Valley Homes v. Ace Minerals Corp.

The next day the president of Valley Homes and Jones met a management team of

Ace headed by Li, where the problem was discussed. The Ace group confirmed their

position but did indicate an understanding of the difficult position that Valley Homes

found themselves in. They also pointed out that they realized that it was not in their

interests to see Valley Homes fail and not be able to finish the job. They therefore agreed that if the project was satisfactorily completed on time, a bonus of would be paid to Valley Homes of half the difference between their price and the next lowest bid. This would allow Valley Homes to do just a little better than break even on the job, thus avoiding bankruptcy. It was also understood that there would likely be future dealings between these two companies and because of the good relations created in this meeting Valley Homes would give Ace Minerals an especially good deal on the next project.

As the project proceeded, a series of payments were made to Valley Homes, all 59

days after the date specified in the contract. As is normally the case with these kinds of projects, there was a clause in the contract whereby Ace would not have to pay interest on any late payments so long as payment was received by Valley within 60 days of the day payable.

Eventually the project was finished on time to the satisfaction of all parties, but

the bonus was not paid. Valley Homes waited the specified 60 days and when the bonus was still not paid, they went to Li’s office for an explanation. They learned at this time that Li had been replaced and they were invited to meet with the new vice-president of finance, Mr. Grey. He explained that over the months Ace had carefully monitored the project and the health of Valley Homes and had decided that they were in better financial shape than either party had anticipated. Bankruptcy was not a threat and therefore the mining company had decided not to pay the bonus. Mr. Grey went on to explain that they were entirely satisfied with the work that had been done and that Valley Homes should in no way take this failure to pay the bonus as an indication of dissatisfaction on their part with the company, the personnel, or the quality or timeliness of the work performed. In fact Grey’s final comment was that he hoped that the two companies would have many years of cooperative ventures in the future.

Discuss the options available to Valley Homes in these circumstances.

“There is great uncertainty about what the present Anglo-Canadian law of mistake is. No two authors agree in their analysis and the same confusion exists in the case law. Reputable scholars often disagree about the interpretation of the same case.”

                                   (Report on Amendment of the Law of Contract, at 252)

In our case, “Valley Homes v. Ace Minerals Corp.”, we identified several legal issues that Valley Homes, a small manufacturing and selling prefabricated dwellings company, encountered from the moment they decided to submit a bid on the Ace Minerals project.

Question №1.

Could Valley Homes legally revoke their original offer to Ace Minerals?

Law:

An offer is the act of presenting something for acceptance. It must contain all of the terms that will be included in the contract.

Even though an offer is made, it can be withdrawn, or revoked, at any time before it is actually accepted.

There are some cases when an offer cannot be revoked. Tendering process is one of these cases.

The law of tender is a complex area. The tender is generally considered as an offer. Recently most requests for tenders include an exemption clause stating that the offer cannot be withdrawn once submitted. Judgment is this area is often based on the precedent case “Calgary v. Northern Construction Co.”

Application:

In our case Valley Homes could not revoke their offer. The reason was that the original request for tenders had an exemption clause that said that bids cannot be withdrawn once submitted.

Ace Minerals provided the specifications and the other details of the tendering process. Valley Homes understood them and fully accepted. When they submitted a bid, the contract was formed. Therefore the tender could not be unilaterally withdrawn by Valley Homes, even though it contained a mistake.

Moreover, after their bid was submitted as lowest, they had obligation to perform work under the contract. If they failed to do so, it would be treated as a breach of this contract. In this case, Ace Minerals may successfully claim damages equal to the difference between Valley Homes tender and the next lowest tender.

Question №2

Could Valley Homes successfully argue that the initial contract with Ace Minerals was void or voidable by reason of mistake?

Law:

The legal concepts surrounding mistakes are complex. Mistakes in contracts take a variety of forms. There are no clear rules governing all circumstances of contractual mistakes.

A unilateral mistake is a mistake made by only one party to the contract and when the other party is or ought to be aware of this mistake.

Mistakes that could have been avoided by due care will not result in relief from the court.

Court decision according mistakes in a tender contract depends on the type of a mistake (whether it is a mistake to the term of the tender or mistake in the reason or motive).

A mistake in the terms (or the details) of the offer is when one reads the terms of the offer as implying something different to what is really being offered.

If this type of mistake has occurred, the court could relieve the mistaken party from the contract.

In the case where mistakes are in the reason or motive the mistaken party has no option.

Application:

It is most likely that Valley Homes could not successfully argue that the initial contract with Ace Minerals was void or voidable by reason of mistake. The principle “caveat emptor” probably would be applied here.

The mistake made by Valley Homes was not as to a term of the tender.  This mistake was in the reason or motive for entering into the contract. It could have been avoided if Valley Homes exercised appropriate due care in the process of preparation of the tender. Therefore, a contract is enforceable despite the mistake.

However, Valley Homes might ask the court to interfere with the contract under equity. The mistake was very material to Valley Homes (amounted to approximately 35% of the bid) and could bring the company to bankruptcy. It is possible that the court may not allow Ace Minerals to take the advantage of this mistake (not allow to “snap up” the tender which contains an obvious mistake).

Question №3.

Is there consideration for the second agreement? Is this legal consideration? Is this contract binding?

Law:

The requirement of consideration is one of the most important elements of Contract Law. Consideration is when two parties exchange something of legal value. Things of legal value are goods, services, promises to perform or promises to abstain from doing something.  Consideration does not have to be fair but must be specific and legal.

If there is no consideration for a promise, it is not a contract. This is called a gratuitous promise and such an agreement will not be enforced by the courts.

 

Application:

There was a mutual agreement between the two companies that Ace Minerals would pay a bonus and Valley Homes would give an especially good deal on the next project. It might be judged as a consideration. Ace Minerals had specific consideration equaled half the difference between Valley Homes’ price and the next lowest bid. On the other hand, Valley Homes consideration to give Ace Minerals an especially good deal on the next project was too vague, too broad, and unspecific. Moreover, a promise to perform an existing contractual duty to Ace Minerals also cannot be used as a good consideration. It might likely be recognized by the court as no legal consideration in this case. Therefore, there was no contract in the second agreement formed between the parties. Ace Minerals had no contractual obligation for Valley Homes, but only a gratuitous promise. A gratuitous promise is not enforceable by the court.

 

Question №4.

How this case is relevant to promissory estoppel?

Law: 

In common law, a promise made without  is generally not enforceable. There are two exceptions to this rule – documents under seal and promissory estoppel.

Promissory estoppel is a legal term based upon a principle where someone who has relied upon a gratuitous promise may be able to enforce it.

The elements of promissory estoppel are typically:

• A clear and definite offer;
• Reasonable expectation of reliance on the offer;
• Reasonable reliance on the offer by the party receiving the offer;
• Detriment as a result of reliance on the offer. (http://www.expertlaw.com/index.html)

Promissory estoppel can be used as a defensive action and because of this is considered best used as “a shield not a sword” from a legal standpoint. It cannot form the basis of a claim against the other party.

Application:

In this case, Ace Minerals made a promise to pay a bonus. Valley Homes is already under legal obligation to complete the contract on time. They have no right in contract law to enforce Ace Minerals promise (get more money) using promissory estoppel.  

Promissory estoppel might be available to Valley Homes only as a defence. If Ace Minerals had paid the bonus and sued Valley Homes to get money back, Valley Homes can use promissory estoppel as a shield. Otherwise, the bonus would be unenforceable by the court.

Question №5.

Can Ace Minerals legally refuse to pay the bonus because of Valley Homes’ better than anticipated financial situation?

Law:

The same as in Question№ 4

Application:

The better than anticipated financial situation of Valley Homes cannot be a reason to refuse to pay the bonus. Moreover, if Ace Minerals had paid the bonus and sued Valley Homes to get money back because bankruptcy was not a threat for Valley Homes anymore, they probably would not be able to do that.

As mentioned above, since Valley is already under legal obligation to complete the contract on time, they cannot claim for additional bonus for the same work. Therefore, this is the only reason for Ace Minerals not to pay the bonus.

Question №6.

“Legal” and “good business practice” are not always synonymous. What do you think Valley Homes and Ace Minerals ought to have done in this situation?

Law:

Good business practice can be defined as the methods, principles and processes a business or organization brings to bear on compliance to legislation, professional standards, and company standards. It is also keeping promises and commitments and abiding general principles or values, such as fairness, truth, honesty and respect. (http://pages.123-reg.co.uk/gallant-52694/socialinclusion2000/index.html)

 

Application:

In our case we have two companies who planned to work together in the future. Good business practice is a very important concept for continuing relationships. Even though under the law Ace Minerals had no obligation to withdraw, using good business practice, they should be more sympathetic to the Valley Homes’s problem. They knew that performing this project could have been vital for Valley Homes. In this situation the promise to pay the bonus seems as reasonable. From our point of view, Ace Minerals should have paid the bonus. This would have been a good business practice and excellent establishment of a strong business relationship.