A case analyze about contract
5 elements of a contract:
1. Consensus. Parties to a contract must have reached a mutual agreement to commit. have equal bargaining positions. The process by agreement is reached involves an offer and acceptance, and consensus can be implied. [Essence of contract: The two must have a common will in relation to their negotiations, must have reached an agreement. Terms must be clear and unambiguous. Courts can decide the contract between two parties is void contract.]
2. Consideration. There must be a commitment by each party to do something or to abstain from doing something, is the price each is willing to pay .Both must have provided consideration, ie, each must promise to give or do something. ?
3. Capacity. Parties must be legally capable of understanding and entering into the agreement. Limitations in contracting capacity have been placed on infants, insane or intoxicated persons, aliens and, in some instances, native people, and corporations. 4. Legality. The object and consideration involved in the agreement must be legal and not against public policy.
5. Intention. Both must be serious when making agreement, and both must intend that legally enforceable obligations will result from it.
1. Agreement-An agreement is formed when one party accepts the offer of another and involves a “meeting of the minds”.
2. Intention to create legal relations-parties must have intended their agreement to have legal consequences. The law will not concern itself with purely domestic or social agreements.?-In some cases, certain formalities (that is, writing) must be observed.?
3.Consent -The agreement must have been entered into freely. Consent may be vitiated by duress or undue influence.?
4.Legality-The purpose of the agreement must not be illegal or contrary to public policy.
Basic terminology used in the discussion of contractual obligation
Formal contract: sealed by the party to be bound. The use of a seal.
Simple contracts: parol contract, may be verbal or written, but are not under seal.
Express contract: is one in which the parties habe expressly stated their agreement, either verbally or in writing.Implied contract is inferred from the conduct of the parties.
Valid contract: legally, binding on both .
Void contract: does not qualify as a legally binding contract because an essential element is missing. If the parties to a void contract thought they were bound and follower the agreement, the courts would try to put the parties back to their original positions.
Voidable contracts: exists and has legal effect, one of the parties has the option to end the contract.
Unenforceable contract: is one that is required to be in writing under the Statute of Frauds . Court won’t enforce unenforceable contract, but once the unenforceable contract has been performed, the courts will not help a party to escape the contract.
Illegal contracts: is one that involves the performance of an unlawful act, which is a void contract. Ex: If there is an illegal contract, and a deposit has been paid, the court will not order its return. Even one of the parties has been get money from the other’s expense; the court will not require the property to be returned. Bilateral contract: one in which both parties make commitments and assume obligations.
Unilateral contract: comes into effect when one party actually performs what the other has requested. Performance is acceptance. There is no exchange of promises.
First part of consensus.Tentative promise.3 major terms (3P’s): Product (the offer), Price, Parties. Miner terms: when, how. Ex: The offer is made by the consumer bring the items to the front and willing to pay them. A valid offer contains all of the terms to be included in the contract; all that is required of the other party is to give its consent or denial. The offer must contain all significant terms of the proposed contract. The parties, the subject matter of the contract, any price to be paid, as well as any other important terms, should all be stated in the offer. Interim agreement (agreement of purchase and sale) in a real estate transaction is an example of such a contract. It is binding if all significant terms are included in it. (while the two parties intend to put the agreement into a more formal document later, they intend to be bound agreed upon) “subject-to” clauses often raise the same concerns.-/1.Offer by conduct./-2.communication of an offer
The end of an offer
1. end of a specified time—- end time stated in the offer, offeror is still free to revoke the offer before time expires.
2. Expiration of a reasonable time.——-when no time is specified, end by reasonable time.
3. Death or insanity of offeror./-4. Revocation of offer—- end at any time before acceptance/-5. Rejection and counteroffer
Standard form contract—is interpreted strictly against the party who drafted it.
1. indication of willingness to be bound; a contract is formed when an offer is accepted.
2. Must be complete and unconditional.
3. must communicated in the manner required by the offer; effective when and where received.
4. Silence may be acceptance if an existing business relationship
5. The postbox rule—1. an acceptance by mail(when reasonable) is effective when and where it is dropped in the mailbox. 2. Has been extended to telegrams, but not to instantaneous form of communication.
1. is the price paid for another party’s promise and can be anything of value
2. both parties must have experienced some benefit; gratuitous promise is not enforceable
3. a promise to do what you are already legally obligated to do is unenforceable
4. past consideration is no consideration
5. an agreement to accept less in full satisfaction of a debt is unenforceable in common law, but may now be binding under legislation
6. illegal consideration and impossible consideration are not valid consideration
7. an out of court settlement is enforceable, as there is valid consideration
8. quantummeruit is used when there is a request for services with no agreement as to the amount; a reasonable price must be paid.
9. Promissory estoppel enables a gratuitous promise to be used as a defence.
10. When a contract is sealed, consideration is not necessary
-The general principle is that person under the age of majority, called infants or minors, are not bound by their agreements, but the adults with whom they contract are bound.As a general rule, whenever a minor enters into a contract with an adult, the adult is bound by the contract, but the minor can choose not to be bound by it.For a contract to be binding, each of the parties must have legal capacity.
Necessaries and Beneficial contracts of service
-Necessaries are things required to function in society, ex: food, clothing and transportation.In most provinces, contracts with minors are not binding in them, except for contracts for necessaries and beneficial contract of service. In British Columbia’s Infant Act, all contracts, including contracts for necessaries and beneficial contracts of service, are unenforceable against an infant.
On becoming an adult.
-If a minor agrees to a contract (other than a contract for necessaries or a beneficial contract of service), she is not bound by it.Ratification can be in writing, or it can be implied. Ratification must be complete; a minor cannot affirm the beneficial provisions of the contract and repudiate the rest.
-Executory contract: when the parties have entered into the contract but the minor has not yet obtained any benefit, and not paid, the minor is not bound.
– Partially executed contract: If the minor received the goods, but not paid , she is not necessarily bound.
-Conflict may arise when the contract has been executed, If the contract is prejudicial to the interests of the minor, it is void.
-Parents can be liable when the minor is acting as an agent having the appropriate authority to bind the parent in contract. Parents will also be bound if they guarantee the minor’s obligation at the time the contract is entered into.
-Parents are not liable for the torts or contractual obligations of their children unless there is legislation making is objective.
Infants’ liability for torts
-If the minor used the subject matter of the contract in a way that was not contemplated in the contract, carelessly causing injury or damage to those goods, the adult would be able to sue for negligence and the minor would not be protected by the defense of infancy.
Insanity and Drunkenness
-A contract with someone who is insane or drunk will be rendered invalid only when the person was to incapacitated as to not know what he was doing, and the other contracting party knew, or ought to have known, of that incapacity.
Other of limited capacity
-Corporations have their capacity to contract determined by the legislation under which they are incorporated.
-Corporations, enemy aliens in times of war, trade unions, Crown corporations and government bodies, and Indians have their capacity to enter into contracts limited to some extent.
– A bankrupt is a person who has made an assignment in bankruptcy or been forced in bankruptcy through a court order obtained by creditor, and who has not been discharged from bankruptcy.
– An agreement must be legal and not contrary to public interest to qualify as a binding contract. to commit a crime would be void.
Contracts Performed illegally
– There was no public policy reason to prevent the beneficiaries from receiving the insurance proceeds.
– To be binding, a contract must be legal and be performed legally.
– If a lawful contract is performed illegally, the courts may rule that the contract is illegal and void, or just void, or they may enforce some, or all, of the contract.
– An illegal contract is illegal at the time it is formed. Illegal contracts include contracts the violate legislation and contracts that are against public policy.
Contracts Formed illegally
– Prostitution is not illegal, but it is considered immoral and against public policy.
Types of contracts that are illegal:
1. Contracts to commit a crime: Ex. Murder, drug dealing, charges high rate of interest are contrary to the Criminal code.
2. a tort./-3. involving immoral acts./-4.bets and wagers./-5. in restraint of marriage, or in favour of divorce./-6. promote litigation./-7. obstruct justice./-8. injure the state. Ex: A contract to sell secret military information./-9.injure public service.
/-10.between businesses to fix prices or otherwise reduce competition./-11.unduly restrain trade.
-One example is contracts that unduly restain trade, which are usually illegal, but contracts in which one party agrees not to carry on business in terms of the interests of the parties and the public.
– For a contract to be binding, must intend to be bound by it./-The courts will enforce the stated intention of the parties.
– In family and other social relationship, there is a presumption of no intention. This presumption can be challenged by evidence that shows an intent to be bound./ In commercial relationship, intention is presumed. This can be rebutted.
/-In other situations, the courts use the reasonable person test to determined intention.
Examples illustrate situations of issue of intention and indicate courts’ probable response:
1. Stated mention of the parties./-2.Commercial relation./-3. Domestic and social relations./-4.Social and business relations
Form of the contract
The requirement of writing-Contracts may be in writing, they may be under seal, they may simply be verbal, or they may even be implied from the conduct of the parties.
-Most verbal contracts are valid, if they contain the essential elements of a contract.
-Types of contracts included under the statute of Frauds in Canada:
1. Contracts not to be performed with one year./-2. Land dealings./-3.Guarantees and indemnities.-An indemnity describes a relationship in which a third party assumes a primary obligation for the repayment of the debt along with the debtor.
What constitutes evidence in writing
-The writing can be a single document, or a collection of documents, which taken together provide the required evidence.
Effect of the statute of frauds: Under the statute of Frauds, certain contracts must be evidenced in writing to be enforceable.
-Most jurisdictions now have legislation requiring certain types of contracts to be in writing.
Part performance- When part performance is established, verbal agreement dealing with interests in land are also enforceable.
-Mistake- The court will provide a remedy where one or both of the parties have made a mistake with respect to a contract; it must be made clear that the court will not interfere when the party have simply made a bad bargain: this is an error in judgement and the person who made it live with it.
-Shared mistake- occurs when two parties are in complete agreement but they have both made the same mistake regarding some aspect of contract. Thus, where the parties enter into an agreement for the sale and purchase of the cargo were destroyed the night before, the contract is void because of the shared mistake.
-Rectification- If the written document does not reflect the common intention of the parties to the contract, the courts are willing to correct or rectify the document. The courts will do this only where it is clear that both understood what they were understood what they agreeing to and what was written was different from the understanding. Courts are not rewriting the agreement during rectification.
-Occurs when the parties have a misunderstanding about the terms of the agreement itself and neither party is aware of other’s different understanding/- the courts will apply the reasonable person test to determine which interpretation of the contract is more reasonable/- Only if the error is a serious one the court cannot choose between the two positions because both are equally reasonable will the contract be declared viod.
-unilateral mistake takes place where only one of the parties to the contract is making a mistake with respect to the contract.
– As a general rule, there is no resource for a person who makes such a one-side mistake.(Miss.v.chin in case)
– If no reliance placed on the sales person and no misrepresentation or misleading information supplied in document&brochures, then no remedy.
-Misrepresentation -false statement of fact that persuades someone to enter into a contract.
-Innocent Misrepresentation-a false statement,made honestly and without carelessness, by a person who believed it to be true.
-Rescission: (the only remedy) -attempts to return both parties to their original positions; the subject matter of the contract must be returned to the original owner, and any monies paid under the contract must also be returned.
-1.Affirmation/-2.Impossibility of restoring/-3.Third-party involvement-4.Failure on the part of the victim.
– FrandnlentMisreprestation-If a misrepresentation of fact is intentional and induces another person to enter into a contract, the victim of the fraud can sue for damages under the tort of deceit in addition to or instead of the contractual remedy of rescission.[1889 Derry v. peek. Fraud estab when 1.Knowingly 2.Without belif in truth.3.recklessly]
-Rescission or avoidance; victim retains the right to have the parties to the contract returned to their original positions and to be reimbursed for any out-of-pocket expenses.
-Damages for deceit; awarded for the tort of deceit; damages intended to punish the wrongdoer rather than compensate the victim.
-Negligent Misrepresentation-the parties should have known what they said was false, even though they honestly believed it was true, the plaintiff may have a choice about whether to sue in contract or sue in tort for negligence.
-Damages are available as remedy where the misrepresentation has become a term of the contract that is breached, where the misrepresentation is fraudulent, and where there is negligence.
-Duress,undue influence, orunconscionability
-Duress- includes not only threats of violence and imprisonment but also threats of criminal prosecution and threats to disclose embarrassing or scandalous information. In Canada, duress also includes threats to a person’s goods or property.
/-duress only causes a contract to be voidable, thus a 3rd party’s position cannot be jeopardized if the victim of duress seeks a remedy.
– Undue Influence-When pressure from a dominant, trusted person makes it impossible to bargain freely, and the resulting contract is also voidable./-1. Presumption based on a special relationship./ 2…unique circumstance/-3.Undue influence determined from facts.
-Unconscionable contract-One party has been taken advantages of because of such factors as desperation by poverty and intellectual impairment that falls short of incapacity./-bargaining positions of the parties were unequal, one dominated and took advantages of the other, the consideration involved was grossly unfair./-Court may rescind or modify the contract. Legislation is prohibiting unconscionable transactions, the statutory provisions are limited to loan transactions.
– Privity of contract-The contracting parties have created a private agreement, outsiders to it can neither enforce it nor be bound to perform its terms./-Only original parties are bound any benefit going to a third party must be enforced by the original party to the agreement.
-Assignment-Just as a person buying goods under a contract is then free to resell them, so can a person entitled to receive a benefit under a contract transfer that benefit to a third party .(assignment of contractual rights- chose in action)-to establish a statutory assignment ./-1. The assignment must be absolute/-2.The assignment must be writing, signed by assignor./ -3.The original party obligated to pay must be notified in writing.
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