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Contract

Posted on August 1, 1998 | Posted in Lawyers' Issues

We are taking a long – for some of us – journey back to law school. We are going back to the good old days when all we had to worry about was how a contract was formed. Fortunately, some of what we learned still has a modicum of relevance. Pay attention to this article; there will be a quiz afterwards.

The Facts

1.   August 25 – Defendant sends a letter by fax to plaintiff. It says “Please sign and return to (address) 3 copies of this agreement”. The cover of the fax says, “Please sign and fax back ASAP”.

2.   August 25 – Defendant writes to plaintiff by post and says “Further to our fax of this date, enclosed are the original and copies of the purchase agreement. We would ask you to sign the same and return 3 copies to ourselves. We would appreciate receiving these back at our earliest convenience so that we may complete our files in this matter”. Plaintiff received this letter August 28.

3.   August 29 – Plaintiff signs the agreements plus 3 copies and mails the documents to the address indicated on the agreement.

4.   August 31 – Defendant revokes its offer by fax.

5.   September 5 – Defendant receives the executed agreement posted August 29.

Question:

How many times did the parties communicate? (Just kidding! That is not the question.)

Was there a contract formed prior to the revocation of the offer?

This actually happened. We did not invent it. The case is Trans-Pacific Trading v. Rayonier Canada Ltd., a 1998 unreported decision of the British Columbia Court of Appeal.

Rule and Exception

An acceptance must be communicated to the offeror before a contract is formed. However, since 1818, that rule has been subject to the mailbox exception. If it is within the contemplation of the parties that an offer will be accepted by post, then, if the offer is accepted by post, the acceptance will be deemed to have taken place at the time of posting to the mailbox. The date when the offeror actually receives the acceptance is irrelevant.

One of the three judges of the court commented on the present day acceptability of the exception. She said: “Since the (case) was decided and Canada constructed its own postal system, first the telegram, then the telex, then private courier services…,  and the facsimile machine have each provided faster and faster … means of communication of acceptance required to be in writing. It is not however for this Court, but for the Legislature or the Supreme Court of Canada to determine whether the ‘exception’ shall continue to have legal force or be determined to be obsolete”.

This judge then went on to emphasise that the “exception” did not mean that all offers may be accepted by post, only those in which acceptance by post was contemplated.

Analysis

The court then had to determine from the correspondence of August 25 what means of communication was contemplated for acceptance of the offer.

The court held that the defendant’s offer in its August 25 fax contemplated an acceptance only by fax. It decided that the August 25 letter was merely a housekeeping exercise subordinate to the true offer contained in the August 25 fax.

As a result, the posting of the letter in this case was not an acceptance that fell within the mailbox exception. No doubt, once the letter was received it was a valid acceptance. Unfortunately for the plaintiff, by that time the defendant had already revoked its offer and there was no offer in existence that could be accepted.

Moral

Do not rely on outmoded methods of delivery – our apologies to Canada Post – when time is important. Accept by fax. If necessary, confirm by courier.

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