• DUHAIME'S CONTRACT LAW: Eight chapters of pure, unadulterated contract law love.

1. Contract Law - The Introduction
2. Privity, Consent and the Reasonable Man
3. Consideration & Deeds
4. Offer & Acceptance
5. Mistake, Rectification & Misrepresentation
6. Restraint of Trade, Assignment, Novation & Frustration
7. Interpretation of Contracts
8. Time Limits, Breach & Remedies

OFFER

Each contract requires an offer and acceptance of that offer.

"... to constitute a contract, there must be an offer by one person to another and an acceptance of that offer by the person to whom it is made. A mere statement of a person's intention, or a declaration of his willingness to enter into negotiations is not an offer and cannot be accepted so as to form a valid contract" {Acme Grain Co. v. Wenaus, [1917] 36 DLR 347 (Sask.)}

An offer must be a clear, unequivocal and direct approach to another party to contract. Lawyers speak of certainty of terms as a condition of a valid offer.

For this reason, advertisements, catalogues or store flyers are not offers. In an advertisement, a pivotal term is uncertain: e.g., quantity.

Nor is a "for sale" sign on a used car.

invitation to treat - contract lawThe law calls these invitations to treat; essentially invitations to the general public to make an offer on a particular item. But, even here, there have been exceptions. For example, in a 1856 case, an advertisement of train rates was held to be a valid offer. Much depends on the wording of the "invitation".

An offer, once made, can be revoked before acceptance unless it is under seal. An offer can also expire if a deadline for acceptance passes.

If there is no specified deadline, then the offer expires in a "reasonable time", depending on the subject-matter of the contract.

For perishable goods such as food, a "reasonable time" would likely be a matter of days. The "reasonable time" would be longer where the subject matter of the contract is a building.

Blair v. Western Mutual Benefit Association, [1972] 4 WWR 284 (BCCA)

A corporate resolution is not an offer unless efforts are made to communicate it.
Canadian Dyers Association v. Burton, 47 OLR 259 (1920)

price quotes are not offers

Offer adA contract requires an offer and an acceptance.

Are price quotations offers?

Each case should be decided on the facts.

The question is one of intention.

"We quote you" has been held not to be an offer but "shall be happy to have an order from you to which we will give prompt attention" was held to be an offer.

"In each case of this type, it is a question to be determined upon the language used, and in light of the circumstances in which it is used, whether what is said by the vendor is a mere quotation of price or in truth an offer to sell."

Pharmaceuticals Society of Great Britain v. Boots Cash Chemists, [1952] 2 All ER 456

"In the case of an ordinary shop, although goods are displayed and it is intended that customers should go ahead and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed."

R. v. Dawood, 27 CCC (2d) 300 (1976)

cashier completes contract

A woman falsified a price tag on an article and then paid for it.

"When the appellant took the jumper and blouse to the checkout counter ... she was representing to the cashier that both articles had been displayed for sale at this price, although she knew such was false. The cashier had authority to accept such offer which she did by accepting the cash proffered. At that point a contract of sale had been made; true, it was a voidable contract as having been induced by fraud. The cashier had a general authority to accept such offer and to sell the goods on behalf of her employer."

Goldthorpe v. Logan, [1943] 2 DLR 519 (ONCA)

careful what you promise

satisfaction guaranteedA woman answers an ad guaranteeing removal of facial hair. Treatment failed. Was there a contract? The judge thought so. The ad was the offer. Relying on the Carbolic Smoke Ball case (see below under Acceptance), the judge added:

"[I]f the vendor's self-confidence persuaded her into an ... extravagant promise, she cannot now escape a complaint from a credulous and distressed person to whom she gave assurance of future excellence and relief from her burden. The weak unfortunate person, however gullible, can be sure that the courts ... will not permit anyone to escape the responsibility arising from an enforceable contract."

Harvela Investments Ltd. v. Royal Trust Co. of Canada, [1986] AC 207

In a fixed bidding sale where the vendor states that they will accept "the highest offer", they are so bound. In this case, the bids were to be called "offers" but the court overlooked this nomenclature:

"The mere use by the vendors of the words "offer" (in "would accept the highest offer") was not sufficient.... The task of the court is to construe the invitation and to ascertain whether the provisions of the invitation, read as a whole, create a fixed bidding sale."

R. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 SCR 111

tender contract A

In this case, a tender required a deposit of $100,000 which, the tender document stipulated, would be forfeited if the tender was withdrawn. The contractor, after submitting both tender and deposit, then tried to change his tender but was denied. The contract went to another company and the deposit was not returned.

The Supreme Court said that there was a preliminary, initial and "unilateral contract" which the court called "contract A" (which creates no obligation on any party until a bid is made); and the main contract, which the court called "contract B." Contracts A provide that the person issuing the tender can select one of the tenderers and enter into contract B with the tenderer so selected. Upon the person doing so, the tenderers, other than the one so selected, would be discharged from any obligation under contract A. The tenderer selected, however, would then be required to enter into contract B with the person issuing the tender (the process has been compared to a leaseholder exercising an option to purchase). Contract B, however, does not come into force until executed by both parties. In this case, under the terms of contract A, the deposit was not refundable.

The court said that the person that issues a call for tender creates an "offer to contract" which, once a bid is submitted both in conformity with, and in response to, the invitation to tender, is binding and is irrevocable if the tender conditions says that the bids are irrevocable.

This case has had a profound effect on the tendering process in Canada.

R. v. Canamerican Auto Lease & Rental Ltd., 37 DLR (4th) 591 (FCA, 1987)

This case followed the "contract A, contract B" analysis in the Ron Engineering case (see above).

In an invitation to treat situation, the court held that a contract "A" (using the words of the Ron Engineering case) was formed when the bid was submitted, binding on the person issuing the tender.

Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough Council, [1990] 1 WLR 1195

This British case also found that an invitation to tender can constitute an offer to bid which, if complied with, can create a contract.

The obligation of the invitor (the person issuing the tender) is to consider each bid received.

Williams v. Carwardine, 5 C. & P. 566; also at 172 ER 1101 (1833)

A reward was posted for information leading to the arrest of a murder suspect. An eyewitness who believed she was dying, and aware of the reward but not for that reason, gave evidence which led to the arrest. When the eyewitness recovered she tried to collect the reward.

The court found that she was so entitled even though "the plaintiff was not induced by the reward."

R. v. Clarke, 40 CLR 227 (HCA, 1927)

The Crown proclaimed a reward for information leading to the arrest of a murder suspect. One of the gang leaders, Clarke, turned informant fearful that he might be falsely accused of the murder and testified against the murderers. A month later, Clarke tried his luck and attempted to claim the reward.

The court held that the informant, Clarke "did not intend to accept the offer of the Crown ... did not act on the faith of, in reliance upon, the proclamation."

Byrne v. Van Tienhoven, [1880] 5 CPD 344

revoking an offer

postal ruleOn October 1, an offer to sell was mailed. It was received on October 11 and was accepted by telegram sent on October 11, confirmed by letter mailed October 15. But on October 8, a letter was sent by the offeror revoking the offer (the offeror received the letter of acceptance on October 20).

The court decided that the revocation was inoperative; that the postal rule was "inapplicable to the case of the withdrawal of an offer.

The court said that "an offer can be withdrawn before it is accepted and it is immaterial whether the offer is expressed to be open for acceptance for a given time or not."

But a withdrawal has no effect until it is communicated to the person to whom the offer has been sent.

"A state of mind not notified cannot be regarded in dealings between man and man; and that an uncommunicated revocation is for all practical purposes and in point of law no revocation at all."

Dickinson v. Dodds, [1876] 2 Ch. D. 463

Once a person is informed that the thing that was offered to him was sold to another person, there is an implied communication of the revocation of the offer and it is too late for acceptance.

Errington v. Errington, [1952] 1 KB 290

houseThe father paid the down payment of a house and then told his son and daughter-in-law that they could live in it, to pay the monthly mortgage and that it would be transferred to them upon the father's retirement.

When the father died, before the mortgage was paid, the court decided that the occupants did not have a contractual obligation to pay the mortgage but that as long as they did so regularly (based on the deceased's promise to them) and once the mortgage was paid, they would own the house.

Daulia v. Four Millbank Nominees, [1978] 2 All ER 557

offeror can't thwart condition

Potential purchasers were told that if they could produce a bank draft for certain amount of money "by 10 am the following day", they could buy the property. When the plaintiffs tried to hand over the draft before 10 am the next day, the defendants refused to accept it or complete the deal. The court ruled that there was an

"...implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer."

Re Reitzel and Rej-Cap Manufacturing Ltd. (1985)

An offer was given for a house which included an obligation for the vendor to insure it. When the house burnt to the ground, the offer was immediately accepted, ostensibly so the purchaser could benefit from the new construction at the price given to him based on the pre-fire building.

The court held that the destruction of the building substantially altered the state of the goods, thereby voiding the offer and no longer open to acceptance

ACCEPTANCE

Acceptance validates the contract; it gives it life. It is at that moment that a contract exists; that there is consensus ad idem (assuming a valid offer and consideration).

It also must be clear, unequivocal, unconditional and made by the person to whom the offer is intended.

handshakeIt is not enough to say that you find the offer to be "agreeable"; you must "accept" the offer although your acceptance can be implied by your conduct. It must also be brought to the direct attention of the offeror before a valid contract exists.

Conduct can amount to acceptance in the proper circumstances such as the delivery of the goods mentioned in the offer or the classic handshake.

The courts have laid down two conditions for conduct to be equated with acceptance:

(1) that the conduct was an expression of acceptance and not done for some other reason or motive, and

(2) that the action or conduct was intended as acceptance. If a judge were called upon to assess conduct for this reason, the judge would not weigh the acceptor's conduct subjectively, but would decide if a "reasonable person" would infer acceptance from that conduct.

A written offer can be verbally accepted unless the circumstances suggest that both parties expected the acceptance to be in writing.

In the vast majority of contracts (consumer transactions), acceptance is verbal or implied by conduct, the best example of which is a foreign tourist buying a product from a local merchant speaking a language the tourist cannot understand.

The offeror can dictate the terms of the acceptance. Offers may set certain conditions on acceptance and to these, the acceptor is bound. For example, the offer may require acceptance in writing (if such a requirement has not been made, then a written offer may be accepted verbally.)

In one case, a mobile home was purchased. With the home came a warranty card which had to be returned to the manufacturer for it to be held valid. The card was not sent to the manufacturer. The warranty was said to not apply because the purchaser never accepted the manufacturer's offer.

Carbolic Smoke Ball To this legal quagmire, should be added those rare situations where someone puts out an offer at-large, such as the famous Carbolic Smoke Ball Company case did in 1893 (formally, Carlill v. Carbolic Smoke Ball Company, [1893] 1 Q.B. 256).

The company put a sum of money on deposit with a bank and said they would pay this money to anybody who got influenza while using their product.

Well, a consumer caught influenza.

The courts held that a special "unilateral contract" could be created in these circumstances and the Smoke Ball Co. had to pay up.

One trick offerors sometimes attempt is to say that the proposed acceptor's silence will amount to acceptance. This is invalid and cannot have the effect of forcing a person to a contract without the requisite of positive acceptance, delivered to the offeror, either in words or conduct.

Another game potential contractors play with one another is called the battle of the forms.

This happens when, for example, I send you an offer and you amend it slightly and then send it back signed but amended! This action destroys the original offer and is not acceptance. It is a new offer entirely, called a counter-offer. Only if the person who submitted the original offer accepts the counter-offer, would you have yourself a contract.

Livingstone v. Evans, [1925] 4 DLR 769

In this case, two persons were haggling over the price of property. The offer was for $1,800.

The buyer counter-offered "Will give $1,600 cash."

Vendor replied "Cannot reduce price" after which the buyer accepted.

The court stated that a counter-offer normally terminates the original offer, which is no longer subject to acceptance. But in this case, the judge thought that the "cannot reduce price" message "was a renewal of the original offer ... that (the vendor) was standing by it and, therefore, still open" to acceptance.

Butler Machine Tool Co. v. Ex-Cell-O Corporation, [1979] 1 WLR 401

The judge said that:

"... where there is a battle of the forms, there is a contract as soon as the last of the forms is sent and received without taking objection to it. In some cases, the battle is won by the person who fires the last shot. He is the person who puts forward the latest term and conditions; and, if they are not objected to by the other party, he may be taken to have agreed with them."

But in this case, the battle of forms was resolved in favour of the original document because it stipulated that its terms would "prevail over any terms and conditions in the buyer's order."

Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd., 100 DLR (3d) 374 (Ontario High Court of Justice, 1979)

A battle of the forms played itself out and then a purchase order came in which called for arbitration in case of dispute. The purchase order was never signed by the plaintiff.

The court decided that the reference to arbitration had never formed part of the contract between the two parties.

The court noted that the defendant did not draw the attention of the plaintiff to the arbitration clause nor did it complain when the plaintiff did not sign the purchase order.

Dawson v. Helicopter Exploration Company, [1955] SCR 868

acceptance by conduct

Correspondence had been exchanged between two parties which did not make it clear if there was a contract.

Plaintiff had been offered a 10% share in exploration rights if he would accompany the defendant on exploration flights. The plaintiff wrote back: "If you will inform me, if and when you obtain a pilot for your helicopter, I will immediately take steps ... to be on hand." Defendant ignored the "agreement"

One judge of Canada's Supreme Court wrote that "a promise may be lacking, and yet the whole writing may be "instinct with an obligation ... imperfectly expressed ... which the courts will regard as supplying the necessary reciprocal promise."helicopter

Another judge wrote:

"The (plaintiff's) letter ... constitutes an acceptance of that offer, more particularly as every portion thereof is consistent only with the (plaintiff's) intention that he was accepting and holding himself in readiness to perform his part. While it has been repeatedly held that an acceptance must be absolute and unequivocal, it is equally clear that such an acceptance need not be in express terms and may be found in the language and conduct of the acceptor."

Felthouse v. Bindley, 142 ER 1037 (1862)

An uncle and nephew were negotiating the price of a horse. The uncle wrote offering a certain amount. The nephew did not reply but asked an auctioneer to exempt the horse from an auction. The auctioneer forgot the instruction and the horse was sold to another party.

The uncle sued and the court disagreed saying that there was no contract; the nephew had never communicated his intention to accept to his uncle "or done anything to bind himself."

Saint John Tug Boat Co. v. Irving Refinery Ltd., [1964] SCR 614

In this case, while there was no written acceptance to the offer, the conduct of the respondent was such that the court drew the conclusion that is accepted the offer. Quoting an old English decision, the court said:

"If, whatever a man's intention may be he so conducts himself that a reasonable man would believe that he was consenting to the terms proposed by the other party and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."

Eliason v. Henshaw, 17 US 225 (1819)

A contract was found not to exist between these two parties because the defendant had delivered acceptance to a place other than that stated in the offer. Justice Washington of the Supreme Court of the United States:

"An offer of a bargain by one person to another, imposes no obligation upon the former, until it is accepted by the latter, according to the terms in which the offer was made. Any qualification of, or departure from, those terms, invalidates the offer, unless the same be agreed to by the person who made it. Until the terms of the agreement have received the assent of both parties, the negotiation is open, and imposes no obligation upon either."

Carmichael v. Bank of Montreal, 25 DLR (3d) 570 (MBQB, 1972)

An offer was to expire at 6 pm. By the given time, in spite of best efforts, the real-estate agent (Mr. Tilley) could not locate the bank manager but managed to leave a telephone message, just before 6 pm, that the offer had been accepted.

flag of ManitobaBut the court held that the offer had been properly accepted because "acceptance was conveyed to defendant through its agent Tilley. The verbal communication of the acceptance of the counter-offer to a responsible person in charge at the defendant's bank was, in my opinion, sufficient acceptance of the offer."

Jen-Den Investments Ltd. v. Northwest Farms Ltd., 81 DLR (3d) 355 (MBCA, 1978)

The court decided that "in some cases an offer in writing for the sale of land may be accepted by parol evidence, but it does not follow that an offer in writing for the sale of land may be accepted by parol evidence in every case."

The judge went on to reject the verbal counter-offer because "in Manitoba the understanding of conveyance and lawyers generally is that in the case of an offer in writing made through a real estate broker or salesman, the normal and usual mode of acceptance is in writing."

Barrick v. Clark, [1951] SCR 177

A potential purchaser took 25 days to respond to an offer of farm land. By that time, the land had been sold to someone else. An offer, unless revoked or containing a deadline, is only valid for a reasonable time, each case to be decided on its merits. For stocks the time frame would be far shorter than for farmland. In the context of this case, 25 days was judges to be too long, or unreasonable.

Manchester Diocesan Council of Education v. Commercial and General Investments Ltd., [1970] 1 WLR 241

An equivocal "the sale has now been approved" letter was endorsed as a valid acceptance even though the letter went on to say that the approval of a government agency was also necessary.

One interesting problem that has surfaced in contract law is the use of modern technology in the communication of an acceptance. It has led to an exception to the general rule that acceptance must be personally delivered to the offeror. In the absence of specific instruction to the contrary by the offeror, a person may mail an acceptance to the offeror and the contract is said to be perfected when the acceptor places this acceptance in the mail box for return mail even if, in fact, it never reaches the offeror.stamp

This is known as the postal rule. If the post office loses or delays the acceptance letter, there is still a binding contract.

The rule was summarized in Henthorn v. Fraser , [1892] 2 Ch. 27 as follows:

"Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted."

If the acceptor decides to use another means of delivery than that requested by the offeror, then the acceptor assumes any risk associated with that means of communications; if nondelivery occurs for technical reasons, there is no contract.

The implications of the above used to be important in determining not only where the contract was made but then, under which law will the contract be subject?

The general rule is the law of the state where acceptance was brought to the offeror's attention, except for situations where the postal rule applies. Then, since the contract is perfected wherever the acceptance is posted, it would be that law which would apply. However, courts no longer solely rely on those strict rules for deciding which law to apply to a contract.

A fairer, more general rule now applies wherein the laws of the state with which the contract has the "closest and most real connection" will apply. As this is an area of the law that is uncertain, many contracts specifically state which laws will apply to resolve any dispute about the contract.

Household Fire & Carriage Accident Insurance Co. v. Grant,  [1879] 4 Ex. D. 216

This case was one of the first to establish the postal rule. For contracts formed by correspondence through the post, the judge said that the "post office (is) the agent of both parties.

If the post office be such common agent, then it seems to me to follow that, as soon as the letter of acceptance is delivered to the post office, the contract is made complete and final and absolutely binding as if the acceptor had put his letter into the hands of a messenger sent by the offerer himself as his agent to deliver the offer and receive the acceptance."

Holwell Securities v. Hughes, [1974] 1 WLR 155

The postal rule does not apply if (1) the express terms of the offer specify that the acceptance must reach the offeror and (2) if, having regard to all the circumstances, including the nature of the subject-matter under consideration, the negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer ... had in fact communicated the acceptance or exercise to the other."

See also the Saskatchewan River Bungalows case where wording such as "the acceptance must be received at the head office of X" would preclude the postal rule unless there had been representations that communication by mail was acceptable or encouraged.

Brinkibon Ltd. v. Stahag Stahl, [1983] 2 AC 34

In this British case, negotiations were held internationally, using a variety of communication devices. The court first stated the general rule that:

"A contract is formed when acceptance is communicated by the offeree to the offeror. If it is necessary to determine where a contract is formed ... this should be at the place where acceptance is communicated to the offeror."

It then decided that in cases "of instantaneous communication ... the contract (if any) was made when and where the acceptance was received."

This is an exception to the postal rule. So at common law, the postal rule does not apply to fax transmissions.

• >>> continued  >>> Chapter 5 ...

• DUHAIME'S CONTRACT LAW: Eight chapters of pure, unadulterated contract law love.

1. Contract Law - The Introduction
2. Privity, Consent and the Reasonable Man
3. Consideration & Deeds
4. Offer & Acceptance
5. Mistake, Rectification & Misrepresentation
6. Restraint of Trade, Assignment, Novation & Frustration
7. Interpretation of Contracts
8. Time Limits, Breach & Remedies


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