Module 5: Contract Law

Question 1

Contract

Answer 1

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 𝗽𝗿𝗼𝗺𝗶𝘀𝗼𝗿 and a 𝗽𝗿𝗼𝗺𝗶𝘀𝗲𝗲, and an outward expression of common intention and of expectations to the declaration or assurance contained in the promise.

Question 2

Contract Law

Answer 2

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.

Question 3

Facilitative

Answer 3

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.

Question 4

Contract Law governs the following requirements: (4 of them)

Answer 4

Entering a Contract. Managing a contract. Discharging or terminating a contract. Remedying any breach of contract.

Question 5

simple contract

Answer 5

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.

Question 6

formal contract

Answer 6

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.

Question 7

bilateral contract

Answer 7

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.

Question 8

unilateral contract

Answer 8

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.

Question 9

valid contract

Answer 9

is one that the law accepts as binding on both parties. The contract contains all the elements or requirements of a contract.

Question 10

void contract

Answer 10

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.

Question 11

voidable contract

Answer 11

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.

Question 12

illegal contract

Answer 12

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.

Question 13

unenforceable contract

Answer 13

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.

Question 14

express term

Answer 14

in a contract is clear and unambiguous and may only be interpreted in one way.

Question 15

implied term

Answer 15

A term that hasn’t 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.

Question 16

What are the 4 steps to form a contract?

Answer 16

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.

Question 17

What are the 6 elements every contract must contain?

Answer 17

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.

Question 18

An offer

Answer 18

is a proposal to do something. An offer may be verbal, written or implied by conduct. An offer must be definite, specific and serious.

Question 19

Counter Offer

Answer 19

If the acceptance of the offer is subject to certain changes or extra requirements then it becomes a counter-offer.

Question 20

An option contract

Answer 20

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.

Question 21

What does consensus as idem mean?

Answer 21

Mutual agreement.

Question 22

Competent

Answer 22

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.

Question 23

Consideration

Answer 23

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.

Question 24

What does Quid pro quo mean?

Answer 24

‘something for something’ is essential for consideration to exist.

Question 25

proper and legal

Answer 25

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.

Question 26

Restraint of trade

Answer 26

contracts are written with conditions that curtail certain business activities.
These conditions are 𝗿𝗲𝘀𝘁𝗿𝗶𝗰𝘁𝗶𝘃𝗲 𝗰𝗼𝘃𝗲𝗻𝗮𝗻𝘁𝘀. 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.

Question 27

Intention to be bound

Answer 27

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.

Question 28

A Statute of Frauds

Answer 28

is a law that requires certain types of contracts to be evidenced in writing in order to be valid and enforceabIe.

Question 29

Impeach

Answer 29

The court may call into question, or impeach, a contract in the following circumstances: Mistake. Duress. Undue Influence. Misrepresentation. Innocent, or Fraudulent.

Question 30

common mistake

Answer 30

is when both parties agree upon the subject matter and terms but are mistaken about some basic fact underlying the contract.

Question 31

mutual mistake

Answer 31

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.

Question 32

unilateral mistake

Answer 32

is a mistake made by only one party to a contract and the other party knows, or must be assumed to know.

Question 33

What does “Non est factum” mean?

Answer 33

“it is not my act because my mind did not go with my pen” 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.

Question 34

Under Duress

Answer 34

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.

Question 35

A special relationship

Answer 35

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.

Question 36

What does “Ubberimae Fidei” mean?

Answer 36

“Contracts of utmost good faith.” 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.

Question 37

Innocent misrepresentation

Answer 37

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.

Question 38

Rescission

Answer 38

is taking back the contract so that the parties are back to their original positions before the contract took place.

Question 39

Fraudulent misrepresentation

Answer 39

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.

Question 40

Express terms

Answer 40

are clear, precise, unambiguous statements in the contract about what the parties are agreeing to.

Question 41

Implied terms

Answer 41

statements of what would have been agreed to had the parties ever thought about them.

Question 42

Parol Evidence Rule

Answer 42

means contracting parties cannot attempt to alter the meaning of their contract through the use of contemporaneous oral declarations.

Question 43

Condition precedent

Answer 43

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 “subject to” clauses in the interim agreement.

Question 44

What are the 6 reasons to discharge a contract?

Answer 44

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).

Question 45

Substantial performance

Answer 45

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.

Question 46

tender of performance

Answer 46

the services or product agreed upon in the contract are offered by one party, but refused by the other.

Question 47

Tender of payment

Answer 47

is the process of payment for a specific sum due at a specific time, as specified in the contract.

Question 48

Condition precedent

Answer 48

a contractual condition that suspends the coming into effect of a contract unless, or until, a certain event takes place.

Question 49

Condition subsequent

Answer 49

is a condition in a contract that causes the contract to become invalid if a certain event occurs.

Question 50

Doctrine of frustration

Answer 50

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 are… 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.

Question 51

Self-induced frustration

Answer 51

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.

Question 52

D’ischarge by operation of law’ may occur in the following situations?

Answer 52

Bankruptcy, Meger, Alteration, Lapse of time.

Question 53

Repudiation

Answer 53

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.

Question 54

Anticipatory breach

Answer 54

If the repudiation takes place before performance is required then it is an anticipatory breach.

Question 55

What are three remedies for breach of a contract?

Answer 55

The three remedies are, Damages, Quantum Meruit, Equitable remedies specific performance and injunction

Question 56

Liquidated damages

Answer 56

are reasonable damages for breach of contract decided upon in advance by the parties to a contract.

Question 57

Quantum meruit

Answer 57

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.

Question 58

Equitable remedies

Answer 58

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.

Question 59

Specific performance

Answer 59

is used in situations in which monetary compensation for unique goods will not suffice. Specific performance is not generally used in personal service contracts.

Question 60

injunction

Answer 60

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.

Question 61

Bid Bond:

Answer 61

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.

Question 62

Performance bond

Answer 62

is essentially a guarantee to the owner that the contract will be completed in all its provisions should the contractor default for any reason.

Question 63

labour and material payment bond

Answer 63

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.

Question 64

Bonding companies:

Answer 64

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.