Contract Law Past Consideration
Consideration:
• Number of plausible ways to look at the different types of agreements that the law will enforce
o In common law, we enforce almost none of these
o Consideration: The type of promises that we enforce end up coinciding with what would be looked at if we said we would enforce “serious promises”, etc.
• Requires evidence of an exchange. If an exchange occurs, it ought to be fairly conspicuous.
• Has an elemet of formality.
• Although it is at first glance eccentric and non-intuitive, it does largely yield the same approach as if we had taken a more intuitive approach.
• Analytical vocabulary for consideration as a problem:
o Must approach the problem in a certain way.
• Who is the offerer, who is the offeree?
• Analytical tools involved the vocab of promiser and promisee – not the equivalent of offerer and offeree, in any way shape or form.
• They are incommensurate ideas.
• At the formation of a contract, we can conceptualize the formation of a contract as an exchange of promises.
• If each party is receipt of a promise from the other, then we have two promisers and two promisees
• This is the formation perspective.
• But by the time time has passed and we have entered litigation, only one of the orginally dual promiser/promisee relationships is relevant.
• One promisee sues one promiser. This is the promise that the promisee must show that they gave consideration in exchange for.
• This is the promise that has allegdedly been broken.
• This tells us what the relevant consideration was.
• Must show the court that the relevant consideration was giving.
• In a contracts case, the plaintiff is always the promisee; the defendant is always the promisor.
• The relevant consideration is the one that the promisee must show that he provided to the promisor in exchange for his promise.
o Our legal system only enforces bargains.
o In our legal system, a promise of consideration is as good as consideration – this explains how offer/aceptance can result in a binding contract. The law says that a promise of title (for example), in exchange for money (for example), is equivalent to having made the exchange.
o There is virtually no reason, but the alleged reason is that the promise is as good as consideration, because the alternative fulfilling the promise is to be sued (and have the court impose payment).
• Great conclusion: The relevant consideration is the one that the pl. promisee must show that he/she promised to exchange with the def. promisor in exhange for the defendant’s promise.
• Dalhousie – one cannot look at just anything and decide that it’s consideration. Dal built buildings and hired teachers (in theory) on the basis of this pledge, and yet it was not consideration.
• The point made by the scc is that Dal did not bargain the building of buildings. It received Arthur’s promise, and then built buildings in response. It did not exchange the building of buildings for the promise.
• Cannot be made in reaction to a promise – that is not consideration. “Here’s a plane ticket.” “Wow. Thanks. I’ll give you some money.” This is not consideration. It is a reaction.
o The essence of consideration is that it won’t be such unless it was exhanged in return for the promise.
• P 357: “To hold otherwise would be to hold that a naked, voluntary promise may be converted into a binding legal contract by the subsequent action of the promisee alone, without the consent, express or implied, of the promisor.”
Hamer v. Sidway
• Is a case where one might at first thing that there was not consideration, but yes indeed there was.
• The “assignee” in this case – a right is a species of property. The nephew has sold his $5000 claim to some money-lender (likely for a much lesser value).
• Family promises – not addressed, though this was between family, and at a family gathering where they had no doubt been drinking…
• The facts of the case is not contested.
• What is contested is the existence of consideration on the nephew’s part.
• Uncle’s estate argues that he didn’t receive any benefit, but in actuality the nephew benefitted.
• The law does not recognize “moral consideration” – could not argue that the uncle received the pleasure of seeing his nephew do well.
• It is enough that the nephew gave up his legal rights based on the promise of his uncle. This is enough of a basis to constitute consideration.
o Consideration does not have to be a benefit traded to the promiser – it can be simply a detriment, loss, or responsibility given, suffered, or undertaken by the other (p 258).
o Can shorten the benefit concurred / detriment sustained formulation to simply detriment sustained.
• There is not case where the defendant promisee did not sustain a detriment. All benefit conferred cases are also detriment sustained.
• In typical contracts case, what one gives up with typically benefit the other. However, this is not a universal rule.
• Can take a formula in currie v. Misa and collapse it into “detriment sustained”
o This is broader.
• P 261 is a little more concise. It is, however, useful to take it to the next level.
Eastwood v. Kenyon
• A case of the guardian versus the husband.
• Sarah Eastwood left orphaned. Guardian borrowed money to spend on her upkeep during her infancy.
• At 21, Sarah got married. First promised to compensate her guardian.
• New husband then made the same promise. Does not complete this promise
• Must identify the promise being sued on.
o The relevant consideration is the one that the the guardian bargained to the husband.
o Only thing that the guardian could say is that he took care of Sarah during her infancy.
o Could not have actually been made in consideration of the husband’s promise, as it pre-dated the promise by many years.
o The thing which is consideration was sustained long before the promise being sued on. Was already in the past. Could not have been an exchange or bargain as the law demands. The guardian is remedyless.
For tomorrow: will return to Eastwood v. Kenyon – will do entire next section of outline. – 3 cases..
Contract Law Basics
Consideration
• Promises – the law does not enforce promises per se.
o Promises of gifts are not enforceable.
o The law considers the spirit of altruism rare.
• What criteria should we use to categorize the subset of promises that attract legal enforceability?
o What would be a sensible way to do this?
o The promises which the law should be designed to enforce should be “serious promises”.
• Non-trivial
• Or seriously-intended
o This is approximately the majority approach of the world’s legal systems.
• The majority of the world uses the civil system
• In Qc. law, there is a proposition that goes back to Roman law, that a cause is enforceable (from Latin, causa).
• This is a straightforward approach. “We’ll enforce where there is a good reason.”
o This is intuitive. It is not a technical rule – aligns with the ordinary instinct of ordinary law.
o This is not the approach that we take.
• What criteria should be use to categorize the subset of promises that attract legal enforceability…?
o Could go from the intuitive approach
o The Roman approach used formality.
• If ppl want to know that their arrangement is enforceable, then we could have (in our legal scheme), a way to formally attach something to their promise…
• The act of “attaching” something to the promise could act as a signal that it is meant to be enforceable.
• Ex: ‘A promise in writing could signify that a party meant for it to be enforced.’
• Ex: Signature – could make it so that something would have to be signed to be an enforceable promise [problem with this is that every contract, in order to be enforceable, would require this – even simple transactions between vendor/purchaser]
• “stamps” – issued by gov
• shaking hands, spitting and shaking hands
• In Rome, the parties stood facing one another, and recited to one another the terms of the contract. Stipulatia
• Ex: “I _____, take you _______…”
• We do not work under this system
o Exception: Promises made under seal are enforceable. This is a hold-over of (at least) the middle ages.
• In order to give, must have intention (animus) and transfer.
• (as well as offer, acceptance, and consideration).
o Some things are not susceptible to manual tradition.
• Shares (Choses in action) – how does one give a share?
• Primarily, we no longer use “seals”
• Scenario:
o Person A promises person B a plane ticket to Florida. Person B goes out and makes purchases for the trip, racking up expenses of $150. Person A’s circumstances change, and the offer for the ticked is revoked.
• What if Person B sues Person A for the $150, to put them back into the circumstances where they were (it is obvious that they would lose a suit for the cost of the ticket itself).
• The court, for the most part, does not recognize even reasonable reliance on promises.
o Our legal system does not enforce any promises that are not contained within a contract.
• [American language] The law enforces bargains – something for something – a trade-off.
• In order to approach these cases, must recontextualize
o If the problem in front of you has nothing to do with offer/acceptance (more to do with whether there was consideration [I offer you my car for $1000; I accept]), then this type of analysis will get you nowhere.
o Will need to identify a consideration problem, which will lead to an abandonment of offerer/offeree.
• “I promise to convey title to my car to you if you pay me $1000.” “I promise to pay you $1000 if you convey to me the title to your car.”
• Same sale transaction constructed as an exchange of promises.
• In a contract, both parties are promisers, and both are promisees.
• When we try to analyse whether there was consideration, we need to use the language of promisers/promisees.
• Consideration is what you paid to the other side in exchange for the other side’s promise.
• Can view the formation of a contract as an exchange of promises.
• By the time the parties get to court, one party is suing the other (at least).
• Plaintiff and defendant
• Plaintiff is always suing in his/her capacity as promisee, and the defendant is defending in his/her capacity as promiser
o By the time we get to litigation, only one of the original two-fold promiser/promisee relationships is relevant.
o The one that is relevant is the relation whereby one allegedly promised something to the other, and broke that alleged promise.
o In a contracts case, every defendant is an alleged promise-breaker; every plaintiff is a disappointed (alleged) promisee.
• Mu st understand which of the two promises is broken.
• All contract litigation (besides the odd exception, of course…), it will always be promisee vs. promiser.
• “Why is the plaintiff in a contracts case always suing as promisee?”
• “Why is the defendant in a contracts case always defending in their capacity as promiser?”
Dalhousie College v. Boutilier
• Boutilier does promise Dalhousie $5000.
• Dalhousie, however, does not promise Boutilier anything.
o Yes, they built building, etc., but they did not promise Boutilier that this would be in exhange for this $5000.
o They promised him nothing – it was not a bargain; not something for something; not an exchange.
o Even if these buildings, purchasers, etc., had been made on the strength of his promise, that does not retroactively convert his promise into a contract promise.
• Subscription form: Does Boutilier not say, “In consideration of the subscription of others…”?
o Why is this not consideration?
• His motivation is irrelevant. Motive is not consideration.
• They did not promise to rely on his $5000
o Mere reliance
o Only kind that matters is “bargained-for reliance” – if they had bargained their ability build buildings for his $5000, it might have been consideration.
• The difference is how the parties treated the building of the building.
• Dal did not do it in exachange for his $5000.
• He promised, and they reacted by building the building – this is not consideration.
**Nothing is consideration, unless the parties have handled it as consideration.**
“To hold otherwise would be to hold that a naked, voluntary promise may be converted into a binding legal contract by the subsequent action of the promisee alone without the consent, express or implied, of the promisor.” P 357 para 6.
Contract Law Cases
Agreements to agree cannot be enforced without a mechanism.
Silence (something left out of a contract) is not as bad as an agreement to agree. Blanks can be filled-in in various ways
Walford v. Miles
• Addresses a question – whether an agreement to negotiate is enforceable
• Is there such a thing as an enforceable agreement to negotiate?
• An oral agreement is no less an agreement than a written one.
• This case raises the collateral and no-less interesting question – what if an agreement is an agreement to negotiate in good faith (IGF)?
o Is this distinguishable from an agreement to agree?
• Express agreement to negotiate, but the pl says that there was an implicit agreement to negotiate IGF.
o Good faith comes up in two contexts:
• 1) Performance of an already-existing contract – law will normally say that the business efficacy test, or the bystander test will lead to the conclusion that the parties did impliedly promise one another to fulfill duties of a contract IGF.
• 2) Negotiation in good faith towards having a contract in the first place – the law balks at this. Says that there is no source of this legal duty
• In law, duties arise from something – legislation, agreements
• Cannot locate the origin of a duty to negotiate in good faith.
• However, what if someone agrees to negotiate IGF?
• The law does not hold us to any promise to anyone unless that promise is contained within a contract (contract - something the law is prepared to recognize).
• What is the origin of a duty to negotiate in good faith?
o The House of Lords declines to impose such a duty
• P 508 – an agreement to negotiate is no more enforceable than an agreement to agree – too uncertain.
• Doesn’t help to add an implied promise to negotiate IGF.
• Cannot translate a promise into an award of money, because do not know what they would have agreed, had they agreed.
• Contract law presumes that ppl are not altruistic.
• Presumes that ppl act as egoists – that we are selfish. Dog-eat-dog, survival-of-the-fittest realm.
• Presumes that the realm of contracts and the economy is one of warfare. All’s fair (except lying).
• P 507 (bottom) – American Jurisprudence tries hard to find an enforceable duty to negotiate in good faith. Does not sway Lord Ackner.
o Best endeavors – the law does recognize an obligation (when promised) to use best endeavors.
• “I want to buy your land to build my shopping mall, but if I can’t get your land re-zoned, then I do not want to buy your land.” The purchaser will typically enter into an agreement. The vendor will promise the potential buying that it will use its best endeavors to carry out an application to re-zone the land. Then, if the vendor of the land does not use best endeavors to procure rezoning
• Courts, though will not judge whether someone has acted IGF, does involve itself in whether someone has used best endeavors – this is likely because this involves actual actions instead of intentions.
• This sometimes looks like IGF, but is in fact distinguishable.
• The parties have a contract, which calls on one of them to do something using best endeavors.
• P 507 para 2 – “Apart from the absence of any term as to the duration of the collateral agreement, it contained no provision for the respondents to determine the negotiations, albeit that such a provision was essential.”
o Often law preserves the original meaning of an English word, which in general parlance has changed its meaning. This can be confusing.
o “Several” – means in general parlance that there are 3 or more
• In law, it retains its original meaning of individual – “Several states of the United States” means the individual states.
o In this paragraph, “Determine” is used in this way. Here, it means to terminate.
Empress Towers Ltd. v. Bank of Nova Scotia
• Commercial lease, with renewal clause
o Renewal clause is common for commercial leases, for stability of presence
o Leases do, however, want to re-negotiate periodically, to adjust rent for inflation, rising property values, etc.
o How to balance stability with this idea.
o In this lease, allowed to do this every five years.
• Whoever framed this final renewal left out a saving grace of the first renewal – the mechanism to determine the negotiation – an arbitrator.
• If the words “as mutually agreed between the Landlord and the Tenant” were not in the agreement, the preceding words could be used as a mechanism to determine fair rent. Could have called experts – likely realtors – to determine what the fair rent was in that neighborhood.
• But, someone thought it would “sound nicer” to mention an agreement between the parties. This was fatal. Takes away all objectivity. Parties do not typically agree straight-off.
• Looks like an agreement to agree…
o Is this in fact what the judges are saying?
o Look at the first sentence of the case.
o Distinguishable from Walford v. Miles.
o An ordinary remedy at the end of a civil case is a legal remedy – money; damages
• Here, Empress Towers seeking a writ of possession (a writ issued to recover the possession of land - Black’s)
• Equitable remedy
• It is discretionary – no one has a right to an equitable remedy – one has a claim. Equity is not in the realm of rights.
• Courts will deny an equitable remedy if one has misconducted oneself.
• Must go to court with clean hands
• Here, the landlord ultimately cannot have the writ of possession because it has not bargained towards the renewal terms IGF, so not with clean hands.
• Exercises their discretion in denying the writ of possession.
• Saying that the landlord failed to negotiate in good faith is not the same as saying that they had a duty to do so.
Canada Square Corp. Ltd.v. Versafood Services Ltd.
• Here the problem is mostly that of things left out of a contract.
• Interesting from the p.o.v. of a potential draftsperson.
o A lawyer’s primary role is not to solve problems, but to prevent them.
• Certain parts of the desired contract here were too uncertain to determine at that point.
o The answer is to put in a formula to render the uncertain aspects certain.
o If a formula is incongruous with the factors left to be determined, then an arbitration clause effectively does the the same thing.
• Significant things left out of this agreement.
o Did not specify what area was meant to be leased
o When the lease was to commence
o When rent due
• Versafoods tried to use these as an excuse to get out of the contract. Said the contract was too uncertain.
o The real issue is not a legal issue.
• When judge turns to a US authority (in contracts) one knows that the judge is looking for a slightly unorthodox precedent which will allow the judge to do something that our more conservative Canadian jurisprudence does not allow.
o Says that the U.S. case law distinguishes between the primary issues of a contract, and subsidiary issues.
o Says that while the parties have to have agreed up on the fundamental terms (which courts cannot fill in) a lesser issue on which there is silence can (with some hesitation) be filled in by courts.
• Courts can infer that the parties intended a reasonable term if it is a subsidiary term.
• Normally, at this point, the court stops and tells the parties they have to agree on something, which the court then endorses.
o In paragraph 4, the California court refers to these ‘blanks’ as “minor”
*The winners in these cases are never fully compensated – the costs that are paid to the lawyers are never fully reimbursed. This is likely an discouragement of litigation.
L.C.D.H. Audio Visual Ltd. v. I.S.T.S. Verbatim Ltd.
o The would-be subcontractor sued and lost.
o Again refers to the business world as Darwinian and dog-eat-dog
For next day, read down to end of first section of new syllabus.
Consideration section.
Contract Law Frustration
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.
Contract Law Entitlement
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;
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