Lesson 7 - interpretation of contracts: privity and assignment of contractual rights (chp 10 -11)

Question 1

what forms can most contracts be in to be enforceable?

Answer 1

written or oral

Question 2

3 legislature that explains contracts that must be supported by writing to be enforceable

Answer 2

statute of frauds, sale of goods act, ontario’s consumer protection act

Question 3

explain statute of frauds

Answer 3

first piece of legislation to impose writing requirements

Question 4

contracts under statute of frauds that must be supported by writing to be enforcaeble

Answer 4

1) A promise by an executor or administrator to pay estate debts out of his or her own money;
2) A promise to answer for the debt, default, or miscarriage of another (guarantee);
3) An agreement made in consideration of marriage;
4) A contract dealing with an interest in land;
5) An agreement not performed within one year of its making;
6) Ratification of debts incurred by a minor

Question 5

explain sale of goods act

Answer 5

focusing on most common types of business transactions - purchase of goods

Question 6

contracts under sale of goods act that must be supported by writing to be enforceable

Answer 6

all sale of goods

Question 7

sale of goods act, in the absence of writing, when may a contract still be enforced?

Answer 7

if one of the following holds:

1) The goods were accepted and actually received by the buyer;
2) Part payment was made by buyer and accepted by seller; or
3) Something of earnest, a token or small sum or article intended to seal the deal, was given by the buyer to the seller

Question 8

definition: acceptance in sale of goods act

Answer 8

any conduct by the buyer in relation to the goods that amounts to recognition of an existing contract of sale

Question 9

definition: part payment in sale of goods act

Answer 9

something tendered by the buyer and accepted by the seller after formation of the contract to be deducted from the price

Question 10

explain ontario’s consumer protection act

Answer 10

dealing with the most vulnerable type of party, covers both goods and services:

Question 11

explain contracts that must be in writing under ontario consumer protection act

Answer 11

Executory contracts, contracts between buyer and seller for purchase and sale of goods or services where delivery of goods or services or payment in full is not made at the time the contract is entered must contain specific info and must be in writing

Question 12

what must executory contracts be to be enforced?

Answer 12

not binding on buyer unless signed by both parties

Question 13

definition: construing

Answer 13

interpreting

Question 14

how can written contracts exist?

Answer 14

paper or electronic means

Question 15

definition: executor or administrator

Answer 15

legal representative of the estate of a dead person

Question 16

definition: indemnity

Answer 16

a promise by a 3rd party to be primarily liable to pay debt

Question 17

definition: miscarriage

Answer 17

an injury caused by the tort of another person

Question 18

define part performance

Answer 18

performance undertaken in reliance on an oral contract relating to an interest in land and accepted by the courts as evidence of the contract in place of a written memorandum

Question 19

explain doctrine of part performance

Answer 19

following conditions must hold for courts to enforce oral contract:

1) Contract must be concerning land
2) Acts of performance must suggest quite clearly the existence of a contract dealing with the land in question; they must not be ambiguous or just as possibly explained as part of a quite different transaction. They must fulfill the very purpose of the contract.
3) Activities of either the plaintiff or the defendant may be considered acts of performance, but the plaintiff must have relied on the existence of the contract and suffered a loss if the contract is not enforced. This is detrimental reliance.

Question 20

requirement for writing of statute of frauds

Answer 20

!) note or memo of the contract signed by the defendant

2) all essential terms must be included, including identity of parties
3) signature can be printed or letterhead

Question 21

define: unenforceable contract

Answer 21

a contract that still exists for other purposes but neither party may obtain a remedy under it through court action

Question 22

how will courts intervene in an unenforceable contract?

Answer 22

1) Recovery of money paid under an unenforceable contract - court will not permit party who breaches an unenforceable contract to gain further advantage
2) Recovery for goods and services - goods need to be returned or paid a reasonable price for them

Question 23

how can you turn an unenforceable contract enforceable?

Answer 23

1) if written memo formed after contract is formed

2) oral contract may vary or end a prior written contract

Question 24

how must a defendant argue statute of frauds as to why contract should not be enforced?

Answer 24

Defendant must expressly plead the statute - defendant sued upon oral contract must expressly plead the statute as a defence to the action otherwise the court will decide the case without the statute and plaintiff will succeed if he establishes the contract through oral was validly formed

Question 25

what does sale of goods act not apply to?

Answer 25

does not apply to money or services, or even if it is a contract for a good and a service

Question 26

2 approaches to interpretation

Answer 26

Strict or plain meaning approach, Liberal approach to contractual interpretation

Question 27

define Strict or plain meaning approach

Answer 27

an approach that restricts interpretation to the ordinary or dictionary meaning of the word

Question 28

define Liberal approach to contractual interpretation

Answer 28

an approach that looks to the intent of the parties and surrounding circumstances and tends to minimize but does not ignore the importance of the words actually used

Question 29

what is the meaning of contract is not clear?

Answer 29

courts will use both approaches to interpretation and choose best meaning for situation

Question 30

what happens if there is conflicting testimony?

Answer 30

courts will seek corroboration from a non-party, from documentation or from actions of the parties; if they cannot they will asses who is more credible based on their truthfulness and reliability

Question 31

define contra proferentum

Answer 31

a rule of contract interpretation that prefers the interpretation of a clause that is least favourable to the party that drafted the clause; example: standard form contract

Question 32

define parol evidence

Answer 32

evidence outside the written agreement

Question 33

explain parol evidence rule

Answer 33

a rule preventing a party to a written contract from later using parol evidence to add to, subtract from, or modify the final written contract

Question 34

exceptions to parol evidence rule:

Answer 34

1) Document does not contain whole contract
2) Missing term is part of subsequent oral agreement
3) Missing term is part of collateral agreement for which there is separate consideration: a separate agreement between parties made at the same time as but not included in the written agreement
4) Missing term is a condition precedent to the written agreement

Question 35

define: condition precedent

Answer 35

any set of circumstances or events that the parties stipulate must be satisfied or must happen before their contract takes effect

Question 36

define implied term

Answer 36

a term not expressly included by the parties in their agreement but which, as reasonable people, they would have included had they thought about it

Question 37

what will courts do with implied terms

Answer 37

Courts will imply a term into the contract is it is reasonably necessary to make a contract effective

Question 38

strategies to manage legal risks for writing and interpretation

Answer 38

1) Use written contracts, not oral contract
2) Incorporate definition of key words and be consistent with word use
3) Save pre-contract memos, emails (parol evidence)
4) State document is entire written contract so no parole evidence can be applied

Question 39

define 3rd party

Answer 39

a person who is not one of the parties to a contract but is affected by it

Question 40

define privity of a contract

Answer 40

the relationship that exists between parties to a contract

Question 41

what must a plaintiff do to win a contract lawsuit and why?

Answer 41

prove privity of a contract, they are both parties to the same contract because 3rd party cannot sue because they have not given any consideration

Question 42

privity of a contract with sellers of goods

Answer 42

only purchaser of a good may sue for breach of contract, 3rd parties cannot sue for breach of contract, only under tort law

Question 43

privity of a contract with manufacturers

Answer 43

even though purchaser has no contract with manufacturer, she may still sue in tort for negligence

Question 44

define vicarious performance

Answer 44

a 3rd party performs contractual obligations on behalf of the promisor who remains responsible for proper performance

Question 45

3rd party liability under vicarious performance?

Answer 45

The 3rd party performing contractual obligations under vicarious liability does not face contractual liability, but may face tort liability, but an exemption clause may protect them from tort liability

Question 46

define exemption clause

Answer 46

a clause in a contract that exempts or limits the liability of a party

Question 47

definition: trust

Answer 47

an arrangement that transfers property to a person who administers it for the benefit of another person

Question 48

define trustee

Answer 48

a person or company who administers a trust (legal owner of trust)

Question 49

define beneficiary

Answer 49

a person who is entitled to the benefits of a trust or the person entitled to receive insurance monies

Question 50

define beneficial owner

Answer 50

a person who, although not the legal owner may compel the trustee to provide benefits to him (3rd party, who may sue if trustee does not administer trust for his benefit)

Question 51

define trust agreement

Answer 51

the document that conveys property to the trustee to be used for the benefit of a 3rd party beneficiary

Question 52

define resulting trust

Answer 52

a trust relationship recognized when the conduct of the parties demonstrates the intention to hold property for the benefit of the other

Question 53

define constructive trust

Answer 53

a trust relationship imposed by the court to prevent a party from being unjustly enriched by keeping property that should benefit another

Question 54

explain exemption of privity of a contract with resulting trust and constructive trust

Answer 54

3rd party may sue

Question 55

explain exemption of privity of a contract with insurance

Answer 55

person pays a premium in exchange for a promise from the insurance company to pay money on his/her death to a specified person (3rd party who may sue)

Question 56

define undisclosed principal

Answer 56

a contracting party who unknown to the other party is represented by an agent (person for whom the agent was acting may sue or be sued)

Question 57

define enurement clause

Answer 57

a clause in a contract that extends the rights and benefits to those inheriting from a party, succeeding the party, or taking an assignment from a party (those succeeding may sue)

Question 58

define principled exception

Answer 58

allows 3rd parties to rely upon a contractual exemption clause when the parties to the contract intended to include them and their activities come within the scope of the contract and the exemption clause

Question 59

define assignor

Answer 59

a party that assigns its rights under a contract to a 3rd party

Question 60

define assignee

Answer 60

a 3rd party to whom rights under a contract have been assigned

Question 61

define assignment

Answer 61

the transfer by a party of its underperformed rights under a contract to a 3rd party

Question 62

define chooses in action

Answer 62

rights to intangible property such as patents, stocks and contracts that may be enforced in the courts

Question 63

define chooses in possession

Answer 63

rights to tangible property that may be possessed physically

Question 64

summary of 3rd parties to a contract that may acquire rights under it or become subject to duties to perform

Answer 64

1) through vicarious performance, such as an employee carrying out the obligations of one of the parties to a contract
2) When an exemption clause applies to a 3rd party
3) Through a trust where a trustee confers benefits on a 3rd party
4) Through an insurance contract under which the insurer promises to pay a 3rd party in the event that a particular risk occurs
5) When an agent makes a contract on behalf of an undisclosed principal
6) when a party acquires an interest in land and becomes subject to rights and duties owed to a 3rd person previously registered against the land
7) When contractual rights are assigned to a 3rd party

Question 65

explain equitable assisgnments

Answer 65

1) Require only that a clear intention to assign all or part of a contractual benefit be shown either orally or in writing
2) An assignment other than a statutory assignment
3) Partial or conditional in nature; promisor must receive notice of assignment before obligated to pay
4) Assignor must participate in any lawsuit
5) Subject to the equities

Question 66

explain statutory assignment

Answer 66

1) An assignment that complies with statutory provisions enabling the assignee to sue the other party without joining the assignor to the action
2) Provincial statutory requirements: absolute (unconditional and complete), was in writing, promisor received notice of it in writing
3) Promisor to receive notice of transfer before being obligated to pay
4) Assignor need not participate in any lawsuit
5) Subject to equities

Question 67

explain negotiable instruments

Answer 67

1) Federal statutory requirements: bill of exchange act applicable to promissory notes, cheques, bills of exchange
2) Promisor need not receive notice before obligated to pay
3) Previous holders need not participate in any lawsuit
4) Not subject to equities (except for consumers)
5) Currency special rules

Question 68

strategies to manage legal risks for privity and assignment

Answer 68

1) Every person responsible for performance of a contract should be named as a party to it
2) Exemption clauses should name all possible participants in the performance of a contract

Question 69

what does subject to the equities mean?

Answer 69

assignee can never acquire a better right to sue a promisor than the assignor had

Question 70

define set off

Answer 70

right of a promisor to deduct an existing debt owed to him by the promisee

Question 71

what is an assignment by operation of the law and give some examples

Answer 71

contract is automatically assigned without any action by the parties (bankruptcy situation where contract is assigned to trustee, death where contract is assigned to executor or courts appoint a representative if no executor is named)