Unit 2

Question 1

It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith:

Answer 1

a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.

Under this new general duty of honesty in contractual performance, parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step.

Question 2

Duty of honest performance vs/ duty of disclosure or fiduciary loyalty?

Answer 2

The duty of honest performance should not be confused with a duty of disclosure or of fiduciary loyalty. A party to a contract has no general duty to subordinate his or her interest to that of the other party. However, contracting parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests.

Question 3

History of the Good Faith doctrine

Answer 3

The doctrine of good faith traces its history to Roman law and found acceptance in early English contract law. For example, Lord Northington wrote in Aleyn v. Belchier (1758), 1 Eden 132, 28 E.R. 634, at p. 637, cited in Mills v. Mills (1938), 60 C.L.R. 150 (H.C.A.), at p. 185, that “[n]o point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void.” Similarly, Lord Kenyon wrote in Mellish v. Motteux (1792), Peake 156, 170 E.R. 113, “in contracts of all kinds, it is of the highest importance that courts of law should compel the observance of honesty and good faith”: p. 113-14. In Carter v. Boehm (1766), 3 Burr. 1905, 97 E.R. 1162, at p. 1910, Lord Mansfield stated that good faith is a principle applicable to all contracts; see also Herbert v. Mercantile Fire Ins. Co. (1878), 43 U.C.Q.B. 384; R. Powell, “Good Faith in Contracts” (1956), 9 Curr. Legal Probs. 16.

Question 4

the doctrine of unjust enrichment?

Answer 4

Unjust enrichment is a legal doctrine based on the general equitable principal that no one should be allowed to profit at another’s expense. In other words, a person should pay for the reasonable value of any benefits, whether property or services, that he or she has been unfairly received and kept from another person.

Question 5

What are two arguments raised against an increased role of duty of good faith in the law of contract?

Answer 5

[Two arguments are typically raised against an increased role for a duty of good faith in the law of contract: see Bridge; Clark; and Peden, “When Common Law Trumps Equity: the Rise of Good Faith and Reasonableness and the Demise of Unconscionability”. The first is that “good faith” is an inherently unclear concept that will permit ad hoc judicial moralism to undermine the certainty of commercial transactions.
second is that imposing a duty of good faith is inconsistent with the basic principle of freedom of contract. I do not have to decide here whether or not these points are valid in relation to a broad, generalized duty of good faith. However, they carry no weight in relation to adopting a rule of honest performance.

Question 6

What is Tort?

Answer 6

literally, a “wrong”; in law, an injury—whether physical, emotional, economic, or otherwise— suffered by a person for which another person may be held liable
The result of the infliction of the wrong is that the injured party sues the wrongdoer (tortfeasor) for the injury suffered.
Examples of situations that may result in a tort claim are a car accident and a slip-and-fall accident on a slippery sidewalk

Question 7

What do all situations that fall within contract law have?

Answer 7

All situations that fall within contract law, however, have at their heart one common feature: an agreement (or alleged agreement) between two or more parties. The relationship between the parties is governed by the contract or agreement.

Question 8

What does breach mean?

Answer 8

the failure of one party to perform a contract or contractual obligation

Question 9

What is an offer?

Answer 9

offer the proposal of a contract or a set of contract terms; an offer is not a contract until it is accepted

Question 10

What is revocation?

Answer 10

revocation the withdrawal of an offer by its maker

Question 11

What does consideration mean contract?

Answer 11

consideration the benefit(s) flowing to each party under a contract

Question 12

What does it mean to reject a contract?

Answer 12

rejection the refusal of an offer

Question 13

What does counteroffer mean?

Answer 13

counteroffer a new offer that replaces an original offer, often with revised terms

Question 14

What does lapse mean in regards to contract?

Answer 14

lapse the expiry of an offer that has not been accepted by a stipulated acceptance time or on the occurrence of stipulated conditions

Question 15

What are the four ways in which an offer can come to an end without being accepted:

Answer 15

Revocation, reject, counteroffer, lapse

Question 16

What does legal capacity mean?

Answer 16

legal capacity the ability to enter into an enforceable contract, based on the absence of factors (for example, cognitive impairment) that might impair capacity
a party may lack the capacity to contract as a result of mental incapacity, drunkenness, or minimum age requirements.

Question 17

What are the kinds of contract terms?

Answer 17

written terms, implied terms, exclusion clauses, contractual defects

Question 18

What are exclusion clauses?

Answer 18

exclusion clause a part of a contract that limits the contractual or statutory liability of a party in the event of a breach of the contract
eg. many home insurance policies cover claims against the owner when a visitor is injured on the property, but exclude coverage for injuries caused by the owner’s criminal acts (for example, an assault against a visitor)

Question 19

In order for a contract to be contractual defected?

Answer 19

To constitute a contractual defect (that is, a factor that affects the enforceability of the contract), a misrepresentation must
• be based on a fact that is asserted to be true,
• have been false when it was acted on, and
• have induced the other party to make the contract.

Question 20

What does representation mean?

Answer 20

representation a statement or claim made during contract negotiations that, though not necessarily a term of the contract, may be relied on by a party in deciding whether to enter into the contract

Question 21

What does induce mean?

Answer 21

pursuade or bring about

Question 22

What does misrepresentation mean?

Answer 22

misrepresentation a representation based, either innocently, negligently, or intentionally, on incorrect information

Question 23

What does the term damages mean?

Answer 23

damages losses suffered as a result of the breach of a contract or the commission of a tort, or compensation awarded for contract or tort losses

Question 24

What does contractual defect mean?

Answer 24

contractual defect a legal problem with a contract that can either invalidate a contract or give rise to damages without invalidating the entire contract

Question 25

Define deceit

Answer 25

deceit a tort established where one party makes a factual representation, knowing it is false, and knowing that another party will rely on it and suffer harm or loss as a result

Question 26

What is it to rescind a contract?

Answer 26

rescind to opt, generally with good legal reason, not to carry out one’s side of a contract, as if the contract had never been made in the first place

Question 27

What does it mean “reasonable reliance”?

Answer 27

reasonable reliance reasonable actions by one party, generally based on representations or actions by the other party, that may result in losses that a court will compensate

Question 28

Collateral Contract is?

Answer 28

collateral contract a contract that is related to or depends on, but is separate from, another contract

Question 29

Misrepresentation …

Answer 29

Representations are statements or claims made by contract parties in the course of negotiations. Although they may induce a party to make the contract, they are not necessarily incorporated into the document as a contractual term or obligation. As a result, misrepresentations do not automatically give rise to an award of damages under contract law because there has been no breach of the contract. There may, however, be tort liability for misrepresentation that is negligent or intentional.

Question 30

Fraudulent misrepresentation is …

Answer 30

Fraudulent misrepresentation A s tatement that is made that is known to be false or is made recklessly, without any regard to its truth, is a fraudulent misrepresentation. Misrepresentations of this type give rise to the tort of deceit. Remedies that may be awarded to the innocent party may include an award of damages under tort law and/or the right to rescind (to not carry out one’s side of) the contract.

Question 31

A simple example of a case of negligent misrepresentation …

Answer 31

would be where the owners of a business provide financial information about the business (without adequately verifying the accuracy of that information) to a potential investor, and it later turns out that the financial information was inaccurate, the business has been overvalued, and the investor loses money (see, for example, Strand v Strand 5 ).

Question 32

innocent misrepresentation is

Answer 32

innocent misrepresentation A s tatement of fact that is not true but was made by one who believes it to be true is an innocent misrepresentation. Although this may give rise to a right of the other party to rescind the contract, no damages will be awarded unless the representation can be shown to be either a term of a collateral contract (one that is related to but separate from another contract) or an implied term of the main contract.

Question 33

What are the three types of mistake under contract law?

Answer 33

common or mutual mistake, unilateral mistake, and a situation called non est factum . With the exception of common mistakes, once proven, a mistake may render a contract unenforceable.

Question 34

Common or mutual mistake is?

Answer 34

Such a mistake exists where both parties have made the same error (are mistaken about a fundamental aspect of the contract). If the party requesting the right to rescind the contract on grounds of mistake was at fault in causing the mistake (even if it was accidental), this remedy is not available to him or her.

Question 35

A unilateral mistake is?

Answer 35

Such a mistake exists where one party, with the full knowledge of the other, is mistaken. This mistake arises both in situations of fraudulent misrepresentation (described above) and in situations involving one party’s acceptance of an offer that the offeror knows is a result of a mistake. Obviously, in such cases, only the innocent party is entitled to rescind the contract.

Question 36

non est factum Latin for

Answer 36

“I didn’t sign/ make [this contract]”; a legal doctrine that can be pleaded, based on a narrow set of circumstances, in an attempt to render a contract unenforceable
For a party to successfully plead non est factum , the mistaken document must be different in quality or nature, not merely content, from the intended document. Also, the party claiming non est factum must not have been careless in signing the document. For example, in Landry v Tivey , 6 a man negotiated a mortgage and was told that he needed to obtain his ex-wife’s consent to encumber (mortgage) her share of the property. The ex-wife was not involved in the negotiations and was told that she was merely giving consent to the mortgage, not taking on any liability. However, the document she was given to sign provided that she would be liable for a shortfall if the proceeds of a sale of the house were insufficient to cover the mortgage. The court held that non est factum applied: Mrs. Tivey thought she was signing a consent form when she was actually signing a mortgage, and the mortgage broker did nothing to alert her to her misunderstanding.

Question 37

The general rule is that illegal contracts are unenforceable. There are two types of illegality what are they?

Answer 37

Common law illegality
The common law concerns itself primarily with contracts that are contrary to public policy. For obvious reasons, the court will not enforce a contract to kill someone or to share the proceeds of a robbery. Other examples include contracts to defraud the revenue service, contracts to corrupt public officials, contracts that attempt to deny the jurisdiction of the courts, contracts to commit a tort, or contracts that the court concludes are of an immoral nature.
• Statutory illegality This type of illegality arises where a breach of a statute is inherent in the fulfillment of a contractual obligation—one party has promised to do something that is contrary to legislation (such as to divide the land in contravention of Ontario’s Planning Act 7 ). In concluding that a contract is void because of statutory illegality, it is often necessary to consider the purpose of the relevant statute.

Question 38

formalities in a contract are?

Answer 38

procedural or formal requirements, such as writing, a seal, or a signature (typically prescribed by statute), that are necessary to make certain kinds of contracts enforceable

Question 39

Contract signed under duress is?

Answer 39

A contract is void for reasons of duress if, in signing the contract, a contracting party was influenced by threats of bodily harm against himself or herself or his or her family.

Question 40

What does Undue Influence refer to in the context of contracts?

Answer 40

A presumption of undue influence may exist in circumstances that involve relationships of a special personal or professional nature: the voluntariness of the contract may be put in question when one of the parties is perceived to be in a position of power over the other. Once raised, the presumption of undue influence must be successfully rebutted (proven incorrect) before the contract is considered valid. For example, if an elderly woman enters into a contract to sell her house to her lawyer for $50, she, or her heirs, could challenge the contract on the basis of undue influence exerted by the lawyer on the woman. The simple fact that the lawyer is in a position of trust, is feared and respected by the woman, and has some measure of control over her actions is enough to make undue influence an issue. The lawyer is then required to prove to the court that he did not exert undue influence on the woman in convincing her to sign the contract, or the contract will not be enforceable.

Question 41

An unconscionable contract is?

Answer 41

is one in which there is extreme onesidedness, such that an honest and fair person would not propose it because it is so unfair to the other person. A two-part test must be satisfied to be successful in a claim of unconscionability. It must first be established that a substantial inequality of bargaining power existed between the parties and that the exertion of power by the influential party created the unfair result. Once the inequality of bargaining power is established, the onus shifts to the party in the position of power to establish that, although the power existed, it was not exercised. Because a valid contract need not involve equal consideration (equal benefits on both sides), a “bad” bargain is not in itself sufficient cause for applying this doctrine.

Question 42

Frustration a legal doctrine that?

Answer 42

that releases the parties to a contract from their responsibilities under the contract when something (a circumstance or an object, for example) necessary to the performance of the contract no longer exists
In the event that performing the terms of the contract is impossible or increasingly difficult, the doctrine of frustration allows the court to terminate or alter the contract’s terms in an attempt to preserve the original “flavour” of the bargain. For example, in Ens v Pacific Home Products Ltd , a contract to install a glass sunroom that required ten-foot-deep support pilings was frustrated when the contractor determined that an unusually high water table in the area meant that the holes drilled for pilings continually filled up with wet sand. 10 The doctrine does not apply in circumstances where a reasonable person could have contemplated the future event and no provision was added to the contract to plan for it.

Question 43

The Frustrated Contracts Act states?

Answer 43

that where a contract becomes frustrated, moneys paid are recoverable and sums owing are not enforceable, thus placing parties back, as much as possible, into the financial positions they were in before making the contract. In the Ens case, the couple who contracted for the sunroom were given their deposit back, but the costs spent on the project up to the time that it was abandoned were split 35/65 as between the couple and the contractors, since neither party could have foreseen the issue, but the contractor had more experience with barriers to construction (and so could be expected to bear more of the risk of a failure).

Question 44

What is a remedy when discussing court decisions regarding contracts disputes?

Answer 44

A remedy is the order a judge makes to compensate the innocent party for the breach of contract. Contractual remedies offered by the courts are designed either to put the innocent party back into the position he or she would have been in had he or she not entered the contract, or to put the innocent party into the position he or she would have been in had the contract been fulfilled.

Question 45

The remedy of restitution is?

Answer 45

restitution the return of benefits to put contracting parties back into their precontractual position
Restitution is most appropriate where the plaintiff, relying on the defendant’s promise, has transferred something of value to the defendant. In an attempt to guard against unjustly enriching one party at the expense of another, restitution puts the parties back into their precontractual positions. For example, Joanne agrees to buy Ali’s car. Joanne pays Ali a deposit of $500. Ali changes his mind and decides not to sell her the car. Joanne sues Ali. The court orders Ali to return Joanne’s deposit of $500, thus putting Joanne in the same position as before they entered into the agreement.

Question 46

The remedy of reliance is?

Answer 46

reliance taking actions based on dependence on a promise or contract, including the expenditure of money in dependence on the contract
An attempt is made to undo the harm that reliance on the defendant’s promise has caused by putting the plaintiff in a position that is similar to the precontractual position

Question 47

The remedy of expectations is?

Answer 47

expectation anticipation of benefits from a contract being fulfilled
This kind of remedy attempts to place the plaintiff in a position similar to what was expected had the contract been performed. Compensation according to expectation is the most common contract law remedy.

Question 48

specific performance

Answer 48

specific performance a court order requiring a party in default to fully perform his or her obligations under a contract
Specific performance is available only where the payment of money damages is inadequate. The sale of real estate is often considered an appropriate situation in which to request specific performance. This is based on the theory that all land is unique and that its loss cannot be compensated with an award of monetary damages.
If specific performance is not ordered, the judge must then determine the appropriate amount of monetary damages to be awarded. In doing so, he or she will consider the following issues: quantification of damages, mitigation of damages, and remoteness.