Contract Law Good Faith
Intention
Intention refers to the time of formation.
• The contract is the contract that was formed at that moment.
• Nothing that happened afterwards is at all relevant.
• Do not discuss intention without acknowledging that it is crystalized at the moment of formation.
• Intention must be judge objectively.
o People intend what we say they intend.
o Ex: Esquimalt: Land means land, no matter what you thought you meant.
o Carlill – the ad means what the public thought it meant.
o The objective view is the view that we impute to the person who utters the words that we call offer.
o Smith v. Hughes p 417
• Passage is quoted everywhere.
• Beware of speaking of meeting of the minds.
• NEVER mention this. Then cannot go wrong.
Intention to affect relations
• Law strongly presumes that if we participate in an arrangment with offer, acceptance and consideration, we mean to affect our legal intention.
• Letters of comfort, government policy announcements (whether the gov was simply announcing a gratuity, or making something that with much processing could be called an offer), contexts which complicate this idea – other than that, not a major issue.
• Family-type – contrary presumption prevails.
o Presumption that they did not intend to affect legal relations. Also family-like relations.
o The land-lady and the boarder.
o Of course the presumption is rebuttable.
o Again, must judge in an objective way.
• Going to lawyer, signing before witnesses, etc., can show objectively, an intention to affect legal relations.
• Technically, offers are only offers if the person uttering it intended it to be an offer.
o It is what a reasonable observer would infer – whether the would surmise that it was intended to be an offer.
o If the words fall short of the unequivocal and detailed character req’d to const. an offer, then the words have no contractual sig.
o May not be right to say they have no legal significance, but have no contractual sig.
o Doesn’t matter what they are called if they have no contractual sig.
• Can be invitations to treat, negotiations, etc. Doesn’t matter, because they are legal terms without contect. Cannot enforce.
• Sufficiently detailed may well mean that it has very few details.
• Just need essential details.
o Sale of goods, for example, price is important.
o Offer does not have to be terribly detailed.
• Courts usually understand ads to be invitations to treat
o Ads are usually by merchants, and therefore have limited stock.
o Cannot be offering to all who might see the ad.
o Since no merch could have enough products to satisfy the public if every memeer who saw the ad “accepted”, courts think it is implausible that the merch advertiser intended to offer.
o That being said, sometimes ads do transcend being an invitation to treat, and are Offers.
• The lawnmore argument from the last test – argueable, the for sale sign could be an offer instead of an invitation to treat. The ordinary idea of being an invitation to treat arguably does not apply to non-merchants with their one-product and sign.
Firm offers
• An offer so phrased as to be open until a set date.
• Irony is that they are not firm.
• “called firm offers just to trick people who haven’t been to law school” – Bell
• they, like any offer, can be revoked at any time, because there is no consideration for the promise to keep the offer open.
• Firm offers are not firm at all.
o Suppose we did want to make an offer firm.
o Can give consideration – buy the option.
o Enter a contract to keep the offer open.
• This is called an option.
• If it is an option about land, then it has to comply with the statutes of Frauds: has to be in writing, signed by the party to be obligated by the agreement (the offerer of the land); the party who is sought to be bound.
Acceptance
• Offerer is the master of the acceptance – can reject the acceptance unless it corresponds quite exactly with the offer.
• Provided the court does infer that the offerer did intend that the offeree do something to accept
• Offere may overlook, however, that acceptance was, for instance, to be made by certified cheque.
• Must correspond to offer.
• In most cases, the when of acceptance is when the offere succeeds in communicating Acceptance to the offerer, unless some other means was specified.
o When the postal rule applies (which is rare), communication happens when the Acceptance is posted (provided there is nothing in the offer negatingthis)
Postal Rule
• Just because fact of post is present, does not mean that the law of the postal rule is present.
• However, jurisprudence tends to say that the postal rule applies when the post was used, and it is a not-unusual way of accepting in the circumstances (and it is not precluded in the contract).
• More novel ways of communication have not been subject to the postal rule of acceptance – the have been equated to inter-personal means of acceptance.
Unilateral offers
• A bilateral offer is one which is so phrased to contemplate promissory acceptance.
o “I accept” is enough to accept it. Does not have to do anything.
• A unilateral offer is so phrased that it calls not for promissory acceptance, but to do something. This something, when done, constitutues both the consideration and acceptance.
o Allegedly called unilateral because it contemplates action by only one side.
o “If you swim across the river, I will give you $1000.”
• Can’t be accepted (strictly speaking) by saying, “I accept”.
• If it says, “You accept by [swimming across the river; finding the lost dog; walking to York; etc.]” then it is unilateral.
o “If you buy our product and use it to these specifications, and still get the flu, then I will pay you $xx.”
o Carlill was a unilateral offer, but didn’t say so as it had not been invented yet.
• Dawson discusses them (and is therefore in the case book), but is not a unilateral offer.
o Why do courts tend to construe offers as bilateral rather than unilateral?
• All offerees are vulnerable to revocation as long as they are mere offerees
• Can end their vulnerability simply by saying, “I accept.”
• These words cost nothing – make one no longer vulnerable as it is already binding.
• By contrast, the offeree of a unilateral offer can do nothing to protect themselves besides completing the task at hand.
• Meaning the person can be 99% of the way to York (or across the river), and the offerer can revoke the offer. The offeree is vulnerable throughout, up until the moment of 100% completion.
• The when of formation usually determines the where of acceptance, which can be important in establishing court jurisdiction.
o Note: The where is not the only basis for judicial jurisdiction.
• It is the one under discussion in Eastern Power
• There are Various bases for court jurisdiction.
Uncertainty
• Even with offer, acceptance, and consideration, may not have enforceable contract.
o Besides no intention…
o May be too uncertain for courts to enforce.
• In general, courts enforce broken contract by translating broken promises into awards of money to the victim.
• If it is too uncertain, we mean that the court cannot do this calculation
• This is not high-theory, but low-practicality. Simply cannot be done.
• Comes up in variety of sub-contexts.
o Silence: A contract may be uncertain because the parties have left things out. Gaps.
• If it is a major term, then it is fatally flawed. L.C.D.H. Audio case.
• Only cure for such a gap is if it is for sale of goods and the gap is over price, the Sale of Goods Act in every province allows the court to set a reasonable price.
• Also, if the two parties have entered into many contracts before, courts may be able to depend on past practice.
• Trade practice: They may be participants in a well-established trade (such as baltic timber trade to England). The courts will infer that they intended to go by standard trade practice.
o These are the 3 exceptions. Other than this, if there is a major gap, the contract is non-enforceable.
• Minor term: If the gap or silence is on a minor term, Versafoods tells us that courts have the jurisdiction to fill in the blanks.
• Courts have to say that they are following the will of the parties here.
• Have to say that the parties would have intended a reasonable solution. Must say for idealogical reasona that everything is as the parties intended. Courts do not make agreements, they enforce them.
• The entirelty of the authorties quoted in Versafoods is American. Not as much jurisprudence in this area in Canada (Common-law Canada)
o Agreements to Agree: Cannot enforce. Do not know what the parties would have agreed.
• DIFFERENCE BETWEEN AGREEMENTS TO AGREE AND SILENCE
• Agreements to Agree, simpliciter, are… bad.
• Bad because cannot translate into an award for money because the promise for performance is unknown.
• On other hand, if want to have certainty for contract today and leave out something important to be filled in tomorrow, can have an agreement to agree + a mechanism or formula to render certain what is otherwise uncertain.
• Foley – mechanism was an arbitrator (to set the price of petrol). Legally sound contract with a point to be determined in the future.
• If it is “from time to time” it is non-enforceable. Must have the mechanism or formula in the agreement.
• Foley – be clear on sentence, “The parties thought they had a contract and acted under it for 3 years.” Do not conclude from this that this is a basis for saying tha tthey therefore had a contract. We do not judge by what the parties thought they intended. Doesn’t matter if they were under a mutual delusion of being under a contract [if they were truly under this delusion, would likely not be in court fighting]. The mere fact of thinking that they had a contract doesn’t mean anything.
o Estoppel could be used here (but was not) (questionable – Bell said he made it up). They do not have a contract under contract theory. But the court will work hard to uphold the contract, as it is evident that one party is trying to “work out” of it. If a judge wants to do something, then 99% of time will find a way to do it.
o Strictly and legally speaking, the fact that the parties thougth that they had an agreement is irrelevant.
• Agreement to negotiate: practical question: how does one translate an agreement to negotiate into an award of money? You can’t. period. If they did agree, we do not know what the parties would have agreed, so cannot calculate the worth of the broken promise.
• Argument goes that if we have an agreement to negotiate, then it is implied that one will negotiate in good faith.
o Very few ppl put these words into a contract, but courts will usually say that if we promise a performance, we promise the performance in good faith.
o Walford v. Miles – focus not just on duty to negotiate, but does it matter than performance of binding promises are implied to be performed IGF?
• Page 508
• Says a duty to negotiate IGF is antithetical to our adversarial system of negotiation (in our liberal economy) “Inherently repugnant”
o Once we have a contract, the law will say that the parties promised to perform in good faith, but this does not translate into negotiating in good faith towards having a contract in the first place.
Empress Towers
• The great question of contract law: Is there a duty to negotiate in good faith?
• The reason we have this case in our course is not just to differentiate mechanisms and formulae, but to also (though we might think it establishes and enforces duty to Negotiate IGF), what it does, strictly speaking, is to penalize a party that does not negotiate IGF
o This does not establish a duty to negotiate IGF…
o Flirts with what looks like an enforceable duty to negotiate IGF
o This is not a straightforward Contracts case.
• Not A suing B for alleging breach of promise and demanding performance (money)
• Empress Towers is the villian seeking the court’s assistance
• Any remedy given by the court that is not a damanges remendy is by def’n an equitable remedy – must come to court w/clean hands.
• SO the court here concludes that the landlord is not worthy to turn out the tenant, because of the way it has misbehaved – could be described as having acted in bad faith.
• This is a negative conclusion – the landlord has not acted in good faith, therefore we won’t help him turn out the tenant.
• Only by udnerstanding the pleading here – it is not a contracts case – it is application for ejection – write of possession.
o The landlord’s failure to act in good faith is why the court gets away with this.
o Really is not a precedent for enforcing the duty – how do we transfer the lack of performance into money still remains. The writ of possession and equity here are key.
Tomorrow:
At 12:30 will have Q&A. Room 2A.