Chapter 16

What is a valid contract? Valid Contract Contract Types of Contracts Express Implied Simple Contracts under seal

Offer 2 parties Offerer-makes the offer Offeree-accepts the offer In order for an offer to be valid, a meeting of the minds must take place. Meeting of the minds is when both parties understand their rights and responsibilities.

Serious Intent For an offer to be valid, it must be definite and seriously intended. If an offer is made as a joke or in anger, then it is not valid. An offerer’s words or conduct must indicate both the clear intention and willingness to carry out the promise if the offer is accepted.

Definite Terms Terms of an offer must be clearly stated. If goods are being sold, quantity, price, size, colour, terms of sale and delivery date must be defined. For goods and services, there is usually a standard price. Some terms are implied or assumed to be known.

Invitation to Buy Ads, displays and catalogues are invitations by sellers for customers to make an offer to buy the products. New forms of advertising are being used such as telemarketing and online advertising. Federal and provincial governments have passed laws identifying unfair, deceptive and misleading practices. Ads are not considered promises that are legally binding.

Communicating an Offer An offer must be communicated before it is accepted (mail, courier service, fax etc) An offer is not valid until it is received. Identical offers that cross in the mail does not count as a contract because neither party has accepted the others offer. Figure 16-5: a lost dog notice You are not entitled to an offered reward because the poster is not communicated to you until after you have returned the award.

Terminating an Offer Unless an offer is accepted, no legal rights or obligations can arise from it. An offer may also be terminated by revocation, which means it is withdrawn before being accepted. (can have terms saying it cannot be withdrawn for a specific time.) If an offer includes no deadline, it remains open for a reasonable length of time before lapsing. A verbal offer lapses when the parties leave one another. An offer lapses if one party dies or is declared incapable before acceptance.

Acceptance Can be in either words or by conduct and must follow certain legal rules. Offerer can make a counter-offer which changes one or more terms of the original offer. The offerer can accept or deny it.

Communicating Acceptance No contract exists until acceptance is communicated to the offerer. It is assumed that the offer and acceptance will be communicated in the same way.

Acceptance by Mail An offer made and accepted by mail is a binding contract. It doesn’t matter if the acceptance is lost, it is still valid if the offeree can prove it was mailed in time. If it doesn’t arrive in time, a choice can be made by the offerer to offer it to someone else. If it doesn’t specify a method of acceptance a “reasonable method” of acceptance e must be used. The contract is not formed unit the acceptance reaches the offerer. If the mailed offer states that the acceptance must be mailed back, the acceptance is only valid if it actually mailed back.

Electronic Contracts Conducted over the internet (E-commerce). A digital signature is used. It is personal, verifiable, and protected by encryption. In 2000, legislation was passed to deal with e- commerce. Electronic Commerce Act 2000

Silence and Inaction An offerer might be tempted to say that if they are not notified after a certain amount of time, they assume that you have accepted their offer. This is not legally valid. Acceptance has to be given actively in words or actions. One exception: Negative-option marketing A consumer must take action in order not to receive an item or service.

Unsolicited goods and services If you receive an unsolicited credit card you are under no obligation unless you give written acknowledgement that you want to accept the card. If there is no consumer-protection legislation is in place, you are only liable if you use the goods.

Consideration The exchange of something of value. In most contracts, consideration for one party is the purchase of a particular item or service, and for the other, it is the money paid.

Types of Consideration Present consideration Occurs at the time the contract is formed. Future consideration Occurs when one or both of the parties promise to do something in the future. (buying on credit) Past consideration A promise by one person to pay another for services that have already been performed for free (not legally binding).

Adequacy of Consideration Courts do not care about the amount of consideration exchanged as long as one party gives something to the other. The courts do not regard love, affection, respect or honour as valuable legal consideration.

Minors A minor is any person under the age of majority, the age at which a person gains full rights and responsibilities in legal matters including contracts.

Capacity The ability to enter into a contract All sane and sober adults can enter into a contract. There are laws that protect certain groups of people from being exploited in contract situations.

Minors and Contracts Minors are obligated to fulfill contracts for necessities (goods and services that everyone needs: food, clothing, shelter, education, and medical services). To be considered necessary, a good or service has to do with your station in life (super rich vs average)

Best Interest of Minors If someone enters into a contract with a minor for a necessity but the terms of the contract are not in the minor’s best interest, a minor may not be obligated to pay the contract price. Example: $400 jacket

Void Contracts Contracts that are not in the minor’s best interest are void (which means its like they never existed).

Consent Each party in a contract must understand and freely agree to complete it.

May prevent consent from occurring Misrepresentation Mistakes Undue influence Duress.

Misrepresentation If you are buying a good or service, the principle of caveat emptor applies. Buyer beware-the seller is not legally obligated to disclose negative facts that might stop you from buying. But, misrepresentation can occur. A false statement made by one person concerning a material fact which is a fact that is so important that it causes the other person to enter a contract.

Misrepresentation continued… There are 2 types: Innocent misrepresentation-When a person makes a false statement about a material fact that he or she believes to be true. Rescission-Basic remedy for innocent misrepresentation; it restores the parties to the positions they were in before the contract. Fraudulent misrepresentation-If a seller makes a statement about a material fact knowing it was false.

Mistakes Once a contract has been formed, the law says that it should be carried out whenever possible. Ignorance is no excuse except: Common mistake - Occurs when both parties are mistaken about the same fundamental fact of a contract. Unilateral mistake - Occurs if one party has made a mistake and the other party knew of the mistake but made no attempt to correct it. Two types: Clerical mistake Non est factum - “it is not my deed”

Undue Influence Occurs when one person applies improper mental or emotional pressure to induce another to enter and form a contract involuntarily. This type of contract lacks genuine consent and is voidable at the option of the victim.

Duress Similar to undue influence but is more extreme. If occurs when one party uses threats or violence to force another to enter into a contract. May be physical violence, detention or blackmail.

Lawful Purpose Any contract that amounts to a crime under the Criminal Code or that breaks federal or provincial laws is illegal. Other contracts may not break the law and may still be illegal and void because they go against public policy. Contracts that offend the public good are not enforceable.

Public Policy The private good of the contracting parties cannot be considered to be more important than that of the general good of the society.

Restraint of Trade Competition is considered necessary to Canada’s economy. For that reason, the courts limit the time that a contract can restrain or restrict (stop) trade to a reasonable period. If the time period is too long or unreasonable then that contract is void. Example: The owner of the only pharmacy in a small town sells his business to someone else. But the new owner says the only way he will buy it is if the old owner says that he will not open another pharmacy within 100 km of the existing store for 20 years.

Restraint of Competition The Federal Competition Act does not allow contracts between businesses if they restrict competition and go against public interest. This act protects the public against agreements that may involve price fixing, eliminates or reduces competition or reduces production in order to restrict competition.

Bets and Wagers (gaming and betting) Something of value is exchanged for the chance to win something of greater value. Can be addictive so there are statute laws to follow. Provinces and territories grant licences; most of the proceeds have to go back to the customers as winnings. Even though its legal, courts will not help the winner to collect. Multibillion dollar industry even with all the regulations.