Contracts – December 2007 Exam Summary
1. Introduction to Contracts
Two Concepts Integral to Contracts
(1) agreement -- voluntary
- not all voluntary agreements are contracts
(2) exchange (consideration)
- promises or actions – have to have some value
- usually two promises – promise to do some future act given in exchange for
• if only one promise, you don’t have a contract – you have a gratuitous act
• HAMER vs. SIDWAY: nephew and uncle – if nephew stopped drinking, smoking,
gambling, uncle would give nephew $100,000 – when nephew reached 21, uncle was
dead, but wanted to collect his money for fulfilling his end of the deal
• HELD: nephew had right to drink, smoke, gamble; so value was given up by him; so
contract is valid and he was entitled to it
Four Requirements for a Valid Contract
- offers and acceptance
- offer: “Would you paint my house for $1,000”
- acceptance: “Yes, I will”
- counteroffer: “No, but I will paint it for $1,500”
- rejection: “No, that is too expensive.”
- usually money
- something that has a value
- examples: labor of painting house; $1,000
1 - only way to have truly voluntary agreement is if you are capable of giving
- tricky, because who is to say what you can or cannot give up?
- degree of capacity – an 8 year old does not have capacity to enter into contract;
extremely intoxicated; mental incapacity – permanent and temporary; duress
- courts will not enforce contracts dealing with illegal things (example: drug deal)
Five Types of Contracts
1. bi-lateral v. uni-lateral
- bi-lateral: promise for a promise; “I promise to give you $1,000 if you promise to
paint my house.”
- If you don’t paint my house, and I have to get your cousin to paint my house and
he charges me $1,500 I can sue you for the difference.
- uni-lateral: “I’ll give you $1,000 if you paint my house”
- I have house painted by someone else. You don’t paint it, I don’t have to pay
because you didn’t paint house and you didn’t promise to paint house.
2. written v. verbal (oral)
- same force
- written is easier to prove
- law requires some contracts to be in writing to provide evidence
- can have mixture of two – but if there’s a confusion, written takes precedence
3. express v. implied
- expressed: clearly indicates terms of contract
- implied: court will infer from actions of there is a contract; must have opportunity
to reject offer
- void contract: contract that has no effect; never a contract to start with
- voidable contract: also not a contract – example: nephew minor, can’t mow lawn
- unenforceable – otherwise legal contract, but for some reason can’t be enforced –
statute of limitations (run out of time)
5. creation of law
- quasi-contract: you would have created a contract if you could, but you were
unable to (example: you’re on vacation, your roof caves in, about to be
flooded/destroyed, neighbor calls contractor to fix it, you have to pay bill because
you would have done same thing if you were home)
- promissory estoppel: idea of reliance
2 3 Elements of an Offer
1. seriousness – must be a serious intention to be bound; a party will be held to
contract on the terms as understood by the other party even if subjectively did not
agree to those terms; elements like humor and anger are clues that offer is not
serious; offeree must assess seriousness – what a reasonable person would think
2. definiteness – an offer must have definite terms; but terms do not have to be
3. communication – an offer must be communicated to the offeree; rewards – if you
act and do not know there is a reward, you are not entitled to it; offeror is not
obligated to tell you
CANADIAN DYERS ASSOCIATION LTD. v. BURTON (1920)
FACTS: Plaintiffs asked defendant to state lowest offer that he would accept for
building. Defendant stated the lowest price he would accept would be $1,650 in cash.
The plaintiffs placed an offer of $1,650 to the defendant, which he accepted. The
plaintiffs sent a cheque for $500. On October 27 the defendant’s solicitor submits the
deed and says he will be ready to close on November 1. On November 5 the defendant’s
solicitor returned the $500 cheque and stated that there was no contract.
ISSUE: Whether or not the plaintiffs placed an offer which the defendant then accepted,
signifying that a contract had been made, or if the defendant merely sent the plaintiffs a
quotation of price?
HELD: offer to sell and acceptance – YES CONTRACT
RATIO: actions/behaviour/conduct of parties determines if there is an offer
3. Offer/Invitation to Treat
PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v. BOOTS CASH
CHEMISTS (SOUTHERN) LTD. (1953)
ISSUE: Whether or not these sales were effected by or under the supervision of the
registered pharmacist in accordance with section 18(1)(a)(iii) of the Pharmacy and
Poisons Act, 1933 which states that it is illegal to sell a listed “poison” without the
supervision of a registered pharmacist?
HELD: sale WAS in accordance
3 RATIO: Display of drugs along with their prices is an invitation to treat. The customer
makes an offer to buy when they bring the items up to the desk for purchase. This offer
can either be accepted or rejected by the pharmacist at the desk.
R. v. DAWOOD
• woman switched price tags on clothing
• cashier let it go
• in court said she made an offer and it was accepted – court kind of agreed with her on
a contractual basis
• but switching price tags is a CRIMINAL issue – she can be charged with that
• once offer put out, offeror must wait to hear from offeree
• but offeror can revoke offer anytime before acceptance
• but offeree can get some control back by putting down money to keep offer open
4. Ads and Unilateral Offers
LEONARD v. PEPSI
• in a commercial Pepsi said that 7,000,000 Pepsi points would get you a Harrier
• he collected points, but Pepsi would not give him jet
• court said offer for the jet was not serious, therefore could not be an offer – no
reasonable person would believe that they could get a Harrier Jet
CARLILL v. CARBOLIC SMOKE BALL CO. (1893)
• November 13, 1891 advertisement - promised that if after following directions for use
of the Carbolic Smoke Ball any person who then contracts the flu, cold, or any
disease, reward of 100l will be paid by Carbolic Smoke Ball Co.
• 1000l deposited with the Alliance Bank to show “sincerity”
• plaintiff bought ball, used as directed starting on November 20, 1981
• January 18, 1982 – plaintiff contracted the flu
• Hawkins J. (trial judge) held that plaintiff was entitled to 100l; defendants appeal
ISSUE: Whether or not the conditions of the advertisement are too vague to consider the
advertisement to be an offer? – Whether or not it was necessary for the offer to be
accepted, and if so, if it was indeed accepted, thus making it a contract?
RATIO: Ads are generally invitations to treat, but an ad can become an offer if there is
enough info to lead a reasonable to believe that there is intention to contract with them.
Notice of acceptance of these offers is not required apart from notice of performance.
4 GOLDTHORPE v. LOGAN (1943)
• plaintiff had hairs on face that she wanted removed
• defendant placed ad in newspaper for safe and permanent removal of hairs by
electrolysis – guaranteed results
• plaintiff told by nurse that hair could definitely be removed
• hairs continued to grow
• ad induced Goldthorpe to go to spa, once Goldthorpe went to spa, it became a bi-
lateral contract and expected that she would pay for services
• different from the unilateral Carbolic case, but principle can still apply: if you use
product and it doesn’t work like promised – breach of contract
ISSUE: Does an advertisement declaring a guarantee (or promise) constitute an offer
that, if accepted by a consequent purchaser, results in the creation of a legally enforceable
and binding contract?
HELD: Appeal allowed in part – Logan to pay Pearl Goldthorpe $100 for damages
RATIO: A public guarantee (or promise), by means of an advertisement, is an offer to
every person who is willing to accept the terms and conditions of it. Acceptance of the
offer is communicated by the consumer's actions, thus resulting in a legally enforceable
and binding contract.
An advertised guarantee (or promise) is a distinct communication to every member of the
public and is to be understood in its plain meaning as the public would understand it. It
indicates the advertiser's intent to make an offer. Any member of the public is free to
accept the offeror's terms and conditions. Therefore, any person who consequently
accepts the offer of guaranteed (or promised) results and provides consideration (either
by way of monies or actions) has completed the requisite elements required to create a
legally enforceable contract.
BLAIR v. WESTERN MUTUAL BENEFITS (1972)
FACTS: Motion passed that the appellant should be granted the equivalent of two years
pay upon retirement. The appellant, employed as a stenographer, is asked to transcribe
the minutes, and through this becomes aware of the motion. She is never formally
ISSUE: Does the motion suggesting Mrs. Blair be given two years retirement pay
constitute intention to create legal relations? Did the motion constitute an offer to Mrs.
5 RATIO: The motion was not an offer or a promise. It was not communicated to her
for purpose of making promise to her, she only knew if it because it was her job to
transcribe notes from meeting. She didn’t do anything to be entitled to money.
WILLIAMS v. CARWARDINE (1833)
FACTS: An ad for reward was posted by the defendant for information leading to the
arrest and conviction of a murder suspect. The plaintiff, an eyewitness to the murder,
provided the necessary information, but only to ease her conscience when she believed
she was dying. The defendant refused to give the plaintiff the reward claiming that she
was induced to provide the information not by the reward itself, but by other motives.
The plaintiff sued for breach of contract.
ISSUE: Where a party accepts an offer of reward for motives other than the reward itself,
does an enforceable contract result?
RATIO: Acceptance of an offer constitutes a legally binding agreement, regardless of
the motives for acceptance. The advertisement for reward issued by the defendant
constituted an offer. The plaintiff, in providing information that led to the conviction of
the murderer, accepted the offer. The fact that the plaintiff performed the necessary
conditions set out in the offer, regardless of her motives, is sufficient to make a binding
R. v. CLARKE (1927)
FACTS: Clarke was wrongfully charged with murder, and consequently gave valuable
evidence (oral testimony) to the police that proved his innocence, and established
someone else's guilt. Crown was offering a reward to anyone who could provide
information that "shall lead to the arrest and conviction of the person or persons who
committed the murders." Clarke argued that he had fulfilled the contract that the Crown
had offered by providing them with information, and consequently sued the Crown for
breach of contract.
ISSUE: Must an offeree know of the offer when performing the act of acceptance? Must
an offeree be motivated by desire to accept offer?
RATIO: Clarke admitted, under oath, that he had no intention of claiming the reward at
the time he provided the evidence, and that he had not even "given the matter
consideration at all." Thus, there was no communication on his behalf, and no
communication between the two parties. Therefore, no contract existed, and Clarke is out
of luck. Acceptance must be made with knowledge of the offer.
6 OBITER: The Crown argued that even if Clarke had desired to enter into the contract
and had intended to collect the reward at the time he made the comments, he still would
not have won the case because he did not fulfill the terms of the agreement. As the Crown
had stated, they would pay the reward for "such information as shall lead to the arrest and
conviction of the person or persons who committed the murders." The Crown argued that
the information which Clarke provided did not satisfy these requirements. Had the Crown
used the term "may lead" in their offer, Clarke may have had a stronger case.
BOTTOM LINE: If you’re acting on reward, you should get reward – if you’re not
acting on it, then you don’t get to collect reward.
5. Bids and Tenders
HARVELA INVESTMENTS v. ROYAL TRUST CO. OF CANADA (C.I.) LTD.
FACTS: The respondent, Royal Trust Co., issued an invitation to the appellant, Harvela
Investments Ltd., and to Sir Leonard Outerbridge to make offers to purchase shares. The
invitation said that the offers should be made confidentially and that the highest bid
would be accepted after a set expiry date. Harvela offered $2,175,000. Sir Leonard
offered $2,100,000 or $101,000 higher than any other offer received (whichever was
higher). Sir Leonard therefore claimed the shares based on an offer of $2,276,000.
ISSUE: Did the provisions of the respondent's invitation create a fixed bidding sale or a
referential bidding (auction) sale?
RATIO: A vendor initiating an invitation must choose the form of the auction, be it fixed
or referential; the only choice for the bidder is whether to participate or abstain.
All that is necessary to construe fixed bidding is that the invitation calls for confidential
offers and accepts the highest bid. It follows that since the invitation of the respondent
met these requirements, it was calling for a fixed bidding sale.
R. v. RON ENGINEERING & CONSTRUCTION (EASTERN) LTD. (1981)
Contract A – Tender contract (unilateral) – invitation to make tender; formed the
moment tender is deposited; terms set out
Contract B – Construction contract (bilateral) – offer is to build whatever the caller
wants built, the terms have been set up in advance in Contract A
7 FACTS: The contractor submitted a tender and deposit to build a project. After call for
tenders had closed, the contractor realized that he had made a mistake in his bid. The
contractor's bad bid was the lowest bid. The contractor corresponded with the owner after
the closing deadline indicating that there was an error in the total sum and requesting the
withdrawal of his tender. The owner held the contractor to the bid price. The contractor
refused to complete the construction contract and the owner refused to return the deposit.
ISSUE: Was the contractor entitled to withdraw tender and recover its deposit?
RATIO: Under the terms and conditions of which the tender was made, a contract
(contract A) arose between the contractor and the owner when the tender was submitted.
This is to be distinguished from contract B which is entered into after the owner accepts
the bid. The contractor accepted contract A by the submission of his tender. A tender in
law is irrevocable if filed in conformity with the terms and conditions under which the
call for tenders was made. Under contract A, both parties are under an obligation to enter
into contract B once the tender is accepted. The purpose of the tender deposit is to ensure
the performance by the contractor of its obligations under contract A. The contractor
refused to complete contract B. The deposit is not recoverable.
M.J.B. ENTERPRISES LTD. v. DEFENSE CONSTRUCTION (1951) LTD. (1999)
FACTS: Called for tenders - tenders must be submitted according to certain
specifications and that the tender will go to the lowest bidder, unless the contract includes
a privilege clause that explicitly states otherwise. Lowest tender was invalid, but still
awarded contract. The appellant brought the case to court because since the lowest
bidder's tender was invalid, he should have been awarded the contract being the next
ISSUE: Does the inclusion of a privilege clause in a tender contract allow the respondent
to disregard the lowest bid in favour of any other tender, even a non-compliant one?
RATIO: You can choose any bid as long as it’s valid – can’t lay out what an invalid bid
would be and then accept an invalid bid. In regards to valid bids, you can pick whichever
one you want, doesn’t have to be the lowest.
6. Acceptance/Battle of the Forms
Battle of the Forms
- problem: parties agree on deal-specific commercial terms but standard form terms
LIVINGSTONE v. EVANS (1925)
8 FACTS: The defendant wrote to the plaintiff through his agent offering to sell him the
land in question for $1800 on terms. On the same day, the plaintiff wired the agent
saying, "Send lowest cash price. Will give $1600 cash. Wire." The agent replied saying
that the price could not be reduced. Immediately after receiving the message, the plaintiff
wrote back accepting the offer. It is conceded by the defendant that unless the intervening
telegrams set out put an end to his offer, the offer and the plaintiff's acceptance of such
constitutes a contract for the sale of the land.
ISSUE: Was there a renewal of offer or did the counter offer kill the original terms of the
RATIO: If you accept on different terms, you are making a counter-offer and the original
offer no longer stands – that offeror is not bound to your acceptance. But possible to
renew original offer. Mere inquiry is not rejection of offer, does not kill it.
BUTLER MACHINE TOOL CO. v. EX-CELL-O CORP. (1979)
• seller: price adjustment clause in quotation - said these terms prevail over any terms
and conditions of buyers order
• buyer had own terms on purchase order, no price of variation clause, but different
terms regarding cost of installation, date of delivery – tear off acknowledgment
• seller filled out but also said that acceptance in accordance with original quote
ISSUE: Battle of the forms - Which document is binding, the buyers or the sellers?
RATIO: Look at documents as a whole to reconcile differences, scrap conflicting terms
and replace with reasonable implications. In this case, the contract was on the buyers’
terms and their document did not include a price variation clause. Usually in battle of
forms, “last blow” uncontested wins. Parties must agree on material points.
Battle of the forms is exception to the general rule that a counter-offer kills an offer.
PRINCIPLE OF THIS CASE: If you have a non-standard term, you’d better bring
it to the other side’s attention if you want it in your contract!!
TYWOOD INDUSTRIES LTD. v. ST. ANNE-NACKAWIC PULP & PAPER (1979)
FACTS: The defendant issued an invitation to tender. The plaintiff responded to the
invitation to tender with a quotation containing 12 terms and condition. Condition 12
stated "No modification of the above Conditions of Sale shall be effected by our receipt
or acknowledgment of a purchase order containing additional or different conditions."
Neither document contained any mention of arbitration. Two purchase orders came from
9 the defendant containing an arbitration clause. The defendant has moved to stay the
action because the agreement of sale included a clause for arbitration.
ISSUE: Did the parties agree to resolve their disputes in arbitration?
RATIO: The arbitration clause was not binding because it had not clearly been expressed
in the contract. It was unclear whether both parties had agreed to arbitration. The
defendant added the clause, without drawing attention to it.
If the court views a term as “non-standard,” better efforts must be made bring term to the
other side’s attention.
COURTS DO SUPPORT ARBITRATION AGREEMENTS NOW
ONTARIO LAW REFORM COMMISSION, REPORT ON SALE OF GOODS:
THE BATTLE OF THE FORMS
• traditional approach: to constitute a completed contract, forms must contain no
variant terms (“mirror image rule”)
• if variant terms – the later form is a counter-offer; NO BINDING CONTRACT
• but if performance has been tendered to and accepted by the buyer after the buyer has
received the sellers’ confirmation, the buyer is deemed to have accepted seller’s
counter-offer, at any rate where the seller’s confirmation followed receipt of the
buyer’s order – THE LAST SHOT RULE
• current state of law: if seller sends terms before the goods are delivered, and once
those good are delivered, they are accepted, then the seller’s terms are in
• if buyer accepts good – they are accepting the terms that came before them
• What if terms come WITH the goods?? – the court will say that terms could have
been sent earlier and you can’t slip them in with goods
ProCD v. MATTHEW ZEIDENBERG (1996)
(US CASE, NOT BINDING IN CANADA!!)
FACTS: Zeidenberg bought software from a retail store – purchases for a low rate as a
customer, then used information and sold it on the internet (treated himself like a
commercial business) – made a lot of money.
ISSUE: If the terms are inside the box, is the buyer still bound to them even though he
doesn’t know about them upon purchase?
RATIO: Shrink-wrap licenses are enforceable unless their terms are objectionable on
grounds applicable to contracts in general. If the buyer does not want to be bound to
10 terms contained inside the box, the buyer has the right to return the product promptly and
unused for a refund, but otherwise will be bound to terms.
7. Website Agreements
KANITZ v. ROGERS (2002)
• user agreement says that they can make changes to agreement at any time and users
will be notified by postings on website, through post, or through e-mail
• continued use of service means user accepts these changes; if didn’t agree, terminate
service within 30 days
• November 2000 – defendant added arbitration clause to agreement
• Class action suit: multiple parties who have same cause of action – come together to
bring one case against more powerful party – any term in an arbitration agreement
that takes that right to a class action suit away should not be enforceable
ISSUE: Is the arbitration agreement enforceable?
REASONING: three elements required for finding of unconscionability: (1) inequality of
bargaining power - MET; (2) some taking advantage of, or preying upon, the weaker
party by the stronger party - NOT MET; (3) resulting improvident agreement
RATIO: There WAS an arbitration agreement between the parties because notice given
of the amendments.
BUT NOW: Consumer Protection Act was changed – can no longer include clause
in agreement that will take away future rights; can opt for arbitration once your
The Dell Case
• Dell has an arbitration agreement that excludes class actions
• if this was in Ontario, it wouldn’t fly because amendment to Consumer Protection Act
came in 2000 about arbitration clauses
• two provisions: (1) if you have clauses in a consumer contract you need to bring them
to attention of consumer and if you don’t, you have to show that they AT LEAST
looked at them – in Dell, no way of proving that they were brought to consumer’s
attention or looked at them
• found that because terms were on webpage and could have been accessed, they were
8. Communication of Acceptance
11 • acceptance by snail mail: the offeree didn’t know when the offer has been accepted;
the offeror may accept someone else’s offer while the acceptance was in the mail
• so the Mailbox Rule came about
• the offeror controls the offer – in order to deal with lag in time – the offeror controls
how the offer is to be accepted
• if you don’t stipulate how an offer is to be accepted, then court will say any
reasonable way of accepting will be okay in light of the circumstances
• an offeror cannot create a new means of acceptance – ex: tying your shoe means
acceptance; would be akin to silence – and silence is not an acceptance
POSTAL ACCEPTANCE RULE (for non-instantaneous): when dealing with snail mail,
offer is accepted when acceptance is put in the mailbox – ONLY APPLIES TO
The postal acceptance rule balances the parties' interests. The offeror can make
communication of acceptance a condition of the contract, or can inquire if he does not
receive a timely acceptance. The offeree would have to inquire if his acceptance was