This Note: legal memo was written by a UVIC law student who has generously agreed that it be published on the Law 110 website as a sample for first year students. Keep in mind that it reflects this particular author's writing style and chosen approach to the fact pattern and case analysis; it is not the only way this memo could have been written. Overall, this is a very good memo.
To: From: Re: Date: Kim Hart Wensley, Senior Counsel XXX Comroy Builders Ltd. v. Hilgar February 14, 2003 Our client Comroy Builders Ltd. has asked us to appeal the trial decision in which an action against Tina Hilgar personally for breach of contract of the Building Contract was denied. For this appeal you have asked me to research a number of issues surrounding Tina's personal liability. As per your request, the following memo discusses these issues. Please let me know if I can be of further assistance. Statement of Facts Our client, Comroy Builders Ltd. ("Comroy"), is appealing a judgment in favour of Tina Hilgar, who was at the time the sole shareholder of the company Pinto Equestrian Ltd. ("Pinto"). The events that led up to this action are as follows. Tina Hilgar ("Tina) ran a horse farm in Campbell River, British Columbia. She intended to incorporate this business as Pinto, and move to a larger Okanagan property. In order to facilitate these plans, she entered into discussions with Nancy Comroy ("Nancy"), the owner and president of our client. The two women discussed Tina's problem of needing to sell the Campbell River property to pay for the new property, but also needing to keep it in operation until the new property was made ready for horses A Building Contract was executed on October 1, 2000, with both parties knowing Pinto had yet to be incorporated. The contract was signed by Nancy as President of Comroy and by Tina "on behalf of the forthcoming Pinto Equestrian Ltd.". This contract specified that Comroy would buy the Okanagan property and begin building stables with an intention to transfer the land to Pinto at a later date for the price of two million dollars. Payment of the entire amount was due on June 30, 2001. On October 15, 2000, Pinto was incorporated. On October 16, Tina transferred the Campbell River property title and the assets of the farm business to Pinto. Also on October 16, the board of directors of Pinto (made up of Tina) ratified, and adopted the Building Contract. On October 30, Tina wrote to Nancy informing her of Pinto's incorporation. She also told Nancy by letter that Pinto had ratified the contract however it is unclear exactly when this letter was sent. It will be assumed its date was sometime after October 16th.
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Comroy fulfilled its obligations under the contract by buying the Okanagan property and building the stables. However, neither Tina nor Pinto paid the two million on the payment date of June 30, 2001. Pinto was in such serious financial trouble that even the July sale of the Campbell River property had failed to satisfy its creditors. In August, Tina told Nancy that Pinto was insolvent and could not meet its obligations. Immediately Comroy put the Okanagan property up for sale and in late August sold it for $1.4 million dollars. Comroy's claim against Pinto's trustee in bankruptcy was denied. This claim was not pursued further because Pinto's creditors would only be receiving ten cents on the dollar. A new action against Tina personally also failed, although it was agreed by everyone that a successful breach of contract claim against Pinto would have awarded Comroy $600 000 plus pre-judgment interest. Our firm is now pursuing an appeal of the judgment regarding Tina. Issues 1. Is Tina personally liable to Comroy for the breach of the Building Contract? If yes, what is the quantum of damages? 2. Is Tina personally liable to Comroy for breach of warranty of authority? If yes, what is the quantum of damages? 3. Does an implied contract exist between Comroy and Tina in which Tina promised to bring Pinto into the contract in exchange for Comroy agreeing to contract with an incorporated Pinto? If yes, can Tina be found personally liable for its breach? What is the quantum of damages? Brief Answer It is likely that an action against Tina for personal liability will succeed. Both parties were aware Pinto was unincorporated when they signed the contract. The court will likely find Comroy intended to bind someone to the contract, and because Pinto was not yet in existence and could not be bound, Comroy's intention to bind Tina will likely be inferred. Finally, the court will likely follow its own precedent in looking to both parties' conduct as evidence of ratifying a new post-incorporation contract. The court will probably find that Tina's letter about the board's ratification, and Comroy's conduct in fulfilling the contract does not amount to a conduct ratifying a new post-incorporation contract. It was agreed at trial that the quantum of damages for a successful breach of contract against Pinto would be $600 000. There is no reason for the court to deviate from this except with regard to making Tina personally liable for the $600 000. With respect to the issue of agency and the breach of warranty of authority, the court will likely find Tina personally liable because she made a warranty of authority which was in fact false because a non-existent principal such as Pinto cannot delegate authority. The court will also likely say Tina is liable
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because of the following: Comroy had a complete contract; Tina's warranty of authority induced the company into the contract; the contract could be enforced against the principal Pinto; and finally that the breach of warranty caused loss. The court will likely only award nominal damages for the breach of warranty of authority because it will likely find that Comroy's loss was caused by Pinto's insolvency and not from the breach of warranty of authority. In the alternative, the court will likely only award a fraction of what Comroy lost because putting Comroy in the position it would have been in if not for the breach involves affirming the contract between it and an insolvent Pinto. The court will likely make Tina liable personally for $60 000 because this is all Comroy would receive if the contract with Pinto was enforced. With respect to issue three, the court will likely find there was an implied contract, but that Tina did not breach it. The court will likely find that there was offer, and acceptance, and consideration in the mutual promises of Comroy and Pinto to bind the two companies to the contract. It will almost certainly not find Tina personally liable on this implied contract not because of s.59(3) of the Law and Equity Act ("LEA")1 which requires land sales to be in writing, to be specific, and functions to enforce relied upon land contracts but rather because Tina fulfilled her promises under it and did not breach it. In the unlikely event of finding Tina liable, the court will probably only award Comroy the amount it could have received in a contract with Pinto, namely $60 000.
Analysis for Issue 1 Is Tina personally liable to Comroy for breach of the Building Contract? In the relevant case law the following four factors, in varying degrees, are the ones on which the cases turn: i) the form of the signature on the contract; ii) the knowledge of the parties with respect to whether the company was incorporated or not; iii) the intentions of the parties with respect to who would be bound; iv) and finally whether there was any conduct that amounted to an acceptance of a new postincorporation contract identical to the pre-incorporation contract. The common law on pre-incorporation contracts was first set out in Kelner v. Baxter ("Kelner")2. The defendants were the directors of a hotel venture that was incorporated after a contract was signed with the wine merchant plaintiff. The hotel went bankrupt, Kelner was never paid, and so he sued the `directors' personally. The court held that the defendants were personally liable. The initial ratio was twofold; when signing a contract on behalf of a pre-incorporated company the promoters were personally liable for the contract, and second that pre-incorporation contracts cannot be ratified. Mr. Chief Justice Erle summed the principle up as follows:
1 2
Law and Equity Act, R.S.B.C. 1996, c. 253. Kelner v. Baxter (1866), L.R. 2 C.P. 174.
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[W]here a contract is signed by one who professes to be signing "as agent," but who has no principal existing at the time, and the contract would be altogether inoperative unless binding upon the person who signed it, he is bound thereby: and a stranger cannot by a subsequent ratification relieve him from that responsibility.3 Later cases clarified the main point of Kelner -- the parties' intentions are important. If the parties intend to bind someone personally or individually, then there will be personal liability. In Kelner, the contract was signed by the defendants with their own names, followed by "on behalf of" the hotel, denoting the defendants were acting as agents. However all the parties knew the hotel was not incorporated and they could not have intended to bind a non-existent entity. The court felt Kelner clearly intended for someone to be bound by the contract and so the defendants were found to be the ones personally bound.4 Finally with respect to ratification of the pre-incorporation contract, the judges felt that pre-incorporation contracts could not be ratified, but instead both parties had to agree to a new contract after incorporation. No new contract was formed in Kelner. The next case to build on and reinterpret the principles of Kelner was the Australian case of Black v. Smallwood ("Black")5. Just as in Kelner, the plaintiff in this case was the third party who entered into a pre-incorporation contract, but in this case the contract was for the sale of land which ultimately fell through when the defendants refused to pay. Black construed Kelner as saying that that when a person contracts on behalf of a non-existent principal he or she is generally liable personally. To determine whether the person is liable, recourse is made to the written document to see if there is anything in the document inconsistent with the notion that the defendants should be bound personally.6 In Black it was held that the defendants could not be held personally liable, and that the contract was a nullity. This decision was based in part on the precedent of contract nullification set by an earlier British case called Newborne v. Sensolid (Great Britain) Ltd. ("Newborne")7 which was a case of a plaintiff promoter entering into a contract for the sale of tinned ham. The plaintiff promoter was seeking to enforce the contract but it was held that it was a nullity. The factors of form, knowledge and intention elucidate the court's reasoning in both Newborne and Black. In both, the form of the contract was one where the name of the company appeared first, followed by the names of the promoters. All the parties in both these cases believed the company in question was incorporated. This led to reasoning from both courts that the form of the signature along with the knowledge of the parties, showed an intention to bind the applicable companies instead of binding any individual. In both cases this meant the contract was a nullity, because the intended
3 4
Kelner, at 183. See note 2. Kelner at 185. See note 2. 5 Black v. Smallwood (1966), 117 C.L.R. 52, 39 A.L.J.R. 405 (H.C.A.) [Black cited to C.L.R.]. 6 Black, at 55. See note 5. 7 Newborne v. Sensolid (Great Britain) Ltd. , [1953] 1 All E.R. 708, [1954] 1 Q.B. 45 (C.A.).
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purchaser did not exist at the time of the contract. In essence, in both Black and Newborne, the contract was invalid at the outset because the parties were intending to bind a principal that did not exist. Both Kelner and Black are good law in British Columbia and were cited by the British Columbia Court of Appeal ("BCCA") in Brown Brothers Motor Lease Canada v. Kirkpatrick ("Brown Brothers").8 This case involved defendant promoters of Whistler Transit Ltd. ("Whistler") a pre-incorporated company who, after incorporation, returned an `unfit' bus it leased from the plaintiff. The form of signature was the company's name followed by "per" and the names of one of the defendants as the lessee and secretary of the company. Everyone believed the company was already incorporated. The court found no personal liability based on Kelner and Black - the parties could not have intended to bind the defendants personally. The contract was not a nullity however, because Whistler had already conceded its liability on the basis that it had ratified the pre-incorporation contract by using the bus. Therefore this case applied the fourth factor as it was set out in the following cases. In 1984 the BCCA case of Massey Productions Ltd. v. Rocky Mountain Society for Public Art ("Massey")9 reinterpreted the Kelner principle yet again. This case was one where there was a breached pre-incorporation contract for film services between the plaintiff and the defendant. It was held that the trial judge had erred in not looking at the defendant's post-incorporation conduct, and that the plaintiffs did have a triable issue. Chief Justice of British Columbia Nemetz agreed that Kelner had been modified to say that a pre-incorporation contract was enforceable by the parties if "by their conduct, [they] show an intention to be bound by a new post-incorporation contract containing terms identical to those in the preincorporation contract."10 Massey was cited in another BCCA judgment called Heinhuis v. Blacksheep Charters Ltd. ("Heinhuis").11 This was a complicated case where the defendants wanted to avoid liability for a vessel mortgage held by the plaintiff. The mortgage was executed prior to incorporation and all the parties knew this. It was held that the company was liable for the mortgage based on its conduct of accepting the boat and making two payments on the mortgage. The case builds on Massey by explaining that an intention to be bound by a new contract can be inferred by conduct such as the transfer of assets to, and the acceptance of these assets by, the newly incorporated company.12 It is unclear how this connects with the other factors of knowledge, intention, and form as these were not addressed. However it likely
8
Brown Brothers Motor Lease Canada Ltd. v. Kirkpatrick, (1992) 67 B.C.L.R. (2d) 141, 12 B.C.A.C. 188. Massey Productions. Ltd. v. Rocky Mountain Society for Public Art, [1984] B.C.W.L.D. 3515, B.C.J. No. 1952 (C.A.) (QL) [Massey cited to B.C.J.]. 10 Massey,at para. 12. See note 9. 11 Heinhuis v. Blacksheep Charters Ltd. (1987) CarswellBC 351, [1988] 2 W.W.R. 444. (B.C.C.A.) (eC) [Heinhuis cited to CarswellBC]. 12 Heinhuis, at para. 15. See note 11.
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supplements the Kelner intention rule by illustrating that when both the parties act to fulfill some part of the pre-incorporation contract, the parties intended for the new corporation to be bound. Finally this intention to be bound was further expanded by the British Columbia Supreme Court in Digital.Doc Services (Canada) Inc. v. Future Shop Ltd. ("Digital.Doc").13 In this case, the plaintiff company, knowing it was not yet incorporated, entered into a pre-incorporation contract with the defendant company. The defendant then cancelled the contract. This case was distinguished from Heinhuis on the basis of party knowledge and conduct, and it was held that Digital.Doc's contract was a nullity and the plaintiff could not enforce it. The form of the contract was an individual name above the statement "for Digital.Doc Services (Canada) Inc." The defendants believed the company was incorporated. Based on this there could only be an intention to bind the company, but the company did not exist at that time, and so the contract was a nullity. The fourth factor is also key to this judgment because there was no evidence that either party acted as if it had entered into a new contract after incorporation. Mr. Justice Baker expanded on what constituted conduct by saying that no property had changed hands, no payments had been made, no services had been performed and that ultimately Future Shop obtained none of the benefits Digital.Doc had agreed to provide.14
Synthesis of Issue 1 Tina's personal liability Case law has established that the following four criteria are relevant as to determining liability and enforceability issues surrounding pre-incorporation contracts: 1) form of the signature, 2) parties' knowledge, 3) parties' intentions, and 4) any specific conduct that signals a new contract based on the pre-incorporation one. The key principle is that people who sign pre-incorporation contracts on behalf of non-existent principals are generally personally liable on these contracts. However this is subject to the qualifier that liability depends on the intentions and actions of the parties. Intentions are often inferred though knowledge and the form of the signature. Generally the knowledge that one is contracting with a pre-incorporated company means the promoter will be personally liable. This outcome is based on the notion that parties intend to bind the parties they know to exist. However if parties enter a contract with both or only one party erroneously believing a company exists, the result will usually be a nullified contract. This result is derived from the idea that a contract cannot be valid when one of its parties does not exist. Finally, the conduct of the parties with respect to ratifying a new post-incorporation contract interweaves with the parties' intentions. Actions such as making payments, transferring assets, or
13 14
Digital.Doc Services (Canada) Inc. v. Future Shop Ltd., (1998) CarswellBC 822 (B.C.S.C.) (eC). Digital.Doc,at para. 22. See note 13.
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performing services denote an intention to bind the company and not individual people. The case law suggests this applies when both parties are fulfilling parts of their contracts as laid out in the preincorporation contract. The principle that seems to be derived from the `conduct' cases is that the courts won't enforce a pre-incorporation contract unless both parties have shown a willingness to be bound to a new identical contract through conduct that amounts to part performance of the older contract. Application to the Facts for Issue 1 In analyzing the Building Contract between Comroy and Tina, the first step is to apply the general principle of Kelner - a person who contracts on behalf of a non-existent principal is generally liable. On this basis the court will likely find Tina personally liable for breach of contract because she signed the contract on behalf of Pinto which did not exist at the time. However this principle was modified to take account of the four factors. Based on our analysis of all four factors, the court will likely still find Tina to be personally liable for the breach of the Building Contract. With respect to the form of the signature, Tina signed her name first, and followed this by the words "on behalf of the forthcoming Equestrian Pinto Ltd." This type of signature will likely illustrate to the court that Tina was acting for an unincorporated company when she signed the contract. The use of the word "forthcoming" distinguishes our case from Kelner, however this word will likely increase the likelihood of Tina's personal liability because it makes it even clearer that Pinto had yet to be incorporated. Second, both Tina and Comroy knew that Pinto was unincorporated. Third, the signature and this knowledge together with the fact that Comroy must have been intending to bind someone to this contract, will likely convince the court that Comroy was intending to bind Tina personally because it was known that Pinto was not yet in existence. However this intention could be refuted by the fourth factor. This fourth factor is whether the parties showed through any of their conduct an intention to be bound to a new post-incorporation contract based on the old contract's terms. Tina will likely argue that her action in incorporating Pinto and her letter to Comroy about the board's adoption of the contract constituted conduct ratifying the contract, and she will also likely argue that Comroy's conduct in fulfilling its contractual obligations indicated an intention to be bound to a contract with Pinto. But, the court will likely disagree with Tina based on the case law which describes the conduct that shows an intention to be bound to a post-incorporation contract. Cases that deal with when conduct can amount to ratification of a new contract discuss what the parties have or have not done. In the cases where it was held there was an enforceable contract, this decision was because the newly incorporated company's conduct amounted to part performance of its obligations under the pre-incorporation contract. In Heinhuis it was two mortgage payments, and in Brown Brothers it was the acceptance and use of the leased bus. Pinto did not perform any actions that
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fulfilled its obligations to Comroy. It is likely that the court will agree with our review of this overarching principle and will also see that despite the letter of ratification, no payment has taken place, no transfer of land has taken place, and no services have been provided (Pinto has not used any of the built stables or corrals). In the end, it is highly likely the court will overlook the minor factual distinctions between our case and the others. Therefore the court will likely find that Tina is personally liable for the breach of contract because a new post-incorporation contract has not been ratified by either mutual intentions or mutual conduct by the parties. It was agreed at the first trial that Pinto would be liable for $600 000 if breach of contract was proven, and there is no reason not to follow this agreement substituting Tina in for Pinto. Therefore the court will likely award Comroy $600 000 to be paid by Tina personally.
Analysis of Issue 2 Is Tina personally liable to Comroy for breach of warranty of authority? A warranty of authority is when an agent claims to have been given authority by a principal to enter into a binding contract on behalf of the principal. A breach of this warranty is when the agents do not in fact have this authority. Breaches of pre-incorporation contracts and breaches of agents' warranties of authority are very closely intertwined because judges often say where an action fails on the former it might succeed on the latter. The English case of Collen v. Wright ("Collen")15 involved an agent who agreed to a longer lease than he was authorized to give. This agent was found liable for breach of warranty of authority. This case stands for the important principle, as laid out by Mr. Justice Willes, that when one induces another person into a contract on the basis of an unqualified assertion of being authorized, one becomes "answerable to the person...for any damages which he may sustain by reason of the assertion of authority being untrue.16 In essence this is saying that when an agent professes to have authority to act, the agent is promising that he or she does in fact have this authority. If he or she does not have authority to act for the principal then there has been a breach of a warranty of authority, and the agent is liable for any losses caused by the breach. A specific wrong or omission is not required; even an honestly mistaken agent is liable because it is enough that the agent in fact did not have the authority he or she asserted. Collen was reaffirmed in Halbot v. Lens ("Halbot").17 However this case also illustrates how knowledge that a warranty is actually unauthorized obviates the agent's liability. In this case the defendant was signing in part on behalf of his wife's father and clearly told the other party he lacked any real authority to sign for his father-in-law. The court did not find a breach of warranty because Mr.
15 16
Collen v. Wright, (1857) 8 El. & Bl. 647, 120 E.R. 241 (Ex. Ct.)[Collen cited to E.R.]. Collen, at 245. See note 15. 17 Halbot v. Lens, [1901] 1 Ch. 344, 70 L.J. Ch. 125 [Halbot cited to Ch].
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Justice Kekewich said the plaintiff failed "to establish misrepresentation of fact against the defendant."18 In essence, if the other party knows the agent is without authority there can be no breach. Collen and Halbot were made good law in a concurring judgment in British Columbia in Saperstein v. Drury ("Saperstein").19 In this case, one of four owners was not held liable for breach of warranty of authority because he never claimed to have authority for the other owners. Although Saperstein was distinguished from Collen and Halbot on the basis that the owner gave no clear indication of agency, Mr. Justice Fisher did cite both cases as authorities on agency. A little before Saperstein the BCCA came out with Burt v. Woodward ("Burt").20 This was a case where it turned out the agent only had authority to sell a fish and chips business and not the attached living quarters. Burt enunciates the elements of a contract on which an agent can be found personally liable for breach of warranty of authority: a representation of authority, a complete contract, inducement into the contract because of the warranty, an enforceable contract against the principal, and loss caused by the breach of warranty. In Burt there was no liability because the plaintiff could not prove these factors. A case more on point which mentioned some of the above principles is Wickberg v. Shatsky ("Wickberg").21 This case dealt with an employment contract from an unincorporated company. An action on breach of warranty of authority succeeded and nominal damages were awarded to the plaintiff. It is implicit in the judgment that the reason for the breach of authority in this case was the unincorporated status of the company. Essentially one cannot be given authority by, or to act on behalf of, a non-existent principal. Wickberg is also important for explaining what damages are recoverable. Although the court found that there was a breach of the warranty of authority, as Mr. Justice Dryer put it, the "loss... resulted from the fact that the business was not a success, not from the breach of warranty."22 Damages are determined by the strength of the causal connection between the losses suffered by the plaintiff and the breached warranty of authority. The less of a causal connection the more nominal the damages will be.
Synthesis of Issue 2 Breach of warranty of authority The general principle for breaches of warranties of authority is that when a person purporting to act on behalf of someone else induces another party into a contract on the basis that his or her authority is valid, that person will be liable for any damages sustained due to the assertion's falsity. Although this does not require a wrong or omission, it can be mitigated by circumstances such as a disclaimer that the warranty is in fact not fully authorized. For this, the agent will not be held personally liable for its breach.
18 19
Halbot, at 345. See note 17. Saperstein v. Drury, [1943] 4 D.L.R. 191, 59 B.C.R. 281 (C.A.). 20 Burt v. Woodward [1942] 2 W.W.R. 464, 58 B.C.R. 65 (C.A.) [Burt cited to W.W.R.]. 21 Wickberg v. Shatsky [1969] 4 D.L.R. (3d) 540 (B.C.S.C.). 22 Wickberg at 544. See note 21.
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Later case law expanded on when an agent would be personally liable for a warranty, though these factors are less explicit in decisions surrounding pre-incorporation companies. The criteria involves the following: that there was a warranty made that induced the party into the contract, that there was a complete contract, that one would have an enforceable contract against the principal if the agent had been properly authorized, and finally that there was a loss caused by the lack of authority behind the warranty. This loss has to be causally related to the breach, and if it is due to the company's insolvency rather than the breach of the warranty of authority, then only nominal damages will be awarded. Application to the Facts for Issue 2 On the principle that agents are personally liable when they bring into a contract a party that is relying on their assertions of authority and who suffers losses when the warranty of authority is breached, it is highly likely the court will find that Tina should be personally liable. She made a representation when signing the contract that she was acting on behalf of the forthcoming Pinto. However this warranty is inherently faulty because a non-existent principal cannot give authority. Therefore it is likely if we can persuade the court to follow this principle, the court will agree Tina did breach her warranty of authority and should be personally liable. However Tina has a strong argument on her side, namely that Comroy's knowledge that she was acting on behalf of a pre-incorporated company obviates her warranty. She will likely argue she did not breach a warranty of authority because Comroy knew all along that the authority was made on behalf of a non-existent entity. Further, Comroy could not have relied on the warranty. The court will likely give this argument some weight but it will likely be countered by our explanation that the argument rests on an old English case and a concurring Canadian judgment, which are not often cited in Canada. The court will likely find that the criteria required for personal liability for breach of warranty of authority are mostly met in our case. There was a false representation made by Tina that she was an agent with authority from Pinto; the warranty was an inducement for Comroy to enter the contract; the contract was complete; and the contract would have been enforceable against Pinto had Tina had the authorization she claimed. Although Tina will likely argue the contract was not enforceable against the principal because it was a pre-incorporation contract, this will likely be rejected by the courts (see analysis and application for issue 1). Also, there is the logic of saying if Tina had had the authorization as an agent, this would necessarily require the existence of Pinto. Then, if Pinto was in existence when Tina made the contract there would be no problem in finding an enforceable contract because it would actually be a postincorporation contract. Tina's strongest argument is that her breach of authority did not in fact cause any real damages. Rather the insolvency of Pinto is the reason for Comroy's losses and not Tina's representation that she
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had authority to contract on behalf of Pinto. It is highly likely the court will find in favour of Tina on this and will probably only award Comroy nominal damages. In the alternative, if Tina's breach did cause Comroy's loss the court will likely attempt to place Comroy in the position it would have been in if not for the breach. This would mean Comroy would have a binding contract with Pinto. Comroy expected to have $600 000 more than it wound up with in reality. However the reality of the contract also includes Pinto's insolvency which would have meant Comroy could only have recovered $60 000 (ten cents on the dollar). In this scenario, the judges will likely only make Tina liable for the amount of $60 000. Analysis of Issue 3 Is there an implied contract? It is now well applied in common law that a contract is not valid and binding unless it has the three elements of offer, acceptance, and consideration. An implied contract is one which the parties presumably intended either through a tacit understanding, or through an assumption that it existed.23 The parties who make the implied promise are the ones on whom it is binding. The first element of any contract is that one party has to make an offer of some kind that they intend to be legally binding. This offer goes to the other party and depending on the kind of offer, acceptance can be given right away or acceptance can be done through actual performance at some later time. The next element is for the first offer to be actually accepted. It must be clear that the acceptance is intended to be legally binding and generally acceptance is done in the same mode of communication in which it was offered i.e. oral, written, or in the case of an implied contract, perhaps it remains unspoken. Finally, consideration is an exchange of things of mutual value such as goods, forbearance on a right, and even mutual promises. The LEA provides guidelines about what types of contracts are acceptable in certain situations even should offer, acceptance, and consideration be met. Section 59(3)(a) requires a contract for land or a disposition of land to be written and to have a clear subject matter. Section 59(3)(c) protects contract makers' reliance on contracts, by enforcing a contract where the party has so changed its position in reliance on the contract that it would be unfair not to enforce it. A typical award for breach of contract is expectation damages. These damages are meant to place the aggrieved party in the position it would have been in if the breach had not occurred.
Synthesis of Issue 3 A valid contract, implied or otherwise, requires the elements of an offer, acceptance, and consideration. Consideration can be many things, but it must involve an exchange of something of value.
23
Black's Law Dictionary, 7th ed. s.v. "contract (implied in-fact contract)".
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Mutual promises of value can act as good consideration. Statutory instruments such as the LEA have an impact on whether contracts are binding by requiring specificity, written contracts, and by protecting reliance. These instruments can be specific to certain types of contracts such as land dispositions as is s.59(3) of the LEA. Finally a common measure of damages in breach of contract cases is expectation damages which are meant to place the victim of the breach in the position he or she would have been in if the contract had been fulfilled. Application to Facts for Issue 3 On the facts of the case the implied contract is said to be between Tina who promises to incorporate Pinto and cause it to enter into the building contract, in return for the promise of Comroy to enter into the Building Contract with Pinto once Pinto was incorporated. The court will likely agree find, as Comroy alleges, that Tina made the offer of an implied contract - that she would use her control to incorporate Pinto and cause it to enter into the Building Contract - and that Comroy then provided a return promise to enter into the Building Contract with Pinto. Thus there was an offer and acceptance of the offer in the exchange of mutual promises. It must be assumed that the parties intended their offer and acceptance to be legally binding. The court will likely find that there was consideration given since mutual promises of value can act as good consideration. The promises have value because Tina would be able to officially shift what seems to be her personal liability to Pinto, and Comroy would have a contract with the company instead of with a personal agent. Although the court will probably find that the formal requirements of offer, acceptance, and consideration are met, the court will likely still not find Tina personally liable for its breach. Tina will likely argue the contract does not meet the requirements of s.59(3)(a) and (c) because the contract was not in writing, it was not specific enough, and no party changed its position because of the implied contract so that it would inequitable not to enforce it. However, the judges will likely be persuaded by the argument that this implied contract is not a contract about the sale or disposition of land, but rather a contract about specific actions, and therefore does not need to meet the LEA criteria. A secondary argument Tina will likely argue is that this implied contract does not exist because it has been invented by Pinto as a way to sue Tina personally. The courts will not likely take this argument seriously because Comroy does not need to invent any contracts with Tina when the courts will likely find it already has a binding building contract with her personally (see issue 1). Tina will likely argue instead that if there was a valid implied contract, she fulfilled her half of it by incorporating Pinto and ratifying the Building Contract on October 16th, thereby causing Pinto to enter the contract. The court will likely agree that Tina did not breach the contract but rather it is Comroy who
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has not fulfilled its obligations under the implied contract because Comroy continues to proceed on the basis that the Building Contract is between Comroy and Tina personally. Even in the unlikely event that Tina is found to have breached the implied contract, the court's response will likely be to attempt to place the parties where they would have been if the breach had not occurred, in other words to give expectation damages. Where Comroy would have been if not for the breach of the implied contract is in a binding Building Contract with Pinto. The judges will likely recognize that a contract with Pinto will not be worth much because Pinto is insolvent. Tina will likely only be liable to a similar extent as Pinto would have been which means damages of $60 000. Conclusion First, it is highly probable that the court will find Tina personally liable for the breach of the Building Contract and award the entire $600 000 in damages. Second, the court will probably find her personally liable for the breach of warranty of authority, but will likely award nominal damages. Finally, it is highly likely the court will find there was an implied contract between Tina and Comroy because the contract met the doctrinal rules of offer, acceptance and consideration. But the court will likely not find that Tina is personally liable for this contract because she fulfilled her duties under the implied contract. Should the court go with the less likely option that there is a breach, this would entail enforcing the implied contract between Comroy and the insolvent Pinto, resulting in damages of $60 000. The best course of action for our client is to pursue Tina personally for breach of the Building Contract. This is the action for which the court will most likely find Tina personally liable and award the highest amount of damages.