chapter 7 consideration

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

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 4

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 5

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 5

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 6

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 6

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.