CONTRACT CANS – 2019 MIDTERM

Instructor: Professor Hunt

Student: Angela Tenisci

“Always keep in mind that courts will give effect and attention to the INTENTIONS of the parties
and the effects of FREEDOM OF CONTRACTS to the parties”

Contracts are agreements to do or not to do something in exchange for someone else to do or

not to do something. Generally, for a contract to be valid it must have:
1. Offer
2. Acceptance
3. Certainty of terms
4. Intentions to Create Legal Relations
5. Consideration

OFFER
A valid contract requires offer and acceptance. Can’t have acceptance without a valid offer.

INVITATIONS TO TREAT

There is a distinction between an offer and an invitation to treat

o Invitation to treat: an invitation to commence bargaining where no
consideration is provided. NOT AN OFFER.
 There are no binding obligations that flow for an invitation to treat
 One is not legally obligated to show up and negotiate with the person
extending the invitations
 A display of goods in a market is an invitation to treat (Pharmaceutical
Society of Great Britain v Boots Cash Chemists, 1953)
 A mere quotation of price is not an offer (Canadian Dyers Association v
Burton)

PUFF
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A throwaway statement/sales talk (no legal implication)
These are explanations for human behaviour that do not constitute an offer, not a legal offer,
and hence are not capable of acceptance.
Statement often associated with advertising that plainly exaggerate and are not intended to be
taken seriously. No contractual effect and no legal consequence.

OFFER
An offer is communicated by the offeror to the offeree indicating an eagerness, willingness and
readiness to enter into an agreement with the offeror on certain terms. Offers create power of
acceptance (where as invitations to treat do not). An offer indicates a readiness to be bound by
acceptance by the other party. Whether something is considered an offer is dependent on the
circumstances.
Offers can be:
- Explicitly written,
- Orally stated or,
- Conduct can suggest an offer (Canadian Dyers Association Ltd v Burton)

One can make an offer to the entire world (Goldthorpe v Logan, Carliill v Carbolic Smoke Ball
Co)

DEFINITION OF OFFER:
a. For something to be an offer, it needs to first be assessed objectively based on
the parties positions
b. The reasonable objective person is put in the shoes of the person to whom the
communication is directed. From that perspective the reasonable objective
person decides whether the person communicating the offer intended to make
an offer or not.
i. In analyzing that intent objectively we look at the facts contextually
including past communications, the current communication’s content
(Canada Dyers Association Ltd v Burton (1920) / Pharmaceutical Society
of Great Britain v. Boots Cash Chemists (1953))
ii. In cases of ambiguity, we then look at any post contractual behaviour to
decide if the offer was intended or not (again, in the eyes of a reasonable
objective person) (Canada Dyers Association Ltd v Burton)

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 iii. In assessing intent, the court will distinguish between offers and
invitations to treat (Pharmaceutical Society of Great Britain v Boots
Cash Chemists) and puffs/sales talk

Is it a valid offer Test:

Would a reasonable objective person look at the communication and interpret the seller’s
communication and actions as an offer? This includes the previous correspondence and the
language used in the actual impugned offer. In the cases of AMBIGUITY, look at post-
contractual conduct (Canada Dyers Association Ltd v Burton )

Unilateral Contract: completed by performance of the offeree (single act – such as if you find
my dog, I’ll pay you $500). The offer is accepted and completed simultaneously when you
return the dog to the offeror. You do not have to call the lost dog owner and say you are
looking for the lost dog.

Fulfilling a unilateral contract if offered by an advertisement is enough to form that contract

and anyone who performs the conditions as set out by the ad is entitled to its reward (Carlill v
Carbolic Smoke Ball)

An ad such as the example above is considered a “general promise” which constitutes an offer
to the world. However, it should be noted that one must have the offer “present in mind” when
they give the information to constitute a meeting of the minds.
- A meeting of the minds is necessary to the formation of a valid contract (R v. Clarke)

Bilateral Contract: two parties entering into an agreement to do something (exchange of

promises)

COMMUNICATION OF OFFER

In order for an offer to be accepted, it must be deliberately communicated to the intended

person (or persons) in a capacity where they are capable of accepting it (Blair v Western
Mutual Benefit Assn)

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Any person who performs the specific condition knowingly mentioned in a public offer has
entered into a contract with the person who made the offer regardless of motive. Motivation
for accepting the offer is irrelevant (Williams v Carwardine).

However, there must be knowledge of the offer for intention to accept it. One cannot accept an
offer if they do not know it exists or have forgotten about the offer. (R v Clarke)
 There would be no meeting of the minds

Under freedom of contract you can post an offer to all of the world or to anybody you wish
(Carlill v Carbolic Smoke Ball).
The offer must be communicated to the person or persons capable of acceptance (Carlill v
Carbolic Smoke Ball)

TENDERS

A process by which an owner (the project owner) wants to hire someone to contract the
project. Owner replaces negotiation with fair competition. Owner puts up a detailed call (very
complicated) for tenders. Companies then submit a bid based on the specifications laid out in
the call for tender. All are sealed and then owner sits down after closing time and goes over
bids.

Referential bids are invalid in the tender process (Harvela Investments Ltd)

Putting out a call for tenders is an offer of unilateral contract A by the project owner. When you
submit a compliant bid according to the specifications, you accept unilateral Contract A AND
SIMULATENOUSLY provide an offer for bilateral Contract B. (R v Ron Engineering and
Construction Ltd, 1981)
 Owner is in numerous contracts regarding contract A (ie 10 compliant bids = 10 contract
As). This would be 10 contract B offers. Only one contract B once owner accepts the
winning bid.

The reason for this it to protect the integrity of the bidding process. Those who submit tenders
usually put a great deal of time, money, and effort into drafting and submitting the tenders.
Therefore, those who submit the tenders must be treated fairly, equally, and not be
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discriminated against (Martell). From the owners perspective, it is also a big cost and he needs
assurance that if he picks a bidder, that company is bound to complete the project and not just
going to flake out.
 Court can now police contract As (creates juridical relationship)

Compliant bids in the tender process are irrevocable once submitted (R. v. Ron Engineering)

Privilege clause – express term in the contract which, if written correctly, allows the owner to
pick any of the compliant bids (does not force him to pick the mathematically lowest bid as
business sense dictates you want to evaluate the reputation, experience, etc of the bidder)
(MJB Enterprise Ltd v Defence Construction)
o Can draft a privilege clause that gives them the right to do whatever they want
(freedom of contract)
o If it is clear, then no issues
o If it is ambiguous, then have to interpret what the intention of the parties were

Contra proferendum – the idea that in a commercial context when interpreting the language
you are going to interpret the words AGAINST the drafter.

There is no implied duty to accept the mathematically lowest bid (see above). (MJB Enterprise
Ltd v Defence Construction)

There is an implied term in a call for tenders that the owner will pick a compliant bid (ensures
the integrity of the bidding process)
(MJB Enterprise Ltd v Defence Construction)

Implied terms are measured against the officious bystander tests and the reasonable person
test (Canadian Pacific Hotels)
IMPLIED TERM TEST:
o Objectively look into the intentions of the parties at the time the contract was
made. Is it obvious/reasonable according to the officious bystander that the
party intended the term?
o Does it follow the business efficacy rule? Does it make business sense?
o Is the implied term so obvious that the parties did not need to even put it into
the contract?

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 o Express terms ALWAYS override implied terms
(Canadian Pacific Hotels)

Project owner must accept a MATERIALLY compliant bid as trivial terms can be waived (Double
N Earthmovers Ltd v City of Edmonton).
- Trivial term = it would not affect the performance or cost of the bid  no disadvantage
to other bidders

Assuming fair evaluation of the bids, once the owner accepts a materially compliant bid,
contract B is formed and obligations for all contract A’s are discharged. Freedom of contract B
still exists and privity is between owner and successful bidder. (Double N Earthmovers)
- Can negotiate contract B if they want to

The successful bid only has to be compliant on its face – no duty for owner to investigate the
bid (Double N Earthmovers)
- Courts stated it would be onerous for the party receiving tenders to investigate all
conditions and this goes against business sense for owner.
o Would frustrate the tender process as it would become costly, timely, and
potentially increase unwarranted attacks on other bidders.
- Owner assumes accuracy in bids as bidders will be legally bound once bid is accepted.

Commercial certainty – parties make a deal, and they rely on that deal
o the deal is the deal as written

TERMINATION OF OFFER

If there is an offer that was validly communicated and it has not been revoked by the offeror or
rejected by the offeree, has the offer expired due to lapse in time? If not, then there is a valid
offer.

REVOCATION
One can revoke an offer any time prior to acceptance unless you have furnished consideration
(Dickenson v Dodds).
Revocation can be implied or expressed and can be communicated directly or indirectly
(Dickenson).

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 - An offer with a deadline does NOT bind the offeror to the offeree (unless there is some
form of consideration). (Dickenson)
- Communication of a revocation can be made by a “reliable third party” – such as an
agent, or another reliable source such as a spouse. There does not have to be explicit
communication between the offeree and the offeror (Dickenson).
- Actions contrary to the maintenance of an open offer can imply revocation of offer
(Dickenson)

Offeree must have knowledge of the revocation (communication required), and, if not, then
offer is still capable of acceptance (Byrne v Van Tienhoven).

If acceptance is received (or sent due to post box acceptance rule) BEFORE the offer is revoked,
the contract is binding. (Byrne)

A unilateral contract cannot be revoked if there has already been part performance (Errington
v Errington)
o Reasonable amount of time needs to be given for the party to fulfill their
requirements (Errington v Errington)

In circumstances that are instinct with obligation, the court would prefer to characterize the
relationship as a bilateral rather than a unilateral contract. This will fix the date of acceptance
earlier and this is done through implied acceptance. (Dawson v Helicopter Co)
o The courts will also look into the seriousness of intention of all parties involved
when doing this (Dawson)
o An offeror is in breach of its contract if its actions (or lack thereof) inhibit the
offeree from fulfilling its performance obligations (Dawson).
o Courts can classify a contract as bilateral or unilateral to fix the date of
acceptance/revocation (Dawson)

REJECTION
A counter offer constitutes a rejection (Livingston v Evans)
o A counter offer will be deduced based off the intentions, actions, and language
used by the parties (Livingston)

o A new price is a new proposal – if what I am doing changes any essential term,
then it is a new proposal (price, subject matter, performance date) and would
constitute a counter offer and kill the original offer. (Livingston)

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Once an offer is rejected, it cannot be accepted UNLESS it is renewed. (Livingston)
o A mere inquiry into an offer is not a counter offer (exploring other person’s
offer). (Livingston)

LAPSE OF TIME
An offer is only open until it says it closes. If the offer does not have a closing date term, then
an offer lapses over a reasonable amount of time when looking at all relevant factors (offers do
not remain open indefinitely). (Barrick v Clark)
The reasonable time to accept an offer is set by the offeror and can be determined from:
- the conduct and language of the two parties,
- the nature and character of the goods,
- common business practice in the industry,
- demand of the item,
- volatility/perishability of goods, and
- other reasonable indications.
o Indicating the intent/desire to close the offer quickly and insistence on expedited
communication can affect what is considered reasonable time as well
(Barrick v Clark)

Implied rejection – if an offer is not accepted within a reasonable amount of time, it is deemed
to have been impliedly rejected (Manchester).
o No offer is unlimited in time. Offeror must have intended it would expire after a
reasonable amount of time (Manchester)

If an offeror wishes for a particular acceptance to be mandatory, it needs to be made explicit in

the offer (Manchester)
If the offeree asks you to keep the offer open, this has no meaning (Barrick)

BATTLE OF FORMS

***likely not on exam***

In the battle of forms, must take all documents into account and decide which one is the
decisive document once reviewing all as a whole. (Butler Machine Tool v Excell-o Corp)

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Court is going to try and save the deal. When trying to save it, read the communication
harmoniously. Terms need to be explicit and cannot be sneaky. Read everything together and
anything that is important and not brought to the other party’s attention cannot be a term.
(Butler Machine Tool v Excell-o Corp)
Need to determine what was mutually agreed upon (Butler Machine Tool v Excell-o Corp)
Once cannot sneak terms into a contract without proper notification (Tywood Industries Ltd).
If a buyer is presented with additional terms and offered the opportunity to reject and return
the goods and subsequently does not reject the goods, then the buyer will have accepted those
additional terms (ProCD).

ACCEPTANCE
1. Was acceptance validly communicated?
a. Unilateral – do NOT need to communicate acceptance
 In a unilateral contract offer, performance is acceptance and notification
(Carlill v Carbolic Smoke Ball, Goldthorpe v Logan)
 There is no standard notification of acceptance unless stipulated (Carlill,
Goldthorpe)
b. Bilateral – acceptance needs to be communicated
 In context of bilateral contract, silence does not constitute acceptance
(Felthouse v Bindley)
 Acceptance cannot be assumed if there is no notification of acceptance
or implied acceptance through the party’s actions.
 Silence cannot be imposed by the offeror on the offeree.

Positive conduct or deceptive acquiescence may constitute acceptance regardless of silence if

in the eyes of the offeror it appears you have accepted through your conduct(Saint John Tug
Boat Co v Irving Refinery)
o Silence can be acceptance when only reasonable inference from the offeree’s
silence and conduct was acceptance. (O’Neill v Kings County Construction)
 Based on reasonable objective person test. If in the eyes of the offeror, it
appears you have accepted through your conduct, silence can be
acceptance. (O’Neill v Kings County Construction)

Generally silence is not acceptance in a bilateral contract, but it can be if the offeror can
characterize it objectively as deceptive acquiescence (O’Neil v Kings County Construction).

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Silence alone cannot constitute abandonment of a contract. In a silent situation classifying it as
a unilateral contract will import an act, not a word, making silence a non-issue (Dawson v
Helicopter).

OFFEROR’S CONTROL
The offeror has the right to dictate terms of acceptance (Eliason v Henshaw)
o Time, place, method of acceptance

Offeree must follow the acceptance terms of the offeror for an acceptance to be valid and
binding (Eliason)
o Offeror can agree to waive terms of acceptance

COMMUNICATION OF ACCEPTANCE: MAIL AND INSTANTANEOUS MODES

Post-Box Acceptance Rule: as soon as the letter of acceptance is delivered to the post box, or
the agent the offeror used himself to communicate the offer, the contract is made complete
and is legally binding (Household Fire v Grant)
o Post box rule only works if the parties contemplated mail as a viable means of
communications in their dealings (expressed or implied)
o Post box rule only applies if there are not expressed terms that specify otherwise
OR if its application would lead to absurdities (Holwell Securities v Hughes)
o Post box rule does not apply in situations where a notification of acceptance has
been specified (ie acceptance has not occurred until the offeror receives the
notice in writing, offeror must receive in hand in writing) (Holwell Securities)

With instantaneous modes of communication, the contract is formed where the acceptance is
received by the offeror (receipt rule) (Brinkibon v Stahag Stahl)
There is no universal rule of acceptance on instantaneous communications for WHEN receipt
has occurred. They must each be decided based on:
o Intentions of the parties
o Sound business practices
o Assessment of where the risk should lie
o Circs of the particular case

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 CERTAINTY OF TERMS
Certainty is an independent prerequisite to a contract.
If a contract is uncertain, then there was no meeting of the minds.
Parties have to be of the same mind with respect to the essential terms of the contract. If there
is not an agreement to these terms and no meeting of the minds, then there was no agreement
made.
Practical view – I have obligations to do for you which I promised to do. If we are not clear on
what the obligations are, then how could a court say I breach the obligation?
- Ex: Gave a chicken, not a horse, when I promised to give an animal.

It would be impossible to put the person back to the position that they should have been if the
obligation had been met when we sought damages. Hence, certainty is essential for a contract.

Subject matter, price, performance date are essential terms in a contract (Hillas v Arcos).

Court needs to balance ensuring certain terms of contracts made by parties are enforced but
does not want to go too far to create new terms not intended by the parties (freedom of
contract must be upheld).

VAGUENESS:
- language is ambiguous, not entirely clear what the terms are

When terms are vague, the courts will try to imply the meaning by looking at the intentions of
the parties assessed objectively from a reasonable objective person perspective. (R v CAE
Industries Ltd)
o Look at parties intentions, part performance, motivations, and overall contract
o Part performance + motivation = serious intent to be bound (courts will try to
imply meaning to a vague term to ensure enforceability)

INCOMPLETENESS AND AGREEMENTS TO AGREE

- Dealing with missing terms (incompleteness)

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 1. Does the Sale of Goods Act apply?

- Yes  Sale of Goods Act applies.

o Agreements to agree are binding (s 12)
 It has to be a reasonable price and the court can decide a reasonable
price if parties cannot agree
o Arbitration clauses are binding (s 13)
 Whatever arbitrator says is binding
 If arbitrator says there is no reasonable price, then there is no deal
UNLESS it is b/c a party obstructed them
 If party obstructed arbitrator then they can be sued (s 13(3))

- No  Sale of Goods Act does NOT apply (meaning it is a service or interest in land)
o COMMON LAW PREVAILS
o Generally, an agreement to agree on price will not be binding and fail for
uncertainty. Arbitration clause cannot save it (May and Butcher v R).
o Price, subject matter, and performance date must be sufficiently certain (Hillas v
Arcos).
o The courts should intervene to determine the terms of an agreement through
overall context and intentionality of the parties (Hillas v Arcos).
o Exceptionally, if there is a market metric (benchmark) out there and there is
clear intent to be bound (business relationship between parties), then the court
will say that the price is a reasonable price that can be found on common
ground. (Foley v Classique Coaches)
 Serious intent to be bound – look at business relationship, part
performance, previous price agreements, motivation, etc
 If the parties can’t agree, then an arbitration clause can save it.

AGREEMENTS TO NEGOTIATE
Agreements to negotiate can be expressed (Mannpar) or implied (Empress Towers).
If parties have an agreement to agree clause that fails for uncertainty, that clause will hold an
obligation for both parties to negotiate in good faith (Empress Towers).
- Examples of breaching obligation to negotiate in good faith
o Ignored party/no communication
o $15000 extortion cash clause
o Changed material terms of contract (5 years to month to month lease)
o Ejection without notice
o Leasing the space to someone else for same rate

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When assessing an agreement to agree for uncertainty, parties must negotiate in good faith
and not to withhold agreement unreasonably. (Empress Towers)
A bare negotiation clause is unworkable from an uncertainty perspective unless parties were to
approach that clause in good faith and there is a sufficient market metric (benchmark)
(Mannpar).
- Bare negotiation clauses are unworkably uncertain and fail.
- Exceptionally, if it is not a bare duty to negotiate but one that is supplemented to
negotiate in good faith AND there is a market metric, then there is an obligation to
negotiate in good faith to find a market metric.

Parties in a contract have duty in good faith performance of their contracts in law (Bhasin).
- Don’t lie!
- Common law duty to act honestly in the performance of contractual obligations
- Operates in ALL contracts irrespective of intentions of the parties
- Through freedom of contract, parties could relax this doctrine through clear language in
the contract
- good faith = parties must perform contractual duties honestly and reasonably and not
capriciously or arbitrarily
(Bhasin)

ANTICIPATION OF FORMALIZATION
An oral agreement in contemplation of a formal written agreement, when lacking essential
terms, is not enforceable due to lack of certainty. It is a contract to form a contract. However, it
IS enforceable WHEN ALL ESSENTIAL TERMS have been agreed upon (meeting of the minds
occurs). (Bawitko v Kernels)
- We make an oral agreement and we anticipate that it will be formalized later in writing
- Exception to agreements to agree
- A contract to contract will only be binding if all essential terms are decided upon
- Assessed objectively

INTENTION TO CREATE LEGAL RELATIONS

First thing to consider on exam. Prereq to valid contract.
Intentions to create legal relations is its own prerequisite to a valid contract. Parties must
mutually intend for the relationship to be binding (Balfour v Balfour).

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TEST: Would an objective reasonable person in the context say that they intended this to be
binding? Was there an intent for this agreement to be sued upon? Was it intended to have legal
consequences instead of just moral consequences?
If it is in a social context (family, friends, spouse), there is a presumption that there is no
intention for it to be a contract UNLESS clear evidence to the contrary (Balfour v Balfour)
- EXCEPTION: Family Law Act (ss 3 and 92) displaces Balfour v Balfour presumptions.
o If you are married or no longer married to that person (ex-spouse) then s 92 of
the Family Law Act states agreements that are for the division of assets or debts
are BINDING.
o Only applies if you are or were a spouse AND only applies to division of assets or
incomes (marital property)
o S 93 requires that the agreement has to be signed, written, and witnessed and it
needs to pertain to dividing assets/debts between spouses/ex-spouses

If it is in a commercial context, there is a presumption that it is to be binding UNLESS strong

evidence to contrary (Rose and Frank v JR Crompton and Bros)
If it is not clear, there is no presumption and must assess from a reasonable objective view if
there were intentions to create legal relations.
- Would a reasonable objective person say that the parties intended this to be binding?
o Look at letters, overall context, and overall relationship between parties

Letters of comfort are not necessarily legally binding (TD Bank v Leigh Instruments)
- Must assess objectively and look at overall context/relationship/letter/language used

Politician promises and pledges are not legally binding as there is no intention to create a legal
relationship (Canadian Taxpayers Federation v Ontario).

FORMALITY – CONTRACTS UNDER SEAL AND THE REQUIREMENT OF WRITING

A seal has to be at a minimum a gummed wafer that at the time it was affixed was intended to
be operated as a seal (Royal Bank v Kiska)
Effects of a seal:
- Document is binding irrespective of everything else
- Intention to create legal relations is automatically satisfied
- Consideration is waived (do not need it!)

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Documents under seal automatically show intention to create legal relations AND waive away
consideration (Royal Bank v Kiska).

Land must be reasonably described in order for the contract to be enforceable (Dynamic
Transport Ltd v OK Detailing Ltd)
- Can you ascertain with precision what the land is that you are buying?

At common law, there was an exception for in writing requirement of land transfers. If the
person denying the oral contract behaved in a way that looked like there was a contract, then
there was a binding contract (Degelman).
- Very high threshold
- Had to prove that the denier acted unequivocally in showing that there was a contract
made
- Accepting a down payment was not sufficient
- LEGISLATION HAS NOW OVERCOME THIS

LAW AND EQUITY ACT

s. 59 - Enforceability of Contract
s. 59(3)(a) a contract in land or interest in land has to be in writing, signed, and has to be a
reasonable description of the land
- whether land reasonably described or not, use common sense
 EXCEPTION: 59(3)(b)
- If an oral contract for land is denied and the denier behaves in a way that demonstrates
there was a contract or the denier acquiesces in the face of your allegation that there is
a contract, then that is enough to show there is a contract
- If denier of oral contract denies and behaves like there is a contract, that is enough to
enforce the contract
- Preserves common law exception but lowers threshold
- 59(4) – payment or part payment of the purchase price WILL COUNT towards evidence
as conduct showing there is an oral contract

 EXCEPTION: 59(3)(c)
o If the person alleging the contract has changed their position (think we have a
deal and then change position on you), the court will try to find the oral contract
binding.

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s. 59(6)(a)
- Guarantees should be signed and written by the guarantor
 EXCEPTION: 59(6)(b)
o If the alleged guarantor behaves in a way that there is in fact a guarantee even
though it is oral, then the oral guarantee can be enforced.
 Ex: mom keeps paying son’s loans after oral guarantee made by her to
the bank

III ENFORCING PROMISES

DOCTRINE OF CONSIDERATION
*when talking about consideration MUST ALSO MENTION PROMISSORY ESTOPPEL*

NATURE OF CONSIDERATION
Consideration is a prereq to a valid contract.
One party must promise to do or not do something in consideration (in exchange) for the other
party to do or not do something.
There must be mutuality of consideration.
No consideration = no contract UNLESS:
o SEAL – gummed wafer fixed with intent to be a seal (Royal Bank v Kiska)
o PROMISSORY ESTOPPEL – doctrine that allows a merely gratuitous contract to be
enforced (Hughes)

Each party must furnish consideration (Thomas v Thomas)

- Each party must promise something in exchange to the other party’s promise
- Consideration must flow FROM both parties

Consideration must have value in the eyes of the law (Thomas v Thomas)
o Sufficiency NOT adequacy
o Peppercorn Theory:
 Courts will not scrutinize the adequacy of consideration; if you are doing
something for something, its value is not important.

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 o Policy reason: adequacy would go against freedom of contract; parties can make
a bad contract or a contract for whatever they want
 If court said only contract for adequate consideration under commercial
context, it would go against freedom of contract
 Would allow court to strike down unfair deals
 Access to justice issues as court would get clogged up
 Undermines commercial certainty

Consideration must flow FROM both parties for it to be a valid contract (Governors of
Dalhousie College at Halifax v The Estate of Arthur Boutilier).
- The one promise must be given in exchange for the other promise (mutuality)
- Court will assess the intent of the parties objectively looking for mutuality/reciprocity
- TEST: “Party A will do ____ IF party B does ____” (conditional)
- When you have mutuality, it justifies why we do not look at the economic adequacy of
consideration. If you give the one in exchange for the other, we are not going to analyze
the fairness of the contract.

A gratuitous promise does not have sufficient consideration to be considered a binding contract
(unless promissory estoppel… see below) (Governors of Dalhousie College).
Consideration can be expressed or implied (Wood v Lucy, Lady Duff Gordon).
- Assess through Canadian Pacific Hotel
 A promise will be implied when you assess the intent and look at the situation from a
reasonable objective person lens
o Look at the words, actions, relationship and see if the parties intended this to be
part of the deal (business efficacy and obviousness)
o Did parties objectively intend for this to be an implied term?
o Business efficacy = does the deal make business sense without the implied term?

PAST CONSIDERATION
Past consideration is no consideration (Eastwood v Kenyon) except where performance is done
at the request of a promiser and it is expressed or implied that some benefit will be conferred
in the future (Lampleigh v Brathwait).
Generally, past consideration is no consideration (Eastwood v Kenyon)
- No meeting of the minds in these circs

Moral obligation does not constitute consideration (Eastwood v Kenyon)

EXCEPTION (Lampleigh v Brathwait)

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Past consideration is no consideration at all UNLESS:
1. The act is done at the promiser’s request AND
2. It was understood at the time that you made the request that there would be a
payment (expressed or implied)
 Mutually understood and objectively speaking
 Look for OUTWARD MANIFESTATIONS to see what their intentions were
(Lampleigh v Brathwait)

FORBEARANCE OF SUIT
Forbearance of suit = promise not to sue (valid consideration)
Forbearance of suit is valid consideration (DCB v Zellers)
Policy reason = law wants to promote settlements instead of litigation.
TEST: If it’s a forbearance situation and someone promises not to sue someone else:
1. Has the payment already been made or is it a promise to be paid?
a. If payment has already been made, it is an executed gift (subject to unjust
enrichment) = binding
b. If payment was PROMISED (not already paid), is the underlying lawsuit valid?
i. If VALID lawsuit, promise to pay is binding.
ii. If Invalid lawsuit, promise to pay is binding IF three things are satisfied:
1. Honestly believe claim was valid (subjective)
2. Belief is reasonable (objective)
3. Must have seriously intended to bring lawsuit.
(DCB v Zellers)

PRE-EXISTING DUTIES
Three Party Situations:
Promising to do what you already have to do WILL count as valuable consideration if you are
promising it to a third party (Pao On v Lau Yiu Long)
- Exposing yourself to additional liability if you fail to uphold obligation
o Value in the eyes of the law

Two Party Situations:

Promises to do what you already have to do does NOT count as consideration to the same party
– no fresh consideration. (Stilk v Myrick/ Gilbert Steel v University Construction)

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Performance of pre-existing duty is NOT legally sufficient consideration (Stilk v Myrick/Gilbert
Steel v UC)
EXCEPTION:
 In certain circs a pre-existing duty WILL count as fresh consideration IF:
1. It adds a mutual, practical benefit flowing to both parties AND
2. The absence of duress
 Practical approach to obtaining commercial advantage such as avoiding
penalties, keeping your reputation for finishing on time (reputation
harmed if project finished late), freeing up resources (can start a new job
if finish on time)
 Duress = absence of volition; was it voluntary or was the party pressured?
(Williams v Roffey Bros)
If there is clear intent to modify the contract and that is given voluntarily without duress then
that is binding. No longer need the flow of mutual, practical benefit. (GFAA v Nav Canada /
Rosas v Toca)
- The current law in BC
- As long as it was not procured under duress, it will be binding.
- When assessing for duress should still consider mutual, practical benefit as the
presence/absence is probative

PROMISES TO ACCEPT LESS

- Compromise of a debt

Accord and satisfaction:

- An agreement to satisfy a debt
- Where the party agrees to take less than originally owed
- Compromise of a debt by paying less to satisfy more

Agreements whereby one party promises to accept money from another party that is ALREADY
owed are NOT binding (Pinnels).
A payment or promise of payment of a lesser sum cannot be satisfaction of a greater sum
UNLESS it is under seal (Foakes v Beer)
If you are not strictly speaking doing what you already have to do, then you are offering
consideration. If you owed me $100 and I say if you give me your pen, we will call it even, then
that is fresh consideration. As long as it is reciprocal and voluntary, that is sufficient (do NOT
look at adequacy).

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Even in a case where there may be a practical benefit to accepting a lesser amount in payment
of a debt, this is NOT sufficient consideration to find a binding contract (Re Selectmove)
Payment or promise of payment of a lesser sum cannot be satisfaction of a greater sum (Re
Selectmove).
Creativity constitutes fresh consideration so long as it is different than the pre-existing duty
(Foot v Rawlings).
- Ex: if you owe me 100 pounds and I say I will take 5 pounds and forget about it, it does
NOT count as it is a lesser amount than already owed (Foakes v Beer).
- Ex: If you owe me 100 pounds and I say I will take a horse and forget about the debt,
then that is FRESH consideration (Foot v Rawlings).

A negotiable instrument such as a cheque or an object of a value less than the debt can be
consideration even if the amount is less than the cash debt (Foot v Rawlings).
Paying early is fresh consideration to a pre-existing duty (Foot v Rawlings).

Law and Equity Act, RSBC 1996, s 43

Section 43 – Part performance of an obligation either before or after breach of it, when
expressly accepted by the creditor in satisfaction or rendered under an agreement for that
purpose, though without any new consideration, must be held to extinguish the obligation
This means that if you have paid part of the money and it has been accepted by the creditor for
that purpose (for less to satisfy more) then it counts. You do NOT need fresh consideration.
- Only in relation to IN FACT PAYMENT
- NOT in relation to promises to pay
- Must be part performance of the obligation
- Only when the money has actually changed hands

 EXCEPTION (Process Automation / DC Builders)

o UNLESS it was procured under duress
o If there is duress in the procurement of satisfaction, then s 43 of Law and Equity
Act does NOT count
 Example from DC Builders:
 Section 43 will not apply if there is duress.
 Money was owed and you are on the verge of bankruptcy and
other party knows you are desperate. They say I will give you half
or nothing. They bully you into taking half of what was owed
seizing on the fact that they know you are about to go bankrupt.

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 Then you come back and sue. This would vitiate section 43 of Law
and Equity Act.
(Process Automation / DC Builders)

FRAMEWORK - IF YOU ARE TALKING ABOUT A SATISFACTION OF A DEBT TO PAY LESS TO

SATISFY MORE:
1. Identify accord and satisfaction as what you are dealing with.
2. Promises to pay less in satisfaction of more are not binding. You have not offered any
fresh consideration (Foakes v Beer).
3. Note that is very unprincipled citing Selectmove since it is not following GFAA v Nav
Canada and Rosas v Toca for pre-existing duties outside of this.
4. EXCEPTION – if it is under seal, then it is binding. Consideration is waived. Have to
ensure that it is actually a seal – gummed wafer with intent to be a seal (Royal Bank v
Kiska).
5. EXCEPTION – If part payment has been paid to extinguish an obligation, it is binding
under section 43 of the Law and Equity Act in BC.
a. UNLESS there is duress in the procurement of the satisfaction (Process
Automation / DC Builders)
i. Your volition is compromised in a serious way that you do not have a
choice – hand is forced.
6. EXCEPTION – if you can characterize your action as something NEW, then that is fresh
consideration (Foot v Rawlings).
a. Examples:
i. pay early,
ii. provide different negotiate instrument,
iii. pay in a different way, etc
7. EXCEPTION – if you can characterize it as promissory estoppel (Hughes / High Trees)
a. Underlying contractual relationship
b. Clear representation to not enforce a contractual right
c. Reliance on party’s clear representation/promise
d. Unfair/inequitable for party to go back on the promise and invoke the right

PROMISSORY ESTOPPEL

Estoppel = you are stopped from doing what you are otherwise entitled to do
Common defence used to stop someone from invoking a right that they have in common law

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Promissory estoppel = a doctrine that allows a party to prevent another party from invoking a
contractual right against them
o Example: I have a right to do something but I tell you I would NOT invoke that
right. You rely on that promise. Then, I go and try to invoke that right but you
estopp me since I promised not to invoke that right and you relied on it. This
would be UNCONSCIOUSABLE to allow me to invoke the right.

REQUIREMENTS OF PROMISSORY ESTOPPEL:

1. Underlying contractual relationship
2. Clear, unambiguous representation by one party to the other that the first party won’t
enforce his underlying contractual right
3. Second party must rely on that representation
4. All things considered, it would be unfair for me to go back to the original right
a. Inequitable/unfair for me to take back my representation to not invoke my right
(Hughes v Metropolitan Railway Company)
(Central London Property v High Trees House)

In an underlying contractual relationship, if a promise is implied in negotiations and one party

relies on that promise, then it would be inequitable to allow the other party to go back on that
promise. (Hughes)
A promise intended to be binding, intended to be acted on, and in fact acted on, is binding so
far as its terms allow (Central London Property v High Trees House).
Purely gratuitous promises may be enforceable at equity (Central London Property v High
Trees House).

For estoppel to arise, there must be clear and unambiguous evidence that the party making
the representation won’t invoke the right (John Burrows v Subsurface Surveys)
- Objective reasonable person test to see if clear, unambiguous evidence here that he
would not invoke the contractual right
- Not enforcing a clause does not amount to a representation of waiver of the clause such
that the party would be estopped from invoking it (friendly indulgence)

Equity WILL favour estoppel (inequitable to take promise back) WHEN:

 there is true accord (agreement) given voluntarily 
 agreeing to the terms voluntarily and consensually
 accord and satisfaction = agreement to satisfy debt

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Equity will NOT favour estoppel (NOT inequitable to take promise back) WHEN:
 there is no true accord
 it was procured by intimidation (ie take this or get nothing; on brink of bankruptcy)

If there is duress or not a true accord, then it is NOT inequitable to take the promise back and
promissory estoppel conditions are NOT met (D&C Builders v Rees).
 4th criteria of promissory estoppel is not met in these circs
 Promiser must come to court with CLEAN HANDS 

A party can revoke a gratuitous promise by giving the promisee reasonable notice.
(Saskatchewan River Bungalows Ltd v Maritime Life Assurance, SCC 1994)
 Reasonable notice is BEFORE the party relies on the promise
 If the promisee changed their position in a way that materially affects them, then you
acted on the promise before reasonable notice (ie defence of promissory estoppel is
present).
→ If you have either done something you would not have done or did not do something
that you would have done by relying on the promise, then that is too late (reasonable
notice has passed). Promissory estoppel can be invoked. 
(Saskatchewan River Bungalows Ltd v Maritime Life Assurance, SCC 1994)

Under the defence of promissory estoppel, there is NO requirement that the party suffers
detriment. It is enough that the party acted on the promise - reliance simpliciter. (WJ Alan &
Co v EL Nasr Export and Import Co)
 It is inherently inequitable if you rely on a promise and it is taken back on you. 
 Detriment is not required for promissory estoppel, just needs to be relied on by the
promisee (even if the promisee benefited from it). 

Detriment is not necessary to invoke promissory estoppel. It is enough that the party acted on
it/changed their position. HOWEVER, equity is discretionary, and you do not have a right to
equitable relief. If a court does not believe it is unconscionable/inequitable for you take back
your promise, the court will not find promissory estoppel. THEREFORE, absence prejudice it is
hard to enforce a promissory estoppel. (The Post Chaser)
 You are more likely to succeed with a defence of promissory estoppel if you can show
you suffered detriment/prejudice. 

Detrimental reliance is the heart of estoppel (Ryan v Moore, SCC 2005).

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  court was NOT talking about promissory estoppel specifically so it is debatable if this
applies
 for exam you want to find detriment AND note it is not required, but you are motivated
to show unfairness for promissory estoppel. 
 Must engage in the facts to characterize it as unfair for your client. 

SHIELD OR SWORD
 Estoppel can only be used as a shield and NOT as a sword
 Estoppel does not create new rights or causes of actions. You cannot sue someone with
estoppel (sword). 
 Estoppel is a defence. I can use it to stop you from using a right that you had but you
promised not to use, and I relied on that promise. I am estopping you from using that
right. I am using it as a shield (defence). 

Estoppel is only a shield, not a sword (Combe v Combe / M(N) v A(TA), BCCA 2003).
 You cannot sue someone on a promise to get something. You can only estopp them
from underlying right that they promised not to use.

PRIVITY OF CONTRACT

Privity of contract is a discrete doctrinal point. It is undeniably its own rule.

It’s a precondition to an enforceable contract in the sense that the party suing must be in
privity of contract. They must have standing to sue.
If X and Y make a contract, even if the entire purpose of the contract is to give a benefit to Z, Z
cannot enforce that contract. Z has no privity of contract. (Tweddle v Atkinson)

Third parties cannot sue if they are not in the contract between A and B regardless if the
contract was for their benefit. (Dunlop Pneumatic Tyre v Selfridge & Co Ltd)

If you are a stranger to the contract, you cannot sue on it. The law knows nothing of a right to a
third party for damages arising from a contract between two other parties (Dunlop Pneumatic
Tyre)

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As a matter of wills law, executor/administrator to the deceased person can enforce those
contracts since they are in theory acting as agent to that dead person. Standing in the dead
guy’s shows (Beswick v Beswick).

Agent and trustees are exceptions to the privity rule because you are IN FACT acting for that
person. Agent is acting on behalf of their principal. Trustee is acting IN FACT on behalf of the
beneficiary. (Beswick v Beswick)
- Administrators of wills, for all intent and purposes, are the person who is a party to the
contract and can thus enforce the contract on behalf of that person (Beswick v Beswick)

EXCEPTIONS TO PRIVITY

Employees may obtain a benefit from a limitation of liability clause found in a contract
between their employer and a customer if the following requirements are met:
1. The limitation clause must, either expressly or impliedly, extend its benefit to
the employees seeking to rely on it AND
 This is assessed objectively based off the employee-employer
relationship:
 autonomy, vulnerability (ability to protect themselves), identity
of interest (an employer performs its contractual obligations with
a party through its employees), commercial reality fairness,
whether the parties knew subjectively in fact that the employees
would be the ones performing the actual contract

2. The employees seeking the benefit of the limitation clause must have been
acting in the course of their employment AND must have been performing the
very services provided for in the contract between their employer and the
customer when the loss occurred.
(London Drugs Ltd v Kuehne)

Identity of interest:

- If you extend a benefit to the company and you know in the circumstances that the
company can only perform its obligations to its employees then you must have
extended the benefit to the employees, as well. You know they are the ones doing the
work. There is no different between the employer and employee in these
circumstances.
- The employer can only perform the contract through the employees
- Employee and employer have the same interest in all extent and purpose through the
contract. They have an identical interest in the contract.
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In ALMOST all cases, if I extend a benefit to the employer then I also extend a benefit to the
employees (London Drugs Ltd v Kuehne).
Policy Consideration for Identity of Interest (IN LD CASE):

- It would be fair as a matter of policy in these types of circumstances to allow employees

to take cover on this limited liability clause. Employees would have expected that they
would have been covered by this. You do not expect to be working at a warehouse and
be liable for $40k.
- Commercial morality
- It would be unfair for the warehouse men to get insurance when they do not even know
what they are moving every day and it would be changing all of the time.

LIMITED LIABILITY CLAUSE:

This only gives the third party the ability to rely on a contract that they were a stranger to as a DEFENCE.

Acts as a shield in actions brought against employees when the damage they have caused was done in
the course of their employment and while they were carrying out the very services for which the
customer had contracted with their employer.

- The third party would never have a right to sue either A or B

- Employees do NOT have positive rights to sue
- All this means is that the stranger can take cover under a limited liability clause if the
parties intended to extend it to the stranger.
- Stranger cannot ever enforce rights or sue for damages
(London Drugs v Kuehne)

Professionals have a higher degree of autonomy and thus it is difficult for them to be impliedly included
in a limited liability clause as they usually have a split identity of interest from the third party
(Edgeworth)

The court in Fraser River Pile confirmed that the test in London Drugs applies to all third parties
who meet the requirements and not only employees of one of the parties.
 
1. Did the parties expressly or impliedly intend to extend protection/the benefit to the
third party AND
2. If so, was the third party doing the very thing mentioned in the contract.

In some circumstances a third party is able to prevent two parties in a contract from changing the terms
of their contract. Because the third party has taken rights under the contract, the two parties need to
consider them. Once the right to the third party has CRYSTALLIZED into an actual benefit, the two
parties cannot take it away.

 If the right has NOT crystallized, then they can take it away.

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  Is the right inchoate (CAN take it away) or crystallized (CANNOT take it away)?

The right crystallizes the moment that it becomes an actual right (a defence to a contemplated lawsuit,
for example). The moment it could be used for the third party’s benefit is when it crystallizes. (Fraser
River Pile)

CONDITIONS PRECEDENT
A true condition precedent is when the fulfillment of the condition depends entirely on a third party. If
satisfying the condition depends on a third party, then it is a true condition precedent and therefore
cannot be waive. (Turney v Zahilka)

- If it is an ordinary condition precedent (do NOT rely on third party), then it CAN be
waived

Section 54 of Law and Equity Act displaces Turney v Zahilka in BC so we only have one condition
precedent now. In BC all are ordinary conditions.

If the condition is inserted for the benefit of a party, then it can be waived under section 54 of the Law
and Equity Act.

If a contract is subject to a condition being satisfied, if the condition is satisfied, then it goes through.

If a contract is subject to a condition being satisfied, if the condition is NOT satisfied, no contract and it
evaporates.

If a contract is subject to a condition being satisfied, if the party decides to waive it AND the condition is
entirely intended for the party's benefit, then they can waive it and the contract is binding.

All of this is in the context of IMPLIED rights of waiver. Comes down to INTENTION OF THE PARTIES.

If there are express waiver conditions in the contract, then of course the party can waive it. Express
terms always trump implied terms.

In the above case, offer and acceptance have occurred (binding) but performance is suspended until
condition is satisfied.

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