ADM 3123 - Contract Law

Offer, Acceptance, Consideration, Terms, Vitiating Factors

What makes an Offer?

It is a promise to be bound, on specified terms, as soon as it is accepted. Contains necessary essential terms (e.g., price), which are fixed and certain.

What is the difference between “Invitation to Treat” vs. "Offer”?

Invitation to Treats are “inviting” offers rather than making them. It is an indication/expression the party wishes to do business or is open to negotiation. When a person agrees to the terms of the invitation, that person is who makes an offer. The maker of the invitation is the offeree.

What are some typical situations that might involve invitation to treat?

• Advertisements

• Display of goods in stores

• Price lists/goods catalogs

Carlill v Carbolic Smoke Ball Company

This was a case where the Smoke Ball Company made an offer for “anyone who contracts the increasing epidemic influenza, colds, or any disease… after having used the ball three times daily for two weeks according to the printed directions…”

This statement was considered to be an “offer” due to “anyone who,” thus Carbolic Smoke Ball Co. had to pay out the 100 British Pounds per person as claimed.

Established that an offer is a promise to be bound, on specific terms, and with sufficient certainty, as soon as the offer is accepted.

Pharmaceutical Society of Great Britain v Boots Cash Chemists

Boots had drugs displayed on open shelves, with a pharmacist supervising the sale of drugs at the cashier’s desk. Two customers selected items from a shelf, put them into a basket, and took them to the cashier. Ruling stated display of drugs is an invitation to treat, thus the offer was made when customers brought items to the cashier. The sale is not completed until the shopkeeper accepts the sale.

Thornton v Shoe Lane Parking

Ruling made the machine the offerer as the machine is in no place to negotiate. The acceptance occurs when the offeree places money into the slot to pay.

What are the four ways to terminate an offer?

• Revocation/withdrawal (any time prior to acceptance).

• Rejection

• Modification (i.e., counteroffer)

• Lapse of time (i.e., time is specified “by such date/time” in the offer and it lapses past that date before acceptance)

What is the mirror rule for acceptance?

The purported acceptance must mirror the offer by demonstrating unconditional, unqualified, and complete willingness to enter into the contract on the precise terms proposed.

Hyde v Wrench

Wrench offered to sell property for $1.5 million, Hyde counter-offered with $1 million. Wrench rejected and Hyde tried to enforce the previous $1.5 million offer since Wrench made it. Ruling stated the original offer became unenforceable due to the counteroffer made by Hyde.

Felthouse v Bindley

Uncle wanted a horse for a set price “if i hear nothing else i consider the horse is mine.” Nephew intended but gave no verbal acceptance. Ruling: nothing has been done to vest the horse in the uncle’s name

What is the general rule for acceptance?

When the offerer receives communication of acceptance, the offer is accepted.

Can be the following formats:

• in-person, telephone

• writing, mail/post, fax, email

• clicking a button (Rudder v. Microsoft)

• mere conduct/action (Lowe v. Upper Clements Family Theme Park)

Lowe (DJ) Ltd. v Upper Clements Family Theme Park

Ruling was made that mere conduct/action counts as acceptance. Lowe delivered the crane, thus accepted.

What is the postal and recipient rules for acceptance?

Recipient - acceptance occurs upon receipt (e.g., email, verbal, etc.)

Postal - if using post/mail, acceptance is effective at the time of posting the acceptance letter

• Adams v. Lindsell case is precedent for this.

This cannot be applied to terminations of contracts. Only acceptance.

Christmas v Fort MacKay

Forming employment contract between two provinces over e-mail correspondence, acceptance was formed in location the acceptance was received (i.e., in this case, Alberta).

What is the Doctrine of Consideration?

A party who seeks to enforce a promise must provide something of value in exchange for the promise, otherwise the promise is unenforceable for lack of consideration.

A gratuitous promise is generally unenforceable (e.g., the fruit cake as “thanks” for fast delivery). That is because gifts are not seen as an exchange in value.

Stilk v Myrick

Established consideration must be something extra outside the existing contract.

i.e., the master offered extra money for the seamen to complete the trip, but then refused upon arrival. Since the seamen’s contract was for them to complete the trip, there was no consideration contract as the seamen didn’t provide anything extra on top of completing the trip.

Gilbert Steel v. University Construction

Also established consideration cannot be at the benefit of one party and at the detriment of another (i.e., one-sided).

Gilbert asked for higher price after the initial contract, university agreed but then refused payment. This was only enforceable if Gilbert provided consideration on their side, e.g., faster delivery in exchange for the higher price.

Overall, established change of price is consideration as long as fresh consideration is also provided in return.

Williams v. Roffey

Established enforceable consideration. Roffey subcontracted Williams and didn’t pay the extra money that was offered for Williams to finish on time. This was consideration because: Roffey didn’t end up paying the late fee (their benefit), and Williams was to be paid extra money (his benefit). It also established practical benefit as Roffey got the work done early (not monetary value, but still a benefit).

What is the Doctrine of Promissory Estoppel?

If a promisor made a promise to not claim interest, and promisee relied and acted on the promise, promisor cannot break that promise.

Can only be invoked as a shield.

Central London v. High Trees

Established Promissory Estoppel. High trees asked for reduced rent, London agreed. London tried to restore original rent after all units were filled post-WWII and tried to claim backpay on the period of the reduced rent. High Trees could invoke Promissory Estoppel as they are the defender + relied and acted on the promise from London.

What is the general question pathway for determining if a promise is enforceable?

1. Has any consideration been provided?

   1. Yes - enforceable via Doctrine of Consideration

   2. No - has the promise been relied or acted on?

      1. Yes - enforceable via Doctrine of Promissory Estoppel

      2. No - not enforceable

What are conditions, warranties, and innominate terms?

Conditions - terms with serious consequences, allows for contract termination if breached.

Warranties - terms with minor consequences, sue for damages if breached.

Innominate - not known/classified until determined as condition or warranty.

Poussard v. Spiers & Pond

P was a principal role in Spiers’ new opera. As P failed to perform the key task of this contract (i.e., the principal role), P breached the contract and Spiers was allowed to terminate.

Bettini v. Gye

B was contracted for a solo show with G, condition was 6 days of rehearsal prior to the first show, but B arrived late. As B’s condition to perform was not affected by his breach of this condition, it was established as a warranty and G could not terminate the contract, only seek damages.

What is parole evidence rule?

Everything written inside a contract is agreed upon. No oral promise, conditions, representations, etc. are accepted as binding. Anything left outside the contract is not part of it.

What is the framework for deciding an exemption clause?

1. Whether the exemption clause was incorporated into the contract at the time of binding (not afterwards)

2. Whether it is fair and reasonable for the party concerned to exclude or limit its liability.

Tilden Rent-A-Car v. Clendenning

Exemption Clause - “Insurance is inoperative if driver had consumed alcohol at time damage occurred.”

C’s signature was ruled to not be a true assent to this term as it was unusual compared to the general law about driving while intoxicated. Tilden should’ve took reasonable measures to ensure C understood this condition.

If Tilden pointed out the condition or C pointed it out himself, then it would have been binding.

George Mitchell v. Finny Lock Seeds

Farmers bought cabbage seeds, they grew but had no heads to sell commercially. Could only be used as animal feed thus suffered a huge loss. Farmers wanted to claim seeds + profit loss, Finny only wanted to pay out the seeds cost.

1. Clause was not negotiated with equal bargaining power as it was inserted in the invoice and not discussed.

2. No opportunity for farmers to discover seeds were not cabbage.

3. Buyers had no opportunity for insurance against this incident.

4. Incident couldn’t happen without severe negligence.

Ruling was Finny had to pay out both costs due to the points above.

What are the 8 vitiating factors that affect a contract’s validity?

1. Misrepresentation

2. Mistake

3. Legal Capacity

4. Duress

5. Undue Influence

6. Uncionscionability

7. Illegality

8. Writing as a requirement

What is misrepresentation?

A false statement of fact.

What is the framework for misrepresentation?

It is a statement:

1. of fact (not a mere opinion) - i.e., “this car has not been in an accident” vs. “this is the best car ever”, often something that can be verifiable through proper means

2. that is untrue/false - inaccurate or misleading

3. that is material - important enough to matter to the decision

4. that actually induces the aggrieved party to enter into the contract - party entering relied on the statement when entering the contract

Bisset v. Wilkinson

Established misrepresentation occurs when one person is in a better position to know than the other.

The farm land was never used for sheep farming before when B sold to W, so B was in no better position than W to know it wasn’t suited for sheep. W had to follow through the contract.

Smith v. Land and House Property Corporation

Established opinion vs fact. - if a party with specialized knowledge makes an opinion that implies a false statement of fact, it can be treated as actionable misrepresentation.

L bought and hotel from S, who stated the tenant was most desirable. Tenant turned out to be in significant financial difficulty and only paid a portion of the last quarter’s rent. S was in better position than L to know about the tenant and knew more facts, thus L was given rescission.

What are the 3 categories and remedies of misrepresentation:

1. Fraudulent - deliberate to mislead or cheat, reckless (damages and rescission)

2. Negligent - made carelessly or negligently, without reasonable grounds (damages and rescission)

3. Innocent - had reasonable grounds to believe it is true, but in fact, was incorrect (rescission only)

What are the three types of mistakes?

Common - both parties made the same mistake, nulls contract immediately

Mutual - one party mean A and the other meant B, nulls contract immediately

Unilateral - only one party is mistaken, contract is normally effective unless non-mistaken party ought to have known of the mistake.

The Queen v. Ron Engineering

R mistakenly bid a smaller value than intended and realized after close that it was $750k less. Error was detected and communicated 72 min after closing.

Ruled the $750k was a marginal amount and R legally submitted the intended bid.

What are the three conditions for Doctrine of Non Est Factum to apply?

1. There is a difference between the document as it is and as it was believed to be.

2. The difference is fundamentally, radically, or totally, different.

3. There was no negligence or carelessness on the signor’s part.

Saunders v. Anglia established this.

Marco Color v. Harris

Harris signed a mortgage (1st charge), relatives reapproached with new mortgage deceitfully assuring minor changes, Harris signed the 2nd charge without reading it.

Ruling: Non Est Factum doesn’t apply as he failed to cover the 3rd requirement (no negligence or carelessness).

What are the two factors and their exceptions in Legal Capacity?

Minors - people below 18 or 19 (depends on province of jurisdiction). Contract is usually voidable at the option of the minor.

Exceptions:

1. Contracts for necessaries are not voidable (food, shelter, clothing, etc.)

2. Beneficial contracts of service are not voidable (training and career development)

Mental - one party is mentally impaired through illness or intoxication of alcohol/drugs and unable to understand the consequences. Enforceable if the other party was aware of such state.

What is duress considered to be in law?

One party is threatened, forced, or coerced into the contract (e.g., threat to kill, threat to damage property, threat of economic harm, etc.)

Stott v. Merit Investment Corp

Stott was pressured by his supervisor into signing an agreement to assume liability on bad customer account.

Ruling: called in unexpectedly, confronted, talked about delinquent account Stott felt responsible for, was given no opportunity to consider, and effectively was discouraged from contacting a lawyer. Contract became voidable.

What is considered to be undue influence and the different types?

Situations where one party exerted pressure.

1. Actual Pressure - one party actually exerted pressure, burden is on the accuser.

2. Presumed Pressure - misuse of trust and confidence, burden of proof is on the accused to rebut (e.g., not applicable if the accuser/influenced party got independent legal advice before signing contract).

BMO v. Duguid

Mrs. D co-signed with her husband, was not recommended to seek legal advice. Mrs. D claimed undue influence on Mr. D after he defaulted the loan. BMO said she should’ve known due to her professional background in finance.

Ruling: Mrs. D’s background was irrelevant, and she signed under duress as she feared destroying her marriage. BMO also failed to advise Mrs. D in getting an independent legal consult, thus failed to rebut.

What is Unconscionability in contract law?

One party takes advantage of the weakness of another to enter into an unfair or improvident agreement.

1. Proof of inequality - should be overwhelming imbalance of power

2. Proof of improvident - greatly advantaged for one party over the other

What is illegality in contract law?

Illegal by legislation or contrary to public policy.

What is writing as a requirement?

Applied everywhere in Canada except NB and Manitoba. Prevents fraud and perjury by requiring proof of certain kinds of contracts.