The Request for proposal (RFP) constitutes an offer to bid, and by submitting a tender within the guidelines indicated the bidder accepts the offer
Defendant needed to respect that contract while determining which offer to accept for the subsequent contract
Expectancy damages awarded to plaintiff. Performance not granted.
Notable mentions:
Privilege clause does not allow the govt agency discretion to chose noncompliant bid
Also allows them not to be obliged to the lowest bid
In most jurisdictions statutes regulate the tendering process to ensure efficiency and fairness in allocating government contracts, but NOT IN CANADA.
Formalization and certainty
In dealing with problems of certainty
The courts try not imply terms into a contract
Will sometimes look at external evidence to deal with ambiguities
Courts are reluctant to say there was no contract if parties conduct indicates a K was in force.
Generally the closer a contract can be matched to a commercial idea of offer and acceptance, the more likely the courts are to enforce it.
May and Butcher, Limited v. The King (1929)
Facts: Defendant backs out of K as terms become unacceptable. Plaintiff sues for breach.
Decision: Courts do not recognize it as a contract, as it lacks too many essential components
Reasoning:
Agreement did not mention necessary terms of a contract of sale (no price or dates)
Lower courts couldn’t see how to enforce a contract with vague terms
HL says that making it through a full year, meant that some method of dealing with uncertainties had been settled upon. Thus the contract is enforceable
Recognizes that commercial K’s can lack the definite aspects necessary for the full application of contract law, but nonetheless need recognition and protection under the law.
Foley v. Classique Coaches, Limited (1934)
Facts: Defendant declares a contract of no force after the plaintiff increases petrol prices, which were not clearly stipulated in the agreement. Plaintiff sues for the validity of the contract.
Decision: Judgement in favour of plaintiff, K ruled to be binding regardless of omissions.
Reasoning:
Obligation to buy petrol was pivotal to K, withdrawing on such grounds is a breach
For three years a contract had been operable on the basis of reasonable market prices for gasoline
Court decides in fact the uncertainties still mean that there is a contract here
Arbitration clause in contract should have been consulted if there was a disagreement
Empress Towers v. Bank of Nova Scotia (BC CA, 1990)
Facts: Just prior to the expiration of tenancy agreement, landlord responds to repeated offers from Bank. But new terms are unreasonable and do not allow room for negotiation.
Decision:
Renewal clause and other tenets of previous tenancy agreement not respected by landlord, Empress Towers.
Court finds the unreasonable counter-offer shows bad faith on the part of Empress
Unusual to imply good faith in the negotiation of the contract
Correspondence
Offer that is made, is in effect until revoked, or reasonable time to accept has passed
Acceptance, like a revocation, needs to be communicated
Problems occur when you start using time-lag methods of communication like mail
Party making the offer controls a lot, including the method of acceptance
Post-box rule: in contracts negotiated by mail, putting the acceptance into the mailbox formalizes the contract
Risks are quite different with instantaneous modes of communication
Thus court have not applied the post-box rule to modern communication
Today, acceptance only effective when received
Henthom v. Fraser (1892)
Facts: An offer is rescinded by mail, but only after the acceptance is placed in the mail. Plaintiff wants performance, defendant denies contract
Principle: Offer is continuous until the person to whom it was made knows it is withdrawn.
The acceptance being placed in the mail established a contract. (Post-box rule)
Byrne & Co. v. Leon Van Tienhoven & Co (1880)
Facts: Defendant makes offer to American company via telegram. Offer accepted by post. Defendant withdraws after, but before receiving acceptance; sued in turn.
Decision and principle:
Telegrams and correspondence can constitute the makings of a contract that will be enforced by the court of law.
Contract formed by acceptance being mailed according to the post-box rule
Purpose of the rule is to impose risk on the offerer because they control the conditions of the contract
Thus the revocation has to be received by the offeree before they mail acceptance
English common law does not require a meeting of the minds to establish a contract
Holwell Securities ltd. v. Hughes (1974)
Facts: To accept an offer to a contract, the plaintiff sends in a mail that never got delivered. Court called in to adjudicate whether a contract was formed.
Decision and Principle:
Rule that the contract was in fact not formed. Reversing the rule from Henthorn which said that an acceptance forms a contract once posted, the court says that the acceptance’s delivery is needed for a contract to form.
Terms of the contract implied that the vendor needed to receive the acceptance to constitute a contract
Court notes some absurdities can arise from following the post-box rule
Eastern Power v. Azienda (Ont CA, 1999)
Facts: Defendant an Italian company, back out of a contract agreed upon through fax communication. Court needs to rule whether they have jurisdiction over the case.
Decision and principle: general rule of contract law is that contract formed where the offeror received notification of acceptance. This was in Italy, thus court has no jurisdiction.
Conflict of laws issue
Ruling indicative of how the courts have looked at modern means of communication.
Notable mentions:
Electronic Commerce Act: A contract made by electronic means is binding
Consideration
Referred to: as the price paid for a promise
To have an enforceable contract both parties need to have given consideration for the promise that they wish to have in force
Promisor (party making the promise) and promisee (person agreeing to the promise)
Requirement of consideration has a number of roles to play:
Shows that the parties intend the promise to be legally enforced
Idea of nominal consideration: turns a gift into a contract
Benefit to one party, and detriment to another
What constitutes good and sufficient consideration for a contract?
White v Bluett (1853)
Facts: Plaintiff the brother of defendant. Defendant agreed with father if stopped complaining the promissory note here being enforced would be discharged. Court has to determine whether the promise was enforceable.
Decision: No consideration here apparent. Verdict for the plaintiff forcing the defendant to pay.
Reasoning:
Court does not recognize the son’s promise to stop complaining as consideration (abstaining from what you have no right to do is not consideration)
Tendency not to find consideration within family matters
Example of where there was no evidentiary basis for absolving the promissory note
Hamer v. Sidway (1891)
Facts: Determining the validity of a promise made by an uncle to a nephew that he would pay 5k if he didn’t smoke and drink till the age of 21.
Decision: Court determines it is enforceable because there is consideration from both parties
Reasoning:
There is evidence that the promise was made- money was set aside
Seems like it was intended to be a binding agreement
Serves as a contrast to White v. Bluett
Consideration doesn’t always have to be a benefit to the other party, but can be a detriment incurred
Thomas v. Thomas (1842)
Facts: Widow (plaintiff) given ability to live in husband’s property by executors (defendant). Plaintiff evicted after more generous executor dies.
Decision and principle:
Court rules she can stay in the house because there was sufficient consideration (agreement to maintain house and pay rent)
Tobias v. Dick and T. Eaton Co. (1937)
Facts: Tobias contracted with Dick to sell his machines. Takes him to court for a breach. And T Eaton for the tort of interference with contract.
Decision: This is a one-sided agreement that is not a contract. Tobias has promise of exclusive agency of Dick’s goods, but doesn’t provide any obligation upon him to do anything. No consideration by Tobias to create an enforceable contract.
Wood v. Lucy, Lady Duff-Gordon (1917)
Facts: Defendant a clothing designer, plaintiff is distributor. Plaintiff suing on breach of contract as defendant sold without his knowledge and didn’t divide profits.
Decision: Rules that the obligations of the plaintiff were implied in the contract and thus it has consideration and can be enforced in favour of the plaintiff.
Notes:
Argument that contract does not include any consideration from Wood rejected by court b/c the evidence suggests consideration is being undertaken.
Judgement moves away from formalism. He was implicitly obligated to serve the duties within the contract.
Distinguished from Tobias: In Wood there was a business structure that connected the plaintiff duties and the defendant profits.
Harris v. Watson (1791)
Facts: Plaintiff a sailor on the defendant’s boat. Whilst in danger, defendant promises a raise for hard work. Plaintiff taking action to get that raise.
Decision: Draws on principle; when the boats sinks, wages are lost with it. So on policy considerations dismisses the case.
Notes:
In the seafaring scenario, it would constitute a contract under duress.
Question of consideration on contract increase compensation upon a pre-existing duty?
Must weigh the changing circumstances that cannot be foreseen
Must be consideration for contractual variation
Stilk v. Myrick (1809)
Fact: Another case of a seaman’s wage. Promise of raise after other sailors desert.
Decision: For defendant.
Reasoning: No consideration given for new agreement. Job entailed duties that had to be fulfilled regardless of whether other had deserted or not.
Principle: Traditional formulation that if they is a revision to the contract there needs to be consideration on both parties.
Gilbert Steel v. University Construction (Ont CA, 1976)
Facts: Plaintiff alleges that a verbal agreement to change the price of steel to a construction contract was binding and must be enforced upon the defendant
Decision: Contract lacks consideration
Notes:
Arguments:
Contract was rescinded and replaced: mutual revocation has long been accepted as an enforceable contract. Court says there was no evidence of rescission, rather simply a variation in price.
There was consideration given: Gilbert Steel extends the defendants credit line (court says this is a natural consequence of commercial arrangements when one party agrees to pay more) and gives a good price on the next project (no indication of a commitment to such a deal). Court finds these promises are too vague to constitute consideration.
Doctrine of consideration usually requires that consideration moves from the promisee (or a detriment to themselves) through some form of agreement. Practical benefits of renegotiation not consideration.
Consideration must stem from the promisee to the promisor
Issue of estoppel, means the ability to stop someone from doing something. Applies to commercial situations where one party leads another to believe that something will take place, and that second party relies on that belief they are entitled to hold the first party to what they had implied. They are estopped.
In this case, defendant promised they would pay more making the plaintiff stay on the project. They argue that defendant should be estopped from now denying their obligation to pay. Problem was that Gilbert was using the argument not to stop defendant from doing something, but to force them to do something
Law recognizes if you make an assertion to a party, you cannot later go back and deny that agreement. Argument: university made a promise, and now they should be stopped from going back on that. Court: using estoppel as a sword, rather than a shield as it is meant to be used.
Bargain fails for want of consideration, contract not enforceable.
Williams v. Roffey (1991)
Facts: Plaintiff a contractor working on a construction project for defendant. Realizes the price he charged is too low and work is unproductive. Defendant agrees to pay 10k more to get work done. But later says the agreement is not enforceable as their was no consideration.
Decision: Consideration found, contract enforceable in favour of plaintiff.
Reasoning:
Each party gained a benefit from the agreement.
Doctrine of Promissory estoppel
Modifications of contracts in progress can be enforceable if they meet qualifications:
Expands consideration to include practical benefits.
Principle can only apply when you have an existing enforceable contract and performance is still in progress (but reasons why one party will not be able to perform)
No economic duress
This is an English precedent that has yet to find application from the SCC
