COM 402 Quiz 2 Review.pdf
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COM 402 - Chapter 07 - An Introduction to Contracts Objectives: To be able to a. To be able to distinguish enforceable contracts from non-binding promises. b. To understand and explain the elements of a valid contract. c. To be able to apply the above to factual circum...
COM 402 - Chapter 07 - An Introduction to Contracts Objectives: To be able to a. To be able to distinguish enforceable contracts from non-binding promises. b. To understand and explain the elements of a valid contract. c. To be able to apply the above to factual circumstances and indicate whether there is a binding contract which the law will enforce. 1. Elements of a Valid Contract: . d n intention to create a legal relationship. A e. Offer. f. Acceptance. g. Consideration. h. Capacity to contract. i. Legality. 2. Offer(e-book page 140, 11th edition pages 121-122): ule 1:An offer must be communicated before it can be accepted (page 140 / 121). R Rule 2:Unless the offer is made to the public at large, only the person to whom it is communicated may accept it (page 141 / 122). 3. Revocation of Offer(e-book page 150, 11th edition pages 130-132): ule 1:Notice of revocation must be communicated before the offer is accepted (page R 150 / 130). Rule 2:The onus is on the offeror to prove that the offeree had notice of revocation before acceptance (page 151 / 132). 4. Acceptance of Offer(e-book page 141 / pages 122-123): ule 1:If acceptance is specified to be by oral communication, acceptance occurs when R words of acceptance are spoken, in person or by telephone (page 141 / 123). Rule 2:If acceptance is specified to be by post (ordinary mail), then acceptance occurs when the offeree has done all that is required to post the letter to a mailbox or transfer it to the post office (page 142 / 123). Rule 3:The only binding acceptance of an offer is one that is unconditional (page 124). 5. Unilateral Contracts and Bilateral Contracts(page 145 / 126): Unilateral Agreements: In a unilateral contract, one party (the offeror) makes a promise in exchange for the performance of an act by another party (the offeree). T he contract is formed when the offeree completes the requested act. Acceptance of the offer does not require communication; the act itself is the acceptance. Example: A reward offer for finding a lost pet. The offeror promises to pay a reward, and the contract is formed when someone finds and returns the pet. Bilateral Agreements: In a bilateral contract, both parties make promises to each other. The contract is formed when these mutual promises are exchanged. Acceptance of the offer usually requires communication. Example: A sales contract where one party promises to deliver goods, and the other party promises to pay for them. otes (from Mark): Know introductory concepts about contract (and the technical rules for N intention, offer, and acceptance found in chapter 7. he nature of an offer always includes a specific description of the "three P's" An offer must T explicitly describe "price and property" which is essentially the requirement of "consideration" but part of an earlier element of contract (i.e., the "offer"). Historical Development Early systems: Merchant law, Ecclesiastic law, Manor courts. 17th century: Development of the bargain theory of contract. ontract (definition): A contract is an agreement made between two or more persons that the C law will enforce. Meeting of minds (consensual agreement). Essential element is a promise: a party intended to be bound by a promise made. Intention is a presumption at law. Note: The display of a price is not a willingness to sell but awillingness to receive offers. Why are Contracts important? The most important thing contracts do is make the future more certain than hope or random chance. otivation/benefit of contract: To have a remedy if someone should fail to fulfill their promises M “breach of contract”. Then something can be done about it. If it involves cost, having an agreement gives people the ability to get recourse. There are six elements of a Valid Contract: 1. Intention:to create a legal relationship Contracts require an intention to create legal relations. Presumptions in Contract Law: ○ Strangersgenerally intend to be bound by their promises. ○ Family membersand close friends generally do not intend to be bound by contracts. ○ Both presumptions are rebuttable. Invitation to Do Business:Advertisements are generally not offers but invitations to treat, meaning they invite offers that sellers can accept or reject. Non-Enforceable Promises: ○ Social promises and favours for friends and family are usually not enforceable as they aregratuitous agreements. ○ Promises of marriage and politicians' promises are social promises and not enforceable contracts. ○ Consideration in the context of political promises: you cannot buy votes or ballots. 2. Offer:A tentative promise, subject to a condition. Communication of an Offer ○ An offer must be communicated to the offeree. ○ Cannot accept an offer you do not know of. ○ Crossed offers in the mail do not constitute a contract. ○ Only the person to whom the offer is made can accept it. apse of Offer: Termination of an Offer: Offers canexpire or lapse in seven ways, effectively L terminating the offer before it becomes a binding contract. .Deadline(when set in the contract): The offeror is entitled to set a specific deadline by which 1 the offeree must accept the offer. If the deadline passes without acceptance, the offer lapses. .Within a Reasonable Time: If no deadline is specified, the offer remains open for a 2 reasonable period. What constitutes a reasonable time depends on the circumstances, such as market conditions or the nature of the goods/services. .Death, Bankruptcy, or Incapacitation: If either the offeror or the offeree dies, becomes 3 bankrupt, or is otherwise incapacitated before acceptance, the offer lapses. .Rejection: If the offeree explicitly rejects the offer, it is terminated immediately and cannot be 4 accepted later. Note: The offer cannot be accepted later (after rejection) unless the original offer is revived. .Counteroffer: If the offeree makes a counteroffer,the original offer is considered rejected 5 and lapses. The counteroffer serves as a new offer that the original offeror can accept or reject. .Revocation: The offeror can revoke the offer atany time before it is accepted, provided the 6 offeree is informed of the revocation. The offeror must prove that the revocation occurred before acceptance. Indirect Revocation: The offeree must receive notice of the revocation from a reliable source. ○ It can be communicated through someone else but the offeror must prove that the offeree had notice of revocation indirectly from a reliable source. Key points to remember about revocation include: Communication Requirement: The revocation must be communicated to the offeree before acceptance. An offeree cannot accept an offer once they have been informed of its revocation. Option Contract: An option is a separate promise to keep an offer open for a specific period. This requires consideration (something of value) or must be undersealto be binding. .Third Party Rule: In situations involving a third party as a witness (e.g., in open markets), if 7 the offeree turns and walks away from the offer in the presence of a third party, any outstanding offer is presumed to lapse unless there is evidence to the contrary. . Acceptance:of an offer must be communicated in the manner requested or implied by the 3 offeror. It must be clear and unconditional to form a binding contract. General Rule: The offeror can specify themode of acceptance. Acceptance must follow this specified method or a reasonable alternative if none is specified. Offers can be revoked at any time before acceptance is communicated. Spoken Acceptance: Acceptance occurs when it is spoken directly to the offeror. Written Acceptance: Acceptance is generally effective when the offeror receives the written communication, unless specific rules, such as the mailbox rule, apply. ailbox Rule: The mailbox rule is an exception to the general rule of acceptance and applies M under certain conditions, primarily when postal services are used. Application: The mailbox rule applies if the offeror explicitly allows acceptance by mail, if it is industry practice, or if it is the typical communication method of the offeror. Mechanism: ○ Offer by Mail: The offer is made through a mailed letter. ○ A cceptance by Mail: The offeree places a properly addressed and postage-paid letter of acceptance in the postbox. ○ Effective Acceptance: Acceptance is deemed effectivewhen the letter is placed in the postbox, not when it reaches the offeror. Revocation: The offerorcannot revokethe offer once the offeree has mailed the acceptance, even if the offeror has not yet received it. Governing Law: The acceptance is governed by the law of the place where the acceptance letter is posted (unless otherwise stated). ○ Postal acceptance is allowed if not specifically stated if it is the normal or usual mode of acceptance (in that industry). Other Modes of Acceptance Electronic Contracts: Governed by the Personal InformationPrivacy and Electronic Documents Act. Acceptance is deemed to occur when the electronic document enters a system outside the sender’s control or becomes retrievable and processable by the addressee. Online Contracts: The location of the contract (choice of law) can be stipulated in the "terms of use" agreed upon by the parties. 4. Consideration: Each party must give something of value for a contract to be binding. Past consideration is not valid. C onsideration must be sufficient but need not be adequate. Quid Pro Quo: "I do X for Y." Gratuitous Agreements: ○ Made out of kindness or goodwill and are not contracts. 5.Capacity:to Contract Parties must have the legal capacity to enter into a contract. Consensu ad Idem(Meeting of Minds): Parties must agree on the terms of the contract and be inconsensual agreement. Minors, mentally incapacitated individuals, and intoxicated persons may lack capacity. 6. Legality: The purpose of the contract must be legal. Contracts involving illegal activities are void and unenforceable. Types of Contracts Simple Contracts: Negotiated and completed at the same moment. Offer, acceptance, and exchange of consideration happen simultaneously. Executory Contracts: Can extend into perpetuity orhave an endpoint, such as lease agreements. Additional Considerations Contracts Need Not Be Written: Oral agreements can also be enforceable if they meet the required elements of a contract. Lawyers Need Not Write Contracts: Contracts can be formed without legal assistance. Bargain Theory of Contract: Was there a bargain where each side gets something from the other? It helps define whether it was a a. A non-binding promise or b. An intention to create a legal relationship. nilateral Offers:Made to the world at large and accepted by performing the requested act. U The offeror cannot revoke the offer while the offeree is performing their part. ilence as Acceptance: Generally, silence is not acceptance unless there is a pre-existing S agreement to this effect. Consumer protection laws reinforce that silence is not acceptance. Remedies for Breach of Contract Monetary Compensation: The usual remedy for a breachof contract. Rescission: Returning parties to their original state before the contract. Contract Law Principles Privity of Contract: Only those who made the contract can sue or be sued. C onsensu ad Idem(Meeting of Minds): Parties must agree on the terms of the contract. Contract of Adhesion: One-sided agreements, such as"take it or leave it" contracts. Fiduciary Duties, Fiduciaries: Individuals required to act honestly and in good faith. itiating Elements:There are four or five vitiating circumstances, including Mistake, V Misrepresentation, Undue Influence, Duress, and sometimes Frustration. Contracts must be free of these elements to be enforceable. 1. Mistake: This can make a contract void or voidable depending on its nature. Note: If each party is mistaken about something important in the contract (i.e., mutual mistake), then both parties can be excused (e.g., an odometer reading on a car—this is often referred to as "buyer beware" or "seller remorse"). 2. Misrepresentation: This must be a false statement of fact that induces the other party to enter the contract. 3. Undue Influence: This involves one party taking advantage of their power over another to unfairly influence the contract terms. 4. Duress: This involves threats or pressure to compel someone to enter into a contract. 5. Frustration: This occurs when something happens that prevents one of the parties from fulfilling their contractual obligations. Contract summary: Contracts are agreements enforceable by law, requiring: Intention: To create legal relations. Offer: Must be communicated to the offeree. Acceptance: Must follow the method specified by the offeror. Consideration: Exchange of value. Capacity: Legal ability to contract. Legality: Legal subject matter. pplication: To determine whether a binding contract exists, consider the intention to create A legal relations, the offer, acceptance, consideration, capacity, and legality. he 3 P's, Price, Property, and Parties:are essential elements that help define and structure a T contract. They provide clarity and ensure that the fundamental aspects of the agreement are understood and agreed upon by all parties involved. .Price: The amount the buyer will provide or thatthe seller wants. It can be something of 1 value, such as money, cryptocurrency, gold, or a trade (e.g., a car). However, money is the most commonly used medium of purchase. This refers to the consideration, or what each party is giving up or receiving. It is a crucial element because it defines the value being exchanged. The price must be clear and agreed upon by both parties. It could be monetary or involve other forms of consideration, such as services or goods. .Property: The goods or services that the buyer is purchasing or the seller is selling. This 2 defines what is being exchanged in the contract. This identifies what is being exchanged in the contract, whether it is goods, services, or other forms of property. Clearly defining the property ensures there is no ambiguity about what is being bought, sold, or transferred. .Parties: The individuals or entities making the agreement. There is no contract if the entities 3 do not exist or if there is no clear identification of who is making the agreement. This specifies who is involved in the contract. It is essential for determining who has the rights and obligations under the agreement. Accurate identification of the parties ensures that the contract is enforceable and that only those involved can be held accountable or benefit from it. dditionally,Privity of Contractis a related concept that indicates only those who are parties to A the contract can sue or be sued under it. This ensures that the contract is only enforceable by and against the parties involved in the agreement. ecessity of the 3 P's in a Contract: While the 3P's are fundamental elements that should N ideally be present in any contract to ensure clarity and enforceability, they do not encompass all the necessary elements of a legally binding contract. A valid contract typically requires the following elements: 1. Intentionto create legal relations: Both parties must intend for the agreement to be legally binding. 2. Offer: One party must make a clear offer to the other. 3. Acceptance: The offer must be clearly accepted bythe other party. 4. Consideration: There must be something of value exchanged between the parties. 5. Capacity: The parties must have the legal capacity to enter into a contract. 6. Legality: The contract's purpose must be legal. he 3 P's and Contract Disputes: The 3 P's can play a crucial role in resolving disputes T because they address key aspects of the agreement: . Price: Disputes over consideration can be resolved by referring to the agreed-upon price or 1 value exchanged. . Property: Issues related to the subject matter of the contract (e.g., the quality or condition of 2 goods/services) can be clarified by what was defined as the property in the agreement. . Parties: Determining who has the right to sue or be sued can be addressed by identifying the 3 parties involved in the contract. re the 3 P's the Best Way to Dispute Contracts?The 3 P's provide a foundational A framework for understanding and resolving many common contract disputes, but they are not the sole means of resolving all issues. Other critical aspects that might come into play include: Intent: Determining whether there was a genuine intention to create legal relations. Validity: Ensuring the contract was validly formedwithout vitiating factors such as coercion, mistake, or misrepresentation. Performance and Breach: Evaluating whether each party has fulfilled their contractual obligations and if any breach has occurred. ey Roles in a Contract, Offeror and Offeree:Understanding the roles of the offeror and K offeree is crucial in contract law as it clarifies who is making the promise and who is receiving it, setting the foundation for the contractual relationship. fferor (Promisor): The offeror, also known as the promisor, is the individual or entity that O initiates a contract by making an offer to another party. Role and Advantage: The offeror holds a strategic advantage in the contract formation process. ○ They control the terms of the offer, specifying what they want and what they are willing to provide. This means the offeror can tailor the offer to their needs and capabilities, setting the stage for the negotiation. fferee (Promisee): The offeree, also known as the promisee, is the individual or entity to O whom the offer is made. Role: The offeree has the power to accept, reject, or propose changes to the offer. Acceptance of the offer by the offeree leads to the formation of a binding contract, assuming all other essential elements of a contract are present. ormation of Contract: A contract is formed when the offeree accepts the offer made by the F offeror. The acceptance must mirror the terms of the offer for the contract to be valid. ontract “The Judgment’s in the Mail Timeline”:The article discusses a legal case where C the British Columbia Court of Appeal confirmed the "mailbox rule," which states that a contract acceptance is effective once it is put into a mailbox, even in the age of faxes and couriers. In this specific case: Trans-Pacific Trading and Rayonier Canada Ltd. were negotiating a contract for the purchase of logs. ackground: Trans-Pacific Trading and Rayonier Canada Ltd. were negotiating to buy logs. B They had an agreement worth over $570,000. Disagreement: In August 1995, there were disagreements over payment terms. They agreed on the price and method of payment but had unresolved issues about some terms. Communication: On August 25,Rayonier sent an offer by fax, followed by a mailed document which arrived on August 28. They requested the fax and three copies to be returned urgently. evocation: The next day, Trans-Pacific negotiated further by telephone (in court claimed R issues were resolved) and then acceptance was mailed back via (letter - informing Rayonier that the outstanding issues were resolved), signing and returning the documents on August 30 (by mail). owever, Rayonier's official claimed there was no agreement and revoked the offer by fax on H August 31 before the mailed acceptance was received. egal Action: Rayonier refused to go through with the contract, leading Trans-Pacific to sue for L the contract's value of $571,230.50. Trans-Pacific lost initially and appealed to the B.C. Court of Appeal, which rejected the appeal. Court Ruling: The court's key point was that acceptance must be communicated to the offeror before it takes effect. Justice Mary Southin agreed that the "mailbox rule" was an exception and examined its historical application. She concluded that the rule was meant for when mail was the only swift communication method over long distances, unlike modern times with faster methods like fax. Outcome: Justice Southin found that the mailbox rule was not in the contemplation of the parties. Since the acceptance by mail had not been effectively communicated before Rayonier's revocation, there was no contract. Rayonier's revocation was valid, meaning no binding contract was formed. In summary, the judgment concluded that the acceptance via mail did not create a binding contract because the parties did not intend to use the mailbox rule, and the acceptance was effectively revoked by Rayonier before being received by Trans-Pacific. Note: It helps to map offers and acceptance on a timeline. 1: Friday, August 25 1995 - Rayonier offers to buy using fax and mail. Fax “cover sheet” states: T “Please sign and fax back A.S.A.P.” T2: Monday, August 28 1995 - Post office delivers offer to buy. 3: Tuesday or Wednesday, August 29 or 30 1995 - Trans-Pacific mails back three copies of T Trans-Pacific’s acceptance of the offer. 4: Thursday, August 31, 1995 - Rayonier sends a fax revoking the offer before receiving T Trans-Pacific's mailed acceptance. T5: September 1995 - Post office delivers Trans-Pacific’s acceptance (three signed copies) T1 - T4: The marketprice of pulp logs is falling. Scenario: A pharmaceutical company offered a product as a cure and prevention for influenza. Someone (the plaintiff) used the product but didn't explicitly communicate their acceptance of the offer to the company (the offeror) beforehand. Argument and Counter-Argument: Company's Argument: No contract existed because the plaintiff didn't communicate acceptance. Court's Counter-Argument: If the offer itself doesn't require specific communication of acceptance, then simply using the product as intended could be sufficient. cenario:A contractor wished to lease a crane from an equipment rental agency for a S construction project. The rental agency proposed the terms of the rental and the contractor, in response, made a counter-proposal for the rental. The rental agency did not respond to the counter-proposal but delivered the crane to the contractor’s work site. he rental agency later attempted to fix new terms for the rental, but the contractor refused to T agree to the terms. When the case came before the court, the court held that delivery of the crane by the rental agency constituted acceptance of the contractor’s counterproposal for the rental agreement. Review Questions 1. Burden on the Offeror for Indirect Notice of Revocation: The courts place a burden on the offeror to ensure that the offeree receives direct and clear notice of revocation. If indirect notice is alleged, the offeror must prove that the offeree actually received and understood this notice before acting on the offer. 2. Intention to Create a Legal Relationship: This element is crucial because it distinguishes social or domestic agreements from legally binding contracts. Without the intention to create legal relations, parties cannot be held accountable in a court of law for breach of contract. 3. Communication of an Offer: Communication is essential because an offeree cannot accept an offer they are unaware of. It ensures that both parties have a mutual understanding of the terms and conditions of the agreement. 4. Rules for Acceptance: ○ Acceptance must be unequivocal and communicated to the offeror. ○ The acceptance must mirror the terms of the offer. ○ These rules ensure clarity and mutual consent, preventing disputes over what was agreed upon. 5. Silence as Acceptance: Generally, silence cannot be considered acceptance unless there is a prior agreement or understanding between the parties that silence will signify consent. 6. Counteroffer: A counteroffer occurs when the offeree responds to an offer with different terms, effectively rejecting the original offer and proposing a new one. It might arise during negotiations where the offeree seeks more favourable terms. 7. Advertisement for a Reward vs. Advertisement of Goods: ○ An advertisement offering a reward (e.g., for a lost pet) is aunilateral offer because it promises something in return for performing a specific act. ○ An advertisement of goods is typically aninvitation to treat, inviting customers to make an offer to purchase. 8. Instances Where an Offer Might Lapse: ○ The offeror revokes the offer before acceptance. ○ The offeree rejects the offer. ○ A counteroffer is made. ○ The offer expires after a specified time or after a reasonable time has passed. 9. Rationale for Mailbox Rule: The mailbox rule provides certainty in contract formation, stating that acceptance is effective when a properly addressed letter is mailed. This prevents disputes over when acceptance occured. 10.Effective Revocation: Revocation of an offer is effective only when it is communicated to the offeree before they accept the offer. 11.Creating Rights and Duties: This observation is valid. Contracts allow parties to define their rights and obligations, providing a legal framework to enforce these duties if one party fails to perform. 12.Acceptance of Unilateral Agreement: Acceptance in a unilateral contract occurs when the offeree performs the requested act. In a bilateral agreement, acceptance involves a promise to perform. 13."CONFIRM" Checks in Online Forms: "CONFIRM" checks ensure that users have reviewed and agreed to the terms, reducing the risk of accidental acceptance and providing clearer consent. 14.Click-Wrap Agreement: A click-wrap agreement is an online contract where users must click "I agree" to accept the terms and conditions before proceeding. This is commonly used in software installations and website sign-ups.
