Chapter 6 The Law Of Contract Flashcards
Describe what happens in a counter offer?
A counter offer is a statement by the recipient of the offer which has the legal effect of rejecting he offer and of proposing new offer to the offeror (who then becomes the recipient of the new offer)
Condition precedent is a legal term for a “subject to” clause. In contract law, it calls for the happening of some event or the performance of some act before contract shall be BINDING upon the parties.
What is an invitation to treat?
An invitation to treat is a type of advertisement used to induce the public or an individual to submit their own offers. An invitation to treat is not an offer capable of acceptance to form a contract.
Example: MLS listing of house. Invites others to bring their own offers and Negotiate a contract.
Advertising of products for sale - invites buyers to come and buy. Ex I offer to sell you this car for $1,000. Open to all people.
Define a contract
A contract is an agreement between two or more persons which creates a legal obligation to do or not to do a particular thing.
A contract is considered void if:
1) it is an amount less than $5,000
2) it has always had legal existence or effect and is capable of being enforced
3) it has never had legal existence or effect and is not capable of being enforced
4) the contractor decided to back out of the contract within 30 days of signing.
Answer
3) it has never had legal existence or effect and is not capable of being enforced
In legal terms what is a breach of contract
A breach of contract is a failure, without legal excuse, to perform any promises which forms the whole or part of a contract.
REVOCATION is a term for the cancellation of an offer communicated by the offeror to the offeree prior to acceptance.
True
What does a court order when it awards specific performance to the plaintiff.
When it awards specific performance, a court orders that the terms of the contract be carried out by the party in default.
Say you decided to not sell the house after the offer was accepted and contract signed off. Court can specifically tell you to complete sale.
In law of contracts, RESCISSION amounts to the unmaking or undoing of a contract from the beginning, as oppose to termination.
Rescission Amounts.to the act of rescinding;
the cancellation of a contract and the return of the parties to the positions they would have had if the contract had not been made
. “recission may be brought about by decree or by mutual consent” synonyms: rescission. type of: cancellation.
The legal term for the thing of value that is bargained for and received by, each party to a contract, is known as Consideration
Consideration
Frustration is a legal doctrine that provides that where the existence of a specific thing is necessary for performance of the contract, the duty to perform is discharged if the thing, for reasons beyond anyone’s control, is no longer in existence at the time for performance.
Duress is a situation where a person is forced into a contractual relationship against his will by the threat of imprisonment either to himself or his family, or threat of physical force.
True
7 Essentials in a Contract
COCA COL A
Consideration
Offer
Capacity
Acceptance
Consent
Object
Legal Intention
Ahhhhhh
Steps in the Contract
Offer - promise made to person / specific group
Acceptance - oral or written
Consideration - family seal or usually $$$
Legal Object - legal idea or contract
Legal Intent - must have serious intention
Capacity - not under 19 / infant / insanity
Consent - parties in mutual agreement
Offer Exceptions
Standing Offer
Open to many. Ex. can be accepted by many.
Ex. Poster for lost dog. Anyone xan find dog and get reward. Action required
Invitation to Treat
Less than legal offer
Request for Offers. For example listing on MLS - any can make offer
Release or Expiry of an Offer
Time limit
— place time limit. Offer expires at time stated.
Reasonable time
— no time limit placed. Expiry with reasonable time but court May have to decide what is reasonable.
Offer rejected
— offered car for sale for 1 million , person rejected. End of story.
Counter offer - terminates original offer
Revoke before acceptance
Insanity or death
Changes to offer by seller
Counter Offer, in essence becomes a NEW offer. Cancels original offer.
Changes to offer by seller / buyer
- buyer presenting offer, seller makes changes. Releases offer.
Insanity or death
— no mental capacity than the release any offer made.
— if death offer is released
Revoke before acceptance
— if you mailed revocation by mail, not effective till received.
— should hand delivered or fastest way to inform.
— not effective when communicated but when received
Counter offer
Buyer makes offer - Seller makes counter offer - original offer canceled. Buyer can walk away.
Changes to offer by Seller
Seller offers to list for $1 Million then while buyer makes offer Seller changes price
Insanity or Death
Offer is invalid
Revocation before Acceptance
- buyer has to make sure that before Seller accepts is told you revoke your offer to buy. If seller accepts before revoked then legal contract. Revocation
Describe an Option Agreement (type of offer)
It is an offer to sell something with a time limit into the future. Ex. Lease or Rent to buy. The tenant has the right to purchase the home at some future date. The option agreement could be in the form of a contract and Consideration given like a stated value of minimal amount. Contract is Enforcible.
What is Acceptance
Acceptance - should do it in the same manner as offer received. Unless told differently.
Can be Oral or written
Must be clear, unequivocal and communicated
Effective When Acceptance is communicated
No Postal acceptance rule - dont use.
Because it is effective when it was placed in the mail box. The postal mark does not matter.
Other party does not have to receive it. It’s considered accepted as soon as mailed.
Email/telephone/ text/ fax. Best way.
What is Consideration
A thing of value given in exchange - courts dont examine adequacy. $1 could be consideration
A Seal could be a substitute for consideration
Consideration must be given for something in the future. Ex I painted your house, oh great i will give you 100$. This is not enforcible because it is for something in past. Promise to pay was after the painting was done
Is not an “OPTION AGREEMENT”— separate consideration is given to keep the offer open (usually FALSE answer on the exam)
— paying for a privilege
—- asking seller to keep offer open for 24 hours. Pay cash to keep open. It could run out and then offer open open to all.
PAST CONSIDERATION IS NO CONSIDERATION
— someone does a favour for a neighbour like cut the lawn — no intention of getting anything— but the neighbour promised to give something then does not give. Cannot be sued for. SHOULD HAVE NEGOTIATED PRICE BEFORE ACT OF
Capacity
Infancy.
Under Age of majority 19 years. Ex 18 years
Voidable by infant
If you made contract below 18 and then keep paying your bill after 19 then contract is enforcible.
Insanity and Intoxiation - must prove 1/ Incapacity and 2) other party knew of your incapacity intoxiation or insanity.
Incorporated Companies. - must be in the legal name. Dont abbreviate
Foreigners and Illiterates - used to back out of contract. Use this argument.
If they showed some skill they can’t back out like removing subjects on a house purchase.
Legal OBJECT
Any illegal contracts like criminal or fraud are Void. All illegal contracts are VOID and as if they never existed. If you paid money in an illegal contract you cannot get it back. Courts won’t support you.
Not all Void contracts are illegal. Like contracts entered by Mutual mistake are void courts will deal with it back to original position
Voidable contract like with Infants. Can be voided.
LEGAL INTENTION - connected to consideration- shows seriousness
— must have serious intention to create a contract at a business meeting
Not usually binding at social gatherings
Consent
Genuine Consent, Parties in Mutual Agreements, Have clear understanding of a contract —— Informed consent
Not coerced, free will, Duress - under pressure - gun to head, Threats
Undue Influence- any improper or wrongful constraint, manipulation or persuasion.
Ex. Caregiver convinced old lady to put her in the will.
Misrepresentation between contracting parties
Element’s
1 Stmt of fact made (Ex roof is 5 yrs old)
2 fact is false
3 it induced one to enter into contract
Innocent Misrepresentaion = Rescission before execution. After execution no remedy
Fraudulent Misrepresentation (LIED) = Rescission at any time or Damages
Negligent Misrepresentation
Careless misrepresentation. Someone like third party like the vendors agent (an expert giving advice). The Agent is not in contract with buyer.
When someone asks you a question and you dont know say it. Dont give advice if you dont know
Elements of Misrepresentation
— the stmt must have induced the buyer to enter into a contract
— the stmt must have been one which a reasonable person would have relied
— the stmt must have been made by the seller knowing it to be false, or recklessly as to its truth or false hood.
Mistake to get out of contract - 3 categories
- Common Mistake. Contract signed. the contracting parties were not aware the house had already burned down BEFORE contract signed. We both think something exists and it doesn’t.
Frustration - The house in the above example Burned down AFTER they signed the contract and were not aware of it. Renders performance impossible.
Contract Void in these cases
- Mutual Mistake
Both parties mistaken on something. One party thinks the Cotton is coming from India and other party its coming from US.
Void Contract
3/ Unilateral Mistake
One party was aware mistakes was occurred but did nothing about it.
Termination of Contract
- you done what is required the contract is completed
Agreement - both parties agree to terminate
Condition Precedent not satisfied. - subject to clauses expires. Ex subject to financing. Law implies the purchaser will Need to reasonably efforts to get financing. If you don’t then you could sue for breach of contract.
Termination by Breach
1 breach of conditions - remedy damages or termination (major). Ex breach of condition like “free and clear”. Can sue for damages or don’t go through contract.
2 breach of warranties - remedy damages (minor) living room drapes.
Frustration
Performance
Assignment
Only parties to contract have rights and obligations - PRIVITY.
May assign rights but not Obligations
Ex
A Assigns Condo pre-sale contract to B and makes quick profit.
If B closes deal when Condo is finished then thats it
If B DOES not close deal then Developer will sue A who flipped or Assigned their contract. YOU CAN ASSIGN YOUR RIGHTS TO POSSESSION BUT NOT YOUR OBLIGATIONS FOR THE PURCHASE PRUCE AT CLOSING.
A’s obligation is to pay for the Condo.
LENDERS SOMETIMES SELL MORTGAGES. INDIVIDUALLY OR BUNDLED UP.
Lender Assigns right to money and security ( interest to land and security for mortgage) Can’t assign Obligations (the payment will be made by the borrower)
Assumption of Mortgage If Bob purchasers house, grants mortgage Betty buys house, ASSUMES mortgage Market crashed - Betty Default’s. Lenders started suing Bob.
If renewed for new term. It becomes New Contract. Novation.
Remedies - basic remedies in contract law is
1/ DAMAGES
2/ SPECIFIC PERFORMANCE (if property has unique aspect to it. - this means you gave to do something like complete the contract when seller does not want to close.
Novation
Legal doctrine if it is a new contract then old borrower could be released. This may happen when. Mortgage is ASSUMED. The former Mortgagor is no longer responsible if their is a default.
Remedies in Contract law
Damages reasonablly forseable and flow naturally
Specific Performance ask seller they have to sell. Only if something us unique about the property.
Document under Seal
A valid substitution for CONSIDERATION.
Infant contracts
Under 19 years old
Gets into a contract like monthly subscription services (spotify)
Voidable
Not voidable if:
1 Contract Affirmed after turning 19
2. Performs or partially performs (pays bills) after turning 19
3. Does not repudiate within 1 year after turning 19
When Offer Expired
Time limit or reasonable time passed
Offeror dies before Acceptance
Offeror revokes offer and communicates before Offeree accepts
Not released
If revocation sent by mail. Postal rule does not apply to Revocations
Quantum Meruit
Literally “as much as he deserves” the law implies a promise to pay a reasonable amount for labour/materals furnished, even though a specific contract price was agreed to.
What is Hedley Byrne Principle
Refers to misrepresentation, only applies when false statement has been made to buyer
What Caveat Emptor (buyer beware” applies to?
Applies to “Patent defects” NOT Latent defects.
Innocent Misrepresentation (Remedy)
Where a contract has not been executed, the available remedy Innocent Misrepresentation is Recission (rescind or cancel the contract). Back to square 1. They can negotiate again for new contract.
Illiteracy of the Offeree
an illiterate is bound by a contract that ge has agreed to unless they fud not know the general nature of the contract
Doctrine of Privity
The relationship that exists between parties to a contract. Only those parties to the contract are bound by the terms of the contract and can enforce the contractual obligations under the contract.
Exceptions: Assignment and Interest in land. - does not apply to land transactions
Legal Intention
Must have serious intention to create a contract.
Business agreements usually binding
Social agreements not usually binding.
Latent Defects (Later). Takes More time to discover.
Things hidden that is not easily discoverable. Asbestos/ Oil Tanks / Foundation issues. Have to invasive testing, more expensive
Cannot be discovered upon reasonable inspection
Contaminated property like Asbestos , ant infestation, mould in basement
— must be disclosed by the seller, by law.
— the disclosure must be separate from any agreement of purchase or sale
SELLER MUST DISCLOSE IF THEY ARE AWARE OF THE LATENT DEFECT
Patent Defects ( Present)
Should be discoverable upon reasonable inspection
Caveat Emptor - Buyer Beware
— doesn’t have to be disclosed by the sellers
Common Mistake (SAME).
Event Happened (fire) BEFORE contract signed and they did not know. Made same mistake
Both parties to a contract make same mistake. The house had already burned down BEFORE contract was signed.
—Entered into contract to buy/sell Cabin
—Cabin burned down 6 months ago
—there was nothing to sell
Mutual Mistake Innocent. (DIFFERENT)
Both parties to the Contract makes fundamental mistake:
—London England
—London Ontario
One thought the vacation was to London England, while other thought London Ontario and prices are very different for the trip.
Unilateral Mistake (other party knows)
One party to the contract makes mistake about the contract and other party knows of it and does nothing to correct it.
Frustration (after signing contract)
After Contract Signed, but before completion, the house BURNS, down. The contract is void.
Stigma
Stigma - effect on property value depends on an individuals subjective consideration
Examples: —murder —suicide —criminal drug gang member lived there —haunted property —property robbed or vandalized
Maybe someone won’t purchase. It affects there decision to buy.
If you are specifically asked then you have to disclose. If NOT asked don’t have to tell.
Remedies - Common Law
Common Law - Damages (breach of contract)
The injured party does have a duty to mitigate damages or keep losses at a minimum.
Remedies- Equitable
Specific Performance- cannot be given if damages are awarded. A remedy for a breached contract or if a property is unique and there is NO substitute.
Injunction- it can stop you from doing something (selling property to someone else, restraining order)
Mandatory Injunction — required to do something
Quantum Meruit - the law implies a promise to pay a reasonable sum
Damages are intended
Not to PUNISH the party who breached the contract
Assignment (ex Telus Contract)
Promissor ( owes Telus $1,000)
— consent is not needed
— cannot assign the debt (liability)
— owes money to assignor
Assignor ((Telus)
Telus
— original party to contract
— does not need permission from Promisor
— can assign benefits under contract to maybe collection agency and does not need your Promisor approval
Assignee (3rd Party) Collection Agency)
Assignee (3rd Party)
— receives the rights and obligations under the contract, but wasn’t an original party to the contract
— can sue to enforce the benefits
Telus (Assignor) can assign away benefits (amount owing on Telus Bill) to Collection Agency (Assignee).
A person can assign away benefits under contract to a third party and the third party can sue to enforce those benefits. But cannot assign away liabilities.
Two types:
— Statutory
— Equitable
Statutory assignments have these legal requirements:
—must be put in writing to assignee;
—must be absolute and unconditional (for the whole amount);
—must be given in writing to promisor.
(A) Alan (Promisor - owes money)
(B) Telus (Assignor)
(C) Third-Party Collection Agency
B) Telus (Assignor) must put in writing to C) Third-Party Collection Agency the Total Amount owing by A) Alan (Promisor - owes money)
C) Third-Party Collection Agency writes A) to Alan (Promisor - owes money)
Telus does not have to write to Alan they have done this.
B(Telus) in writing to C for Full Amount
C in writing to A - tell Alan has to deal with C collection agency - Telus no longer in the picture
Past Consideration (cleaned gutters without asking). Owner offers to give case of wine ( current consideration) but never gives it.
Past Consideration is No Consideration. Cannot sue under this example
Contract under Seal
No consideration required
Acceptance of Offer
Should be communicated in the same format as the offer was made. If offer made in writing then acceptance should be in writing.
Hedley Byrne Principle
Refers to negligent misrepresentation, and only applies when a false statement is made to the buyer.
Illiterate Person
An illiterate person is bound by the contract that he signed, unless he or she did not know the general nature of the contract.
Doctrine of “Privity of Contract”
Does not apply to contracts creating an “interest in land”
Specific Performance Remedy
— can be granted in a contract for sale of property IF THE PROPERTY IS “UNIQUE”
Also can grant:
— an equitable remedy at the discretion of court
— a remedy for a breach of contract, requiring the terms of the contract to be performed
— not granted by a court where monetary damages are an adequate remedy
Fraudulent Misrepresentation— where a false statement has been made knowingly, or without belief in its truth.
Negligent Misrepresentation — a representation made carelessly and in breach of duty owed.
Innocent Misrepresentation — a representation that is neither fraudulent or negligent
remedies for misrepresentation are rescission and/or damages.
For Innocent Misrepresentation the court has discretion to award damages in lieu of rescission.
Rescission- where a contract is set aside and parties are put back into the position in which they were before the contract was made. Basically the court has VOIDED the Contract.
Rescission is an equitable remedy.
Display of goods with prices, advertising in flyers, houses for sale. are known as Invitations to Treat. These are not offers. If you like then make an offer.
Release or expiry of an offer.
If no time limit on offer, then it will expire in reasonable time. Some things
If revoked it before you accept deal over.
If counter offer than deal over.
If rejected.
If you leave an open with a time limit If you give something of value, the offer will be kept open. Will become binding.
In standard real estate transactions they are not Options, promises to buy and promise to sell. The considerations are the mutual promises. If the buyer or seller don’t go through the transactions. They can sue each other for:
—specific performance or damages—
Something of Value (consideration)= Promise.
Acceptance
— clear, unequivocal and communicated.
— postal acceptance rule. The acceptance is accepted as soon as you mailed it. Don’t ever conclude a contract by mail. Use fax, phone.
Consideration
— a thing of value given in exchange for a promise.
— adequacy is not examined
— as long as you get something of value the consideration is given.
— a Seal can be substituted for consideration. It’s call your Deed, your act
— it can’t be past consideration. Someone painted fence without your knowledge, oh I will give you 100. The painter can’t sue for past Consideration I.e painting was done in the past
Capacity common types
Infancy:
— age of majority 19 yes
— voidable by infant when 18
— infant can affirm a contract by continuing to pay
— infant can’t register title at LTO at 18. Need Trustee
Insanity and Intoxication
— must prove 1/ incapacity. And 2/ the other knew of the incapacity
Incorporated companies
— good to do a company search and who company principals are. The signing authorities for company
— write out whole name.
Legal Object
— nothing criminal
— avoiding true taxes on contracts (understate actual price) are illegal. They are all void.
Consent — the person has a sound mind, can consent to contract
-Misrepresentation between Contracting parties
Elements
— statement of fact is false
— it induced one to enter into contact
Innocent misrepresentation
— Remedy = Rescission before execution
Fraudulent Misrepresentation
— Remedy = rescission at my time or damages
In these examples it is to do with one party to contract Purchases or Seller
If not under contract then the rules are slightly different as previously stated
To establish misrepresentation you must prove:
- There must be assertion of fact
- The assertion must be false
- The assertion must have been material to the formation of the contract
