Contractual Obligations SUMMARYDecember 2004
Kirk Shannon
I. Introduction to the Law of Contractual Obligations
A - What is an Obligation?......
Case: Wabasso......
B - What is a Contract?......
C - Sources of Contract Law......
II. Defining Agreement
A: Intention to Create Legal Relations
Case: Carlill v. Carbolic Smoke Ball Co.......
Reward Contracts
Civil Law Perspective on Carlill Case......
Case: Kleinwort Benson v. Malaysia Mining......
B: Exchange of Consents
The Rules:......
Case: Harvey v. Facey......
Case: Boots Case Chemists......
Not in the Course -- Shoelane Parking Case......
C: Ambiguity
Case: Les Terrasses v. Saunders......
Case: Raffles v. Wichelhaus......
Objective v. Subjective Intention in the Common v. Civil Law:
D: Contradiction
Traditional Common Law Rule (Mirror Image)......
Case: Hyde v. Wrench......
Rules for Quebec Civil Law (1387, 1388, 1393):......
Case: Simard-Beaudry......
Case: Doughboys......
E: Revocation and Lapse
1. Contract inter absentis/Remote Party Contract......
The Rules......
Case: Henthorn v. Fraser
Case: Entorres v. Miles Far East Corp.
2. Limitations on Offer -- Revocation, Lapse......
Rules for Revocation......
Case: Dickinson v. Dodds
Rules for Lapse......
Case: Shatford v. B.C. Wine Growers......
F: Protecting Reliance?
Rules of Promissory Construction and Promise not to Revoke......
Case: Dawson v. Helicopter......
Case: Errington v. Errington......
The Role of Reliance in Reward Contracts......
Case: Crown v. Clarke
G: Agreements to Agree
i.) Promise to Contract (Civil Law)......
1. Bilateral Promises to Contract (Civil)......
2. Unilateral Promises to Contract (Civil)......
Case: Cere v. Neely......
ii) Agreements to Agree (Common Law)......
Case: Walford v. Miles
Case: Empress Towers v. Bank of Nova Scotia
H: Extra-Contractual Duties as Surrogate to Offer and Acceptance
Case: Brewer v. Chrysler......
Remedies/Strategies to Protect Reliance
III. The Kinds of Agreements that Are Enforced......
A: Social Relations and the Intention to Create Legal Relations
Case: Merritt v. Merritt......
B: Formalities
Case: Wilson v. First County Trust
C: The Concept of Consideration
Case: Thomas v. Thomas
Case: White v. Bluett
Case: Hamer v. Sidway
D: Perspectives on Consideration
Fuller, Fried and Atiyah......
E: Past Consideration
The Rules......
Case: Roscorla v. Thomas
Case: Lampleigh v. Brathwait
F: Changing Circumstances
The Rules......
Case: Stilk v. Myrick
Case: Gilbert Steel v. University Construction
Case: Williams v. Roffey......
Case: Stott v. Merit......
G: Protecting Reliance (Promissory Estoppel)
The Rules......
Case: High Trees
Case: Combe v. Combe
Case: Tudale Explorations and Bruce
Case: Walton Stores v. Maher
H: Extra-Contractual Duties as Surrogate
Case: Deglman v. Guaranty Trust Co. of Canada and Constantineau
Case: Lac Minerals Ltd. v. International Corona Resources Ltd
I: The Civil Law Perspective
Gratuitous Contracts in the Civil Law......
Intensity of Obligations......
Object and Cause in the Civil Law......
The Natural Obligation......
Case: Re Ross
Part V: The Kinds of Agreements that are not Enforced
Public Order/Policy......
The Rules......
Case: Cameron v. Canadian Factors
Case: Cataford v. Moreau
Case: Cooke v. Suite
Case: Labatt v. Villa
Case: Amselem
I. Introduction to the Law of Contractual Obligations
A - What is an Obligation?
Definition:
Baudouin: a juridical link between two or more persons whereby one of these (called the debtor) is required under compulsion of law to do something or refrain from doing something in favour of the creditor (execute a prestation)
3 Characteristics from Jukier:
-1) Link b/n Persons: realm of personal rights
-2) Juridical Link: obligation is enforced by law
-3) Pecuniary consequence to non-performance (damages or specific performance)
Art 1371 / It is the essence of an obligation that there be persons between whom it exists, a prestation which forms its object, and in the case of an obligation arising out of a juridical act, a cause which justifies its existence.From Baudouin: The idea of free will comes with three principles:
1)The contract is superior to the law: In effect those entering into a contract out of free will, create their own law
2)Only free will creates an obligation
3)A contract freely entered into always conforms to the interests of justice and social interests
-Civil Law – notion of obligation is a UNITARY CONCEPT: simple, single obligation for all obligations; has def’n above from Beaudoin
-Common Law – no notion of an “obligation” rather, 3 watertight compartments CONTRACTS, TORTS, RESTITUTION (common idea of unjust enrichement)
Sources of Obligations:
Art 1372 / An obligation arises from a contract or from any act or fact to which the effects of an obligation are attached by law.-1372 is trying to make distinction between JURIDICAL ACTS and JURIDICAL FACTS
2 sources of obligations: juridical acts and juridical facts
1. Juridical Act: Manifestation of WILL; obligation has its source in the externalized will of the party; this will creates juridical effects voluntarily
-Examples: CONTRACT (bilateral juridical act); WILL, OFFER (unilateral juridical acts)
2. Juridical Fact: no intent to create legal relations
-Example: civil liability Legal effects determined by law
Obligations - Contractual and Extra-contractual
“OPTION”: Issue – Should you be able to opt for the most advantageous source?
Common Law: YES. B/C, if forced to sue under contract, party might be worse off than a party who was the victim of the same act but didn’t have a contract (and could go for tort)
Civil Law: NO. Where there is a contract, must stick to regime of contractual responsibility (1458 CCQ). Note that obligations you might expect to be extra-contractual are IMPLICIT CONTRACTUAL obligations (1434 CCQ)
Case: Wabasso
- Facts:K of sale for heating machine. Catches fire and burns down factory. P sues for negligence in Trois Rivieres. D says: this is breach of K (duty to inform) in states. Victim has option, picks EX-K. But now overturned.
- [A.1458] If breach of K, must take K recourse(even if other option more desirable)
- Decision/Reasoning:If K and EX-K, which recourse do you take? K.
Civil: Obligation: juridical acts = K
juridical facts = civil wrongs / Common: juridical acts = K
juridical facts = Tort
B - What is a Contract?
Definitions:
-Waddhams: A promise that the law will enforce
Art 1378 / A contract is an agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation-Theoretical underpinning: Autonomy of Will theory (civil); will theory (common)
- Pothier (French, in 18th C.) An agreement based on the intention of the parties and their will creates the legal obligation
Autonomy of the Will Theory:
Laissez-faire - If you are totally free and equal, by your own will you can bind yourself to do anything you want with no state interference. Freedom and equality means you wouldn’t agree freely to what isn’t in your best interests.
-2 bases of theory: French Revolution (all men are free and equal Rousseau) and laissez faire economic theory
-Therefore any contract freely entered into is going to be
- (1) in best interests of parties and
- (2) in best interests of social utility of society
- THEREFORE K is binding on parties and on courts and states
Two Maxims that dictate Objective (state) law that provides the juridical enforceability that allows for the subjective laws to be created b/n parties and lived up to
-1) “Qui Dit Contractuel Dit Juste”: enter freely = necessarily just; “free dealing is fair dealing”
-2) “Pacta sunt Servanda”: Parties and society are servants to contract; refers to BINDING nature
Problems with the Autonomy of Will Theory:
2 factors in contemporary society call into question the Autonomy of the Will Theory:
-Unequal Bargaining Power of Parties: Differentialin terms of means, knowledge and sophistication. Or, when facing monopolistic situation.
-Proliferation of Contracts of Adhesion (Art 1379)
-K is on the terms of ONE party and non-negotiable – where are freedom and will?
Why do parties enter into contracts?:
-To PROTECT INTERACTIONAL EXPECTATIONS: bring uncertainty of future into certainty of present; guarantee expectations
The 2 Effects of Protecting Expectations:
[1] Protection of EXPECTATION INTERESTS by courts
-With breach get reliance and expectation damages.
-Policy decision to encourage people to enter into contracts by granting them expectation interest facilitating reliance on agreements and protecting social utility of a contract (Atiyah and Smith)
[2] Competing Values
-Protecting expectations necessary for certainty/stability values of contract law/will theory
-BUT…there is a competing value contractual justice/flexibility: there may be reasons why you are breaching contract to sell me the farm. Courts may recognize these reasons = judicial control over sanctity of subjective law
Atiyah and Smith, An introduction to the law of Contract
- Mondern Day econ. Moves towards and away from freedom of contracts
- Standard contract could show disparities in bargaining
- Appropriate intervention now thought to be facilitating contracting not protecting the weak
- Idea of civilian ‘good faith’ vs. common freedom of contract
Crépeau, Preamble from the Unidriot principles
- It seeks to establish a corpus that would be truly international. The Qc Code is on the same plane.
C - Sources of Contract Law
We need the LAW OF CONTRACTS to:
-Resolve impasses or ambiguity in the parties’ relationships – how to interpret this contract?
-To determine the limits to which parties can take their contracts (subjective law) – is this contract allowed?
Subjective vs. Objective Law:
Subjective Law:
-The contract itself – always look at this first; the law brought into existence by the will of the parties
-In some cases, subjective law can be more important then (even trump) objective law.
Objective Law:
-Legislation and judicial decisions
-Used to interpret the subjective law and determine limits to which parties can take subjective law
-Objective law tempers subjective law which is K law: PUBLIC ORDER and PUBLIC POLICY
II. Defining Agreement
QUESTION: IS THERE A CONTRACT?
Introduction: What Constitutes an Agreement?
-Cannot apply rules of contract law until you have a contract (an agreement)
-Parties manifest will = contract
Manifestation of Will: Tacit vs. Express
Art. 1386 / The exchange of consents is accomplished by the express or tacit manifestation of the will of a person.-Tacit: Conduct of a party. EXAMPLE: taxi-cab in lineup – tacit offer:
External Will vs. Internal Will:
-Which does the law care about? both – a HYBRID solution to the external v. internal will debate (formalistic v. subjective)
-Internal will is important but (so as to be more objective) law focuses on external will
-TEST: What would a reasonable person think that the wills of these parties are? (objective way of finding subjective will)
OFFER AND ACCEPTANCE:
-The mechanism that law uses to find the formation of a contractand through which manifestation of wills takes place
-“did offeror intend to enter into legal relations?” which is the subjective notion of a will
- Take subjective question and analyse it through objective means
- Objective method is this idea of the reasonable person
A: Intention to Create Legal Relations
Art 1388 / An offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.Common Law: / Carlill, Kleinwort-Benson
-An offer is a unilateral juridical act – in which there is an intention to create legal relations.
Baudouin Jobin p.178-196
Les conditions de fond nécessaires à la formation d’un contrat
-La volonté de s’engager; exprimée par le consentement (adhésion individuelle)
-La capacité juridique
-Un objet précis
-Une cause (le pourquoi du contrat)
Case: Carlill v. Carbolic Smoke Ball Co.
Carlill v. Carbolic Smoke Ball Co. [1893] EnglandCommonFacts:
- Advert offers 100₤ in a case where someone takes Carbolic Smoke Balls as directed for two weeks and still contracts the influenza virus
- They claimed to have deposited 1000₤. in the bank to show sincerity
- Was the advertisement an offer (i.e. intention to create legal relation)?
- If it was considered an offer, was D required to pay even though there was no acceptance?
- Valid unilateral contract
How would a reasonable person construe the ad.? A reasonable person would deem that there is a distinct intention to create legal relations: the promise was not a “mere puff” because the ad said that co. had already secured money in the bank.
- Objective test: Objective manifestation of the subjective intent of the party
- An offer to contract may be made to an indeterminate person Civil equivalent 1390
- Unilateral contract where performance of the condition is the acceptance, consideration and formation of the contractCivil 1380(2)
- Performance of the condition is sufficient acceptance without notification of it Performance = acceptance (a unilateral contract, binding upon performance)
- The offer did not stipulate the time period in which the offer was valid. However, a reasonable person would construe time period as (1) if you get flu while using ball or (2) if you get flu w/in reasonable time after using ball. Contract is thus sufficiently clear.
Notes:
- Flagpole example of unilateral contract.
- Discussion of, b/c it is a binding contract, there was no consideration for the defendant ruled that the increase in sales based on this add would be considered consideration
- “If this is an offer to be bound then it is a contract the moment the person fulfills the condition”
- Also, look at context Consumer – bargaining power of parties (compare to Kleinwort, both corporate)
Reward Contracts
- Executory Ks: promises made on both sides
- Reward Ks: no K until performance of conditions (i.e. execution)
- E.g. ‘If you climb the flagpole, then I’ll pay you $100’
- CMN: reward K is unilateral– no exchange of promises = unilateral (Carlill makes no promise)
- Kind of a misnomer because only becomes K when both parties are involved (A through performance)
- CVL: reward K is bilateral– O just O until performance. Then O+A=K
Civil Law Perspective on Carlill Case
Offer can be to the world:
-Civil law equivalent:
Art 1390 / An offer to contract may be made to a determinate or an indeterminate person, and a term for acceptance may or may not be attached to it.Offer can determine method of acceptance:
Art 1394 / Silence does not imply acceptance of an offer, subject only to the will of the parties, the law or special circumstances, such as usage or a prior business relationship. The will of the parties can provide that silence is sufficient for acceptance of an offerArt 1395 / An offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to the offeror that he intends to consider the offer and reply to it within a reasonable time or within the time stated therein.
A mere promise is not equivalent to the proposed contract; however, where the beneficiary of the promise accepts the promise or takes up his option, both he and the promisor are bound to enter into the contract, unless the beneficiary decides to enter into the contract immediately.
ie. Offer of reward deemed to be accepted when the act is performed, even if the person who performs the act doesn’t know of the offer.
Unilateral Contracts:
-Civil law equivalent CONTRACT OF ADHESION
Art 1379 / A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable.Any contract that is not a contract of adhesion is a contract by mutual agreement.
Case: Kleinwort Benson v. Malaysia Mining
Kleinworth Benson Ltd v. Malaysia Mining Corp. [1989], W.L.R., C.A.Facts:
- MMC (parent) set up subsidiary
- Loaned $ by PL
- Offer of lower interest rate if there was a guarantee issued for repayment – refused – chose higher interest rate and, instead, sent 2 letters of comfort. – “it is our policy to ensure that the business is at all times in a position to meet its liabilities to you under above arrangements”
- Was the statement in the comfort letter a contractual promise to repay?
- No K words in the comfort letter are not a promise
- Contracts deal with future behaviour. The comfort letter is a statement of policy/fact and not a promise of future conduct - assuring only moral responsibilities
- In para 3 says “it is our policy” – not definitive.
- Defendants refused to guarantee but preferred to use comfort letter (which still could be considered a promise if been worded differently (to include “and will be”)
- Evidence of refusal by defendants to assume legal responsibility means their ‘intention’ was clear
Notes:
- (art 1427) defines the interpretation of a contract (clauses interpreted in light of other clauses)
- Policy’s role Parties are independent, Banks are big enough and intelligent enough (protected enough) to know to sign a contract for ₤10m pounds they didn’t, too bad, so sad [unlike Mrs. Carlill in Smoke Ball case who can’t be held to the same standard of sophistication]
- The plaintiff relied on this statement of the defendant RELIANCE basis for lending money
Relation to other issues:
-Implied promise to make up for lack of express one: judge says no such implied promise was pleaded
-Bargaining Power equal in this case
-Promise made in commercial transaction strong bias of courts to find legal intention
-Do not protect reliance here
Jukier on Kleinwort:
-Importance of context: similar words can be used in different contexts; in one it will be a promise and in another it will not (compare commercial to family contexts for example)
-Moral Obligations: Judge says D did not honour a moral responsibility which is not a matter for the court. The judge is right, the COMMON law does not deal with moral obligations. In the civil law however, moral obligations can be “bumped up” into natural obligations. (see Ross)
-Unjust Enrichment: cannot be applied in this case b/c enrichment and impoverishment must be correlative; parent company being sued but subsidiary company enriched
B: Exchange of Consents
Suppose we do have intent to create legal relations mechanism to determine if the contract is formed OFFER AND ACCEPTANCE.
The Rules:(similar in both traditions)
Civil Law:
Art 1386 / The exchange of consents is accomplished by the express or tacit manifestation of the will of a person to acccept an offer to contract made to him by another personArt 1388 / An offer to contract is a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted.
Common Law:
Harvey v. Facey
Pharmaceutical Society of Great Britain vs. Boots Cash Chemist
Case: Harvey v. Facey
Harvey v. Facey [1893], A.C., P.C.Facts:
- Discussion b/n parties to buy/sell property for ₤900
- Via telegram, 1) “Will you sell us (property name) [Invitation to treat]. Telegraph us lowest cash price”
- 2) “lowest price ₤900”
- 3) “We agree to buy (prop name) property for the sum of nine hundred pounds…”
- Does telegraph message constitute K’ual promise?
- Appeal allowed in favour of Facey
- Does not constitute a k’ual promise
- Issue of isolating the offer
- Telegram 1 has 2 questions 1) Will you sell? and 2) Lowest Price
- Telegram 2 only answers Question #2 of Telegram 1 but does not agree to Question 1
Notes:
- Prior to this telegram conversation, Facey had had a meeting in which he offered to sell the property to the mayor for ₤900 which the court did not take into consideration
- Where is magic moment when offer is accepted??
Case: Boots Case Chemists
Pharmaceutical Society of G.B. v. Boots Cash Chemists [1953], Q.B., A.C.Facts:
- BCC was pharmacy with some self-service
- BCC had pharmacist who supervised sale of drugs that fell under Sch 1 of Poison Rules
- Sold 2 drugs with low amounts of ‘poison’ which therefore do not come under Sch1 of the poison rules
- When is contract of sale completed (stated that it is complete when customer puts item into receptacle then how can a pharmacist say “this is not to be sold this person” as contract already technically complete
- Complete when added to receptacle or with offer to buy with the cashier and money exchanged
- Appeal Dismissed (in favour of BCC)
- No violation of the act
- Contract of Sale is complete when money is money changes hands The display of goods is an invitation to treat and not an offer.
- This is not a contractual issue case no dispute over contract
- Decision says taking off a shelf is really only an invitation to treatAcceptance is nothing until it is communicated to the offeror
- Argument 1) In self-serve situation, if K of sale complete when add to receptacle, customer would not be allowed to substitute and exchange items before paying (Comparison to other situations like that in a bookshop)
- Solution: Play with the rules of acceptance. Give the store the acceptance card Consumer is offeror.
- Creation of another problem (unjust reasons to refuse to sell)
Notes:
Offer: (art 1388) all essential elements of contract must be included in the offer
- Price, Description of the article, Intention to be bound
***Argument is that offer is made by purchaser when reach the cash and the acceptance is by the store***
Acceptance:
- Offferor has to know that the offeree has accepted
- No good if it is not communicated
Jukier on Boots Cash Chemist: