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Supreme Court of Canada

Contracts—Formation—Acceptance—Delivering of acceptance—Counter offer initialled within time limit—Acceptance letter dated, posted and received after time limit—Letter accompanying counter offer suggesting return as soon as possible—Whether or not effective acceptance creating valid contract.

This appeal raised the question of whether or not an enforceable contract for the sale and purchase of land arose out of correspondence between the plaintiff purchaser (Kingsmont) and the defendant vendor (NuTowne). Kingsmont made a counter offer and closed the accompanying letter with the suggestion “that you arrange for the initialling of these new changes and return one copy of the Agreement as soon as possible”. Although Nu‑Towne initialled the document within the time limit, Kingsmont considered the acceptance to be late because the letter of acceptance was dated and posted after the limit. Kingsmont demanded return of the deposit and commenced action when Nu-Towne refused to do so.

The trial judge dismissed the action, finding that a valid contract existed. The Court of Appeal overturned that decision, however, holding that acceptance had not been made within the time limit. The question before the Court was the effect, if any, of the letter accompanying the counter offer upon the provisions of the form of agreement setting the time limit for acceptance.

Held: The appeal should be allowed.

A detailed, carefully prepared memorandum in the form of an agreement emerged from the negotiations

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between the parties. Following receipt of Nu-Towne’s letter of August 20, 1976, with its enclosure, Kingsmont was in accord with the essentials of the arrangement and made only minor changes before returning the form executed and initialled. The closing words of Kingsmont’s letter requesting the return of an initialled copy as soon as possible confirmed the fact that Kingsmont assumed that the changes would be accepted and that agreement would thereby be reached. Then, too, the closing words of Kingsmont’s letter indicated that the prompt return of the initialled document would be accepted in satisfaction of any formal provision for acceptance contained in the agreement. Nu-Towne accepted the agreement, and initialled and returned it.

Adams v. Lindsell (1818), 1 B. & Ald. 681, referred to.

APPEAL from a decision of the Ontario Court of Appeal[1], allowing an appeal from the judgment of Griffiths J. Appeal allowed.

Timothy E.G. Fellowes, Q.C., for the appellant Nu-Towne Developments Incorporated.

Alan J. Lenczner, for the respondent Kingsmont Properties Limited.

The jugdment of the Court was delivered by

MCINTYRE J.—This appeal raises the question of whether an enforceable contract for the sale and purchase of certain land arose out of correspondence which passed between the plaintiff Kingsmont Properties Limited (Kingsmont), the purchaser, and the defendant Nu‑Towne Developments Incorporated (Nu-Towne), the vendor. Other parties were joined in these proceedings at their outset, but have all been either dismissed from the action or have agreed to the settlement of their claims. The sole remaining parties between whom the one issue arises are Kingsmont and Nu-Towne.

The facts were agreed upon by the parties and were stated in the reasons for judgment of the trial judge. They may be readily summarized. Negotiations between Kingsmont as purchaser, and Nu-Towne as vendor, for the purchase and sale of

[Page 595]

twenty-three building lots had been in progress for a considerable time. During the negotiations the plaintiff Kingsmont gave the defendants a cheque, dated November 10, 1975, for $20,000. This sum was intended as a deposit on any agreement of purchase and sale which might be reached. On August 20, 1976 the solicitors for Nu-Towne, the proposed vendor, wrote to the solicitors for the purchaser Kingsmont, in these terms:

I am advised by my client that private negotiations have taken place between the parties involved and that an amended agreement was arrived at.

Accordingly, I have re-drafted the proposed Agreement in accordance with my client’s instructions and I submit the proposed Agreement herein in duplicate for execution by the Purchaser. Will you kindly have each page initialled including Schedule “A” as substantial changes have been made since negotiations first commenced.

The last day for execution is August 27th, 1976. I look forward to receiving one fully executed copy in due course.

The agreement forwarded with the above letter was executed by Nu-Towne as vendor on August 20, 1976. The letter and the form of agreement therefore amounted to an offer by Nu‑Towne to sell to Kingsmont. The form of agreement provided in clause 12 that the offer was to be accepted on or before August 27, 1976; otherwise it was to be void. By clause 2 it provided that the deposit of $20,000 referred to above would be held, pending completion of the agreement, and be returned to Kingsmont with interest if the agreement was not completed for any reason other than the default of Kingsmont.

With a letter dated August 27, 1976 the solicitor for Kingsmont returned two copies of the form of agreement, which had been received as above, executed by Kingsmont on that day. The letter said:

We return two copies of the Agreement of Purchase and Sale executed by the purchaser. You will note the changes which have been made in clauses 4, changing the date of closing to September 30, 1976, 4(b) and 12. We would suggest that you arrange for initialling of these new changes and return one copy of the Agreement to us as soon as possible.

[Page 596]

Several changes had been made in the form of agreement and these changes had been initialled by the two signing officers of Kingsmont. No change was made regarding the terms on which the deposit was held, but the date of acceptance in clause 12 was altered. The revised clause 12 read:

12. This Offer is to be accepted on or before the 1st day of September, 1976, otherwise it is to be void but when accepted within that period shall constitute a binding contract of purchase and sale. It is agreed that there is no representation, warranty, collateral agreement or condition affecting this agreement or the real property or supported hereby other than as expressed herein in writing.

While the document which passed between the parties, as described above, was in form an agreement for the sale and purchase of land, it was referred to as an offer which would require an acceptance in clauses 12 and 19. It was on this basis that the matter was argued and dealt with at trial and in the Court of Appeal and argued in this Court. I approach the case in like manner. The return of the form of agreement containing the changes referred to above constituted a counter offer, since no actual acceptance of the agreement in its earlier form was given, but an offer to contract on the varied terms was made.

On September 1, 1976 the signing officers of Nu-Towne considered and initialled the various changes indicating their approval. One copy of the executed agreement was sent back to the plaintiff Kingsmont by a letter dated September 2, 1976. It was sent by registered post, mailed in Chatham on September 3, 1976. It was received in the Toronto Post Office on September 4, 1976 and by the solicitor for Kingsmont on September 7, 1976. By letter dated September 8, 1976 Kingsmont demanded the return of the deposit, the counter offer not having been accepted within the time limit. When the deposit was not returned action was commenced.

At trial the action was dismissed. The trial judge considered, and the parties before him agreed, that before a binding agreement of purchase and sale could be created, acceptance of the

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offer must be made and such acceptance must be communicated to the offeror. He noted that counsel had agreed that the conduct of the parties in this case had established that the appropriate mode of communication of any such acceptance was by mail, and if one were to apply the postal acceptance rule expressed in Adams v. Lindsell[2] acceptance would be complete at the date of posting of the letter containing the initialled agreement, i.e. September 3, 1976. It may be remembered here that upon that basis the acceptance would be too late and ineffective. He was of the view, however, that the offer was accepted by the initialling of the changes by the officers of Nu-Towne on September 1, 1976. The plaintiff, Kingsmont, by its letter of August 27, 1976, had prescribed that method of acceptance and, in addition, had prescribed a method of communication, i.e. by mail, and a time for communication of acceptance by the use of the concluding words: “We would suggest that you arrange for initialling of these new changes and return one copy of the Agreement to us as soon as possible.” Since the date for acceptance had been precisely stated, he considered that the concluding words of the letter could refer only to the time of communication of acceptance. Nu-Towne had clearly returned the document as soon as possible, and accordingly it had accepted the counter offer and communicated acceptance in the manner and within the time stipulated. He therefore dismissed the plaintiff’s action.

An appeal was allowed in the Ontario Court of Appeal (Howland C.J.O., Weatherston and Morden JJ.A.). Morden J.A., with whom Howland C.J.O. agreed, considered that the words “to be accepted” in paragraph 12 of the form of agreement included the act of communicating acceptance, and he did not consider it reasonable to construe the last sentence in the letter of August 27, 1976 “…as in any way, contractually or by estoppel, qualifying the language and effect of paragraph 12”. Weatherston J.A., dissenting, construed the letter of August 27, 1976 to mean that the terms of the agreement must be assented to on or before September 1, but communication of

[Page 598]

acceptance must be made within a reasonable time.

It is apparent at once that there is no real issue in law on the facts of this case. The trial judge and the three appellate judges all agreed that as a general rule acceptance of an offer, or in this case a counter offer, would not be complete until communication of the acceptance was made. The trial judge and Weatherston J.A., in his dissent in the Court of Appeal, were of the view, on the construction they placed upon the letter of August 27, 1976, that the offer had been accepted and communication of that fact had been made in accordance with the prescribed method and in the time limited for such purpose. The majority of the Court of Appeal construed the letter differently, considering that the concluding words of the letter of August 27, 1976 did not have the effect of permitting communication of acceptance of the counter offer after September 1, 1976. The case has turned solely on a question of construction.

The question before this Court then is: What is the effect, if any, of the letter of August 27, 1976 upon the provisions of clause 12 of the form of agreement? In my view, the law was correctly stated in the judgments in the other courts. Generally, the fact of acceptance of an offer must be communicated to the offeror before acceptance is complete and a binding contract is created. There are exceptions to this rule but none which apply here. In the facts of this case if the officers of Nu-Towne on receipt of the letter of August 27, 1976 had done nothing, or if after initialling the changes they had done nothing further, no binding contract would have been created. Silence or inaction in these circumstances on the part of Nu-Towne after receipt of the letter of August 27, 1976 could not be construed as a full acceptance. Some act of communication was required to complete acceptance and the nature and sufficiency of the act must be determined by reference to the letter of August 27, 1976 and clause 12 of the form of agreement, for it is open to the parties to such a transaction to specify the mode and time of such communication, and to vary the method of communication should they choose. I cannot agree

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in the circumstances of this case with the construction placed upon the letter by the majority of the Court of Appeal. Out of the negotiations between the parties a detailed and carefully prepared memorandum in the form of an agreement had emerged. It is evident from what followed the receipt by Kingsmont of the letter of August 20, 1976, with its enclosure, that the parties had agreed upon most of the matters in question. Kingsmont, on receiving the August 20th letter, was in accord with the essentials of the arrangement and made only a few minor changes before returning the form of agreement, duly executed, with the request that the changes be approved by initialling. It is evident that Kingsmont assumed that the changes would be accepted, which they were, and that agreement would therefore have been reached between the parties. The closing words of the letter, requesting that an initialled copy be returned as soon as possible, confirm this view and indicate that the prompt return of the initialled document, which was effected, would be accepted in satisfaction of any formal provision for acceptance contained in article 12 of the form of agreement.

I would allow the appeal and restore the judgment at trial with costs to the appellant.

Appeal allowed with costs.

Solicitor for the appellant Nu-Towne Developments Incorporated: Timothy E.G. Fellowes, Toronto.

Solicitors for the respondent Kingsmont Properties Limited: McCarthy and McCarthy, Toronto.

 



[1] (1979), 25 O.R. (2d) 56; (1979), 100 D.L.R. (3d) 186.

[2] (1818), 1 B. & Ald. 681.

 

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