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Contract Law - The Basic Principles of Contract Law

November 10, 2021

Ontario

,

Canada

Issue

Is a real estate listing an offer capable of binding acceptance by a purchaser making an offer for the listing price?

Conclusion

To constitute a binding contract acceptance of the offer must be communicated to the offeror. (Holmes et al. v. Alexson et al.)

The essence of a contract is that there is agreement which is clearly manifested. Generally, a written document signed by both parties will be good evidence of offer and acceptance of the contract. (Toronto Airport Marriott Hotel Ltd. Partnership (Receiver of) v. Kozma)

It is the basic principles of contract law, that all that is necessary to bring a contract to a close is the communicated acceptance of a valid offer. (Kerr v. Valley Volkswagen)

In order to accept an offer, the acceptance must correspond precisely with the terms of the offer. Any attempt to qualify or condition an acceptance amounts to a counter-offer. (G. C. Butcher Ltd. v. Superior Propane Inc.)

Under contract law, which applies to consent agreements, an offer is a building block to the formation of a contract. There is a difference between an offer that is capable of acceptance and a mere invitation to treat. (Spadacini-Kelava v. Kelava)

Classic contract theory holds that public advertisement of a product or service is generally regarded as an invitation to treat, not a formal “offer” for contract purposes. While this general rule admits of exceptions, whether a public advertisement amounts to an offer or merely an invitation to treat is dependent upon the language actually employed and the surrounding circumstances. (Chinook Park-Kelvin Grove-Eagle Ridge Community Association v Minor Hockey Association of Calgary)

It is settled law, and practice, that an advertised price to the public is nothing more than an invitation to treat. (Hnidan v. Great West Chrysler Inc.)

Law

In Holmes et al. v. Alexson et al., 1974 CanLII 677 (ON SC), the Court stated the principle that to constitute a binding contract acceptance of the offer must be communicated to the offeror:

Counsel for all parties conceded that before there can be acceptance of an offer so as to constitute a binding contract, such acceptance must be communicated to the offeror.

In Toronto Airport Marriott Hotel Ltd. Partnership (Receiver of) v. Kozma, 1999 CanLII 14944 (ON SC), it was stated as a matter of general principle, that the essence of a contract is that there is agreement which is clearly manifested. Generally, a written document signed by both parties will be good evidence of offer and acceptance of the contract.

38 I now address some of these arguments raised by the defendant. The essence of a contract is that there is agreement which is clearly manifested. Generally, a written document signed by both parties will be good evidence of offer and acceptance of the contract. [...]

In Kerr v. Valley Volkswagen, 2015 NSCA 7 (CanLII), Nova Scotia Court of Appeal stated that it is the basic principles of contract law, that all that is necessary to bring a contract to a close is the communicated acceptance of a valid offer:

[12] With respect, the appellant’s statement of the law is wrong. His position runs contrary to the basic principles of contract law, which hold that all that is necessary to bring a contract to a close is the communicated acceptance of a valid offer (S.M. Waddams, The Law of Contracts, 6th ed. (Aurora: Canada Law Book Ltd., 2010), p. 20). [...]

In G. C. Butcher Ltd. v. Superior Propane Inc., 2013 ONSC 5005 (CanLII) Ellies J. stated that in order to accept an offer, the acceptance must correspond precisely with the terms of the offer. Any attempt to qualify or condition an acceptance amounts to a counter-offer:

[28] In order to accept an offer, the acceptance must correspond precisely with the terms of the offer. Any attempt to qualify or condition an acceptance amounts to a counter-offer (see Waddams, The Law of Contracts, 6th ed. (Toronto, Ont.: Canada Law Book Inc., 2010), at para. 60).

In Spadacini-Kelava v. Kelava, 2021 ONSC 2490 (CanLII), Kurz J. explained that, under contract law, which applies to consent agreements, an offer is a building block to the formation of a contract. There is a difference between an offer that is capable of acceptance and a mere invitation to treat:

[104] However, under contract law, which applies to consent agreements, an offer is a building block to the formation of a contract. There is a difference between an offer that is capable of acceptance and a mere invitation to treat. The latter is simply an invitation to make a binding offer in order to complete a contract: Canadian Dyers Assn. Ltd. v. Burton, [1920] O.J. No. 138 (O.H.C.J.), at para. 4; David J. Harvey Holdings Inc v. Hercules Food Equipment Ltd, [2006] O.J. No 4741 (Div. Ct.)

In the Alberta case of Chinook Park-Kelvin Grove-Eagle Ridge Community Association v Minor Hockey Association of Calgary, 2021 ABQB 532 (CanLII), Gates J. stated that classic contract theory holds that public advertisement of a product or service is generally regarded as an invitation to treat, not a formal “offer” for contract purposes. While this general rule admits of exceptions, whether a public advertisement amounts to an offer or merely an invitation to treat is dependent upon the language actually employed and the surrounding circumstances:

[57] In my view, classic contract theory holds that public advertisement of a product or service is generally regarded as an invitation to treat, not a formal “offer” for contract purposes. While this general rule admits of exceptions, notably situations involving unilateral contracts, as most famously illustrated by the decision in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA). Whether a public advertisement amounts to an offer or merely an invitation to treat is dependent upon the language actually employed and the surrounding circumstances.

In Hnidan v. Great West Chrysler Inc., 2006 ABPC 288 (CanLII), Haymour J. held that it is settled law, and practice, that an advertised price to the public is nothing more than an invitation to treat:

[16] The crux of the matter, as I see it, is the issue of whether or not a contract was entered into between the parties, and the terms and conditions of that contract. Mr. Hniden claims the contract to be the one page photocopy document signed on August 27, 2004 and tendered in evidence as page 1, tab 1 of Exhibit 1. Mr. Hnidan takes issue with how this document was structured, suggesting that he was tendering an offer to the Defendant dealership, Great West Chrysler Dodge Jeep, and states that the true nature of this document is an offer by the Defendants to himself. I reject this contention as it is settled law, and practice, that an advertised price to the public is nothing more than an invitation to treat. That being said such an advertisement, if false or misleading, may be subject to ramifications under consumer legislation such as the Fair Trading Act. That, I have found earlier is not the case in the current dispute. An offer to purchase is made by the individual purchaser to a dealership and not as suggested by Mr. Hnidan from the dealership to the purchaser; the standard practice in the industry in purchasing a motor vehicle from a dealership is for a salesperson to assist the purchaser in preparing an offer to purchase a vehicle which is in turn presented to the dealership for acceptance or counter-offer. Ultimately, even in the case of a counter-offer by a dealership to a purchaser, the contract is not valid until the signature of the authorised representative of the dealership appears on this document. This is evidenced by the notation at the bottom of page one of the August 27, 2004 document stating: “This order is not binding unless accepted by an authorized official of the dealer”.

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