Opción 1: Proyecto estrato 6

79 C h a p t e r 3 F o r m a t i o n o f C o n t r a c t s

In recent times there has been a profound change in the nature of business com-munications. The mail is still used to a significant extent, but fax, email and courier service have become commonplace. An important question faced by the courts was whether the post-box rule should be extended to other forms of communications. It has been extended to the use of telegrams, but should it be extended further? The question was answered in the Entores case,⁸ where the English court of appeal held that when telex (similar to a modern fax) and other forms of instantaneous communication were used, there was no need for the post-box rule. Thus, when fax is used, the acceptance is only effective when and where it is received by the offeror, as was applied in the Eastern Power case discussed above. Although there may be some small delay when email is involved, it is not likely that any court would expand the rule in that direction. These modern forms of communication are discussed in some detail in Chapter 10. Today the post-box rule is restricted to the use of the postal service, telegrams, and possibly couri-ers. It must be emphasized that the post-box rule is an exception to the requirement that an acceptance be communicated before it is effective. There is no indication that the rule will be applied to other forms of communications between the parties as they bargain. In fact, in the English case of Henthorne v. Fraser,⁹ which was important in establishing the rule in the first place, the court made it clear that the rule did not apply to a mailed revocation, which was not effective until received. See Table 3.2 for a sum-mary of the rules of acceptance. Several provinces have passed legislation specifically directed at transactions using electronic means of communication such as the internet.

British Columbia, for example, has legislated that documents communicated in this way are deemed to be sent when entered into the system and outside of the control of the sender, and deemed to be received when they are in the system and could have been accessed by the addressee.¹⁰

Consideration

The second qualification that must be met for the formation of a contract is the exchange of consideration (see Figure 3.2). In keeping with the bargaining model, both parties must get some benefit from the deal. This may take the form of money, service, goods, or some other type of benefit. Note that it is not necessary for the consideration to actually change hands at the time of the acceptance; rather, both parties must make a commitment to give

The post-box rule will not apply where a fax is used

Exception only applies to an acceptance

Lo 4

Exchange of promises/benefits required

8Entores Ltd. v. Miles Far East Corp., [1955] 2 All E.R. 493 (C.A.).

9[1892] 2 Ch. 27 (Ch.D.).

10Electronic Transactions Act, S.B.C. (2001) c.10 s.18.

Table 3.2 acceptance Offer Acceptance,

general rule

Acceptance is effective when and where offeror hears of acceptance

Offer Acceptance by performance

Unilateral contract accepted upon performance of contract term

Offer Acceptance, post-box rule

Acceptance effective when and where posted, if use of post was appropriate

80 L e g a l F u n d a m e n t a l s f o r C a n a d i a n B u s i n e s s

the other some form of consideration pursuant to the agreement. This is often referred to as the exchange of promises.

People sometimes promise to give a gift or do something for someone else and expect nothing in return. Such one-sided promises (called gratuitous promises) are not legally enforceable. Of course, once a gift has been given, the giver cannot force its return; rather, it is the promise to give such a gift that cannot be enforced. If I give you a fur coat, it’s yours. But if I promise to give you a fur coat and then change my mind, there is nothing you can do about it legally.

In business it is sometimes difficult to tell whether there has been an exchange of consideration or not. While the court will not normally worry about whether the consid-eration is reasonable (that would be interfering in the bargaining process), the benefit must be specific. A promise to pay “something” or a “reasonable price” is generally not good enough, as there is no specific commitment and the matter will require further nego-tiation in the future. The exception is when services are requested. Then, based on the equitable principle of quantum meruit, the requester is obligated to pay a reasonable amount for the services delivered. If you ask a plumber to fix a leak in your basement, and after the leak is fixed the plumber hands you a bill, you will have to pay it if it is reasona-ble, even though you did not agree to a price beforehand.

What is promised must also be possible, legal, and of some value. A commitment to bring a pet dog back from the dead for $1000 would not be legally enforceable because, at least in the eyes of the law, it is not possible to bring a dog back to life. A promise to pay someone $500 to perform an illegal act, such as buying drugs or assaulting someone also fails to qualify, because a promise to commit an illegal act is not valid consideration. Nor would a promise to return friendship or love and affection normally constitute valid con-sideration, as no value can be put on such affection. As mentioned above, it is not neces-sary that the consideration be fair, only that there be some consideration on both sides.

However, if the transaction is grossly one-sided, it may support an allegation of fraud or the claim of incapacity.

To determine if there is consideration it is often much easier to look at the price to be paid rather than the benefit to be received. If I promise to pay $50 to John to mow my aunt’s lawn, it is hard to identify what specific benefit I will get out of the deal. However, if we look at it from the point of view of what is to be paid (in the sense of what is being given up, not just money), it is clear that both of us are paying a price. By agreement, we both have changed our legal position in relation to each other. John is now obligated to mow the lawn, which he was not obligated to do before the agreement, and I am obli-gated to pay the $50. There has been an exchange of commitments, which constitutes consideration.

For example, in business one person is often required to sign a guarantee before a financial institution will loan money to a debtor. What does the guarantor get out of it? It is better to look at the commitments. The guarantor is now responsible for paying the loan if the debtor defaults. His or her legal position has changed in accordance with the agreement.

Gratuitous promises are unenforceable

Consideration must be specific

Consideration need not be reasonable but must be legal, possible, and have some value

Both parties must pay a price

Binding contract

Offeree Offeror

agrees to pay $100 for

offeree’s bike agrees to give bike

for offeror’s promise of $100

Figure 3.2 Consideration involves an exchange of Commitments

81 C h a p t e r 3 F o r m a t i o n o f C o n t r a c t s

In return the bank commits to advance the funds to the debtor, something they otherwise would not have done. They also have changed their legal position pursuant to the deal, and so there is consideration on both sides. Both have paid a price in the sense that they have assumed obligations that they did not have before. However, if the money is advanced before the guarantee is extracted, as sometimes happens, it may well be a gra-tuitous promise and not binding. The guarantor has made a commitment, but the bank does not change its legal position, since it has already advanced the money. This is an example of past consideration. Where the benefit has been given before the deal is struck, it cannot be part of an exchange and hence the expression “past consideration is no con-sideration.” Another area where consideration is not always apparent is where the parties settle their dispute out of court. Here they enter into a contract where the suing party agrees not to pursue the matter in exchange for a partial payment. What if later the plain-tiff learns he would have won? Where is the consideration? Since both parties have given up their right to have the matter dealt with in court, both have paid a price. There is consideration on both sides and the settlement is binding.