University of Calgary Continuing Education

University of Calgary Continuing Education Construction Contract Law and Documents Week 3 Tenders Factors Effecting Contracts Contract Terms/Misrepresentation/Contract Completion

Tenders • Tenders – Old law regarding errors • Tender is an offer • Mistake in tender was a mistaken offer which could not be accepted if known by the tenderee • Law defined by McMaster University v. Wilchar Construction and Belle River

Tenders • Along comes Ron Engineering • Contract “A” and Contract “B” • The invitation to tender is the “offer” • The submission of the tender is the “acceptance” • The consideration is the willingness to “consider” the tender • Ie: Contract “A”

Tenders • Thus, a contract is formed between the tendering authority and ALL the tenderers – Contract “A”

Tenders • The terms of the Contract “A” are: • Each tender will be considered fairly and in strict accordance with the rules of the tender call • Unless there is an unusual event, Contract “B” will be awarded to the lowest compliant bidder

Tenders • A series of cases culminating in MJB have redrawn the landscape for tendering rules.

Tenders • The consequences of breach of Contract “A” are serious: • For the Tendering Authority – paying compensation for lost profits • For the Tenderer – paying difference between tenders

Factors Effecting Contracts • Consideration • Capacity • Privity of Contract

Consideration • Definition • Some right, interest, profit or benefit accruing to the one party or some forebearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.

Consideration • Issues Regarding Consideration • Adequacy of consideration - peppercorn • Existing Obligation and Past Performance as Consideration • Payment of Existing Debt • Illegality of Consideration • Forbearance can be consideration

Consideration • Example • Rebar supplier contracted to supply to GC. • Mill raised price. • Rebar supplier approached GC to raise price (if you don’t – no more rebar) • GC orally agreed to raised price. • GC short paid invoices. • At end GC refused to pay.

Consideration • Court held that oral agreement to change price invalid. • Agreement was to change contract without consideration – unenforceable. (Gilbert Steel v University Construction)

Consideration • P contracted with D to have ship built and pay in 5 payments. • After 1st payment, exchange rate went up and D raised prices. • P agreed “under duress” • P insisted that D increase letter of credit. • P sued to get extra $ that was paid. • Was D entitled to extra money?

Consideration • Increase in letter of credit by D at the insistence of P was sufficient consideration to validate the change in the contract. • The court also decided that the application of duress was sufficient to make the contract voidable. • However, P took too long and thus affirmed the contract. (North Ocean v Hyundai)

Consideration • Exceptions to Requirement for Consideration • Effect of Seal • Statutory Intervention • Promissory Estoppel

Capacity • Incapacities of Natural Persons • Minors • Insane Persons • Drunkards • Aged and Handicapped

Capacity • Artificial Persons • The Crown • Business Corporations • Municipal Corporations • Unincorporated Associations • Trade Unions • Indian Bands

Privity • Agency • Contracts In Writing • Statute of Frauds

Exercise • Your boss, Frank, met someone, Jim, who needed some construction work done for him. • Jim asked Frank for a price for the work - which he described as follows: • I need to build a retaining wall behind my shop to hold up the dirt that is falling down because my equipment is really heavy and is liable to fall down the slope in back. • Frank visited the shop and measured the width of the lot and sent Jim a quote for $10,000 as follows: • Estimate for retaining wall: $10,000 • Jim called Frank and said that the amount was too high but since he needed the job done, he wanted Frank to start work. • Frank did the work and sent out a bill for $10,000. • Jim refused to pay since "I told you that the $10,000 was too much.“

Break • Discuss Frank and Jim

Contract Terms • In simple terms, the terms of a contract are generally those items between the first heading and the signature lines. • The terms are the “various statements, promises, stipulations, etc., grouped together” in the contract. • Terms of a contract can be express or implied. • Terms can be of a nature to limit or exclude liability.

Puffs, Representation and Terms • In the process of negotiating a contract, words may be spoken that do not end up in the contract. • For example, a car dealer may say that “I am the most reputable dealer in Alberta” and subsequently conclude a contract. • Is that statement a term of the contract and is it a breach when it is subsequently learned that the deal was the biggest crook south of Red Deer?

Puffs, Representation and Terms • What about the situation where a car dealer says that each used car was inspected by a licensed mechanic and found mechanically sound and subsequently the purchaser found that no such inspection took place?

Puffs, Representation and Terms • What about if the inspection took place but a problem was missed?

Puffs, Representation and Terms • The first situation has been described as “puff” in Carbolic Smoke Ball, or what we more commonly would describe as sales talk. • Statements of a general nature, as described, cannot be construed as terms of a contract. • Neither can the second situation unless the statements that were made ended up being incorporated in the written, or oral, terms of the contract. • Rather, these statements are “representations” that led to the formation of the contract. • Inaccurate representations can result in a finding of a void or voidable contract.

Express Terms • Generally, in the case of a written contract, the express terms are fairly simple to determine – they are in the document.

Express Terms • Fridman defines an express term is one which has been specifically mentioned, and agreed upon by the parties, and its form, character and content expressed in the oral or written exchanges between them at the time the contract was made. • In the courts, the words “within the four corners” of the contract are used to refer to the four corners of the sheets of paper on which the contract is written. The court will consider anything written therein and nothing else. • In the case of an oral contract, it is not so simple to determine the express terms if the parties don’t have identical recollections of the events or there is not some third-party observer to corroborate the agreement.

Implied Terms • Sometimes, there are terms to a contract that are not expressed by the parties but are implied by the circumstances or the pattern of dealing that had been established.

Implied Terms • For example, if two companies had been dealing with each other for a number of years and had established a pattern of billing and payment that showed that each company paid the other 30 days after presentation of an invoice, a court would probably construe that the payment period on a new contract was 30 days.

Implied Terms • Terms may be implied into a contract as long as the implied terms are consistent with the express terms and the general tenor of the contract.

Representations • A representation is a statement, spoken or written, at the time the contract was being finalized. • A representation may end up being a term but not necessarily. • The difference between a statement that ends up as a term and a representation has to do with the intent of the person making the statement. • If the intent is that the statement will be enforceable by the contract, then the statement is a term. • Otherwise, the statement is considered to be made to induce the formation of the contract.

Representations • An example might be, “On all our past projects, all deficiencies were completed within 90 days of final completion.” • Here, the speaker was making a statement about his past work performance; this could be either a “puff” or a representation depending on the context in which it was offered. • If he added: “We will do the same on your project” then this would certainly be a representation unless the statement ended up in the contract. • Then it would be a term.

Certainty of Terms • The terms of an agreement must be clear and unequivocal. • The courts will give the literal meaning to the words in the agreement and will not look beyond them. • In the case of a oral agreement, more latitude is given to the type of evidence that is considered.

Certainty of Terms • For example, if a person offers to sell an object to 2 different people at a certain price and one person accepts the offer and there is, later, a question as to whether the condition of the object when it was sold was a term of the sale, the evidence of the other potential purchaser might be allowed by the court.

Parol Evidence Rule • As a rule, if a contract is in writing, no oral (Parol) evidence is permitted to clarify the intentions of the parties at the time of contracting. • The written agreement is deemed to be the entire agreement unless it says otherwise. • Some contracts include specific wording to this effect, so as to eliminate any possible misunderstanding.

Parol Evidence Rule • If there is a question of the meaning of a contract – for example an ambiguity – the court will determine the meaning by taking a literal interpretation of the words in the agreement unless such an interpretation would lead to uncertainty, an absurdity or an injustice and the text was unambiguous and grammatically correct. • If there still remains an ambiguity, it will be resolved against the author of the agreement. • This is a generalization and should not be relied upon strictly but describes the way courts will probably deal with this type of situation.

Contract Avoidance and Rescission • When is a contract not a contract? • When can a contract be reversed? • These are two common questions posed to lawyers by clients – generally when the client finds himself/herself in a bad deal.

Contract Avoidance and Rescission • Misrepresentation • One of the most common situations where one wants out of a contract is the situation when a party feels that they have been misled. • The remedy that is offered to the contracting party depends on the nature of the misrepresentation.

Misrepresentation • Joe, wants to sell his used car to Harry. • He shows the car, which has 110,000Km on the odometer, to Harry. • Joe tells Harry that he wasn’t the original owner but the mileage when he (Joe) bought it was 40,000km and the previous owner had been an old lady who used it to go to church every week. • Harry buys the car.

Misrepresentation • After a month he takes it to the original car dealer for an oil change. • While there the mechanic asks about Alice. • “Who is Alice?” says Harry. • “Alice is the cab driver who used to own this car before some guy named Joe bought it.” said the mechanic. • Subsequently, Harry found out, through checking the dealer’s records, that Alice put 200,000km on the car before selling it. • Apparently, Alice used to do a lot of her own repairs and had replaced the speedometer at one time. • Alice had always kept her cars spotless. • What can Harry do?

Misrepresentation • Since the mileage on the car was not a term of the contract, there was no term of the contract that was violated. • The mileage on the car was important to Harry when he bought the car and the statement regarding mileage was made with the intention to induce the sale of the vehicle. • Thus, there was a representation; however, the representation was false.

Misrepresentation • There are three kinds of misrepresentation: • innocent misrepresentation, • negligent misrepresentation and • fraudulent misrepresentation.

Innocent Misrepresentation • In the above example, if Joe had received his information from the old lady, Alice, who looked the part, and accepted the information at face value, there was no intent to misrepresent the facts. • Further, Joe had no particular obligation to search out the facts about the mileage. • This is an innocent misrepresentation and occurs when the person making the representation has reasonable grounds for believing the truth of the information that he is imparting.

Negligent Misrepresentation • Before the sale was finalized, Harry asked Joe to verify the mileage on the car by checking again on the prior owner because Harry thought the stated mileage was way too low. • Harry said that if the mileage checked out he would proceed with the sale. • Joe thought Harry was being foolish and didn’t bother to do any checking even though he knew that the car had always been repaired at the dealer. • Joe simply looked at the wear and tear on the interior, which seemed consistent with a low mileage car. • Joe reported to Harry that he had checked and the mileage was correct.

Negligent Misrepresentation • Here, we have negligent misrepresentation. • Joe undertook to find out some information for Harry and, by virtue of that, entered into a “special relationship” with Harry. • By failing to use reasonable efforts to find out the information, Joe was negligent and, by making the statement confirming the mileage without checking, Joe made a negligent misrepresentation.

Fraudulent Misrepresentation • After the sale was complete, Harry did some more checking and found out that Joe and Alice were running an ongoing scam where Alice bought old taxis, cleaned them up, replaced their odometers and sold them through Joe. • This is a case of fraudulent misrepresentation since Joe, knowingly, passed on false information that was relied on by Harry when he purchased the car.

Fraudulent Misrepresentation • “A fraudulent misrepresentation consists of a representation of fact made without any belief in its truth, with the intent that the person to whom it is made shall act upon it and actually causing that person to act upon it.”

Fraudulent Misrepresentation • Note that there are specific requirements to show fraudulent misrepresentation. • There must be a positive misstatement of fact. • Thus, a statement of opinion cannot lead to fraudulent misrepresentation. • Similarly, the courts deem that everyone knows the law so no fraudulent misrepresentation can be found where a representation as to the law occurs.

Fraudulent Misrepresentation • There can be no belief in the information being represented. • “The misstatement must be made dishonestly or recklessly, with lack of belief in its truth.” • Thus, an honest but mistaken statement cannot be considered fraudulent.

Fraudulent Misrepresentation • There must be intent that the person hearing the representation should act and the information being imparted was important to the decision to act.

University of Calgary Continuing Education