Contract Law

Acceptance

Contrast between the ordinary rule of acceptance (that acceptance is acceptance when the acceptance is communicated to the offerer – deals with time, not place), and the Postal Rule of Acceptance (Acceptance occurs when the acceptance is mailed).

When does the Postal Rule of Acceptance apply?  Obviously enough, when the post is involved.  Just because the post has been used, however, does not mean that it does apply.  The theoretical rule is that it applies when the offerer intended that the offeree’s acceptance would have the benefit of this rule of acceptance.

However, when will the court deem that the offerer has deemed this acceptable?  If the offerer made the offer by post (this makes it implicit).  Not all responses by post attach this rule.  Secondly, the courts have decided that the postal rule of acceptance will attach to an acceptance if use of the post in that context would not be unusual.

30 years ago, much contracting was done by post.  Somewhat less true today.

If the offeree was not intended to have the benefit of the postal rule of acceptance, then they simply do not have it.

Schiller v. Fisher. P 423.
•    Negotiating a land purchase.
•    Going back and forth, so the role of offerer and offeree changes.
•    Kingsmont makes final offer, by letter.
•    This offer expired on Sept 1.
•    P 424 – actual agreement with expiration date.  This is an express expiration (as opposed to implicit).
•    Covering letter said, “return one copy of the Agreement to us as soon as possible.”
•    In this case, what does the word “accepted” mean in “This offer is to be accepted on or before September 1, 1976”
•    Normally, the fact of the assent would needs be communicated to the offerer by this date.
•    Nu-towne signed on Sept 1, mailed Sept 3, rec’d Sept 8.
•    Under any of the normal rules of Acceptance, it was too late…
•    The counter-argument was that the words in the cover letter expressed the offerer’s view that an acceptable acceptance was different in this case.
•    The argument went that the covering letter, stating “as soon as possible” altered the “normal” rules of acceptance.
•    This also does not fall under the Postal Rule of Acceptance – the covering letter overrules both.
•    The trial judgement was in favour of Nu-towne.  Court of Appeal was in favour of Kingsmont (offerer).  SCC found in favour of Nu-towne.
•    Basically, the would-be purchasers, Kingsmont, obviously wants out of the contract.  We don’t know why – perhaps a better offer, who knows¿  They are using this legal pretext to try to get out.  A legal nitpick.

The rules of acceptance are about the “when” of acceptance.
Under the general rule, it is not acceptance until it is communicated.  Under the postal rule, it is when it is posted, whether the Acceptance actually arrives or not.

The When of acceptance also determines the “Where of Acceptance”.
When people form contracts inter-jurisdictionally (as in Canada, where we have 12+ jurisdictions – Contract law is the responsibility of provinces), it follows that sometimes the “Where” is very important – potential law suits depend on the where.
Not just relevant between different countries – also relevant, say, between NB and NS.
This is relevant because if one of the parties decides to sue the other, the plaintiff will typically decide to sue in his or her own home jurisdiction.
Courts have to decide whether they have jurisdiction over disputes.  In the Rules of Court of any jurisdiction, there are rules to guide judges in determining whether to accept jurisdiction over cases.  One of the rules is whether the contract was formed in the jurisdcition.
P427 – Ontario rules.

Cannot ascertain where a contract is made without first determining when it was made.  This often hinges on the rules of acceptance.

P427 - EASTERN POWER LTD. v. AZIENDA COMMUNALE ENERGIA AND AMBIENTE

A cooperation agreement assented to between parties.
Is a cooperation agreement an enforceable agreement at all?  This will be examined next class.
EP looking for loss of profits on a contract that was never carried out.
If Azienda had actually appeared in the courts in Ontario, it might have changed the case.  Did eventually, and argued to have the case set aside on the grounds that the courts there did not have jurisdiction over them in Italy.
The determining factor was whether the contract was formed in Italy or Canada (Ontario).
The medium is important here – acceptance was sent my facsimile.  Does the postal rule apply?
Is fax more analogous to personal communication or postal communication?
The court judged that it was more analogous to personal communication…
This hinges again on the presumtion that the offerer has not specified what constitutes Acceptance.  The ordinary rule of acceptance applied here.  This was in part formed on the basis that a fax is instant.
This case is about the choice of forum – which court has jurisdiction.
In Canadian jurisdiction, for instance, in a case between NB and AB, a court in NB may use NB procedural law, but AB substantive law.  Forum clauses can effect this.
There is a question of whose substantive law will be used.

There is a subtext here.  Considering forum non conveniens grounds here.  Takes into account whether a judge in Ontario would have to use Italian law, and how difficult that would be.

Must take into account wehther it is a convenient or not convenient venue for the trial.  The parties did not appear to be accustomed to International Trading.  They did not have a choice of law clause, nor a choice of forum clause.

Sometimes courts will overrule these clauses if it is believed that one party is using its dominance to subvert the other.  This could have come up in the Rudder case.

Choice of forum versus Choice of Law.  Distinguish.

Postal rule does not apply to couriers…  The Ordinary rule of acceptance applied to phone, fax, emails, and couriers.  It is a tightly confined rule.

Rudder v. Microsoft Corp.

Plaintiffs saying that one particular clause (choice of forum clause) should not be binding.

Want to sue MS in Ontario, because it is cheaper in Ontario (and perhaps more sympathetic).  Ontario, since this time, has likely tightened up their class-action laws.

Ask the judge to strike out this part of the Agreement.  Argue that they did not give assent to this clause though they clicked ‘I Accept’.

Judge disagrees.  The pl says that one should liken everything not currently on the screen to fine print.  Courts approach fine print in a rather hostile way.  Judge says that it literally is not fine print (all the same text).

This is a more straightforward argument – ‘I didn’t assent.  I didn’t assent because I didn’t know about it.  I didn’t know about it because it was “fine print”.’

If the parties have chosen their forum, then it doesn’t matter about rules of acceptance regarding jurisdictions.  The contract tells you what will be the forum.

For next day, look at Electronic Transactions Act of NB.  We will examine s16, but read it all.
Will look as far as Dawson.  This examines one issue in Carlill.  Read notes on 445-446.    We might also look at the uncertainty jurisprudence.  Read opening notes of next section of syllabus.

Foakes v. Beer (missed last class – interviews)
•    Why doesn’t the ruling in this case come under pre-existing duty?
•    Why do we need a separate rationale?
o    We do not need the rule from Foakes v. Beer – equally analysable under pre-existing duty
o    Separate island of jurisprudence all to itself, very similar to pre-existing duty rule
o    Could be under Stilk v. Meryk
•    Is is a subset of a preexisting duty, but we treat it separately for historical reasons.

•    Why doesn’t the hypothetical situation whereby one promises to write off a $100 debt in exhange for $50 fall under the rule that we saw earlier (stilk v. merit)
o    S & M was a legal dispute
o    The answer is that the s & m type scenario was about a compromising legal dispute
o    Whereas, in our hypothetical situation, there is no legal dispute.  One is not claiming that one does not owe the money.  One is simply admitting that one cannot pay it.

Given the similarity between the Foakes v. Beer and Stott v. Merit Investment Corporation, would the way around exhibited in williams v. roffey brothers be gotten around the same was as in Stott v. Merit?
o    Williams v. Roffy brother scenario takes some of the sting out
o    Why is it not equally applicable to the Foakes v. beer scenario?
•    It would be.
•    The English courts have addressed this.  They have said that one cannot use a Williams approach to defang the approach of Foakes.
•    This is because Foakes is a decision of the house of lords, and it would take a decision of that same house to overturn it.
•    Further, the argument goes that if Williams got one out from under Foakes, there would be nothing left to Foakes.
•    Whereas, in Williams, all three judges said they were not overturning Stilk v. Merit.
•    Why won’t a Williams argument apply?  (Consideration can be found in practical benefit…)
o    The answer is because the courts have said that it won’t.
•    Williams v. Roffy Brothers says that a prac. benefit can be consideration
o    applies only if the parties already have a contract
o    though limited in this way, nevertheless, is a precedent of great interest.
o    The natural question is, “what can Canada do?  Will they follow?”
•    If Gilbert Steel were decided today, would it go another way?
•    Under Quicklaw, search “Roffey” and see what the cndn courts do when they cite Williams v. Roffey Brothers.
•    ***Look and see whether it is being followed in Canada.  This may be important for midterm.
•    Will it stand as a great precedent of our time, or will it be forgotten?
•    P. 309, para 1. – “The case not being one of a composition with a common debtor, agreed to, inter se, by several creditors. “
o    If the first creditor who gets judgment against a credit gets 100%, then the fifth creditor (for instance) may get nothing as there is nothing left.
o    Sometimes, creditors will agree amongst themselves that none of them will actually execute a judgment against the debtor.  They will take the entire assets of the debtor and divide them up.
o    Earl of Selborne says that this arrangment is binding, but cites it in a way that it would seem to be an exception to the Foakes v. Beer way, but does not mean it in this way.  In fact means that there is consideration in this arrangment.
•    This agreement between creditors is called a composition.
o    Note on page 310 para 3 – there is a point that the “chequeness” is not consideration unless it is a bargained-for chequeness.
•    Nothing is consideration unless it is treated as consideration – unless it is bargained for.  Read this over to clarify.
o    P 312 – contracts with a 3rd party.

Criteria to select promises worthy of legal enforcement
•    Promises given in return for something which the law is prepared to regard as consideration.
o    This is narrower than what ordinary people might view as consideration.
•    Promises under seal (will look at later).

•    Does our legal tradition enforce promises merely because the promisee has relied on them?
o    This is against theory, but may exist practically.
•    We now come to a series of cases where this appears to be the scenario.
o    What is going on will look like promise enforcement, but the question is whether it is really promise enforcement, or protecting resonable reliance.
•    Is it harm prevention as opposed to promise enforcement?
•    With promise enforcement, all the attention is on the promisor.
•    With harm prevention, all the attention is on the promisee.
o    The case that discovered the possibility that there might be something that strongly resembled considerationless promise enforcement was Central London Property Trust Ltd v High Trees House ltd.
•    Lord Denning, prior to becoming a Lord.  He is a Justice here – trial judge.
•    One of the few trial cases in our text.
•    Friendly parties – just want an answer, which they will be willing to accept.
•    In this case, one of the two parties (plaintiff) have become insolvent, and is in the hands of a receiver.  The receiver has a fiduciary duty to try to take in as much money as legally possible.
•    99-year leases are quite common in England.
•    The landlord sues for 2 things (which may be the same thing, 2 ways)
o    Full rent prospectively
o    Full rent retrospectively.
•    First thing we look for is consideration (to enforce the landlord’s promise to let them pay ½ rent).
o    The promissee did rely on this promise
o    Consideration:  The tenant did pay the ½ rent, but that is not consideration – that falls under pre-existing duty.
o    There is no seal on the changed contract.  No change vis-à-vis the change.  No consideration vis-à-vis the change.
o    Denning J. does something revolutionary while saying that he is not doing anything revolutionary.
•    Claims to be following jurisprudence.
•    He makes up something and attributes it to the widom of the past.
•    Estoppel – this is the leading case of estoppel.
•    What Denning J. is faced with is a situation where the promisor made a promise to the promisee, the promisee relied reasonably on the promise, and now the promisor wants to break the promise.
•    The landlord gave the tenant a representation of the future – we call this a promise
•    This case is about whether to enforce a promise.
•    Because it is a promise.  Does not fall under trad. Jurisprudence of estoppel.
•    Allows us to make some enforcement.
•    (para 1 on page 316) – “With regard to estoppel, the representation made in relation to reducing the rent was not a representation of an existing fact.  It was a representation, in effect, as to the future, namely, that payment of the rest would not be enforced at a full rate but only at a reduced rate.  Such a representation would not give rise to an estoppel, because, as was said… a representation as to the future must be embodied as a contract or be nothing.”
•    (Para 2) “There have been a series of decisions over the last fifty years which, although they are said to be cases of estoppel, are not really such.  They are cases in which a promise was made which was intended to create legal relations and which to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact so acted on.  In such cases the courts have said that the promise must be honoured…  As I have said they are not cases of estoppel in the strict sense.  They are really promises – promises inteded to be binding, intended to be acted on, and in fact acted on.”
•    “In each case the court held the promise to be binding on the party making it, even though under the old common law it might be difficult to find any consideration for it.”
•    Continues – is this promise enforcement, or is it something that looks like promise enforcement, but is not?
•    Is there a meaningful difference between ordering a defendant to keep their promise, and ordering a defendant to act consistently with their promise.
•    Para 3 & 5 address the question (which we would never have to address with consideration)
•    How Binding?
•    The tenant had the audacity to argue that the promise was for the entire 99-year lease.
o    Lord Denning says no.  Will enforce the promise to some extent, but not that extent.
o    Says that the promisor can take back their promise to this promise

Reset.
•    It may be that the promisor can take back their promise
•    Estoppel-based promise-enforcement differs.
•    Promisory-estopple, or equitable-estoppel.
o    A different category of estoppel.

Next class:  Down to D & C Builders v. Rees

On TWEN is last year’s midterm.  Address questions 2 & 3 by way of sample.

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..

Privity

•    If C is a stranger to a contract between A & B, then C must fail legal action

•    In a contract between A & B in which C is a beneficiary, the A-B contract contemplates C.  C is still a third party, but not a stranger – is actually named in the agreement.
o    Beneficiary – the recipient of a benefit under the contract.
o    Our system of law treats the third-party beneficiary the same as the third-party stranger.
o    1861 case established this.
o    in earlier cases, C coud sue on the contract
o    once contract theory evolved, C became a victim of the quest for theoretical purity.

•    If A & B form a contract with A working as an agent for C, then C is not a mere third-party beneficiary.  C is a party.  A is not.
•    If A & B have a contract which has not yet been performed (any contract creates private rights – rights are property; choses in action), A has rights against B, and can, if A chooses, “alienate” their rights against B to another party.  Can sell or give incorporeal rights (assign).
o    C gains the rights to what A assigns C.
o    A-C contract.  A had rights under the A-B contract, but sold them to C = assignment.
o    Question:  What rights does C have under the A-B contract?  Suppose B breaks the promise – Can C sue?
•    Equity will allow C to sue B.
•    A is still in the original contract, but so is C.  C could sue B, but might have to sue B using A’s name.
•    Superficially, case would be A v. B,  but would actually be C sueing B.  This is how equity works in this situation.
•    Now there is a statute in every province which simplifies this situation.

Third A-B-C relationship:
•    The trust example
•    A & B have a contract (if unperformed, then each have subsisting rights against the other.  Rights are property.  Choses in action.)
o    A may hold the property (the right against B), not for his or her own benefit, but for the benefit of C.
•    A – trustee (of contractual rights)
•    C – beneficiary of the trust.
•    Referred to as cestqui que trust
o    If A does not act as a vigilant trustee, sueing B for unperformed actions, then C can unequivocally sue B.
o    Here, dealing with property – in the eyes of equity, A’s rights do not belong to A at all.  Belong to C.  Not suing on basis of contract.  Sueing for property.  A has legal title, C has equitable title.

New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd.
•    There was a view that courts do not have the authority to change the privity rule, and says that the onus is on the legislature to change it.
•    The tide turned a little in New Zealand Shipping (page 381 onwards)
•    House of Lords, though unwilling to change the rule, softened up on recognizing trust and agency to get around the rule.
o    Did not change the rule – signalled a softening.

London Drugs Ltd. v. Kuehne & Nagel International Ltd.
Page 385
•    Goes much futher than New Zealand Shipping
•    Does in private law something that is rarely seen – grapples with the doctrine itself.
•    Interesting discussion on the issue addressed by Simonds (not the place of the court to change even judge-created laws).
•    SCC addresses the question.  Iocobucci J. says that judges can make incremental changes, but not large changes in well-accepted private-law rules.
•    Agrees that major changes to this would have to come from legislatures – in Canada, this means each provincial legislature, due to the Constitution.
•    Contract between A & B, which agrees that in certain circumstances, B will not sue C.  Shield promise.  Exemption promise.
o    Contrast to contract such as insurance policy where the goal is to confer a benefit on C.
•    Limitation of liability clause.  C’s defence would be based on the contract between A & B.
o    Court reasons that letting C defend itself is less radical than conferring a benefit on C.
•    London Drugs is a bailment case.
o    The bailee is a corporation – a warehouse.
o    Corporations can operate only through human agency – human beings.
o    The employees are negligent in handling the bailor’s chattel.
o    They are tortfeasors
o    The bailor sues the bailee – the human employees of the bailee.
o    Page 385 – the liability clause.
•    The bailor did not pay the additional charge to cover warehouse liability
•    Means, in effect, that the bailor took the risk on themselves.
•    In the suit against the employer (the warehouse) the warehouse was covered against liability by this clause, and was liable for only $40.
o    What of the employees?  Question of whether they were shielded.
o    Note:
•    1)  The reciprocity objection:  would allow a person to sue on a contract when that person could not be sued on the contract.
•    Lack of reciprocity
•    This is a trad. objection allowing C to sue as a third party.
•    2)  A & B contract.  One of the rights is to change their contract (though this is sometimes tricky -  need consideration).  As soon as one says that C acquires a right under A-B contract, that seems to inhibit A & B’s right to alter contracts.
•    The law does not allow us to destroy other people’s rights.
o    Iacobucci J. addresses these issues.
•    Says that rather than trying to find a way around the privity problem, will instead change the doctrine of privity.
•    Do not think that he tries to find that the warehouse contracted on the right of its employees.
•    Does not find any rel. in privity between the bailor and the bailee’s employees
•    Allows the employees to have rights even though they are not in privity
•    Says that in an employment situation, when A deals with B, knowing that B has employees, and that the actions can only be carried out by the employees, to give B’s employees certain rights under the A-B contract is not so very radical (should not take the bailor by surprise).
•    Much turns on C being an employee of B.
•    Paragraph 46, page 395.
o    “I am of the view that employees may obtain such a benefit if the following requirements are satisfied…
•    limitation of liability clause must, expressly or impliedly extend its benefit to employees
•    the employees seeking the benefit of the clause must have been acting in the course of their employment and been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred.
o    Said that the bailor was promising the bailee that if the bailee’s employees committed a tort, they would be shielded from liability above $40
•    ends up (on page 397) saying that by implication, the promise to the bailee covered not just the bailee, but also the employees (note – not saying that the bailor promised the employees – promised the bailee).
•    Cannot find the promise expressed – finds it implied.
•    Top of 397 – employees were not to benefit?  Says the language of the clause means inevitably that the employees were not covered.
•    The test of intention here, then, is a very shallow test.
•    Believes, on the facts, that when the bailor and bailee did contemplate (though not expressed) that the employees would be shielded from liability.
•    In the context of employment, employees can raise defences to lawsuits – the SCC has made an enormous practical and symbolic inroad into the doctrin of privity.
•    NOT saying that the employees were parties to the contract – saying they were intended beneficiaries.
•    As such, can invoke this defensively as a shield.  Still would not allow this to be used offensively.
•    The reason courts do not take the trust or agency argument and make them cure-alls is just because they would be cure-alls

Read up to Law Reform Act for next day.
Monday’s class will be review.
Can have another review class on Tuesday – 12:30pm tentatively