A Really Good Contracts CANSources and Functions of Contract Law

- Hawkins v. McGeeWhich Promises will be enforced?For state to enforce promise:

- Parties have manifested mutual assent

- Supported by considerationFunctions of consideration

- Evidentiary, Cautionary, Channeling

ConsiderationConsideration as a Basis for Enforcement

For consideration, a performance or a return promise must be bargained for (quid pro quo)Performance may consist of Bilateral contracts = exchange of promises Unilateral contracts = only require return performance

- “if you return my dog by midnight, I’ll pay you $100” -> consideration = the performance Hamer v. Sidway

- Nephew (P) was to refrain from drinking, smoking, gambling, swearing until age 21, if so D would pay him $5000

Unilateral – Uncle can’t do anything if nephew breaches Waiver of legal right at request of PR’OR = sufficient consideration

The Governors of Dalhousie College v. the Estate of Arthur Boutilier- Boutilier promised Dalhousie $5000, didn’t specify exactly what money was for,

Dalhousie constructs building, Boutlier did not pay because dead Reliance ≠ consideration, need for clarity in exchange

Don’t need consideration for contracts under seal -> involves formalities + procedures

Past ConsiderationPromises based on past consideration generally unenforceable Exceptions:

1) Debts barred by Statute of Limitations (Mills v Wyman) but then subsequently the person makes promise to pay despite no new

consideration can = valid promise. 2.) Promise to pay debt discharged by bankruptcy (Mills v Wyman)

Debt owing discharged, then subsequent promise to repay, no fresh consideration

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3) Subsequent promise made by the minor after reaching the age of majority (Eastwood, Mills v Wyman)

4) Past promise given at PR’OR’s request Promissory restitution - based on original promise. Services given, court thinks

unjust if not paid for now. Act done before giving of promise to make payment or confer some other benefit

3 things: (Pao On) The act must have been done at the promisor’s request the parties must have understood that the act was to be

remunerated either by a payment or the conferment of some other benefit

payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.

Eastwood v. Kenyon- John dies, leaves EW guardian of child Sarah. EW gives Sarah money for education and

promises to pay EW back when she becomes of age. Sarah marries K, K promises to pay EW back, but never did

Consideration made in the past is no consideration at all

Gratuitous act that was never requested (by Sarah – infant, or especially Kenyon)

Promise not sufficient to form a contract

Lampleigh v. Brathwait - L helps B get a pardon for murder, rode around

country to get pardon, after which B promised to pay L £100 4TH exception -> past promise given at PR’OR’s request “go and seek a pardon” -> implied promise to pay for the service

Promissory Restitution – Three conditions:1. act must be done at PR’OR’s request 2. parties must have understood act was to be remunerated by payment or other benefit 3. payment must have been legally enforceable had it been promised in advance

Mills v. Wyman - M cared for W’s son when he was ill, after son died W promised to compensate M

No consideration -> performance happened before promise so no bargaining Moral obligation itself not sufficient

Consideration Must be of Value in the Eyes of the Law Thomas v. Thomas

- P’s husband dies, his bros execute estate -> arrangement where P could live in house for £1 rent/year

Consideration must have value in eyes of the law -> £1 not gift, but sufficient consideration. Serves evidentiary and cautionary functions + bargain

Consideration must be something of value in eyes of the law moving from PR’EE PR’OR Giving up some legal entitlement Doing something not legally entitled to

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Give up something that you are legally entitled to do - Motive is not sufficient consideration - Does not need to benefit PR’OR or detriment PR’EE - Consideration must be requested

Bona Fide Compromises of Disputed Claims B.(D.C.) v. Arkin

- P’s son steals from Zellers; Z’s council sends letter demanding restitution or else civil action. P pays but realizes not liable -> sues Z for damages

- Issue: is forbearance to sue valid as consideration? No consideration, no good faith – reasonable lawyer would know no valid claim

Three criteria for forbearance to be considered a valid claim:- Needs to be in good faith - Serious intent to pursue claim- Not concealing anything from the other party

The Requirement of Bargain (illusory promises)Wood v. Lucy, Lady Duff-Gordon

- L gave W exclusive right to license her name for 50% profits, after contract was signed > did her own dealings + did not pay Wood. Argued contract invalid because W didn’t stipulate that he had to do anything in return so no consideration

Court said it was inherently implied he would use reasonable effort to implement agreement

For a term to be implied in a contract, it must be very obvious Strong v. Sheffield

- ST sold business to SH’s husband on credit. Debt put into promissory note payable on demand. SH endorsed note. ST presented note 2 years later + brought action against SH for payment

SH did not receive consideration in exchange for endorsement b/c ST did not promise to forego collection of the note for any period of time

Consideration is tested by the agreement, not what is done under it Problem is promise of ST is entirely in his control -> doesn’t matter if he

forebears for 2 years, need to judge at time promise was made Pre- Existing Legal Duty

Pre-existing Duty Rule = a promise to what one is already legally obligated to do is not good considerationStilk v. Myrick

- M contracted S to work as seaman on ship, S promised to do anything needed in the voyage incl. emergencies. 2 men deserted, captain couldn’t find replacements and promised to spit their wages between crew for extra work bit later refused to pay

No fresh consideration – pre-existing duty to work as needed during emergency

Modification not supported by new consideration

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Way around this case -> historic context -> only relevant to mutiny-related scenarios

Gilbert Steel Ltd. V. University Const. Ltd.- GS provides UC with steel for project based on written contract. Later agree verbally

price of steel will increase, UC refuses to pay higher price - GS says they will provide “good price,” Court says too vague -> no fresh consideration

Court says there was oral agreement, but not binding b/c no consideration Pre-existing legal duty? -> need fresh consideration for amendments to existing

contract Prior duty owed to PR’OR not legally sufficient consideration

Ways to avoid pre-existing duty:- Rescind the first contract before entering into the second- A “practical benefit” to the PR’OR (Williams v Roffey Bros) - A doctrinal change – (GFAA v Nav Can) - Third party obligations (Pao On v. Lau Yiu Long)

Williams v. Roffey Bros. & Nicholls Ltd. (departing from rigidity of Stilk v Myrick) - W contracted RB to renovate flats. W suffers financial difficulties, can’t complete

project. RB faces penalties clause if project not completed on time. RB offers W more money to complete project, but later refused to pay full amount. W claims.

- Was promise to pay supported by consideration? Yes – Practical benefit + no duress = consideration

Practical benefit – limitation date, easier to pay W more No duress – W did not try to extract money, RB offered

Pre-existing duty to PR’OR can be sufficient consideration if there is practical benefit to PR’OR

Distinguish from Stilk v Myrik? = different historical/political context Greater Fredericton Airport Authority Inc. v. Nav Canada

- NavCan says GFA needs new system. ASF agreement states NavCan runs navigation services, and pays for whatever equipment they need. NavCan refuses to pay for new system -> leverages airport. Eventually GFA promises to pay under protest. NavCan sues GFA for this promise.

- Is the practical benefit enough to support GFA’s promise to pay for the new equipment? NO

- Nav can took advantage of external pressure faced by GFA = ECONOMIC DURESS (distinguishing Williams/Roffy) NavCan: “Unless you pay for equipment, we are stopping services” VS. RB: “we want you to finish, will pay $”

- It would be unfair to enforce a promise that is extracted under undue pressure. Duress undermines intention.

- Variation to existing K , unsupported by consideration, enforceable if no duress- Not a negative promise, so promissory estoppel does not apply

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Pao On v. Lau Yiu Long

- FC and SO enter into share swap, SO unable to sell 60% for a year -> doesn’t allow SO to benefit b/c they can’t sell the shares

- 2nd Agreement->SO enters into second agreement with FC majority shareholders, promises the same, indemnify -> all losses will be compensated for retaining the 60% for a year

- Exception to past consideration: (1) – The act done at the promisor’s request (2) – the parties must have understood that the act was to be renumerated either by a payment or some other benefit (3) payment, of conferment of some other benefit, must have been legally enforceable had it been promised in advance

- A promise to perform a pre-existing legal duty to a 3 rd party can be valid considerationPromise to Accept Less

Accord and Satisfaction The duty to perform may be discharged by accord and satisfaction Accord = agreement, satisfaction = consideration

- Accord = contract under which an obligee promises to accept a substitution performance in future satisfaction of the obligor’s duty

- A creditor's promise to waive the residue of a liquidated debt in exchange for part payment by accord and satisfaction is void for lack of consideration (Foakes v Beer)

- A valid accord and satisfaction may be constituted by the partial payment of a debt, so long as the mode of payment is by cheque or by any other negotiable instrument (Foot v. Rawlings)

A change in the mode of payment = good considerationJudicature Act Foakes v. Beer (still correct in CL, but overridden in BC Law and Equity Act) -> Cumber v Wane

- B lends F 2090 £, original promise incl. interest. B promises F: you don’t have to pay interest if you pay part of the debt. F pays part of the debt (500 pounds). B sues for interest.

- Payment of a lesser amount cannot serve as satisfaction of a larger amount An agreement to do less in exchange for the same promise lacks consideration ->

not binding- Part payment cannot be consideration for a new promise

Foot v. Rawlings

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- Agreed that P would charge less interest on debt if regular payments made on post-dated cheques. Agreement kept for 2 years. P sues for balance

- Different than Foakes - Add consideration for new promise. modification so that not only is one party paying less but something else is different (ex: different time/place/payment method etc.) – then new arrangement is binding

- Modification of payment (form, place or time) exempts k from the rule that a smaller sum can’t satisfy a larger debt.

Promissory Estoppel and WaiverBasic Principle of Promissory Estoppel

- Where a promise, intended to be binding, and intended to be acted upon, has been acted upon, then the PR’OR will not be allowed to go back on the promise

- Whenever there is a promise that a PR’EE relied on and was induced by that promise, that promise will be enforceable (broad reading - not current case in Canada)

- If conditions of promissory estoppel met, PR’OR can't go back on promise because it would be inequitable

Hughes v. Metropolitan Railway Company- H (Landlord) gives MR notice asking for repairs, MR

asks to just buy the building, H enters negotiation for that -> doesn’t succeed, 6 months from original agreement H serves eviction notice

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- If a promise is implied in negotiations and one party relies on that promise then it is inequitable to allow the other party to act as though the promise does not exist

- Promise without consideration can be enforced if one party relied upon the promise Landlord waived right to strict enforcement by engaging in negotiations

Central London Property Trust Ltd v. High Trees House Ltd.- HT leases block of flats from CLP for 2500 pounds/year. War + heavy bombing of London

= low occupancy rates. Jan of 1940 – parties agree in writing to reduce rent by half, but not stipulated how long lower payment would apply. For 5 years, HT pays lower rent, flats began to fill 1945: back at full occupancyo CLP sues for full rental costs June 1945 onwards. Judgement for CLP in amount

requested. CLP waived their strict legal rights for the period of the war- a promise to accept a smaller sum, if acted upon, is binding notwithstanding absence of

consideration- Test for promissory estoppel: (1) promise intended to be binding and acted upon, and

(2) was PR’EE (whoever is asking for assistance of equity) acting equitably themselvesLimitations of Promissory Estoppel

1. The promise or representation must be clear or unequivocal (can be implied though)2. Must be an existing legal relationship

Can only use in cases of modifications -> does not establish new obligations 3. Can only be used as a shield, not a sword

Cannot be used as a sole course of action, typically only used as defence (D responding to P) or by P when rebutting allegations of contractual breach made by D

4. Must have been reliance on the promise In Canada – reliance usually needs to be detrimental

5. Must be inequitable for the PR’OR to go back on the promise Dunn v Vicars

- D(A) and V(R) planned to jointly develop property, both put down investment Plan A: both will own house, split profits or divide losses equally Plan B: Can’t find buyer with price we all agree on; A will move into house + pay

back his investment and R’s construction costs – Plan B would need to be in writing with mention of specific payments

A can’t find buyer, although they discussed A moving in, it was not formalized A’s lawyer argues that R should be estopped or waived of his right to strictly

insist on words of the contract - Court distinguishes between waiver and estoppel - Waiver = unequivocal relinquishment of rights

When waiving an option, you must do so clearly so as to demonstrate unequivocal and intentional decision to abandon rights

- Promissory estoppel is equitable ground for refusing to let promisor insist on strict rights - A relied upon R’s behavior and therefore should be estopped from a strict reading of the

contractWalton Stores Pty. Ltd. V. Maher [AUSTRALIA]

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- M (landowner) and W agreed (not yet contract) on the redevelopment of the owner’s land for Walton’s use as a store. There was urgency, so M demolished existing buildings and started building new structure. W then withdrew from the deal. Court found for M

- Why resort to P.E? NO CONSIDERATION. Demolishing is legal detriment, but it wasn’t requested (as per facts)

- Promissory estoppel as a sword o PR’EE was given expectations about the futureo PR’EE relied to their detriment o Would be unconscionable for PR’OR not to return PR’EE back to their position

pre-reliance Unconscionability = acting more committed than you actually are; leading

other party down garden pathM. (N.) v. A. (A.T.) (BCAA decision – narrowest interpretation of Waltons)

- M promises A he will pay the balance of her mortgage in England if she moves to Canada. She moves to Canada, but then he refuses to pay mortgage and kicks her out. A sues and claims estoppel (she relied and acted upon his promise)

- Tries to use estoppel as a cause of action to enforce a positive promise- Court rejects this; says estoppel is only a shield

o Further, no intentions of a legal relationship – so there was never a binding agreement

o Walton’s only applies in situations where there is a promise to enter in legal relations

A necessary element of promissory estoppels is the PR’EE’s expectation or assumption of a legal relationship. Here, the answer is no, the mortgage promise was not intended to be binding. These types of promises made in the context of a relationship are at the parties’ own risk

Mutual AssentOffer and Invitation to Treat

Meeting of the mind = trying to find the moment of mutual agreement between parties - Offer/acceptance + mutual assent = objective approach - Need to rely on the outward manifestation of the parties’ intent

What was reasonably believed to be said and done NOT what was intended Look from the view of an objective reasonable bystander

Canadian Dyers Association Ltd. v. Burton - P offers to sell house, D asks for lower price, P replies “lowest prepared to accept,” D

accepts, sends chq, P keeps chq., sends draft of deed + date of closure -> later returns chq. And claims no K

- Price quotation is usually an invitation to treat - Mere quotations of price ≠ offer, but P’s actions show him to have understood a K to be

made Whether proposal is construed as offer depends on language and circumstances

(objective)Pharmaceutical Society of Great Britain v. Boots

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- Boots is pharmacy, self-serve, customers pick out items; issue = when point of sale? when customer puts item in basket or at till?

- A display of goods in self-service store is an invitation to treat, not an offer- Must have offer + acceptance for K

Carlil v. Carbolic Smoke Ball Co. - Carbolic published ad saying it would pay £100 to anyone who got influenza after using

product 3x/day for 2 weeks in accordance with directions. Also said they put £1000 in the bank to show they were serious. P bought ball, used as instructed, still got flu

- Ads are generally an invitation to treat, unless language interpreted as offer by “reasonable person” test’’ -> advertisement of unilateral offer often held to be a contract

Acceptance is conveyed by performance, extravagance of promise no defence Outwardly manifested as serious offer when they put money in the bank

- There is a duty to limit an offer expressly if one does not wish for contract with unexpected persons

Offer was restricted to people who acted on terms of advertisement - Unilateral -> asking for a performace, not a promise

Goldthrope v. Logan - L posted “results guaranteed” for hair removal, nurse told G face could definitely be

cleared, hair continued to grow, court awarded cost of treatment + $100- Offer made to public, which G accepted by submitting to procedure - L suggested no expectations for their guarantees e.g. “results may vary”

Communication of OfferCommunication of the Offer

- Motives for accepting are usually irrelevant - Must be intention to accept offer- Acceptance occurs by fulfillment of conditions in the offer- Fulfillment of conditions raises rebuttable presumption there

was an intention to accept- Presumption can be rebutted if there is evidence to the contrary

Williams v. Carwardine- W Carwardine murdered, C (brother) posted handbill offering

reward for info. W (sister) gave info because scared of husband. Tries to claim reward even though motive in giving info wasn’t to get reward. Court finds for W.

- Motive irrelevant in acceptance, just need to fill conditions required to accept - Must know about the offer- Difference between motive + intent -> motive = fear of husband, intent = accept offer R v Clarke - C gave evidence for murder case -> no case without his evidence, did not know about

reward, tries to claim after.- No intention to accept – no meeting of the minds - Both knowledge of offer and intention to accept are required

Acceptance

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Acceptance - Once accepted, offer becomes contract - Offeror = master of the offer; controls way of acceptance, can revoke any time prior to

acceptance, may determine who can accept - Rejections and counter offers terminate original offer- Inquiry about offer does not reject it

Offer -> Acceptance = K; Rejection = offer termination; Counter offer = offer terminated Mirror Image Rule

- offeree's acceptance should "mirror" the terms stated by the offeror in the offer

- an offeree who responds to an offer by varying terms of offer ≠ acceptance

- variance in offeror’s terms = counteroffer = rejection - rejection terminates offer -> ordinarily offeree cannot revive the offer and accept it after

rejecting Livingstone v. Evans

- E writes to L saying he will sell land for $1800, L responds “send lowest price – will give 1600,” E says can’t reduce price, L wrote to accept original offer of $1800, E refuses to sell

- Counter-offer erases original offer BUT can be revived by original OF’OR -> “cannot reduce price”

Notification of Acceptance - Bilateral contracts -> offeree must show reasonable diligence to notify offeror of the

acceptance- Bilateral promises can be accepted by performance, but still bilateral promise e.g.

shaking hands Dawson v. Helicopter Exploration Co

- D and H exchanged letters discussing contract to explore area for mining, H agreed to tell D when he found pilot, D to get % of profits if land developed. Pilot became available -> H told D but said they probably would not explore b/c of 3rd party advice. D did not reply. H explored region later + contracted with another party (did not tell D)

- Bilateral contract -> mutual promises If unilateral, Dawson would have to perform by taking them there

- When an offer can be construed as bilateral or unilateral, courts will construe as bilateral

Avoid the abuse that is possible in unilateral offers -> more equitable As soon as it’s bilateral, you can't revoke

Felthouse v. Bindley - F offered to by horse, says “if I hear no more about him, I consider the horse mine.”

Nephew wanted to sell and sent to reply. D (auctioneer) accidently sold horse. - Silence ≠ acceptance (even if contemplated in offer) – acceptance CAN’T be assumed - Acceptance of offer must be communicated to offeror

Offeror can waive this right but can’t result in burden on offeree

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Can’t impose obligations on party without consent or knowledge Communication of Acceptance

Mailbox Rule = exception to general rule that acceptance must be communicated (and received) by the offeror before contract is formed

- Offer is accepted when offeree puts notice of acceptance in mail -> PRIOR to actual receipt of notice by offeror

- Acceptance = moment of dispatch -> can’t take it back at this point Household Fire & Carriage Accident Insurance Co. v. Grant

- G offered to buy shares, company accepted by post + put G on shareholders list, G never got notice so didn’t pay for shares but collected dividends. Company went bankrupt, liquidator sues G for unpaid shares. D says never received acceptance so no K. Court says there was valid K

- K is formed as soon as acceptance is put in the mail, so long as the parties have contemplated the mail as a viable means of communication in the dealings

Doesn’t matter is acceptance is received Offeror in stronger position b/c can set terms and

require communication of acceptanceHolwell Securities v. Hughes

- Hughes gave Holwell 6 month option to purchase property, said that option had to be exercised “by notice of writing,” Holwell posted letter of acceptance but it was never received

- Postal rule does not apply if: (a) terms of offer stipulate otherwise, or (b) its application would produce absurdity and inconvenience

- "notice in writing" - meant that Hughes required actual notice of acceptance- Postal rule does not apply when the terms of a contract point to the necessity of actual

communication, even if the post is the desired mediumBrinkibon Ltd. v. Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH

- Series of negotiations. Telex sent from London to Vienna accepting seller’s offer. Where was K made?

- When means of communication of acceptance are instantaneous (e.g. telephone, fax, emails) -> regular rule that acceptance must be communicated to offeror applies

- K is formed where/when acceptance was received/communicated to offerorRudder v. Microsoft Corp

- R brought action against MSN, MSN argued contract between them and subscribers contained forum selection clause, R argued clause not valid b/c not adequately brought to the attention of users.

- Is “I didn’t read the contract” an argument?- Presumption that there is a duty to read -> clicking “I agree” = the acceptance

Revocation and lapse of offersAn offeror may revoke offer - manifest the intention not to enter into a contract - without incurring liability, provided the offeree has not already manifested acceptanceOffer Terminators:

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- Lapse of lime An offer lapses after the expiration of the time stipulated in the, upon the

occurrence of a stipulated event, or if there is no such stipulation, after a reasonable period of time

- Death of offeror Offeree can’t accept upon death of either offeror or offeree If there was already an acceptance, estate will be bound

- Revocation - The Offeree’s Rejection

Dickinson v. Dodds - DO gives offer to sell property to DI until 9am Friday, DO sells to 3rd party Thursday

evening, P learns of this and sends formal acceptance on Friday at 7am. DO wins appeal - Offeror can withdraw at any point before acceptance, as long as the offeree has not

provided any consideration- to revoke an offer, you must communicate it to the offeree (does not have to be

communicated directly – agent is sufficientByrne v. Van Tienhoven

- P accepted offer on Oct 11, D mailed revocation on Oct. 8 but doesn’t reach P until Oct. 20

- Postal rule does not apply to revocation- Revocation MUST be communicated and is effective upon receipt

Errington v. Errington and Woods- Father put down payment on house for son & daughter-in-law, mortgage to be paid by

couple. Promised that if couple paid off mortgage they would get title to house. Made some but not all payments. Father died + left estate to wife (Errington) -> Wood + Errington’s son broke up, E sued for possession

- Part performance creates option to finish performance in unilateral contract Unilateral K binding once performance of conditions begins and is not revocable

upon commencement.- Part performance like an option contract -> passes to estate after death - Could have been construed as bilateral, but court construed as unilateral for equity

Errington could be a unilateral k: offer = promise to transfer property acceptance = making mortgage payments Therefore acceptance only occurs when payments are finished.

Errington could be (and likely is) a bilateral k: offer = promise to transfer property acceptance = yes consideration = promise to pay the mortgage Acceptor would be in breach of k if payments not made and therefore the

offeror could sue for damagesBarrick v Clark

- C wanted to buy B’s land, B sent offer to C by letter. Hot property -> B wants to sell quickly. C on hunting trip, wife asks B to keep offer open. B sells land to 3rd Party, C returns and accepts offer too late.

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- Court found for B -> offer was clear that it should be dealt with quickly -> timeframe valid

- Offeree must respond in reasonable time according to circumstances of businessUnilateral contracts

- Need to distinguish between starting performance and preparing for performance - Unilateral contract waives the requirement of notification of acceptance

Incomplete Terms Certainty of TermsGeneral rule: court will not enforce an agreement that has gaps, or missing an essential term When court fills in gap, danger of unfair surprise to one of the partiesCategories of uncertainty

- Uncertain commitment to the dealo A preliminary agreement, such as a

"letter of intent" or a "memorandum of understanding" may reflect the parties' commitment to a deal that they will further define later

- Vague termso "I will buy the eggs if they are good"

- Missing terms o Rule of thumb - 3 P's

Parties - who are the parties Property - must be specifically mentioned, subject of the contract itself Price

- Terms left for future resolution May & Butcher Ltd. v. R

- Parties entered contract for leftover war tents. Price to be agreed upon from time to time. Incl. arbitration clause.

- Arbitration clause not used b/c only effective when k is effective -> k was not valid - Sales of Good Act not used b/c reasonable price only applicable when the parties did not

decide how to set the price- If crucial term is undermined, no k- Must be some level of basic agreement before courts can intervene to fill in the gaps

o Too many of them here for there to be a contractHillas & Co. v. Acros Ltd.

- H reached agreement with A to sell timber, specific condition that they should also have the option of entering into a contract with Arcos to purchase 100,000 standards the following year with a 5% reduction on price. Arcos refused to sell them the 100,000 standards the following year. A argued k was missing price, description of goods, shipping dates. Court found there was binding k.

- Business k’s often not complete/precise – courts must look at intention + uphold where possible – context and economic sense important

- It is reasonable to imply terms if the intention is clear

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- Courts more willing to read in meaning when parties have acted on previous contracts -> course of dealing

Foley v Classique Coaches Ltd. - D purchased land and entered into agreement with P to buy all petrol required for

business from P -> price to be determined time to time. After 3 years, D. tried to renounce the agreement

- The parties acted for 3 years as if there was a contract -> can’t suddenly decide to adhere

- Courts shouldn’t be too eager to find uncertainties -> contracts will be upheld whenever possible

o Contracts generally not avoided simply due to ambiguity in price, intention is important

Agreements to NegotiateIn common law: no good faith requirement prior to contract formation

- This is not true in other systems - Narrow exceptions : unjust enrichment or implied promise to pay for services

Agreements to agree in the future = unenforceable b/c they are too uncertainTo find out if something essential is missing Empress Towers Ltd. v. Bank of Nova Scotia

- B leased property from E. Agreement to negotiate a renewal of the agreement for “the market rental prevailing at the commencement of that renewal term as mutually agreed between the Landlord and the Tenant”. Parties failed to reach agreement b/c E demanded additional payment of $15,000 (an E employee had been robbed at another B branch and only $15,000 was paid by insurance). Empress sought a writ of possession.

- Was the clause void either because of uncertainty or because it was an agreement to agree?

- Two courses of action:- 1. follow May & Butcher Ltd. v R - if there are things to be agreed upon then there is no

contract; or- 2. follow Hillas & Co., Ltd. v Arcos, Ltd. (1932) - the courts should strive to find meaning

if there is an agreement between parties (majority chose this).- Court says: found implied term to negotiate in good faith- Objective standard between them to decide what will be future

agreement Parties need to make best effort Duty to negotiate in good faith is not a duty to reach a

final agreement Need to use reasonable diligence

- Where there is an objective standard combined with subjective standard of agreement to agree, implied term to negotiate in good faith may be found

Mannpar Enterprises Ltd. v Canada

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- P was granted a permit with a renewal clause by D for extraction of gravel. D was not prepared to renew the permit. P took position that D had repudiated its obligation to renew

- No duty to negotiate in good faith when no language to provide an objective benchmark- Why is this different from Empress Towers? -> Did not include objective standard

Empress = objective standard is rate for rent -> understood in terms market rate or appraisal of similar units - parties have set themselves an objective mechanism for the court can discern

Mannpar = in renewal condition -> no objective standard such as market rate, just a floor price

- Agreement to agree is unenforceable - >Absence of objective standard makes this unenforceable

Wellington City Council v. Body Corporate (New Zealand Case – general attitude in Canada despite Empress Towers)

- W entered into contract with B which obligated W officers to “negotiate in good faith” with B the sale of W’s interest at property that B was leasing. Negotiations broke down + B sued for breach b/c of failure to negotiate in good faith

- Court: agreement to negotiate in good faith is unenforceable for uncertainty- Finds good faith to be a subjective standard -> too subjective for the court

Intention to Create Legal Relations Intention of Creating Legal relations

- Only if the parties intend their agreement to be legally binding and enforceable can it be enforced in the courts

- Promises stated to be binding "in honour only" and social engagements and jests are not enforceable

- The test for intention to create legal relations is objective o For social and domestic arrangements, there is a presumption against creating

legal relations - Idea that there is something more informal in family relationships

o Sometimes presumed to be based on altruism

Balfour v Balfour - Balfour + wife went on vacation, wife got sick, made agreement that she would stay in

England while B went home. Agreed to send her 30 pounds/month until he returned. Relationship went downhill. B refused to keep paying

- Overburdened courts shouldn’t consider family obligations as k’s as they did not intend legal consequences

- Arrangements made by husbands and wives are generally not contracts -> parties do not intend to be legally bound

- Policy issue -> too many frivolous cases if all agreements broken by husbands were taken to court

Rose and Frank Co v. J.R. Crompton and Bros. Ltd.

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- R+F were exclusive distributor of JR’s product, clause in agreement saying that arrangement was not intended to be formal legal agreement -> JR cancelled agreement, R+F sued for breach

- It is generally assumed that parties in business relationships intend to be bound- Parties’ express intentions should stand without interference from courts -> if parties

explicitly state they have no intention to create legal relations, k is not binding

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