CT Quiz 2
Contracts: Requires an intention to create legal relations. Whereas torts arise from legal duties. Reasonable person test, objective test. Did parties intended to create a legally enforceable agreement? Reasonable expectations allows planning and efficiency. Oral or Written. Desire to create legal relations (mutual agreement) established through (Offer, acceptance and consideration by parties with capacity) Parties to a contract are: Offeror and Offeree. Once offer accepted, contract formed and no one person can unilaterally make changes
Contract Law: Historically contract law did not develop until the 16th century To this day, mostly common law principles Although there are a number of statutes which play a role in contract law. Provides framework and some certainty for the (economic) agreements between persons
Formation of Contracts: Intention to Create Legal Relations. Must be mutual exchange of value. Meeting of the minds. Requires: Offer Acceptance Consideration
Intention to Create Legal Relations: Focus is upon when will a court find an agreement is legally enforceable Test is objective, “reasonable person test” To protect reasonable expectations Context is important Contract Interpretation: Golden Rule, words should be given their ordinary meaning
Terms: Promisor: Person who agrees to “do” something Promisee: person to whom the promise is made (by the promisor) Offeror: person who is making the promise/offer Offeree: person to whom the promise/offer is made Consideration: interest, right, profit or benefit that accuses to one party while loss or detriment is suffered or given by the other party Gratuitous Promise: promise made without consideration, conferring a benefit (gift)
Presumptions Employed by Courts: Commercial context Parties are presumed to have intended to create legal relations Rebuttable by facts Family/Social context Parties presumed not intend legal relations Rebuttable
Nature of an Offer: More than intention to create legal relations, must enter into mutual agreement through offer/acceptance Not all statements are offers (avoids risks) By definition, indicates a willingness to enter into a contract on certain terms Offeror: party who offers to enter into a contract Offeree: person who receives an offer to enter into a contract
Invitation to Treat: Statement(s) which indicate a willingness to receive an offer Willingness to negotiate an agreement Many statements are classified as invitation to treat Determining if offer or invitation based on reasonable person test
Is it reasonable to believe person making statement is prepared to create a contract every time acceptance received, or more likely that they are prepared to receive and consider offers? Difficult test to apply: Courts guided by presumptions rebuttal, eg. sale limited to 50 items
Communicating an Offer: A statement must be communicated and received as an offer. Reasonable person test. Was the statement intended to be received as an offer. Must know when the offerer became aware as not valid until received by offeree and offeror not bound until accepted
Life of an Offer: Revocation (offeror is master of the offer)Firm Offer: one which is promised to hold open for specified time, but may be still revoked. Lapse Death or insanity (prior to acceptance)
Rejection Counter.
Counter (Offer): A makes an offer to B, B interested but seeks different terms to enter into a contract = counter, Counter, Effect of Counter, Reject existing/original offer, New offer created, which is a counter offer, Only a contract formed where offer entirely accepted, Caution between statement vs. counter, Offer → Offeree+Accepted = Contract
Acceptance: Promise, Most K Bilateral, Promise is exchanged for a promise, Both parties must fulfill obligations when comes into existence, Must be unequivocal corresponding to terms offered = response to offer
Performance: Words, Conduct, Silence (but Consumer Protection Act unsolicited), Until performed, act exchanged for a promise = unilateral contract, Obligated to fulfill for K
Considerations for Acceptance: Distant “negotiations”, General Rule, Postal Rule, Electronic Contracts
Postal Rule: Addresses uncertainty for non-instantaneous communication, Effective where, and when, it was sent, Includes where correspondence is lost, Creates risks where lost mail, Revocation cannot occur so long as in letter in the system, Applies to acceptance only
Acceptance by Performance: Offer based on stipulated acts, An act exchanged for a promise = unilateral contract, No contract until offeree fully performs AND performed act with the offer in mind
Other Methods of Acceptance: At a distance, General rule: instantaneous or minimal delay, Postal Rule (non-instantaneous communication), Modern Electronic contracts: Electronic Commerce Act, 2000, S.O 2000, c.17
Gratuitous Promises: Courts will not enforce a gratuitous promise, Charities are usually gratuitous promises, Exception include promises made under seal (”deed”), Estoppel: Where a promise is made and person to whom it was made relies upon it to their detriment, : Promissory estopple/ Equitable estopple requires five elements 1. Existing legal relationship at time statement made 2.Must be clear promise establishing intent to be bound 3.Must be reliance by party raising estopple 4. Party who received promise must have acted upon it to their detriment 5.Promisee must have “clean hands”
Consideration: Something of value (”the price”) paid in return for a promise, Without consideration there is NO contract, Most common form is money, But other forms of consideration include:
Exchange of: goods, services, Relinquishing a right, Agreement to refrain from doing something, A contract generally requires a (mutual) exchange of value between parties, Gratuitous promise is not consideration, law will not enforce gratutious promise, lacks consideration, A contract involves mutual promises, Must receive something of value, Must be a mutual exchange of value, Forbearance to sue = consideration, Must be mutuality of consideration
Consideration + Gratuitous Promises: Gratuitous promise is not a contract, Person agrees to do something for free/no reward, Contract bargain where each party gets something in return for the promise to perform obligations, Without consideration there is no contract, Courts will usually not enforce a gratuitous promise, Exception: contracts under seal, unjust enrichment, or charitable donations = binding contracts
Consideration: Sufficient (must be) Practically anything of value, Easily met, but essential, Except “social value” such as respect, affection, Peppercorn Theory (some value, but not adequate). Adequate: Equivalent value to the consideration received, Up to parties to determine, Is value the same as value of exchange
Consideration: Past: Exchange prior to promise to pay (unenforceable as no consideration), Present: Exchange and promise to pay at same time, Future: Agreement to payment in future, Forbearance to sue: Promise not to pursue lawsuit (sue), Value in avoiding risks/costs of suit, Settlement usually involves sacrificing full value hoped to achieve and also payment of some value to avoid risk of finding liability and indemnity (mutual consideration)
Past Consideration: From mutuality flows that there can be no past consideration, Consideration must in exchange for the other party’s consideration, Past consideration arises before the contract come into contemplation, Past consideration is NO consideration at all, Cannot support a contract, No legal obligation to keep a promise for past consideration, Service provided before any promise/agreement to pay, While past consideration will not support K 3 Types of Pre-Exisiting Obligations: Public Duty, Contractual Obligation owned to a TP, Contractual Obligation owed to same party
Debitor Creditor Relationships: Requirement for fresh consideration problem: Promise to Forgive an Existing Debt, Where lesser amount offered than actual debt may seem to be new consideration (Avoid risk of suit) Unless: Promise under seal, Fresh consideration, such as earlier payment, Mercantile Law Amendment Act, R.S.O. 1990, c.M.10, s. 16, provides for the extinguishing of an existing debt for a lesser amount
Legal Formalities of a Contract: A contract cannot violate any Statute or public policy to be enforceable, May be declared void, or illegal, or both, Where void for being unlawful, remedies may be available, Court may try to restore the parties where possible, But where also illegal, Court will not grant remedies where party knowingly entered into the contract
Illegality: Illegal agreements may be explicitly, or implicitly prohibited by Statute, May offend public policy,Covenant in restraint of trade: one which unreasonably restricts one party’s liberty to carry on a trade/business or profession
Contracts in Violation of Statute: Must look at the Statute(s) to determine if void, or void AND illegal, Those which include prohibited activities has an unlawful purpose by implication, Examples include Criminal Code, Customs At, WSIA, Planning Act, Bankruptcy and Insolvency Act, Contracts which are contrary to public interest such as price fixing, eliminating competition (Competition Act) are forms of restraint of trade
Common Law Effects of Legality: 1. Intent to perform in an unlawful way: contract remains, but unenforceable in a suit where person who seeks to enforce has the unlawful intent 2. Where unlawful intent is common to all parties: unenforceable 3. To prevent party from recovering where are forced to rely upon illegal acts. Example: Contract to supply child labour, void ab inito, where expressly or impliedly illegal under Statute
Contracts Which Violate Public Policy
- Void
- May be illegal as well
- Examples included interfering with the administration of justice, injuring the public service, agreement to commit illegal/dishonest act
- Note changes occur as society changes
- Agreements seeking to (unreasonably) limit the ability of a business to engage in trade, or individual’s ability to earn a living
- Examples: Restrictive covenants and non-competition clause
- Formal (deeds): Contract in writing and sealed by promisor
- Applying seal evidenced the serious intention to be bound
- Deed is an official record (ex. house)
- Simple
- Other than formal, may be oral or in writing, not reflective of the complexity
- These contracts are enforceable except where the Statute of Frauds applies
Use of Seal: Indication the party intends to be bound by the document despite the lack of consideration (gratuitous promise, formal K, corporate K), Validity and enforceable arise from the solemn form, Corporations or other legal entities such as governments will usually use corporate seal identifying corporation by name, some statutes require signing officer sign beside the seal
Technical Requirements for Written Contracts: Must identify the parties by name or description, Identify the terms including offer, acceptance and consideration exchanged, Signed by party whose promise is being enforced, Include a printed or stamped signature, ideally a signature
Requirements of Writing: Certain contracts must be evidenced in writing, Originally arose under Statute of Frauds (1677), To reduce the risk of perjury, lying. Discouraging false claims supporting oral conducts, Those still required to be evidenced in writing 1.Guarantees 2. Contracts for the sale of an interest in land 3. Contracts not to be performed within a year
Contracts Involving Land: Not all contracts must be evidenced in writing, such as room and board, maintenance, Long term leases must be in writing, Sale of interest must be in writing
Contracts Which Are Not To Be Performed Within A Year: Narrow Interpretation: includes where “possibly” be performed in one year, Rationale: Memory fades, A contract which cannot be performed within one year of the making must be committed to writing, Time runs from the making of the contract, Eg. Construction contract: To work to begin March 2022, but completion not till July 2022, or loan with payments over 16 months, Eg. Marriage contracts/pre-nuptial, sale (conveyance) of land
Consumer Protection + Writing Requirements: May require a copy of the agreement to be provided to the customer, To avoid exploitation of consumers along with reducing contractual disputes, Further example of C.L supplemented by Statute, Consumer Protection Act, 2002 all personal development services contracts must be in writing where payment made in advance of services (membership, modelling)
Capacity to Contract: Defects may provide one of the parties to the contract with a defence, or void/voidable such as capacity as one type of defect, Different types of defects (incapacity, writing requirements and mistakes), Consequences, Distinguish
Capacity: Narrowly defined exceptions, Legal power to give consent, Generally show capacity at the time the contract was made, Where no capacity at the time the contract was made, Underlying reason: to protect weaker party from strong/able party, Due to status, some persons deemed to lack/have limited capacity, Class of person who traditionally lack capacity: Minors and persons under mental illness
Incapacity: Party may only enter a contact where possess legal power to consent, Applies to children and adults who lack capacity to consent, Capacity: Legal power to give consent, Sometimes, not always, depends upon person’s ability to understand the nature and consequences of their acts, Minors, mentally incapacitated, intoxication, corporations, associations, Aboriginal and public authorities
Personal Incapacity: Legal distinction minors and age of majority, Those under age of majority lack capacity, Some contacts are voidable at the minor’s option, Not every contract however is void at the outset (void ab initio), Void contract relieves all future liabilities, Minor who elects to carry out the contract may be bound, Necessary goods/services for their benefit cannot be avodied, Similar application to legal incapacity
Minors: Necessities are: SGA minor liable pay reasonable price for goods suitable to life, Necessities depends on context, Employment so long as benefits minor, Enforceable against minors
Non-necessities: Enforceable by the minor, Non-enforceable against minor where; not fully executed by a creditor, May be unenforceable where the minor repudiated
Minor Fails to Ratify: Prior to validation, minor can enforce against adult, not adult enforcing against minor, A.T.P. cannot rely upon invalidity to escape their liability, Minor not responsible for future accrued liabilities under the K where contract is not ratified by minor
Void Contracts: Where contract is not only non-beneficial to the minor, but also harmful/prejudicial, No steps need be taken by minor, Minor may recover all property/money returned without restoring the adult, Ex. Minors offers to sell car at below market rate and with zero interest, risks to high minor too high and no advantage to enter/bound by contract
Persons Under an Impairment: Person lacks capacity at the time they entered agreement, Mental Compromise, Intoxication**, Mental Illness
Intoxication: May be defence to enforcement by sober party Voidable where: Intoxication affected their ability to appreciate what they were doing, Contracting party must have been alert to intoxication +Upon sobering, promptly repudiate
Mental Impairment: Some forms of mental illness may be sufficient to allow reputation, Statutory laws which declare incapable to manage own affairs, Judicial finding*, K made prior may be voidable
Associations: Generally, unincorporated business organizations, Includes charities, private clubs, religious societies, Have no independent legal existence, Possible for one of the members to enter into a contract for the benefit of the assoication, The provinces may legislate capacity to some associations (ex. Union)
Indian Bands + Aboriginal Persons: Indian bands are unincorporated, but have legal capacity, Some limitations apply to Aboriginal persons to contract using reserve land (ex. collateral, or to transfer without crown consent)
Pre-Contractual or Contractual Term: During negotiation statements made by a party(s) to the other (pre-contractual), A statement becomes a contractual term ONLY if included as a legally enforceable term, Pre-contractual statement: words or conduct with the intention of inducing the other party to enter a contract, Pre-contractual statement imposes no contractual obligation**, Also does not form part of the contract
Representations: Statements made to induce someone to enter a contract, Not something which has been agreed to, Made during negotiations, These statements must be specifically included as terms of the contract (where so desired), One party may wish to include (may open the door to remedies), Misrepresentations misstatement of a fact critical to the inducement or making of a contract (Fridman- Law of Contract), A misstatement of fact which induced the other to enter a contract is a material misrepresentation (which may relieve the other party of obligations). Term: is a part of the contract itself. Statements which impose obligation under the contract. Where intended by both parties to form part of contract = term of agreement. Condition: where the term is essential, or goes to the root of the contract, Destroys the value of the contract, depriving benefit of the contract. Warranty: Where the term is minor or subsidiary, Breach of a condition is more serious than a warranty breach! Determination requires examination of the contract as a whole
Fundamental Breach: those which go to the “roof” or the heart of the contract: Not for minor terms, may be hard to determine the nature of the breach, Interpreting terms as a whole and consider the
Pre-Contractual Representation: word or conduct with the intention of inducing the other party to enter into a contract, imposes no contractual obligation*, may induce, but not form part of contract
Contractual Term: statement becomes this only if included in the agreement as a legally enforceable term. Failure to fulfill = breach of contract
Misrepresentation: words or conduct with the intention of inducing the other party to enter into a contract. Innocent: Made without fraud or negligible to induce to enter it. Negligent: careless/negligent statements. Fraudulent: knows is untrue to induce to enter a contract
Legal Consequences of MisrepresentationL Rescission: contractual consequence of misrepresentation
- Effectively “cancellation” of the contract
- Discretionary, not available as of right
- Goal to restore the parties to extent possible to pre-contractual state
- May be accompanied by Order for restitution
- Damages: Paint order which was not waterproof as required: Resolution?
Parol Evidence Rule: Traditional rule: everything important put into writing, discussions were superseded by the written contract, **Cannot rely upon oral evidence to; add, subtract, vary or qualify a written contract is clear, Generally problematic or inadmissible, Exceptions (modern): Ambiguous language, Essential collateral agreement, Essential implied agreement, Condition precedent existing outside of the contract, Remdy or rectification
- Evolution of the rule
- Underlying rational was to avoid disputes and resolve where differing versions
- Literal approach: Where the contract is in writing and the language is clear and unambiguous, no other evidence , written or oral, can be used to interpret, vary, or contradict the terms of the written agreement
- the four corners of the document
- The court will not look to other sources to interpret unless unclear in which case the Court will look beyond where relevant
Ambiguous Contract Language: Oral or written evidence may be allowed, For the purposes of assisting in interpreting the agreement
Essential Collateral Agreement: Separate, and independent contract, Collateral agreement has consideration, Could be enforced independently of the main contract, Or it may have some impact upon the main contract despite not being specifically referenced, Where given effect, this contract will modify the main contract, despite its written terms
Essential Implied Term: Where a form used by custom, or convention of a trade, was adherently omitted, Party may rely upon oral or written evidence of the custom/convention to demonstrate an implied term was left out of the contract
, Where standard forms are left out, may be able to rely upon written and oral evidence to demonstrate
Golden Rule Contract Interpretation: Interpreting words in a contract, words are given their plain and ordinary meaning unless to do otherwise would result in absurdity, Also: contra proferentem: the meaning least favourable to the author will prevail
Standard Form Agreements: mass produced documents“take it or leave it” basis. Examples include clickwrap, or exclusion clauses (limitations, waivers), ticket contracts, signed forms (boilerplate clause)
Exclusion Causes: drafted in clear unambiguous language, the person against whom clause is intended to operate must be given reasonable notice, the person against whom the clause in intended to operate must have agreed
Clauses: Standard form agreements often contain boilerplate clauses, Helps provide a framework along with efficiency in drafting Examples: Exclusion, Force Mejeure, confidentiality, arbitration, jurisdiction, entire agreement
Rectification: Equitable remedy,Following lengthy negotiations, the written result is not as intended, Rectification ensures objectives of the parties are honoured, not altered,Must demonstrate mistake in recording (unambiguous and mutual)
Penalty Clauses: Pre-determined compensation for breach. May Include prohibitions on litigation, modest compensation. Includes liquidated damages clause.Court will not enforce where inadequate/amounts to a person
Exclusion Penalty Clauses: exemption. Protects one party from liability from any failing in performances or obligation. Cannot contract out of own negligence. Exclusions must be clear and brought to attention to other party to be enforced. Unless so significant result would “undermine” contract, example: goods lost shipping
Frustration: Relief where performance made impossible through no fault at the parties. May be available where; act of TP, force of nature, outside the parties’ control, neither party responsible, subject matter ceases to exist, death rendering impossible or unexpected changes to the law. Frustration covers where theoretically possible but no commercial or practical sense. Implied Theory: treats as implied condition precedent, assuming parties would have included had they put mind to it. Construction Theory: Courts consider common object through subjective analysis of what the actually said preferred approach. Legislative Impact: Sale of Goods Act+Ontario’s Frustrated Contracts Act
Plain Language Use in Contracts: documents in Latin or French, strategically limiting access and understanding 1973 Citibank