CHAPTER 2: INTRODUCTION TO THE LAW OF CONTRACTS Emond Montgomery Publications 1

Chapter 2: Introduction to the Law of Contracts Learning Outcomes Provide a definition of “contract.” Discuss intention and agreement as prerequisites for a contract. List three features that are essential in most contracts. Discuss whether a court will enforce an agreement for which there is mutual intention, but no agreed terms. Explain “capacity” and “consideration.” Compare and contrast positivism and judicial interventionism as approaches to contract interpretation. Emond Montgomery Publications 2

What Is a Contract? Contract: agreement (oral, written, implicit, explicit, etc.) between two or more “persons” that the law recognizes and will enforce Terminology: The terms contract and agreement are used interchangeably to refer to a binding contract Promisor: the party who undertakes something Promisee: the party who receives the benefits of the promisor During bargaining, promisor may be called the offeror and person to whom the offer is made may be called the offeree Emond Montgomery Publications 3

Features of Legally Enforceable Contracts 1. Offer and acceptance of the offer 2. Intention to create legally binding relations 3. Exchange of valuable consideration 4. Legal capacity to contract 5. Compliance with legal formality requirements Emond Montgomery Publications 4

Features of Legally Enforceable Contracts (cont’d) OFFER AND ACCEPTANCE OF THE OFFER A contract is created when one party promises to do something and the other party accepts that offer Offer – a promise to do something or give something of value to another person Acceptance – acceptance of an offer creates an agreement and the parties are bound by the terms of that agreement Emond Montgomery Publications 5

Features of Legally Enforceable Contracts (cont’d) INTENTION TO CREATE BINDING RELATIONS The parties to an agreement must intend that the promises they make to each other will be legally binding The courts have taken two approaches to determine whether a contract is legally binding: 1. Subjective approach – what did the parties think they intended? 2. Objective approach – what would a reasonable person think the parties had intended? Emond Montgomery Publications 6

Features of Legally Enforceable Contracts (cont’d) EXCHANGE OF VALUABLE CONSIDERATION The parties must exchange something of value to each other Example: payment for the value of a good purchased LEGAL CAPACITY TO CONTRACT Not everyone is eligible to enter into a contract Parties generally must have equal bargaining power Parties must meet minimum levels of intelligence, rationality, and maturity Emond Montgomery Publications 7

Features of Legally Enforceable Contracts (cont’d) COMPLIANCE WITH LEGAL FORMALITY REQUIREMENTS Certain types of contracts must meet legal formality requirements Example: contracts for the sale of land must be in writing Examples of formality requirements: contracts must be in writing, be sealed, be witnessed, etc. Emond Montgomery Publications 8

How Contract Law Developed Canadian contract law is based on English common law Historically, only focused on situations were money was owed and not repaid Relatively recent development as a result of increased number of complex commercial transactions Today, the common law enforces all kinds of contracts Approaches to contract interpretation: Positivist: the meaning to be given to the words in the legal rules should be the ordinary, dictionary meaning Judicial interventionism: interpretation of the law that draws on social, economic, and political values Emond Montgomery Publications 9