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When Contract Terms Are Not Clear: Filling in the Blanks

The basis of contract formation seems like trite law but it can be a pivotal issue in disagreement between the parties itWhen Contact Terms Are Not Clear: Filling in the Blanks needs to be spoken to.  Contractors that don’t have a written contract or quotation put themselves at risk of especially when there are ‘extras’ added on during performance.  Disputes over whether a contract was a fixed price or time and costs are not uncommon.

"Mr.  Deming stated...  his charges were based on an hourly basis and materials used.  …  Only on the invoices is there actual evidence of an hourly rate, but that information was given only after the work was completed." Doucett v. W.D.  Excavating 2013 

A second issue may arise when one party argues that that there was no meeting of minds or that the terms were too uncertain and/or indefinite for a contract to be formed.  The test in law, regarding the parties’ intentions, is not what either party believes but what a reasonable third party would conclude their intention to have been.

"The determination of contract formation is not a mechanical process but a complex and flexible procedure depending on many factors especially in open terms agreements.  There is no rule of thumb.  Every agreement contains elements of applications in the courts of frequently supplied important terms that parties haven't uttered." Waddams: On Contract

Where fundamental aspects of an agreement appeared to be missing enforcement will be refused.  Despite this, contracts for sale goods are regularly enforced even though the price is not specified.  The court will often fix a reasonable price.  This rule is now codified in the Sale Of Goods Act section 9(2). 

"(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay a reasonable price, and what constitutes a reasonable price is a question of fact dependent on the circumstances of each particular case." Sale of Goods Act R.S.O.  1990

Where an agreement is made that contemplates a formal document, such as a written contract, the question becomes: Is the execution of the formal contract a step in caring out and already enforceable agreement, or is it a prerequisite of any enforceable agreement at all?  Again, the test is the reasonableness of the parties’ expectations.  If the promisee’s expectation of a firm commitment is a reasonable one it will be protected even though the formal document is never executed. 

"The court should take into account all the circumstances of deciding whether a contract is formed or not." Munroe v. Henbach  1908

"Only if the court is driven to it will it be held that a provision is void for uncertainty." Brown v. Gold 1972 

"The courts seem particularly ready to protect such an expectation when it is manifested in conduct in reliance on the agreement.  
The extent of the reliance on the alleged agreement is a significant factor as the court will go a long way in protecting reasonable reliance." Foley v. Classic Coaches LTD 1934.

"Other cases where the court readily fills up gaps in agreement with reasonable terms it appears on examination that substantial reliance on the agreement has occurred." Hillas v Arcos  1932

"Refusal to give meaning to words will be rare for the court will try to do justice to the parties substance as well as the form and willing to consider words properly and with regard to all the just implications." Scammell v Ouston 1968

"Indefiniteness standing alone will rarely be a ground for refusing enforcement particularly where the party seeking enforcement has relied on the promise ...unless the reliance is clearly unreasonable the court is likely to seek to protect it."  Canada Square Corp.  v. Versa Food Services 1981

"It is likely rare that a reply to an offer would simply state "I accept your offer code.  It is suggested that a contract maybe found not in its acceptance but rather in the subsequent conduct of the parties." McCool v. Brandon 1921.

It is often said that the offeror is the master of the offer he makes.  He is not bound to make an offer at all but if he does, he does so on such terms as he likes.

"Terms of a contract can be implied by customer usage, legal incidents of a particular kind or class of  contract,  intentions of the parties based on officious bystander test." Alliance v. Manorcore 2013
The court will decide what the parties intended based on a factual matrix of circumstances including background and context.

"… to determine the way in which the “language of the document would have been understood by a reasonable man”.  …  a court cannot lose sight of the language chosen by the parties.  …where a contract is not ambiguous, the interpretation that produces a sensible commercial result is not determinative – the parties are presumed to intend the legal consequences of their words.  … A contract provision is ambiguous if it is reasonably susceptible of more than one meaning." Wright v. UPS

A series of appellate cases confirm the above principles of contract interpretation: Consolidated-Bathurst v. Mutual Boiler and Machinery Insurance, 1979 CanLII 10 (SCC); Jesuit Fathers of Upper Canada v. Guardian Insurance Co.  of Canada, 2006; Dunn v. Chubb Insurance Company of Canada, 2009; SimEx Inc.  v. IMAX Corp., 2005; Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd.  v. Scott's Food Services Inc., 1998; KPMG Inc.  v. Canadian Imperial Bank of Commerce, [1998]; Indian Molybdenum Ltd.  v. The King, [1951]; Eli Lilly & Co.  v. Novopharm Ltd., 1998; Fraser River Pile & Dredge Ltd.  v. Can-Drive Services Ltd., 1999.

The ‘business efficacy’ test used in determination of whether an term should be implied also has a strong pedigree of over now over one hundred years. 

"The first thing is to see what the parties have expressed … A term can only be implied if it is necessary in the business sense to give efficacy to the contract; …  to give business efficacy to the agreement." Scrutton, L.J.  in Reigate v. Union Manufacturing Co.  [1918]

“A contractual term may be implied on the basis of presumed intentions of the parties where necessary to give business efficacy to the contract or where it meets the 'officious bystander' test." (M.J.B.  Enterprises Ltd.  v. Defence Construction (1951) Ltd., 1999

"Terms will not be implied where they would contradict the express terms of the agreement." Pacific National Investments Ltd.  v. Victoria (City), 2000

"The underlying rationale for the business efficacy test is that “it is necessary to make the transaction effective.” Marinangeli v. Marinangeli, 2003

"In determining the intention of the parties, attention must be paid to the express terms of the contract in order to see whether the suggested implication is necessary and fits in with what has clearly been agreed upon, and the precise nature of what, if anything, should be implied."  Fridman The Law of Contract in Canada 4th ed 1994

The defendants have asserted a claim based on non-performance under the Contract, which has its basis in common law.  While this does not require resort to the CPA, that legislation significantly influences the outcome of any breach.  If there was any doubt let alone reasonable doubt then the Consumer Protection Act requires that and ambiguity be resolved in favour of the consumer which in this case which in this case is the Defendant. 

"11 Any ambiguity that allows for more than one reasonable interpretation of a consumer agreement provided by the supplier to the consumer or of any information that must be disclosed under this Act shall be interpreted to the benefit of the consumer." Consumer Protection Act, 2002, c.  30.

Normally, statute law completely overrides and replaces common law but here common law is invoked to determine when the statute comes into play. 

"… the doctrine of contra proferentem is the rule of last resort and applies only when all other rules of construction fail.  If applicable, the meaning least favourable to the author of the document prevails." Wright v. UPS 2013

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