BUS 393 Lecture Notes - Lecture 31: Estoppel, Insurable Interest, Financial Institution
16 Sep 2016
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• Process of carrying on business involves transactions, agreements, arrangements, consultations, services,
employment, & other forms of interaction → all based on contracts between the parties
• An examination of contract law is fundamental to any study of business law
• Contract = voluntary xc of promises of commitments between parties that are legally enforceable in our courts
o When people enter into such contracts, they create a world of law unto themselves
▪ Can create new obligations & responsibilities, but they can also modify/remove obligations &
responsibilities
o E.g. ete at o isk = attept is eig ade otat to eoe the isk of liailit fo egligee
that would otherwise be present
• Contract law developed in the courts & there has been little statutory interference w/these CL fundamentals
o Although it is prudent practice, in most situations there is no requirement that a contract be in writing
• From the point of managing risk, business people should be extremely careful to understand fully what they are
agreeing to do
o Often when problems arise, they are surprised to find that some eventuality was not anticipated & so is
not covered or that it has been anticipated by the other party, who has included an exemption clause
that limits their liability
o There are risks in most business transactions & it is common practice for contracts to include such
exemption clauses to reduce the risk significantly
▪ Extent of liability exposure if things do go wrong should be a major factor in calculating the costs
& compensation terms to be included in all contracts
o Courts tend to enforce such exemption clauses on the assumption that the reduced risk was included as
a factor in calculating the value of the benefits to be exchanged in the original contract
• Consensus = normally achieved through the process of offer & acceptance (bargaining), which results in shared
commitment when both parties clearly understand the obligations & responsibilities they are assuming
o Bargaining process includes enticements, offers, questions, arguments, counter-offers
▪ Process will continue until the parties reach an agreement, when a valid offer is accepted
o The courts are willing to find that a consensus has been reached by looking @ subsequent behavior of
the parties
▪ If no specific offer or acceptance can be identified, yet the parties have obviously come to
common understanding (w/all the other elements of contract present), it is likely that the court
would still find that a contract exists
• While we look at the traditional reqs of offer & acceptance here, it is important to remember that a court may
find that a consensus exists even when no specific offer/acceptance can be identified
o Nor is it necessary for both parties to have a complete understanding of what they have agreed to
o Only req of consensus = the terms are clear & unambiguous
• Basic principle of contract law = courts will give effect to the reasonable expectations of the parties
o If one of them fails to read those terms or misunderstands them, it is not usually an excuse to get out of
a contract
o However, agreement between the parties must be present
▪ Court will not bargain for them
o When they leave important terms to be negotiated later, there is no contract
o Still, mistakes w.r.t. the nature, terms, some other aspect of the contract do take place & the courts
have developed a structured approach to dealing w/them
o Court usually interprets & enforces the terms, rather than finding there is no argument
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• Offer = creates the first legal consequence as a tentative promise that contains the terms of the anticipated
contract
o It is tentative in the sense that the other party need only indicate a willingness to be bound by the
stated terms (to accept) to create a binding contract
▪ Before this stage is reached, a significant amount of CMNS can take place between the parties
• Pre-contract CMNS, whether they take place in the form of advertising or provide G/S info, =/= create
contractual obligations
o iitatios to teat o iitatios to deal & a e ofused /offes
o Often difficult to determine @ what point we are dealing w/an offer rather than an invitation
o E.g. media advertisements, catalogues, brochures, window & floor displays, clearly marked & priced Gs
set on the shelf of self-checkout
• Controversy over clearly marked & priced Gs set on the shelf of self-checkout
o In the Pharmaceutical Society case
o Legislation req that certain types of drugs had to be sold under the supervision of a pharmacist
o Defendant (Boots) introduced self-service merchandising into the industry, by displaying controlled
drugs on the shelves where the could be selected by the customer & brought up to the front for
purchase
▪ This appeared to infringe that legislation
o Although the pharmacists were situated @ front of the store by check out tills, Pharmaceutical Society
argued that the contract was formed when the customer selected the G, & ∴ the sale was unsupervised
in violation of the Act
o Judge held that the display of the drugs on the shelf was an invitation rather than an offer
o Offer was made by the customer picking up the produce
o Acceptance took place @ front, when the cashier & pharmacist approved the sale, & ∴ the reqs of
supervision were satisfied
o Although the reasoning of the judge in this case is suspect, the decision has been followed & is thus
good law in Canada
▪ Makes Gs displayed in such self-service situations invitations & not offers
o The case of interest b/c it is one of the few that makes it clear when an invitation ends & an offer begins
• Such an invitation has no legal effect in contract law → actual offer that leads to an acceptance & eventual
contract depends on subsequent CMNS between the parties
o Only takes place when all of the important terms are present & it is clear that the person making the
offer has reached the point where they are serious & expect to commit to those terms
• For the CMNS to be an offer, it must contain all of the important terms of the contract
o Usually req @ the min:
▪ The identification of the parties to the agreement
▪ Subject matter
▪ Price to be paid (parties, price, property)
o If parties have added other important terms, they too must be clear
o This, if the goods are purchased on credit, the payment schedule & interest payable should be clear
• An agreement to enter into an agreement =/= a contract
o All important terms of the agreement must be set out or be implied in the agreement
o E.g. edit tes to e aaged late = o otat sie o fial ageeet has ee eahed
• Except for a few instances, a written contract =/= a legal requirement
o b/c of this, it is possible for a contract to be implied from circumstances, including the past history of
dealings between the parties
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• Object = to reach a consensus, & so the offer must be CMNS before it can be accepted
o Offeree (person to whom the offer is made) =/= accept an offer that they do not know about
o Problem of CMNS sometimes arises when offeror (person making the offer) wants to include an
exemption clause
▪ Exemption clause = restricts/limits their liability in the transaction
▪ This must be brought to the attention of the other party @ the same time the contract is
created
• E.g. on a receipt issued @ time the contract is made (if on the back, there must be
something on the front directing the party to the terms on the back), clearly posting a
sign where the ticket is obtained
▪ If CMNS after the fact, exemption clause will not be a part of the contract
• E.g. on a bill sent later, on a sign located in a part of the business where the customer
=/= likely to see it
• Consistent w/the bargaining model for the creation of a contract, rules determine when an offer will end
o Whee the offeo states a speifi tie fo epiatio e.g. at oo o Ma , 6 = the offe eds
when specified
o After that time, it is too late to accept the offer
▪ Offer will automatically end w/death or insanity of the offeror
o If no expiration time has been specified, the offer will end after a reasonable time
▪ easoale depeds o the iustaes
▪ E.g. if a ripe fruit is being offered, a few hours might be appropriate; if land or heavy-duty
equipment is involved, the offer might last a few weeks
• b/c the offer is only the first step in the creation of a contract, it imposes no legal obligation on the offeror, who
is free to withdraw the offer any time before acceptance, even when they have indicated it would remain open
o eoatio
o So long as the revocation has been CMNS to the offeree before acceptance has taken place, it is then
too late to accept
o There can be no valid acceptance after the offeree learns that the offeror has changed their mind
o This power to revoke can be given up in a separate option agreement
• Conduct of the offeree can also cause of offer to end
o If the offeree CMNS a rejection of the offer to the offeror, the offer ends
▪ Offeree cannot later change their mind, accept, & hold the offeror to the deal
o Counter-offer by the offeree has the same effect
▪ If the counter-offer is rejected, they cannot turn around & force a contract by accepting the
original offer
▪ Offeree would have to make another counter-offer, embodying the original terms, & hope that
they are still agreeable to the other party
▪ Advantage: eliminates confusion as to just what offer is being accepted to form the basis of the
contract
• Common mistake = assume that selling the subject matter of an offer to someone else automatically ends that
offer
o If anything, this is a revocation of the offer by conduct & would have no effect on the offer, unless the
other party learned of the sale before accepting
o Is a dangerous situation
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Document Summary
If cmns after the fact, exemption clause will not be a part of the contract: e. g. on a bill sent later, on a sign located in a part of the business where the customer. If the offeree cmns a rejection of the offer to the offeror, the offer ends: offeree cannot later change their mind, accept, & hold the offeror to the deal, counter-offer by the offeree has the same effect. If anything, this is a revocation of the offer by conduct & would have no effect on the offer, unless the other party learned of the sale before accepting. Is a dangerous situation: offeror should make sure that the original offeree knows that they changed their mind before concluding the sale to another. In recent times, there has been a profound change in the nature of business cmns: the mail is still used to a significant extent, but fax & email have before commonplace.
