Week 3 - Contract Formation Flashcards
contract terms
The terms of a contract simply refer to promises made by one party to another by virtue of offer and acceptance. From a risk management perspective, a contract is a business tool that can be used to manage a business’s exposure to liability
what are the two types of contract terms
Contractual terms can be (1) expressed or (2) implied
Expressed term - is a provision of the contract that states or makes explicit one party’s promise to another
Implied term - a provision that is not expressly included in a contract but that is necessary to give effect to the parties intention (plaintiff carries the burden of proof). Courts will imply terms based on a number of grounds (ex, business efficacy and statutory requirements)
how does a court interpret contractual terms
How a court will interpret any given contract depends on rules of construction - guiding principles for interpreting or constructing the terms of a contract with the goal is to understand the mutual and objective intentions of the parties expressed in the words of the contract - how would a reasonable person interpret them but in combination with the contracts factual matrix (ex., background facts)
what 3 forms can contracts take place in
Contracts can take 3 possible forms:
Entirely oral - ie the terms of the contract are based on a conversation
Entirely written - ie the terms of the contract are contained in a written contract
Both oral and written - some of the agreement is written down and other assurances are not
potential consequence to a written contract
There is an important consequence to having a written contract as it may trigger the parol evidence rule- a rule that limits the evidence a party can introduce concerning the contents of a contract - when a court is asked to determine the parties intentions (what a contract means and includes). It forbids outside evidence that is extrinsic to the written agreement.
several situations where evidence outside the contract is important and permitted
Alleged problem going to the formation of the contract
Intended to be partly oral and partly in writing - applies only when the parties intended the document to be the whole contract
The promise to be enforced is contained in a separate (collateral) agreement that happens to be oral
The language in the contract is ambiguous, evidence outside the written contract can be used to resolve the ambiguity
The objective is to establish the factual matrix of the contract as an aid to contractual interpretation
conditional agreements
Conditional Agreements- are essential when one party wants to incur contractual obligations but only under certain circumstances.
From a risk management perspective, it is important that the law provide a mechanism not only for the making the contractual obligation on a certain event happening, but also for binding the parties in some way during the time set aside for that condition to occur
condition subsequent
Condition subsequent - an event or circumstance that, when it occurs, brings an existing contract to an end. Will always bind the parties to a contract pending the fulfillment of the condition. The occurrence of the subsequent condition operates to terminate the contract between the parties
Ex., if you don’t meet this sales target you lose your job
condition precedent
Condition precedent - an event or circumstance that, until it occurs, suspends the parties’ obligations to perform their contractual obligations - the parties obligations are not triggered pending fulfillment of the condition
Consider the purchasers of real estate, who rely on the conditional agreement by making the contractual obligation to buy and sell subject to: mortgage financing and subdivision approval
limitation of liability clause
Limitation of Liability Clause- a term of a contract that limits liability for breach to something less than would otherwise be recoverable
exemption clause
Exemption Clause - a term of a contract that identifies events causing loss for which there is no liability
liquidated damages clause
Liquidated Damages Clause - a term of a contract that specifies how much one party must pay to the other in the event of a breach. Through such clauses, the parties themselves decide before a breach has even happened what that breach would be worth by way of compensation
voidable contract vs void contract
Voidable Contract - a contract that in certain circumstances, an aggrieved party can choose to keep in force or bring to an end (ex., someone signed under duress, it is their decision to decide if it should be set by a judge)
Void contract - a contract involving a defect so substantial that it is of no force or effect
economic duress
Economic duress- the threat of economic harm that coerces the will of the other party and results in a contract, takes the form of oe party financially pressuring the other
undue influence and what circumstances it operates in
Undue Influence - unfair manipulation that compromises someone’s free will or choice
Usually operates in two circumstances:
Actual Pressure - arises because one party has extended unfair influence on the other
Presumed Pressure - sometimes the relationship that already exists between the parties give rise to a presumption that the ensuing agreement was brought about by one party’s unfair manipulation of the other
Unconscionable contract and the steps process:
Unconscionable contract - an unfair contract is formed when one party takes advantage of the weakness of another
Proof of unconscionability involves a two step process:
Proof of inequality in the positions of the parties - ex., lacks language facility or is poorly educated
Proof of an improvident bargain or proof of exploitation - the party seeking to have the contract set aside but also be able to demonstrate that its terms greatly advantaged one party over the other
misrepresentation
Misrepresentation - a false statement of fact that causes someone to enter a contract (ex., one party provides only partial information to the other side)
what needs to be proven for actionable misrepresentation
The law provides that a negotiating party must answer inquiries accurately and that any information volunteered must be correct. Whether or not a statement is a misrepresentation that allows the other party a remedy depends on its nature and effect. To count as a misrepresentation, it must be proven that the statement is:
False
Clear and unambiguous
Material to the contract, that is must be significant to the decision of whether or not to enter into the contract
One that actually induces the aggrieved party to enter into the contract
Concerned with a fact and not an opinion, unless t
what are the categories of actionable misrepresentations
The law further divides misrepresentations into three categories:
Fraudulent misrepresentation. The speaker has a deliberate intent to mislead or makes the statement recklessly without knowing or believing that it is true
Negligent misrepresentation. The speaker makes the statement carelessly or negligently
Innocent misrepresentation. The speaker has not been fraudulent or negligent, but has misrepresented a fact. By process of elimination, the misrepresentation is merely innocent
Remedies for misrepresentation
Fraudulent - recession in contract, damages in tort
Negligent - recission in contract, damages in tort
Innocent - recession in contract
legal mistake
The doctrine of a legal mistake- an error made by one or both parties that seriously undermines a contract - is one of the most difficult aspects of contract law
A legal mistake may also concur if both parties have made the same error (common mistake- both parties to the agreement share the same fundamental)
what 2 situations make a freely chosen contract unenforceable:
Under the classic model of illegality, even a freely chosen contract will be unenforceable if it:
1. Is contrary to a specific statute
2. Violates public policy
contract is illegal by statute
Illegal by Statute
Numerous kinds of contracts are made illegal by legislation. Examples include the Criminal Code forbids loans at a rate of interest exceeding 60% per year.
contract is contrary to public policy
Contrary to Public Policy
At common law, contracts are contrary to public policy when they injure the public interest. Two main kinds of restrictive covenants are found in this area:
Non-solicitation Clause - forbids contact with the business’s customers
Non-competition Clause - forbids competition itself and is therefore much more intrusive
Non competition clauses are enforceable if they are reasonable between the parties and with reference to the public interest
How large a geographic area is covered by the clause
The period of time during which the covenant purports to be in force
The extent of the activity which the clause purports to limit
