CONTRACTS Flashcards
Contract (definition)
= a promise, or set of promises, that the law will enforce
7 elements of a contract
Offer, Acceptance, Consideration
Intention to Create legal Relations, Capacity, Legality, Certainty of Terms
Offer (definition)
= a tentative promise made by one party, subject to a condition or containing a request to the other party
- must be definite and certain
- must be communicated to the intended recipient
- it is binding as soon as it is accepted
What is a Standard form contract also called and why
A “contract of adhesion”, and a “Take it or leave it” offer
- no room for negotiation over terms of the contract
Standard form contract (examples, pro and cons)
- terms and conditions when clicking on a page, airline companies
advantages: highly efficient (fast / easy)
disadvantages: inequality of bargaining power, little or no room to negotiate terms.
Contra Proferentum Rule
Where there is doubt about the meaning of a contract, the words will be construed against the party who put them forward
Counter-offer definition
- a rejection of the original offer and a new offer is formed that can be accepted or rejected by the counter-party
Lapse of an offer
= the termination of an offer when the offeree fails to accept it within a specified time, or if no time is specified, then within a reasonable time (or if a party dies or becomes insane)
What is a revocation
withdraw
- an offeror may revoke an offer at any time before acceptance
- must provide notice of revocation to make it effective
Postal Rule Exception
- mail or telegram. Acceptance occurs when acceptance is put in the mailbox, not when it is received.
Options (definition)
= a contract to keep an offer open for a specified time in return for a sum of money
Jurisdiction of a contract
- the courts of the place where it is formed have jurisdiction over dispute
acceptance (definition)
= final unqualified consent to the terms of the offer
Mailing: acceptance vs revocation
acceptance by mail is binding when its sent and revocation is binding when its delivered
How do we communicate acceptance
either by word or by conduct
- unilateral contracts (can only be accepted by performance)
negative option billing (definition)
= a practice of adding services and sending bills without request and relying upon the customer to cancel if they don’t wish the service
inviting tenders (definition)
= seeking offers from suppliers
- a government or business calls for tenders for the construction of a large project
- tendering is one area of contract law where obligations of good-faith negotiations exist
- the law falls short of imposing a negligence duty of care
Ways in Which an Offer Comes to an End (4)
- The offer may lapse when the offeree fails to accept within the time stated in the offer or if no time limit is stated within a reasonable time.
- The offeror revokes the offer before the offeree has accepted.
- The offeree rejects the offer or makes a counteroffer (which is, in effect, a rejection).
- The offeree accepts before any of the three above has occurred (in which case the offer ends and is replaced by a contract between the parties)
bilateral contract
= a contract where offeror and offeree trade promises and both are bound to perform later, promiser and promisee (I will buy this car – I will sell this car)
unilateral contract
= a contract in which the offer is accepted by performing an act or series of acts required by the terms of the offer
subsidiary promise
= an implied promise that the offeror will not revoke once the offeree begins performance in good faith and continues to perform
Bargain (definition)
= Each party pays a price for the promise of the other
Gratuitous Promise
No consideration = no contract
- a promise made in the absence of consideration (don’t get anything in return)
- even accepted by the offeree, the promise is not a contract enforceable in law
Adequacy of Consideration
It does not matter what the value of the consideration is
Past consideration
= a gratuitous benefit previously conferred upon a promisor = no consideration
Debtor/Creditor Rule
Foakes v. Beer
A new contract is not formed when a debtor promises to reduce their debt
A debtor owed his creditor a large sum of money, and payment was overdue. The creditor agreed to accept a series of installments of the principal, and to forgo her right to interest, if the debtor paid promptly and regularly. The debtor paid the principal as agreed, but the creditor sued for the interest. She succeeded because her promise to accept less than the total sum owing—principal plus accrued interest—was a gratuitous promise and did not bind her.
Mercantile Law Amendment Act
When the creditor accepts part performance (i.e. a lesser sum of money) in settlement of a debt, and the debtor pays the reduced amount, the entire debt is extinguished
- if the parties agree to a lower payment of debt that is an enforceable contract even if there is no consideration
Exception of Consideration: Equitable estoppel
= the court’s exercise of its equitable jurisdiction to estop a promisor from claiming that she was not bound by her gratuitous promise where reliance on that promise caused injury to the promise
- a shield, not a sword
If someone tells you something and you act accordingly, the person cannot sue even if what they said is untrue (you can throw that stuff out – oh no it’s my stuff – too late, I acted accordingly to what you said)
Requirements for equitable estoppel
(1) Some form of legal relationship already exists
(2) One of the parties promises (perhaps by implication only) to release the other from some or all of the other’s legal duties to him
(3) The other party, in reliance on that promise, acts in a way that alters his position and would make it a real hardship if the promisor reneges on his promise.
injurious reliance
= loss or harm suffered by a promise who, to his detriment, relied reasonably on a gratuitous promise
- US, cause of action, like equitable estoppel
quantum meruit
applies to goods supplied on request as well as to services rendered
If, for example, A promises to pay B $100 after B has given her and her family an excellent dinner, A is not bound, since she is under no existing legal obligation at the time she makes her promise. If, however, A agrees to pay B $100 after B has requested catering services, A would be bound; in fact, A was already bound to pay B a reasonable price, and she and B have simply agreed later upon what this price should be.
Seals (Exception of Consideration)
- specialty contract, 20 y allowed to sue
- a document under seal is still called a deed and requires no consideration
- a seal must be affixed (or the word “seal” written) on the document at the time of signing
- certain documents, such as a deed of land and a mortgage, traditionally required a seal even if there was consideration
Intention to Create legal Relations
Reasonable bystander test: did the outward conduct of the parties lack serious intention to create legal obligations?
Void vs Voidable
void: never existed; failed formation = no contract
voidable: exist, but can be made void at the option of one of the parties
lack of capacity
Minors, Mentally incompetent people, Corporations, Labour unions, associations and other organizations, Aboriginal Band, Bankrupts
Capacity of Minors
Exceptions: still bound by any contract for the supply of necessary/essential goods and services – quantum meruit, only; or beneficial contracts of service (employment/apprenticeship)
- may always back out of any other contract but can enforce the contract if they choose to do so
What happens when you reach age of majority?
(1) Voidable contracts: for e.x. installments, must back out immediately
(2) Ratified contracts: for e.x. buying something where payment happens after date of majority; contract is ratified if paid
Mentally incompetent people (capacity)
same rules as minor
Corporations (capacity)
separate legal entities; ultra vires acts of statutory corporations
Labour unions, associations and other organizations
not separate legal entities; representative actions
Aboriginal Bands
recognized as “special unincorporated associations” – representative capacity similar to labour union
Bankrupts
under certain contractual disabilities (except for necessities) until discharged from bankruptcy
When is a contract illegal?
Criminal Code – court will not enforce a contract that’s a crime
Income Tax Act – court will not enforce a contract meant to avoid taxes
Competitions Act – restraint on trade
Law Society Act Violation of Common Law or Public Policy
Indemnity for committing torts is not allowed (Insurance excepted)
Contracts considered to be immoral, a perversion of justice, or prejudicial to the interests of the Canadian public
Certainty of terms
Void for uncertainty: vague or incomplete agreements can be deemed “void” by a court, therefore no contract was ever formed.
Vague terms:
fair value”, as opposed to explaining how $$ should be determined
* incomplete contracts: i.e. missing essential terms such as price or what goods are to be purchased