4Dickinson v. Dodds (1876), 2 Ch. D. 463 (C.A.).
52007 CanLII 44827 (ON S.C.).
The right of the offeror to change his or her mind and revoke the offer anytime he or she wants is often an impediment to doing business. Therefore, it is possible to create a situation where the offer cannot be revoked and must remain open until expiration at a specified time. This is called an option agreement. In effect, a separate contract is entered into where the offeree pays the offeror, usually a small sum, to hold the offer open for the
Option keeps offer open
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designated time. The offeror is now bound in a separate contract to hold the offer open.
Thus the offeror is bound, but the offeree is free to accept or reject the original offer. This gives the offeree some time without the worry that the offer will be revoked or the deal taken up by someone else. Placing the offer under seal will have the same effect. The seal will be discussed below.
A similar relationship is created in the tendering process. When one company wants to advance a project, which requires the services of others, they often put out a request for bids on the job. This is referred to as putting a job out to tender and is especially common in the construction industry. This looks simply like an invitation to treat but is more than that. When a bid is submitted, a special contractual relationship is created called the ten-der agreement, which is independent of the ultimate contract to do the job. The party requesting the bid has committed to follow certain rules as set out in the tender such as:
■ disclose all relevant information affecting the project
■ accept only bids that are compliant with the terms of the tender
■ not accept bids submitted after the specified closing date
■ to accept the most competitive bid (in most cases)
■ to treat all parties equally and in good faith.
When a bidding party submits their bid, they are accepting that subsidiary offer binding both parties to the rules set out in the bidding process, and the resulting obliga-tions are enforceable in court. Note that it is not only the party requesting bids that is bound here, the party submitting the bid is also bound not to change that bid once sub-mitted. The Supreme Court of Canada confirmed the binding nature of this subsidiary contract in 1981.6 This is like an option agreement since without such a subsidiary agree-ment, the bidding party would normally have the right to withdraw or change their offer any time before its ultimate acceptance.
Standard Form Contracts We do not always have the choice to bargain. In some businesses, standard form agreements are in place, which create a “take it or leave it” situ-ation. Often one-sided terms are present, including exemption clauses that favour the offeror. It must be emphasized that when such a standard contract is accepted, it is just as binding as any other contract. The only adjustment made for the lack of bargaining is that any ambiguity in a term favouring just one of the parties is interpreted in favour of the other party. Also, some statutory protection has been provided, especially where con-sumer contracts are involved, as will be discussed under “Concon-sumer Protection Legisla-tion” in Chapter 5 (see p. 135).
Even where the parties are bargaining equally, standard phrases are used. When law-yers create legal documents, including contracts, they use standard phrases and clauses with known legal effects so that the interpretation of the legal agreement can be certain from the outset. Only minor changes will be made to accommodate the particular transac-tion in questransac-tion. This is true with insurance contracts, securities, and with any other type of transaction that is not unique. Such certainty justifies the complexity of the documents and is the reason lawyers resist taking the time and incurring the risk of changing and simplifying the documents used in these common transactions. Today, software is available
Submitted bids create obligation even before acceptance
6R. v. Ron Engineering & Construction (Eastern) Ltd. [1981] 1 S.C.R. 111.
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to assist lawyers in drawing up most contracts making the process extremely efficient and much less time consuming.
Acceptance
Once a valid offer has been made, there is a tentative commitment to be bound on the part of the offeror. The offeree then must make a similar commitment for a contract to be formed. Since the terms of the agreement are embodied in the offer, the offeree’s commit-ment consists merely of an indication of a willingness to be bound by those terms. This may consist of something as simple as a handshake or a signature. Such an acceptance must be total and unconditional. Sometimes an offer will involve several different aspects.
The offeree cannot pick and choose which part to accept unless that was the intention of the offeror. You have to accept all of the terms of an offer or none. Similarly, a conditional acceptance does not qualify. If Joe offers to sell his car to Sam for $5000, and Sam responds,
“I accept, providing you fix the rust on the fender,” this is a counter-offer rather than an acceptance. Sometimes a supplier will provide the customer with an order form but the customer will respond using his or her own order form, which has different, terms and conditions. That new order form is in reality a counter-offer, and, by delivering the product, the supplier has accepted those new terms and conditions often unwittingly.
The general rule is that an acceptance must be communicated for it to be effective. A contract requires a meeting of the minds: there is no contract until the offeror is notified of the offeree’s acceptance. This can be important since it determines when and where the contract comes into effect. When Joe in Vancouver offers to sell his car to Sam in Mon-treal by phone, and Sam accepts, also by phone, the acceptance is effective when and where Joe hears the acceptance—in Vancouver. Where the contract is formed can be an important consideration in determining what court has jurisdiction and which province’s law should be applied to the transaction.
The offeror may require the offer to be accepted by some specified conduct. When this happens, the conduct required must be something unique, not part of a person’s normal rou-tine, and the offeree must respond as directed. If the specified acceptance requires the offeree to “go to work tomorrow as usual,” going to work would not constitute acceptance. But if the direction is to put a red ribbon on the front door, doing so would amount to acceptance of the offer. Usually the offer and acceptance process involves an exchange of promises. In some situations however, the nature of the contract itself requires the actual performance of the contract as the method of acceptance. This is called a unilateral contract. The offering of a reward is a good example. When someone places an ad offering a $100 reward for the return of a lost dog, the method of acceptance is the actual return of the dog.
Sometimes marketers will send unsolicited goods to a prospective customer, stating that if they do not send it back, they have bought it. The general rule is that silence by itself will not be construed as acceptance, and a person in receipt of such goods is not required to go to the trouble to return them. Note that care should be taken not to use such goods, as this would affirm the contract. Only when there is a pre-existing business relationship will silence be an appropriate acceptance. If you have been receiving a regular supply of a prod-uct from a business, it is quite appropriate for that business to send a note: “If we don’t hear otherwise, we will renew your order as of May 20, 2015.” Because of the already established relationship, there is a duty to communicate a cancellation in these circumstances. A few years ago a company providing cable services notified their customers that they would be
Acceptance is a commitment by the offeree to terms of offer
Acceptance must be complete and unconditional
General rule: acceptance is effective when and where communicated
Acceptance by conduct
No acceptance by silence
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supplying them with extra channels at an added cost unless the customer notified the com-pany that they did not want the additional service. Because of the pre-existing service rela-tionship, silence in these circumstances would have affirmed the new arrangement. The public was outraged, however, and the company was forced to back off. This is the danger of joining a CD- or book-of-the-month club. Once the relationship is established, it is hard to terminate it. Note that Manitoba recently amended its Consumer Protection Act (Part XXI), imposing fines of up to $300 000 for the use of such negative option schemes.
There is one important exception to the rule that an acceptance must be communi-cated to be effective. This is the post-box rule. As contract law developed, the postal service was the accepted method of doing business at a distance. The inherent delay in communications created uncertainty as to what point a contract actually came into exist-ence. The solution was the rule that if it was appropriate to respond by mail, the accept-ance was effective when and where it was posted. In the example above of selling a car, if the mails, instead of the phone, were used—with Joe in Vancouver sending a letter to Sam in Montreal offering to sell his car for $5000, and Sam responding with a letter of acceptance—that acceptance would be effective when it was mailed in Montreal. If Joe had required acceptance before Saturday, and the letter was mailed on Friday, there would be a valid contract, even though Joe would not know of it until the letter was actually received by Joe—likely sometime in the following week. In addition, since the contract was formed in Quebec, this could be an important factor in determining what court would have jurisdiction and what provincial law would apply to the contract. Note that the post-box rule only applies where it is reasonable to respond by mail and no other method has been specified. There is usually no problem posting an acceptance when the offer is sent by mail. However, where the offer is presented in some other way, such as in person, past dealings between the parties, as well as the nature of the subject matter of the contract, will be important factors in determining if response by mail was reasonable. If ripe fruit were offered, a response by mail would likely be unacceptable. To avoid the problem, the appropriate means of acceptance should be specified in the offer.
Exception: Where use of mail is reasonable, acceptance is effective when and where posted
7(1999), 178 D.L.R. (4th) 409 (Ont. C.A.).
Eastern Power (Plaintiff/Appellant), Azienda (Defendant/
Respondent) in an appeal before the Court of Appeal for Ontario.
Azienda, an Italian company, negotiated a coopera-tion agreement with Eastern Power Ltd., which was based in Ontario. When Azienda terminated the agreement and refused to pay the bill for costs submitted by Eastern Power, the Ontario company brought this action against Azienda in an Ontario court. In determining if they had jurisdiction, the Ontario court had to decide, among other things, where the contract was made. The issue before the court was whether the post-box rule applied to a fax.
Negotiations took place by facsimile. The final acceptance of the offer was also sent by fax by the Ontario company to Azienda in Italy. Claiming the post-box rule exception applied, Eastern Power argued that acceptance was effective when and where the fax was sent in Ontario. The court rejected this argument, stating that the use of facsimile transmissions involved instanta-neous communication, much like a telephone, and so there was no justification for applying the post-box exception. Since the fax was received in Italy, the con-tract arose in Italy. Consequently, Ontario was an inap-propriate place to sue.
Case summary 3.4 Eastern Power Ltd. v. Azienda Communale Energia and Ambiente7