C18 - Contract Law

Classifying Contracts

• contract: agreement between 2+ competent parties that can be enforced in court; legally binding agreement
• bilateral contract: agreement by both parties to do something for each other
  • i.e. go to work; get paid on payday
  • take a cab ride; driver expects payment
  • friend sells me used DVD for $10, I agree
    • friend gets $10, I get DVD

Oral Contracts and Written Contracts

• oral contract: verbal agreement between 2+ parties
  • lack hard evidence / witnesses to prove contract has been made
  • break golden rule of contract: “get it in writing”
• written contract: agreement between 2+ parties in which the terms are set out on paper or by Internet communication
  • easier for courts to enforce

Implied Contracts and Express Contracts

• implied contract: agreement in which the parties enter a contract through their conduct
  • i.e. dropping money in fare box of a bus; entered contract even though no words spoken
  • contract: bus ride (service) for money
• express contract: agreement in which the terms have been discussed and agreed upon in advance
  • i.e. Bob sells John his laptop
  • They agree on a price and the laptop is sold

Contracts Under Seal

• contract under seal: written agreement bearing a red sticker, handwritten dot, or the word seal
  • a.k.a. specialty contract, deed
• some provinces: sale / mortgage of land must be under seal to be enforceable

Elements of a Contract

consensus ad idem (meeting of the minds): a clear understanding between the parties of the terms of the contract and the willingness to abide by them

flowchart TD
a[Offer] --> b[Acceptance] 
b --> c[Consideration] --> d[Enforceable Contract]

Offer

• offer: clear proposal to another party to enter into an agreement on certain terms
• offeror: person who makes the offer
• offeree: person who receives the offer

Making a Valid Offer

• offer must be intended seriously and its terms must be certain
  • offer made as a joke / out of frustration is not valid
  • i.e. I sell my chess pieces because I’m angry I got 2nd place in the chess tournament
• if reasonable person thinks offer is serious, there is likely a binding contract

Invitation to Treat

• invitation to treat: a communication intended to elicit offers from the persons who receive it
  • i.e. “For Sale” sign, advertisements
  • whether communication is offer or invitation to treat depends on intent of sender
• intent determined from language used and surrounding circumstances
• if someone reasonable thinks ad is offer, person may have to live up to offer
• Carlill v. Carbolic Smoke Ball Company, [1893] 1 Q.B. 256 (C.A.)

Communicating an Offer

• offer is not an offer until it has been communicated to the party for whom it is intended
• offers may also be communicated via an ad
• important to know when the offeree became aware of the offer or if the offeree was even aware of the offer

Ending an Offer

• not reasonable for indefinite offer
• lapse: to be terminated or cease to exist
• offer lapses if not accepted before date set out in offer
  • or if offeror dies, becomes mentally incompetent, or goes into bankruptcy
• revoke: to withdraw or take back
• offer can be revoked by offeror before it has been accepted by offeree
• counteroffer: an offer made in response to an existing offer
  • i.e. I sell Toti my rare Pokémon card for $1,000
  • Toti says that he wants the Pokémon card for $800 instead

Acceptance

• acceptance: clear indication by the offeree to enter into a contract on the terms set out by the offeror
  • no contract w/o acceptance
  • offer may state how acceptance must be made, but normally, acceptance valid if it is clear

Communication of Acceptance

Rules that govern acceptance:

1. Acceptance of an offer is usually required to be active
   • inaction or silence ≠ acceptance
   • removes uncertainty of whether offeree has accepted
   • avoids “foisting,” forming of contract w/o offeree’s consent
     • i.e. company sends product to home stating that if not returned within 7 days, you would’ve purchased them
2. The contract is formed when the offeror receives notice of acceptance from offeree
3. Acceptance must be made in a reasonable manner, or in the form required by the offeror
   • generally, acceptance communicated in same way offer was communicated
4. When the offeror has expressly required acceptance by mail, or it is clear that the mail may be used … acceptance is completed as soon as the letter is mailed
   • even if offeror never receives letter
   • “postal acceptance” rule puts risk of losing letter on offeror
5. An offer cannot be accepted if the offeree knows it has been revoked by the offeror

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• unilateral contract: contract formed when the offeree accepts an offer by performing an act requested by the offeror
  • i.e. finding a lost dog for $1,000 after newspaper notice for lost dog
  • however, no contract formed if person finds lost dog but is unaware of newspaper notice

Consideration

• consideration: something of value that either benefits the party who receives it or is a loss / inconvenience to the party who provides it
  • i.e. buying a magazine from a store: magazine (buyer’s benefit), money (seller’s benefit)
• can be anything w/ monetary value
  • i.e. Rachel agrees to mow lawn if I agree to give her my Leafs tickets
• can be refraining from something you usually do
  • i.e. Bob watches basketball games every Saturday but he agrees to drive me to a football game on one Saturday in exchange for my Pokémon card

Gratuitous Promise

• gratuitous promise: offer that gives benefit to offeree only
• non-enforceable contract in Court most of the time
• exceptions
  • Eli makes generous pledge to hospital’s building fund
  • hospital begins renovations from pledge
  • if Eli refuses to honour pledge after renovations,…
  • Court may enforce contract (constitutes consideration)

Valid Consideration

• present consideration: something of value that is exchange at the time a contract is formed
• future consideration: something of value that is exchanged after a contract is formed
  • i.e. delivering goods / services to my home

Invalid Consideration

past consideration: benefit conferred before contract has / is alleged to have been formed

i.e. you help someone, they promise you money after your help, they don’t pay

Invalidating Factors

Incapacity to Contract

capacity: the ability to enter into and understand a legally binding contract

Minors

Most contracts with minors are unenforceable in court

• Enforceable Contracts
  • minors bound by contracts for purchase of necesaries
  • necessaries: basic items a person requires to function in society, such as food, clothing, shelter, and medical / dental services
  • minor only obligated to pay fair and reasonable price for goods or services
  • must be beneficial to minor and cannot be disadvantage
• Voidable Contracts
  • voidable contract: a contract that can be avoided / not carried out
  • until minor leaves contract, adult who agreed is bound by it
  • ratification: indication of willingness to be bound by a contract after reaching age of majority
    • i.e. Leslie, a minor, purchases motorcycle for $1,500makingmonthlypaymentsof$100
    • She can stop making payments and return motorcycle at any time as long as she’s a minor
    • After turning 18, she is now bound by the contract
  • repudiation: indication by words / conduct that one does not intend to honour the obligations of a contract
    • for contracts that are binding unless minor repudiates them upon reaching age of majority
• Void Contracts
  • void contracts: agreements without legal force
  • i.e. youth unknowingly sells valuable baseball card to adult
  • Courts can force the adult to return baseball card
• Parental Liability
  • parents not liable for their children failing to pay for goods not considered necessities
  • most merchants don’t make deals w/ minors unless parent / guardian willing to co-sign contract
    • agreement that parent / guardian agrees to fulfill minor’s obligation to pay if minor doesn’t

Incapacitated Persons

• People incapacitated bcz. of mental incompetence do not have capacity to contract
• Law assumes such individuals cannot understand terms of a contract
  • no meeting of minds
• Contract for necessaries enforceable but only if at reasonable price
• Contract involving non-necessaries voidable by incapacitated party if other party knew / should’ve known about incapacity
• Contracts made by intoxicated persons voidable if such persons can prove they were so impaired they didn’t understand what was going on
• Must void contract within reasonable period

Illegality

• enforceable contract must be formed for a legal purpose
• legal purpose: purpose not forbidden by law
• contracts for illegal purpose are VOID
  • i.e. agreeing to mow the lawn for Top Quality Tiger Cocaine
• contracts to commit torts illegal
• rescission: restoring parties to the positions they would’ve occupied had there been no contract
  • what Courts do if a contract is void normally
  • does not happen for illegal contracts
  • Courts only help if one party was innocent and unaware of illegal act

Contrary to Public Policy

contrary to public policy: against the morals and ethics of a community / society

Result: rescission unless nature of contract is offensive

Contracts Contrary to Public Policy	Example
Contracts interfering with the administration of justice	• paying a witness to testify
Contracts that unduly restrain trade	• making it a condition of sale of a business that the purchaser never open a similar business anywhere
Contracts that restrict competition	• agreements among merchants to sell product at certain price • mergers among companies that would reduce competition
Contracts that are bets or wagers	• gambling and betting outside provincially licensed facilities (gambling debts in legal place enforceable)
Contracts injurious to the state	• paying a member of the provincial legislature to vote for / against a bill

Mistake

• mistake: an error about an important term of a contract
• common mistake: both parties make the same mistake
  • i.e. Connie’s record collection destroyed in fire while she and store owner making a deal
  • contract void bcz. both parties thought that Connie still had record to sell
• mutual mistake: both parties are mistaken but they make different mistakes
  • i.e. Connie’s records are 78s and she thinks store sells 78s;
  • store owner thinks records are LPs and his store sells only LPs
  • Court rules in favour of most reasonable position
  • contract void where both positions equally reasonable
• unilateral mistake: one party is mistaken and the other party knows it
  • i.e. Connie tells store owner that she is selling everything but her Elvis Presley collection
  • Store owner sees a rare Elvis record, says nothing, and takes it
  • Connie later notices record is missing, but owner refuses to return it, saying “a bargain is a bargain”
  • Court would not allow store owner to keep Elvis record
• clerical mistake: error made in recording the details of a contract
  • i.e. $20,000writtenincontractbymistakeinsteadofagreed$10,000
• non est factum: Latin for “it is not my deed”; defence to void a contract
  • more common when fewer people could read
  • now restricted only to occurrences of fraud or misrepresentation
  • neglection to read not enforceable

Misrepresentation

• misrepresentation: false or inaccurate statement of fact that causes the other party to enter into a contract
• caveat emptor: Latin for “let the buyer beware”, implying that a purchase is made at the buyer’s risk
  • i.e. Asif knows that a mall going to be built on vacant land across street when he puts house up on sale
  • Asif under no obligation to share this info.
  • misrepresentation when Asif lies about the info. or doesn’t share it when asked about it

Innocent Misrepresentation

• innocent misrepresentation: false statement that is honestly believed to be true by the other party
• contract voidable on victim’s option
• depends on whether terms of contract have been executed (carried out)
  • if not, Court is more willing to set contract aside
  • if executed, it will be set aside only if what was received is so diff. from what was supposed to be received…
  • … that it amounts to a failure of consideration
  • i.e. inexperienced clerk tells Jake that his new lawn mower will never need to have its blades sharpened
  • contract executed? unlikely to have contract set aside but damages can be paid if misrepr. became term of contract

Fraudulent Misrepresentation

• fraudulent misrepresentation: statement that the maker knows is false, made with the intent to cause another party to act on the statement
• i.e. salesperson sells Mark a used car that has been in an accident even though Mark states he wants a car that had not been in an accident

Duress

• duress: use of unlawful threats or pressure to force someone into a contract
• ways of duress
  • threats of physical harm to person or his/her family
  • threats to someone’s property
  • threats of imprisonment
  • financial threats
  • threats to reveal information that would be embarrassing / scandalous to person

Undue Influence

• undue influence: pressure arising from a special relationship between parties that create power imbalance, making it impossible for subordinate / less powerful party to freely give consent
• in Court, must demonstrate that subordinate party was coerced into agreeing
• generally involves unequal bargaining position
  • i.e. nephew was his elderly aunt’s caregiver
  • he completely dominated her actions
  • induces her to sell him all of her property at very low price
• situations involving undue influence (always)
  • lawyer contracting w/ client
  • doctor contracting w/ patient
  • parent contracting w/ minor child
  • adult contracting w/ senile parent

Unconscionability

• unconscionability: unreasonable advantage taken of one of the parties to a contract
  • Courts generally reluctant w/ contract on basis that bargain is unfair
  • intervene in extreme cases, like this one
• i.e. Larry trying to sell snowmobile worth $3,500inmid-Julybcz.heneeds$1,100 to make mortgage payment
• Bonnie offer $1,100 bcz. he knows Larry needs the money

Carrying Out the Contract

privity of contract: only the parties to the contract enforce the rights and obligations created by the contract

Discharging a Contract

• discharged contract = contract brought to end = parties no longer bound by any obligations within it

Ways to Discharge Contract

Method of Discharge	Definition	Example	Court Involvement
Performance	Completion of obligations under contract	Tom contracts Bob to roof his house; Bob roofs the house	Courts not invovled
Substantial performance	Carrying out essential elements of contract	Shell orders 500 barrels of oil from Alberta Petrol, but only 499 delivered	Courts may be involved in order to determine if contract substantially performed
Discharge by agreement	Parties to contract agree to end contract	Pulp mill needs more lumber that originally contracted for, it agreees w/ logging company for new contract for more lumber	Courts not involved
Discharge by frustration	Parties to a contract cannot carry out terms of agreement bcz. events beyond parties’ control prevent them from doing so	Dan signed a contract with Bogie Lake Golf Club for the annual O’Malley Invitational Tournament for 100 golfers. Severe thunderstorm prevents play on the day.	Parties to contract cannot sue for breach as long as any money paid and any goods provided returned

Breach of Contract

• breach of contract: failure by a party to perform the obligations agreed to in the contract
  • does not necessarily terminate contract
  • some cases, party released from contractual obligations
  • some cases, party who has not received may have to continue performing obligations and can only sue for damages
• specific performance: court order requiring a party to fulfill the terms of a contract

Breach of Condition

• condition: a very important term of a contract
• condition not fulfilled → failure of consideration
• breach of condition means repudiation of contract
• i.e. I ordered a truck but got a van. I don’t have to pay.

Breach of Warranty

• warranty: minor term of a contract
• i.e. Madeline contracted to paint Elissa’s dining room
  • terms of contract = paint splatters removed from windows after painting done
  • job done beautifully but paint splatters not removed
  • Elissa has to pay Madeline
  • She can deduct payment to pay someone else to remove paint splatters
• exemption clause: clauses that release a party from liability

Remedies for Breach of Contract

• damages: money awarded by the Court for actual losses resulting from a breach of contract
  • i.e. Madeline agreed to paint Elissa’s tool shed and neglected to paint trim
  • Elissa could sue for damages amounting to cost of having job completed
  • court would only reward Elissa w/ money lost from damage
• mitigation of damages: obligation on part of the injured party to attempt to minimize losses suffered
  • injured party must attempt to lose less when contract breached
• injunction: court order requiring a party to do something or prohibiting an action
  • i.e. force a shipping company to deliver my package after neglect

The Sale of Goods

• Sales of Goods Acts
  • “goods:” personal property such as TVs, books, and furniture
  • do not cover sale of land
  • do not cover services such as banking

Title and Risk

• agreement to sell: agreement where the title to the goods is transferred to the buyer in the future
• Rules of who suffers losses if goods damaged / destroyed
  • Rule 1: When item to be purchased is available in the store, title passes to buyer as soon as contract is made
    • even if you go to pick up bought product next day and it is destroyed
    • unconditional sale of specific goods in a deliverable state
    • can be changed to make store agree to be responsible until product picked up
  • Rule 2: If the seller has to do something to specific goods to put them in deliverable state, then title does not pass until changes have been made and purchaser notified
  • Rule 3: On certain occasions, title passes only after there has been some type of evaluation of the goods (i.e. weighing, measuring, testing)
  • Rule 4: Sometimes the buyer may take goods away in order to test them. Title automatically passes to buyer if buyer neglects to return goods / pay for goods.
  • Rule 5: In some cases, goods being contracted for have not yet been manufactured or are an unspecified part of a large amount
    • i.e. order of new car at dealership not built yet
    • title passes to buyer once
      • a) car had been manufactured
      • b) the dealer advised buyer that car was ready
      • c) buyer accepts car

Standardized Terms

• c.i.f.: “cost, insurance, and freight”
  • title passes to buyer early
  • seller accepts responsibility to pay cost of transporting and insuring goods until arrival
• f.o.b.: “free on board”
  • seller bears risk until…
  • goods placed on board carrier chosen by buyer
• c.o.d.: “cash on delivery”
  • seller maintains title and control
  • …until goods delivered to buyer and paid for

Manufacturer’s Warranties

• manufacturer’s warranty: promise from manufacturer to repair its product without cost to the purchaser within specified period
• manufacturer responsible for replacing any defective parts only for specified length of time
• “warranty card” outlines conditions of warranty (comes w/ item at time of purchase)

Implied Conditions and Warranties

• implied conditions: essential elements of a contract that are not specifically stated in contract
• implied in Sale of Goods Act

Implied Conditon	Example
The seller has the right to sell the goods	If the seller does not have this goods, the rightful owner can take them back
The goods must be of a merchantable quality	If you purchase a gas BBQ, it mush be in good working order and capable of cooking food
The goods must be fit for a particular purpose	If you tell a store clerk you need rope for lifting your boat out of the water, the rope the store sells you must be strong enough to do the job.
The goods must comply with their description	If you see a white couch in a store but order it in a different colour, you must receive the identical model in the chosen colour
Goods sold by sample must comply with the sample	If your hockey team purchases uniforms based on sample provided by seller, the goods you receive must be of the same quality and materials as the sample.

Remedies for Breach of Sale of Goods

Buyer’s Remedies

• default: failure to do something required by law
• if seller defaults on contract,…
• if seller misrepresents product, contract may be rescinded
  • damages can be awarded if misrepresentation negligent or fraudulent
• if seller breaches a condition, contract may be rescinded or goods can be rejected by buyer
  • buyer can alternative demand money paid to be returned
• if there is a breach of warranty by seller, buyer can use breach as valid reason not to pay all or part of purchase price
  • buyer can sue for damages if buyer suffers damages exceeding price

Seller’s Remedies

• if goods have not been delivered, seller may exercise their lien against goods
  • lien: the right to hold / dispose of another person’s property in payment for a debt (owed money for good)
• if goods are being transported to an insolvent buyer, seller may exercise right of stoppage in transit
  • insolvent buyer: buyer unable to pay
  • stoppage in transit: returning goods to a seller before they have been delivered to a buyer
• seller may reseller the goods
  • after notifying buyer and providing adequate time to make payment
  • if goods are perishable, seller need not delay sale bcz. produce may spoil

Protection for Consumers

Federal Consumer Law

• Competition Act deals w/ dishonest business practices and misleading advertising
• bait and switch: advertising an item at a low price and maintaining a small amount of stock in hopes of luring consumers to purchase higher-priced goods
  • illegal under Competition Act
  • penalty: fine, jail, both
• does not offer any form of compensation for the consumer (civil court)

Provincial Consumer Law

Door-to-Door Selling

• Consumer Protection Act or Direct Sellers Act
• The buyer has a right to cancel the contract for a period of 10 days after receiving the written copy of the contract
  • “cooling-off period”
  • allows buyer to consider whether they actually want to purchase, w/o sales pressure
• The buyer may cancel the contract within the ten-day period by giving proper notice to the seller
  • in person, by mail, or other forms in Act
  • buyer must retain proof of cancellation
• The cancellation has the effect of rescinding the contract
  • return to original state
  • money returned to buyer, goods returned to seller

Buying on Credit

• “buying on credit”: purchase via loan or instalments (w/ interest charges)
• hidden costs
• prov. passed laws requiring contracts to set out
  • annual interest rate charged; and
  • cost of borrowing the money

Property Situated on a Reserve

S. 89 (1) of Indian Act — restriction on mortgage, seizure and so on, of property on a reserve by non-First Nations peoples

89 (1) Subject to this Act, the real and personal property of an Indian or a band situated on a reserve is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band.

• in case of non-payment, non-First-Nations seller cannot seek lien against property or seize such property
• First Nations ppl. and bands may have trouble purchasing goods on credit (too risky for lender)
• s. 89 (2) of Indian Act provides that where seller maintains right to property or right of posession,…
  • seller may exercise rights set out in contract
  • sellers should ensure title to goods remains w/ seller until buyer pays
  • or sale takes place on condition that asset can be repossessed for non-payment