-----Intro-----
An understanding of contract law gives us an opening on much of the social development w/in our society. Thus,
historically, the emergence of a laissez-faire economy could not have been realized w/o development of a
sophisticated means of exchanging goods, services & labour. Similarly, the importance of capital & its investment
potential could not have been insured w/o a method of protecting forward exchange. The historian, Niall Ferguson,
(Empire) has described this importance & the stabilizing effect that the common law, particularly contract law, had
for the emergence of Britain’s empire. In the latter stages of the 20th century the rise of the modern welfare state
saw restraints placed on freedom to contract. However, today, as many question the continued sustainability of our
current social structuring, contract law is once again rising in importance as a tool to allocate entitlements & as a
way to create efficiency. In this first chapter you should review the current contemporary theories offered to provide
explanatory accounts of contract law.
- The Classical Theory of Contract
o 19th century – from laissez faire liberalism
o law can be reduced to statements of rules
o conflicts are “wrong”
o objective manifestation of the agreement, not the parties thoughts
o freedom to contract w/ whoever
o law should not leave individuals to free to maximize private advantage
o contractual liability is strict
- The Intersection of “Private” & “Public” Law
o many ways the private law overlaps public regulation
o free markets are a form of gov’t regulation in itself
o markets are regulated for equality, safety, public welfare
o public policy considerations prohibit the sale of certain items eg blood & human organs
o Trevilcock, “behind the law of contracts lies a much broader set of economic, social & political values that
define the role of markets in our lives
- “Freedom of Contract”: Reality & Regulatory Response
o Trend away from freedom of contract (which has never been fully free)
o Less ability to negotiate consumer contract terms
o Termination of contract because of, sexuality Vrind v Alberta 1998 SCC – gay teacher fired
o Minority neighbourhoods had a higher proportion of subprime mortgages
o Trillium Gift of Life Network Act 1990 s.10 – no person can sell body tissue or blood
o Provincial Human Rights codes prohibits discrimination in employment
o Common law protects vulnerable people
Doctrine of unconscionability – protection from unfair bargains
Doctrine of good faith – developing but not possible to say it’s a general duty yet, just specific situations
- “Freedom of Contract”: Common Law Response
o Law of contract was conceived principally as a facilitation of voluntary choices by giving them legal effect –
Collins, the Laws of Contract
o Freedom of contract never realized – relies on fiction of equality b/w the parties
o Express limits on self-interest
Protects youth & mental disability, presumed to be at a disadvantage
Duress & undue influence
o Many examples of courts limiting the advantage of one party over another
Robichauld v Causse populaire de Pokemouche Ltee – arguably instance of court limiting power of
creditor over a debtor (Ch 4, sec 7)
Bank of British Columbia v Wren Developments –imposition by the court of a duty to disclose, while
preserving that there can be no misrepresentation in the absence of a statement of fact (ch 7, sec2)
Judicial control of exclusion clauses – Ch 8
o General principles that transcends categories of the law
Vulnerability – Hodgkins v Simms 1994 SCC – breach of fiduciary duty, undue influence,
unconscionability, negligent misrepresentation
Negligence – can transpire across all areas of contract law
Fiduciary – position of trust & confidence
Recent decisions suggest where there is an inequality & substantial unfairness in the bargain the
court may have grounds to intervene Harry v Kreutizger (ch 11, sec 4(b)
1
,- What Promises are Enforceable?
o Traditional – expectations are only protected when there is an exchange or the promise of an exchange
o Should promises be kept if they have been relied upon?
o When is an expectation justified to impose on another?
- What Remedy for Breach?
o Damages
But out of pocket reliance too?
Expected profits
o Specific performance
o injunction
- Theories of Contract Law
o law & economics (Posner, Economic Analysis of Law) economic reasons why the law enforces some
promises & not others
o feminism & affirmative action
o law is merely a consensus reached by the people at the table at that point in time
o appreciate the power of law to shape discourse, police & people’s opportunities
- Relational Contracts
o parties may not be able to fix all terms at the moment of contracting
o parties in a long term relationship may not wish to be confrontational or maximize their short term advantage
- Transcending Conceptual Boundaries
o contracts law overlaps w/ other areas such as property, criminal, & particularly torts
o both tort & fiduciary duties should apply to contracts unless expressly excluded
o unjust enrichment – Deglman v Guaranty Trust Co 1945 SCC
-----Formation of the Agreement-----
2
,Much of contract doctrine is built upon a paradigmatic model of a contract; one that is negotiated b/w two parties of
equal bargaining power, & which results in an individual contract w/ readily identified binding obligations. While this
model may describe some contracts, contracting behaviour is far more widespread & does not typically follow this
model. Consider the purchase of a coffee from a vending machine or the parking of a car in a public garage. There
is no opportunity for bargaining; indeed, the contract is made w/ a machine. Nevertheless, it is the paradigmatic
model, what is known as a synallagmatic contract, which informs our understanding of contract law, & from which
other contracts are seen as deviation. The model is built on a number of constituent elements; offer, acceptance, &
communication, intention to create legal relationships, consideration, privity, certainty of terms & capacity. In the first
part of the course we will explore these elements.
Particular attention s/b paid to the treatment of the tendering process.
In R v Ron Engineering & Construction (Eastern) Ltd the SC drew a distinction b/w a contract which dealt w/ the
tendering process, what was called Contract A, & the eventual successful bid, which was called Contract B. The
creation of a tendering process contract, & what obligations it creates, has been the subject of a number of other
decisions of the SCC, including the following:
Double N Earthmovers Ltd v Edmonton City, 2007 SCC 3, [2007] 1 SCR 116. (Waddams page 200)
Design Services Ltd v Canada, 2008 SCC 22, [2008] 1 SCR 737. (Waddams page 201)
Tercon Contractors Ltd v British Columbia (Transportation & Highways), 2010 SCC 4, [2010] 1 SCR 69. (Ben-
Ishai page 48) (Waddams page 202)
W/ respect to the formation of a contract, it may seem strange to still speak of postal rules which control when a
contract is created & in which jurisdiction it is formed. In a time when electronic commerce is prevalent, you should
review the Electronic Commerce Act of one of the provinces, & determine how rules of communication of offer &
acceptance are dealt w/. For example, the Ontario Electronic Commerce Act, SO 2000, c 17 treats e-mail as if it is a
form of instantaneous communication & thus does not apply the postal rule. However, when the contract is formed
depends upon how the recipient of the acceptance has structured their e-mail correspondence & when they are in
receipt of the e-mail (see s. 22).
In the Ben-Ishai section on Agreements to Negotiate (Ben-Ishai page 134) the case of Empress Towers Ltd v
Bank of Nova Scotia (at page 136) alludes to the possibility that there is an obligation imposed to negotiate in good
faith b/w contracting parties. (Waddams discusses the unenforceability of such agreements in the context of
Walford v Miles, [1992] 2 AC 128 (HL) at 217.) This is a contentious issue. The SCC in Martel Building Ltd v
Canada, 2000 SCC 60, [2000] 2 SCR 860 (Ben-Ishai page 47) (Waddams page 202) emphatically stated that a duty
to bargain in good faith had not been recognized in Canadian law, & they left the issue to another day to determine
whether such a duty s/b imposed. Nevertheless, the SCC has recognized that particular contracts can carry an
implied duty to perform in good faith, or to discharge some existing contractual obligation in a good faith manner
(see Honda Canada Ltd v Keays, 2008 SCC 39, [2008] 2 SCR 362, implied obligation of good faith dismissal). The
Ontario Court of Appeal has on at least 2 occasions canvassed the arguments on whether there s/b an obligation of
good faith negotiation. Attention should now be made to the SCC’s decision in Bhasin v. Hrynew 2014 SCC 71
(Ben-Ishai page 462) (Waddams page 698) where the court spoke of good faith as a general organizing principle &
illustrated their argument w/ cases cited above. The SC has also returned to this good faith in Churchill Falls
(Labrador) Corp. v. Hydro- Québec 2018 SCC 46 where it has suggested limits on the doctrine of good faith that
does not permit renegotiating or negating contract rights unless reliance upon contract performance amounts to
unreasonable conduct. A contract fairly negotiated & that apportions risks associated w/ performance does not
constitute unreasonable conduct simply because those risks have in fact eventuated.
978011 Ontario Ltd v Cornell Engineering Co (2001), 53 OR (3d) 783, leave to appeal refused [2001] SCCA No
315. (Ben-Ishai page 367 & 518) (Waddams page 769)
Oz Optics Ltd v Timbercon Inc (2011), 107 OR (3d) 509 (CA).
1. Offer & Acceptance
Basic idea: parties will be held to have reached an agreement when they have formed a mutual intention to enter
into a bargain w/ each other & are in agreement as to the terms of that bargain
3
, Consensus ad idem/mirror image rule: Did their minds come to the same point of agreement, same terms at the
same time?
The first prerequisite to contractual liability based on consent is that the parties m/ have reached an agreement
Classic law breaks down contracts into offer & acceptance
Current law req’s more: estoppel, consideration, seal to move from no liability to fully liable for damages
Offer: All terms of proposed exchange
Acceptance: Acceptance to all terms as proposed
o Failure to accept all terms of an offer is a rejection of that offer, but may constitute a counter-offer, which in
turn may be accepted or not
o Once rejected, an offer cannot later be accepted i.e. Offeror can treat rejected offer as “dead”
Consensus: both parties agree at the same time to the contract
Intention to create legal relations: show intent of parties to be legally bound by their agreement
Certainty of Terms: Identifies clearly what was agreed to
Written records: Sometimes is req’d by state. Useful for evidentiary purposes, i.e. Is the written record complete?
Courts are enforcing a mutual agreement freely consented to by each party to the contract
Agreement unfolds through a sequence of events that match up to categories of offer, communication, acceptance
Party behaviour crystalized in an agreement that could be the basis for a contract
2. Offer & Invitation to Treat
Offer: a form of communication which creates an ability to make a contract
o Unilateral – communicating an offer which is accepted through performance
o General principle is that advertisement is usually an invitation to treat, but in certain circumstances,
courts may find that it is not just an invitation to treat but its an actual offer – type of offer unilateral
offer which is capable of being accepted through performance – exception from Carlill v Carbolic
Smoke Ball Company
o Unilateral contract is where the offer is accepted if one fulfills the necessary performance req’d. Nothing
else needed
o Unilateral contract formed when one party promises to pay another a sum of money (or to do some
other act) if the other will do something (or forbear from doing so) w/o making any promise to that effect
o Classic example: they used the word “if”: IF you walk to York, I will pay you 1000 pounds – that is a
unilateral contract. You make no promise in exchange, nor is it needed
o Bilateral – communication a promise which req’s an alternate promise to form a contract
o Bilateral contract in which a promise is exchanged for a promise. Remember that in unilateral contract
the party to whom the offer is made does not have to promise to do anything in return
Req’s of an Offer:
(a) Willingness to sell & a price (Canadian Dyers v Burton)
(b) More than an invitation to treat (Pharmaceutical v Boots)
(c) Communication req’d for establishment of an offer
(d) Animus Contrahendi – an intention to contract
Termination of an Offer
o An offer can be terminated anytime before acceptance
o Revocation is complete when the ability to perform under the offer is lost & the offeree is aware of such
conditions (Dickenson v Dobbs: Messenger may be stranger)
o An offer that has been accepted through performance is not immediately terminated after the death of the
offeror so long as performance continues to the completion of the offers terms (Errington)
Invitation to Treat
o A statement initiating contractual negotiations is an offer only if the person making it intends to be legally
bound. Otherwise it is an invitation to treat
o Distinguish offers from “invitations to treat” (steps in the pre-contractual process; negotiating steps)
o Newspaper advertisements are generally invitations to treat, not offers capable of acceptance
o Could receive multiple acceptances, it’s a preliminary statement expressing a willingness to receive offers
Test for Determining b/w Offer & Invitation to Treat
o Objective Test
o Would a reasonable person consider this an offer or an invitation to treat? Smith v Hughes (1871) QB
Display of Goods in Self Service Shop
o Display w/ price = invitation to offer
o Customer presents at cash register = offer (to buy a sticker price or to offer lesser amount/barter)
o Clerk ringing in = acceptance
Litigation of contract in stores usually arises in criminal context, not contract context
4
An understanding of contract law gives us an opening on much of the social development w/in our society. Thus,
historically, the emergence of a laissez-faire economy could not have been realized w/o development of a
sophisticated means of exchanging goods, services & labour. Similarly, the importance of capital & its investment
potential could not have been insured w/o a method of protecting forward exchange. The historian, Niall Ferguson,
(Empire) has described this importance & the stabilizing effect that the common law, particularly contract law, had
for the emergence of Britain’s empire. In the latter stages of the 20th century the rise of the modern welfare state
saw restraints placed on freedom to contract. However, today, as many question the continued sustainability of our
current social structuring, contract law is once again rising in importance as a tool to allocate entitlements & as a
way to create efficiency. In this first chapter you should review the current contemporary theories offered to provide
explanatory accounts of contract law.
- The Classical Theory of Contract
o 19th century – from laissez faire liberalism
o law can be reduced to statements of rules
o conflicts are “wrong”
o objective manifestation of the agreement, not the parties thoughts
o freedom to contract w/ whoever
o law should not leave individuals to free to maximize private advantage
o contractual liability is strict
- The Intersection of “Private” & “Public” Law
o many ways the private law overlaps public regulation
o free markets are a form of gov’t regulation in itself
o markets are regulated for equality, safety, public welfare
o public policy considerations prohibit the sale of certain items eg blood & human organs
o Trevilcock, “behind the law of contracts lies a much broader set of economic, social & political values that
define the role of markets in our lives
- “Freedom of Contract”: Reality & Regulatory Response
o Trend away from freedom of contract (which has never been fully free)
o Less ability to negotiate consumer contract terms
o Termination of contract because of, sexuality Vrind v Alberta 1998 SCC – gay teacher fired
o Minority neighbourhoods had a higher proportion of subprime mortgages
o Trillium Gift of Life Network Act 1990 s.10 – no person can sell body tissue or blood
o Provincial Human Rights codes prohibits discrimination in employment
o Common law protects vulnerable people
Doctrine of unconscionability – protection from unfair bargains
Doctrine of good faith – developing but not possible to say it’s a general duty yet, just specific situations
- “Freedom of Contract”: Common Law Response
o Law of contract was conceived principally as a facilitation of voluntary choices by giving them legal effect –
Collins, the Laws of Contract
o Freedom of contract never realized – relies on fiction of equality b/w the parties
o Express limits on self-interest
Protects youth & mental disability, presumed to be at a disadvantage
Duress & undue influence
o Many examples of courts limiting the advantage of one party over another
Robichauld v Causse populaire de Pokemouche Ltee – arguably instance of court limiting power of
creditor over a debtor (Ch 4, sec 7)
Bank of British Columbia v Wren Developments –imposition by the court of a duty to disclose, while
preserving that there can be no misrepresentation in the absence of a statement of fact (ch 7, sec2)
Judicial control of exclusion clauses – Ch 8
o General principles that transcends categories of the law
Vulnerability – Hodgkins v Simms 1994 SCC – breach of fiduciary duty, undue influence,
unconscionability, negligent misrepresentation
Negligence – can transpire across all areas of contract law
Fiduciary – position of trust & confidence
Recent decisions suggest where there is an inequality & substantial unfairness in the bargain the
court may have grounds to intervene Harry v Kreutizger (ch 11, sec 4(b)
1
,- What Promises are Enforceable?
o Traditional – expectations are only protected when there is an exchange or the promise of an exchange
o Should promises be kept if they have been relied upon?
o When is an expectation justified to impose on another?
- What Remedy for Breach?
o Damages
But out of pocket reliance too?
Expected profits
o Specific performance
o injunction
- Theories of Contract Law
o law & economics (Posner, Economic Analysis of Law) economic reasons why the law enforces some
promises & not others
o feminism & affirmative action
o law is merely a consensus reached by the people at the table at that point in time
o appreciate the power of law to shape discourse, police & people’s opportunities
- Relational Contracts
o parties may not be able to fix all terms at the moment of contracting
o parties in a long term relationship may not wish to be confrontational or maximize their short term advantage
- Transcending Conceptual Boundaries
o contracts law overlaps w/ other areas such as property, criminal, & particularly torts
o both tort & fiduciary duties should apply to contracts unless expressly excluded
o unjust enrichment – Deglman v Guaranty Trust Co 1945 SCC
-----Formation of the Agreement-----
2
,Much of contract doctrine is built upon a paradigmatic model of a contract; one that is negotiated b/w two parties of
equal bargaining power, & which results in an individual contract w/ readily identified binding obligations. While this
model may describe some contracts, contracting behaviour is far more widespread & does not typically follow this
model. Consider the purchase of a coffee from a vending machine or the parking of a car in a public garage. There
is no opportunity for bargaining; indeed, the contract is made w/ a machine. Nevertheless, it is the paradigmatic
model, what is known as a synallagmatic contract, which informs our understanding of contract law, & from which
other contracts are seen as deviation. The model is built on a number of constituent elements; offer, acceptance, &
communication, intention to create legal relationships, consideration, privity, certainty of terms & capacity. In the first
part of the course we will explore these elements.
Particular attention s/b paid to the treatment of the tendering process.
In R v Ron Engineering & Construction (Eastern) Ltd the SC drew a distinction b/w a contract which dealt w/ the
tendering process, what was called Contract A, & the eventual successful bid, which was called Contract B. The
creation of a tendering process contract, & what obligations it creates, has been the subject of a number of other
decisions of the SCC, including the following:
Double N Earthmovers Ltd v Edmonton City, 2007 SCC 3, [2007] 1 SCR 116. (Waddams page 200)
Design Services Ltd v Canada, 2008 SCC 22, [2008] 1 SCR 737. (Waddams page 201)
Tercon Contractors Ltd v British Columbia (Transportation & Highways), 2010 SCC 4, [2010] 1 SCR 69. (Ben-
Ishai page 48) (Waddams page 202)
W/ respect to the formation of a contract, it may seem strange to still speak of postal rules which control when a
contract is created & in which jurisdiction it is formed. In a time when electronic commerce is prevalent, you should
review the Electronic Commerce Act of one of the provinces, & determine how rules of communication of offer &
acceptance are dealt w/. For example, the Ontario Electronic Commerce Act, SO 2000, c 17 treats e-mail as if it is a
form of instantaneous communication & thus does not apply the postal rule. However, when the contract is formed
depends upon how the recipient of the acceptance has structured their e-mail correspondence & when they are in
receipt of the e-mail (see s. 22).
In the Ben-Ishai section on Agreements to Negotiate (Ben-Ishai page 134) the case of Empress Towers Ltd v
Bank of Nova Scotia (at page 136) alludes to the possibility that there is an obligation imposed to negotiate in good
faith b/w contracting parties. (Waddams discusses the unenforceability of such agreements in the context of
Walford v Miles, [1992] 2 AC 128 (HL) at 217.) This is a contentious issue. The SCC in Martel Building Ltd v
Canada, 2000 SCC 60, [2000] 2 SCR 860 (Ben-Ishai page 47) (Waddams page 202) emphatically stated that a duty
to bargain in good faith had not been recognized in Canadian law, & they left the issue to another day to determine
whether such a duty s/b imposed. Nevertheless, the SCC has recognized that particular contracts can carry an
implied duty to perform in good faith, or to discharge some existing contractual obligation in a good faith manner
(see Honda Canada Ltd v Keays, 2008 SCC 39, [2008] 2 SCR 362, implied obligation of good faith dismissal). The
Ontario Court of Appeal has on at least 2 occasions canvassed the arguments on whether there s/b an obligation of
good faith negotiation. Attention should now be made to the SCC’s decision in Bhasin v. Hrynew 2014 SCC 71
(Ben-Ishai page 462) (Waddams page 698) where the court spoke of good faith as a general organizing principle &
illustrated their argument w/ cases cited above. The SC has also returned to this good faith in Churchill Falls
(Labrador) Corp. v. Hydro- Québec 2018 SCC 46 where it has suggested limits on the doctrine of good faith that
does not permit renegotiating or negating contract rights unless reliance upon contract performance amounts to
unreasonable conduct. A contract fairly negotiated & that apportions risks associated w/ performance does not
constitute unreasonable conduct simply because those risks have in fact eventuated.
978011 Ontario Ltd v Cornell Engineering Co (2001), 53 OR (3d) 783, leave to appeal refused [2001] SCCA No
315. (Ben-Ishai page 367 & 518) (Waddams page 769)
Oz Optics Ltd v Timbercon Inc (2011), 107 OR (3d) 509 (CA).
1. Offer & Acceptance
Basic idea: parties will be held to have reached an agreement when they have formed a mutual intention to enter
into a bargain w/ each other & are in agreement as to the terms of that bargain
3
, Consensus ad idem/mirror image rule: Did their minds come to the same point of agreement, same terms at the
same time?
The first prerequisite to contractual liability based on consent is that the parties m/ have reached an agreement
Classic law breaks down contracts into offer & acceptance
Current law req’s more: estoppel, consideration, seal to move from no liability to fully liable for damages
Offer: All terms of proposed exchange
Acceptance: Acceptance to all terms as proposed
o Failure to accept all terms of an offer is a rejection of that offer, but may constitute a counter-offer, which in
turn may be accepted or not
o Once rejected, an offer cannot later be accepted i.e. Offeror can treat rejected offer as “dead”
Consensus: both parties agree at the same time to the contract
Intention to create legal relations: show intent of parties to be legally bound by their agreement
Certainty of Terms: Identifies clearly what was agreed to
Written records: Sometimes is req’d by state. Useful for evidentiary purposes, i.e. Is the written record complete?
Courts are enforcing a mutual agreement freely consented to by each party to the contract
Agreement unfolds through a sequence of events that match up to categories of offer, communication, acceptance
Party behaviour crystalized in an agreement that could be the basis for a contract
2. Offer & Invitation to Treat
Offer: a form of communication which creates an ability to make a contract
o Unilateral – communicating an offer which is accepted through performance
o General principle is that advertisement is usually an invitation to treat, but in certain circumstances,
courts may find that it is not just an invitation to treat but its an actual offer – type of offer unilateral
offer which is capable of being accepted through performance – exception from Carlill v Carbolic
Smoke Ball Company
o Unilateral contract is where the offer is accepted if one fulfills the necessary performance req’d. Nothing
else needed
o Unilateral contract formed when one party promises to pay another a sum of money (or to do some
other act) if the other will do something (or forbear from doing so) w/o making any promise to that effect
o Classic example: they used the word “if”: IF you walk to York, I will pay you 1000 pounds – that is a
unilateral contract. You make no promise in exchange, nor is it needed
o Bilateral – communication a promise which req’s an alternate promise to form a contract
o Bilateral contract in which a promise is exchanged for a promise. Remember that in unilateral contract
the party to whom the offer is made does not have to promise to do anything in return
Req’s of an Offer:
(a) Willingness to sell & a price (Canadian Dyers v Burton)
(b) More than an invitation to treat (Pharmaceutical v Boots)
(c) Communication req’d for establishment of an offer
(d) Animus Contrahendi – an intention to contract
Termination of an Offer
o An offer can be terminated anytime before acceptance
o Revocation is complete when the ability to perform under the offer is lost & the offeree is aware of such
conditions (Dickenson v Dobbs: Messenger may be stranger)
o An offer that has been accepted through performance is not immediately terminated after the death of the
offeror so long as performance continues to the completion of the offers terms (Errington)
Invitation to Treat
o A statement initiating contractual negotiations is an offer only if the person making it intends to be legally
bound. Otherwise it is an invitation to treat
o Distinguish offers from “invitations to treat” (steps in the pre-contractual process; negotiating steps)
o Newspaper advertisements are generally invitations to treat, not offers capable of acceptance
o Could receive multiple acceptances, it’s a preliminary statement expressing a willingness to receive offers
Test for Determining b/w Offer & Invitation to Treat
o Objective Test
o Would a reasonable person consider this an offer or an invitation to treat? Smith v Hughes (1871) QB
Display of Goods in Self Service Shop
o Display w/ price = invitation to offer
o Customer presents at cash register = offer (to buy a sticker price or to offer lesser amount/barter)
o Clerk ringing in = acceptance
Litigation of contract in stores usually arises in criminal context, not contract context
4
