Law Class Lecture Notes PDF

**[Law Class Lecture Notes:]** **[Chapters 1 and 2]** - **Contract definition:** - Set of promises that the law will enforce. - May include: - Injuries - **Rule of Law definition:** - Establishes legal principles that treat all persons equally and that...

**[Law Class Lecture Notes:]** **[Chapters 1 and 2]** - **Contract definition:** - Set of promises that the law will enforce. - May include: - Injuries - **Rule of Law definition:** - Establishes legal principles that treat all persons equally and that government itself obeys. - Expectation on how the Government should operate. - **[Exemptions clauses -- pg -- 282]** - A clause in a contract that exempts or limits the liability of a party. - One party tries to reduce or eliminate risk by contract. - If there is a big loss, it is the customer's loss. - Reasons: - Forced to agree to it - Believe it's in best interest - Works poorly when the effect is unfair and no barging power or work well when there is a benefit - **Pg 4** - **[Summary of legal liability]** - **Definition -- Responsibility for the consequences of breaking the law** - The severeness of the consequences depends on how offensive society finds the conduct. - **Three forms of Legal Liability:** - **Criminal** - Conduct is viewed by lawmakers to be extremely offensive (ex: murder), considered a matter of public law and requires the government to enforce the law and the most serious consequence. - **Regulatory** - Society views the conduct as less offensive but still necessary for an orderly society (ex: proper driving habits) the conduct might be exposed to regulatory liability. - Government will often ticket offenders. - **Civil (Private Law)** - Lawmakers see the conduct as primarily a private matter affecting only the parties involved (ex: tenant fails to pay rent) - Persons harmed by the conduct will be responsible for enforcing the law through private or civil suits. - It is possible for one event to attract all three types of liability - Breach of contract - - Crime, civil and regulatory laws - - **Pg 6-7** - **[Legal risk management]** - **Legal Risk Definition -- Business activities, conduct, events or scenarios that could expose a business to any type of legal liability.** - **Legal Risk Management Plan -- A plan developed by a business that identifies potential legal liability and provides preventative and remedial strategies.** - **Strategies to Manage Legal Risk:** - Not bullets 1 and 2. - **[Bullet 3 -- transferring of legal risk. ]** - Accepts that the risk may occur and shifts the consequences to someone else (ex: an insurance company or consumer who, through contracts assumes responsibility) - **Pg 11** - **Where law comes from:** - **Constitution** - Basic law from which all other laws draw their power. Might be created by a sovereign such as a monarch or government. - "higher" law by which all other laws are governed. All other laws must comply with the constitution in order to be valid and enforceable. - **Government:** - **Legislation:** - Also known as statue law, statues, or acts. - Pass by parliament and provincial legislatures in compliance with Canada's constitution - **Regulations:** - Rules passed under authorization of a statue by the body designated in the statute such as the federal or a provincial cabinet or cabinet minister. - Certain human rights - Court decisions - Judgements handed down by single judges or a panel of judges after hearing a case before the court -- referred to as **case law.** - Sometimes only impacts the parties involved or can include explanations and opinions that shape the law and have relevance beyond the specific parties. - **Contract torts.** - **Pg 14 15 and 16** - Charter of rights and freedoms: - Infringement - Striking down legislation - Striking down remedies - **Legal rights protected by charter:** - Everyone has the right to life, liberty and security of persons and the right not to be deprived thereof. Except in accordance with the principles of fundamental justice - Everyone has the right to not be arbitrarily detained or imprisoned. - Everyone has the right on arrest or detention: - To be informed promptly of the reason therefor - To retain and instruct counsel without delay and to be informed of that right. - To have the validity of the detention determined by way of habeas corpus and to be released if detention is not lawful - **Pg 22** - **System of civil justice and common law** - **Civil Law -- VALUES LEGISLATION OVER CASE LAW:** - Older of the two systems - Covers the whole continent of Europe, large extent of Scotland, much of Africa and the whole South and Central America. - North America -- applies to Quebec, Mexico and some degree of the southern region of the US such as Louisiana - Based upon legislation and derives from Roman Law - Requires that all law be collected into a consolidated body of legislation know as civil code - This code is more important than any case decision as the court always refers to the code to settle a dispute. - If the code does not seem to cover a new problem, then the court is free to reason by analogy to settle the problem from general principles in the code. - A later court need not follow the earlier reasoning in a similar case. - **Common Law -- GIVES CASE LAW THE SAME OR SOMETIMES GREATER VALUE THAN LEGISLATION:** - Originated in England and covers most of the English-speaking world. - Favours case law -- recorded reasons given by courts for their decisions and applied by judges in later cases. - - **Common law harsh remedies:** - - Pg 23 - **Common law system of justice:** - **Need for consistency:** - We need like cases to be treated alike. - Reduces number of disputes that go to court because parties can anticipate how a case will turn out based on prior outcomes. - **Need for predictability:** - People must be able to predict outcomes so like cases need to be decided alike. - To predict outcomes, judges give reasons and describe the principles applied in making their decisions -- they are collected into a set of predictable rules that are applied to determine outcomes in other cases -- known as **precedents.** - **Pg 24** - **Courts and decisions of other judges:** - **Distinguish Definition -- identify a factual difference that renders a precedent inapplicable to the case before the court** - Judges may be influences by all prior decisions but are only bound to follow decisions of a higher-level court. - Precedents bind only the exact same circumstances. - Judges can distinguish the current case from an earlier precedent by dwelling on factual differences - this way, they are able to adjust the law rather slowly to changing circumstances and values. - Difficult for judges to respond quickly to change in society, what was acceptable in1985 may be entirely out of step with current social standards. - **"Distinguishable" cases** - Identifying a factual difference that renders a precedent inapplicable. - **Common law codification** - **Definition - the action or process of arranging laws or rules according to a system or plan.** - System of courts are needed to build precedents. - Organization of courts into a hierarchy the designates the responsibilities of the court and determines the importance of the precedent. Three levels: **trial,** **appeal** and **final appeal** - Courts look into a variety of outside sources for direction. - Canadian courts look into England's existing precedents by borrowing from **canon law.** - English law formed their earliest precedents by borrowing from - **Canon Law -** laws created by the church that has its own jurisdiction in matters pertaining to itself, family law, and wills. - **Roman Law** - **Feudal Law --** System of land ownership rooted in sovereign ownership. - **Merchant Law --** Rules and trade practices developed by merchants in medieval trade guilds and administered by their own courts. - **Equity** - **Definition --** rules developed by the courts of equity as exceptions to existing rules of common law. - Equity and the common law contribute equally to the current legal system developed by today's judges. - Courts of common law used to only award money damages to a party injured by a breach of contract but sometimes that was not adequate compensation. - The courts were prepared to grant **equitable remedies** such as specific performance. - New remedies created by the courts of equity for when money damages did not solve the problem. - Pg 25 - **Codification summary** - The approach of chancery courts was different from that of common law courts. - Equity was a set of rules which could be invoked to supplement the deficiencies of common law or to ease the clumsy working of common law action remedies. - Remedies in equity were discretionary. - The relative innocence of the petitioner and the hardship he suffered determined whether the individual could hope for this type of intervention. - Equity pioneered key legal concepts of trust and loyalty and considered the relative positions of the parties when applying the law. - **Three meanings of common law -- pg 26** - **Pg 27** - **More common law** - **Case law precedent:** - - **Canadian private law:** - Case law forms the bulk of Canadian private law. - **Vicarious liability:** - \*Organization is responsible\* - **Breach of contract results in money damages** - **Pg 28** - **Trial** - Courts of first instance are also called courts of original jurisdiction. - Actions begin and trials take place in this court. - Witnesses are called and an initial judgement is rendered. - Trial court -\> court of appeal -\> trial court - **Procedure before trial:** - **Action** -- Lawsuit formed. - Actions begin by someone issuing and serving a writ or statement of claim. - **Statement of claim** -- describes the reason for the action of the cause of action. - Must describe the facts and the legal principles that make up the cause of action. - Described the facts that they allege and the damages suffered. - - **Cause of action** -- an event or set of events that gives rise to legal liability. - A trial will only start when the defendant is served so they can prepare to defend themselves. - Should not go to trial immediately. - Expensive - After claims have been submitted the defendant can counterclaim as well as defend -- both claims will be tried together. - Next step is examination for discovery. - Process that allows either party to examine the other's evidence in order to narrow the issues further and decided whether to proceed with a trial. - Most provinces require a pre-trial or settlement conference with a judge or mediator after discovery is complete and issues in dispute are reviewed. - **During the trial** - Both parties present their evidence before the court - Burden of proof is on the plaintiff to prove her case. - Standard of proof -- for plaintiff - enough evidence of favorable facts to convince a judge that it is "more likely than not." - Defendant -- attempts to establish another version of the facts of at least to minimize the value of the evidence submitted by the plaintiff. - Reviews documents, calls witnesses - Counsel for defendant my cross examine witnesses - Opposing parties may object to evidence introduced by another party for a number of reasons. - **Admissible Evidence** -- acceptable for the court - **Hearsay** -- Word attributed by a witness to a person who is not before the court. - Cannot be properly assessed when it is second-hand. - Once all evidence is presented, final statements are made - Might recess or **reserve judgement** -- postpone giving a decision after the hearing ends. - Final decision may be given orally in the court or in written form - **Illustration 2.2** - B owned two separate lots and agreed to buy the middle lot between them from S in order to erect a large building - S changed his mind and refused to convey the middle lot - If B sued for breach of contract in a common law court, he would only be awarded money damages since his building project would be frustrated. - **Merger of the law** -- no longer two courts equity and common law courts - Merged into a single system. - Did not result in abandoning the philosophy of equity. - Precedents also merged into one set of rules. - Procedure by which the courts can process tort claims and levels of court. - **Pg 34** - **Class action lawsuits** - Many interests are affected by the same conduct. - Judgement decides the matter for all the members at one. - Avoids multiple actions and inconsistent results - Often filed against businesses - **Pg 38** - **Settling out of court:** - Settlement -- out of court procedure in which one of the parties agrees to pay a sum of money or perform an action in return for a waiver by the other party of all rights arising from the grievance. - **Advantages:** - Provide quick compensation and avoids the expense of litigation. - Each party to a settlement avoids the risk that the court will find against them. - Avoids delays in the court system. - **Pg 30 and 31 -- review** - **Dispute Resolution:** - Many parties to dispute choose not to go to court and us the alternative dispute resolution. - **ADR definition:** - Alternative ways to settle a lawsuit. - Oldest form -- **Arbitration**: - Dispute is referred to an arbitrator who adjudicates the matter and the parties agree to be bound by the arbitrator's decision. Although there might be a right to appeal to the courts - Arbitrator will hear the parties and witness in private less formally and more promptly than a court and will deliver a decision within reason. - Bind only the parties involved and are confidential. - Goal -- party autonomy -- parties decide their own process by selecting the rules, the forum, the arbitrator and even the law to be applied. - Also used in public sector disputes -- labour relations, workers' compensation and international commerce - In some events, the parties may appeal to the court - Important form of ADR -- **Mediation** - **Definition -- A form of ADR where a neutral third party who is acceptable to both sides acts as a mediator, assisting the parties to reach a settlement.** - Mediator has no power to make a binding decision but assist the parties in reaching a settlement. - Ultimate form of party autonomy - Job: - Hears both parties. - Identifies and clarifies the issues. - Explores the middle ground that might be acceptable. - Might be evaluative. - Mediator offers an opinion on the substance of the dispute. - Might be facilitative. - Mediator guides the process only. - Often will include an interest-based discussion. - Allows imaginative settlements not possible in courts. - All parties must adhere to basic rules of respect and confidentiality for an effective mediation. - Private judges are allowed in mediation. - **Advantages to mediation -- pg 40** - Pg 39 - **Contingency fees** - **Definition** -- a fee paid for a lawyer's services only if the client is successful -- no charge if the client is unsuccessful. - Developed to give access to justice to poor litigants who might otherwise be denied the chance to pursue their claims. - **Use of contingency fees -- page 37** **[Chapter 4]** Pg 84 - Elements of a negligence action checklist - Fault causing Loss - Duty -- do I owe you a duty of care - Made of two concepts -- foreseeability/proximity - Standard of care -- pg 86 - Damage -- pg 87 - Physical and non-physical injuries - Damage to property - Requires a loss - Causation and remoteness of damage - "but for" test -- but for so and so failing to do something, incurred a damage - Must have an expert diagnosis fault and causation - "More likely than not" - Pg 88 - Remoteness of damage -- foreseeability - Case 4.8 - Problem -- fly never found it way in the water bottle - If is it too remote - **Thin skull doctrine** -- allows plaintiff to recover al damages even though the issue may be much greater - **Contributory negligence** - Negligence act -- allows the court a portion of liability - **Case 4.9** - Product liability - Pg 91 - chart - Occupier's liability - When injured at someone's house as a trespasser, what duty of care are you owed - **Remedies** - Pg 95 -- purpose of law of torts is to compensate an injured party - Want to be put in the position you were had the tort not been committed - Restitution -- to get property back **[Chapter 5]** - **Hiring a professional improves the probability of a correct result or decision** - **Fiduciary duty -- pg 103** - Certain relationships are inherently fiduciary (doctor -- patient, lawyer -- client etc.) - Duty to act in the best interests of the client - **Conflict of interest -- pg 104** - Cannot act in the best interest of your client when working with a conflict - **Tort Liability -- pg 105** - Client may sue in contract and in tort - **Third-party liability** - **Pg 106 -- first bullet** - **Tort Liability for inaccurate statements -- pg 107** - **Negligent Misrepresentation -- pg 108** - **Incorrect statement made without due care** - **Checklist -- pg 109** - **[Chapter 6]** - **Contract** - Pg 125 -- definition of a contract - Difference between a promise and believe in court - Promise that is exchanged between people that's the law will force if one of the parties does not comply - Resolved with remedy - **Things contracts need to have:** - Offer - Offer to sell something - Offeror and offeree definition - Case 6.1 - Importance of offer followed by acceptable - Can't have 2 offers -- law requires at lease one of then to accept the offer - Can't be responsible unless given an opportunity to accept the offer - Case 6.4 - Communication of an offer -- pg 125 -126 - Offers need to be clear and understandable -- no particular form is needed verbally - Written offers - Significance of acceptance that involves signing a contract you haven't read - Are there terms that aren't enforceable - Standard form contracts are needed in fast-paced retail situations - Needs to provide you with an opportunity to read the contract -- make it available -- if you decide not to read it, it is still binding and enforceable - even standard form contracts - Except -- courts will not allow unfair, unreasonable terms that make no sense - **Pg 199 -- Tilden case** - Went to rent a car -- didn't read the contract -- accident -- called to make a claim -- was drinking = no coverage -- - Appeals said it was fine - Cannot put that term in without telling them - Pg 129 -- when does the offer end - Revocation - Illustration 6.2 - Object that is material and made of significant value - Offer doesn't have the legal strength of a legal contract - Create a contract that is offer and acceptance -- option - In consideration of the sum of 5000, I allow you to give me 30 days - Rejection and Counteroffer: - The making of a counteroffer is the rejection of the original offer - Illustration 6.4 -- original offer is gone by the time they call back - - **Acceptance:** - Must accept offer to move towards the contract stage - Pg 130 -- Acceptance - Does not have to be accepted with words -- Ex: handshakes - Must be certain and unconditional - Communication - General rule -- if they must be clear and unconditional, acceptance must be communicated - Pg 132 -- some types of offers can be accepted without communication -- asks for offeree to perform an act - Pg 133 case 6.4 -- case of carlil - Used product and got sick -- did not communicate the acceptance -- ad did not say that -- problem for company -- unilateral contract - Contract offers lapse - Can end in a number of ways - Not accepted in time specified - Offeree can reject it - When accepted by offeree, then it is replaced with a valid contract - Pg 137 -- bilateral contract - Promisor - Promise - Each party is a promisor and promisee - Each promised to do something that requires us to perform at a later date - Involves A and B and both have exchanged promises - Obligation -- promisor - Right to receive -- promisee - Assignment of contractual rights - Consideration - Intention - Capacity - Legality - \*in writing -- some types of contracts do not have to be in writing **[Chapter 7]** - **Pg 146 -- Consideration** - Price for which the promise of the other is bought - Price needs to have value - Things that don't have value: - Illustration 7.1 - Gratuitous promises - If it is gratuitous, there is no legal standing - Adequacy of consideration - "peppercorn" - If a party agree to a grossly inadequate promise, it is up to that party - Exceptions: - Adequacy of consideration can become an issue if there are other considerations to look into - Case 7.2 - Relation between existing legal duty and consideration - Document under seal required no consideration - Seal says I fully agree to be bound by this promise - Pg 154 - Intention to create legal relations - Look at third paragraph - Between friends and family - Ex: friends and family cannot sue you if you decide to not show up for a dinner **[Chapter 8]** **Capacity:** - Summary on pg 161 - Once its proven that an agreement involved offer, consideration and acceptance for the promise -- the court will assume that - 1 -- the defendant had the capacity to make a contract - 2 -- the contract is legal - If both of those things are proven to be false -- they will be released from contractual obligations - **Meaning of Capacity to Contract:** - Whether the party had the capacity to enter into a contract - Ex: a four-year-old child is not expected to be able to buy a \$100 computer game - Lacks legal capacity -- may be excused from obligations - Competence to bind oneself legally - **Minors and Drunks:** - **Minors** - The court understands that we do not want people to be responsible for things they do not understand or appreciate - Under 18 -- cannot enter into a contract -- has not attained the age of majority - Can only sue for reasonable cost - Contract made by a minor is only binding on the other side -- whether or not they know they are dealing with a minor - When they own assets or needs to contract, their legal guardian or parents are empowered to look safter their affairs - **Drunks:** - Does not have the ability to appreciate the capacity of what they're doing - Drunks: - cannot enter into contracts - Need to prove you were so intoxicated that you could not appreciate the nature of the contract - Need to prove that the person in charge of the contract knew you were that intoxicated - **Repudiation** - To reject or declare an intention not to be bound - **Illegal contract:** - Judges will not entertain - Illegal contracts are completely unenforceable - Client may not sue - Most serious types **[Chapter 9:]** - **"Mistake" At Law -- Narrowly defined and limited in scoped** - Only certain kinds of mistakes will make a contract void or voidable - Rules of equity require that any party asking to have a contract set aside must also be prepared to return whatever benefit he or she received under the contract. - If mistaken party cannot restore the subject matter of the contract (goods have been consumed) the mistaken party loses the right to rescind - Two issues -- who is mistaken and what they are mistaken about - Must be about facts not the law itself - Mistakes generally relate to the terms of the contract, the subject matter of the contract or the identity of the party - **Common mistake:** - When both parties to the contract are mistaken about the same facts - **Mutual mistake:** - Both parties are mistaken but believe something different from each other - **Unilateral:** - One party is mistaken and the other knows the truth - **Where the fault lies:** - Unilateral - One party - Common - Two parties - Mutual - Inability to distinguish where the fault lies - - **Pg. 187** - In the interest of commercial certainty courts tend to hold the person to the promise they made - They will correct the mistakes for the parties or rescind the promise completely - **Mistakes that make the contract voidable:** - **Equitable and common law** - **Figure 9.1** - No rights, title or ownership pass to anyone under a void contract - If courts decide that the contract between S and R is void, the second contract also fails - P has no greater rights than R and will have to return the goods to S and sue R for his losses - Voidable contracts exist until they are **set aside (**rescinded) by the court - If contract is rescinded after R has received the goods, R will have to return both title and possession to the seller - Difference between void and voidable do not matter if the goods are still in possession of the original parties when the contract was set aside - Common law approach - Perfect common law approach -- if there is some type of unilateral mistake, common law courts say there is no contract -- void - No contract between S and R - **Figure 9.2** - Allowed for title to pass and allowed for S to have its remedies for R - If a contract dispute concerns only the two original parties, it might not matter if the contract is declared void or voidable. - Court may order the return of property that has passed between the parties - If property has transferred to an innocent purchaser, the original owner can only recover it if the original contract is declared void - Equitable approach - Did not want to permit - Treated contract as voidable -- - In order to get benefits -- must be innocent and must have a paid value - **Three types of mistakes:** - **Common mistake:** - A situation in which both parties believe the same misunderstanding or mistake about the contract - **Rectification:** - Correction of a written document to reflect accurately the contracts made by the parties - **Standards Needed for Rectification:** - Court is satisfied there was a complete oral agreement free of ambiguity and not conditional on further adjustments - Parties did not engage in future negotiations to end the contract - The mistake in the written document may have, but does not have to have occurred as a result of fraud - When the written document was signed, the defendant knew or should have known of the mistake and the plaintiff did not - Any subsequent attempt to enforce the inaccurate written document would be equivalent to fraud - **Mutual Mistakes:** - A situation in which both parties believe a mistake exists in the contract, but their understandings of the mistake are different - **Pg 191** - Seems only fair that the consequences of the - Case 9.1 - **Webster v Cecil** - Parties were negotiating about the sale of land owned by Cecil. - Cecil initially refused Webster's offer of 2000 pounds - Cecil later made a counteroffer mistakenly for 1250 pounds - After the letter was mailed, he realized the mistake and sent a second letter for the real offer -- 2250 pounds, but it arrived after Webster accepted the 1^st^ offer - Webster sued to enforce the contract and failed -- court found that he could not have possibly believed that 1250 was the initial offer price and rescinded the contract - Court will rule in the seller's favour if it is clear that the purchaser should have known he was making a mistake - Reasonable person should know - **Errors in Recordings:** - Contract contains an error but instead of the party being released from the contract, they wish to have the corrected deal enforced - If the final written version of the contract does not accurately reflect the original statement, it need not be declared voidable for mistakes - If both parties are under a shared or common mistake, rectification is a simple matter - Pg 188 - If one party stands to benefit from the error of recording, he may insist that the incorrect price stands in court -- court would change the price -- rectification - **Misunderstanding of the Meaning of Words:** - Both parties to a contract agree to the words actually use -- no party put them in accidentally nor were any of the terms subsequently recorded incorrectly - However, the parties place different meanings on those words - Most are considered questions of interpretation and court will decide the most reasonable in light of circumstances - Mutual mistake -- rare -- see above - Common area of litigation - **Illustration 10.4 -- pg 216** - Smith offers to buy cabinets from doe for \$1000 - Doe accepts, smith asks where is the lumber the next day - Doe says that smith is supposes to supply it - Smith claims that his price was only for the materials - One party could claim that the offer omitted an essential term (vague offer) -- not capable of acceptance -- no contract is formed - But, if each party accepts that the agreement to "build a set of cabinets for \$1000" is valid - Smith will claim that Doe should supply the lumber - Doe will claim otherwise - Courts must make difficult -- decisions: - **Strict (plain) Meaning Approach:** - Uses dictionary definition of a word - Problem -- there are different meanings for different word - Context may be different - **Liberal approach:** - Looks to the purpose of drafting the agreement - What did they intend? - Circumstances surrounding the event, meaning of the context etc. - "To build" means to construct -- words are ambiguous -- court will hear about previous transactions, and evidence used in the past - Ex: if Smith quoted different prices varying with the kind of wood to be used - Or if doe made it clear earlier that they wanted a price including materials -- would support a claim to "supply materials" - **Mistake about subject matter value:** - Parties are expected to know the subject matter of all items and of any changes - **Figure 9.1 -- PG. 194** - Ad states "this car is the best car we've ever made" this is just an opinion - Ad states "the car that gets 100 KHM per litre of gas in highway driving" - representation of fact has been made - Ad states "The Canadian Automobile Association declares this car to be the best in its class" -- expert opinion that will be treated as a statement of fact - Pg 153 -- SEAL - Document under seal is considered a deed -- requires no consideration - Methods of sealing document: - - **Non-Es Factum:** - "Not my doing" -- contract would be considered void - Does not include if you don't read the contract and are careless - Defense of non es factum is only available to someone who, as a result of misrepresentation, has signed a document mistaken as to its nature and character and who has not been careless in doing so - **Misrepresentation:** - **Untrue statement or omission that has occurred** - **Tort -- if made fraudulently or negligently** - In contract law: - **Material:** - Any marital misrepresentations (innocent or not) give rise to the right to rescind a contract - If maker of the misrepresentation acted fraudulently or negligently the court may grant damages - Innocently -- no damages rewarded -- can only rescind the contract - Could reasonable be expected to influence or induce the decision of a party to enter into a contract - Not a term of the contract -- statement or impression usually made or formed during the pre-contract bargaining not included in the subsequent offer - If it is incorporated into the contract, it becomes a term of the contract which can give rise to breach of contract - **Statements about goods in advertisements:** - Considered representations not terms - Considered terms of contract when read by perspective buyer - False assertion is considered representation only when it is made by a statement of fact - Allow for a party who entered into a contract to get out of it and get damages - Even if the misrepresentation is innocent -- person did not know - Pg 197 - Pg -- 196 -- if it is innocent with negligence, no damages will be rewarded -- limited rights - **Misrepresentation that needs to be a fact:** - Illustration 9.1 - See above - **Consequences of misrepresentation:** - Same thing in chapter 8 -- repudiation - When someone who relied on material misrepresentation learns the truth, the contract is voidable. - Must renounce promptly, if a reasonable amount of time has passed without repudiating, she loses right to rescind - If out-of-pocket expenses were sustained in performing the contract or paid money to another party before being aware of right to rescind, may be entitled to indemnity or compensation in addition - **Pg 198 -- Misrepresentation by Silence or Remission:** - You can be liable for misrepresentation without saying anything - Special relationships of trust (Ex: insurance contracts) - Certain insurance policies require you to say something -- duty of upmost faith - Duty to disclose all pertinent information - Pg 199 -- see 652 - Pg 302 - **Caveat Emptor -- buyer beware** - Someone you purchased property from is suing you - Implied term that the seller can sell the item to me - Right to rescind if seller fails to disclose problems with product before the sale - Right to rescind for misrepresentation of the goods - Land - Narrow remedies - No obligations exist to disclose defects in title - Complaints about any misrepresentation must be raised before title is transferred or any right to rescind is lost - **Undue Influence:** - Someone has domination of weaker party -- deprives the other party of making an independent decision - Voidable at the option of the victim - The extent to which you can get someone to do things for you under contract to a point where they can't make independent decisions -- they should be able to escape the contract as well. - **In the context of special relationships:** - Doctors, lawyers etc. - When you have undue influence that is raised by one of those parties, the court presumes that undue influence preceded - Need to make sure guarantees were made - Case 9.7 - To increase credit limit for his company -- shareholder agreed to give the bank a mortgage on the family home - Jointly owned by shareholder and spouse - Spouse signed mortgage documents without explanation - Company failed and bank claimed his house - Spouse blocked the attempt to seize the house -- bank was on notice of the special relationship and failed to inquire into undue influence. - Independent legal advice -- pg 198 - **Consumer protection:** - Unconscionable contracts: - Contracts where there is unequal bargaining power between the parties and the powerful party gets an extremely advantageous deal -- voidable at common law - If there was some type of allegation of wrongdoing -- the court will look if there was a bad deal -- such as consumers - Loan transactions -- most heavily scrutinized consumer contracts - **Duress -- pg 199** - Actual or threatened violence or imprisonment as a means of coercing a party to enter into a contract - Similar to undue influence - Coercion -- improperly force payment under protest - Contract is voidable if person was threatened - Economic duress -- coercion - Ways to get out of it: - Contract declared void - Relief from courts **[Chapter 10:]** - Better to have complicated contracts completely in writing - **Oral vs in writing** - **Oral** - Also legally enforceable - Subject matter of the contract will dictate the application requirement - Court has to listen for what they agreed to - Preferable to reduce it to writing - **Benefits of a written record -- pg 205** - Human memories are fallible - Written record is more accurate - Disputes can be avoided -- on record - Long term contracts should not be left to memory - **Form of contract** - Oral - Part oral and part in writing - Entirely in writing - **Statue of frauds** - **Makes certain types of contracts unenforceable unless they are in writing** - An otherwise valid oral contract that falls within the statue is unenforceable and allows a party to avoid having to perform a contract solely because its oral - **Covers six types of contracts:** - A promise by an executor or administrator to pay estate debts out of his own money - A promise to answer for the debt, default, or miscarriage of another (guarantee) - An agreement made in consideration of marriage - A contract dealing with interest in land - An agreement not performed within one year of its making - Ratification of debts incurred while a minor - Lies about interest in land caused this law to form - Relied on common law entitlement to enforce - Interest in land require a written agreement - If people testify about the interest in land, the statue of frauds will help - If two parties don't know that the agreement should have been in writing it is a disservice to them - Promotes more frauds than prevents -- people keep trying to get out of their contract because of a bad deal - Land -- pg 208 - By taking possession of and performing a contract, you have established that a contract exist - Signed by the defendant -- pg 209 - Consequences of contract with scope -- 210 - **Guarantees** - A promise to answer for the debt, default, or miscarriage of another - People who find a technical way to get out of their obligations - Promise to a creditor -- if he doesn't pay you I will -- need to have someone guarantee it - **Indemnity** - **Promise by a third party to be primarily liable to pay the debt** - Legal promise to creditor -- no requirement to chase the debtor - Third paragraph on pg 207 - A guarantee must be made in writing to be enforceable - A promise to indemnify is outside of the statue of frauds and enforceable without being in writing - Considered incidental - **Interpretation:** - Courts usually do not frequently declare an agreement void because the wording is ambiguous - Instead, they lean towards keeping an agreement alive rather than brushing it off as nonbinding - Ill. 10.4 - Smith offers to build cabinets for Doe for \$1000 - Smith asks where the lumber is -- Doe says he is supposed to supply it - Smith says that his price is for the work not the materials - One party may claim that the offer omitted an essential term -ambiguous or vague offer is not capable of acceptance - If each side claims its valid, Smith will claim that Doe should supply the lumber and Doe will claim the contrary - What does the judge do when the case is presented - Might decide that she does not know what the terms are - Or find a meaning for what the words mean -- using dictionary meaning - **Pg 216 -- General Approach to Interpretation:** - **Two approaches:** - **Strict or Plain Meaning Approach:** - Ordinary or dictionary meaning of a word - In any dictionary, many words have two or more meanings - Meaning of words change and context of the words in a contract may make it obvious that they have been used in a special sense - **Liberal to Contractual Interpretation:** - Looks to the purpose of the parties upon drafting their agreement - What did they intend? - Stresses the circumstances surrounding the contract, the negotiations, and knowledge of the parties leading up to the contract - Minimizes the importance of words actually used - Might lead to unsatisfactory results by inviting endless speculation about what the parties intended but never expressed - **Extrinsic or Parole evidence:** - Before making a deal, the parties often spend time negotiating until a compromise is made - Orally or in writing - During the negotiation process, emails, draft documents, phone messages, faxes and letters may be exchanged -- these are known as parole evidence - If a dispute arises over the meaning of the words used in formal signed documents this evidence helps understand the meaning of the words used in final contract - **Pg 217 -- Different Types of Interpretations:** - Special usage of words - Evidence of special usage of words is not necessarily conclusive - Court may decide that the word was used in a general way and construe words more strictly against the party who has suggested them because that party could have been more clear - **Conflicting Testimony and Credibility:** - Parties may give conflicting evidence about the circumstances surrounding contract formation - In order to figure out which testimony to accept, the courts will seek corroboration of one of their versions -- from non-parties, documents, or from the actions of the parties related to the contract - Credibility contest when the only evidence in the case is testimony of the parties - Judge must rely on testimony of witnesses and decide which version sounds reasonable - **Special types of Contracts:** - Some contracts require special approaches - Standard form contracts -- judge recognizes the one-sided nature of the negotiations and tries to level the playing field - When interpreting a term in a standard-form contract, the court would prefer an interpretation advance by non-drafting party -- must be reasonable -- **called contra proferentem** - Chapter 9 -- pg 193 -- rare -- doesn't give effect -- doesn't hold people to their agreement - **Parol Evidence Rule -- pg 218** - When a judge reads a case and does not have any problems with the terms in contract -- evidence not needed - Can help address legality, the capacity of the parties, mistakes, duress, undue influence, or fraud - Applies to oral agreements as well - Cannot be used to add a new term to a final written contract - Court does not what to hear about the negotiations - Exception to parole evidence rule -- pg 219 - Checklist on 220 -- most important exceptions -- in writing - **Exceptions:** - **The document does not contain the whole contract:** - Sometimes the court may find that the written document was not intended to be the whole contract - Contracts can be partly oral -- if the party can prove that the writing was not the entire contract and there were more terms that were partly oral, she may introduce evidence of additional oral terms - **Subsequent Oral Agreement:** - Does not exclude evidence of an oral agreement that the parties may reach after they have entered into the written agreement - May change the terms of a written agreement -- may even discharge or rescind agreement - courts will hear evidence of a subsequent oral agreement but contract must satisfy all the usual contract formations - **Collateral Agreement:** - Separate agreement made between the parties at the same time but not included in the written document - May be enforced as a separate contract independent of the written document - Courts will only accept this claim when all elements of formation are separately met for collateral agreement and when it does not contradict the terms of the agreement - **Condition Precedent:** - Any set of circumstances or events that the parties stipulate must be satisfied or must happen before their contract take effect - May be an event beyond their control (required a licensing board approve the transfer of a business or a student graduating before a contract of employment takes effect) - Courts will accept oral conditions even if the contracts states that the parties' rights and duties are governed by written terms - Courts are prepared to recognize and enforce a condition precedent agreed to orally even if the subject matter of the contract falls within the scope of the Statue of frauds or Sale of Goods Act. - Once the court accepts the condition precedent, the whole of the contract is suspended including any term attempting to exclude the admission of such evidence - **Implied terms:** - A term not expressly included by the parties in their agreement but which as reasonable people, they would have included had they thought about it - Would be implied if it is obviously necessary to accomplish the purpose of the contract - Courts will enforce terms reasonably necessary -- will not make a new contract for parties - Terms will be implied base on business efficacy - When parties deal with a matter in their contract, a court will not insert an implied term that deals with the same manner in a different way - Court may conclude that had parties planned for foreseeable future, they intended to deal in a comprehensive way with all future events so no further terms should be implied - Courts sometimes decide that a term may be implied so that the purpose of the contract may not be defeated. - Courts are concerned that the parties that entered into the contract without - Unless the judge steps in and implied a term, then the contract will not be enforced - See Pg 102 - See Pg 155 - See page 234 -- implied term with retailer who sold salmon implied that they are fit for consumption - Pg 226 -- third paragraph -- if the parties try to address some type of issue the court is not going to correct the agreement -- only will step in if a term is missing **[Chapter 11]** **Privity of Contract:** - The scope of a contract should be within the parties that agreed to it not those outside of the contract - **Third parties** sometime occur in these situations - A person who is not one of the parties to a contract but is affected by it - **Privity of contract** -- must be proven to win contract lawsuit - The relationship that exists between parties to a contract - **Illustration 11.1** - A owes B \$4000 - A offers to renovate C's kitchen if C pays the debt owed to B - A and B have a contract, A and C have a contract, No contract between B and C - **C is a third party --** B cannot enforce C's promise to pay the debt -- no privity of contract between them - **If C fails to pay for B --** B cannot sue C, He may still sue A for the debt owed - A may sue C for failing to carry out the promise -- May receive damages of \$4000 plus any damages as a result of B suing him. - **Illustration 11.1 cont.** - **B also signed a contract between A and to renovate the kitchen** - Now has privity of contract between B and C -- C made a promise of payment to B as well as to A - B still cannot sue C -- She would not have given consideration for C's promise - If it was signed under seal, it could solve B's problem **Comparison with Rights and Duties Tort** - **Liability of Sellers of Goods:** - Stated in chapter 10 -- A consumer who purchases goods from a retailer receives the benefit of implied terms that the goods are reasonably suited for the purpose for which they are sold - Example -- If someone buys salmon and gets sick from eating them, she may successfully sue the retailer for breach of implied term that the fish was suitable to eat - Members of customer's family could not sue because the contract is between the buyer and seller - No privity of contract or rights under the contract - May be able to sue in tort - **Liability of Manufacturers:** - Buyer may sue in tort since there is no contract with the manufacturer - Donohue vs Stevenson - Manufacturers are liable in tort for damages cause by their defective products - Builders, engineers, architects, and designers owe a similar tort duty of care to subsequent owners and occupants of the buildings they build - Their liability extends to the original building contract **Tort liability and Vicarious Performance** - Subcontractor -- completes the excess work with their specialized skill - **Vicarious performance** - Third part performs contractual obligations on behalf of the promisor who remains responsible for proper performance - Original promisor cannot escape contractual liabilities for performance of its own contractual obligations by sending a substitute. - Acceptable as long as the contract does not specify personal performance - **Illustration 11.2** - A co. contracts with public accountant B to have accounts audited - B sends C, a senior accountant to carry out the program - May A Co. object? - Work can be carried out by a qualified accountant and usually would not need B's personal performance - Performance by C is permissible, and A Co. is not entitled to reject the performance - Third party may not face contractual liability but may face tort liability - Employee commits a tort such as negligence while vicariously performing a contract for his employer: - Injured party may sue employer for vicarious liability - May sue employee personally in tort - Might choose to sue the employee because the tort was not committed during the course of their employment - **Illustration 11.3** - **C does an inadequate job, and A Co. suffers a loss** - A Co. must look to B for damages for breach of contract - If C's poor work amounted to negligence, C would be personally liable to A CO. in tort - B would be vicariously liable in tort for negligence - Can include an **exemption clause:** - A clause in a contract that exempts or limits the liability of a party - Restrict the application of privity of contract -- prevents the party with privity from enforcing the terms of the contract - **Illustration 11.4:** - **Example of exemption clause including liability:** - Purchaser agrees that company's staff shall not be liable for any harm whatsoever arising from any activities carried out by the performance of this contract - **Example of a clause limiting liability to a fixed amount:** - Liability of the airline and staff for any claim (in tort or contract) -- is limited to \$50 per bag **Trusts** - **What is a trust?** - An arrangement that transfers property to a person who administers it for the benefit of another person - Example: - Mother wishes to provide financial security for her son in case she dies while he is a child - Sets aside money to do so - Needs someone to look after it -- invest it, and pay money out for the child's care - If **a trustee refuses to pay out any income for the benefit of the child:** - Rules of equity recognizes that the son has an interest -- he is the funds true owner - Beneficiary may compel a trustee to carry out its duties under the trust agreement - even though beneficiary is a third party - Trust may be created in death or in any agreement that conveys property to a trustee on the understanding that it will be used for the benefit of a third party - **Income trusts:** - Business transfers its assets to a trustee for the benefit of the unit holders -- must compel the trustee to comply with the terms of the trust - **When they are created by operations of law:** - Creditors convince the court that their debtor is no longer able to pay their debts - Court will order that property of the bankrupt debtor be transferred to a trustee in bankruptcy who will sell their assets and distribute the proceeds to the creditors - **How trust affect third parties:** - Beneficiary of a trust is a third party to the trust agreement (contract) - Neither the person who created the trust nor appointed to administer it - Rules of equity allow beneficiary to enforce the terms of trust - In some circumstances, equity recognizes that a person holding property is really a trustee and others are entitled to a share of the property - **Resulting Trust:** - Trust relationship recognized when the conduct of the parties demonstrates the intention to hold property for the benefit of the other - **Constructive Trust:** - Trust relationship imposed by the court to prevent a party from being unjustly enriched by keeping property that should benefit another - If a court accepts this argument, the privity of contract rules do not apply - **Case 11.1** - A,B and C entered into a partnership agreement -- term stated that if one of the partners were to die, his widow would receive a share of the future profits of the firm - A died -- surviving partners refused to pay a share of the profits to A's widow - Would she be successful in suing? - Court held that while the widow was not a partner to the agreement, that agreement created a trust in her favour, - Her husband (promise of the term) had become trustee of her interest - Executor became the trustee in his place -- successful in obtaining the share for the widow - **Insurance:** - **Life Insurance Policy** -- person pays a premium in exchange for a promise from insurance company to pay out a sum of money on his or her death to specified person - Each province has a statue that gives the beneficiary the right to pay out the contract - **Automobile Insurance** -- contract may promise to indemnify not only the owner but also anyone driving with his consent - Person drives and injures pedestrian and is required to pay damages -- may sue the insurance company to recover her loss - **Undisclosed Principal:** - A contracting party who, unknow to the other party is represented by an agent - May sue or be sued on the contract - **Contract Concerning Land:** - Rules of privity do not apply to land law - People who acquire an interest in land are subject to the rights and obligations created in earlier contracts - True even if the new owner is not a party to previous contracts - Ex: owner leases property to tenant, owner sells property, the tenant must perform the promises of the new owner - New owner must respect the tenant's rights to remain on the property until the lease expires - tenant could be in jeopardy of being evicted when property is sold - **Express Language in the contract -- Enurement clause** - A clause in a contract that extends the rights and benefits to those inheriting from a party, succeeding the party or taking an assignment from a party - "Bind" or "enure to the benefit" of successors, assigns or heirs - Can be used to justify "relaxing" the privity of contract rule so third parties in clause may enforce the rights under contract - **The Principled Exception -- Exception Clauses** - When parties to a contract intend, an exception clause may also extend the protection to third parties - Protects the business from liability for its own breach of contract or negligence and any vicarious liability for the torts of employees or other third parties - Two criteria that will determine if a third party may rely on contractual provisions to protect it from liability: - Did the parties to the contract intend to extend the protection to the third party claiming it? - Are the activities of the third party within the scope of the contract generally, and the exemption clause in particular? - **Principled Exception:** - Allows third parties to rely upon a contractual exemption clause when the parties to the contract intended to include them, and their activities come within the scope of the contract and the exemption clause. - **Assignment of Rights:** - One party is not willing to wait for the other party to perform the contract and wants benefit immediately - Impatient party may transfer the unperformed right or benefit of the contract to a third party who is willing to wait for performance - Known as **Assignment** - **Nature of an Assignment:** - Businesses use assignments to secure financing from a lender by assignment the right to collect their accounts receivable in exchange for credit - Only rights and benefits can be assigned, not contractual agreements or liabilities - **Involve two contracts:** - 1^st^ -- creates the unperformed right - 2^nd^ -- subsequently assigned to a third party - **Illustration 11.5** - A finishes a building for B - Under terms of contract -- B still owes A \$10,000 to be paid once a month after completion of the building - In the second contract -- A purchases \$12,000 worth of materials for X - For the materials -- A agrees to pay \$2000 in cash and assigns to X the rights to the \$10,000 still owing to A ltd under contract - X corp collects the \$10,000 directly when the debt falls due - Contractor A -- Assignor for rights to payment of \$10,000 from B - B -- Promisor in the building contract -- assignee in martials contract - Materials contract -- assignment - If B received notice -- B must perform for the assignee X corp, instead of original party - \$10,000 still owing is an example of this form of intangible personal property - **Choses in Actions:** - Right to intangible property - **Choses in possession:** - Right to tangible property - **Third Parties Who May Play a Role in a Contract -- pg 236** - **Importance of Assignments:** - Choses in actions are used to accumulate wealth **[Chapter 11 -- Part 2]** - **Role of Equity:** - Assignment of rights (choses in actions) and sale of goods (choses in possession) each involve the transfer of an asset to another party - In assignment -- subject matter of transfer is an intangible object - In a sale -- subject matter is the ownership of goods - **Equitable Assignment:** - Require that a clear intention to assign all or part of a contractual benefit be shown either orally or in writing - Assignee may receive the benefit of the contract from the promisor - If legal action is required to collect from promisor -- the assignee must make the assignor a party as well - If assignor assigns part of her rights -- she remains interested in the result of any action by the assignee against the promisor. - If court decides promisor is not bound to perform any part his obligations -- decision would affect assignor and assignee **Exam question -- Difference between equitable and statutory agreements** - All three parties need to be involved - If legal action is required for B not performing the action - **Illustration 11.6** - A owes B \$10,000 and B owes X \$6000 - B assigns \$6000 of her A/R account from A to satisfy X - A refuses to pay X - X sues A for the \$6000 B owes - If courts were to decide that A was not bound to pay anything on the debt because contract was within statue of frauds and there was an insufficient memorandum - B would be affected -- could not claim remaining \$4000 of the debt - A does not have to consent - Issue -- X did not bring B into the lawsuit - **Illustration 11.7** - A has the money and wants to pay it but does not know who to pay it to - A owes B \$100,000 due in 12 month - B borrows \$80,000 from X bank repayable in 12 months - Under loan agreement -- B gives X bank a conditional assignment of it's A/R from A as security for repayment - Included the following terms: - As long as B pays the interest on the loan every 3 months, the bank will not be entitled to notify A of the assignment. But if B Inc fails to pay the interest or fails to pay the \$80,000 on the due date, the bank may advise A to pay back the sum plus interest - Assignment is conditional upon default of the borrower - If at the end of the year the bank notifies A that B has assigned his account and demands that A pay the bank, A cannot afford to do so until he has verified the amount owing - Must check with B - B claims they paid the bank back \$60,000: - Issue for A - Aware of the claims and fears that if he pays one party and guesses wrong, the other may sue successfully - A should hand the sum claimed by the bank over to the court as custodian -- let B and the bank settle on their own - **Illustration 11.8** - Fribble Corp owes \$160,000 to Tower under demand load - Fribble is required to make regular payments monthly, so bank has semi-annual financial statements - Fribble reported substantial losses and was slow in making 2 payments - Bank threated to call the loan unless they receive additional security - Fribble gave the bank a conditional assignment of its A/R including several large accounts - Account balances on these accounts fluctuate - Fribble promised to make payments without fail or face the bank calling the loan - Assignment is conditional - Depends on a future event and because the value of the accounts receivable varies according to the state of the accounts between Fribble and their customers. - **Bottom of page 238** - All parties have a vital interest in assignment - Must necessarily be bound in the same court decision - Needs to give A notices - If notice is given -- bad things can happen if A ignores the notice - **Case 11.4** - Brian Wholesalers - Buys a large quantity of goods on credit from Akron MFG and defaults on payment - Offers to pay Akron by assigning certain of its A/R owed by retail merchants with good credit - Akron agrees and takes absolute assignment - Largest debt owed by Woolridge department store - Akron sends them a notice that their account has been assigned to Akron - Woolridge ignores the notice and requests to pay Brian - Becomes bankrupt - Akron sues Woolridge for payment of their debt - Akron would succeed -- Woolridge paid Brian at its peril after receiving notice of the assignment - Served with noticed and didn't honor it - Judges says it does not matter must complete contractual agreement - First paragraph under -- Effect notices from multiple assignees - Important to give notice first - Someone other than the original party to a contract is permitted to claim the benefits of rights under the contract - More than one person may claim to be the assignee of the same right - Creditor may sell the right to collect the same debt to two different people by assigning it to each of them - **Debtor is faced with two demands for payment:** - Which of the two innocent assignees is entitled to payment - Which is left only with an action for fraud against the assignor - Defences A has a claim made by B - Assignees claim is - **Illustration 11.10** - Must make a notice promptly before two payments are made - Williams owes Mehta \$900 - Mehta assigns the debt to Young on May 1 - Young neglects to notify Williams and on May 11 Williams is unaware of the assignment - Williams pays Mehta \$300 on account - Because of failure to notify Williams - Young may now recover only \$600 and must look to Mehta for the rest of the money - **Assignments by Operation of Law:** - When you die you still owe the money -- estate owes the money -- executor collects - If deceased person leaves a will -- representative is called an executor - Person dies without leaving a will -- court will appoint a personal representative called an administrator - Task of executor or administrator -- to pay all just claims against the deceased estate to complete performance of any outstanding contractual obligations and to pursue all claims the deceased had against others -- and to distribute assets according to the will. - Died in testing -- no will - **Bankruptcy** - Trustee can take control of the actions you did not perform - All of them become trustee obligations **[Chapter 12]** **When do contractual obligations end?** - **Four ways to end a contract:** - Performance - Agreement - Frustration - Operation of Law - **Performance** -- obligations performed -- contractual obligations are discharged - **Both** parties must fulfill their promises - Bilateral contract goes through three stages - 1^st^ -- Neither party has performed its promise - 2^nd^ -- one party has performed but the other has not - 3^rd^ -- when both parties perform -- only discharged at final stage - **Tender of Performance:** - Attempt by one party to perform according to the terms of the contract - Ex: if seller delivers goods and buyer refuses to accept them, seller is under no obligation to deliver them again and may sue for breach of contract - Ex: debtor who makes an unsuccessful but reasonable attempt to pay will be free from further liability -- won't have to pay court costs if later sued for the debt - Debtor must seek out creditor -- not excused from tendering payment because the creditor did not ask for it - **Discharge By Agreement:** - When the parties agree after entering into a bilateral contract - Discharged because they called off agreement - **Wavier:** - An agreement not to proceed with the performance of an existing contract - If one party fully performs its part but the other has not -- the first party receives no consideration for giving a waiver of the other party's duty to perform - To be binding -- its promise to release the other party should be under seal - **Illustration 12.1:** - Atwater agrees to install a sound system for \$5500 - Under contract -- to receive the benefits of the work - Kent theatre's obligation -- to pay for the work - Atwater's right: - To receive the price - Obligation -- to do the work required - If they mutually agree to call off their contract before Atwater completes the work, there is consideration for the waiver - Atwater promises to abandon a claim for payment and Kent promises to abandon a claim for services - Each party's promise is the price paid for the promise of the other - Suppose Kent paid the \$5500 and Atwater only partially installed the system - Any undertaking by Kent will require neither completion nor return of the money - It is without consideration and not binding unless under seal. - Neither party can impose a waiver on the other -- A party who fails to perform without securing a waiver by the others commits a breach of contract - Most common waiver -- changed their mind - In order for contract to be enforceable, must be under seal - **Substituted Agreement:** - **Accord and Satisfaction** -- two parties who don't get along enter into another agreement, so they don't need to interact again - **Main goal** -- to end their existing arrangement and to settle out of court - **Ex**: A seller may be unable to import certain goods to fill an order and offers other goods of equal value or lower price if buyer releases them from original promise - Promisee may be preparing to sue the promisor before a settlement is agreed on - **Mutual Form of Release:** - Ex: builder never finished house because they were not paid -- sues and homeowner claims mediocre work was done - Signs contract -- intended to end relationship with each other forever - **Novation:** - Parties agree to terminate contract and substitute with a new contract - Deals with promoting to moving the party's relationship forward - Get around the party's problem that occurred - Nature of the agreement is primarily concerned with fostering new agreements - **Two kinds:** - **Novation with respect to material in change in terms:** - Agreed to discharge their old contract and replace it with a new one - One example of change -- change the subject matter of contract - Ex: Car dealership tells customer that they are unable to deliver a car without lengthy delay -- both parties agree to cancel the contract and substitute for a new one - Special order vehicle --motor is recalled -- tries to get customer to buy new car -- new deal occurred -- resulting from material change in terms - **Case 12.1:** - P (building contractor) agrees to pay penalty if work is not done by a certain date - Before completion -- P and Q(owner) agreed that P should do additional work on the project - Changes made it impossible for P to complete the building by the correct date - Q claimed that the penalty clause allowed him to deduct the penalty from the amount he owed to P - Court held that new agreement discharged the old agreement and the penalty clause disappeared with it - One party wants out and another party replaces the first party -- This discharges the original contract - - **Change of parties:** - Guy sells business (bar and grill) -- wants to have new purchaser assume liability of existing business -- debt he owes -- part of the deal is new purchaser assumes outstanding liabilities - **Common example:** - Party purchases existing building and assumes its outstanding liabilities - If creditors accept the new owner as their debtor -- the liability of the former owner is discharged and replaced by liability of the purchaser - Must have evidence -- by words or conduct - Burden of proof is on the party claiming there was novation to show the other party had all liabilities - See Pg 239 - Only rights may be assigned - unilaterally - **Pg 254:** - **Condition precedent:** - Future act or event other than lapse in time that must happen before the obligation to perform a promise arises - If the condition is not met and not waived, the promisor need not perform - Can be oral or term in contract - Contract subject to condition precedent has legal force before the contract is met - Limits the parties to only one reason for not performing -- the condition precedent is impossible to fulfill -- can be revoked to prior acceptance - Not effective until something happens - Positive event must occur - **Illustration 12.2:** - A co ltd. Offers B a good employment position - B replies by letter that he will take the position if A co. finds housing for him and his family - A co. accepts B's counteroffer by mail - Obligation of finding satisfactory housing is a condition precedent - Alt option -- B might say that he will take the promotion if his wife who works for a different firm is not offered a promotion for which she already applied - Failure to receive the promotion is also a condition precedent - **Illustration 12.3:** - Norton has baseball season ticket provided by management under the terms that he must control his conduct at the game - Norton attends -- his conduct annoys the operators, fans and those selling tickets - Management informs him that they are cancelling his tickets and tenders him a refund for remaining games - Norton sues management for breach of contract - Contract's term -- relating to a condition subsequent -- Norton's conduct - Discharged by agreement rather than by breach and Norton's action will fail - **Option to Terminate -- pg 255:** - Contract may include a term that gives one party or both the choice to bring the contract to an end before its performance has been completed -- by giving notice - Results in **discharge by agreement** -- the way to discharge was agreed upon when drawing up the contract - Ex: contract of employment often contains an option to terminate - entitling the employer to dismiss an employee by giving required notice - Ex: residential leases have an option clause entitling the tenant to leave before the end of the term by giving notice to the landlord - In contract for the purchase of a business -- buyer may insist on a term allowing it to discharge the agreement if the auditor of the financial statements is unable to give an unqualified opinion - an auditor's qualified opinion would give the purchaser an option to terminate - Option to terminate does not happen automatically -- the party decides whether to trigger the discharge - Want to be able to have a way out - ESA -- if you agree to something that is less than ESA -- employee can sue for damages - **Discharge by Frustration - pg 256** - Unforeseen events that make performance impossible - Cannot be sued for non-performance - Courts can excuse or discharge parties for failure to perform their contract if circumstances are impossible, pointless, or radically different from that intended from the parties - **Doctrine of frustration** -- applied to residential leases - Excuses the party from performance when circumstances are beyond the control of the parties have made performance impossible pointless or radically different from that contemplated by the parties - **Case 12.2:** - Producer books music hall -- destroyed by a fire before scheduled date of their concert - Producer sued the owner for breach of contract, compensate for losses and having to cancel - Court held that the contract was discharged by frustration and refused to award damages - If the owner was found to have broken the contract -- they would have to pay damages - Contract is discharged because of circumstances of concert hall burning down - Self-induced frustration -- breach of contract - **Case 12.4:** - Contractors agreed to construct reservoirs for a local water board at a specified price within 6 years - In 1916, were ordered to cease work by minister of munitions - Plant and materials were sold under minister's direction - After the war -- water boards insisted that contractors complete work under original terms -- they refused to comply - Prices and conditions changed since they started -- court held the contract was discharged in frustration and the water board failed - Performance problems because of circumstances -- they do not allow you to get out of contract - Paragraph under case 12.4 - War was an unforeseeable and unanticipated event - Contractual obligations are more onerous than anticipated -- will not itself discharge a contract by frustration - Frustration is only available in extreme circumstances - When contract involved sale of goods -- it will only amount to a frustrating event if the specific goods or source of goods is a term of the contract - On the lookout for people who try to willfully excuse themselves out of contracts - **Illustration 12.4** - **A -- bad deal made** - Consciously sold the truck -- self induced - B) - Destroyed by tornado - Frustration -- freed from obligations - C) - Breakdown of truck because of negligence - A is at fault -- self induced -- damages must be paid - **Paragraph under 12.4:** - Not every fault will involve frustration - Depends on the carelessness of the owner - **Discharge By Operation of Law:** - Bankruptcy and Insolvency act - Operates to discharge a bankrupt debtor from contractual liabilities after the process of bankruptcy has been completed - Debtor is discharged only if he qualifies for a certificate stating that the bankruptcy was caused by misfortune and with out and misconduct on their end - A debt disregarded for a long time becomes **statue barred** - action that may no longer be brought before a court because the party wishing to sue has delayed beyond the statue of limitation period in the statue - Limitation period -- discharging contractual obligations - See page 714