Chapter 6

Question 1

What is meant by “freedom of contract?”

Answer 1

Assumes that both parties are in equal position to bargain the terms of their contract.

Question 2

Explain the difference between a formal contract and a parol contract

Answer 2

A formal contract is sealed by the party to be bound. Parol contracts may be verbal but are not under seal.

Question 3

Explain the difference between void and voidable

Answer 3

A void contract is missing an essential part and is not enforceable. A voidable contract exists, but one party has the option of ending the contract.

Question 4

Explain the difference between unenforceable contracts and illegal contracts

Answer 4

An illegal contract is void, as it involves illegal activities. An unenforceable contract is lacking in some requirement, like consideration.

Question 5

Explain the difference between a bilateral contract and a unilateral contract

Answer 5

A bilateral contract is one in which both parties make commitments and assume obligations. A unilateral contract involves the performance of an act or service as the consideration for whatever is promised. Both contracts become binding whenever the act or service is performed.

Question 6

What practical concepts does contract law use to determine if “a meeting of the minds” has happened?

Answer 6

Consensus occurs when one party states its position in the form of an offer and the other party, through acceptance, makes a similar commitment to be bound by the terms of that offer.

Question 7

At what stage in the process of forming a contract are the significant terms of that contract set out?

Answer 7

The terms of that contract are clearly set out when a complete offer is made by one party.

Question 8

Explain the role of implied terms in a contract? When will the power be used?

Answer 8

In order for a contract to be binding the parties must have set out the major provisions of their agreement. These can be implied into the contract and form part of the contract.

Question 9

Explain how the Sale of Goods Act deals with implied terms in a contract?

Answer 9

The Sale of Goods Act sets out a number of terms that can be implied into any agreement for the sale of goods when the parties to the sale have not dealt with that particular aspect of the matter.

Question 10

Who has the power to imply terms into a contract?

Answer 10

The court can imply terms into a contract to enforce the intention of the parties but the court will not do so when the term would be clearly inconsistent with what has been agreed. The court will not make a bargain on behalf of the parties.

Question 11

Is an “agreement to agree” binding?

Answer 11

If the terms have been agreed upon, and there are no further negotiations contemplated, then an agreement is valid. If the parties have just reached an agreement to negotiate further, that is not a binding contract.

Question 12

Distinguish between an offer and an invitation to treat.

Answer 12

Invitations are designed to encourage the customer to enter into negotiations in relationship to the particular product being advertised and are not intended to be an offer on the part of the vendor. An offer is when one of the parties commit themselves to the particular terms of agreement in a such a way that it is clear that the other party merely has to accept in order for the agreement to be binding.

Question 13

Can you accept an offer that was made to someone else? Explain.

Answer 13

No but appearing to do so becomes an offer. The naming of the parties is an essential term of an offer in a bilateral contract.

Question 14

List and explain the various ways an offer can come to an end.

Answer 14

An offer will come to an end: (1) at the end of a specified time, (2) at a reasonable time if no time is specified, (3) at the death or insanity of the offeror, (4) when there is a revocation of the offer, (5) if the offer is rejected, (6) if there is a counteroffer, (7) if the subject of the offer becomes illegal, (8) if the subject matter of the offer is destroyed.

Question 15

What is the effect of the offeror stating in an offer that the offer will remain open for acceptance until a specific date?

Answer 15

Stating that the offer will remain open for acceptance until a specific date does not commit the offeror to keep the offer open until that time unless some consideration has been paid for that commitment.

Question 16

What risks are faced when a person offers to sell certain goods to A and then sells them to B? How can this problem be avoided?

Answer 16

When an offer is made to sell goods to a particular person, then they are sold to another, that sale does not revoke the original offer. The person making the offer may find himself in the difficult position of having sold the goods but still obligated to the original offeree if that offer is accepted. To protect from this eventuality, the offeror should either make sure that the original offer is revoked before the sale goes through, or make the sale conditional on the lapsing of the original offer.

Question 17

Explain the two types of contracts that result from the tendering process.

Answer 17

A tendering contract consists of a contract A and a contract B. Contract A comes into existence when the party presenting a bid responds to the request for tender and submits a bid. That contract Carrie’s specific terms that are distinct from the ultimate construction contract that is awarded when the successful bid is chosen. The construction contract is contract B.

Question 18

What do the courts do when interpreting standard form contracts, to correct the imbalance i bargaining power between the parties?

Answer 18

The courts attempt to correct an imbalance in bargaining power by interpreting standard form contracts strictly against the drafter of the contract. Results in ambiguity being resolved and is especially expulsion when dealing with exemption clauses.

Question 19

Do parties to a contract have a duty to act honestly in the performance of their contractual obligations? Explain.

Answer 19

Courts imply a duty of good faith to ensure parties do not act in a way that defeats the objective of the agreement they have entered into. So yes basically. Supreme Court of Canada now states the need for good faith in contractual performance.

Question 20

What qualities must an acceptance demonstrate to be effective?

Answer 20

Must be complete, unqualified commitment to the original offer and as a general rule must be communicated to the offeror to be effective.

Question 21

When is a contract formed?

Answer 21

Contract is formed when acceptance is communicated to the offeror.

Question 22

Is silence considered an acceptance of an offer?

Answer 22

Silence does not constitute acceptance. An exemption to this rule is when there’s an ongoing business relationship between the parties that has an established norm of not saying “no” being an acceptance.

Question 23

What is the general rule regarding acceptance? What is the practical result of this rule?

Answer 23

The general rule is that the contract is formed when and where the offeror learns of the acceptance. This would determine the jurisdiction and law governing the contract.

Question 24

Explain the effect of the postbox rule on the principles governing acceptance

Answer 24

The postbox rule states that when it is appropriate to respond by mail, an acceptance is effective when and where posted. This determines the jurisdiction.

Question 25

How does the postbox rule effect modern communication methods used?

Answer 25

The postbox rule is limited to the use of postal mail. Where fax and email are used, the acceptance will not be effective until received by their internet provider or the internet server.

Question 26

What is “click wrap?”

Answer 26

Terms and conditions where the purchaser clicks “I accept” which is assumed that the terms and conditions have been read and accepted.

Question 27

How is an online offer to sell a software licence usually accepted?

Answer 27

By clicking “I accept” it is similar to in-store removal of packaging.

Question 28

What two factors do the courts consider when deciding whether to enforce an electronic contract?

Answer 28

One is form of sent where the offeree really knew and accepted the terms. This highlights the importance of the purchaser clicking the “I accept” button. The second issue is the reasonableness of the terms. For instance very small defined terms that are hard to locate.

Question 29

Define consideration

Answer 29

Consideration is the price paid by each party for what they obtain in the agreement.

Question 30

What is meant by the term “the exchange of consideration”

Answer 30

Refers to the fact that a bargain has been struck with both sides committing to give the other some benefit or advantage.

Question 31

Explain under what circumstances a person who fails to properly perform a gratuitous promise can be held liable for that failure.

Answer 31

May be liable through promissory estoppel if the other party incurred some cost in reliance upon the promise. Secondly, where the other person promising has started to do something and does it improperly which causes injury or loss to the other party.

Question 32

Can promissory estoppel be used as a cause of action?

Answer 32

No promissory estoppel may only be used as a defence. The exception is when there is loss or injury based on the tort of negligence.

Question 33

Does consideration have to be fair? Explain

Answer 33

Consideration doesn’t have to be fair, it only has to have some value, in the absence of other factors. The courts would only address the value of by the other through fraud or other situations.

Question 34

What difficulty might be faced by a person who has already agreed to do a specific Jo and then extracts a promise of more pay from the other party?

Answer 34

The person is already bound by contract and when they extract a promise for more out of the other party, there may be no consideration to support the new promise.

Question 35

If a person rescued promises to pay the rescuer $1000 but doesn’t pay, will the rescuer be successful in suing for breach of contract? Explain

Answer 35

If the promise is made after rescue, it is a gratuitous promise and is unenforceable. If made before rescue it is a unilateral contract. The contract becomes binding when the act or service is performed.

Question 36

“A creditor is bound by her promise to take less in full satisfaction of the debt.” True or false? Explain

Answer 36

In common law, no, due to lack of consideration to support the amendment of the contract. Many jurisdictions have passed legislation providing that when a creditor has agreed to take less in full satisfaction of a debt, and has actually received the lesser sum, the creditor is bound by the agreement and cannot sue for the difference.

Question 37

Explain why a contract dispute resolved outside of court is considered binding even though one party would have obtained more if the action had been taken to court.

Answer 37

When it is relatively clear that a litigant who settled out of court for a compromised sum would have been fully successful had the court dealt with the matter, there is still consideration to support the settlement. Both parties have each given up is their right to allow the court to determine the outcome. The right is of considerable value to both parties for saved time and costs. Therefore, giving it up amounts to valid consideration on both sides.

Question 38

Explain a persons obligation regarding payment when they have requested a service without specifying a particular fee.

Answer 38

Quantum Meruit is one of the exceptions requiring consideration be established if a valid contract is to exist. Even though the consideration has not been specifically agreed to there is an obligation to pay a ‘reasonable’ amount for the services actually rendered.

Question 39

Describe what is meant by promissory estoppel and the circumstances in which it will arise in contact disputes.

Answer 39

When it is clear that there is no consideration to support a promise made by one of the parties to an agreement, that promise is not enforceable as a general rule, it is only when the other person is being sued by the promisor that it is permissible to use that promise as a defence.

Question 40

How does the presence of a seal affect the requirement that consideration must be present in a contract?

Answer 40

When a seal is used it is not necessary to show consideration for the contract to be binding. A sealed contract is considered a formal contract or deed.