Module 5: Contract Law Flashcards
Contract
is an enforceable mutual understanding or agreement between two or more capable parties to perform some lawful act for a legal consideration. A contract consists of an actionable promise or promises. Every such promise involves at least two parties, a ๐ฝ๐ฟ๐ผ๐บ๐ถ๐๐ผ๐ฟ and a ๐ฝ๐ฟ๐ผ๐บ๐ถ๐๐ฒ๐ฒ, and an outward expression of common intention and of expectations to the declaration or assurance contained in the promise.
Contract Law
Contract law forms the basis for all commercial transactions. Contract law is the set of rules so that contracts can be made and enacted in an orderly fashion. In this way it is said to be facilitative.
Facilitative
provides the framework for business and transactions and promotes the conduct of business. It enables individuals to enter into business arrangements with each other in the knowledge that there are a set of rules that must be followed.
Contract Law governs the following requirements: (4 of them)
Entering a Contract. Managing a contract. Discharging or terminating a contract. Remedying any breach of contract.
simple contract
an agreement creating an obligation in law when one party promises to do, or refrain from doing, something in consideration of something to be done by the other party. The contract can be verbal or in writing without seal.
formal contract
a contract under seal. This means the contract is printed or typed, sealed and delivered. Consideration does not have to be mentioned in a contract under seal.
bilateral contract
exists when both parties promise something before performance takes place. For example, if Company X offers to clear a tract of land for $25,000 and Company Y replies, accepting the offer, then a contract has been struck. Note that no performance has taken place except the trading or exchanging of promises.
unilateral contract
a special type of arrangement in which there is no exchange of promises. One party only makes an offer and the contract offer is accepted simply by the performance of its conditions and without a separate communication of that acceptance. An example of this would be an offer of a reward for information regarding a lost pet. The person giving the relevant information will be deemed to have accepted the contract and will be due the rewarded.
valid contract
is one that the law accepts as binding on both parties. The contract contains all the elements or requirements of a contract.
void contract
is one that the law will not give effect to as there is an element or requirement missing. Because of this missing element, the contract never existed. The law will attempt to remedy the situation by returning the parties to their original status before the contract.
voidable contract
is a contract that does exist; however, it can be rescinded (revoked) or affirmed by one of the parties at their option. This type of contract is important in situations
such as misrepresentation where the misled party can decide to revoke or continue with the contract.
illegal contract
is one that involves one or more of the parties performing an unlawful act, for example selling illegal drugs. As such the contract is void.
unenforceable contract
is one which is good in substance; however, by reason of some technical defect, one or both of the parties cannot be sued on it.
express term
in a contract is clear and unambiguous and may only be interpreted in one way.
implied term
A term that hasnโt been agreed expressly by either party, but that has been implied by the other terms of the contract. In a contract is not expressed in the contract but would likely have been included if the parties had thought about it.
What are the 4 steps to form a contract?
1) A party perceives a need.
2)That party finds a method of fulfilling that need.
3) That party negotiates with another party that can fulfill that need.
4) A final arrangement for fulfilling the need is agreed upon.
EXAMPLE: If we use an example of the purchase of a car, two capable individuals negotiate a deal with complete freedom and end up with an agreed bargain or contract. Anything legal can be put into that contract.
What are the 6 elements every contract must contain?
1) Mutual agreement: There must be evidence of an offer by one party, acceptance by the other party, and mutual understanding by both parties.
2) Competent parties or capacity: The parties to the contract must be legally able to engage in a contractual agreement, for example, be the age of majority.
3) Consideration: The parties agree that something will be done by one or both parties, in exchange for some kind of consideration such as money.
4) Proper and legal subject matter: The contract cannot cover any illegal or criminal activity.
5) Intention to be bound: The parties must intend to have a legal agreement.
6) Enforceable form: There must be some evidence of the terms of the contract, for example a written document.
An offer
is a proposal to do something. An offer may be verbal, written or implied by conduct. An offer must be definite, specific and serious.
Counter Offer
If the acceptance of the offer is subject to certain changes or extra requirements then it becomes a counter-offer.
An option contract
can ensure that an offer remains open to the offeree for an agreed period of time and that no one else can contract for the goods/services/property during that period of
time.
What does consensus as idem mean?
Mutual agreement.
Competent
contract may be unenforceable if the parties entering into a contract are not considered competent, in other words if they are not considered able by reason of their status. Another way of saying this is that they must have the capacity to enter into a contract.
Consideration
is the cause or purpose for entering into a contract. The consideration is the price (promise or act) each party has to pay according to the contract. Lawful and valuable consideration must be given to each other by both parties.
What does Quid pro quo mean?
โsomething for somethingโ is essential for consideration to exist.
proper and legal
The purpose of a contract must be proper and legal. Contracts are not considered proper and legal if they are for criminal purposes or are against specific statutes and/or the public good or public policy in general.
Restraint of trade
contracts are written with conditions that curtail certain business activities.
These conditions are ๐ฟ๐ฒ๐๐๐ฟ๐ถ๐ฐ๐๐ถ๐๐ฒ ๐ฐ๐ผ๐๐ฒ๐ป๐ฎ๐ป๐๐. The courts may or may not accept these contracts, depending upon whether the restraint is reasonable, in that the time restriction and area restriction go no further than is necessary for the protection of the parties.
Intention to be bound
The parties to a contract actually have to want to or intend to create a contract. Parties cannot find themselves in a contract without knowingly putting themselves there.
A Statute of Frauds
is a law that requires certain types of contracts to be evidenced in writing in order to be valid and enforceabIe.
Impeach
The court may call into question, or impeach, a contract in the following circumstances: Mistake. Duress. Undue Influence. Misrepresentation. Innocent, or Fraudulent.
common mistake
is when both parties agree upon the subject matter and terms but are mistaken about some basic fact underlying the contract.
mutual mistake
refers to a situation in which the parties made different mistakes rather than a common one, for example when each party to the contract IS mistaken about the intentions of the other. Examples are: A mistake in identity of the subject matter. A mistake in identity of parties. A mistake as to the quality of the subject matter.
unilateral mistake
is a mistake made by only one party to a contract and the other party knows, or must be assumed to know.
What does โNon est factumโ mean?
โit is not my act because my mind did not go with my penโ is used to give a party relief and void a contract when it is clear this party was not aware of what he or she was agreeing to.
Under Duress
Where a party is prevented from acting (or not acting) according to his or her free will, by threats or force of another, the contract is said to be under duress.
A special relationship
is one in which there is a natural power difference between the two parties that could then be exploited by the party with greater power. For example, a special relationship exists between an employer and employee, a teacher and student, a policeman and an accused, and a spiritual leader and a follower.
What does โUbberimae Fideiโ mean?
โContracts of utmost good faith.โ For a contract to be of utmost good faith, full disclosure during the negotiation of the contract is generally required. The most typical example of the need for full disclosure is in the negotiation of a life insurance policy, for which the insurance company normally wants to know the previous health problems and life style of the proposed client.
Innocent misrepresentation
occurs when one party makes a false statement concerning a fact material to the contract, but while doing so honestly believes the statement to be true.
Rescission
is taking back the contract so that the parties are back to their original positions before the contract took place.
Fraudulent misrepresentation
also known as (fraud) is an intentional false statement or one that is made recklessly with no regard to the truth, with the intent that the other party act on it. The misled party can ask for rescission of the contract, if that is still possible, and may take out an action for damages through a tort of deceit.
Express terms
are clear, precise, unambiguous statements in the contract about what the parties are agreeing to.
Implied terms
statements of what would have been agreed to had the parties ever thought about them.
Parol Evidence Rule
means contracting parties cannot attempt to alter the meaning of their contract through the use of contemporaneous oral declarations.
Condition precedent
a condition or set of conditions or events, which the parties agree must be satisfied or take place before their contract takes place. May or may not be recorded in writing. Most offers to buy houses contain condition precedents, written โsubject toโ clauses in the interim agreement.
What are the 6 reasons to discharge a contract?
1) Performance. 2) Agreement. 3) Contracts own dissolution. 4) Frustration. 5) Operation of law. 6) Breach of contract. (More info in the OACETT Manual page 151 - 159).
Substantial performance
occurs when a party has performed almost all of the contractual obligations, except possibly for some small part. The party claims substantial performance and asks for payment for the work completed.
tender of performance
the services or product agreed upon in the contract are offered by one party, but refused by the other.
Tender of payment
is the process of payment for a specific sum due at a specific time, as specified in the contract.
Condition precedent
a contractual condition that suspends the coming into effect of a contract unless, or until, a certain event takes place.
Condition subsequent
is a condition in a contract that causes the contract to become invalid if a certain event occurs.
Doctrine of frustration
covers the occurrence of some unforeseen event after the contract has been entered into, which impedes or prevents the performance of the contract or makes its performance quite useless. Examples areโฆ A change in the law rendering the previous contract illegal. Disability or death making personal services impossible. A mutually anticipated event fails to occur. Destruction of the vital subject matter of the contract.
Self-induced frustration
occurs when a party deliberately brings about a situation where the contract cannot be performed and then claims frustration. If frustration is self-induced it is considered a breach of contract rather than a frustrated contract.
Dโischarge by operation of lawโ may occur in the following situations?
Bankruptcy, Meger, Alteration, Lapse of time.
Repudiation
is a fairly common cause for a contract to end and happens when one party informs the other party, before the completion date, that the contract will not be fulfilled and that they will not go on with it.
Anticipatory breach
If the repudiation takes place before performance is required then it is an anticipatory breach.
What are three remedies for breach of a contract?
The three remedies are, Damages, Quantum Meruit, Equitable remedies specific performance and injunction
Liquidated damages
are reasonable damages for breach of contract decided upon in advance by the parties to a contract.
Quantum meruit
a method that allows a party to receive compensation or payment for the work completed on a contract that has been breached by the other party.
Equitable remedies
used when damages are found to be insufficient or inadequate to compensate an injured party in a breach of contract case. There are two types of equitable remedies: specific performance and injunction.
Specific performance
is used in situations in which monetary compensation for unique goods will not suffice. Specific performance is not generally used in personal service contracts.
injunction
a court order that prohibits or restrains a party from the performance of some act, such as a breach of contract. It is an equitable remedy and is provided at the discretion of the court.
Bid Bond:
When an owner requests that contractors submit a bid bond with their tender, they are attempting to ensure that the chosen contractor is serious about undertaking the work and will execute the contract.
Performance bond
is essentially a guarantee to the owner that the contract will be completed in all its provisions should the contractor default for any reason.
labour and material payment bond
the surety declares itself to be the trustee of those who are not party to the contract and thus have no rights to sue on it.
Bonding companies:
have a strict and clear bonding procedure to go through when issuing a bond. The bonding procedure ensures that the risks being taken are minimal, or at least statistically in their favour.
