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Managing The Law The Legal Aspects of Doing Business 4Th Edition Mcinnes Solutions Manual Full Chapter PDF
Managing The Law The Legal Aspects of Doing Business 4Th Edition Mcinnes Solutions Manual Full Chapter PDF
CHAPTER 7
THE NATURE AND CREATION OF CONTRACTS
CONTENTS
Teaching Approach
Additional Teaching Suggestions
1. Intention to Create Legal Relations
2. Battle of the Forms
3. The Postal Rule and Overtaking Communications
4. Acceptance by Performance
Discussion Boxes
1. You Be The Judge 7.1—Fobasco Ltd v Cogan
2. Ethical Perspective 7.1—Dickinson v Dodds
3. Business Decision 7.1—The Granting of Options
4. Business Decision 7.2—Battle of the Forms
5. Business Decision 7.3—The Postal Rule
Review Questions
Cases & Problems
Case Briefs
TEACHING APPROACH
We now move into the second substantive section of the text. The preceding chapters
discussed the law of tort in considerable detail. This chapter marks a turn from torts to
contracts. It consists of eight chapters. The first six chapters deal with issues that are
relevant to contracts generally:
Chapter 7 explains The Nature and Creation of Contracts, by focusing on the core
issues of intention to create legal relations, offer and acceptance.
Chapter 8 considers the role that Consideration and Privity play in the formation
and enforcement of contracts.
Chapter 9 looks at the Terms and Representations that may be included in a
contract.
Chapter 10 examines a number of Contractual Defects.
Chapter 11 explains how a contract may be brought to an end through Breach and
Discharge.
Chapter 12 canvasses the various Contractual Remedies that may be available in
the event of breach.
The final two chapters deal with special types of contracts that are especially important to
business:
Chapter 13 considers Sale of Goods.
Chapter 14 considers Bills of Exchange.
Throughout the chapters on contracts, a special emphasis is placed on the issue of risk
management. Students are encouraged to think about ways in which, as business people,
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they may make the most of contractual arrangements, while also avoiding some of the
more common problems that arise in practice.
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Suppose, for instance, that Pam mailed a letter to Dave offering to sell a painting for $100
000. After receiving that offer, Dave sent a letter that rejected the offer. The next day,
however, before Pam received his rejection letter, Dave telephoned her and purported to
accept her offer. Allowing Dave to overtake his mailed rejection with a telephoned
acceptance might allow him to unfairly speculate at her expense. He could reject the offer
with a letter and, before it’s actual receipt, monitor the market. If the value of the painting
increased during the interim, he could hastily telephone his acceptance. He could, in
effect, blow both hot and cold. On the other hand, Pam is really none the worse for wear
even if Dave is entitled to overtake his earlier rejection with a subsequent and timely
acceptance. She had no contract at the outset. She similarly had no contract when Dave
mailed his acceptance. The subsequent creation of a contract would not obviously
prejudice her. (At most, she could argue that, unbeknownst to her, the initial rejection
brought an end to the possibility that she could be bound to a contract through an
effective acceptance.)
The situation would be different, however, if Dave initially mailed an acceptance letter
and then used a telephone call to try to revoke his acceptance before the letter’s receipt.
In that situation, the mailed acceptance presumably would, by virtue of the postal rule,
result in the creation of a contract as soon as the letter was sent. Pam therefore could
argue that, unbeknownst to her, she had contractual rights against Dave. It might be
improper to allow him to later overtake receipt of the letter by telephoning a rejection if,
for instance, the value of the painting dropped in the interim.
Acceptance by Performance
The offer of a unilateral contract is accepted through performance of the stipulated act.
As discussed in the case brief of R v Clarke that appears below, however, the mere
performance of that act does not necessarily constitute acceptance. The offeree must have
acted with knowledge of the offer. Otherwise, there is no consensus ad idem because, at
the relevant time, the parties did not have a meeting of minds – they were not
simultaneously thinking about the offer and the promise of a reward.
Students might be asked to consider the relevance of knowledge and motive. Should an
offeree be able to accept in ignorance of an offer? Aside from being contrary to orthodox
rules, an answer in the affirmative seems unnecessary on policy grounds. A reward
obviously was not necessary to motivate the offered. Furthermore, since the offeree acted
in ignorance, there is no need to fulfill expectations, as generally is true in contracts.
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Should an offeree be entitled to claim a reward that it knew about, but that was not a
motivating factor? That seems a more difficult question. The decision in Williams might
be defended on evidentiary grounds. It may simply be too difficult to isolate the basis
upon which the offeree acted. Was the reward a motivating factor? The primary
motivating factor? Likewise, even if the reward was one of several motivating factors,
there may be a need to protect the offeree’s expectations. Finally, motive is generally
considered to be irrelevant in private law.
DISCUSSION BOXES
You Be The Judge 7.1
Fobasco Ltd v Cogan (1990) 72 OR (2d) 254 (HCJ)
1. On the facts, the parties likely had a mere social arrangement. (That is the
conclusion reached by the trial judge in this case.) Even though there was a long-standing
arrangement, there is no proof that Eddie intended to relinquish ownership of the season’s
tickets (ie by transferring the tickets into David’s name.) Moreover, it is significant that
the parties, who were business people, did not clearly outline their rights and obligations.
Viewed objectively, if they had intended the arrangement to be something more than a
favour between friends, they probably would have made it clear that they had entered into
contractual relations.
2. This question asks students to consider the issue from a risk management
perspective. Just as business people should know the importance of outlining their
prospective rights and obligations, they should also know that, while not generally
necessary, it makes good commercial sense to put agreements in writing. Writing
probably would have indicated an intention to create legal relations and it would have
helped to settle the terms of the agreement.
3. Assuming that a contract is recognized, it does not appear on the facts that Eddie
and David agreed to this arrangement for more than one season at a time. As such, they
effectively would have renegotiated the terms of the agreement each year, including, for
example, the price and number of tickets involved. Since there was no mutual agreement
to enter a legal transaction forever, Eddie would not be forced to make tickets available to
Fobasco Ltd indefinitely.
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acceptance.) On the other hand, it might be suggested that the promisor should not be
required to give something for nothing. Following the bargain theory of contractual
liability, a person should not, exceptional circumstances aside (eg promissory estoppel,
seal), be forced to confer a benefit upon someone without receiving anything in
exchange.
2. There are a number of financial and non-financial reasons that might motivate
business people to honour firm offers.
Even if business people do not see any financial benefit to doing so, they may honour
firm offers and other gratuitous undertakings simply because they believe it is the right
thing to do. Although that factor may not be conclusive very often, there is also a danger
in being too cynical about the morality of those in the marketplace.
There are also reasons for honouring firm offers that are a combination of non-financial
and financial. Most business people want to develop goodwill in the marketplace. A
company’s reputation will suffer if it frequently engages in sharp practice or is thought to
be untrustworthy. Moreover, there are financial repercussions to a lack of goodwill and
an unfavourable reputation. All else being equal, a customer is more likely to do business
with a company that it trusts will not only honour legal obligations, but also its informal
promises. Returning to a theme introduced in Chapter 1, students should appreciate that
business is based on on-going human relations and that strict enforcement of legal rights
is not always desirable in the long-term.
The terms of a business agreement are limited only by one’s imagination and what the
parties are willing to agree upon. Under the circumstances, the offeror will want to insist
on a price that makes it worthwhile to keep the offer open, particularly in light of the
possibility that the other prospective purchasers may be lost. The offeror may also
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consider charging an additional fee in the event that zoning approval is not received, or
insisting on another term that requires ABC Corp to buy the land more quickly in the
event that an alternative offer is made that reaches a stipulated price.
Finally, as an alternative to an option, the parties might agree to a conditional sale of the
sort that is described in Chapter 16. Under that arrangement, a contract of purchase and
sale would be immediately created, but performance of the primary obligations would be
suspended pending the outcome of the zoning application. In that instance, ABC Corp
would, however, likely have an immediate obligation to use its best efforts to secure
zoning approval.
REVIEW QUESTIONS
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1. The phrase “meeting of the minds” refers to a mutual agreement to enter into a
legal transaction on a particular basis. (Lawyers often use the phrase consensus ad idem.)
A meeting of the minds is significant to the formation of contracts because it shows that
the offeror and offeree agreed to enter a contract on certain terms and that they are
willing to be bound to those terms. Meeting of the minds occurs through the process of
offer and acceptance. Significantly, however, contract law, as usual, takes an objective
approach to the issue. Consequently, while rare, a person may be bound by an agreement,
even without intending to do so, as long as the reasonable person would have thought
they intended to be bound.
2. “Comfort letters” arise in connection with the requirement that the parties have an
intention to create legal obligations. Just as the parties have freedom to contract, so too
they have freedom not to contract. Consequently, even if the other elements of contract
formation (eg offer, acceptance, consideration) are in place, a court will first ask whether,
on an objective assessment, the parties intended to be legally bound by their promises. If
not, then although they could have created a contract, they have chosen not to do so. A
court will respect that choice.
A comfort letter is only somewhat comforting in practice. It provides the writer’s promise
to perform in a certain way, but it also stipulates that that promise is not legally
enforceable. Notwithstanding its inability to create legally enforceable obligations, a
comfort letter is valuable to the extent that the writer cares about his or her reputation. A
business person who breaks a promise — even a promise that is not legally enforceable
— will be a less desirable trading partner in practice. Comfort letters therefore provide
some assurance that an undertaking will be honoured.
3. Since a contract comes into existence as soon as an offer is accepted, the offeror
must be careful to avoid offering more than he or she is willing or able to provide. Not
only is the offeror obligated to honour the promises contained in the agreement, he or she
will be unable to alter the contents of that agreement, or bring the contract to an end,
without the agreement of the other party.
The courts have developed two techniques to reduce these dangers. First, judges have
developed careful guidelines for deciding which statements qualify as offers. To qualify
as an offer, the person making the statement must have the intention to create legal
relations. This means that the offeror must have intended that the proposed agreement
would be enforceable in law. The test for deciding this issue is an objective one that asks
whether the reasonable person, viewing the circumstances as a whole, would believe that
the parties intended that the agreement would be legally binding. The court will not take
into account the subjective intentions of the parties because: (i) a person could easily lie
about the matter, and (ii) one of the primary aims of contract law is to protect reasonable
expectations. A court will try to protect the party who, on the basis of his reasonable
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expectations, may have made arrangements in anticipation of the contract being fulfilled.
The courts have also simplified matters by assuming that offers made in a commercial
context are generally enforceable, while offers made in a family or social context
generally are not. However, these presumptions may be disproved where there is
evidence to the contrary.
The second way judges reduce the risks of making an offer is by placing limits on how
statements can function as offers. The courts classify some statements about proposed
transactions not as offers, but rather as invitations to treat. An invitation to treat is an
invitation for others to make an offer and shows a willingness to receive an offer. The test
for deciding whether a statement is an offer or an invitation to treat is also an objective
one. The court will ask how a reasonable person would interpret a disputed statement in
light of all the circumstances.
5. The objective “reasonable person” test allows the courts to create a fictional
person in order to determine what the parties should have done or thought in the
circumstances. The objective test provides the courts with considerable flexibility and
makes it possible for a judge to equally say what a reasonable person would or would not
have intended. In addition, a test based on subjective intentions would be difficult to
apply for two reasons. First, a person could easily lie at trial about what his or her
intentions were. Second, a primary aim of the law of contracts is to protect reasonable
expectations. Since the business world could not function properly unless people were
entitled to rely on outward appearances, the courts will protect the reasonable
expectations and interpretations of the parties.
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An option consequently provides a way in which the offeree of a large offer can compel
the offeror to hold that offer open as promised. The option is a separate contract. In
exchange for receiving a price (usually a small, but significant, sum of money), the
offeror of the large offer agrees to hold that large offer open. Because the promise to hold
the large offer open is now contained within its own contract, it is enforceable.
Suppose, for instance, that the defendant offered to sell Blackacre to the plaintiff for $1
000 000. The plaintiff needs a week to think about the possibility before accepting or
rejecting. The defendant, however, prima facie can revoke the sale offer at any time. To
preclude that possibility, and to compel the sale offer to remain open for a week, the
plaintiff may persuade the defendant to create a new contract: an option. In exchange for
the plaintiff’s payment of, say, $5000, the defendant enforceably agrees to hold the sale
offer open for one week.
8. Revocation occurs if the party who made the offer withdraws it. The offeror is
generally entitled to revoke the offer at anytime. But where the offeror promises to hold
an offer open for acceptance during a certain period, special attention is required. Strictly
speaking, since there is no exchange of value in return for the firm offer, the promise to
hold the offer open is not enforceable in law. From a commercial viewpoint, this
flexibility is important because it allows the offeror to negotiate with other potential
buyers. However, from an ethical perspective, it may be in the offeror’s best interest to
honour firm offers. In addition to maintaining good business relations, keeping one’s
promises generates goodwill for the business.
9. “Cross-offers” occur when two people offer each other a contract on the same
terms. That would be true, for example, if you wrote a letter to me saying “I will buy
your car for $5000” and I write a letter to you saying, “I will sell my car to your for
$5000.” It may appear that a contract is created because you and I share the same idea at
the same time. A contract, however, requires more than a coincidence of ideas. It requires
a consensus ad idem—a meeting of the minds. A contract is created only if one person
offers and another person accepts that offer.
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10. The tendering process limits the revocation of offers during the period in which
they are being considered and otherwise ensures a fair bidding process. The courts have
found that two contracts may be formed under the tendering process. Under Contract A,
the call for tenders is an offer to enter into a special contract to hold a fair tendering
process in exchange for an irrevocable bid. In that context, the bid constitutes acceptance
of the offer under Contract A. Under the second contract, the call for tenders serves as an
invitation to treat to receive offers to enter into the larger Contract B. In that context, the
bid constitutes an offer to enter into Contract B. There will be one Contract A for each
party that submits a tender, but there can be only one Contract B between the party
calling the tenders and the party that submits the winning bid.
12. The statement is not true. As a general rule, the offeree is entitled to
communicate acceptance by any reasonable means. As a result, for example, a written
offer may be accepted orally, or vice versa. The choice does not always lie with the
offeree, however. Most importantly, the offeror is the master of the offer and therefore
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13. An offer is terminated once it is rejected. This means that it cannot later be
accepted if you, as the offeree, later changed your mind. The rule is set up this way to
ensure that there is only one “master of the offer.” In order to revive the transaction, you
could do one of two things. You could either ask the offeror to repeat the initial offer or
can make an offer yourself and hope that the original offeror accepts.
15. A battle of the forms arises when each party claims to have entered into a contract
on the basis of its own standard form document, but the parties’ documents incorporate
different terms. From a time and cost-saving perspective, it makes sense for a business to
use the same form for every transaction. A problem arises, however, where the offeree
responds to the offeror with its own standard form containing terms that do not exactly
match the terms of the offer. In that situation, the offeree is making a counter offer rather
than an acceptance. A further difficulty occurs if the agreement is executed rather than
executory. In that situation, the court must address the fact that the parties have already
performed. In order to determine which contractual form will govern the transaction, a
court will look at a number of factors, including: (i) the usual industry practice, (ii) past
dealings between the parties, (iii) the precise sequence of events, and (iv) the forms (if
any) that the parties actually signed. The battle of the forms was the subject of Additional
Teaching Suggestions in an earlier part of this chapter.
17. Silence, by itself, cannot amount to acceptance. The reason for this is to
discourage individuals and businesses from foisting obligations upon people. If, however,
the parties habitually create contracts on the basis of silence, or if the offeree does
something that the reasonable person would interpret as acceptance, silence can amount
to acceptance. That exception is especially important when a customer agrees to purchase
goods that are sent to her unless she returns them within a stated period (as under a book-
of-the-month club).
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A bilateral contract is an agreement under which, at the time of creation, both parties
have at least some outstanding primary obligations. A bilateral contract, in other words,
involves the exchange of a promise for a promise. In the classic bilateral agreement, the
parties provide offer and acceptance through words. Orally or in writing, each says, in
effect, “I promise ….” The promise of performance, however, also may be
communicated in other ways, including the performance of some act. For example, by
walking into a restaurant and saying, “A cheeseburger and a milkshake,” I not only
evince a desire for the meal, but also offer to be bound to an enforceable agreement for
the provision of food. My offer is implicit in my act. Likewise, acceptance may be
communicated through actions If I walk into your hair salon and silently sit in a chair
while you cut my hair, I implicitly have accepted your offer to cut hair for a price. (If no
price is stipulated, a court will award quantum meruit or “as much as it is worth.”)
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That presumption, however, is rebuttable by evidence to the contrary. Just as the parties
have the freedom to contract, they also are free not to contract. Although there is no
magic in words, the use of a phrase like “This agreement is subject to formal contract”
normally indicates that, even if the other essential elements of an enforceable agreement
(eg offer, acceptance, certainty of terms, consideration) are present, the parties have
evinced an intention not to be legally bound. That proposition takes on additional strength
when it is used, as in this case, by sophisticated business entities who understand the
significance of legal enforceability.
In determining whether the parties have a created a contract, however, a court must look
at all of the circumstances. The wording of a document is important, but so too are the
parties’ actions. If neither party had yet performed, it is clear that Ziggy could not have
compelled DJI to fill its purchase order. The document alone would govern and it would
indicate that there was no intention to create legal relations. Notwithstanding the
document, however, DJI did create and deliver the requested component, and Ziggy did
accept the device and pay the price. Those actions require some legal explanation. The
likeliest explanation is that, despite the contentious phrase, the parties did subsequently
create and fulfill an enforceable agreement. Their contract arises not from their
paperwork, but rather from their behaviour. That possibility acquires support from the
fact that the two companies previously had done business many times on precisely the
same terms. In the absence of an overarching contract, they were not obliged to do so
again in the future. An objective reasonable person, however, most likely would consider
all of the facts and conclude that, as in the past, the parties chose to buy and sell computer
components on the usual terms.
Any hardship that that conclusion creates for DJI’s new owners must be placed at the
owners’ own feet. If they truly wished to re-draft their standard form document and
revise their contractual terms, they should have directed their own workers to await their
instructions before filling Ziggy’s orders.
Similarly, any windfall that Ziggy may appear to enjoy is explained by the actions of
CJI’s new owners. Although Ziggy initially was informed that the apparent agreement
was “subject to formal contract,” it ultimately was provided—in the usual way—with the
type of component that it traditionally obtained from DJI. DJI’s conduct therefore
engendered Ziggy’s reasonable expectation that there was a contract that contained on the
usual terms.
[Based on RTS Flexible Systems v Muller [2010] 1 WLR 753 (UK SC)]
1
Rose & Frank Co v JR Crompton & Rose Ltd [1923] 2 KB 261 (CA).
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2. This exercise focuses on the fact that the elements of offer and acceptance are
reckoned objectively rather than subjectively. Regardless of what one or both of the
parties actually had in mind, a contract exists if a reasonable person would conclude so
after considering the circumstances.
The parties almost certainly had a contract under which Danuta would pay WETS to both
obtain a permit and remove the tree. The trial judge in the actual case upon which this
exercise is based held to the contrary. As the appeal judge explained, however, the trial
judge did so by erroneously focusing on the defendant’s actual state of mind. Properly
analyzed, however, it does not matter that Danuta genuinely and honestly believed that
WETS would only obtain the permit on her behalf. The recognition of an offer and
acceptance is determined on the basis of the reasonable person test. The trial judge
therefore should have asked whether a reasonable person in the parties’ position would
have believed that a contract was created.
Three factors point strongly in favour of a contract. (1) Danuta wanted not only a permit,
but also tree removal services. (2) Danuta was presented with a price estimate that
covered both the acquisition of a permit and the removal of the tree. (3) Companies like
WETS never contract merely to obtain permits on behalf of customers.
Although it occasionally may impose a contract against the wishes or beliefs of a person
life Danuta, our legal system uses an objective test of contract creation. That approach
protects reasonable expectations. Regardless of Danuta’s actual beliefs, she helped to
create a perception that she had contractually agreed to pay WETS to remove the tree.
WETS is entitled to enforce that reasonable expectation.
[Based on West End Tree Service Inc v Stabryla 2010 ONSC 68 (Ont SCJ)]
3. Ronaldo will not be permitted to revoke his bid. Generally speaking, the party
who makes an offer is entitled to revoke it any time before it is accepted. However
Ronaldo’s bid, as a response to a call for tenders, falls under a special exception to this
general rule. Since Darlington City must be able to rely on the fact that any offers it
receives will remain open while they are being considered, the tendering process ensures
that the offers do remain open. Under Contract A, Darlington City’s call for tenders
constitutes an offer to enter into a fair and irrevocable tendering process, while Ronaldo’s
bid constitutes acceptance of that offer. Having reached that agreement, the parties are
obliged to adhere to its terms. As a result, Ronaldo’s bid is irrevocable. Darlington City
therefore is entitled to accept Ronaldo’s bid as part of the process leading up to the
creation of Contract B. If Ronaldo refuses to actually create Contract B, he can be sued
for breach of contract and the City will be entitled to damages.
[Based on R v Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR (3d) 267
(SCC)—discussed below in a Case Brief]
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The crucial question in this case is whether Parktown could accept Miranda’s offer by
either: (i) simply signing their acceptance to her offer to purchase, or (ii) placing their
acceptance into the mail system. At first glance, it would appear that the postal rule
would apply and that a contract was created on October 10 when Parktown mailed its
acceptance. In support of that view, Parktown could point to the fact that Miranda did not
expressly exercise her authority, as master of the offer, to insist upon actual receipt of the
acceptance within the time frame.
On further reflection, however, a court would likely find that, in the circumstances, there
could not be a contract until Parktown actually communicated its acceptance to Miranda.
In other words, it would prefer the general rule, rather than the postal rule. It would do so
because, given the highly volatile nature of the real estate market, no reasonable person
would be willing to be bound to a contract without receiving actual acceptance. That was
the decision reached in Beer v Townsgate I Ltd, upon which this question was based:
(1997) 152 DLR (4th) 671 (Ont CA).
As a general rule, an offer may be accepted by any reasonable means. In this case,
Singh’s Computer Shop appears to have expected Birinder’s acceptance to be
communicated by word (presumably through a phone call). At least implicitly, however,
they also allowed acceptance to occur through conduct — ie Birinder’s use of the laptop.
The saleswoman specifically said that the unit could not be used until Birinder had
decided to purchase it. As a corollary of that statement, she also implicitly said that if he
used, he would be taken to have accepted her offer to sell.
If a court found that neither the rejection on the answering machine, nor Birinder’s
acceptance through the use of the laptop, were effective, then the offer would have been
killed when Birinder went to the shop and explained to the saleswoman that he did not
want the computer. However, even if that was true, he would be held liable in tort for
having used the computer without permission. Moreover, while the claim might lie in
trespass, it would likely amount to a conversion. If so, then the remedy is, in effect, a
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forced sale. Birinder would have to pay the market value of the computer, and in
exchange, he would receive title to the unit. The end result would therefore be the same.
6. Ahmad’s promise was a firm offer, but not an option. A firm offer is a gratuitous
promise to hold open an offer. Since it is gratuitous, in the sense that it is not supported
by consideration, it is not enforceable. Ahmad therefore was entitled to revoke his firm
offer prior to acceptance. The situation would have been different if Ahmad had given his
promise in exchange for consideration. In that situation, Felicity would have effectively
purchased an option – that is, the right to accept the offer within the promised period of
time. Ahmad therefore would not have been entitled to revoke his offer to sell the land.
And since he sold the land to a third party, he would have breached his contractual
promise to hold the offer open for Felicity’s acceptance.
Felicity nevertheless could argue that while Ahmad was legally entitled to revoke his
offer, he did not do so in a timely manner. An offer is susceptible to acceptance (and
hence to the creation of a contract) as long as it has not been terminated. Ahmad did not
effectively terminate the offer by revocation prior to Felicity’s acceptance because he did
not reasonably draw that fact to her attention. She faxed her acceptance letter to him
before he informed her of the sale to the third party. In response, Ahmad would argue
that, regardless of revocation, his offer naturally terminated through the lapse of time. An
offeror can stipulate the length of time during which an offer is open. But even if he does
not do so, the law states that an offer is only open for a reasonable length of time. The
issue of reasonableness depends upon all of the circumstances, including: (i) the nature of
the contract, (ii) the stability of the market, and (iii) the usual industry practice. The
question probably does not contain enough information for students to arrive at a
conclusive answer. They would, nevertheless, be expected to identify the relevant factors.
To succeed in her claim, Felicity would have to overcome Dickinson v Dodds (which was
discussed in Ethical Perspective 7.1). The facts of this case may be distinguishable from
those in Dickinson because Felicity faxed her letter of acceptance to Ahmad before
learning that the property had been sold to a third party. In Dickinson, in contrast, the
offeree knew of the third party sale before actually providing the purported acceptance.
Finally, whether or not Felicity succeeds in her action against Ahmad, students should
appreciate that while firm offers are not legally enforceable, they generally should be
honoured. A business person’s reputation will be damaged to the extent that promises –
even gratuitous promises – are broken.
7. Following the case upon which this exercise is based, Mack Darin probably is not
guilty of any crime. Granted, any sensible lay person would say that Darin had offered a
switchblade for sale. As a general rule, however, an advertisement or a store display
constitutes not an offer, but rather an invitation to treat. The offer instead is made by the
customer, who offers to buy an item. The store is then free to accept or reject that offer.
The rule is designed to protect business from becoming over-exposed to liability. If every
advertisement and display constituted an offer, then a storekeeper might receive
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acceptances than out-numbered existing stock and thereby become liable for breach of
contract.
8. Simone’s acceptance of Olaf’s offer on October 21st by mail formed a valid and
enforceable contract governed by the laws of British Columbia. Even though Simone
likely received Olaf’s revocation before he received her acceptance, the rules governing
non-instantaneous communication state that an offer and a revocation of an offer are only
effective when and where they are received. An acceptance, in contrast, generally is
effective when and where it is sent. Because Simone sent her acceptance prior to
receiving Olaf’s revocation, a contract was formed before Olaf purportedly (and
ineffectively) withdrew his offer.
Because of the difficulties associated with the revocation of an offer to create a unilateral
contract, courts often prefer to find an offer of a bilateral contract instead. On that view,
at the outset, Edgar promised to eventually transfer title to the house, while Tina and
Hussein promised to pay the mortgage. Although the preference for a bilateral contract is
often appropriate, it would create its own difficulties in this situation. It would mean that
Tina and Hussein were contractually obliged to pay the mortgage. They might well prefer
a flexible approach to a unilateral contract that allowed them to pay the mortgage and
obtain the house, but that did not require them to do so. (Although the courts enjoy some
flexibility in interpreting the facts, the choice between a unilateral contract and a bilateral
contract technically turns upon the offeror’s intention.)
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10. For Arvid’s letter to qualify as an offer, he must have intended that the proposed
agreement would be enforceable in law. The test for determining whether there was an
intention to create legal relations is whether a reasonable person, viewing the
circumstances as a whole, would believe that the parties intended that the agreement
would be legally binding. In addition, the courts usually assume that an agreement
reached in a commercial context is legally enforceable, whereas one reached in a social
context is not. Despite their past intimacy and Arvid’s secret desires for a future romance,
viewed objectively, it is likely that a court would consider the offer to be a business
arrangement that was intended to be legally binding.
Even though both Dora and Arvid firmly believed that they had formed a valid and
enforceable agreement, coincidental beliefs are not enough to form a binding contract.
The offeree must actually communicate acceptance to the offeror. In this case, since Dora
never told Arvid of her intention to join his company, the parties did not form an
enforceable agreement. Moreover, the courts have developed the rule that silence, by
itself, is not acceptance. Arvid will not be able to show that he and Dora habitually did
business in this way, or that Dora did anything that the reasonable person would interpret
as acceptance. Arvid, then, is incorrect to insist that a contract had been created and that
Dora was his employee.
11. In this case, a judge must consider two broad issues to determine whether
Ekaterina’s counter offer was still open when Rasheed purported to accept it. First, a
judge must consider the effect of Naima’s involvement. Since Naima was not authorized
to act for Rasheed, her communications with Ekaterina are irrelevant. In any event,
Naima did not purport to accept or reject Ekaterina’s counter offer. Moreover, although
Naima suggested that the deal would not have to be closed immediately given Rasheed’s
planned use of the property, it is doubtful that that statement would constitute a counter
offer by introducing a new term of the agreement. Naima’s statement is not inconsistent
with Ekaterina’s desire to close the deal quickly. There could be a lag between closing of
the sale and commencement of farming.
The second broad issue that a judge must consider is whether Ekaterina left her counter
offer open for a reasonable period. An offeror is entitled to limit the life span of an offer,
for example by stipulating that acceptance must occur within a certain period. If no
specific time period is expressly stated, as is the case here, an offer is only open for a
reasonable period. In determining whether 10 days amounts to a reasonable period, a
judge will look at: (i) the nature of the proposed contract, (ii) the volatility of the market,
and (iii) the usual practice in the industry. On balance, the following factors will
outweigh the fact that the rural Saskatchewan farm market had not been particularly
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active in recent years: (i) Ekaterina asked Rasheed to respond without delay, (ii) there
was another interested party, and (iii) Rasheed’s original offer asked that she quickly
reply by fax or telegram, which shows that, even though he did not require the land until
March, he too wanted to complete the transaction quickly. Since a reasonable period
would have lapsed, Ekaterina’s counter offer was no longer open when Rasheed
purported to accept it.
[Based on Barrick v Clark [1950] 4 DLR 529 (SCC)—discussed below in a Case Brief]
12. This case turns on the applicability of the postal rule. The postal rule states that
an offer (of a new contract or renewal of an old contract) occurs when and where an
acceptance is placed into a mailbox. If that is true in this instance, then the insurance
policy was renewed as soon as SRB placed its envelope into a mailbox. MLA is liable
even though it never received that letter.
The postal rule, however, is merely a default rule. It does not always apply to posted
acceptances. And in this case, the terms of the insurance indicate that acceptance, through
payment of the premium, is effective only if and when it actually reaches MLA’s Head
Office in Halifax. Since SRB’s letter was lost in the mail, there was no acceptance and
hence no renewal of the contract. MLA therefore is no required to pay a benefit to Connie
Fikowski upon her husband’s death.
[Based on Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co (1994) 115
DLR (4th) 478 (SCC).]
CASE BRIEFS
Balfour v Balfour [1919] 2 KB 571 (CA)—note 5
The parties were a married couple. The husband was required to from England to Ceylon
for work. On medical advice, the wife decided to stay behind. Before leaving, the
husband promised to pay £30 per month to the wife. At the time of that agreement, the
relationship was in good order and both parties expected that she would join him in
Ceylon a short while later. After the husband went abroad, however, the marriage
deteriorated and the parties formally separated. The wife then tried to enforce the
husband’s promise. The Court of Appeal refused. It held that within a family context,
there is a presumption that the parties did not intend to create legal relations. In support
of that view, it suggested that the enforcement of promises within a domestic relationship
would both open the floodgates to litigation and improperly interfere with “private”
matters. Interestingly, the courts have held that the general presumption does not apply
with respect to an agreement that a married couple creates after separating: Merritt v
Merritt [1970] 2 All ER 760 (CA). In that situation, the parties are considered adverse to
each other’s interests. It is also interesting to note that Canadian courts have extended the
general presumption to same sex couples: Luoma v Anderson (1986) 50 RFL (2d) 127
(BC SC). The rule is based on the nature of the relationship, rather than the parties’
sexual orientation.
Rose & Frank Co v JR Crompton & Rose Ltd [1923] 2 KB 261 (CA)—note 6
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The parties were sophisticated businesses. They entered into a series of contracts for the
purchase and sale of paper products. Their last agreement contained a clause that
expressly said: “This arrangement is not entered into, nor is this memorandum written, as
a formal or legal agreement, and shall not be subject to legal jurisdiction in the Law
Courts.” The defendant supplied some of the product that the plaintiff ordered, but
refused to deliver the rest. The plaintiff sued for breach of contract. The trial judge held
that the agreement was a contract and therefore was capable of supporting an action for
breach. He said that the quoted clause was repugnant to the rest of the document, which
clearly created an enforceable agreement. On appeal, Scrutton LJ held that there is a
general presumption in commercial matters that the parties did intend to create legal
relations. However, he also held, in light of the key clause, that that presumption was
rebutted on the evidence. Even commercial parties are entitled to enter into an agreement
that is binding only in conscience and that cannot be enforced in the courts.
Toronto-Dominion Bank v Leigh Instruments Ltd (Trustee of) (1999) 178 DLR (4th)
634 (Ont CA)—note 8
Plessey Company plc had a subsidiary company named Leigh Instruments Ltd. Leigh
wished to obtain a line of credit from the Toronto-Dominion Bank for $45 000 000.
Worried that Leigh may not be able to repay the loan, TD asked Plessey to provide a
guarantee. Plessey repeatedly refused to assume a legal obligation for Leigh’s debt. It did,
however, provide the bank with a series of documents that contained the disputed
sentence
It is our policy that our wholly owned subsidiaries, including [Leigh] be managed
in such a way as to be always in a position to meet their financial obligations….
Leigh subsequently ran into financial difficulties and defaulted on repayment of the line
of credit. TD then demanded repayment from Plessey. The dispute turned on the proper
interpretation of the quoted sentence. Plessey insisted that it merely provided comfort
letters and that the relevant sense meant that it was Plessey’s policy that Leigh be
managed by Leigh itself so as to be able to meet its own obligations. TD, in contrast,
argued that the letters constituted an enforceable agreement under which Plessey’s policy
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was that Plessey would ensure that Leigh was managed in such a way as to repay its
debts. The bank buttressed that argument by saying that the letters would be pointless if
they did not create legal obligations, and that Plessey cannot be believed to have engaged
in a pointless exercise.
The Ontario Court of Appeal held in favour of Plessey. The circumstances amply
demonstrated that Plessey was not willing to assume legal liability for Leigh’s debt. All
of the parties were sophisticated commercial actors who knew the difference between
legal and moral obligations. Finally, to find in favour of Plessey was not to render the
letters pointless. Though not legally enforceable, comfort letters are practically
significant because they import moral obligations. A reputation for honesty and for
fulfilling undertakings—both legal and moral—is very important in the business world. A
comfort letter accordingly increases the likelihood that the drafter will act as promised.
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953]
1 QB 401 (CA)—note 9
Stores in England traditionally did not operate on a self-serve basis. A customer would
not pick up items from the shelves and bring them to the cashier. Instead, a sales
representative would provide requested items to the customer from behind a counter.
After the war, however, an increasing number of self-serve stores began to open. This
case demonstrates the occasional need for the law to take account of new ways of doing
business. It also demonstrates that changes in society, and changes in the way that
business is done, often create competing interests.
Under legislation, certain types of drugs could only be sold under a pharmacist’s
supervision. The defendant’s drug store operated on a self-serve basis. Customers were
allowed to wander the aisles, pick up items off the shelves, and proceed to the cashier.
The cashier’s station was within sight of the pharmacist, who supervised all drug sales.
The plaintiff was a national pharmaceutical organization that was opposed to the
proliferation of self-serve drug stores, primarily on the basis that such operations
detrimentally affected the commercial opportunities that were available to its members.
The seemingly simple question was: when is a contract of sale created? The plaintiff
argued that the display of an item on a shelf is an offer and that a customer accepts that
offer by placing the item in a shopping basket. If that was true, then the defendant was in
breach of the legislation because the contract was not created under a pharmacist’s
supervision, but rather in the store’s aisles. The defendant, on the contrary, argued that
the display of an item on a shelf is merely an invitation to treat. The customer makes an
offer to purchase by taking the item to the cashier, who then either accepts or rejects the
offer. If that was true, then the statute was not breached because the sale took place at the
cashier’s station, which was located next to the pharmacist.
The court adopted the defendant’s view and held that the statute had not been breached.
On policy grounds, the court was motivated by a desire to support the proliferation of
self-serve stores, which were much more convenient for customers. And on practical
grounds, the court said if the plaintiff’s view prevailed, such that a contract was created
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as soon as a customer placed an item in a shopping basket, then the customer would later
be prevented from changing his or her mind by returning the item to the shelf. After all,
once a contract is created, it cannot be unilaterally terminated.
Blair v Western Mutual Benefit Association [1972] 4 WWR 284 (BC CA)—note 11
The essential facts are provided in the text accompanying note 11.
R v Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR (3d) 267 (SCC)—
note 16
The defendant wanted a building project completed. It therefore called for bids or tenders
from interested construction companies. That call carried certain stipulations: (i) it
required bids to be accompanied by a $150 000 “deposit” cheque, (ii) it said that all bids
were irrevocable after the close of tenders – ie after the deadline for receiving bids, (iii) it
said that a “deposit” cheque would be forfeited if a bidder withdrew its tender within 60
days after the close of tenders, and (iv) it said that the successful bidder would be
required to create a contract for the actual construction project within 7 days of being
notified that it submitted the winning bid.
The plaintiff submitted a bid and a deposit cheque. A short time later, after tenders had
closed, it realized that it had made a mistake when it calculated the expected costs of
completing the construction project. As a result, its bid was substantially lower than it
should have been. The plaintiff claimed that the defendant therefore could not accept the
erroneous bid. (The plaintiff did not purport to revoke or withdraw its offer, for fear of
forfeiting its deposit.) The defendant refused to disregard the bid and, in fact, later
announced that the plaintiff had submitted the winning bid. When the plaintiff refused to
create a contract for the building project within 7 days, the defendant relied on the terms
of the call for tenders and refused to return the plaintiff’s cheque for $150 000.
The question was whether the plaintiff company was bound by the stipulations and rules
that the defendant set out in its call for tenders. There were at least two possible views.
On the first view, the defendant’s call for bids was merely an invitation to treat. The
plaintiff’s submission of a bid was an offer. The defendant accepted that offer when it
announced that the plaintiff’s bid was the lowest one received. However, if that is correct,
then no contract came into existence until the defendant accepted the plaintiff’s bid. And
if that is true, then following the general rule, the plaintiff should have been entitled to
revoke its offer any time before acceptance. Hence, there would not actually have been
any contract.
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For those reasons, Estey J in the SCC formulated the rules regarding Contract A and
Contract B that are discussed in the text. That approach is not invariably applied. It does,
however, provide a mechanism through which all parties have some assurance that the
bids will be considered fairly and in accordance with the rules announced by the party
that called for tenders.
MJB Enterprises v Defence Construction (1999) 170 DLR (4th) 577 (SCC)—note 16
The defendant issued a call for tenders. The call documents stated that (1) each bidder
must state a single price, and (2) as a result of a privilege clause, the defendant was not
required to accept the lowest price.
The plaintiff submitted the lowest single price bid. The defendant, however, selected
another bid, in which the price was stated in terms of a formula, rather than a single price.
When the plaintiff sued for breach of Contract A, the defendant invoked the privilege
clause and argued that it was not required to accept the lowest bid.
The Supreme Court of Canada held in favour of the plaintiff. It reached that conclusion
on the basis of several propositions. First, just as Contract A may arise expressly or by
implication, so too it is possible for a court to imply certain terms into a Contract A that
does arise.
In this case, the Contact A contained an implied term that only compliant bids would be
accepted. No reasonable business would go the trouble and expense of creating a bid
without an assurance that everyone was playing by the same rules. In this case, that
meant that the defendant could accept only a bid that stated a single price.
The court reconciled that finding with the privilege clause that the defendant expressly
included in its call for tenders. The privilege clause stated that the defendant need not
select the lowest price. The objective purpose of that clause is to allow the defendant to
consider factors beyond a simple price (eg a bidder’s reputation for reliability, a bidder’s
experience). That clause is necessary because the defendant would no want to be locked
into a low bid if it had reasonable grounds to believe that the bidder might not be able to
complete the project at the promised price.
Turning to the facts, the court held that the defendant did breach Contract A by selecting
a non-compliant bid (ie a bid that was not stated as a single price). It further held that the
privilege clause was irrelevant to the dispute because that clause could not transform a
non-compliant bid into a compliant bid.
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replied with its own document. The defendant’s document said that the sale was subject
to its own standard terms. Those standard terms did not include a price escalation clause.
The defendant’s document also contained a tear-away slip that the plaintiff was asked to
sign and return to the defendant. The plaintiff signed and returned the slip. At the same
time, it sent a letter that reiterated its original price of £75 000, but that did not refer to
the escalation clause. The plaintiff later delivered the equipment and then claimed an
additional payment under the price escalation clause. The defendant, in response, said
that that clause was not part of the contract.
The question was whether a contract was completed on the plaintiff’s terms, the
defendant’s terms, or neither. The majority of the Court of Appeal adopted a traditional
approach and held that a contract is created only if one party’s acceptance mirrors the
other party’s offer. On that view, the plaintiff made an offer that contained a price and an
escalation clause. The defendant replied with a counter offer that included a price, but not
an escalation clause. The plaintiff accepted that offer by returning the signed strip and by
referring to the price, but not the escalation clause. The parties were therefore ad idem on
the issue of price.
Lord Denning MR concurred, but on more flexible grounds. He said that the courts have
a strong desire to find a valid contract, especially if an agreement has already been
performed. He also said that the proper approach depends upon all of the circumstances.
In some situations, the party who fires the last shot wins. In other words, the contractual
terms are the last ones that are proposed. In other situations, the party who fires the first
shot wins. That might be true if the subsequent shots contain terms that are unusual or
substantially different. In such circumstances, the subsequent party’s terms do not prevail
unless they are specifically drawn to the initial party’s attention. And finally, it is
sometimes appropriate to formulate the terms on the basis of all of the shots taken
together. And if that fails to produce an answer, the court may be entitled to simply
impose reasonable terms.
Tekdata Interconnection Ltd v Amphenol Ltd [2010] 1 Lloyd’s Rep 357 (CA)—note 19
Rolls-Royce required a certain widget for the manufacture of jet engines. It acquired
those widgets through a supply chain. Rolls-Royce purchased from Goodrich, Goodrich
purchased from the plaintiff, and the plaintiff purchased from the defendant. Although the
various parties could have done so, they did not create an overarching, multi-party
agreement. Instead, the supply chain consisted of a series of individual contracts between
each set of parties. That system worked well enough for many years. It eventually broke
down, however, when the plaintiff became dissatisfied with a widget that it obtained from
the defendant.
Rolls-Royce informed Goodrich that it required another widget. Goodrich contacted the
plaintiff. The plaintiff contacted the defendant by, as usual, sending a “Purchase Order.”
That document stated (1) certain terms, favourable to the plaintiff, regarding delivery date
and quality of goods, and (2) that the terms of the Purchase Order governed the contract.
After receiving the Purchase Order, the defendant responded with its own standard form
document, entitled an “Acknowledgement.” The defendant’s document did not reflect the
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plaintiff’s terms. Instead, it stated that (1) the defendant was entitled to the protection of a
broad exclusion clause, and (2) the defendant’s terms governed the contract.
Some time later, the defendant shipped the widget to the plaintiff. The plaintiff accepted
the goods, but later complained that delivery was late and that the widget was defective.
A dispute then arose between the parties. Neither party argued that there was no contract.
Each instead argued for a contract on its own terms. There was a “battle of the forms.”
The trial judge recognized that the orthodox approach states that there is no contract
unless the parties to agree to the same terms. However, the judge also said that, in
appropriate circumstances, it was possible to adopt Lord Denning’s view in Butler and to
simply formulate the best conclusion after considering all of the facts. The trial judge
then decided, for two primary reasons, that the parties ought to be treated as having
created a contract on the plaintiff’s terms. First, the plaintiff’s terms were preferable
because they required the widget to meet certain high standards. Because the widget was
to be used in a jet engine, public safety favoured the terms that offered protection.
Second, the trial judge was substantially influenced by the fact that the defendant did not
immediately argue that its own terms should prevail. It instead made that argument only
when it served its Statement of Defence upon the plaintiff. The trial judge accordingly
held that the parties could not be treated as having agreed to the defendant’s terms.
The Court of Appeal strongly disagreed. Most importantly, it rejected Lord Denning’s
broad and flexible approach to the creation of a contract in the context of a battle of the
forms. Almost without exception, the orthodox rules of offer and acceptance govern,
even in a battle of the forms. Some other, more flexible approach is possible only if the
parties — by means of their documents and conduct — demonstrate that they are willing
to depart from the orthodox rules. There was no such evidence on the facts.
The Court of Appeal accordingly held that a contract had been created on the defendant’s
terms. The trial judge erred in creating the contract that would have been desirable,
rather than recognizing the contract that the parties actually created. It was irrelevant that
the public would be better protected under the plaintiff’s terms. The parties themselves,
by words and conduct, showed that they were agreed upon the defendant’s terms.
Finally, the Court of Appeal was unimpressed with the fact that the defendant did not
make the technical legal argument (that its own terms prevailed) until its lawyers drafted
the pleadings. Very often, Longmore LJ explained, business people respond to a dispute
by trying to find a business solution. The search for a legal solution arises only if,
business negotiations having failed, lawyers become involved.
Prior to Tekdata, Canadian courts not infrequently relied upon Lord Denning’s analysis
in Butler in order to find a contract. Of course, Butler was not binding precedent. Neither
is Tekdata. It therefore remains open to Canadian judges to follow Lord Denning
notwithstanding the English Court of Appeal’s criticisms of the holistic approach to the
recognition of a consensus ad idem. A Supreme Court of Canada judgment is needed on
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point, either to re-affirm the orthodox approach (along the lines of Tekdata) or to
authoritatively allow recourse to Lord Denning’s looser model.
Rolling v Willann Investments Ltd (1989) 63 DLR (4th) 760 (Ont CA)—note 23
An agreement created in 1974 stated that Willann enjoyed “the first right to meet any
offer to purchase that [Rolling] may receive” on a certain property. It further said that
Willann “shall have 72 hours from the date such offer is delivered to it by [Rolling]
within which to exercise this option by submitting ... an offer on terms identical to those
contained in the first mentioned offer. Failing which this option shall terminate and
[Rolling] may accept such first mentioned offer.”
In 1989, Rolling sent a fax to Willann that contained an offer received form a third party.
More than 100 hours later, Willann submitted an identical offer to Rolling. An issue arose
as to whether Rolling was obliged to sell the property to Willann. Willann admitted that
while its offer was not received within 72 hours, as required by the agreement. It argued,
however, that Rolling had not complied with the terms of the agreement either because he
had delivered the third party’s offer by way of fax — a form of communication that the
parties had not contemplated in 1974.
The Ontario Court of Appeal held that Rolling was entitled to rely on a faxed
communication. Consequently, since Rolling had complied with the option agreement, he
was entitled to insist upon a timely reply by Willann. And since Willann did not respond
within 72 hours, Rolling was not obliged to sell the property to him. Robins JA
explained:
While it is true that the parties to the option agreement could not have anticipated
delivery of a facsimile of the offer by means of a telephone transmission at the
time the agreement was executed, they did not limit or restrict or, indeed, specify
the way in which delivery was to be made for the purposes of their agreement.
The purport of the agreement is that Willann is to be placed in receipt of a copy of
the offer and is to exercise his option within a specified time following receipt.
The manner in which delivery is to be made in order to place Willann in receipt of
the document is of no real importance. What is important is whether and when
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Willann was in fact put in receipt of the offer or, put another way, whether and
when the document was in fact delivered to him.
Nova Scotia v Weymouth Sea Products Ltd (1983) 149 DLR (3d) 637, aff’d 4 DLR (4th)
314 (NS CA)—note 24
Under the Instalment Payment Contracts Act RSNS 1967, c 147, a seller had to be
licenced in order to enter into contracts made “within the province” of Nova Scotia. An
offer for the sale of property in Nova Scotia was sent by courier to an offeree outside of
the province. The offeree sent an acceptance back by way of courier. The question was
whether the contract was made “within the province” and therefore was caught by the
statute. The court said that the postal rule for acceptance applies equally to regular mail
and to letters sent by courier. Consequently, the contract was formed when and where the
offeree sent an acceptance by courier – outside of Nova Scotia. The legislation did not
apply.
Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co (1994) 115 DLR
(4th) 478 (SCC)—note 26
The plaintiff company was owned by Mr and Mrs Fikowski. That company obtained an
insurance policy of Mr Fikowski’s life. The terms of the policy stated that annual renewal
could be achieved by payment to the defendant insurance company’s head office in
Halifax by July 26. An envelope, containing a cheque and a request for renewal, was
placed into a mailbox in a timely manner. Unfortunately, that letter never reached its
destination. The insurance company sent several “late payment due” notices, but because
the Fikowskis did not check their mailbox on a regular basis, they were ignorant of the
problem for many months. When the Fikowskis finally appreciated the circumstances,
they attempted to tender payment, a year late, in order to renew their policy. By that time,
however, Mr Fikowski had been diagnosed with a terminal disease. He died a short time
later. Mrs Fikowski and the plaintiff company then sued the insurer, demanding payment
of a benefit under the policy.
The dispute largely turned on the doctrine of waiver or promissory estoppel. (Mrs
Fikowski unsuccessfully argued that the insurance company was barred from
complaining about the late payment of the premium.) The root of the dispute, however,
turned on the fact that the postal rule did not apply in the circumstances. Although the
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insurance company was willing to receive acceptance by post, it was not willing to bear
the risk of lost acceptances. It therefore displaced the presumptive postal rule by
stipulating that acceptance was effective only if and when it arrived at its head office in
Halifax.
The SCC held in favour of the plaintiff. The court said that there is a presumption in
favour of bilateral contracts, rather than unilateral contracts. It based that decision on
policy grounds. Technically speaking, a unilateral offer can be revoked any time before
the offeree fully accepts. Consequently, while the offeror’s position is protected, the
offeree is vulnerable to being frustrated after partially completing an act of acceptance. In
contrast, a bilateral contract equally protects both parties. Since the contract is created
immediately upon the exchange of promises, neither party can unilaterally withdraw from
the arrangement. On the facts, the court said that the presumption applied and that the
defendant’s offer was for a bilateral contract. Moreover, the plaintiff had accepted that
offer. Although the plaintiff had not expressly said words to that effect, the situation was
“instinct with obligation.” The plaintiff effectively promised to try to guide the defendant
to a claim and the defendant effectively promised to pay a 10 percent interest in any
claims that were found. The defendant breached that contract by refusing to cooperate in
the performance of the agreement.
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that she would be entitled to the house if she met the mortgage payments. The plaintiff
regularly made the payments. However, after the man died, the defendant, his widow,
purported to revoke her husband’s offer and evict the plaintiff. The widow argued that a
unilateral contract is not created until the stipulated act of acceptance has been fully
performed. And since the plaintiff had not yet paid the entire mortgage, she had not yet
fully accepted the deceased’s offer. The court disagreed with that approach. It held that
the plaintiff was not required under the unilateral contract to actually make the payments.
However, it also said that the deceased’s offer could not be revoked while the plaintiff
was in the process of accepting. An offeree of a unilateral contract must allow the offeree
the opportunity to fully perform.
Ayerswood Development Corp v Hydro One Networks Inc (2004) 39 CLR (3d) 288 (Ont
SCJ)—note 30
The defendant announced a program that was designed to conserve energy. It offered to
pay a certain amount of money to contractors who constructed new buildings that
contained certain energy-saving features. The offer was said to expire on 31 March 1993.
As the defendant realized, a contractor would not be in a position to apply for the
program until it had completed its design plans for a building. And as the defendant also
knew, the drafting of such plans is an expensive exercise.
The plaintiff intended to apply to the program and therefore incurred the cost of drafting
building plans that met the defendant’s specifications. Before the plaintiff could actually
file its application, however, the defendant purportedly cancelled the program. The
plaintiff ignored that purported cancellation and filed its application before 31 March
1993. It then demanded payment.
The court held that the defendant had offered a unilateral contract. The defendant argued
that, as offeror, it was entitled to revoke its offer anytime before complete acceptance —
ie anytime before a contractor actually submitted an application. The court rejected that
argument. It held that the offeror of a unilateral offer cannot frustrate an attempt at
acceptance by withdrawing the offer while an offeree was in the process of accepting.
The court did not, however, specifically explain how or why that obligation arose.
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Another random document with
no related content on Scribd:
Le 10. — Oh ! le beau rayon de lune qui vient de tomber sur
l’évangile que je lisais !
Le 28. — J’ai failli avoir un chagrin : mon petit linot était sous la
griffe de la chatte, comme j’entrai dans ma chambre. Je l’ai sauvé en
donnant un grand coup de poing à la chatte, qui a lâché prise.
L’oiseau n’a eu que peur, puis il s’est trouvé si content qu’il s’est mis
à chanter de toutes ses forces comme pour me remercier et
m’assurer que la frayeur ne lui avait pas ôté la voix. Un bouvier qui
passe au chemin de Cordes chante aussi menant sa charrette, mais
un air si insouciant, si mou, que j’aime mieux le gazouillement du
linot. Quand je suis seule ici, je me plais à écouter ce qui remue au
dehors, j’ouvre l’oreille à tout bruit : un chant de poule, les branches
tombant, un bourdonnement de mouche, quoi que ce soit
m’intéresse et me donne à penser. Que de fois je me prends à
considérer, à suivre des yeux de tout petits insectes que j’aperçois
dans les feuillets d’un livre ou sur les briques ou sur la table ! Je ne
sais pas leur nom, mais nous sommes en connaissances comme
des passants qui se considèrent le long du chemin. Nous nous
perdons de vue, puis nous nous rencontrons par hasard, et la
rencontre me fait plaisir ; mais les petites bêtes me fuient, car elles
ont peur de moi, quoique je ne leur aie jamais fait mal. C’est
qu’apparemment je suis bien effrayante pour elles. En serait-il de
même au paradis ? Il n’est pas dit qu’Ève y fit jamais peur à rien. Ce
n’est qu’après le péché que la frayeur s’est mise entre les créatures.
Il faut que j’écrive à Philibert.