CONTRACTS OUTLINE - NEWCOMBE
December 2014
Section 1: Importance of Remedies – 2
Section 2: Offer and Acceptance – 4
1. Bargain theory. Offer and Acceptance - 4
2. Tendering Process – 5
3. Acceptance and Unilateral contract – 7
4. Battle of the forms – 8
5. Acceptance – 10
6. Mailed acceptance – 12
7. Termination of offer – 14
Section 3: Certainty of Terms – 16
Section 4: Enforcement of Promises – 18
1. Exchange and Bargains – 18
2. Past consideration – 18
3. Consideration – 19
4. Pre-existing legal duty – 21
Section 5: Promissory Estoppel and Waiver – 25
1. Background on estoppel – 25
2. Nature of the representation – 25
3. The Equities - 26
4. Notice Retracting a Waiver of Legal Rights – 26
5. Promisee’s reliance – 26
6. Sword of shield - 27
Section 6: Intention, Seals and Writing – 30
Section 7: Privity of Contracts – 33
1. Privity of Contract – 33
2. Avoidance of the Contractual box – 34
3. Employee Liability – 35
4. Legislation - 36
Section 8: Contingent Agreements – 37
1. Type of condition – 37
2. Waiver of condition – 39
3. Damages - 40
Section 9: Representation and Terms – 42
1. The Issue – 42
2. Misrepresentation and Rescission – 42
3. Warranties – 45
4. Distinguishing between innocent misrepresentations and warranties – 46
5. Concurrent Liability in Contract and Tort: Negligent Misrepresentation – 47
6. Parol Evidence Rule – 48
7. Classification of Terms – 52
SECTION 1 – REMEDIES
What is a remedy?
A remedy is the means employed by the court to enforce a right or redress an injury—what does the court order be done? For example, a court may make a declaration, order money to be paid, or grant an injunction to stop certain conduct.
Categories of remedies
1. The principle remedy for breach of contract in common law is damages. Damages are an award of money by the court that the contract breaker must pay.
2. Other remedies were developed in the Courts of Chancery or Equity—equitable remedies such as specific performance: a court order that a contract be performed.
The general principles of damages
The choice of remedy turns upon what interests we are trying to protect and what goals we are trying to promote through the law of contract.
The general policy: Courts are seeking some fair measure of protection for the plaintiff's interests without unduly burdening the defendant.
Policy: Balancing reasonable expectations of plaintiff without unfairly surprising defendant
Categories of remedies - restitution, reliance and expectation
Interest / Purpose / Measure / JusticeRestitution / Prevent unjust enrichment to Δ / Benefit to Δ / Corrective
Reliance / Prevent harm to π / Loss to π / Restorative
Expectation / Secure benefit to π / Expected π benefit / Distributive
The expectation measure of damages is the normal measure of contract damages.
Triangle: defendant
Pi: plaintiff
Restitution: unjust gain should be taking away
Reliance: places them in the same situation as before the promise was made.
Expectation: no harm is required for it to take place. As to put the plaintiff in the position she would have been in if the promise had been fulfilled.
Why award expectation damages? Fuller and Purdue “The Reliance Interest in Contract Damages”
1. More effective sanction
2. Easier to calculate the expected benefit than to measure the reliance occasioned by the contract; often reliance is difficult to quantify
3. Policy in favour of promoting and facilitating reliance on business arrangements
4. Promotes market ordering – future entitlements are the stuff of many market transactions and thus they have a present value
Royalty Rocker
1. Restitutionary Damages
(i) Purpose = prevent unjust enrichment
(ii) Measure = benefit to the defendant (Larry) - difference between sale price based on the statement that the chair was an antique and market value of the replica
(iii) Amount = $30 (Larry received $80 for a chair that was worth $50)
2. Reliance Damages
(i) Purpose– prevent harm to the plaintiff
(ii) Measure – loss to the plaintiff. Put Mary back in the position she was in before the transaction took place. The purpose here is to restore the status quo.
(iii) Amount
Assets/income Expenditures
$50 chair $80 chair
$20 stripper
$100
(iv) Reliance damages = $50.
Expectation Measurement
(i) Purpose: Secure benefit to the plaintiff
(ii) Measure: expected benefit to the plaintiff (Mary). Put Mary in the position she would have been if the contract had been performed without a breach.
(iii) To calculate: “Where Would the Plaintiff Have Been Had the Contract Been Concluded” and then compare with "Where the Plaintiff is Now". The difference is the expectation measure of damages.
Assume Mary started with $1000 in her bank account. Where would she have been if K had been performed?
Income/Assets Expenditures
$500 (sale of chair) $80 (purchase of chair)
$20 (stripper)
$100 (restoration)
$200
Net profit: $300
She would have $1300 in her bank account.
Where is Mary now assuming breach of contract?
Income/Assets Expenditures
$50 (the chair) $80 (purchase of chair)
$20 (stripper)
Totals $50 $100
Mary would have $900 in her bank account (she spent $100) and a chair worth $50.
To put Mary in the position she would have been in had the chair been a Royalty Rocker, we have to pay her $50 (her reliance interest) plus the net profit of $300 she would have earned.
Expectation damages are $350:
- $300 in profit
- $20 for stripper (wasted – she would have recovered)
- $30 overpayment (wasted - she would have recovered))
$900 in bank + $350 damages = $1250 in bank, plus she has a chair worth $50.
She now has assets worth $1300, the same amount she would have had had she sold the chair for $500.
SECTION 2 – OFFER AND ACCEPTANCE
Stages in the Common Law Contract Making Process
“Puff”/ “mere puff”
Invitation to treat/advertisement/quotation
Offer
Communication of offer
Rejection of offer
Counter-offer
Communication of counter-offer
Receipt of counter-offer
Acceptance of counter-offer
Communication of acceptance
1. Bargain Theory: Offer and Acceptance
Issue: Determination of when communications will give rise to legal obligations.
Policy Framework: Balance the need to enforce promises (reasonable expectations) and the avoidance of surprising parties with unanticipated liabilities (unfair surprise).
Legal Framework: The balancing takes place (in part) through the rules encompassed by the bargain theory of contract – namely, those relating to offer, acceptance and consideration.
Test: In resolving questions surrounding offer, acceptance and consideration, courts will adopt an objective (reasonable person) standard.
The Bargain Theory of Contract
based on a “mirror image” approach.
· One party, the “offeror”, sets out the terms of doing business.
· The “offeree” may either accept or reject the offer. If the offer is accepted, a contract is created.
· If the offeree does not accept some or all of the proposed terms, the offer has been rejected.
· The offeree may make a counter-offer and becomes the offeror. This exchange of offers allows the parties to bargain over the terms of a contract.
Offers must be distinguished from “invitations to treat” or “invitations to offer”, which form part of the preliminary negotiations.
Offer
The task is to ascertain what communications (offers) will be elevated to the status of legal offers bearing in mind that the consequences may be very serious – the recipient of the communication (offeree) thereby enjoys the power to bind the offeror to a contract (an offer creates the power of acceptance in the offeree) and thus to claim expectation damages.
a. There must be a manifestation of an intent to be bound; generally a mere advertisement, enticement or invitation to treat (i.e. negotiate) is insufficient
Pharmaceutical Society v. Boots: Display is like an advertisement, when the customer brings goods to cashier it’s an offer, acceptance is cashier taking money.
b. The offer must be sufficiently specific and comprehensive that the terms of the agreement can be identified (the problem of uncertainty).
c. An offer ceases to exist if it is rejected, and in any event expires after a reasonable time, the length of which is determined by the context
d. An offer can be revoked anytime before being accepted. However, unless the offer has expired (passage of a reasonable period of time), effective revocation may require notice of revocation
e. An offer is binding once it is accepted (unequivocally) and thereafter cannot be revoked.
Acceptance
Acceptance by word/return promise produces a bilateral contract; acceptance by performance results in a unilateral contract.
a. Must be clear manifestation of an intent to be bound.
b. Must sufficiently correspond to the offer; otherwise, it will be viewed as a counter-offer
c. Generally must be communicated to the offeror and must be done before the offer has expired or been revoked
Canadian Dyers Association v. Burton p. 18
The question is one of intention; and whether a proposal is to be construed as an invitation to deal or as an offer which can be turned into a binding agreement by acceptance depends upon the language used and the circumstances of the particular case.
Pharmaceutical Society v. Boots p. 20
The Defendant argued that the contract was initiated when the customer brought the drugs to pay for them (offer) and the pharmacy would accept the offer when they took the cash. Display of the price was found to be an invitation to treat.
2. The tendering process
Contracts for the procurement of goods and services, in particular, construction services are often obtained through a tender process in which the buyer/owner seeks bids/tenders for the provision of goods and services.
The call for tenders setting out the terms upon which the buyer/owner is interested in contracting. The call for tenders usually includes the terms and conditions of the actual construction or services contract that will be concluded. The tenderers submit their tenders in accordance with the call for tenders.
R. v. Ron Engineering p. 33
Tendering process is analyzed as a two-contract approach:
· Contract A: The contract governing the tendering process. The call for tenders is an offer and the submission of the bid is acceptance. If a bid is accepted, the bidder must enter into Contract B. The terms of Contract A depend on the call for tenders.
· Contract A will often provide that the bids are irrevocable and that if a bid is accepted, the bidder must enter into Contract B (the contract for the provision of goods or services) with the owner. There will often be a “privilege clause” as part of the conditions, which provides that the owner is not required to accept the lowest priced tender.
· The owner can generally only accept bids that are compliant with the bid conditions and has an obligation to treat all bidder fairly.
· Bidders/tenders will normally have to provide a deposit and/or performance bond to guarantee that if their tender is selected that they will enter Contract B. The deposit/performance bond is forfeit if the selected bidder fails to enter Contract B.
· Contract B: The contract for the provision of goods or services with the owner. The terms and conditions of Contract B (and often the actual text of Contract B) are included in the call for tenders.
MJB Enterprises p. 36
· SCC clarifies the Contract A and Contract B analysis.
· Contract A does not arise in all circumstances. Whether it does depend on the call for tenders/request issued by the owner.
o An owner might just say we are interested in receiving expressions of interest for the project. The court may simply categorize the expressions of interests as invitations to treat – essentially the owner might be negotiating with multiple parties.
· No implied term in Contract A that the owner had to accept the lowest bid.
· Court interprets the privilege clause (which reserves to the owner certain rights including whether to accept or not to accept tenders or whether to accept the lowest tender) as not including the right to accept non-compliant tenders.
o In this case, the bid that the owner had accepted was non-compliant because the tenderer had not provided a lump sum price reflecting the risk of the how much of each type of fill would be required for the project. The owner breached Contract A by accepting a non-compliant bid.
· Result: MJB awarded lost profits (expectation damages) as a result of not obtaining Contract B.
Double N Earthmovers v. Edmonton (SCC, 2007) – NOT IN MATERIALS
Contract A has two implied terms:
· to treat all bidders fairly and equally; and
· to accept only a compliant bid.
SALE OF GOODS ACT
72 In the case of a sale by auction the following rules apply:
(a) if goods are put up for sale by auction in lots, each lot is, unless there is evidence to the contrary, deemed to be the subject of a separate contract of sale;
(b) a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner, and until that announcement is made a bid may be retracted;
(c) if a sale by auction is not notified to be subject to a right to bid on behalf of the seller, it is not lawful for the seller to bid or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person, and any sale contravening this rule may be treated as fraudulent by the buyer;
(d) a sale by auction may be notified to be subject to a reserved or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller, and if a right to bid is expressly reserved, but not otherwise, the seller or any one person on the seller's behalf may bid at the auction.
3. Acceptance and Unilateral Contracts
The common law distinguishes between bilateral and unilateral contracts.
(a) Acceptance by word/return promise produces a bilateral contract
· In most cases, the offer is accepted by a reciprocal promise – either oral or written. The result is a bilateral contract.