Certainty Flashcards
3 Essential Terms of the Contract
- Price; 2. Performance date; 3. Subject mater - meeting of the minds of both parties on essential terms is necessary to generate strict liability / mutual undertakings.
Issues: what happens if an obligation is unclear? If there is a breach, how do we assess damages? If there is uncertainty?
If the essential terms are not certain, then the contract is not enforceable, that means we do not have an agreement at all.
Tension for the courts: In reality, people are often not too clear in all the terms of the contracts, but we also need the flexibility. If courts are too rigorous then they would be invalidating all sorts of deals and would undermine commercial planning, certainty, and commerce but on the other hand the court can only go so far, freedom of contract, courts can’t rewrite a contract that would surprise parties. So the courts will insist on a reasonable certainty, not pure certainty, but the court is also not allowed to be too active to imply terms.
Certainty Problems (4 catergories)
(1) vagueness (2) incompleteness and agreements to agree (3) agreements to negotiate (4) anticipation of formalization
R V CAE INDUSTRIES LTD 1985 FCA – BEST EFFORT CLAUSE - ENFORCEABLE, BUYING GOV AIRBASE - Vagueness
- Best effort clauses are enforceable, as long as we can give it definite meaning, an identifiable standard to see if they have fallen short.
- Whether it’s too vague needs to be determined objectively in the context, read holistically, what was said and what was done, and assess commercial context.
- how active will the court imply the terms depends on how serious the parties treat this “best efforts” clause, the parties thought they are binding / they have meaning/ even performed a period of time (partial performance), so the court will imply it
- Important judicial motivator to save the deal in these cases: more serious parties are, part performance, lots of money involved, political importance – court wants to give effect to what parties intended
Problem from a certainty perspective of court implying an essential term: danger if they are rewriting the contract for parties and entrenching on freedom of contract
Court motivated to enforce agreements to agree when
(1) there is serious intent to contract
(2) there has been partial performance
(3) there is reliance on the contract (4) there is a market metric.
MAY V BUTCHER 1934 HL – AGREEMENTS TO AGREE ARE NOT ENFORCEABLE, BUYING WW1 TENTS
Facts
* Gov commission trying to divest from old war army tents, the contract states the price would be agreed upon from time to time and any disputes that arise out of the price would be referred to arbitration (who would then set out the price) – now suing because disagreement on price
Issues * Is it binding when parties agree to agree on price later (price from time to time, absence of price)?
* If they can’t agree, is it binding to have an arbiter clause to set the price?
Note * Principle has been modified by Coaches case and the Sales of Goods Act of BC.
Rules * Generally, agreements to agree are not legally enforceable.
Analysis * The court cannot pick a reasonable price because of freedom of contract and no market metric and no evidence of what they thought would be a reasonable price.
* Price is an essential term of contract, and it is not sufficiently certain here, not enforceable.
(the purpose to enter a contract is not a contract, the agree to agree later is not a contract, as you have no idea that you will agree later, as the content is subject to the agreement never discussed) The court held that agree to agree on the essential terms later is no contract at all.
* Arbitration clause is not valid because that presupposes this agreement was a valid contract which it is not- can’t have someone make a contract for you basically.
Disagreement arising on the agreement will go to arbiters, but there have to be a agreement at all.
Conclusion * No agreement to agree on price later and agreement to send to third party arbitrator is not enforceable.
HILLAS V ARCO 1932 HL – TERMS SUFFICIENTLY CERTAIN TO BE ENFORCEABLE, CONTRACT TO BUY RUSSIAN TIMBER
Facts * There is a contract that provides option for company Hillas to buy 100,000 standards of timber from Russian supplier.
* There are numbers missing terms in the contract:
1. Subject matter, what is the standard? 2. Price to be paid; 3. Performance date, what is the delivery date?
o 1) subject matter: does not specify timber or Russian just 100,000 standards
o 2) performance date: just some time in the 1930-31 harvest season
o 3) price: does not stipulate specific price just will be %5 less than the list price in 1931
* One party wanted out of the contract arguing it was too vague to be enforceable
Issues * Are these terms too vague to be enforceable?
Rules * If uncertain terms of a contract can be construed from context of the agreement, then it will be binding.
Analysis * Court does not analyze in isolation, analyze the contract objectively in perspective of the parties, considering the overall relationship, very clear what they are talking about.
* Date of delivery: shared understanding and knowledge of the industry, reasonable time can be assessed between them, for future performance parties may not desire to specify date, so court can add if its determinable. (you do not have to pick a moment, but the delivery time can be a reasonable time, in the contract transaction, there is a particular harvesting / chopping / selling season, based on previous years experience)
* 5% off list price: its specific to an exact amount that can be calculated, read in isolation wouldn’t make sense, so court can add price if its calculable (not to worry about the list price, but need to see it in the context / history, there is a red book we have a list)
* Standards: considering the entire relationship clear they meant Russian standards (One party is Russian seller and they are dealing with Russian wood, so it means Russian standards)
Conclusion * The terms are sufficiently certain to be enforceable
FOLEY V CLASSIQUE COACHES LTD 1934 CA OF E&W – AGREEMENT TO AGREE IS ENFORCEABLE, DETERMINABLE PRICE, ARBITRATION CLAUSE, AGREED TO BUY ALL PRETROL
Facts * Coaches bought land from Foley with agreement to buy all petrol required for their business from Foley
* In contract: agreed to agree to price of fuel later and arbitration clause for any disagreements around that price and have it set by third party
* Coaches perform for 3 years and then try to end it by arguing it is not binding because it was an agreement to agree (relying on May v Butcher) – partial performance is not in May v. Butcher, this matters because of fairness
Issues Are the agreements to agree on price and arbitration clause legally enforceable?
Rules Agreements to agree on price and to send to 3rd party arbitrator are legally binding when a reasonable price can be determinable.
Analysis * Distinguished from May v Butcher because:
* Price: there is a market metric against which to measure the value of petrol so the court could determine a reasonable price to pay – the parties’ intention is not “agree to agree”, “from time to time” but there is a price for petrol, there is standard “benchmark” there, there is an external machine there.
* Price reasoning also applies to arbitrator clause: 3rd party could assess a reasonable price based on market
* Court motivated to save by serious intention, reliance, and partial performance:
* There are 2 contracts here, if they strike down the petrol contract only leaves 1st one for land but problem, he would’ve charged less knowing he would get money from the petrol contract = reliance
Conclusion * Yes, in certain cases they are legally binding.
BC SALE OF GOODS ACT, SS 12 AND 13 - S 12 AND 13 OVERRULE THE MAY V BUTCHER CASE
Section 12: agreements to agree are binding in BC with respect to goods, but not services or land. Price for the sale of goods can be set out in the contract or left to be set as agreed. If the parties don’t agree, then the price to be paid is set at a reasonable price by the court even when there is no market metric. Where the price is not determined in accordance with subsection 1 the buyer must pay a reasonable price and what is a reasonable price depends on the facts of the case.
Only apply to Goods.
Section 13: Agreements to send the valuation to a third-party arbiter are also binding but if the arbitrator doesn’t come up with a price the contract is void / invalid.
ANALYZING CERTAINTY PROBLEM WITH AGREEMENT TO AGREE
1) Does the BC Sale of Goods Act apply-(are the goods in B.C.)? Is this “goods”? – no service & land.
If yes then agreements to agree are binding, the court will imply a reasonable price, and arbitration clause is also binding / enforceable.
2) If BC Sale of Goods Act does not apply: generally, look at the common law – skepticism that agreement to agree is binding (May v Butcher)
a. Exceptionally, it is enforceable if there are things like part performance, reliance, high motivation for contract, intent, market standard (Foley v Classique Coaches).
AGREEMENTS TO NEGOTIATE
If the agreement to negotiate is enforceable, this means not applying the reasonable price, but both parties have obligations to negotiate.
What if you breach contract, if you did not fulfill the obligation to negotiate, what’s the remedy? How to quantify?
Court motivated to uphold especially with part performance and serious commercial parties but can only go so far
EMPRESS V BANK OF NOVA SCOTIA 1982 BCCA
Facts * Bank tenant of Empress had 5-year lease with clause that at expiry tenant can renew at prevailing market rate as agreed between the parties if no agreement right to terminate lease.
* Bank wanted to renew and attempted to negotiate but Empress ignored them.
* Day before expiry, Empress agreed to renewal on a month-to-month basis, can terminate on 90-day notice, and required $15,000 cash upfront
* Bank argued they have the right to renew at prevailing market rate, but Empress argued too vague to be enforceable – empress sought order to end lease
Issues Was renewal of lease too vague (price to agree) to enforce?
Take away:
Implied terms to negotiate, also entails the “agree to agree”, which has no sense but at least both parties should try to agree towards the agreement. The court cannot apply a reasonable price, as there is an obligation to negotiate, If no agreement is reached, the right would be terminated.
That does not mean the parties are bound to renew now (does not mean the negotiate must be saucerful), but there is an obligation to negotiate which has been breached.
Rules With agreements to agree, court need to determine what the parties intended by objective reasonable person and prevailing business practices. When there is an express agreement to agree it carries with it an implied obligation and duty to try to agree, negotiate, and act in good faith.
Analysis * Court motivated by how serious the parties are, they had negotiated this clause in the lease, has commercial value – enforceable obligation to negotiate means more likely to form a contract
* Clause that if no agreement reached, they could terminate, parties are clearly signaling to court they don’t want to simply imply a reasonable price, but it carries an implied obligation to negotiate in good faith to an agreement (Had the parties said in the contract that “market price” rather than “market price as mutually agreed”, there should be a contract, the clause is not enforceable)
* Assess mutual intention of parties based on reasonable person and business efficacy: they had a clause they can terminate if they don’t agree, why would you add that clause if you don’t even try to negotiate so breached obligation
* Only can breach this obligation if can determine what bad faith is (the bank wins on this point, there is an implied obligation to negotiate, where the implied terms from, the ORP would believe there is an obligation to negotiate, negotiating in bad faith is a breach)
* Empress not replying until last minute is bad faith considering the circumstances and prior business dealings
* Bad faith = breach of good faith, like withholding agreement unreasonably
Conclusion Yes, court did not imply a market price but found implied term to act in good faith.
MANNPAR ENTERPRISES LTD V CANADA 1999 BCCA
Facts * Mannpar had contract with gov of Canada to excavate gravel and sand on Indian Band – so Canada is acting as contracting third party for the Indian band
* Had express clause for renegotiation after 5 years, Manparr tried to renew and gov was not exploring options and the deal expires.
* Mannpar sues, arguing they have a right to renew subject to renegotiation and they have an obligation to try and renew in good faith but gov claims too vague to be enforceable
Issues * Was the renewal clause enforceable?
Note: The Canada government is acting on the interest of Band. Agreement to renegotiate is too uncertain, you need to more things with bare duty to negotiate: 1. market metrices, so the court cannot measure the conduct. 2. serious intent to negotiate in a good faith. Why in this case there is no mutual serious intent to negotiate? Highlighted above. That means the government does not want to bind themselves in the clause as they are representing other party’s interest.
Rules * For an expressed renegotiation clause to be enforceable you need a market metric to measure the duty
* Courts can only imply a good faith term if the parties intended it
Analysis * Court is constrained by the precedent in Empress but confines it to those circumstances
* True there is an implied obligation to act in good faith but it’s generally unenforceable because renegotiation is too vague unless they have an external market metric, which is what Empress had
* No market metric for sand and gravel work so can’t give content to the obligation
* Can only imply a good faith term in the parties intended it but that fails here based on the fiduciary duty that the gov owes to the Aboriginal land, they intended to have ability to refuse to renew and ensure proposal would be acceptable
Conclusion * The renegotiation clause was too vague to be enforceable because without the good faith obligation it’s too vague.
BHASIN V HRYNEW 2014 SCC – GENERAL DUTY OF GOOD FAITH, UNDERLYING LEGAL PRINCIPLE, DUTY IN LAW, DUTY TO NOT LIE, LIED ABOUT INTENTION TO RENEW
Facts * Long term contract with an automatic renewal clause of 3 years subject to termination if they give the other party 6-months written notice
* Bhasin expects it to renew but the other party: (1) did not tell them in a timely manner they wanted to terminate (2) lied about their intentions to renew when they knew they wanted to terminate (3) appointed a competitor of the other party as their auditor to undermine their ability to carry out the contract
Issues * Was the renewal clause enforceable?
Take aways:
dishonest to intend not to invoke the termination clause;
1. There is an organizing principle to act in good faith in all contracts; That duty arose from the law, not in the fact. (before this case, implied duties are in the facts not in law, this is the first one); This has nothing to do with the parties’ intent. It applies to all the obligations of the contract, but it also applies to “renew clause”.
2. When does the duty arise? Once you have a contract, when you are performing the contract. The moment the contract is valid, then you have the obligation to perform in good faith. Renew is formatting a new contract stage, but you are also performing the first contract, there is an overlap.
3. What is the content of the “good faith”? at minimum, the duty of good faith is absence of bad faith, the bad faith is performing in a dishonest way. It’s the duty of honest performance.
In the context of negotiate, duty is good faith, 2 different possibilities: 1. One source of duty is implied in fact, did the party intend? Is there a market metrics? If both yes, then there is a duty. 2. Alternatively, there is a duty in law, that there is always a duty. They are different duties, different contents, different sources, the latter one impose you a duty to be honest (narrower), but it always applies (broader).
Rules * There is an organizing principle in law, implied as a matter of law not the intention parties, that there is an obligation to perform every contract in good faith (must act honestly)
* 2 central obligations: (1) parties must act honestly and reasonably not arbitrarily or capriciously (2) at minimum parties must not lie or knowledgably mislead each other about matters directly linked to the performance of the contract – can still pursue self-interest
Analysis * Source of duty to act in good faith: organizing principle that arises by operation of law in every contract.
* Up to this point: implied in fact and parties intended it, reasonably and objectively speaking, to give business efficacy – implying an obligation based on fact
* When does this duty arise: in the performance of contracts – dealing with renewal clauses is making a new contract that flows from the performance of another contract
* In this case the content of the duty is to not (not to avoid acting unreasonably like in Empress)
* Court concluded Hrynew was tantamount to dishonesty in their intention to terminate
* Content of the duty of good faith depends on the nature of the contract and relationships
* While it always applies and is not displaced by intention, intention helps colour it, can limit through language
* Don’t need market metric like Manparr for this to apply
* Empress more robust in content – requires to not withhold agreement unreasonably
* Empress narrow in application – need market metric and intention of parties
* Doesn’t interfere with freedom of contract because general expectation and norm of good faith underlies almost all contractual relationships
Conclusion * Hrynew breached underlying common law principle of good faith.
BAWITKO INVESTMENTS LTD V KERNELS POPCORN LTD 1991 ONCA – ORAL AGREEMENT TO FORMALIZE LATER - ANTICIPATION OF FORMALIZATION
Facts * Bawitko wanted to open Kernels popcorn franchise, was given complicated 50-page franchise agreement
* Part performance
* Oral agreement allegedly but the deal fell through one side wants to enforce the oral contract and the other contends the oral agreement is not enforceable.
Issues * Is an oral agreement to formalize later enforceable?
Rules * Anticipation of formalization is enforceable in narrow situation where all essential terms are worked out with complete certainty
Analysis * Is not agreement to agree but it’s contracting now to contract later(the parties may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions) – the subject of the deal is to make the deal later
* Anticipation of formalization is fine but extremely narrow and failed in this case, franchise documents are very complicated, and they did not go through each term orally
* Conduct of parties after oral meeting evidence a final agreement had not been reached
Conclusion * No, in this case it was not legally enforceable.
