Bus 261 Midterm (Contracts)

Front 1

Contract

Back 1

An agreement made between two or more persons that is enforceable at law; can be written, verbal, or neither - applies to almost every commercial transaction

Front 2

Contractual Criteria (is it binding?)

Back 2

1. Intention
2. Offer & Acceptance
3. Mutual Consideration
4. Capacity
5. Legality

Front 3

Intention

Back 3

- Presumption that family members do not intend to be legally bound
- Presumption that non family members do intend to be legally bound

Front 4

Offer & Acceptance

Back 4

- An offer can only be accepted by the party to whom the offer is made
- An offer can only be accepted once it is communicated
- Legally bound to uphold outstanding offers
*Note: an advertisement is NOT an offer, it's an invitation to do business (customer makes the offer)

Front 5

Termination of an offer

Back 5

- Death (does not end a CONTRACT, only an OFFER)
- Revocation - before an offer is accepted
- Rejection (also, counter offer)
- Expiry of a preset time
- Expiry of a reasonable time

Front 6

Unilateral contract

Back 6

A contract where only one party is bound (reward, promotion)

Front 7

Bilateral contract

Back 7

A contract where two or more parties are bound (99% of contracts)

Front 8

Mutual Consideration

Back 8

There must be some exchange in order to make a promise legally binding (something for something)

Note: Adequacy of consideration is not an issue; things do not have to be of EQUAL value.

Front 9

Situations that are NOT enforceable due to a lack of mutual consideration

Back 9

- Gratuitous promise
- Past consideration (exchange for past action)
- Gratuitous reduction of a debt (Note: you can get around this by creating mutual consideration, eg. by paying early)

Front 10

Contracts that do NOT require Mutual Consideration

Back 10

- Contracts under seal - small dot, "LS", "seal", "signed, sealed & delivered" (special promise)
- Injurious reliance - when someone makes a pledge to charity or institution; where expenses are created because of it (eg. UFV spends money in anticipation of funds)

Front 11

Quantum Meruit

Back 11

"The amount merited" - even if there was no contract, if you agree to have someone do some work, you have to pay (must pay the going rate)

Front 12

Capacity

Back 12

Do not have capacity to enter into a contract if:
- Under the age of 19
- Substance impaired
- Mentally incompetent

Note: the other party cannot get out of the contract if they don't fall into one of these categories

Note: these parties can repudiate an executed contract only if they've been taken advantage of

- May repudiate ANY unexecuted contract (Eg. after 9.5 months of ownership, a minor can ask for money back if payments not made in full yet)

Front 13

Executed contract

Back 13

A contract that is fully performed

Front 14

Unexecuted contract

Back 14

A contract that is not fully performed

Front 15

Minor's rights with respect to contracts

Back 15

- Can repudiate any unexecuted contracts
- Only responsible for willful damage (not wear & tear or normal use)

EXCEPTIONS:
- Necessaries (food, shelter)
- Beneficial contract of employment (training job, apprenticeship)

Front 16

Legality

Back 16

Courts will not enforce or reverse illegal contracts

Front 17

Gambling (grey area) & Insurance

Back 17

Gambling is illegal in Canada but provincially regulated gambling and gambling in a legal environment is legal and contracts are enforceable

Insurance is gambling UNLESS you have an insurable interest
- Family
- Economic interest (house, car, etc.)
- Business partner, employees

Front 18

Competition Act

Back 18

Restraint of trade is illegal
- Price fixing
- Acquisitions to eliminate competition
- Any agreement not to compete

Exceptions:
- Professional sports
- Gov't companies (only for private businesses)
- Vendor of business including goodwill agrees not to compete for reasonable terms (eg. within 5 years and within the trading area)
- Key employee cannot compete with former employer if they have signed a non-competition agreement

Front 19

Statute of Frauds

Back 19

For a limited number of things, verbal agreements are insufficient and agreements must be in writing
1. Guarantee
2. Contract to be responsible for the torts of another party
3. Any agreement by an executor to be personally responsible for estate debts
4. Marriage agreements (Prenuptual agreement, separation agreement)
5. Long term contracts (>1 year)
6. Land (houses, condos, property, etc.)
** Exception to land: Doctrine of Part Performance

Front 20

Guarantee

Back 20

Contract to be responsible for the contractual obligations of another party

Front 21

Doctrine of Part Performance

Back 21

Exception to Statute of Frauds, applicable only to land
- Only where there is an otherwise clear, enforceable verbal contract
- One of the parties performs acts to the land consistent with the contract
- If the contract does not go through, it will cause a hardship
* Renovations, clearing land, etc.
* Lawyers, appraisals, etc. do not count

Front 22

Minimum requirements of a memorandum in writing

Back 22

- Must identify the parties
- Must set out basic terms (mutual consideration)
- Must be signed by the party against whom enforcement is sought (in a legal situation)

Front 23

Parol Evidence Rule (KNOW!)

Back 23

The court will not accept evidence of verbal discussions and agreements that precede a written contract

Front 24

Exceptions to Parol Evidence Rule

Back 24

1. Explain the terms - court will hear evidence about what terms such as "XL" mean as explained by the dealership (only words that have no clear meaning)
2. Condition Precedent - something that MUST occur prior to a contract becoming binding. Court will hear evidence about conditions precedent that may affect the contract
3. Doctrine of implied term - in contracts, certain terms are implied (ie. wheels on a car)
4. Collateral agreement - a side agreement with its own mutual consideration (wouldn't make sense on its own); does not need to be written. If it's added to the main contract it is no longer a collateral agreement

Front 25

Unenforceability (reasons)

Back 25

- Duress
- Undue influence
- Mistake
- Misrepresentation

Front 26

Duress

Back 26

Where a contract is signed under physical force or threat

Front 27

Undue Influence

Back 27

A contract is signed under the influence of a dominent party (eg. a counsellor, religious leader, etc.)

Front 28

Mistake

Back 28

Unlilateral mistake (by one party) - enforceable

Mutual mistake - unenforceable

Front 29

Mistake as to the existence of subject matter

Back 29

Contract is unenforceable only if the subject matter is unique (eg. ONE specific cow is not replaceable, but 50 sheep are)

Front 30

Mistake as to identity

Back 30

Contract is enforceable unless identity is relevant

Front 31

Non est Factum

Back 31

Where someone is unable to read, unable to get assistance, and mistaken as to the NATURE of the contract, contract is unenforceable (Note: not CONTENT of contract)

Front 32

Rectification of a Contract (Correction)

Back 32

Where there is a clerical error and neither party was aware, and the contract is clear & unambiguous, and where there's been no intervening negotiation, court can correct the contract (where one party does not want to fix it)

Front 33

Misrepresentation

Back 33

A misstatement of a material FACT (not necessarily a lie, may just be a mistake). Opinions & beliefs do not matter

*Material - something the court would see as a DETERMINING FACTOR for that person (car that has been registered outside of a certain province)

*Note: ALL sales are final

Front 34

Types of Misrepresentation

Back 34

- Innocent misrepresentation - entitled to rescission of contract and/or expenses

- Fraudulent misrepresentation - entitled to rescission of contract and/or expenses AND damages

- Misrepresentation by Nondisclosure/omission - applies only to contracts of Utmost Good Faith

Front 35

Contracts of Utmost Good Faith

Back 35

- Insurance
- Partnerships
- Agency
- Trust (assets being held in trust)

Front 36

Privity

Back 36

Only the parties have rights or obligations from the contract (only they can sue or be sued)

Problem: if a third party (ie. a financing company) is involved, they can't sue --> Exception: Statutory Assignment

Front 37

Novation

Back 37

The replacement of a party WITH CONSENT (eg. one landscaper moves but offers to have a new person take over - contractor MUST consent) - may be verbal

Front 38

Statutory Assignment

Back 38

Exception to Privity that allows the assignee to sue the promisor

- Promisor - (A) party that owes $ to B
- Assignor - Party B - turns debt over to Party C
- Assignee - Party C - financing loan through B

Conditions (ALL must be met):
- Must be a written assignment agreement between assignor & assignee
- Must be signed by assignor
- Absolute
- Written notice must be delivered to promisor
*If not all are met, it's an Equitable Assignment; no exception to Privity
*Where there is Statutory Assignment, all issues between A&B move to C - if B misrepresents a product, C is liable
*Applicable to all contracts except where contract prohibits OR where identity is relevant (leases generally can't be assigned)

Front 39

Discharge

Back 39

Release from contractual obligations

Front 40

Ways to be Discharged

Back 40

1. Performance of the contract - compliance
(Or Tender of Performance - attempting to comply)
2. Exercising an option to terminate (option must be laid out in contract)
3. Non occurence of a condition precedent
4. Occurence of a condition subsequent (something that happens after the contract is in place that ends the contract - must be laid out) eg. strike, war, etc.
5. Occurence of an implied term - something happens that is not in the contract that ends it anyway (eg. natural disasters, Acts of God)
6. Doctrine of Frustration
7. By operation of law - discharged by gov't legislation (eg. if gov't bans cigarettes, if you go bankrupt, if gov't sanctions a country)
8. By subsequent agreement - where a new deal is made to release the contracter/contractee (must be a waiver)

Front 41

Doctrine of Frustration

Back 41

Where a party cannot perform a contract
- Item must be unique
- Events must be beyond control

Front 42

Breach

Back 42

Anything that's not in compliance with the contract

Front 43

Types of Breach

Back 43

- Express Repudiation
- Fundamental Breach

Front 44

Express Repudiation

Back 44

One party doesn't perform contract at all
- Innocent party is discharged but can sue for damages
- Anticipatory breach - clear that one party will not complete the contract; innocent party is discharged

Front 45

Doctrine of Substantial Performance

Back 45

Some step forward must be taken on the contract - no one is discharged but obligation to pay:

FORMULA: CONTRACT PRICE - COST TO COMPLETE

*Sue if result is negative

Eg. House painted $5000 for 5 rooms
- Painters breach after 3 rooms
- New painters do 2 rooms for $500
- Still owe first painters $4500
- Party must be put in position they would have been in if original contract had been completed (out $5000)

*Court tries to put people in the situation they would have been in if the contract had been performed

Front 46

Fundamental Breach

Back 46

Breach that goes to the root of the contract
- No value in the performance
- Relevent only to Exemption Clause (clause that limits liability)
- Voids exemption clauses
(Eg. if university destroys your car, they ARE liable for damages)
(Eg. if painters paint furniture & floors as well as walls, exemption clause is void)

Front 47

Damages & Remedies for Breach

Back 47

- Monetary Damages
- General Damages
- Liquidated Damages
- Equitable Remedies

*Note: can sue for either General OR Liquidated damages, not both. However, can sue for both Monetary damages AND Equitable remedies

Front 48

Monetary Damages (Breach)

Back 48

1. General Damages
- Reliance Damages - money spent relying on the contract before breach (eg. paid lawyers, movers, etc.)
- Consequential Damages - damages that "flow from the breach" (includes 3rd party damages) (eg. tenant has to stay in hotel because original owner breached)
- Expectation Damages - refers to expected profit or gain (not revenue) (eg. expected rent from tenant, expected profit from resale of house)

2. Liquidated Damages - when you have quantified the damages (preset) in contract; must be a reasonable estimate (Eg. if house isn't done on time, builder pays $400 per day)

Front 49

Equitable Remedies (Breach)

Back 49

- Specific Performance - have court order person to complete contract (only for unique goods)
* Note: all land is unique
* Note: must be a THING, not a service
- Injunction - a court order to cease (eg. court order NOT to sell a car, NOT to open a donut shop, etc.)