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Common Law Rule: “Where there remains a fundamental matter that is explicitly said to be subject to negotiation or agreement, the agreement fails for uncertainty.”
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“A contract de praesenti to enter into what, in law, is an enforceable contract, is simply that enforceable contract, and no more and no less: and if what may not very accurately be called the second contract is not to take effect till some future date but is otherwise an enforceable contract, the position is as in the preceding illustration, save that the operation of the contract is postponed. But in each case there is eo instanti a complete obligation.
“If, however, what is meant is that the parties agree to negotiate in the hope of effecting a valid contract, the position is different. There is then no bargain except to negotiate, and negotiations may be fruitless and end without any contract ensuing: yet even then, in strict theory, there is a contract (if there is good consideration) to negotiate, though in the event of repudiation by one party the damages may be nominal unless a jury think that the opportunity to negotiate was of some appreciable value to the injured party.” (Lord Wright – Hillas & Co Ltd. v. Arcos)
Pre-contractual arrangements determine conditions of negotiation:
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Agreements on formula or machinery for specification
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Requirement of good faith negotiation (possibly implied!)
Empress Towers v. Bank of Nova Scotia – agreement not void for uncertainty!
CML – Empress Towers v. Bank of Nova Scotia [1991] 73 D.L.R. (4th) 400 (B.C.C.A.): CB208dv |
Jurisdiction
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BC
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Facts
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The landlord, ET, rented to the tenant, Bank of NS. Their lease of 1984 contained a renewal clause, which stated that the tenant had the right to renew for two consecutive five year periods "excepting the rental for any renewal period, which shall be the market rental prevailing at the commencement of that renewal term as mutually agreed between the Landlord and the Tenant." In 1989, when the lease was going to expire, the tenant exercised its option to renew and suggested a rental price of $5400/month, also expressing that they would be willing to negotiate. The landlord did not respond until the day the lease was set to expire and at that time proposed that the tenant should pay $15,000 plus $5400 per month. There was also evidence that an employee of the landlord had been robbed of $30,000 in a branch of the bank and that the company's insurance had only paid $15,000, leaving a loss of $15,000 to the landlord.
The landlord wanted to terminate the lease as per a term in the renewal clause. The landlord thus brought a petition against the tenant to obtain a writ of possession under the Commercial Tenancy Act. The petition was dismissed by the chambers judge who held that the landlord had not acted in good faith.
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Issues
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(1) Was the renewal clause void for uncertainty or as an agreement to agree? (2) If not, does the clause create an obligation to negotiate?
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Holding
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(1) No; (2) Yes. Bank of Nova Scotia.
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Reasoning
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Lambert J:
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The renewal clause in question stated that the landlord and the tenant must agree on the new market-value rental rate, failing which the agreement may be terminated at the option of either party. This implies an obligation to negotiate in good faith.
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The landlord did not negotiate in good faith, so the writ of possession is denied and the parties are required to renegotiate.
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Ratio
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Officious bystander rule, business efficacy standards come out of this case – the clause only makes sense if the parties both negotiate in good faith.
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Consideration and Formalities
Formation of Agreement: “Meeting of the Minds”
BUT: Not every agreement, not every promise should be enforced
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So we have “Consideration” (CML), “Cause” (French/QC CVL) and Formalities
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These are indications of seriousness without which the contract is not enforced. They protect you from making rash decisions (like giving away the farm for free)
Introduction
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Historically, binding nature of obligations sprang from performance of a ritual or formality, not from the will to be bound
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Western law has moved from this formal conception to a voluntaristic conception: informal manifestation of will is binding
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Form remains an additional requirement in certain situations: E.g. form requirements for gifts in Civil Law jurisdictions (e.g. Art. 1824 CCQ – see Qc. Notarial Act; Art. 931 CC; § 311b BGB)
Civil Law Cause
See Art. 1385 CCQ
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Exchange of consents (and capacity)
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Form (where required)
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Object
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and a CAUSE: Reasons for the voluntary undertaking
Art. 1385
A contract is formed by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of information, or unless the parties require the contract to take the form of a solemn agreement.
It is also of the essence of a contract that it have a cause and an object.
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History of “Cause”
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Roman Law: Nominate Contracts were enforceable simply because of “consensus”
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Medieval jurisprudence developed the idea that only nominate contracts, but also “naked pacts”– pacta nuda – could be enforced if there was a “causa”, which was understood as reasonable motive
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Over time, on the Continent the idea gained ground that it is the agreement itself that gives rise to an actionable contract, not its “cause”
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As a consequence, German law abandoned the requirement of “cause” completely
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French law (and as a consequence: Quebec law) hung on to it, but limited its importance (in Quebec, it was considered to completely abandon the concept).
Function of “Cause” in modern law
“Objective Cause” – Cause de l’obligation: It is what motivates the agreement, generally you are motivated to make your promise by the promise of the other party (in a reciprocal contract).
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In a gratuitous contract, the cause lies in the promisor’s “intention libérale” – so pretty much every contract has an objective cause.
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“Cause” performs no independent function, but simply repeats characteristics of the transaction in question.
“Subjective Cause” – Cause du contrat: The motive of the contract as a whole, whether it is illegal or against public policy (art. 1131 CCQ).
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Starting point for the analysis whether a contract is illegal or against public policy: “Illicitness of Cause” see Art. 1131 CC, French lawyers depart from the notion of cause, see it as only useful for subjective clause
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“La cause subjective est la technique dont se sert la jurisprudence pour contrôler la licéité du contrat, en annulant tout engagement don’t le but ou les effets recherchés sont illicites or illégaux, […] C’est uniquement dans l’existence de ce contrôle que se fonde l’utilité de la cause du contrat” (Baudouin/Jobin no. 383 sq.)
“If … the term “causa” simply refers to the content of the contract as a while, it might as well be jettisoned.” Zimmermann, p. 553
CVL – Hutchinson v. The Royal Institution for the Advancement of Learning, [1932] S.C.R. 57 |
Jurisdiction
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Quebec
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Facts
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H offered in 1914 to give the respondent $150 000 to build a gymnasium and the offer was accepted. In 1920, H promised to contribute $200 000 for another fund for the respondent, on the condition that the previous promise for $150 000 would be included in that amount (the gymnasium was no longer going to be built). H paid $100 000 in the next four years, but gave a promissory note to the respondent for the balance of $100 000, payable three years after the date of the note. H went bankrupt in the meantime, and the trustee in bankruptcy (defendant) disallowed the respondent’s claim for the amount of the note. The respondent sued, the trial court reversed the disallowance, the appellate court affirmed the disallowance, and the matter is now before the Supreme Court.
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Issues
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Was there a real and lawful cause and consideration that would render the obligation to pay $200 000 legally enforceable?
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Holding
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Yes Royal Institution
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Reasoning
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There had been cause for the first obligation, to pay $150 000 because it had been entered into with the intention of carrying it out
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The release of the first obligation was the cause for the second obligation, to pay $200 000
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According to the Common Law, consideration may be constituted by an antecedent debt or liability
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According to Quebec Civil Law, an obligation must have “a cause from which it arises” (Art. 982, CcBC), “Something which forms the object of the contract; A lawful cause or consideration” (Art. 984(3) and (4), CcBC) (CCQ 1385)
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According to Pothier’s view, the desire to make the donation is sufficient cause in agreements to make charitable donations, and in bilateral contracts, the exchange, the agreement, or the risk assumed by the parties to the contract are the cause
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Cause and motive are not the same thing
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Ratio
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The intention to give freely, “l’intention libérale”, is sufficient cause to render a promise to make a charitable donation binding.
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Comments
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From the common law perspective, the first promise ($150 000 for the gymnasium) would have been a gratuitous promise, making it unenforceable. This may also have rendered the second promise without consideration.
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CVL Law and Formality L.L. Fuller, “Consideration and Form” -
Historically CVL favoured formality, as time went on this was on the decline and the concern was whether there was a contract at all
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In CVL Art. 1824 – a contract for donations require a notary
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Fuller identifies three functions for formality:
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Cautionary Function – this is to make sure that parties are aware of what they are entering and check for inconsiderate action)
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Parties should be cautioned before a contract can be made legally bound to get the parties to think twice about their agreement.
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Evidentiary Function – agreement put down in writing by lawyers, later in court it can be proven in case of controversy
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Parties have publicized their legal intent to make a commitment. However, it is a good thing for parties to evidence their acceptance of the bounding of that agreement so that it can be enforced.
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Channeling Function – it provides a mold, don’t need to wonder if the parties’ intentions or type of contract
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Consideration doctrine channels some contracts into baskets of enforceable and unenforceable ones. Ultimately, this is the issue in every single case in contract law. 1 and 2 attempt to capture what the parties are doing in their pre-legal exchange.
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Jhering: “Form is for a legal transaction what the stamp is for a coin.”
CML and Gifts
Gifts seen as gratuitous promises – and are not enforceable - need to be protected from giving things for free – there need to be a form of reciprocity or Consideration
Gifts can be given without consideration by making the gift under seal – this is a deliberate act that indicates the seriousness of the gift (not done rashly), however the default is consideration
Note the parallel: form requirements for donative agreements in the CVL and consideration in the CML
Consideration as an additional requirement for the enforceability of informal promises in the Common Law (Consideration as Form – indication of seriousness, consideration can be a peppercorn!)
Exchange of consents (and capacity)
Form (where required)
Object
Cause – reasons for the voluntary undertaking (same roots of consideration but different function)
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