K Formation — Bargain Theory: Offer, Acceptance, Consideration
Offer
1. Party, Price, Property.
2. Ceases to exist if rejected, and expires after a reasonable time (determined by context).
3. Binding once accepted but may be revoked anytime before acceptance.
4. Effective revocation may require notice of revocation.
Canadian Dyers v. Burton (1920, H.C.): Party’s conduct i.e. sending a draft deed and naming potential closing date suggested that there
was an offer and therefore a binding K.
Harvey v. Facey: A statement of the lowest price at which the vendor would sell contains no implied K to sell at that price to the inquiror.
Boots: Display analogous to advertisement, which is an invitation to treat only. Offer is bringing goods to cashier, acceptance is the cashier
taking the money.
Acceptance
Carbolic Smoke Ball Co.: Unilateral K. Usual requirement for notification of acceptance waived by asking for performance.
Goldthorpe: Wording in advertisement (“results guaranteed”) suggested unilateral K upon payment.
Livingstone v. Evans (1925, Alta.SC): Counteroffer rejects original offer, but original offer was renewed by reply “cannot reduce price”
Butler Machine Tool Co. (1971, Eng CA): Last shot rule/performance doctrine — the last K is the binding one.
Tywood Industries: Retreat from classical last shot rule. D snuck in an arbitration clause, P did not assent to final K, D sent goods anyway.
D was in the wrong, judgment for P even though D’s was the last shot.
Dawson v. Helicopter Exploration Co. (1955): Offeror in a bilateral K cannot revoke the offer if they do not fill their obligation to perform.
Felthouse v. Bindley (1862): Silence is not acceptance.
Saint John Tug Boat (1964): Silence can constitute acceptance when combined with the parties’ conduct.
Eliason v. Henshaw (1819): Acceptance must be in the form contemplated by the offer (oral for oral, letter by letter).
Negative Billing: If there is a change in the continuing services K, the goods are considered unsolicited unless the supplier can establish
that the consumer consented.
Tendering Cases
R. v. Ron Engineering (SCC, 1980): Two-K approach. KA is submission of bid (acceptance of offer, irrevocable). KB is service K.
MJB Enterprises (SCC, 1999): No implied term in KA that the owner must accept the lowest bid, they retain the discretion to determine the
best compliant bid. Privilege clause does not include the right to accept non-compliant tenders.
Blair v. Western Mutual (1972, BCCA): Stenographer. No communication of offer, so no K.
Reward Cases
Williams v. Carwardine (1833, KB): Unilateral K even though performance was not motivated by offer.
R v. Clarke (1927, HCA): Fulfilment of conditions raises a presumption that there was an intention to accept the offer. Evidence did not
satisfy conditions of unilateral K, didn’t know about the reward = no K.
Electronic Acceptances
ProCD v. Zeidenberg (1996): Clickwrap licenses constitute a reasonable offer and confirming constitutes acceptance.
Brinkibon (1982): An acceptance email creates a binding K when it is sent (same as letter rule). Acceptor’s responsibility to ensure the
message was received. Policy: offeror wouldn’t know
Rudder v. Microsoft Corp. (1999): Clicking “I Agree” on an electronic agreement indicates assent to terms, even if it wasn’t read.
Mailed Acceptance
Household Fire & Carriage v. Grant (1879): A K becomes binding the instant the acceptance is put in the mail. Policy: business efficiency,
allocates risk to offeror
Holwell Securities v. Hughes (1974): Exception to the postal rule can be specified in the K, eg. acceptance upon receipt.
Termination of Offer
Offer may be terminated anytime prior to acceptance by:
1. Express Term: K stipulates a fixed period of time during which the offer remains open
2. Rejection/Counteroffer: Offer is terminated once the offeree rejects offer or makes a counteroffer
3. Revocation: The form of revocation must match the offer. Oral offer = oral revocation is sufficient. (Byrne)
4. Lapse: Offer expires after a reasonable length of time.
Dickinson v. Dodds (1876): Offeror can revoke offer prior to acceptance even if an offer is open until a specified date.
Byrne v. Van Tienhoven (1880): The postal acceptance rule does not apply to revocation of offers; must be communicated. Policy:
Efficiency, protects reliance of offeree
Errington (1952): An offer cannot be revoked once performance has commenced.
Barrick v. Clark (1951): If not specified, the reasonable time to accept an offer can be determined from the conduct of the parties, the
nature of the goods, etc.
Certainty of Terms
May & Butcher (1929): An agreement missing central terms such as price is not a valid K.
Hillas v. Arcos (1932): An agreement to agree in the future is not enforceable.
Foley (Eng.CA, 1934): Performed K for three years. Past performance will indicate that a K was binding. Policy: unjust enrichment
Agreements to Negotiate
Empress Towers (1990, BCCA): A provision binding parties to negotiate may be enforceable if there is a formula or benchmark.
Mannpar Enterprises (1999, BCCA): No K duty to negotiate in good faith if no objective benchmark is provided.
Wellington City Council (2002, NZCA): In a K binding the parties to negotiate, breach of K does not arise from failure to agree.
Promises
Policy: reasonable expectations vs. unfair surprise
Dalhousie College (1934, SCC): gift promises not enforceable; no consideration.
Branford Hospital (2003, Ont SCJ): pledge not binding; no consideration. Naming the unit was an act of gratefulness, not consideration.
Wood v. Lucy (1917, NY): Mutual promises are consideration.
Eastwood v. Kenyon (1840, QB): Consideration must be contemporaneous with the promise. Policy: moral vs. legal obligations
Exception: Lampleigh v. Brathwait (1615): Doctrine of past consideration does not apply if past act was done at the request of promisor.
Legal Formalities
Policy: balance expectations/unfair surprise, evidence of promise, deliberation (intent to be bound by law, unjust enrich, reliance, private
ordering)
Matheson v. Smiley (1932): Attempted suicide; doctor billed for $150. The person who gained the benefit should pay.
Thomas v. Thomas (1842): Consideration must have value in the eyes of the law.
B. v. Arkin (1996, Man QB): Zellers case. Forbearance on the right to sue is good consideration if there is a reasonable claim, serious
intention to pursue it, and no concealment of material facts.
Accord and Satisfaction
Promise to extinguish an existing K obligation in return for partial performance of that obligation.
Foakes v. Beer (1884, HL): Payment of a smaller sum does not equal satisfaction of the larger amount.
Foot v. Rawlings (1963, SCC): Overrules Foakes. Part performance that benefits the creditor can amount to consideration.
Promissory Estoppel and Waiver
Hughes (1877, HL): A party cannot renege on a promise when it was implied in negotiations and relied upon by the other party.
High Trees (1947): A promise intended to be binding, intended to be acted upon and in fact acted on, is binding so far as its terms apply.
John Burrows (1968, SCC): friendly indulgences. A promise must have intended to alter the legal relations between the two parties for
estoppel to apply.
Combe (1951): Estoppel is only a defence, not a cause of action.
Petridis (1982, Ont HC): mall restaurant. Estoppel must be made when a legal relationship exists.
Waltons Stores v. Maher (1988, HCA): Demolition began before P signed lease proposal. Must be assumption or expectation of a legal
relationship from the person to whom the promise was made before estoppel applies.
M. v. A. (2003, BCCA): Promised to pay her mortgage. Estoppel cannot be used to enforce a promise that did not affect legal relations.
Policy: voluntary assumption of risk, no mutuality
Saskatchewan Rivers Bungalows (1994): There must be full knowledge of the rights and an unequivocal and conscious intention to waive
them. Demand for payment showed intention to continue coverage upon payment of the July premium and thus waiver of the time
requirements for payment. Waiver can also be retracted upon notice if it is being relied upon.
Intention to Create Legal Relations
Balfour (1919, Eng CA): Household agreements are not generally legally enforceable.
Rose and Frank Co. (1923, USCA): Honourable pledge clause upheld; parties can K out of legal relations to rely on each other’s good faith,
but then no legal remedy can be sought for lack of performance.
Sealed Documents
Royal Bank v. Kiska (1967, Ont CA): K binding based on consideration, dissent: formality serves a purpose and it must be preserved.
Modern test of seal: Did parties intend that document be sealed? Was application of seal a conscious and deliberate act?
Subrogation — Fraser River Pile & Dredge (1999, SCC): London Drugs test is not limited to employment situation; applies to all 3P
beneficiaries.
Policy: Price reflected expectation of insurance; efficiency dictates both would not get insurance
Concurrent Liability in Tort and K
Hedley Byrne (1964, HL): Established concurrent liability. If a negligent misrep is a misrep in a K sense, the party can sue in K and tort.
Nunes Diamonds (1972, SCC): Overruled Hedley Byrne
Rafuse (1986, SCC): General Principle of concurrent liability. Liability in tort will not be admitted if it would allow P to escape a contractual
exclusion or limitation of liability for the tortious act.
Sodd Corp (1977, NS): Concurrent liability in tort and K for pre-K misrepresentation.
BG Checo (1993): A party may sue in K and tort or both subject to any limit the parties placed on that right by their K.
Policy: Principle of Primacy of Private Ordering. the right of individuals to arrange their affairs and assume risks in a different way than
would be done by the law of tort. K’ual limits must be done in clear terms and are subject to other K doctrines.
Concurrent action in tort depends on
1. whether the K dealt expressly with the matter
2. Distinction between commercial and non-commercial K’s (policy: risks should be allocated in K)
3. Court’s perception of bargaining power
4. Whether the result is just or unjust
K Modification
Stilk — No consideration necessary; already under K to do the task.
Gilbert Steel — Modification of K price must be supported by consideration
New rule under Williams: K mod may be unsupported by consideration if there is a practical benefit to the party who is not modifying and no
economic duress is present.
Privity
Old rule — Tweddle: A 3P cannot enforce a K. No consideration, minimizes liability, promotes party self-reliance.
Beswick: Unjust result if 3P beneficiary cannot enforce a will.
London Drugs: Exception for employees to enforce a limitation of liability clause if:
1. The clause extends its benefit to employee(s) expressly or impliedly, and
2. Employee was acting in the course of their employment and performing the very services provided for in the K when the loss occurred
Limited by Edgeworth: A 3P/employee who could have avoided the loss (insurance, etc.) cannot benefit from an exemption.
Reps and Warranties
Redgrave — if a party was induced to enter a K by a material misrep, they are entitled to rescission. Inference that the misrep induced K.
Smith — A party is entitled to rescission if a misrep is made when there was a disparity of knowledge. Statement of opinion in this context =
rep.
Heilbut — Rubber; innocent misrep does not give rise to damages. Intention of parties — reps are warranties if intended to be; breach =
damages
Dick Bentley — rep made with the intention of inducing a party to enter a K is a warranty.
1. Rep 2. In the course of dealings 3. Intended to induce entry into K 4. In fact induces entry 5. Reasonably relied upon
Reliance vs. Unfair surprise
Leaf — breach of condition treated as a breach of warranty if the buyer has accepted the goods i.e. sue in damages only, not rescission
Hong Kong Fir — prevention of substantial benefit of the K gives rise to repudiation
Innominate term: K term, breach may give rise to a right to repudiate or damages depending on whether it is a condition or a warranty.
Wickman — calling something a condition does not necessarily make it one. Use Hong Kong Fir to determine whether condition or warranty
(law in Canada); read breach in context with other terms to determine if breached provision is a condition.
Factors: timing, importance, knowledge and skills, content (specific), ambiguity, opinion v. guarantee