Chapter 6 The Law Of Contract

Question 1

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)

Question 2

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.

Question 3

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.

Question 4

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.

Question 5

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

Question 6

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.

Question 7

REVOCATION is a term for the cancellation of an offer communicated by the offeror to the offeree prior to acceptance.

True

Question 8

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.

Question 9

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.

Question 10

The legal term for the thing of value that is bargained for and received by, each party to a contract, is known as Consideration

Answer 10

Consideration

Question 11

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.

Question 12

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

Question 13

7 Essentials in a Contract

COCA COL A

Consideration
Offer
Capacity
Acceptance

Consent
Object
Legal Intention

Ahhhhhh

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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.

Question 19

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.

Question 20

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

Question 21

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.

Question 22

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

Question 23

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

Question 24

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.

Question 25

Mistake to get out of contract - 3 categories

1. 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

2. 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.

Question 26

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

Answer 26

Performance

Question 27

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.

Question 28

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.

Question 29

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.

Question 30

Document under Seal

A valid substitution for CONSIDERATION.

Question 31

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

Question 32

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

Question 33

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.

Question 34

What is Hedley Byrne Principle

Refers to misrepresentation, only applies when false statement has been made to buyer

Question 35

What Caveat Emptor (buyer beware” applies to?

Applies to “Patent defects” NOT Latent defects.

Question 36

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.

Question 37

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

Question 38

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

Question 39

Legal Intention

Must have serious intention to create a contract.

Business agreements usually binding

Social agreements not usually binding.

Question 40

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

Question 41

Patent Defects ( Present)

Should be discoverable upon reasonable inspection

Caveat Emptor - Buyer Beware

— doesn’t have to be disclosed by the sellers

Question 42

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

Question 43

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.

Question 44

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.

Question 45

Frustration (after signing contract)

After Contract Signed, but before completion, the house BURNS, down. The contract is void.

Question 46

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.

Question 47

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.

Question 48

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

Question 49

Damages are intended

Not to PUNISH the party who breached the contract

Question 50

Assignment (ex Telus Contract)

Promissor ( owes Telus $1,000)
— consent is not needed
— cannot assign the debt (liability)
— owes money to assignor

Question 51

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

Question 52

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

Question 53

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.

Question 54

(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

Question 55

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

Question 56

Contract under Seal

No consideration required

Question 57

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.

Question 58

Hedley Byrne Principle

Refers to negligent misrepresentation, and only applies when a false statement is made to the buyer.

Question 59

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.

Question 60

Doctrine of “Privity of Contract”

Does not apply to contracts creating an “interest in land”

Question 61

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

Question 62

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.

Question 63

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.

Question 64

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.

Question 65

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

Question 66

To establish misrepresentation you must prove:

1. There must be assertion of fact
2. The assertion must be false
3. The assertion must have been material to the formation of the contract