assignment 7 contracts

Question 1

Francis recently immigrated to British Columbia and decided to buy a condominium. Because Francis does not speak or read English, his English speaking (and reading) brother comes along with him to translate.

Francis decides to make an offer on a False Creek strata unit he really likes. He asks his brother where on the document he should sign the contract of purchase and sale. His brother points to the spot and Francis signs and later delivers the properly executed offer to the vendor along with the deposit.
At no time does his brother or anyone else read the document to him. When the vendor accepts his offer and Francis discovers he is bound by the contract he is shocked.

He thought the contract he signed was merely part of on-going negotiations. He demands a return of his deposit. Which of the following is a TRUE statement of Francis’ legal position? Assume that the Home Buyer Rescission Period has expired.

1. Because of his inability to understand English, Francis did not have the legal capacity to enter a contract. He is therefore not bound by the agreement.
2. Francis neglected to find out the contents and true nature of the contract he signed. He is bound by the contract and if he cannot complete he may forfeit his deposit.
3. Because Francis has demanded the return of his deposit there is no consideration. Because there was no consideration a contract cannot be said to be formed.
4. Because Francis did not understand the contract, the offer was not made in clear and unambiguous terms. The contract is therefore voidable at Francis’ option and he should get his deposit back.

Answer 1

Correct Answer: 2

Consideration does not have to be money. In the contract of purchase and sale the vendor’s promise to deliver title in return for the purchaser’s promise to pay for the property amount to the consideration C the deposit is not consideration. The offer was properly executed and Francis’ inability to read or speak English does not render the contract unclear or ambiguous.

Question 2

A journalist visited the house of an art collector to study the collector’s various paintings. The journalist later published a book on the collection, praising the collection as truly one of a kind. Flattered by this review, the art collector phoned the journalist and said, “In exchange for your kind words, I shall give you any piece from my collection that you wish”. When the journalist arrived at the collector’s house to claim the art promised to them, the art collector’s partner refused to let the journalist take anything from the collector’s collection. The journalist plans to sue the art collector for breach of contract. Which of the following statements is TRUE?

1. Where the parties have not set a monetary value to the consideration for a contract, a court will not enforce the contract.
2. The promise of art from the art collector’s collection was not given in exchange for the praise published within the journalist’s book. The praise occurred before the promise of artwork, and is thus considered past consideration; therefore, it cannot support a binding contract.
3. When the art collector told the journalist that they could have a piece of art in exchange for their publication of a book on the collection, those mutual promises formed a binding contract.
4. Because the art collector’s promise was made orally, they and the journalist have not entered into a legally binding contract.

Answer 2

Correct Answer: 2

In contract law, it is only when the party making a promise gains something, or when the party to whom the promise is made loses something, that the law will enforce the promise. In situations where the promise comes after the gain or loss, the contract will not be binding. This is called “past consideration”. In this case, the art collector promises the art work after the journalist’s book had already been published; therefore, the promise cannot form the consideration necessary for a binding contract.

Question 3

George and Jason executed a contract under seal. Because of the seal:

1. the postal acceptance rule applies.
2. consideration is not required.
3. they do not need to have the legal intention to contract.
4. the contract is void.

Answer 3

Correct Answer: 2

A contract made without consideration can still be binding if it is made under seal.

Question 4

Angela was talking to Moira in a cafe and offered to sell her two year old car to Moira for the very low price of $7,000. Moira said that she wasn’t certain whether she wanted to buy the car and that she would think about it. Hector, who was eavesdropping on the women’s conversation, spoke up to say, “You’ve got a deal! I’ll buy your car for that price”. Angela replied that she did not want to sell the car to Hector. Hector insisted that they had a contract. Angela felt that she was obligated to sell the car to Moira, if she did decide she wanted to purchase it.

Which of the following statements is TRUE?

1. Angela is not required to agree to sell her car to Hector for $7,000.
2. At this point Moira and Angela have made a contract for the sale of the car.
3. If Angela accepts Hector’s offer she will be liable to Moira for damages for breach of contract.
4. Angela is not free to sell the car to anyone else unless she actually receives Moira’s rejection of her offer.

Answer 4

Correct Answer: 1

There is no contract between Angela and Hector. Hector cannot accept the offer because Angela did not offer to sell to Hector.

Moira did not accept Angela’s offer and there is no contract between them; therefore, Angela is free to accept Hector’s offer, and, provided she revokes her offer to

Moira before acceptance, she will not be liable for damages to Moira. Angela does not need Moira’s rejection of the offer, because Angela can simply revoke the offer.

Question 5

On Monday, Peter mailed an offer to Beth to buy her horse for a price of $400. The offer was stated to be open for acceptance until 9:00 a.m. on Friday. It also stated, “Reply by tele­phone”. Beth considered the offer, and decided to accept. However, she wanted all dealings to be in writing, so she wrote a letter of accep­tance and mailed it on Thursday morning at 10:00 a.m. On Thursday afternoon, Peter found a better horse and telephoned Beth and told her that he was revoking his offer. Beth’s letter of acceptance arrived at 8:00 a.m. Friday morning.

a. Since Beth mailed her acceptance prior to Friday morning at 9:00 a.m., she has a valid contract with Peter.

b. Since Beth’s letter of acceptance was received by 9:00 a.m. on Friday, she has a valid contract with Peter.

c. Since Peter revoked his offer prior to Beth communicating her acceptance there is no contract.

d. Since Peter’s offer was sent by mail, he was not legally entitled to require Beth to reply by telephone.

Which statement(s) is/are TRUE?

1. A and D only
2. B only
3. C only
4. None of the above

Answer 5

Correct Answer: 3

Peter has the right to impose the method by which acceptance is to be made. By choosing to mail her acceptance, Beth has accepted the risk that it will not be received on time.

The postal acceptance rule does not apply on these facts, because the mails were not the appropriate mode for accepting Peter’s offer. In this case, although the acceptance was received prior to the time set for expiration of the offer, it was after the offer was revoked and Peter was free to revoke the offer anytime prior to acceptance.

Beth should have telephoned Peter and then confirmed by mail if writing was important to her.

Question 6

Ranjit and Ab enter into a contract with Ivan, under which Ranjit and Ab agree to paint the exterior of Ivan’s house by October 31 for a price of $5,000. Which one of the following incidents would terminate the contract?

1. After seeing the completed job, Ivan thinks the colour of the paint he agreed to looks too bright in such large quantities on his house.
2. On October 13, Ranjit and Ab ask Ivan if they can have an extension of 2 days beyond the completion date, which would enable them to enter into another contract with one of Ivan’s neighbours.
3. Ranjit and Ab complete the job on October 20, and Ivan pays them the agreed price.
4. On October 18, Ivan sells his house to Juan, agreeing to complete the sale on December 11.

Answer 6

Correct Answer: 3

Only Option (3), where the terms of the contract have been met by both sides, would terminate the contract. Option (1) would not terminate the contract C Ivan is stuck with his choice of colour.

Option (2) would not terminate the contract because Ranjit and Ab merely asked for an extension C they did not advise they would not or could not complete on the date agreed.

In Option (4), the sale of the house will take place after Ranjit and Ab have finished their contract. Even if one of the parties, either Ivan or Ranjit and Ab, were to breach the contract in some way, breach does not terminate the contract unless the party not in breach accepts the breach as terminating the contract.

Question 7

Harry orally offered to give Mary a one-hour piano lesson for $25. Which of the following state­ments is TRUE?

1. If Susan overhears Harry’s offer, and Mary is not interested in accepting, Susan can accept.
2. If Mary accepts, and Harry does not honour the contract, Mary cannot suc¬cessfully sue Harry because the contract was not in writing.
3. If Harry did not specify a time limit for acceptance, Mary can accept at any future date.
4. None of the above

Answer 7

Correct Answer: 4

A third person cannot accept an offer which was directed to someone else. Oral contracts are perfectly acceptable unless there is a specific law (e.g., s. 59 of the Law and Equity Act) which requires writing. Even in the absence of a time limit, offers can only be accepted within a reasonable time.

Question 8

Which of the following statements regarding conditions in a contract of purchase and sale are TRUE?

a. A condition is a promise which is not fundamental to the contract.

b. In most cases, the breach of a condition permits the innocent party to terminate the contract.

c. A “time is of the essence” clause indicates that timely performance is a condition of the contract.

d. If a term is not a condition, then a breach of that term will not result in any remedies for the innocent party.

1. A and C only
2. A and D only
3. C and D only
4. B and C only

Answer 8

Correct Answer: 4

The terms of a contract will be either conditions or warranties. A condition is a term which goes to the very heart or root of the contract.

A warranty is merely a promise which is not fundamental to the contract. A breach of a condition permits the innocent party to terminate the contract and sue for damages, or to continue the contract and sue for specific performance.

When a clause includes the phrase “time is of the essence”, this indicates that timely performance is a condition of the contract.

Question 9

In which of the following situations would quantum meruit apply? (Consider only the common law and disregard any applicable provision of the Real Estate Services Act or Rules).

1. John is a trading services licensee. His neighbour, Bill, asks John to sell his house. While they enter into a formal listing contract, the actual amount of commission which is to be paid is not inserted into the written agreement. John sells Bill’s home but Bill will not pay any commission.
2. Carey and Brett entered into a contract where Brett agreed to build a home for Carey on the vacant lot she just purchased. Brett’s full price for building the home was $40,000. Brett did approximately $12,000 worth of work, but Carey refused to pay any instalments which were required under the contract. Brett is now suing Carey for breach of contract.
3. George performs $300 worth of services under a contract entered into by Shelagh and himself, which is later discovered to be void because of the omission of an essential term from their written agreement.
4. Quantum meruit would apply in all of the above situations.

Answer 9

Correct Answer: 4

In Option (1), because Bill asked John to sell his home, and John is a trading services licensee, the common law will imply an obligation to pay a reasonable sum for the services rendered.

In Option (2), Brett has partially performed his part of the contract, which Carey has breached. Brett may therefore claim the value of his work completed.

In Option (3), George provided services under a contract thinking it was valid, when it was in fact, void. All three of these examples involve circumstances in which the common law doctrine of quantum merit would provide a basis for recovery of a reasonable amount for the goods and services supplied. (Note that in BC, the Real Estate Rules, Part 5 Division 1 states that a brokerage providing trading services in relation to the offering of real estate for sale, must have a written service agreement, unless specifically waived by the client. The agreement must state the remuneration to be paid and the circumstances in which it will be payable.)

Question 10

Which of the following constitutes a valid offer?

1. George places an advertisement in the newspaper advertising his house for sale at a price of $250,000.
2. Joe tells a used car dealer, “I’ll buy a car from you for $450”. (There are 75 cars on the dealer’s lot)
3. Maggie offers to place a free half-page advertisement for Tim’s sailboard equip¬ment business in her local newspaper, if Tim will lend her a sailboard over the long weekend.
4. All of the above are valid offers.

Answer 10

Correct Answer: 3

Option (1) is an invitation to treat and Option (2) is not an offer because it is unclear and ambiguous as to which car Joe wants to buy.

Maggie’s offer to advertise is an offer capable of acceptance, and if Tim agrees to let her use the sailboard in exchange, a binding contract with mutual promises as consideration will have been formed.

Question 11

Diana agrees to sell Allan her lakeside property in the Kootenays. The agreed price is $200,000, which is also the fair market value of the land. It turns out that Allan was mentally incapacitated at the time that he agreed to purchase the property.

a. This contract is void.

b. This is a case of “common mistake”.

c. If Allan wants to rescind the contract he will have to prove that Diana knew that he was mentally incapacitated at the time the contract was made.

d. Allan can repudiate the contract at any time.

Which of the above statements is/are TRUE?

1. B and D only
2. A and C only
3. C only
4. None of the above

Answer 11

Correct Answer: 3

Contracts with people who are mentally incapacitated are voidable at his or her option and not void. The option to repudiate must be exercised within a reasonable time after regaining the mental capacity or sobriety.

The person must prove that they were incapable of making a rational decision at the time and that the other party was aware of the incapacity at the time. Common mistake is where both parties to a contract have made the same mistake about a fundamental term of the contract.

Question 12

Lance and Gwen entered into a contract of purchase and sale for Gwen’s house in the country. It had a wonderful unique conservatory wing that Lance thought ideal for opening a restaurant.

Lance knew the restaurant would prosper because it was very near a racecourse and all the punters would come for dinner on their way home after the races. Prior to the completion date Gwen told Lance she did not intend to go ahead with the sale. The next day

Lance learned she intended to demolish the conservatory because it was too expensive to heat. Which of the following remedies could Lance seek?

a. Lance could bring an action for specific performance of his contract with Gwen.

b. Lance’s only remedy is to seek damages for breach of contract if Gwen refuses to complete on the required date.

c. Lance could seek an injunction prohibiting Gwen from demolishing the conservatory.

d. Lance is entitled to sue Gwen for misrepresentation and rescind the contract.

1. B only
2. B and D only
3. A and C only
4. D only

Answer 12

Correct Answer: 3

Certain parcels of land may have unique features, and for that reason damages cannot always be a satisfactory remedy. On these facts, given the special features and location and the particular purpose for which

Lance wished to use the house, Lance’s argument in support of specific performance would be especially strong. Damages for breach of contract would not be adequate.

Lance can also go to court and get an injunction restraining the demolition until the specific performance lawsuit is determined. Gwen has made no misrepresentation that would entitle Lance to ask for the contract to be rescinded.

Question 13

Which of the following is/are NOT one of the essentials of a contract?

a. Signatures of the parties

b. Reduced to writing

c. Consideration of more than $1.00

d. Promise made by one party to another

1. A and D only
2. D only
3. A, B, and C only
4. A and C only

Answer 13

Correct Answer: 3

Nothing in the common law of contract requires that a contract be reduced to writing, signed by the parties to the contract or that a minimum amount of consideration be exchanged; however, all contracts will contain a promise by one party to another. This promise will generally have been contained in the offer.

Question 14

Which of the following statements regarding the remedy of specific performance is TRUE?

1. Whenever a condition of a contract is breached, the innocent party has a right to specific performance.
2. Specific performance is a statutory remedy granted at the discretion of the court.
3. Specific performance is often an appropriate remedy when a contract respecting land is breached, if the land is unique.
4. Judges choose the remedy of specific performance rather than damages in order to punish the party who is in breach of the contract.

Answer 14

Correct Answer: 3

Specific performance is an equitable remedy that will be awarded at the court’s discretion in circumstances where the legal remedy of damages would be inadequate. Specific performance is intended to enforce a contract rather than to punish persons in breach.

Specific performance is often an appropriate remedy when a contract respecting land is breached if the subject property is unique, and a reasonable substitute for it is not readily available.

Question 15

Fred offered to buy Doctor Bindley’s horse for $6,000 but Bindley refused this offer, saying that he wanted $8,000 for the horse. Fred later wrote to Bindley offering to split the difference in price and included a cheque for $7,000 as payment for the horse. In his letter, Fred said, “If I hear no more from you, I consider the horse mine”. Bindley did not cash Fred’s cheque and subsequently sold his horse at auction for $8,000. One or more of the following statements are FALSE.

a. Fred’s letter is an “invitation to treat” and is not binding on Bindley.

b. This is a valid contract because Fred, the offeror, indicated that silence by Bindley would be an acceptable method of accepting his offer.

c. Bindley can ask the court to void this contract because Fred used the $7,000 cheque as an inducement, which is an example of undue influence.

d. This is a classic example of frustration of a contract, by reason of which Bindley is relieved of any obligations under the contract.

Which of the above statements are FALSE?

1. A and B only
2. A and C only
3. B, C, and D only
4. All of the above

Answer 15

Correct Answer: 4

Fred’s letter is not an invitation to treat by Fred but a counter-offer to Bindley’s counter-offer to sell the horse at $8,000. Silence by Bindley in this situation does not constitute acceptance.

Acceptance must be a positive act by Bindley which, at least, implies acceptance. For example, performance of the contract by Bindley (such as delivery of the horse to Fred) would probably constitute acceptance.

This is not an example of either frustration or inducement (undue influence) because there is no contract in existence to be frustrated or that was obtained in circumstances that negate consent.

Question 16

Hoping to become rich before the age of 45, Hersche hatched a plan to finance and build houses for resale. He was convinced that the way to make a good profit was to purchase a large lot in the neighbourhood surrounding Swan Lake on which he could build very large houses.

Manjeet, who owned the only existing large vacant and wooded lot in the Swan Lake area, entered into a contract of purchase and sale with Hersche for $250,000. Soon after the parties entered into the contract, the Swan Lake area is rezoned to allow for multi-family residential housing.

A number of developers approach Manjeet to purchase his lot, offering more than twice what Hersche will pay according to the contract of purchase and sale. Manjeet would like to terminate the contract with Hersche in order to sell the property to one of the developers who approached him. Hersche still wants to purchase the lot to build his house.

Which of the following statements is TRUE?

1. Manjeet’s lot is unique; therefore, the courts will likely grant Hersche an order for specific performance.
2. Hersche should sue Manjeet to recover damages on the grounds that Manjeet’s breach of contract is unconscionable.
3. Manjeet can frustrate the contract with Hersche by cutting down all of the trees on the lot and beginning construction of his own house, as this will change the essential character of the contract with Hersche.
4. This is an example of common mistake because at the time of entering into the contract, neither Hersche nor Manjeet were aware that the owner of the Swan Lake property could build multi-family housing on it; therefore, the contract is void and Hersche cannot recover the property.

Answer 16

Correct Answer: 1

There is no mistake in this situation because the rezoning occurred after the contract between Hersche and Manjeet was entered into. Frustration will not be found if the requisite fundamental change in the subject matter is brought about through one of the parties’ own actions.

Manjeet cannot frustrate the contract through his own actions. In law, unconscionability is found where parties of unequal bargaining power enter into an unfair bargain.

On the facts, there is no evidence that Hersche and Manjeet were of unequal bargaining power. Specific performance is an equitable remedy which allows the court to order the contract to be carried out instead of awarding damages.

The court uses this remedy to enforce contracts for the sale of land where a parcel of land is unique and cannot be replaced. Since the contract of purchase and sale concerned the only large vacant lot surrounding Swan Lake, such a property is likely to be seen as unique.

Question 17

Hugh submitted by mail an offer to buy Oswald’s house. The offer did not set out an expiry time, but required acceptance by mail. The next day, Oswald executed a formal acceptance letter but forgot to mail it. One week later Hugh decided to revoke his offer. In the meantime Oswald had discovered the acceptance letter on his desk.

Oswald walked over to the post office. Just before Oswald placed the acceptance letter in the mailbox his cellular telephone rang – it was Hugh. “Hello”, said Oswald, “I’m just about to mail my letter of acceptance of your offer”. Hugh responded, “Oswald I am calling to revoke my offer”. Oswald then placed the acceptance letter in the mailbox. Which of the following statements is TRUE?

1. Oswald properly communicated his acceptance to Hugh before Hugh revoked his offer. A binding contract formed.
2. The proper method of acceptance was by mail. The offer was properly cancelled because Hugh revoked the offer before Oswald mailed the acceptance. No contract was formed.
3. The proper method of acceptance was by mail. Hugh’s revocation was not effective because it was not in writing. A binding contract formed.
4. None of the above

Answer 17

Correct Answer: 2

In general, if an offer requires a particular method of acceptance, that method must be used. The postal acceptance rule holds that acceptance by mail occurs at the time the acceptance is placed in the mailbox.

An offer is released, however, when the person who made the offer communicates revocation prior to acceptance of the offer. The revocation of a written offer does not need to be in writing.

Question 18

Melissa contracts to supply 1,000 maple trees to Bill’s landscaping company, and 800 to Mike’s landscaping company. Melissa’s inventory sheet shows that she has 2,000 trees, but in the tree yard there are only 1,500 trees. Melissa is unable to get any more trees in time to satisfy the contract. Assuming that Melissa completes the contract with Bill, but is unable to get any more trees for Mike, what legal remedies, if any, will be available to Mike?

1. Specific performance
2. Quantum meruit
3. Damages
4. All of the above

Answer 18

Correct Answer: 3

Melissa’s actions constitute a breach of contract. The only legal remedy for breach of contract is damages. The innocent party in circumstances of breach is entitled to damages. The remaining remedies are equitable, and could be granted at the court’s discretion, although they are not appropriate in these circumstances.

Question 19

Which of the following is TRUE about common law duress?

1. Unlike undue influence, duress does not affect the genuine consent of a party to the contract.
2. Duress requires actual physical injury.
3. The only remedy courts will award if duress is found is damages.
4. Where a person is forced to enter into a contract against their will by a threat of imprisonment against one of their close associates, the threat can be considered an act of duress.

Answer 19

Correct Answer: 4

Option (4) is correct because common law duress can occur where a person is forced to enter into a contract against their will by a threat of imprisonment of the person, their family, or their very close associates.

Option (1) is incorrect because duress and undue influence both affect the genuine consent of one of the parties to a contract.

Option (2) is incorrect because duress can be found where there is a threat of physical force. Actual physical injury is not required.

Option (3) is incorrect because if the courts find duress, a potential remedy is that the contract is voidable at the victim’s option.

Question 20

Helen was a shipping agent for a specialized Canadian publishing company. Janet worked for W.H. Jones Ltd., an international retail bookstore. Janet attended Helen’s office and they entered into a contract which provided that Helen’s company would deliver 5,000 copies of an anthology of Canadian poetry to W.H. Jones Ltd.’s London offices.

Although Helen assumed that this meant London, Ontario, Janet was in fact the purchasing agent for the London, England office of the company. When Helen and Janet discovered the mistake they also discovered that the difference in shipping costs between London, England and London, Ontario was three times the amount of the original contract.

Which of the following is TRUE?

1. The contract cannot be enforced because neither Helen nor Janet had the necessary intention to create legal obligations in making the contract.
2. There never was a contract in this situation because there was no consideration given for the promises of either party.
3. This contract cannot be enforced because section 54 of the Statute of Frauds requires the contract to be in writing.
4. This is a case of mutual mistake because Helen and Janet each had a different, reasonable intention when making the contract.

Answer 20

Correct Answer: 4

Both Helen and Janet intended, upon making the contract, that a contract would result, therefore they intended to create legal obligations. Mutual promises were exchanged which amounts to consideration. The requirement of writing applies to contracts respecting land, and is found in section 59 of the Law and Equity Act.

This is a case of mutual mistake because both Helen and Janet had a different, reasonable intention when making the contract. The situation is similar to that in Raffles v. Wichelhaus and a reasonable person looking at this contract would not be able to tell which London was intended.