Part 2: Privity, Consent and the "Reasonable Man" Privity of contract

R. Cae Industries Ltd. (1986)

A memorandum signed by three federal ministers was held to be a contract even though it was somewhat vague. For example, the contract provided that the government would make "best efforts". The court repeated the principle that the onus of proof is on the person who asserts that no legal effect is intended, and the onus is a heavy one and that the courts "should make every effort to find a meaning in the words actually used by the parties in deciding whether an enforceable contract exists."

Nicolene Ltd. v. Simmonds (1953)

A clause to the effect that "the usual conditions of acceptance apply" was held to be so vague and uncertain as to be incapable of any precise meaning. The court then severed the clause "but the contract, nevertheless, remains good."

Hillas and Co. Ltd. v. Arcos Ltd. (1932)

If there are essential terms of a contract of sale undetermined and therefore to be determined by a subsequent contract, there is no enforceable contract. An agreement to make an agreement is not enforceable. But if the uncertain parts can be construed from the context of the agreement, the contract will be binding.

May and Butcher v. R. (1929, reported in 1934)

"An agreement between two parties to enter into an agreement in which some critical part of the contract matter (eg. price) is left undetermined is no contract at all. It is of course perfectly possible for two people to contract that they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in future agree upon a matter which is vital to the arrangement between them and has not yet been determined."

Foley v. Classique Coaches Ltd. (1934)

The issue of price was omitted from a contract that nevertheless ran for three years without a hitch. When the defendants tried to buy petrol elsewhere, basing their argument that the exclusivity contract was void for lack of agreement on price, the court disagreed. Each case is decided on its own merits and for three years, both parties believed they had a contract. The court implied into the contract a clause to the effect that the petrol was to be of reasonable price and quality.

Courtney and Fairbairn Ltd. v. Tolaini Brothers (1975))

For a building contract, the absence of agreement on price or a method by which the price is to be calculated (not dependent on the negotiations of the two parties themselves) means the absence of an essential term and there is no contract. A contract to negotiate, like a contract to enter into a contract, is not a contract known to law.

Sudbrook Trading Estate v. Eggleton (1983)

An agreement to purchase property set up a system for determining the price "not being less than £12,000" involving consultation with assessors appointed by each party. The court decided that this was a valid contract. "The parties intended that the lessee should pay a fair and reasonable price to be determined as at the date when he exercised the option."

DeLaval Co. v. Bloomfield (1938)

The contract provided for a total payment of $400, "$200 on November 1, 1937 balance to be arranged." The court rejected the defence that the contract was void for lack of certainty. "In the present case, it is not the price but the mode of payment only that is held over."

Empress Towers Ltd. v. Bank of Nova Scotia (1991)

A tenant and landlord had a renewal contract that provided for a rent of "market rental prevailing ... as mutually agreed. If the Landlord and the Tenant do not agree upon the renewal rental within 2 months ... then this agreement may be terminated." The landlord submitted an outrageous increase including a sum payable of $15,000. The court was asked if the renewal clause was void for uncertainty and decided that it was not. The court decided that the contract used the words "mutually agreed (which) carries with it an implied term that the landlord will negotiate in good faith .... and ... that agreement on a market rental will not be unreasonably withheld."

Meyer v. Davies (1989)

deal struck by phone

In this British Columbia case, two lawyers had exchanged correspondence related to the sale of a law practice. One of the letters had concluded: "please call me ... so that we can arrange to draw up a formal agreement." During a subsequent phone call, the lawyers reviewed and agreed on outstanding issues. Offering to complete and courier the documents for immediate signature before the vendor left for vacations, the vendor said "Don't worry about it ... deal with it when I get back." The court decided that at this moment "a bargain was struck." Quoting precedents, the case states: "if the documents ... relied on as constituting a contract contemplate ... a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain, or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored."

Knowlton Realty Ltd. v. Wyder (1972)

"If we are successful in negotiating a lease on your behalf on terms acceptable to you, we will be entitled to a commission." But the lease was never fully executed, just an interim agreement "subject to execution of the lease documents." Where the words similar to "subject to contract" appear, they indicate a conditional offer or acceptance only. The court decided that "the event on which commission became payable never occurred."