Understanding Contracts

INTRODUCTION to Civil Litigation and Contracts

A contract is two or more people agreeing to do something. Most people don't realize it but each time they step outside their door they enter into a succession of contracts. Each time you buy a loaf of bread, a subway token, a newspaper or a salami on rye you are entering into a contract. Two people, you and Harry's Diner promising to do something for each other. Harry will put salami on rye and hold the mayo and you will pay him $2.50. You get fed, Harry gets paid and you both get a benefit. Whether you are Gulf Canada buying 40 million widgets or Harry, the principles of contract are the same. Of course the nature of the agreement will very often be disputed. Hence the hundreds of texts and thousands of cases that fall under the heading of contract law.

Apart from anything else, a contract gives you some faith in the future. A contract not only tells you that there will be a tomorrow but when it comes your driveway will be paved. This unique quality of contracts enables you to conduct your business and life with some confidence; the merchant can accept his orders from his customers secure in the knowledge that his supplier is committed to deliver the necessary materials. This is why the courts treat commercial contracts with special distinction. The law will always presume that the individuals involved in a commercial transaction intended to enter into a binding agreement.

THE OFFER

A contract begins with the offer you make and is completed by the acceptance of your offer. When an offer is accepted it is a binding contract. Knowing this will enable you to recognize when a deal has been made. However you must be sure that you are truly making an offer. An offer to sell without mentioning price is not an offer. An offer to sell at a certain price without reference to quantity is not an offer.
Hermione quoted some coal prices to Myrtle but did not say the quantity she would ship. Hermione delivered a first shipment of coal to Myrtle who paid the quoted price. Hermione then changed her mind and would not ship any more. Nor did she have to. Since there was no amount quoted and therefore no obligation on Hermione to deliver any quantity there was an essential contract term missing, hence no agreement.

TIME LIMITS ON OFFERS

An offer can be open for a stipulated period of time and then come to an end. When no time is indicated the court will say, if asked, that a reasonable time limit is deemed to apply. Reasonableness will depend on the nature of the transaction and the normal course of business negotiations in that industry.

Take the stock market. Harry of the silver tongue offers to sell the Widow Brown some shares at $10.00 each. The widow does not respond but a day later she offers to sell the same shares to Lola the masseuse at $12.00 each. Lola accepts and the day after that the Widow contacts Harry to buy the shares. Harry says, too late, offer's withdrawn. Lola sues the Widow for the shares and the Widow sues Harry for the shares. Widow loses twice. She loses to Lola since she could not make good on her offer. She loses to Harry since he was not obliged to keep his offer open. Although there was no time stipulated on Harry's offer, the stock market is a volatile beast, as we know, and because shares fluctuate so rapidly in price it was reasonable, or so a Judge would likely hold, for Harry to withdraw his offer after a day. On the other hand an offer to sell farmland might be expected to stay open longer than a day since the farmland real estate market may be more constant.

ADVERTISING OFFERS

Generally advertising offers have to comply with both provincial and federal legislation. But whether or not an advertised offer can lead to a binding contract depends on the circumstances and the language of the offer. The apocryphal situation is the American case involving a Minneapolis store that advertised: "Saturday, 9 a.m. sharp, 3 brand new fur coats worth $100.00 first come, first served, $1.00 each." The store ran two similar advertisements for mink scarves and a lapin stole. Each time they ran one of those ads, Mr. Lefkowtiz came first but they wouldn't serve him. The offer is "limited to ladies", said the store. Mr. Lefkowitz sued and the court gave him the goods. There was nothing in the ads that said Ladies Only; the advertisements were offers made to the general public of which Mr. Lefkowitz was one and he accepted.

The store was not entitled to change the requirements after the fact by limiting the deal to certain members of the public. A similar situation occurred in Canada, when the Peter Jackson cigarette company advertised cash coupons in their cigarette packages. Mr. Ranger smoked Peter Jackson largely because he wanted to win the money. He got lucky and pulled a $10,000.00 coupon out of a pack. Then the company told him the money was his providing he answered a skill-testing question. This requirement had not been previously mentioned. Mr. Ranger didn't protest and waited for his question. And waited. Finally one night, when he was not expecting it, they called and said you have to do these mathematical calculations right now or you lose the money.

Mr. Ranger tried to oblige but he wasn't wearing his glasses and he kept getting everything wrong and his wife and son tried to help and.....he lost the prize. So, he sued and the court gave it back to him. First, they said it was unreasonable not to forewarn Mr. Ranger when he would have to answer the quiz so that he was not caught by surprise. Peter Jackson appealed the decision and the higher court ruled against them as well. But the judges here went further. They said, since the contest advertisements said nothing about a skill testing question, Peter Jackson could not, even though the law required it, impose a skill testing question on Mr. Ranger.

CORRESPONDENCE

A contract can be made verbally or in writing. If it is in writing there is no particular form it has to follow. A series of letters can make up the written agreement but it must be shown that one side's proposal has been agreed to by the other so that a clear and complete contract can be derived from the letters. Howard wrote to Laverne and offered to dip her sheep on his ranch at $5.00 a head. As soon as Laverne got the letter, some two weeks later, she wrote Howard, "I accept." It took three weeks to get there. Then after Laverne sent her answer Howard, thinking Laverne wasn't interested and without telling her, agreed to dip someone else's sheep. Laverne was upset and rightly so; she and Howard had a contract as soon as she posted her reply.

REPRESENTATIONS

A representation is a statement made to induce you to enter into a contract. That representation may or may not become part of the contract. If it becomes part of the contract it becomes one of the obligations of the party who has made it. Whether or not the court will consider that representation included in the contract will depend on:
a) the importance of the truth of the statement;
b) the time between the making of the statement and the time the contract is finally agreed to;
c) whether the maker of the statement was more likely than you to know the truth of the statement;
d) whether the statement was included in the formal, written agreement.

Fast Freddy's used car emporium had a pink Cadillac in the showroom. This, said Freddy to Harold, is a 1958 Caddy. Harold bought the car and took it home. Along came Mel, who told Harold that he was looking for a 1958, pink Cadillac and he was willing to pay well for the thrill. Got just the thing, says Harold and shows him the car. This is not a 1958 Cadillac says Mel, it is a 1956 and not for me. Miffed over the deal he lost, Harold complained to Freddy and then took him to court. The Judge did not help Harold. In his evidence Harold said that what impressed him about the car was its colour, pink, and its condition, good. The year of its manufacture, if known at the time of purchase, would not have made any difference. Freddy, for his part, said he really believed that this was a 1958 caddy. That being the case the court said that the car's vintage was a mere representation and not a term of the contract. Which illustrates that to prove the other guy did not rely on your representation your must show:

a) that he knew it to be untrue; or that he was not relying upon it being true.

On the other side of the street, Sylvester's, Call Me Sly, Car Carnival sold a 1958 Chevy to Margaret. The odometer read 20,000 miles but the car, in fact, had 100,000 miles under its belt and Sly knew that. Margaret discovered the ruse when she was pushing 12 mph down some off ramp and her engine started to hiccup. So she took Sylvester to court and the Judge was with her. The odometer on the car was part of his representation to her and since Sylvester knew it to be false and it was intended to induce her to buy and she bought it, this became part of the contract; a term that Sylvester (through the car) was expected to live up to. She got her money back.

More About Contracts

The Concept of Mistake in Contracts

The concept of mistake says that the contract may be set aside if (1) the mistake is mutual or (2) if it is a unilateral mistake about the contract or the subject matter of the agreement.

ILLEGAL CONTRACTS

An illegal contract is one that the court will not enforce because it is either:
(a) against the law;
(b) against some public policy;
(c) a contract may be against the law because it is prohibited by a particular statute, as for example, where a plumber may not enter into an agreement to do work if he is not licensed;
(d) a contract may be enforceable even though it is illegal if the party asking for the help from the court is innocent of any illegal intention.

So in the case of the unlicensed plumber, if the owner sues the plumber for damages caused by the work performed, the owner might succeed because the owner was unaware of the fact that the contractor was in breach of the statute that required a license. The owner in this situation would be the innocent party.

Courts will usually go to great lengths in order to find a way for a contract to be enforced and will avoid if possible deciding that the contract is "void" for illegality.

Commercial Contracts

Commercial contracts are always interpreted by the Court in a manner that gives them "business efficacy;" the Court will try to take what steps are available to it, short of creating an entirely new agreement, in order to maintain a contract between the parties.

However, for any implied terms to be found by the court, they must be (1) evidently reasonable in the circumstances, (2) the conduct of the parties and the implied terms must be consistent with the contractual intention of the parties. The Court will not pull an implied term out of the air simply because it seems like a good idea.

Implied Terms

An implied term is generally one inserted by the court where the parties have failed to include something that the court determines they would have done had they considered it. For example, a court might hold that work is to be done within "a reasonable period" of time where the contract is silent about the time of performance.

"Reasonable" is often an implied term in a contract. In one case a contractor agreed to do the job at a specified quote but a municipal official required the contractor to use equipment of a higher standard than called for. Despite the contractor's efforts to have the municipal official withdraw this requirement, the official would not do so. The contractor turned to the owner to see if they could prevail upon the municipal official. The owner merely said, "Do your job". The contractor interpreted that to mean, "do the job with the higher standard of equipment", otherwise the job could not be done. It was unreasonable for the contractor to be required to install equipment of an unnecessarily high standard so the owner was in breach of the agreement by trying to force it on to the contractor. The contractor installed the better equipment then sued the owner for the additional cost. The court supported the contractor on this point, saying that it was an implied term of the agreement with the owner that municipal officials would do their job properly and not require the contractor to install unnecessarily higher standard equipment.

Damages

On the issue of damages, the court must, to the extent possible, place the aggrieved party in a contract claim in the same position that party would have been in had the contract been properly performed. Even if the court cannot fairly calculate the damages, a Judge is nonetheless obliged to attempt to do so even if he or she must guess.

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