Contract Law

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.

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;