Contract Law

Uncertainty:

•    When we say a contract is uncertain, we mean that there is not enough specificity for a judge to nail down anything to enforce.
•    True that judges do have rules that can be applied to find certainty.
•    Judges make difficult decisions.  Though judges will try hard to find a determination to a contract.
•    There is a point at which the shell of an agreement is so lacking in detail that it is impossible to enforce.

The Agreement to Agree
•    Nothing more than an agreement today that tomorrow we shall agree on something.
•    Judge cannot say what the parties would have agreed had they agreed.
•    It only has the appearance of a contract.
•    Agreements to Agree Simpliciter are bad – naked agreement.  Unenforceable.
•    Not bad if the parties have agreed on a formula whereby the judge can render certain that which is otherwise uncertain, or a mechanism (such as a third party, typically an arbitrator).
•    Arbitration is consensual dispute resolution.
o    Parties have agreed to channel dispute out of court system and into arbitration.
o    2 broad types of Arbitration:  Labour arbitration – usually statutorily provided and imposed by labour regimes.  Doesn’t have one of the characteristics of arbitration – privacy?
•    Non-labour goes under generic term – Commercial arbitration
o    Must remember that an arbitrator is as much bound by the prevailing law as a judge is.
•    How is an arbitrator’s decision enforced?
o    Exactly the same way as a judge’s.
o    “Judgment” is a document which calculates payment, interest, etc.
o    Plaintiff’s lawyer takes it to the Sheriff.  Can seize the property of the defendant to raise the funds for judgments.
o    Arbitration board enforced in same way.  Gives an “award” which looks like a judgement of the court – can again be registered with the Sheriff.
•    Usually refer to the mechanism as an arbitrator.
o    Technically, the arbitrator resolves a legal issue
o    If it is not a legal issue, technically not arbitration
o    Referees and umpires, for example, are different names for someone doing the same thing in a non-legal setting.
•    Agreement to Agree + Mechanism, renders certain what would otherwise be unenforceable.

Foley v. Classique Coaches
o    P 495.  Just because the parties think they have a contract doesn’t mean that they do.  The court decides whether it was and what they intended.
o    “And they worked under it for 3 years…”  Neither here nor there as to whether they had a contract.
o    This case shows that judges will work hard to find an agreement – do not like to disappoint the reasonable expectations of parites.  Do not like to see someone have it “both ways” – have their cake and eat it too.  In this case, would not want the company to get the land and not have to buy their petrol from Foley.

P 497
o    Helpful statement:
o    Notes 7 – diff between relational contract and discreet contract
o    Discrete:  One time deal.  A buy and sell contract, for instance.
o    Relational contract – can last for years, or is a contract in a series of contracts that combine to last for year (ex: a retailer who does all their buying from one wholesaler).
o    Where there is a relational contract courts can more readily find certainty than in a discrete contract
o    discrete |disˈkrēt| |dəˌskrit| |dɪˌskriːt| adjective:  individually separate and distinct

Uncertainty
o    Agreement to agree = bad
o    A2A + Mechanism = good

Silence
o    Better than an Agreement to Agree
o    Courts sometimes will cure gaps like this.
o    1)  If it falls under Sale of Goods Act, for instance.
o    Price, and time of delivery
o    If one has a contract for the sale of goods (e.g.:  contractual rights – the right to buy a car do not apply), and terms are left out (price/date of delivery), the sale of goods act in each province says that the judge can fill in that gap.
o    2)  If the silence is a relatively minor one, judges can fill in the gap, on the theory that they are doing what the parties intended when they formed the contract.
o    3)  If the parties have had a past practice, the court may fill in what might otherwise be a fatal gap, on the basis of past practice.
o    4)  Trade Practice:  If both parties are members of a well-recognized trade, then their (gapped) contract may be filled in based on trade practice.
o    Even though these two parties might never have dealt with one another before, they are assumed to have intended to follow normal trade practice.
o    Mainly remember the first three, in regards to when Silence is not fatal.

“In Good Faith” (IGF)
o    An agreement to negotiate i.g.f.
o    Is this enforceable, or too uncertain?
o    Addressed in Courtney and Fairbairn Ltd V. Tolaini Brothers (Hotels) Ltd.

Courtney and Fairbairn Ltd v. Tolaini Brothers (Hotels) Ltd.
o    Court ruled that despite the “formula”, the word “negotiate” was fatal, rendering the agreement an agreement to agree.
o    If it must be negotiated, then it is not objectively ascertainable.
o    Lord Denning’s judgement (most famous judge of 20th-century) says that it is an agreement to negotiate, which is likened to an agreement to agree.  Not good for practical reasons – how to know what would have been the outcome of the negotiations.
o    Applies general principle that when there is a fundamental matter left undecided and to be the subject of negotiation, there is no contract.
o    Lord Diplock (assenting): points out the area of “dictum” – not part of ratio decidendi.  Says that we can ignore the part of Lord Wright’s part of Hillas v. Argos as it is obiter (dicta).

Walford v. Miles
o    Now dealing with House of Lords – 5 judges present
o    Sueing for the difference between what they would have paid, and what it was actually worth:  £3-million - £2-million.
o    May be something that looks like a contract, but says within it (subject to contract) that it is not a contract. Ie: ‘We do not intend this to be a legal contract / change our legal relationship.’
o    Look at a telephone exchange March 17 – that they allege itself was a contract to continue negotiating until the sale was complete – IGF.
o    It is this contract (the lock-out agreement) that they allege was violated.  Cannot sue on the principle contract, because it is “subject to contract”.
o    Ap’s allege that it was a term of the lock-out necessary to give business efficacy, that as long as the would-be vendors continued to try to sell the business, they would continue to negotiate IGF with the would-be purchasers.
o    Sue on the basis of a contract which they allege was incidental to the contract of purchase/sale.  Was a telephone conversation, so not very exact.
o    Say there was an implied term that they would continue to negotiate IGF
o    IMPLIED terms.
•    Aside:  Contracts have some implied terms.  Usually irrelevant to a dispute, but occasionally instrumental.
•    Some parts of agreements are usually left to implication.
•    There comes a point where the things not made explicit are so obvious that the parties do not bother to spell them out.
•    Ex:  Would “St. John’s” in a contract mean “St. John’s, NL”, or “St. John’s, Caracas”?  It is likely very obvious based on the context.
•    Even in a very elaborate contract, some terms are implicit.  In the case of a non-elaborate  contract, there will be many implicit terms.  Have to establish the implied terms – parties must agree to it.
•    When trying to establish the implied terms (remember the taxi example) must convince that they were clear implications – ex:  The taxi taking the shortest route, and not going to the airport via Woodstock.
•    2 tests:  1)  Business efficacy test:  [Also noted in Dawson – p 448.] In order to give business efficacy to an agreement (make practical sense of), it is necessary to infer some term in the contract, then the court can say that it was intended.  If without the term it does not make business sense, then it can be said that the parties intended it.  The court verbalizes that which they say the parties intended.    2)  Officious  Bystander [noted in Empress towers p. 502]  If a bystander spoke to the parties just after a contract was agreed upon, and asked what an implied term meant, then they would be likely to receive a certain answer (ex: “of course we meant St. John’s, NL).
•    To qualify under these tests, a term cannot be something that one of the parties would obviously have rejected (e.g.: would make business sense, but would have been rejected by one party), then cannot be imposed.
o    The lawyer here argues the business efficacy test – that IGF was implied by both parties.
o    Argue that so long as the would-be vendors (respondents) continued to desire to sell the business and the premises, the respondents would continue to negotiate in good faith with the appellants (would-be purchasers)
•    Aside: “Good faith” – arises in contract law in two contexts:  “good faith” in performance of an already-existing contract, and “good faith” in forming a new contract.
•    In performance – the law does infer that the parties have promised one another to perform their duties in good faith.  Rarely will parties say that they will do something IGF, but it is here a standard implied term (after a contract is formed).
•    In negotiation – in general, courts have said that there is not duty to negotiate in good faith.  One reason is that in contract-law, the law does not enforce promises (only promises inside contracts).  There is only one source – the will of the parties.  How then can one say that there is a legally enforceable duty to negotiate IGF?  So whence would this duty spring?  This is an insurmountable hurdle.

For next day:  Empress, walford and miles, and may finish this first page of syllabus
Come with briefs, as usual.

Assignment #1
There are some agreements that seem to have the outwards signals of a contract – offer, etc.  There are some agreements to look like contracts, but courts do not enforce.
For example, “I’ll make supper tonight if you make supper tomorrow night.”  There we have offer, acceptance and consideration.  However, if the person did not make supper the second night, and was sued, the court would likely find in favour of the defendant – not because either offer, acceptance of consideration were missing, but the court would be likely to say that the arrangement was not meant to be binding legally.  This is based mostly on triviality.
This means that the parties did not intend for it to be a legal compact.  Normally, this is no defence.  It is an absurd proposition in a business or commercial context.
Where it typically comes up is in “family arrangements”.
This is where our assignment #1 comes up.
Should these agreements be legally binding?  One had to research, not the law, but one’s mind as to what human factors are relevant in such a situation.
Ultimately, it is about the Offerer.  Did the Offerer intend for the arrangement to be legally binding?
Editors of case book bring to attention two of leading cases.  Be careful when using antiquated cases as a source for modern law.  May also look at some of the books on reserve.  Ultimately not a research essay.

Letter of comfort
•    A letter from a bank or a parent company, designed to ‘comfort’ another party (like a landlord or financial institution).  They are not promises.
•    If something went wrong, the issuer of the letter would argue that they did not have legal effect.

Government program
•    Might see this argument in a non-family arrangement also in a government program setting.
•    For instance, there might be a student employment program that specified in the ad certain criteria for eligibility.
o    If too many students applied, might be sued, construing the ad as an Offer.
•    The court would have to decide whether a reasonable reader would have understood it to be an offer.  Did the government intend this ad to affect its legal relationship with the reader?

Indefiniteness
•    One of the characteristics of an Offer is that it must be sufficiently detailed that, if accepted, the court must be able to enforce it.
•    This means that the contract must have sufficient detail to be enforced by the courts.
•    By getting into a taxi and giving a destination, to which the only response is to put the car in drive, one forms an enforceable contract.  This is all implicit.
•    Uncertainty does not mean that there weren’t enough words exchanged, but that words + context ≠ enforceable.
•    “I offer to sell you my car.”  “I accept.”  No good.  Price missing.  Impossible to enforce.

•    How does a court enforce a transaction?
o    What if one received, for instance, money for a car, but didn’t provide the car?
o    How does the court, in a subsequent suit, enforce this.
o    Judges for the plaintiff, but then what?
o    The court gives to the victorious plaintiff not the thing being fought over, but the value of it.  Translates the issue into an award of money.
o    This works great for things that have a market value, like a new car, but not for things that don’t – like broken legs.

•    Indefiniteness – Courts cannot enforce a contract against a defendant unless there is enough detail present to translate a broken ‘agreement’ into a monetary value.
•    Court does not demand that it have every single detail – can import reasonable terms.  Take the view that they can’t patch up glaring holes in the contract.
•    Notes on indefiniteness (488…).
o    Sometimes, parties deliberately write contracts that are indefinite on some point.  Consider that the point isn’t a critical one.  Parties usually contemplate only the happy performance of a contract.
o    Lawyers are often the ones who have to remind their clients to include clauses “in case something goes wrong.”
o    These points are hard to agree on.
o    Difficulty lies in the fact that these points could be the sticking point in forming a contract.  This is why these are often left out…
o    Takes a risk in assuming that nothing will go wrong – most ppl do, however, keep their promises.  This is what these parties count on.  Dodgy.

•    Another situation where parties often leave something out of a contract:
o    Suppose two parties want to enter into an agreement.
o    Suppose one wants to build a hydro-electric damn
o    This party might not want to spend the money to build without a guaranteed market – may form an agreement with a market that will run many years in the future.
o    The contract is about the purchase and sale of electricity.
•    How do we know what the price of electricity will be in the future??
o    How does one construct a contract that in binding today, but leaves blank a critical term?  (The price term)
o    Such contracts are fairly common.  Long-term procurement contracts with suppliers.
•    Could include a clause to re-negotiate at set terms in the future
•    Could include a way to change the prices to fair market value at set intervals.
o    Option 1 would likely lead to a non-enforceable contract.  Option 2 would likely be enforceable.
o    Enforceability of a promise is sticky.  Can negotiate in good faith, but not agree.
o    How does one know what agreement parties would have reached?  One cannot.  Therefore, cannot translate a decision into dollars.
o    Courts have taken the obvious route, and have been inhospitable to the idea of working in good faith.
o    Whereas if there is some sort of formula, such as to be applied to annually recalculate the fair price of, for instance, electricity.
o    Labour contracts often work this way: “Consumer price index, plus 1%.”

Foley v. Classique Coaches, Ltd.
•    Basically a land purchase agreement, with a tacked-on supplementary agreement.
•    Says that the bus company must buy all petrol from the gas station of Foley, in return for selling them the gas.
•    Stops buying gas from Foley – Foley sues.  Must prove that there was a contract and that it was broken.
•    Price was left out of the contract.  1.  The vendor shall sell to the company… petrol… at a price to be agreed by the parties in writing and from time to time.
•    Those words are often fatal – an agreement to agree.  Unenforceable.
•    How does the court know what the parties would have agreed had they agreed?  Cannot calculate the loss.
•    Agreements to agree simpliciter are unenforceable.  This is an important distinction.
•    A formula to calculate what they have not agreed upon, for instance, is enforceable.
•    Agreement to agree + Mechanism is enforceable.
•    Here, it is clause 8 – the arbitration clause.
•    The arbitrator is the person that the parties have chosen, so is not imposing anything on the parties.  They are agreed by the parties to be suitable to do this.
•    Sale of Goods Act has a provision for where the court may step in, but this is an exception.  Courts do not want to do this.  This exception is statute-authorized.  Note 4&5 on page 505.
•    In order for this to apply, the contract must be a silent contract.
•    Without the arbitration clause in clause 8, one could say that it involves the sale of petrol, which places it under the jurisdiction of Sale of Goods Act.  In this situation, it does not save it, because it applies only when the parties are silent about price – in this clause, on the contrary, there is an agreement to agree.
•    Repeat:  Sale of Goods Act applies only only only where the parties have been silent on the point of price (and typically only to one-off transactions).
•    Note 1:  “The pressure to enforce will be a function of the extent to which one party has relied on the agreement, the degree to which the parties are committed…”
o    If the contract was defective at the moment of creation, then it is defective, and nothing thereafter will redeem it.
o    So this note is somewhat inaccurate.
o    However, the reality is that if parties have worked successfully under a contract for some time (as in Foley), then it is relevant to the question of whether this was a workable, enforceable contract.  Makes the argument less plausible, but not impossible.
o    Judges tend to view the fact that ppl have worked successfully under a contract somewhat pragmatically.  Theoretically, if a contract was flawed at conception, then it is flawed inherently and irredeemably.

P 496 – importance of arbitrators
•    Arbitrators are often included in standard-form contracts.  Many insurance companies now include them in their contracts as standard.
o    This is often to keep out of the public eye events that would be seen as unfavorable, and to avoid the expense of lengthy court battles.
•    Parties can then later agree to skip arbitration.  Sometimes there are clauses to set up an “arbitration court of appeal” in case one party is unhappy with an arbitration.
•    Sometimes people involved in arbitration might feel somewhat under-valued law.
o    However, arbitrators are just as bound by the law as judges are.  They use the same law.
o    They write a legal decision.  They must give the decision based on the law.
o    Should not be second-class justice.

Next day:  Walford v. Miles; Empress Towers v. Bank of NS;