Contract Law

Uncertainty:

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

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

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

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

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

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

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

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

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

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

[It’s been awhile…]

page 311 – review Foakes v. Beer
…long line of sorrows springing from this case…
•    Pinnel’s Case:  A debtor’s promise to pay a creditor a lessor sum is not consideration
•    Foakes v. Beer not altogether satisfactory – note that judges both express sheepishess at their ruling.
•    Note 1 page 311 – Mercantile Law Amendment Act R.S.O. 1990 – intended to overrule Foakes v. Beer.
o    Passed in ON the year after Foakes v. Beer.  Also passed in B.C., AB, SK, and MN (Western Provinces).
o    Rare for a legislature to take steps to reverse a ruling
o    The Atl. Provinces still use Foakes v. Beer.
o    Must understand the hazard of the rule of this case.
•    Think of how Roffey Bros. would apply to Foakes v. Beer.
o    Courts said did not apply.  This is because of precedent.  Foakes was a HoL decision, whereas

Estoppel
High Trees p 315
•    Denning takes time to say that if the other view of estoppel prevails, would undo Foakes v. Beer (indirectly, but estoppel route)
o    Would estop the creditor from acting against the debtor in such a case.
•    Says it again in Combe v. Combe p 318
o    Again, not a Foakes v. Beer case.

D. & C. Builders Ltd. v. Rees
•    Denning ought to end this case with a vidincation of the stance of estoppel.
•    Does not.  The debtor loses.  The creditor triumphs.  Why?
•    Explained against rule of Foakes v. Beer.
•    Must examine against backdrop of estoppel
o    Remember that this is promissory estoppel.
•    Recall that when Denning ‘invented’ this in high trees, the reach of the doctrine was unknown (p 316)
o    Combe v. Combe – Denning pulled back from the potential effect of his own words.
•    Affirmed the principle of promissory estoppel, but added *‘provinded that the promissee is not invoking estoppel offensively [is not suing on the basis of estoppel!]’*
•    Sword / shield distinction.
•    Now on to D. & C. Builders.
•    From structure of the case (fact that it is three judges, all of whom issue agreeing judgements), see that the judges agree on the result, but not how to get there.
o    Same as in Brophy Bros.?
•    Facts of D. & C. Builders – builders do a job for the defendants who claimed shoddy workmanship, and could not pay the £482 balance.  Offerered £300, which the builders had to take as they were in financial trouble.
o    Is the ‘agreement’ to take the £300 binding?
•    Is this a case of ‘promise intended to be relied on, and then relied on’?
•    Denning, in High Trees and Combe v. Combe, has led us to believe that it will – but it does not.
•    Note paragragh 2 page 323:  facts.  “At this stage there was no dispute as to the work done.”
o    What is the significance of this?
o    From Stilk, if prior to entering into the negotiation, there had been a legal dispute between the two sides in regards to how much the Reeses properly owed (with potentially shoddy work in mind), then could  have compromised / settled on £300, and it would have been binding.
•    Each side would have bargained to give up legal claim agianst the other.
•    However, when the fee was reduced, there was no legal dispute
•    For some reason, the complaint that Mrs. Rees makes at top of page 324 does not count – does not seem to have been in correct form?  i.e.  We do not owe you this money because the workmanship was not up to par.
•    Why does estoppel not come to the rescue of Mr. & Mrs. Rees?
o    The court does not allow them to estop the creditors from asserting their strict legal rights to the full balance owing.
o    Why can they not use estoppel as their shield?
•    Mrs. Rees had overstepped – p 325 para 10 – “She had no right to say any such thing.”  She had no right to threaten them with non-payment, knowing that they were on the brink of bankruptsey…
•    This is odd.  Obviously do not normally have to be altruistic in negotiations.
•    Bell:  Don’t get distracted by this point, because it is so strange.
o    Think rather of the larger point – Denning reminds us of High Trees – estoppel doctrine is an equitable doctrine.  EVERYTHING EQUITABLE IS DISCRETIONARY.  This means that the court can exercise its discretion in withholding what it might otherwise grant.
o    Traditionally say law is the realm of rights, and equity is a realm of discretion (not rights).
o    Note para 9 page 325 – “Equity has stretched out a merciful hand to help the debtor…”
o    Para 10 – ‘not going to do it here though.’
o    Note:  Promissee cannot sue on promissory estoppel; Promissory estoppel is equitable and therefore discretionary.
•    To accept Denning’s hint in High Trees and Combe, that promissory estoppel would get one out of rule from Foakes v. Beer, then Dankwerts L.J. and Winn L.J’s reasons for decision might be startling.
o    Do not acknowledge awareness of the idea of promissory estoppel as applied in high trees and Combe.
o    No hint that promissory estoppel might have applied.
•    Lord Denning’s decision from this case is the most famous and referred to.
o    Does not, however, carry a majority
o    What does the case stand for??
o    Question of whether estoppel will get one out from under rule of Foakes v. Beer remains unanswered and ambiguous.
o    Consult readings on reserve…

Waltons Stores (Interstate) Ltd. v. Maher
[Bell:  “The last challenging case of the term]
High Court in Aus.  Seems to be their Supreme Court.
5 judges – 4 wrote…
•    This case seems to abolish the sword / shield distinction
•    Seems to say that there are cases where the promissee can sue on the basis of promissory estoppel.
•    Further difficulty:  in this case, the counsel for Mahar … in this case there isn’t even a promise … the challenge for the counsel for Mahar is to first show that there was an express promise where there was none.
•    Implicit promise gathered from the facts.  Showed that there was in effect a promise.
•    Facts:  Waltons wanted to develop a site for shopping centre.  Bell guesses that Waltons is likely an Aus. Walmart.  Mahars are landowners – there is a site with a building on it, which Waltons wants to occupy as tenant.  Mahars is required to destroy the existing building, and to build a new one to Waltons’ criteria.
o    Get close to a deal.  Waltons’ solicitor sends a draft lease to the Mahar’s solicitor which is pretty close to final form
o    P 333 – notes that have not obtained Waltons’ specific instruction, but would advise the very next day if there was any disagreement.
o    There was no contact the next day, nor for ‘some months’
o    Maher’s, knowing that Waltons’ could only use a new building, tore down the old building in the interim, and began building Waltons’ custom-designed building.
o    40% complete by the time Waltons’ solicitors sent a letter saying that the plan was not going ahead.
•    Before getting to estoppel, must get to a promise.
•    Here there had not been a promise, as such.
•    Somehow, all of the courts accepted that Waltons’ conduct amounted in effect to a promise [do not get hung up on this – Bell]
•    At trial and at first level of appeal, the Mahars won, not on basis of promissory estoppel, but on legal estoppel
o    Legal estoppel turns on representation of existing fact…
o    Whereas in high trees, it was not about existing fact, but on the basis of a promise.
o    Here, this is a case of enforcing a promise
•    Combe v. Combe – sword / shield distinction.
•    Para 16 & 17 page334
o    Para 20 – begin argument by saying that looking back at high trees, ignoring combe, high trees is broad enough to cover this situation.
o    However, thanks to Combe, promissory estoppel is a defensive equity, not an offensive equity.
•    However, being defensive does not mean that it may only be used by defendants…
•    Unless court intervenes, would be to the promisee’s detriment.
o    Trad. objections to using estoppel as a sword is that it would supercede the Doctrine of Consideration.
o    Next trad. objection is that enforcing consideration as promise is to enforce gratutious promises
•    The law does not enforce gift promises.
•    Now to say that all promises without consideration are gift-promises (though within high-theory is high true) is slightly misleading, but this is an objection.
•    Question is that if we did start enforcing gifts, where would it end?
•    Para 23 & 24:
o    23:  talk about Crabbe v. Arun District Council
•    Crabb owned land.
•    Has access to the street (let’s say, at the South)
•    Another access at the North.
•    Crabb gets offer to divide the land
•    Local municipality tells him that though the south access is the normal access to the land, he can use the north access legally.
•    Sells parcel B – the south part of the land.
•    Doesn’t bother reserving a right-of-way, because he has been promised the north access by the municipality.
•    After this deal goes through, the municipality tells him that the North access cannot be used.
•    He sues them, resulting in this case.
•    Crabb has a promise that he wants to enforrce:
•    No seal
•    No consideration
•    Must rely on estoppel – a promise intended to be relied on, and relied on.
o    Problem of course is that he would be using estoppel as a sword not a shield.
o    This case came before Denning…
o    Denning said, “There are estoppels, and then there are estoppels…”  Some can only be used defensively, some others can be used offensively.
o    Allows Crabb to estop the Arun District Council from going back on their promise.
•    This is referred to as proprietary estoppel
o    So-called to distinguish from ordinary promissory estoppel, and because it involves ownership of land.
o    Not subject to sword / shield principle such as promissory estoppel.  Exception to Combe v. Combe rule.
•    This is the first thing that the Aus. court points out – that the sword / shield principle is not one that the law enforeces rigoursly.
•    Para 24 – look at the U.S. and how they handle estoppel
o    S90 of Restatement on Contracts
•    Restatements are not statutes.
•    They are literally restatements by legal thinkers of what they believed the law should be (American Law Institute).
•    “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such ation or forbearance is binding if injustice can be avoided only by enforcement of the promise.  The remedy granted for breach may be limited as justice requires.”
•    U.S. verstion of estoppel – pitched more aggressively.

Next day – will look up to Formality – At least as far as The Seals.