Chapter 7The Nature and Creation of Contracts

REVIEW QUESTIONS
1.
The phrase meeting of the minds refers to a mutual agreement to enter into a
legal transaction on a particular basis. (Lawyers often use the phrase consensus ad idem.)
A meeting of the minds is significant to the formation of contracts because it shows that
the offeror and offeree agreed to enter a contract on certain terms and that they are
willing to be bound to those terms. Meeting of the minds occurs through the process of
offer and acceptance. Significantly, however, contract law, as usual, takes an objective
approach to the issue. Consequently, while rare, a person may be bound by an agreement,
even without intending to do so, as long as the reasonable person would have thought
they intended to be bound.
2.
Comfort letters arise in connection with the requirement that the parties have an
intention to create legal obligations. Just as the parties have freedom to contract, so too
they have freedom not to contract. Consequently, even if the other elements of contract
formation (eg offer, acceptance, consideration) are in place, a court will first ask whether,
on an objective assessment, the parties intended to be legally bound by their promises. If
not, then although they could have created a contract, they have chosen not to do so. A
court will respect that choice.
There is a presumption that parties in a commercial setting do intend to create legal
relations. That presumption may be rebutted, however, by evidence to the contrary. Such
evidence may take the form of a comfort letter.
A comfort letter is only somewhat comforting in practice. It provides the writers promise
to perform in a certain way, but it also stipulates that that promise is not legally
enforceable. Notwithstanding its inability to create legally enforceable obligations, a
comfort letter is valuable to the extent that the writer cares about his or her reputation. A
business person who breaks a promise even a promise that is not legally enforceable
will be a less desirable trading partner in practice. Comfort letters therefore provide
some assurance that an undertaking will be honoured.
3.
Since a contract comes into existence as soon as an offer is accepted, the offeror
must be careful to avoid offering more than he or she is willing or able to provide. Not
only is the offeror obligated to honour the promises contained in the agreement, he or she
will be unable to alter the contents of that agreement, or bring the contract to an end,
without the agreement of the other party.
The courts have developed two techniques to reduce these dangers. First, judges have
developed careful guidelines for deciding which statements qualify as offers. To qualify
as an offer, the person making the statement must have the intention to create legal
relations. This means that the offeror must have intended that the proposed agreement
would be enforceable in law. The test for deciding this issue is an objective one that asks
whether the reasonable person, viewing the circumstances as a whole, would believe that
the parties intended that the agreement would be legally binding. The court will not take
into account the subjective intentions of the parties because: (i) a person could easily lie
about the matter, and (ii) one of the primary aims of contract law is to protect reasonable
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expectations. A court will try to protect the party who, on the basis of his reasonable
expectations, may have made arrangements in anticipation of the contract being fulfilled.
The courts have also simplified matters by assuming that offers made in a commercial
context are generally enforceable, while offers made in a family or social context
generally are not. However, these presumptions may be disproved where there is
evidence to the contrary.
The second way judges reduce the risks of making an offer is by placing limits on how
statements can function as offers. The courts classify some statements about proposed
transactions not as offers, but rather as invitations to treat. An invitation to treat is an
invitation for others to make an offer and shows a willingness to receive an offer. The test
for deciding whether a statement is an offer or an invitation to treat is also an objective
one. The court will ask how a reasonable person would interpret a disputed statement in
light of all the circumstances.
4.
Quantum meruit is a Latin phrase that means as much as it is worth. A
contract requires offer and acceptance, at least one of which usually involves the payment
of a price. Those elements are most easily established when the parties expressly provide
offer and acceptance. Nevertheless, a contract may be created even if offer and
acceptance are implied rather than express. That may happen if, for instance, a person
walks into a restaurant and says simply, A cheeseburger and a milkshake. That
statement is interpreted by the reasonable person as both a desire to receive the meal and
an offer to pay for it. By filling the order, the restaurant provides its acceptance.
(Acceptance may occur earlier if the server says something like, Ill bring it right up.)
Furthermore, even though neither party mentioned a price, the initial demand implied a
willingness to pay a reasonable price. A court would consider all of the circumstances,
especially the price list on the restaurants menu, in settling on a dollar figure.
5.
The objective reasonable person test allows the courts to create a fictional
person in order to determine what the parties should have done or thought in the
circumstances. The objective test provides the courts with considerable flexibility and
makes it possible for a judge to equally say what a reasonable person would or would not
have intended. In addition, a test based on subjective intentions would be difficult to
apply for two reasons. First, a person could easily lie at trial about what his or her
intentions were. Second, a primary aim of the law of contracts is to protect reasonable
expectations. Since the business world could not function properly unless people were
entitled to rely on outward appearances, the courts will protect the reasonable
expectations and interpretations of the parties.
6.
An option is a contract in which the offeror is paid in exchange for a binding
promise to hold an offer open for acceptance for a specific period. The concept is
important because the offeror, as master of the offer, normally is entitled to revoke the
offer anytime prior to acceptance by the offeree. That is true even if the offeror issued the
offer as a firm offer, promising that the offeree would have a certain period of time
within which to accept.

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An option consequently provides a way in which the offeree of a large offer can compel
the offeror to hold that offer open as promised. The option is a separate contract. In
exchange for receiving a price (usually a small, but significant, sum of money), the
offeror of the large offer agrees to hold that large offer open. Because the promise to hold
the large offer open is now contained within its own contract, it is enforceable.
Suppose, for instance, that the defendant offered to sell Blackacre to the plaintiff for $1
000 000. The plaintiff needs a week to think about the possibility before accepting or
rejecting. The defendant, however, prima facie can revoke the sale offer at any time. To
preclude that possibility, and to compel the sale offer to remain open for a week, the
plaintiff may persuade the defendant to create a new contract: an option. In exchange for
the plaintiffs payment of, say, $5000, the defendant enforceably agrees to hold the sale
offer open for one week.
7.
An offer is an indication of a willingness to enter into a contract on certain terms,
whereas an invitation to treat is an indication of a willingness to receive an offer. The test
for deciding whether a statement is an offer or an invitation to treat is an objective one.
The court will ask how a reasonable person would interpret a disputed statement in light
of all the circumstances. In applying the test, the courts tend to apply certain
presumptions: (i) the display of an item on a store shelf, even if marked with a price tag,
is an invitation to treat, and (ii) a statement placed in a newspaper or catalogue is
generally an invitation to treat. However, an advertisement may be considered an offer if
a reasonable person would read it that way. For instance, an advertisement that states,
Mens 12 speed mountain bike. $400. First come, first served is an offer, whereas
Mens 12-speed mountain bike. Seller will accept best offer is an invitation to treat.
The distinction helps to promote commercial activity by eliminating the offerors danger
of being immediately bound to an unmanageable number of contracts.
8.
Revocation occurs if the party who made the offer withdraws it. The offeror is
generally entitled to revoke the offer at anytime. But where the offeror promises to hold
an offer open for acceptance during a certain period, special attention is required. Strictly
speaking, since there is no exchange of value in return for the firm offer, the promise to
hold the offer open is not enforceable in law. From a commercial viewpoint, this
flexibility is important because it allows the offeror to negotiate with other potential
buyers. However, from an ethical perspective, it may be in the offerors best interest to
honour firm offers. In addition to maintaining good business relations, keeping ones
promises generates goodwill for the business.
9.
Cross-offers occur when two people offer each other a contract on the same
terms. That would be true, for example, if you wrote a letter to me saying I will buy your
car for $5000 and I write a letter to you saying, I will sell my car to your for $5000. It
may appear that a contract is created because you and I share the same idea at the same
time. A contract, however, requires more than a coincidence of ideas. It requires a
consensus ad idema meeting of the minds. A contract is created only if one person
offers and another person accepts that offer.

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10.
The tendering process limits the revocation of offers during the period in which
they are being considered and otherwise ensures a fair bidding process. The courts have
found that two contracts may be formed under the tendering process. Under Contract A,
the call for tenders is an offer to enter into a special contract to hold a fair tendering
process in exchange for an irrevocable bid. In that context, the bid constitutes acceptance
of the offer under Contract A. Under the second contract, the call for tenders serves as an
invitation to treat to receive offers to enter into the larger Contract B. In that context, the
bid constitutes an offer to enter into Contract B. There will be one Contract A for each
party that submits a tender, but there can be only one Contract B between the party
calling the tenders and the party that submits the winning bid.
11.

An offer may come to an end in five different ways.

Revocation
If an offer has not been accepted, and if the offeror is not
compelled to hold the offer open for acceptance under the terms of an option, the
offeror is entitled to revoke the offer. Revocation is simply the termination of an
offer. Revocation normally can be made in the same manner as the original offer
(eg an offer that appeared in a newspaper may be communicated by a revocation
in the same paper).
Lapse of Time
Even if an offer has not been accepted or revoked, it will
lapse after the passage of a reasonable time. The calculation of that reasonable
period depends upon the circumstances, including the terms of the offer, the
nature of the goods, the volatility of the market, and industry practice.
Death or Insanity
An offer usually comes to an end if, prior to acceptance or
termination buy other means, either the offeror or the offeree dies or becomes
insane. At least in theory, a mind that no longer exists or that has become
defective cannot contribute to a consensus ad idem (a meeting of the minds)
and therefore cannot support the creation of a contract. In practice, however, an
offer may be accepted, notwithstanding death or insanity, if performance of the
proposed contract was not personal to the parties eg if the offer was a simple
offer to sell land for a monetary price, rather than a proposal to exchange the
performance of a concert for the creation of a computer program. If the offerors
and offerees personalities are not crucial to performance, it may be open for their
estates to adopt the agreement.
Rejection
An offer is terminated if it is rejected by the offeree. Once it is
thereby terminated, it cannot unilaterally be revived by the offeree if that party
has a change of heart. The offeree must make a new offer or hope that the offeror
reiterates and recreates the original offer.
Counter-Offer
A counter-offer is an attempt to accept an offer but on
varied terms. Any variation of the original terms constitutes a counter-offer. And
that counter-offer constitutes a rejection of the original offer and the creation of an
entirely new one. The offeror and offeree thereby trade positions.

12.
The statement is not true. As a general rule, the offeree is entitled to communicate
acceptance by any reasonable means. As a result, for example, a written offer may be
accepted orally, or vice versa. The choice does not always lie with the offeree, however.
Most importantly, the offeror is the master of the offer and therefore can stipulate that
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acceptance must be communicated in a particular manner. Furthermore, even if the

offeror has not expressly required a particular form of communication, the circumstances
may restrict the offerees options.
13.
An offer is terminated once it is rejected. This means that it cannot later be
accepted if you, as the offeree, later changed your mind. The rule is set up this way to
ensure that there is only one master of the offer. In order to revive the transaction, you
could do one of two things. You could either ask the offeror to repeat the initial offer or
can make an offer yourself and hope that the original offeror accepts.
14.
A counter offer occurs when an offeree responds to an offer by indicating a
willingness to enter into a contract, but on different terms. A counter offer has the effect
of rejecting an existing offer and creating a new one, thereby switching the parties roles.
Consequently, any attempt to modify the terms of the offer amounts to a counter offer.
But because the general rule regarding counter offers tends to inhibit commercial
transactions, the courts sometimes characterize an offerees statement not as a counter
offer, but rather an as inquiry (which does not kill the offer).
15.
A battle of the forms arises when each party claims to have entered into a contract
on the basis of its own standard form document, but the parties documents incorporate
different terms. From a time and cost-saving perspective, it makes sense for a business to
use the same form for every transaction. A problem arises, however, where the offeree
responds to the offeror with its own standard form containing terms that do not exactly
match the terms of the offer. In that situation, the offeree is making a counter offer rather
than an acceptance. A further difficulty occurs if the agreement is executed rather than
executory. In that situation, the court must address the fact that the parties have already
performed. In order to determine which contractual form will govern the transaction, a
court will look at a number of factors, including: (i) the usual industry practice, (ii) past
dealings between the parties, (iii) the precise sequence of events, and (iv) the forms (if
any) that the parties actually signed. The battle of the forms was the subject of Additional
Teaching Suggestions in an earlier part of this chapter.
16.
A bilateral contract is a contract in which a promise is exchanged for a promise. A
unilateral contract is a contract in which an act is exchanged for a promise. A bilateral
contract can be accepted by words or conduct, whereas a unilateral contract can only be
accepted by the performance of a stipulated act.
17.
Silence, by itself, cannot amount to acceptance. The reason for this is to
discourage individuals and businesses from foisting obligations upon people. If, however,
the parties habitually create contracts on the basis of silence, or if the offeree does
something that the reasonable person would interpret as acceptance, silence can amount
to acceptance. That exception is especially important when a customer agrees to purchase
goods that are sent to her unless she returns them within a stated period (as under a bookof-the-month club).

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18.
Instantaneous communication is any form of communication in which there is
little or no delay in the interaction between the parties. Non-instantaneous
communication involves a substantial delay between transmission and receipt. The
difference in the form of communication is particularly relevant because it determines
when and where the contract was formed. Acceptance by instantaneous communication is
generally effective when and where received by the offeror. Acceptance by noninstantaneous communication, on the other hand, is generally effective where and when
the offeree sends it.
19.
The statement is not true. As a general rule, non-instantaneous communications
are governed by the postal rule. The postal rule states that a contract is formed when and
where an acceptance letter is put into a mailbox or delivery system. If that rule applies,
then it certainly is possible that the offeror will be bound to a contract, without knowing
it, if the letter becomes lost. Significantly, however, the postal rule is merely a default
rule. As master of the offer, an offeror can insist upon any form of acceptance.
Consequently, even if an offeror is willing to receive an acceptance letter by mail, it
remains possible to say that the postal rule is inapplicable. (That intention may be express
or implied.) If so, then the offeree is entitled to accept by post, but a contract will be
formed only if, when, and where the offeror actually receives the letter.
20.

The first statement is correct; the second statement is incorrect.

A unilateral contract is an agreement under which, at the time of creation or formation,

only the offeror has outstanding primary obligations to perform. The contract is
unilateral precisely because only one party has duties to fulfill. The offeree also
performs, of course, but that performance also comprises the stipulated act of acceptance.
When acceptance is effective and the contract comes into existence, the offeree has
nothing left to do. Suppose, for example, that I say to you, I will pay you $5000 if you
walk to Calgary. There is no contract at the outset. Moreover, there will be no contract
unless and until you fully perform the stipulated act ie walking to Calgary. A contract
will come into existence only if and when you take the final step into that city. At that
point, you have both accepted my offer and fully performed your part of the bargain.
Only I have an outstanding obligation to perform ie payment of $5000 to you.
A bilateral contract is an agreement under which, at the time of creation, both parties
have at least some outstanding primary obligations. A bilateral contract, in other words,
involves the exchange of a promise for a promise. In the classic bilateral agreement, the
parties provide offer and acceptance through words. Orally or in writing, each says, in
effect, I promise . The promise of performance, however, also may be
communicated in other ways, including the performance of some act. For example, by
walking into a restaurant and saying, A cheeseburger and a milkshake, I not only
evince a desire for the meal, but also offer to be bound to an enforceable agreement for
the provision of food. My offer is implicit in my act. Likewise, acceptance may be
communicated through actions If I walk into your hair salon and silently sit in a chair
while you cut my hair, I implicitly have accepted your offer to cut hair for a price. (If no
price is stipulated, a court will award quantum meruit or as much as it is worth.)

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CASES AND PROBLEMS

1.
In a business context, there is a general presumption that the parties had an
intention to create legal relations.1
That presumption, however, is rebuttable by evidence to the contrary. Just as the parties
have the freedom to contract, they also are free not to contract. Although there is no
magic in words, the use of a phrase like This agreement is subject to formal contract
normally indicates that, even if the other essential elements of an enforceable agreement
(eg offer, acceptance, certainty of terms, consideration) are present, the parties have
evinced an intention not to be legally bound. That proposition takes on additional strength
when it is used, as in this case, by sophisticated business entities who understand the
significance of legal enforceability.
In determining whether the parties have a created a contract, however, a court must look
at all of the circumstances. The wording of a document is important, but so too are the
parties actions. If neither party had yet performed, it is clear that Ziggy could not have
compelled DJI to fill its purchase order. The document alone would govern and it would
indicate that there was no intention to create legal relations. Notwithstanding the
document, however, DJI did create and deliver the requested component, and Ziggy did
accept the device and pay the price. Those actions require some legal explanation. The
likeliest explanation is that, despite the contentious phrase, the parties did subsequently
create and fulfill an enforceable agreement. Their contract arises not from their
paperwork, but rather from their behaviour. That possibility acquires support from the
fact that the two companies previously had done business many times on precisely the
same terms. In the absence of an overarching contract, they were not obliged to do so
again in the future. An objective reasonable person, however, most likely would consider
all of the facts and conclude that, as in the past, the parties chose to buy and sell computer
components on the usual terms.
Any hardship that that conclusion creates for DJIs new owners must be placed at the
owners own feet. If they truly wished to re-draft their standard form document and revise
their contractual terms, they should have directed their own workers to await their
instructions before filling Ziggys orders.
Similarly, any windfall that Ziggy may appear to enjoy is explained by the actions of
CJIs new owners. Although Ziggy initially was informed that the apparent agreement
was subject to formal contract, it ultimately was providedin the usual waywith the
type of component that it traditionally obtained from DJI. DJIs conduct therefore
engendered Ziggys reasonable expectation that there was a contract that contained on the
usual terms.
[Based on RTS Flexible Systems v Muller [2010] 1 WLR 753 (UK SC)]
1 Rose & Frank Co v JR Crompton & Rose Ltd [1923] 2 KB 261 (CA).
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2.
This exercise focuses on the fact that the elements of offer and acceptance are
reckoned objectively rather than subjectively. Regardless of what one or both of the
parties actually had in mind, a contract exists if a reasonable person would conclude so
after considering the circumstances.
The parties almost certainly had a contract under which Danuta would pay WETS to both
obtain a permit and remove the tree. The trial judge in the actual case upon which this
exercise is based held to the contrary. As the appeal judge explained, however, the trial
judge did so by erroneously focusing on the defendants actual state of mind. Properly
analyzed, however, it does not matter that Danuta genuinely and honestly believed that
WETS would only obtain the permit on her behalf. The recognition of an offer and
acceptance is determined on the basis of the reasonable person test. The trial judge
therefore should have asked whether a reasonable person in the parties position would
have believed that a contract was created.
Three factors point strongly in favour of a contract. (1) Danuta wanted not only a permit,
but also tree removal services. (2) Danuta was presented with a price estimate that
covered both the acquisition of a permit and the removal of the tree. (3) Companies like
WETS never contract merely to obtain permits on behalf of customers.
Although it occasionally may impose a contract against the wishes or beliefs of a person
life Danuta, our legal system uses an objective test of contract creation. That approach
protects reasonable expectations. Regardless of Danutas actual beliefs, she helped to
create a perception that she had contractually agreed to pay WETS to remove the tree.
WETS is entitled to enforce that reasonable expectation.
[Based on West End Tree Service Inc v Stabryla 2010 ONSC 68 (Ont SCJ)]
3.
Ronaldo will not be permitted to revoke his bid. Generally speaking, the party
who makes an offer is entitled to revoke it any time before it is accepted. However
Ronaldos bid, as a response to a call for tenders, falls under a special exception to this
general rule. Since Darlington City must be able to rely on the fact that any offers it
receives will remain open while they are being considered, the tendering process ensures
that the offers do remain open. Under Contract A, Darlington Citys call for tenders
constitutes an offer to enter into a fair and irrevocable tendering process, while Ronaldos
bid constitutes acceptance of that offer. Having reached that agreement, the parties are
obliged to adhere to its terms. As a result, Ronaldos bid is irrevocable. Darlington City
therefore is entitled to accept Ronaldos bid as part of the process leading up to the
creation of Contract B. If Ronaldo refuses to actually create Contract B, he can be sued
for breach of contract and the City will be entitled to damages.
[Based on R v Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR (3d) 267
(SCC)discussed below in a Case Brief]

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4.
On the facts of this case, it is important to consider four rules governing
acceptances of offers. First, a contract generally does not exist until the offeree has
communicated acceptance to the offeror. Second, however, the postal rule states that a
mailed acceptance may be effective when and where it is put into the mail, rather than
when and where it is received. Third, the offeror, as master of the offer, can dictate the
manner in which an acceptance must be given. And fourth, if the offeror is silent on the
issue of acceptance, the offeree is entitled to use whatever means are reasonable in the
circumstances.
The crucial question in this case is whether Parktown could accept Mirandas offer by
either: (i) simply signing their acceptance to her offer to purchase, or (ii) placing their
acceptance into the mail system. At first glance, it would appear that the postal rule
would apply and that a contract was created on October 10 when Parktown mailed its
acceptance. In support of that view, Parktown could point to the fact that Miranda did not
expressly exercise her authority, as master of the offer, to insist upon actual receipt of the
acceptance within the time frame.
On further reflection, however, a court would likely find that, in the circumstances, there
could not be a contract until Parktown actually communicated its acceptance to Miranda.
In other words, it would prefer the general rule, rather than the postal rule. It would do so
because, given the highly volatile nature of the real estate market, no reasonable person
would be willing to be bound to a contract without receiving actual acceptance. That was
the decision reached in Beer v Townsgate I Ltd, upon which this question was based:
(1997) 152 DLR (4th) 671 (Ont CA).
5.
This question requires a consideration of the rules governing the acceptance or
rejection of an offer. Birinder attempted to reject the offer by leaving a message on an
answering machine. As a general rule, however, a rejection is effective only when and
where it is received. Since the answering machine was broken, Singhs Computer Shop
did not receive the rejection.
As a general rule, an offer may be accepted by any reasonable means. In this case,
Singhs Computer Shop appears to have expected Birinders acceptance to be
communicated by word (presumably through a phone call). At least implicitly, however,
they also allowed acceptance to occur through conduct ie Birinders use of the laptop.
The saleswoman specifically said that the unit could not be used until Birinder had
decided to purchase it. As a corollary of that statement, she also implicitly said that if he
used, he would be taken to have accepted her offer to sell.
If a court found that neither the rejection on the answering machine, nor Birinders
acceptance through the use of the laptop, were effective, then the offer would have been
killed when Birinder went to the shop and explained to the saleswoman that he did not
want the computer. However, even if that was true, he would be held liable in tort for
having used the computer without permission. Moreover, while the claim might lie in
trespass, it would likely amount to a conversion. If so, then the remedy is, in effect, a
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forced sale. Birinder would have to pay the market value of the computer, and in
exchange, he would receive title to the unit. The end result would therefore be the same.
6.
Ahmads promise was a firm offer, but not an option. A firm offer is a gratuitous
promise to hold open an offer. Since it is gratuitous, in the sense that it is not supported
by consideration, it is not enforceable. Ahmad therefore was entitled to revoke his firm
offer prior to acceptance. The situation would have been different if Ahmad had given his
promise in exchange for consideration. In that situation, Felicity would have effectively
purchased an option that is, the right to accept the offer within the promised period of
time. Ahmad therefore would not have been entitled to revoke his offer to sell the land.
And since he sold the land to a third party, he would have breached his contractual
promise to hold the offer open for Felicitys acceptance.
Felicity nevertheless could argue that while Ahmad was legally entitled to revoke his
offer, he did not do so in a timely manner. An offer is susceptible to acceptance (and
hence to the creation of a contract) as long as it has not been terminated. Ahmad did not
effectively terminate the offer by revocation prior to Felicitys acceptance because he did
not reasonably draw that fact to her attention. She faxed her acceptance letter to him
before he informed her of the sale to the third party. In response, Ahmad would argue
that, regardless of revocation, his offer naturally terminated through the lapse of time. An
offeror can stipulate the length of time during which an offer is open. But even if he does
not do so, the law states that an offer is only open for a reasonable length of time. The
issue of reasonableness depends upon all of the circumstances, including: (i) the nature of
the contract, (ii) the stability of the market, and (iii) the usual industry practice. The
question probably does not contain enough information for students to arrive at a
conclusive answer. They would, nevertheless, be expected to identify the relevant factors.
To succeed in her claim, Felicity would have to overcome Dickinson v Dodds (which was
discussed in Ethical Perspective 7.1). The facts of this case may be distinguishable from
those in Dickinson because Felicity faxed her letter of acceptance to Ahmad before
learning that the property had been sold to a third party. In Dickinson, in contrast, the
offeree knew of the third party sale before actually providing the purported acceptance.
Finally, whether or not Felicity succeeds in her action against Ahmad, students should
appreciate that while firm offers are not legally enforceable, they generally should be
honoured. A business persons reputation will be damaged to the extent that promises
even gratuitous promises are broken.
7.
Following the case upon which this exercise is based, Mack Darin probably is
not guilty of any crime. Granted, any sensible lay person would say that Darin had
offered a switchblade for sale. As a general rule, however, an advertisement or a store
display constitutes not an offer, but rather an invitation to treat. The offer instead is made
by the customer, who offers to buy an item. The store is then free to accept or reject that
offer.

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The rule is designed to protect business from becoming over-exposed to liability. If every
advertisement and display constituted an offer, then a storekeeper might receive
acceptances than out-numbered existing stock and thereby become liable for breach of
contract.
[Based on Fisher v Bell [1961] 1 QB 394 (CA)]
8.
Simones acceptance of Olafs offer on October 21st by mail formed a valid and
enforceable contract governed by the laws of British Columbia. Even though Simone
likely received Olafs revocation before he received her acceptance, the rules governing
non-instantaneous communication state that an offer and a revocation of an offer are only
effective when and where they are received. An acceptance, in contrast, generally is
effective when and where it is sent. Because Simone sent her acceptance prior to
receiving Olafs revocation, a contract was formed before Olaf purportedly (and
ineffectively) withdrew his offer.
[Based on Byrne v Van Tienhoven (1880) 5 CPD 344.]
9.
The courts generally assume that an agreement reached in a commercial context is
legally enforceable, whereas one reached between family members is not. These
presumptions can be disproved with evidence to the contrary. Since Edgar offered to
transfer the clear title to Tina and Hussein, it appears that he intended for the agreement
to be legally binding.
Edgars offer may be interpreted as pertaining to a unilateral contract. In exchange for
Tina and Husseins payment of the monthly mortgage instalments, Edgar promised that
they could live in the house and that he would transfer the title into their name.
Acceptance of a unilateral contract is not effective until the stipulated act is complete.
Normally, the offeror is entitled to revoke his offer any time before acceptance. In this
type of case, however, the court would want to protect Tina and Husseins reasonable
expectations. It might do so by finding two unilateral contracts. The primary contract
would involve Edgars promise to transfer the title to Tina and Hussein if they fully paid
the mortgage. The secondary contract would involve Edgars promise to not revoke his
offer once Tina and Hussein began paying. As such, Edgar would not be entitled to
revoke his offer. Since an offeree does not have any obligations under a unilateral
contract, Tina and Hussein would not have to pay the full mortgage once they began
making instalment payments.
Because of the difficulties associated with the revocation of an offer to create a unilateral
contract, courts often prefer to find an offer of a bilateral contract instead. On that view,
at the outset, Edgar promised to eventually transfer title to the house, while Tina and
Hussein promised to pay the mortgage. Although the preference for a bilateral contract is
often appropriate, it would create its own difficulties in this situation. It would mean that
Tina and Hussein were contractually obliged to pay the mortgage. They might well prefer
a flexible approach to a unilateral contract that allowed them to pay the mortgage and

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obtain the house, but that did not require them to do so. (Although the courts enjoy some
flexibility in interpreting the facts, the choice between a unilateral contract and a bilateral
contract technically turns upon the offerors intention.)
[Based on Errington v Errington [1952] 1 KB 290 (CA) and Dawson v Helicopter
Exploration Co [1955] 5 DLR 404 (SCC)discussed below in Case Briefs]
10.
For Arvids letter to qualify as an offer, he must have intended that the proposed
agreement would be enforceable in law. The test for determining whether there was an
intention to create legal relations is whether a reasonable person, viewing the
circumstances as a whole, would believe that the parties intended that the agreement
would be legally binding. In addition, the courts usually assume that an agreement
reached in a commercial context is legally enforceable, whereas one reached in a social
context is not. Despite their past intimacy and Arvids secret desires for a future romance,
viewed objectively, it is likely that a court would consider the offer to be a business
arrangement that was intended to be legally binding.
Even though both Dora and Arvid firmly believed that they had formed a valid and
enforceable agreement, coincidental beliefs are not enough to form a binding contract.
The offeree must actually communicate acceptance to the offeror. In this case, since Dora
never told Arvid of her intention to join his company, the parties did not form an
enforceable agreement. Moreover, the courts have developed the rule that silence, by
itself, is not acceptance. Arvid will not be able to show that he and Dora habitually did
business in this way, or that Dora did anything that the reasonable person would interpret
as acceptance. Arvid, then, is incorrect to insist that a contract had been created and that
Dora was his employee.
[Based on Felthouse v Bindley (1862) 142 ER 1037 (Exch)discussed below in a Case
Brief]
11.
In this case, a judge must consider two broad issues to determine whether
Ekaterinas counter offer was still open when Rasheed purported to accept it. First, a
judge must consider the effect of Naimas involvement. Since Naima was not authorized
to act for Rasheed, her communications with Ekaterina are irrelevant. In any event,
Naima did not purport to accept or reject Ekaterinas counter offer. Moreover, although
Naima suggested that the deal would not have to be closed immediately given Rasheeds
planned use of the property, it is doubtful that that statement would constitute a counter
offer by introducing a new term of the agreement. Naimas statement is not inconsistent
with Ekaterinas desire to close the deal quickly. There could be a lag between closing of
the sale and commencement of farming.
The second broad issue that a judge must consider is whether Ekaterina left her counter
offer open for a reasonable period. An offeror is entitled to limit the life span of an offer,
for example by stipulating that acceptance must occur within a certain period. If no
specific time period is expressly stated, as is the case here, an offer is only open for a
reasonable period. In determining whether 10 days amounts to a reasonable period, a

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Chapter 7The Nature and Creation of Contracts

judge will look at: (i) the nature of the proposed contract, (ii) the volatility of the market,
and (iii) the usual practice in the industry. On balance, the following factors will
outweigh the fact that the rural Saskatchewan farm market had not been particularly
active in recent years: (i) Ekaterina asked Rasheed to respond without delay, (ii) there
was another interested party, and (iii) Rasheeds original offer asked that she quickly
reply by fax or telegram, which shows that, even though he did not require the land until
March, he too wanted to complete the transaction quickly. Since a reasonable period
would have lapsed, Ekaterinas counter offer was no longer open when Rasheed
purported to accept it.
[Based on Barrick v Clark [1950] 4 DLR 529 (SCC)discussed below in a Case Brief]
12.
This case turns on the applicability of the postal rule. The postal rule states that
an offer (of a new contract or renewal of an old contract) occurs when and where an
acceptance is placed into a mailbox. If that is true in this instance, then the insurance
policy was renewed as soon as SRB placed its envelope into a mailbox. MLA is liable
even though it never received that letter.
The postal rule, however, is merely a default rule. It does not always apply to posted
acceptances. And in this case, the terms of the insurance indicate that acceptance, through
payment of the premium, is effective only if and when it actually reaches MLAs Head
Office in Halifax. Since SRBs letter was lost in the mail, there was no acceptance and
hence no renewal of the contract. MLA therefore is no required to pay a benefit to Connie
Fikowski upon her husbands death.
[Based on Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co (1994) 115
DLR (4th) 478 (SCC).]

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