Contracts

Question 1

What is the time limit for acceptance of an offer?

Answer 1

You would ask yourself….
How was the offer conveyed? What was the subject matter of the contract?
1) A reasonable business person would expect practical reliable method of communication and be used within a reasonable amount of time.
Reasonable time …depends on the parties (check if there is a stipulation in the contract, agreed upon by the parties)

Question 2

What is the difference between a Latent Defect vs. Patent Defect? If the vendor is not aware of the latent defect; is she liable for failure to disclose it?

Answer 2

Latent Defect: not visible, “think underlying”- one that an ordinary buyer would not be expected to discover during routine visual inspection.

Patent Defect: visible per normal inspection
Doctrine of caveat emptor- the buyer beware.

The law treats the buyers as assuming the risk of patent defects. If the misdescription, although not proceeding from fraud, is a material and substantial point and the buyer might never have purchased.
If the vendor did not know and the defect is not material, then the vendor might not be liable. Much will be evidentiary on who the court believes.

Question 3

Can a contract be enforced against an infant?

Answer 3

RAPE
R–> Repudiation of the Contract, they don’t negated it, they don’t stop it.
A–>Affirmation, they agree to the contract
P–>Partial performance eg. do somewhat of an act, build half the fence
E–> another enactment forces it. Student loans

Question 4

When is an oral contract of purchase and sale valid?

Answer 4

An oral contract is only valid in three circumstances:
1) Where a written memo exists
2) Actions of the parties are consistent with the contract alleged
3) Equitable doctrine of estoppel is applied to prevent one party from profiting unfairly at the expense of another
Law and Equity Act s. 59(3)

Question 5

Is a deposit required for a contract of purchase and sale to be enforceable?

Answer 5

It’s customary to provide a deposit but it is not required for a contract to be enforceable.
A contract needs consideration to be enforceable and if its made under seal no consideration is needed.
Consideration must of some value, but not necessarily monetary.

Question 6

Name 4 ways that incapacity to a contract may arise.

Answer 6

MILD

1) Drug and alcohol intoxication
2) Infancy - age of majority in BC is 19
3) Mental Incapacity
4) Lack of corporate capacity ( You have no right to sign for your business, because you have to be in good standing)

Question 7

What is Contra Preferentem?

Answer 7

Legal principal of interpretation that is used by the courts to the effect that an ambiguous term will be construed against the party that imposed its inclusion in the contract.

Question 8

What is the difference between Joint, Several and Joint and Several?

Answer 8

Several: You’re are only accountable for your portion
Joint: You both are responsible for the entire amount
Joint and Severally: It’s both, you could be responsible for the entire amount alone if one party fleas.

Question 9

What is a gratuitous contract?

Answer 9

A promise made without consideration

Question 10

Discuss time is of the essence with respect to contracts.

Answer 10

Time is of the essence must be written in the contract or you are to be given a reasonable amount of time to complete the contract.

Question 11

What are the 5 fundamentals of contracts?

Answer 11

BRECP (break-up)

1) The promise- provide something in exchange for something else
2) The consideration- something of value
3) The expectation- reasonable expectation of the parties
4) The breach- failure to comply with their obligations
5) The Remedy- monetary and equitable and

Question 12

What are the remedies to a breach of a contract?

Answer 12

There are two kinds: Monetary and Equitable

a) Monetary Remedies- $$$
b) Equitable Remedies (SIRRR)
1) Specific Performance - requires you to perform the contract
2) Injunction - compel someone to do something or not do something ex. Used in labour relations to retain an illegal strick or walk out.
3) Restitution (Status quo restored: Quantum Meruit) - put back into a fair approach, happens in an unjust enrichment
4) Recission - go back to how it was before the contract (when both parties were innocent)
5) Rectification - court based remedy, court can order a change in a written contract to what it should have said in the first place.

Question 13

Discuss the difference and give an example: Void, voidable and unenforceable with reference to a contract?

Answer 13

1) Void Contract: is not a contract and has no effect in a court of law and cannot be enforced.
eg. A contract that was between an illegal drug dealer and illegal drug supplier to purchase a specified amount of drugs.

2) Voidable Contracts: contract which may appear to be valid, has all the necessary elements to be enforceable but has some type of flaw that could cause one/both parties to void it.
Eg. A contract entered into with a minor could be voidable

3)Unenforceable contract: a contract which cannot be enforced in a court of law. This could happen if terms are ambiguous.
Eg. Restrictive covenant–>Non-competition clause for 50 years or within 100 km. (this is not reasonable could be enforceable if it wasn’t so broad)

Difference: Void contract isn’t a contract, whereas a voidable contract and an unenforceable contract are contracts but a voidable one has a flaw within it, allowing to make it voidable and an unenforceable contract isn’t enforceable within a court of law.

Question 14

Discuss and define the differences between duress and undue influence.

Answer 14

Duress: is a mental state which negates the elements of consent. A person is forced to enter into a contractual relationship against his or her will by threat of:
a) actual physical force
b) imprisonment or harm to either person or their family.
Eg. I’ll let you starve to death if you don’t add me on title to the house.

Undue Influence: is when one person is in a superior or dominant position in relation to another or uses this position to influence the other to enter into a contract, the other would have otherwise avoided.
Eg. An attorney wrongfully influences his client

Difference: Duress is physical threat, whereas Undue Influence is using superior power over someone to enter into a contract.

Question 15

Discuss the difference between holding a deposit under the Real Estate Services Act and holding a deposit on behalf of a purchaser in a notary trust account.

Answer 15

Holding a deposit under real estate services act:
- holding it as a stakeholder,
-
Holding a deposit on behalf of a purchaser in a notary trust account:
- we hold it as a trustee, for the purchaser, not as an agent for either of them.
-

Question 16

What are the remedies to a default on contractual obligations of a Contract of Purchase and Sale? Possible advantages and disadvantages and give an example.

Answer 16

Advantages and Disadvantages

1) Sue for damages, monetary compensation for any losses that effect the innocent party.
- >A:Non-breaching party could benefit from the $$ coming in.
- >D: Non-breaching party could have asked/made more money than the actual compensation they would have received.
2) Specific performance
- > A: Unique properties are not replaceable
- > D: The consumer doesn’t actually want the property, and now is forced to take the property
3) Injunction
- > A: They get to buy the property
- > D: Court could chose the opposite
4) Rescission
5) Restitution
6) Rectification
* **

Question 17

What are the legal characteristics of a contract?

Answer 17

i) An OFFER made by one party with the understanding that a reciprocal promise will be made by another party.
ii) ACCEPTANCE is the expression by words or conduct of unequivocal assent to an offer by the offer’s recipient in the manner indicated in the offer.
iii) CONSIDERATION -some benefit or profit to the promisor, or some forbearance, detriment, loss or responsibility suffered by the promise. The promise can be present or in the future but not in the past.

Question 18

What are the components of a Contract?

Answer 18

PET
P - Parties- entities who have entered into the contract
T - Terms- negotiated items, comprising, the parties bargain
E - Execution clause- where parties to the contract sign

Question 19

What are the principles of a contract?

Answer 19

There is no contract unless the following essentials are agreed to:

i. PARTIES to the contract
ii. PRICE
iii. description of PROPERTY sold

Question 20

What is the distinction between an agent, an employee, and an independent contractor?

Answer 20

An AGENT is generally remunerated by way of commission or fee that is contingent upon bringing about the result.

A CONTRACTOR is based on the concept of control and remuneration. Principal contracts with an agent for services and leaves it up to the agent to bring about the result.

Whereas an employer not only tells the EMPLOYEE what to do, but how to do it.

Question 21

Name 3 ways the relationship of principal and agent may arise.

Answer 21

1) By express appointment
2) Result of doctrine of estoppel
3) By subsequent ratification by the principal of a contract made on the principal’s behalf.

Question 22

What is the legal significance of the words “Signed, Sealed and Delivered” beside the place for each of the signatures of the two parties to a Contract?

Answer 22

An acknowledgment by both parties that the document being referred to was executed properly by the intended body, place securely in an envelope and handed to the intended recipient.
-Also that you will be bound by the term.

Question 23

What are the obligations of agent to his or her principal?

Answer 23

1) Authority
2) Skill
3) Reasonableness

Question 24

When will an Offer Terminate?

I C Double R Double L

Answer 24

when… I C double R double L
Six ways Offers Terminate

I 1) Either party becomes incapable or dies before offer is accepted
C 2) Counteroffer is made

R 3) Offer is revoked before acceptance
R 4) Offeree rejects offer

L 5) Time limit- failing to accept offer within time limit
L 6) No limit but a reasonable time lapses

Question 25

What is the purpose of a deposit?

Answer 25

• Deposit is paid by the Buyer when a Contract of Purchase and Sale is executed.
• Deposit is held by the real estate agent acting as stakeholder pursuant to Sec. 59 of the Real Estate Act until the purchase of the property is complete.
• Part of the purchase price on completion.
• If Buyer fails to complete after subject removal, the Seller may choose to keep the deposit and treat Contract as terminated or affirm Contract and sue the Buyer for breach of Contract.
• Deposit and consideration customary for the Buyer on signing the Contract, although the Contract is still binding without it.

Question 26

How can an agency contract be terminated? Give examples

Answer 26

1. Mutual agreement to termination
2. Authority of the agent is renounced by the agent
3. The authority of agent is REVOKED by the principal
4. Operation of law- time elapsed eg. POA granted- the Donor revokes the POA.

Question 27

In what circumstances will Quantum Meruit be applied by the courts?

Answer 27

Quantum Meruit means as much as he or she deserves.

In a situation where one person requests the services of another, even if there is no mention of a specific price, the law will imply a promise to pay a reasonable amount.
So…the principle will be used in circumstances:
[unjust enrichment]
i. If the party injured by the other party’s breach of the contract has performed part, but not all, obligations under the contract.
ii. If the alleged contract is in fact void and there is has been work performed and services rendered on the assumption that the contract was valid.
iii. Original contract has been replaced by a new and different contract, such a situation may arise when one party is in breach of the contract and the party not in default accepts partial or substantial performance in place of the original contractual obligation.

Question 28

When must a contract be made under seal?

Answer 28

If there is no consideration, no mutual benefit than the contract must be under seal (ie. guarantee). the seal is a method of giving legal effect to gratuitous promise- it replaces consideration.

Question 29

If Emma contracts to buy Jeremy’s home and one of the terms is that the main bedroom is to be painted blue prior to the date of possession and Jeremy breaches this obligation, is it a breach of a warranty or condition? Explain why.

Answer 29

This is a warranty because it is a promise which is not fundamental to the whole of the contract.

Question 30

How may a contract be varied?

Answer 30

• If the parties to the contract agree to vary the terms and the variation is supported by consideration to be enforceable.
• If both parties, directly or indirectly, benefit by the variation of the terms, this is consideration enough.
• If the contract is varied for the benefit of one party, consideration problems arise.

Question 31

Explain the Doctrine of Merger.

Answer 31

The Doctrine of Merger is when the Contract completes and whatever was agreed to prior to the completion merges into the contract. Caveat Emptor applies at this stage. If the Buyer wishes to rely upon Contractual conditions and warranties made in negotiations, they must be on the Contract of Purchase and Sale.

Question 32

What are the types of Mistakes in a contract? Explain each type. “ you made MUC of the contract”

Answer 32

A mistake as to the term of the Contract.

1) Common
2) Mutual
3) Unilateral

1) Common Mistake - both parties to a Contract have made the same mistake about a fundamental term of the Contract
eg. Contract of Purchase motel- motel burns down unbeknownst to Purchaser and Seller. They both thought the motel was still in existence.

2) Mutual Mistake - both parties make a fundamental mistake but each make a different mistake.
eg. Sale of Cotton to go on a ship. There are two ships with the same name. One leaves port in October and the other in December. The cotton goes on the ship in December and the purchaser thought it was to go on in Oct. The cotton was always supposed to go in Dec. The buyer refuses to complete contract when cotton comes on the December ship. Mutual mistake. Contract rendered VOID.

Unilateral Mistake- only one party is mistaken about a fundamental term of the Contract.
Eg. A owns Blackacre. She is old and illiterate.
She thinks she is signing her will but she signs her name to a transfer. A pleads mistake. Non est factum. The nature of the document was misrepresented to her.

Question 33

Explain the exceptions to the Doctrine of Merger and the remedies available.
FEC’S

Answer 33

1) Fraud
2) Error in substantialibus
3) Collateral warranties
4) Sale of new houses

1) Fraud- if the seller has been fraudulent in the transactions, the Buyer will be entitled to have the transaction rescinded and the parties restored to their original positions and the Buyer may sue for damages.
2) Error in substnatialibus
- Mutual mistake that goes to the root of the Contract.
- Mistake must go to a material, substantial and important element of the Contract in order for the court to order recission.
3) Collateral warranties
- Affirmation by the Seller at the time of sale for the purpose and intention of bringing about the sale may constitute a collateral warranty,
- If the buyer can establish that there is a collateral warranty that has been breached, he may recover damages.
4) Sale of new houses(2 categories)
i) Houses to be erected
ii) Houses completed at date of Contract

i) Implied warranty that it is fit for human habitation
ii) Caveat Emptor applies to houses already completed. No implied warranty of fitness for human habitation.

Question 34

Harry contracted to sell his house to Gary for $500,000. Market drops significantly and when it comes to completion time, house is worth only $400,000. Gary doesn’t complete the purchase.

What must Harry do to mitigate his damages? Explain the Doctrine of mitigation.

Answer 34

Harry needs to put the house on the market and relist it. If it sells for $400,000 then he has lost $100,000 from the original selling price. If he waits and sells it for less than $400,000 he might not be able to sue Gary for $150,000 loss only for $100,000 loss. Mitigation is when the party who has been breached must try to reduce his loss, reduce the loss arising from another’s breach of Contract.

Question 35

Explain the distinction between a “condition” and “warranty” and provide examples.

Answer 35

Condition vs. a warranty

A Condition is a fundamental term which goes to the very heart of the Contract. If a breach of a condition occurs, the aggravated party may elect to terminate the Contract or sue for damages or specific performances in certain circumstances.

If a breach of a warranty occurs, the remedy of the injured party is to sue for damages. Not so serious as to bring the contract to an end.

Question 36

Explain Privity of Contract and give an example.

Answer 36

Privity of contract states that only those who are a party to a contract have the right to enforce the legal obligations and benefits of the contract.
A contracts with B. A breaches. C(B’s spouse) cannot enforce the Contract.

Question 37

What is the difference between condition precedent, a true condition precedent, and a condition subsequent? Draft a sample clause of each.

Answer 37

1) Condition precedent is a clause that sets out some future event that needs to happen before the contract can be completed.
Eg. Subject to financing in a Contract to purchase land.

2) True condition precedent is one that is very specific like requiring a specific property inspector to inspect the house. If not, that specific inspector, then the seller can take the position the condition was not satisfied. It is always good to have the condition for the sole benefit of the party that it is to benefit.
Eg. The condition is subject to the Buyer obtaining a mortgage in the amount of X with interest rate of X not in advanced by January 6th, 2015. This condition is for the sole benefit of the Buyer.

3) Condition subsequent is 1) in a contract, a happening which terminates the duty of a party to perform or do his/her part. 2) in a deed to real property, an event which terminates a person’s interest in the property.
Eg. ***

Question 38

What is an invitation to treat?

Answer 38

In marketing a good or service the seller does not make an offer but invites the purchaser to make an offer.
Consumer statement or conduct meant to invite a purchaser to commence bargaining.
Eg. Safeway has a flyer saying “ 1/2 off on Steaks!”

Question 39

Whats the difference between a Bilateral contract and a unilateral contract? Give examples.

Answer 39

A Bilateral contract is a contract in which each party promises a performance. Most contracts are bilateral.
Eg. I offer to buy your house for $300,000

A Unilateral contract is one which states that if you do X then I’ll do Y.
Ex. Carbolic Smoke Ball: The seller said, if you use this ball, you won’t get the flu, the girl got the flu , wanted her $$ back. Company said NO, court said that Performance was acceptance. The offer was made by the seller in this case saying i’ll pay you $ for this ball, to use it.

Question 40

What is the Parole Evidence Rule? Are there any exceptions?

Answer 40

The parole evidence rule states that all prior verbal communication doesn’t count with a contract, UNLESS it is a part of the contract itself.

• This applies to all forms of prior communication, is a rule that determines that undertakings given in a certain circumstances are unenforceable.
• Exception: Collateral Warranty

Question 41

What is Frustration? Please give examples

Answer 41

After a contract is entered into, but before completion, frustration will occur if events occur outside the control of the parties that makes performance impossible.

There are three types of frustration:
1) Impossibility- A promisor will be discharged where without his fault, becomes incapable or dies.
Eg. Vendor dies
2)Frustration of Purpose- where there’s an event and it’s cancelled.
Eg. Rent hotel room for Olympics
3) Temporary Impossibility- when the event has to be delayed.
Eg. The ship needs repairs.