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Conduct Extends Expired Contract: Behaviour That Implies Disregard to Expiry Date Terms
Question: What happens if a contract expires but both parties continue to act under its terms?
Answer: When a contract expires, but the involved parties act as if it is still in effect, the law often considers this behaviour as an implied agreement to extend or renew the contract. This principle was upheld by the Ontario Court of Appeal in Coffee Time v. 2197938 Ontario, 2022 ONCA 435, relying on the precedent set in Saint John Tug Boat v. Irving Refining, [1964] S.C.R. 614. Actions showing ongoing commitment to contract terms can effectively renew the agreement beyond its official end date, underscoring the adage that actions speak louder than words. If you're unsure about your contractual obligations, seek guidance from a legal professional at Forseti Legal Services.
What Happens When Expiry Dates Are Ignored?
Contracts with terms that state an explicit expiry date are common within the business world; however, parties to such contracts often behave as if the contract is without an expiry date by continuing to perform beyond the expiry date. In such circumstances, the law may deem that the contract was impliedly extended by conduct.
The Law
The principle that behaviour of parties to a contract may demonstrate an implied agreement to extend or renew an expired contract was explained by the Court of Appeal within the case of Coffee Time Donuts Incorporated v. 2197938 Ontario Inc., 2022 ONCA 435, while replying upon the Supreme Court decision in Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd., [1964] S.C.R. 614, wherein each case it was respectively said:
[7] We see no error in the motion judge’s finding that the agreement between the appellants and the respondent was continued by the conduct of both parties after the term of the written agreement expired. The motion judge found that the appellants continued to buy products from the exclusive suppliers under the franchise agreement after the end of the term of the written agreement, continued to use “Coffee Time” branding, and continued to pay franchise royalties to the respondent until February 16, 2016. Even after the appellants ceased paying the franchise royalties, they continued to use the “Coffee Time” branding for their business and to purchase products from authorized suppliers. In the circumstances, we see no basis to interfere with the finding by the motion judge that the agreement was continued by the conduct of the parties after the expiration of the written agreement: Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd., 1964 CanLII 88 (SCC), [1964] S.C.R. 614, at pp. 621-22.
The test of whether conduct, unaccompanied by any verbal or written undertaking, can constitute an acceptance of an offer so as to bind the acceptor to the fulfilment of the contract, is made the subject of comment in Anson on Contracts, 21st ed., p. 28, where it is said:
The test of such a contract is an objective and not a subjective one, that is to say, the intention which the law will attribute to a man is always that which his conduct bears when reasonably construed, and not that which was present in his own mind. So if A allows B to work for him under such circumstances that no reasonable man would suppose that B meant to do the work for nothing, A will be liable to pay for it. The doing of the work is the offer; the permission to do it, or the acquiescence in its being done, constitutes the acceptance.
In this connection reference is frequently made to the following statement contained in the judgment of Lord Blackburn in Smith v. Hughes, which I adopt as a proper test under the present circumstances:
If, whatever a man's real intention may be he so conducts himself that a reasonable man would believe that he was consenting to the terms proposed by the other party and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms.
The American authorities on the same subject are well summarized in Williston on Contracts, 3rd ed., vol. I, para. 91A where it is said:
Silence may be so deceptive that it may become necessary for one who receives beneficial services to speak in order to escape the inference of a promise to pay for them. It is immaterial in this connection whether the services are requested and the silence relates merely to an undertaking to pay for them, or whether the services are rendered without a preliminary request but with knowledge on the part of the person receiving them that they are rendered with the expectation of payment. In either case, the ordinary implication is that the services are to be paid for at their fair value, or at the offered price, if that is known to the offeree before he accepts them.
It must be appreciated that mere failure to disown responsibilty to pay compensation for services rendered is not of itself always enough to bind the person who has had the benefit of those services. The circumstances must be such as to give rise to an inference that the alleged acceptor has consented to the work being done on the terms upon which it was offered before a binding contract will be implied.
As was observed by Bowen L.J., in Falcke v. Scottish Imperial Insurance Company:
Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will.
Like the learned trial judge, however, I would adopt the following excerpt from Smith's Leading Cases, 13th ed. at p. 156 where it is said:
But if a person knows that the consideration is being rendered for his benefit with an expectation that he will pay for it, then if he acquiesces in its being done, taking the benefit of it when done, he will be taken impliedly to have requested its being done: and that will import a promise to pay for it.
As per Saint John Tug Boat, which directly addressed the point of law that where an offer is made and the party who received the offer behaves as if the offer is accepted, then the law will deem the offer as accepted and a valid contract in place, such a point of law was similarly applied in Coffee Time whereas a contract expired; however, the parties continued to act as if the contract was extended; and accordingly, the contract was deemed as extended.
Conclusion
The behaviour of parties to a contract containing an expiry date often demonstrates that the expiry date is being ignored. In such circumstances, the contract may be deemed impliedly extended with the contract terms remaining in effect despite the passing of the written expiry date.
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