In resolving questions surrounding offer, acceptance and consideration, courts will adopt an objective (reasonable person) standard.
Balance the need to enforce promises (reasonable expectations) and the avoidance of surprising parties with unanticipated liabilities (unfair surprise).
General
The recipient of the communication (audience) enjoys the power to bind the offeror to a K and subsequently claim expectation damages if the offer is not complied with.
1. Offer v. Invitation to Treat
a. Products on shelves with prices are only an “invitation to treat”
b. Pharma Society of GB v. Boots Cash Chemists
a. K occurs at the counter when customer accepts terms
Specific Rules
1. Intent to be bound- An Objective Test
There must be a manifestation of an intent to be bound; generally a mere advertisement, enticement or “invitation to treat” (i.e. negotiate) is insufficient. (Smith v. Hughes)
2. An ad may be binding if it is clear and specific (Lefkowitz v. Great
2. Fact that Plf “reasonably” relied on ad may also be a factor
The offer must be sufficiently specific and comprehensive that the terms of the agreement can be identified (the problem of uncertainty).
2. Expiry after Reasonable time frame
An offer ceases to exist if it is rejected and in any event expires after a reasonable time, the length of which will be contextually determined.
2. Revocation before Acceptance
An offer can be revoked anytime before being accepted. However, unless the offer has expired (passage of a reasonable period of time), effective revocation may require notice of revocation.
a. No duty to keep promise of offer open (in absence of consideration)
b.
i. Def. made offer in writing, said offer was open for 48 hours
ii. Def. sold property to someone else before the 48 hours expired
An offer is binding once it is accepted (unequivocally) and thereafter cannot be revoked.
General
Acceptance by word/return promise produces a bilateral contract
Acceptance by performance/action results in a unilateral contract.
Problem in unilateral K – Revocation occurs after performance begun but before completion
Specific Rules
Must be clear manifestation of an intent to be bound.
2. Acceptance of terms “as is” – Mirror Image Rule
Must sufficiently correspond to the offer; otherwise it will be viewed as a counter-offer.
Generally must be communicated to the offeror and must be done before the offer has expired or been revoked.
a. Must be an express communication
1. Felthouse
2. Offeror said if I don’t hear from you then we have K
3. Court said there must be express communication
b. Courts may imply acceptance, especially when there’s a pre-existing relationship
3.
4. Wheeler v. Klaholt
c. This rule ensures proof of acceptance, and intent to be bound
d. Protects the consumer from inertial sales
Communication of Offer and Acceptance
1. Method of communication may be stipulated by offeror (no absolute rule)
2. Acceptance of offer occurs upon receipt of acceptance by offeror
a. Offer is accepted the moment it’s in the mailbox (Adams v. Lindsell)
b. Revocation occurs upon receipt – it’s not necessary for the letter, email, or vmail to be opened
c. Postal Acceptance rule – Offeror takes the risk that acceptance mailed by offeree is lost in mail
Household Fire & Carriage Accident Insurance v. Grant
a. Deemed to be received when it is entered your mailbox.
b. Postal acceptance does not apply to email
c. Once it gets to the mail server you use, then it’s received.
Lefkowitz v. Great
Facts Def published ad: “3 brand new coats for sale, only $1. First come, first served” Def. then wouldn’t sell Plf the coat.
Held 1. Def. made a legal offer with the ad.
2. Based on reasonable understanding of Plf.
3. Unlikely to an unfair surprise for the Def.
Facts Def. was selling property, made an offer in writing saying the offer was open for 48 hours. Before 48 hours expired, the Def sold the property to someone else.
Held In absence of consideration, a promise to keep an offer open is not enforceable.
Facts Plf said “We have a binding K if I don’t here from you”
Held Silence is not acceptance. There must be an express acceptance.
Facts Tug on standby for Irving Oil. Relational K, extended a number of times. K expired, tug still on standby. Then several months later
Held 1. Acceptance is implied because of ongoing nature of K
2.
Held 1. General rule is acceptance occurs when offer is mailed, but parties can specify sufficiency of communication, i.e. when the acceptance is deemed to have been made.
a. Plf cover letter stated “initialing”(METHOD) and (TIMING) “ASAP”
2. Def. initialing the K on Sept 1. was when the acceptance occurred.
Held A binding K is formed by mailing the acceptance, even if offeror has changed his mind by the time acceptance is made
Household Fire & Carriage Accident Insurance v. Grant
Held Established Postal Acceptance Rule – Allocating risk of loss to the offeror
A contract must be certain to be enforceable. Courts will not fill in the blanks.
Certainty
1. Parties – Who is the K with?
2. Property – What is the property the K deals with?
3. Price – What is the amount of the K?
For the courts to fill in the blanks where a K is uncertain would risk the danger of both unfair surprise and upsetting reasonable expectations.
a. Part of K is missing.
b. Hasn’t defined property to be sold
c. Court will normally refuse to enforce the promise
a. An offer that says I will take your butter if good.
i. Contrast with “I will take your eggs
b. Courts will often use the context, practices of the trade to enforce the K
i. e.g. “good butter” may have established meaning in dairy trade
a. General Rule (Walford v. Miles)
i. Court will not enforce agreement to agree
b. Context
i. Common in long term relationships or in preliminary relationships
c. Exceptions
i. If court is just interpreting what parties really meant then they may enforce
ii. Foley v. Classique Motors
1. Part of long-term sale of land was agreement to buy gas “at agreed upon price”
2. Even though some vagueness fact that agreement existed for 3 years w/o a problem means the court can just read in gas at “reasonable price” into K
d. Agreement to negotiate not certain enough to enforce actually coming to a K
i. Courtney v. Fairbairn
4. Good Faith in K negotiation of agreements to agree
a. General Rule
i. CL doctrine says there is no duty to negotiate in good faith
ii. Lower courts in BC bound by Empress, that says there is a duty to negotiate in good faith
b. Policy
i. Parties are in the best place to determine their needs
ii. Empress decision has not been widely picked up, but the dissent has been cited
McKinlay Motors v. Honda Canada
Facts Def had K with Plf to supply cars to Plf dealership. Plf asked Def to upgrade premises. Plf did so at great expense. Def. began withholding cars to drive the Plf out of business.
Held (NFSC) 1. Def. acted in bad faith
2. Implied term in K that parties would act in good faith toward each other
6. Good Faith in formation of Contracts (In bargaining)
a. General Rule
i. No duty to negotiate in good faith
ii.
iii. Implied rule expressly rejected in Walford v. Miles
Facts Agreement in principle, that Def. would sell photo business plus premises to Plf, together with warranty that business would make at least $300K profits in first year. Def agreed not to consider any third parties (i.e. “lock-out” agreement) provided they get letter from Plf’s bank saying loan for purchase has been offered. Def. sold to 3rd party citing staff relations with Plf and thus warranty would fail.
Held 1. No enforceable K, agreement to negotiate is not enforceable
2. Agreements to not negotiate with other parties (lock-out K) may be enforceable sometimes
3. No duty to negotiate in good faith.
Policy 1. Agreements to agree go against adversarial nature of negotiations
Foley v. Classique Motors Ltd.
Facts Plf sold land to Def. and as part of the K, Def. agreed to long-term clause to buy gas from Plf at a price to be decided from time to time. No problem for first 3 years, then Def. backed out of gas deal.
Held 1. There was a K in this case
2. Parties believed or acted as if there was a K for 3 years
3. Def. contention is not honest
4. Given long-term nature “reasonable” price for gas can be read into the K
a. Send parties to arbitration
Policy 1. To find no K would go against reasonable expectations of Plf
2. The Def. could not have been unfairly surprised by the existence of the K
3. Unjust enrichment of Def - land price prob. affected by K for gas (Radford)
Courtney and Fairbairn v. Toliani Bros.
Facts Def. agreed to have Plf build a hotel if Plf would find financing. Plf found financing, but Def. got someone else to build the hotel.
Held 1. No K, just and agreement to agree
a. Fundamental issues left undecided
b. Damages difficult to calculate
2. Only an agreement to negotiate not to actual form K
Policy 1. Even if parties negotiate in good faith they may still not be able to reach an agreement
Critique 1. Damages could be assessed by restitution – finder’s fee for the Plf
2. Unjust enrichment – Def. got the financing for free
Distinguish
From Foley 1. Relational K, gone on for 3 years
2. Dishonest attempt to get out of deal
3. Gas was part of land deal
Empress v. Bank of
Facts Bank of NS renting from Empress. 5 year lease. Renewal lease should be nmutaully agreed upon market price. If parties do not agree on price by end of current lease, then either party may terminate the lease at its option. Bank proposes renewal rent of $3100 to $5400. On day lease to expire, Empress requests 15K up front plus $5400 rent, and lease would be terminable on 9 days notice.
Held Majority
2. Req for mutual agreement carries with it an imply term of good faith for landlord
3. Agreement on rental rate will not be unreasonable withheld
4. There was a lack of good faith on part of landlord
Minority
1. Original lease provided for binding arbitration, this clause was dropped from second lease and replaced by this other clause, this was choice of the parties
2. Privity of K
3. No such thing as req for good faith negotiation
Comments 1. Is the renewal clause void for uncertainty? Is this just an agreement to agree?
2. Case binding on lower BC courts, but not picked up by any other courts
