Since the art of negotiating is very much part of every real estate deal, and it is the offer and the acceptance of that offer that creates the binding contract between the two parties, we should be sure what we mean when we are talking about “acceptance”.
Just precisely, what is the correct way to accept an offer? Because, as you know, if it is not accepted correctly, then we might not have a deal.
Let’s see what the Supreme Court of Canada has to say about this.
In a case that came before the Supreme Court of Canada in 1981, the Court considered, the matter of “acceptance”.
In Schiller v. Fisher (1981), the Court examined the conduct of the parties. Both the purchaser and the vendor were sophisticated parties. This was a real estate development site; the parties met themselves and then passed their understanding of their verbal arrangement on to their respective solicitors to be reduced to writing. The formal agreement was set out in writing, which did generate both an offer and counter offer.
The purchaser’s lawyer said in the letter accompanying the offer “…. you arrange for the initialling of these new changes and return one copy of the Agreement as soon as possible”. Although the vendor initialled the document within the time limit; the letter of acceptance was dated and posted after the limit.
So, in that case, communication was agreed by the parties to be by mail through the postal service.
The trial Judge thought that acceptance was “in time”, the Court of Appeal said “no” and the Supreme Court of Canada agreed with the trial Judge.
I should mention that at every level of this decision there were pre-eminent Judges involved with this case, ultimately including the concurrence of Justice Bora Laskin in the Supreme Court of Canada.
Ultimately, this case turned on the wording of the lawyer’s letter. It was pre-agreed that the communication could be conveyed by mail “within a reasonable time” (by implication). So, that was different in this case, and that circumstance would not arise very often.
Nevertheless, the Supreme Court of Canada had to consider what the rules would be in the ordinary case, before they considered this particular case as an “exception”.
The Court made the following illustrative comments:
· The trial judge considered that before a binding agreement of purchase and sale could be created, acceptance of the offer must be made and such acceptance must be communicated to the offeror
· the appropriate mode of communication of any such acceptance was by mail
· if one were to apply the postal acceptance rule expressed in Adams v. Lindsell, acceptance would be complete at the date of posting of the letter containing the initialled agreement
· It may be remembered here that upon that basis the acceptance would be too late and ineffective (it was mailed too late)
· The Trial Judge 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 offeror, Kingsmont, by its letter of August 27, 1976, had prescribed that method of acceptance and, in addition, had prescribed a method of communication
· The offeror specified “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, the Trial Judge Griffiths considered that the concluding words of the letter could refer only to the time of communication of acceptance
· The offeree, 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
· Weatherston (Court of Appeal) 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 acceptance must be made within a reasonable time
· 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 question before this Court (Supreme Court of Canada) 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 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.
Acceptance is a two step process:
1) assenting or agreeing to the proposal, and
2) communicating such assent.
Now, we have a contract. Silence is not golden! You cannot assent to an agreement and keep that information to yourself. If you do that, you will not have a contract.
It is step 2, namely the communication of the acceptance that creates the binding agreement between the parties.
It is noteworthy, that the Court permitted the parties to have their own method of communication of acceptance outside of the parameters of the written document. So, beware of letters, emails, faxes, and phone calls. They all could vary the usual arrangements concerning the communication of acceptance.
Brian Madigan LL.B., Broker