Contract Law

5 Slogans:  (find ‘em)

*The pl always sues in his/her capacity of promisee
*The consideration is that which the promisee must demonstrate to the court that he/she exchanged to the promisor for their promise
Must take this decision path initially to get one’s bearings in the actual case.
Identifying the promise and dispute will tell you who the parties are – will coincide.

Too often students do not know where to begin with a problem.  Must orient oneself as per above.

*A promise of consideration is as good as consideration for this purpose.

In the eyes of the law, for this purpose, the law is prepared to treat the promise of something as equivalent to consideration – which is why it can be that my promise to convey my car to you for $1000, and your mutual promise to pay me $1000 for title to my car, gives rise to a binding agreement.

*Consideration is always a bargained-for detriment to the plaintiff-promissee
•    Always; bargained-for; detriment
•    Bargained-for is not just any detriment that counts as consideration.
o    It must be a detriment that was part of the bargain.
o    Ex:  In Dalhousie, the buildings (though a detriment) were not bargained for.
•    Something for something – an arrangement.
•    Consideration is always a bargained-for detriment.
•    **”Always”:  will come back to this word in this statement.

*Past Consideration is no consideration.

P 264
*Consideration need not be adequate;
or, the law does not inquire into the adequacy of consideration.
•    But, law does look at the sufficiency of consideration.
•    By adequacy – we mean the equivalence of the exchange; the quantum; quantity
•    Ex:  Arguing that selling one’s $10,000 car to another person for $1000 – the court does not allow us to go back and examine the adequacy of the arrangement.
o    If one is prepared to part from one’s property for a given price, then the value is simply seen as subjective; as in the appetite of the contractor.
•    By sufficiency (quick and dirty distinction between the two), we mean the ‘substance’ as opposed to the quantity.
o    Comes up in a surprising number of cases.
o    Means the consideration must partake of the substance of things that the law is prepared to accept as consideration.
•    Obvious example is moral consideration.
•    Cannot enforce moral considerations.
•    Past consideration does not count as sufficient consideration either.
•    Means that for something to be considered consideration, it needs to be of the substance of things that the law is willing to look at as consideration.
•    Mere detriment is not sufficient consideration – only bargained-for detriment.
•    Non-bargained-for reliance on a promise does not count as sufficient reliance.
•    SO, the law does not look at the adequacy of the consideration, but does require that it be sufficient
o    Means that the law doesn’t care how much consideration is involved, as long as it is consideration.

Past Consideration is no consideration
o    Implies a reference to something that is present.
o    The ‘something’ that is present is the promise.

Eastwood v. Kenyon
o    The husband undoubtedly made the promise, but this is not enough.
o    What did Eastwood exchange to Kenyon?
o    The consideration was rendered to Sarah a long time before her husband made the promise (or likely even knew her).
o    Could simply say that consideration is always a bargained-for detriment, and there was none of that here.
o    Can also say here, more particularly, that past consideration is not consideration.

o    Eastwood v. Kenyon is the case where consideration ceases to be simply ‘a word’.  It is a watershed in giving ‘consideration’ its modern meaning.
o    Goes to having a technical meaning in the law.
o    Para 9, page 267 – Lampleigh v. Brathwait (1615) – “the leading case on the subject…”
o    Distinguishable from Eastwood and Kenya
o    In E. v. K., have 1) Eastwood’s spending, then 2) Kenya’s promise
•    (1) had already been done before (2) came along.
o    In L. v. B., there are 3 acts:
•    Facts:  braithwaite killed someone, and was sentenced to hang.  At the time, those who were sentenced to hang were in fact not hanged.  They were usually pardoned (either conditionally or unconditionally).  Braithwaite told Lampleigh to go to the King and lobby for a pardon.  This is Act (1).
•    Next sig thing that happens (2), is that Lampleigh does attempt to find the court, to lobby it.  It takes him awhile, but he does it – successfully.
•    (3) – Braithwaite promised Lampleigh compensation
•    In this case, the court said that braithwaite’s promise was enforceable.
•    Said that Lampleigh’s actions were consideration.
o    In Eastwood, the judge says that Lampleigh v. Brathwait was distinguishable from a past-consideration scenario.
o    Says that in L. v. B., the consideration was implicit in the original request.
o    (3) is implicit in (1).
o    P 267 – Hobart C.J. says that a mere voluntary courtesy will not have a consideration to uphold a promise.
o    If someone offers someone something as a courtesy for something already done, then the consideration is already in the past, and not-binding.
•    Ex: ‘b’ mows ‘a’s’ lawn.  ‘A’ offers ‘b’ $20 as compensation.
o    If the courtesy were moved at the request of the party who made the promise, then it is binding.  Then, it is not naked (nudem pactum) – but couples itself with the suit before…
o    This means that if, for example, ‘a’ asks ‘b’ to mow their lawn, ‘b’ mows the lawn, and then ‘a’ promises to pay $20 – the promise for $20 can be interpreted as implicit in the original request.
•    The coupling is through an implication.
•    It is implicit that one is not asking for a gratuitity.  This is, of course, much clearer in the realm of business as opposed to friends or neighbours.
o    [Aside:  Remember that juries determine questions of fact, judges determine questions of law.]

p 282.  Guiding Transaction Adjustments
o    a pre-existing legal relationship, that the parties wish to adjust.
o    How is this accomplished in a way that ‘sticks’?
o    Ex: ‘a’ promises ‘b’ to sell his car for $1000.  ‘B’ says yes.
o    ‘A’ regrets selling for too little, so ‘B’ agrees to up the price to $1200.
o    Often times, this would result in an amendment  – cross out $1000, write in $1200, and both parties initial.
o    Had a living contract, and decided to adjust it.
o    The question is whether this perfectly intuitive action is actually legal…
•    Does this actually result in a legal obligation to pay the $1200.
•    No.
•    This is very likely not legal.

Stilk v. Myrick [1809]
•    Napoleonic wars
•    Embargoes on Britain forced them to go far-afield for materials such as timbre.
o    In this case, there is a contract of hire for a vessell.
o    £5/month for the sailors.
o    2 sailors desert at Cronstadt (now Finland, then Russia).
o    The captain promised the other men that, were the places not filled, they would have the deserters’ wages split amongst them.
o    The places proved impossible to fill, and the remaining 9 crew worked the ship back to London from what is now Finland.
o    The captain, upon their return to London, would only pay the £5.
•    Garrow, for the masters of the ship, was one of the first famous lawyers – known for his appeals to juries
o    Garrow argues that if this sort of action were permitted, crews could extort captains to pay them more, or they would allow ships to sink during emergencies, etc.
o    Judges say that the deal is in fact unenforceable because the sailors gave the captain no consideration.
•    At this time, the answer to the question “Why can’t one sell oneself into slavery?” changed.
•    The trad answer was that it was against public policy.
•    Around this time, the answer changed to ‘beause there was no consideration’ – the property of the slave becomes the property of the master.
•    The law was becoming more theoretical.
o    The sailors who remained with the ship were already legally bound to do so.
o    Those who remained were bound by the terms of their original contract to do their utmost to bring the ship safely to its destination.
o    Therefore, the sailors were only promising to do their pre-existent legal duty – this does not make up new consideration for a new bargain.
o    A promise to do that which is already one’s legal duty is not sufficient to form consideration.

Gilbert Steel Ltd. v. University Construction Ltd.
o    The promise being sued on is the promise to pay an increased rate for the steel beams.
o    What consideration did Gilbert Steel give to University Construction Ltd. in exchange for this promise?
o    G.S. alleged that they agreed to give a good price on the second building in exchange for this agreement to pay an increased rate now.
•    2 problems:  i) too vague;  ii) doubt that it was agreed up (even if it was mentioned)
•    Does not work as consideration
o    The delivery of the steel is the obvious consideration.
•    Why is it not?
•    They were already obliged to provide this steel, as part of the original agreement.
•    There is not detriment here.
•    This is why they switched to the “good price” arguument.
o    Pl.’s lawyer argued that the consideration of the oral contract was the mutual abandonment of the prior agreement.
•    Variation scenario – does not work unless one has a mini-contract to change an already existing contract, which in itself requires consideration.
•    If they had decided to call the whole thing off, leaving them (at least for a millisecond) contractless, and entered into a new contract, then that would be binding.
•    Why is it binding to agree to call a contract off?
•    Each side is sustaining the bargained-for detriment of releasing the other side from their obligation.
•    Releasing another from an obligation is a detriment.  Here it is also a bargained-for detriment.
•    It is binding.
•    “Recision + new contract” analysis – this would work.
•    “variation” will never work, unless it is that mini-contract to vary.
o    Recision + new contract is the argument that Mr. Morphy makes here.
•    Wilson J.A. says that this is perfectly legitimate, but that there is no evidence to support the idea that this is what the parties believed they were doing.
•    How does one know whether a particular action is variation or recision?
•    very difficult.
o    This is why the correcting-and-initialing is likely not legal.
o    The editors of our text portray this case as one of the worst decisions ever made.
o    The article on page 297 is by one of the editors – Barry J. Reiter.

Williams v. Roffey Bros and Nicholls (Contractors) Ltd.
o    Very similar case
o    Another contract case.
o    Another case where the project was half-finished.  Promised more to finish the project – how could this be binding?
o    Very rare in English C.A. for all three judges to write (as in Canada).
o    In this case, all three write.
o    Ever rarer for all three to write when they agree – they do in this case.
o    This is something different about this case…
o    Agree that this is enforceable, but are obviously so uncomfortable with enforcing it that they take a stab at explaining it.
o    Each of the three say that they are not overturning Stilk v. Myrick.
o    Say that it still stands for something.
o    Facts:  Roffey Bros have a contract with the municipality whereby they need to have the repairs completed by a certain date.
o    The pl. was a carpenter.  Def. was supposed to make progress payments to the plaintiff.
o    By april 9 1986, Pl. had completed the work on the roof, and first repairs to all 17 flats, and the second repairs on 9 flats.
•    Defendants had made interim payments of £16,200
o    By end of March, pl had run out of money
•    Roffey Bros. approach them and offer more money
•    Williams still went insolvent – had the audacity to sue Roffey Bros.
•    The fault was of Williams for putting in an unrealistic bid.
•    Had Roffey bros. over a barrel, due to the time restrictions on the other contract.
•    Under orthodox analysis, the plaintiffs already had a duty to finish the flats.
•    By promising again to do so for more money, they have insufficient consideration.
o    Where is the consideration that the judges find?
o    What the court has always required is that the pl. promisee exhange a legal detriment to the promiser.
o    In Hamer v. Sidway, in the real world, the kid was benefitting from not smoking, drinking, gambling but in the eyes of the law, giving up ones rights to do something is a detriment.
o    This case acknowledges the diff between a practical benefit and a legal benefit.
o     A practical benefit is not one that the law would normally recognize
o    at the end of this case, the practical benefit turns out to be the legal benefit.

Para 15 – page 303
o    Judge says that Roffy Bros was in fact deriving practical benefits from Williams completing the project at the new price.
o    Keeping Williams on the job should have been to the Roffy Bros benefit, as they did not have to try to find new contractors if that were even possible.
o    Says that the underpining of the rule in Stilk v. Myrick was to save masters from economic duress.
o    P 305 – para 22
o    Propositions
o    The obvious objection to these propositions is that consideration is a bargained-for  detriment
•    What new detriment did Williams sustain?  None.  They are already bound.
•    This judge ignores this.  Says that it is enough that it is a practical benefit to the promisor.
•    Bell thinks the judge is responsible for an enormously significant improvement in the law that is not based on sound theory.
o    Judge #2 – Russell L.J.
o    Says that it does not overturn stilk and myrick.
•    Sure…
o    S v M is not about a promised gift, despite what he says.
o    What he says it stands for bears no relation to what was in the case.  This is a trick.  It is a manipulation of the common law.
o    Judge #3 – Purchas L.J.”
o    Also says not overturning Stilk v. Myrick
•    Takes a different approach – changes the def’n of consideration away from detriment
•    Calls this the modern approach (para 33)
•    Note “Economic Duress”

While this case may be a good decision, it cannot possible be commensurate with contract theory.

For Friday:  finish cases on this page of syllabus

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.