MOS 2275 chapter 6,7,8,9.docx

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Department
Management (MGS)
Course
MGSC30H3
Professor
Zachariah Campbell
Semester
Fall

Description
Chapter 6 - Contract – voluntary exchange of promises, creating obligations that, if defaulted on, can be enforced and remedied by courts - Creates situation in which parties to contract can predict future relationships - Freedom of contract  what parties agree to in first place generally unrestricted - Contractual agreements must comply with common law, but nothing else - For an agreement to be considered a contract, must have: 1. Consensus  mutual agreement to commit themselves, equal bargaining positions, 2. Consideration  price each willing to pay to participate in contract 3. Capacity  parties legally capable of understanding/entering into agreement 4. Legality  object must be legal 5. Intention  both parties must intend - Verbal agreement as binding as written one, requires certain types to be supported by written evidence - Formal/simple contracts  sealed by party to be bound, may be verbal or written (formal), not under deal is simple - Express/implied contracts  parties expressly stated agreement (express), inferred from conduct of parties (implied) - Valid/void/voidable contracts  legally binding on both parties (valid), not legally binding because essential element is missing (void), though if parties thought contract was valid, courts will try to make it so, one of parties has option to end contract ( voidable) - Unenforceable/illegal contracts  required to be in writing and is not (unenforceable), involves performance of unlawful act (illegal, also void), courts will not help for either cases  EXCEPTION: courts will help innocent person even when contract is illegal - Both parties make commitments and assume obligations (bilateral), no exchange of promises (unilateral), comes into effect when one party performs what other party has requested of them - Both parties must have opportunity to read/understand contract, terms must be clear - Offer  contains all terms to be included in contract, (tentative) promise of one party to do something so long as other party does something - Interim agreement  parties make clear they intend to be bound before contract formalized (significant terms must be agreed upon) - “Subject-to” clauses  term making contract conditional on some future event - Quasi-contracts  exception to rule that important terms must be clear, involve requests for goods/services - Invitation to treat  offer to the world at large (e.g. lost or stolen item retrieval), simple invitations to potential customers to engage in process of negotiation  NOT an offer - Offer by conduct  e.g. hailing a taxi - Communication of offer  can accept only offer that has been communicated to you as individual/member of group/world at large - Exemption clause  favour own position, limit liability, binding only when reasonably brought to attention of customer at time contract made - For acceptance of offer to be effective, offer must be in force at time of acceptance - Several ways offer ends: 1. End of specified time or… 2. Expiration of reasonable time  depends on circumstances 3. Death/insanity of offeror 4. Revocation of offer  MUST be communicated to offeree to be effective (with letters, effective only when RECEIVED), until communicated offeree can STILL accept 5. Rejection/counteroffer  each counteroffer/rejection ENDS offer before it - Offer will be ended if goods forming subject matter of contract destroyed without parties being aware of it - Option  subsidiary contract, separate consideration given to offeror in exchange for commitment to keep offer open for specific length of time - Dealing with tenders: purchaser issues request for bids  invitation to treat, each submitted bid is offer, problems prevented since tendered bids cannot be revoked (made under seal) - Most large businesses present an offer with fixed terms, which customer is invited to accept  Standard form contracts, usually one-sided terms favoring business - Unilateral offer cant be revoked once performance begins - Intention to commit on part of offeror found in offer, offerees intention to commit found in acceptance - Not possible to accept given external provision (I accept provided you also…) nor is it possible to accept only part of offer - Unilateral contract accepted by performance of act specified in offer - If acceptance is by conduct, no requirement to communicate acceptance to offeror - Unsolicited offers not accepted by silence, exception: can be acceptance if prior dealings, ongoing business relationship (relationship of trust) - General rule: contract formed when and where offeror learns of acceptance - Postbox rule  mailed acceptance effective WHEN and WHERE DROPPED into postbox (vs. when acceptance received) - While letter of acceptance is still in the mail, offeror is bound by contract, but unaware of that - If another method of acceptance was specified by offeror, acceptance will be effective only when received - Postbox rule does not apply to revocation of offer - Bargaining process  people trade promises for promises, all parties derive some benefit (called consideration) from the deal - Consideration  price one commits to pay for promise of another - Consideration can be benefit (promise to do something) or detriment (promise NOT to do something) - Gratuitous promise/gift  agreement is one-sided, only one of parties getting something from deal - When services performed as gift, still obligation to do proper job - Consideration doesn’t need to be fair  court will not interfere with bargain struck - When businesses deal with consumers, courts much more concerned with fairness - Parties must agree to something specific or price - When duty to act exists, owed to third party, promise to do same thing for someone else is enforceable  see pg. 214, Chang/Olsen/Adams - When public duty involved, demand for further compensation will not be tolerates - Past consideration  e.g. promising bonus for good work ALREADY DONE  no consideration, given in past, bargain struck after price agreed on has been paid - Creditor often agrees to take less in full satisfaction of debt  reduction of debt is gratuitous, no consideration received, debtor can still sue for remaining debt - Legislation may overrule common law if there is payment of lesser sum - For consideration to be valid, must be possible to perform consideration promised - If both parties give up right to have court determine matter, there is consideration on both sides, release signed is binding contract - When services requested from providers, parties often do not agree on specific price before service performed - Courts impose obligation to pay REASONABLE price  quantum meruit (as much as deserved) - Use this principle to determine how much should be paid when person providing service NOT ALLOWED to finish (vs. refusing to finish, which is breach on party seeking payment, where they get nothing) - Promissory estoppel: deals with person making promise/commitment, to do something in future - Jon makes bare promise, Sam sues to enforce promise, Sam unsuccessful since no consideration and no contract - Jon makes bare promise relieving Sam of some obligation, Jon changes mind and sues to enforce original obligation, Sam successfully defends based on promissory estoppels - To raise defence successfully, victim must demonstrate reliance on promise and suffer injury as result of reliance - When a seal is used, not necessary to show consideration for contract to be binding - Sealed contract = formal contract, deed Chapter 7 - Capacity: some people more vulnerable than others, need special protection - Persons under age of majority not bound by agreements, but adults with whom contract are bound - Test for capacity  objective - Whenever minor enters into contract with adult, adult is bound by contract, minor can CHOOSE not to be bound - (EXCEPT BC) Minors bound by contracts for acquisition of necessaries and for contracts of service that benefit minor - When minor married/living on his own, what constitutes necessary will be broader vs. single/dependant - When minor borrows money to buy necessaries, obligation to repay debt ONLY if funds provided used for necessaries - Minors bound by contracts of service that substantially benefit them  employment, apprenticeship, service - If minor ratifies/approves contract after becoming adult, loses right to avoid contract  makes voidable contract BINDING - Can be written or implied approval - Certain contracts that minor must repudiate/approve within reasonable time after becoming adult to avoid obligations  old, involve land, shares in business, partnerships, marriage settlements - First stage of contractual relationship, parties have entered into contract but minor not yet obtained benefit from it, and has not yet paid, minor NOT BOUND BY CONTRACT  executory contract - If minor received benefit, not has not paid dues  partially executed contract - When contract gives no benefit, minor can escape even executed contract  minors bound by contract unless it can be shown that what was received was of no value - Parents liability  parents are not responsible for torts of children, nor are they responsible for contractual obligations of children, in absence of specific legislation creating responsibility - Parents can be liable when minor is acting as agent having appropriate authority to bind parent in contract - Parents bound if they guarantee minor’s obligation at time contract is entered into. Guarantee is written commitment where guarantor agrees to pay debt if debtor does not - Minor as liable as adult for torts committed, but standard of behavior expected may differ - Adults cannot avoid protection given to minors under contract law by suing in tort  if minor used subject matter of contract in way not expected in contract, adult able to sue for negligence, minor not protected by defense of infancy - Law extends protection to incapacitated because of insanity/mental incompetence - Must be shown person could not understand nature of act performed  burden of proof on defendant - To escape contractual liability on this bases, defendant/representative must prove incapacity AND person he was dealing with KNEW, or ought to have known, of incapacity - Provincial legislation applies to people who are mentally incompetent - Hesitation to refuse to accept/repudiate makes contract binding  repudiation also applies to insane people who regain sanity - If business unincorporated, does not have capacity to enter into contracts and person representing business may be personally liable - Capacity of crown corps/governing bodies limited by legislation - When at war, any contract with resident of ENEMY country is VOID if detrimental to Canada. If not detrimental, contract suspended for duration of war - Reps of foreign governments (ambassadors, family) immune from prosecution in our criminal courts - Trade unions have capacity to contract for union activity - Agreement must be legal and not contrary to public interest to qualify as binding contract - Lawful contracts performed illegally MAY be enforced - Illegal contract  contract that is illegal at TIME IT WAS FORMED - Not enforced, usually VOID  court will restore parties to original position - Courts will not assist in restoration unless one of parties is innocent of wrongdoing - An agreement involving immoral conduct is an illegal contract - Modern approach: illegal contract may be partially enforceable - Illegal contracts: 1. Contracts to commit crime 2. Contracts to commit tort 3. Contracts involving immoral acts  prostitution (not illegal, but whore could not get court to enforce agreement with client) 4. Contracts that are bets/wagers  courts will enforce only contracts for which activities have statutory approval OR are licensed 5. Contracts in restraint of marriage/favor of divorce 6. Contracts that promise litigation  one person pays another person to sue a third would be illegal (exception: lawyer fee) 7. Contracts that obstruct justice  interfering with judicial process 8. Contracts that injure state/country 9. Contracts that injure public service: bribing public official 10. Contracts btw businesses to fix prices/reduce competition 11. Contracts that unduly restrain trade  usually clause prohibiting seller from opening another business in competition with business he is selling - Restriction will be only provision void if found excessive - Restriction can occur if not against public interest - For agreement to be binding contract, parties must intend that legal obligations/rights would flow from it - Look to reasonable expectations of promisee - Issue of intention arises: 1. Stated intention of parties  courts will enforce stated intention 2. Commercial relations  courts will presume intention in commercial transactions (presume parties intended to be legally bound) 3. Domestic/social relations  courts will assume no intention (no legal consequences) 4. Social/business relations  reasonable person test applied when social and business mix 5. Exaggerated claims  reasonable person test (determine whether customer should have taken exaggerated claim seriously) - Form of contract  no general rule  written better - Statute of frauds  requires writing for enforcement of SOME contracts - Verbal contracts STILL binding - Types of contracts under statute of frauds: 1. Contracts not to be performed within one year  terms make it impossible to perform contract within one full year, MUST be evidence in writing to make it enforceable 2. Land dealings 3. Guarantees/indemnities  latter is third party assumes primary responsibility for repayment of debt with debtor 4. Others  goods sold over specific value - Need only be evidence in writing supporting essential terms of agreement - Statute: contract valid when no writing, BUT unenforceable  thus, second party cant be forced to perform (if already performed, contract valid, thus no $ back) - Court will waive requirement of writing if parties can produce evidence to show contract dealing Chapter 8 - Mistake  courts will provide remedy where one or both of parties made mistake with respect to contract  clear that because of mistake, parties failed to reach consensus  contract void - Reviewable mistakes involve persons mind at odds with terms, surrounding circumstances, other factors relating to contract - Can relate to terms of contract, identity of contract, matter of fact, some future event, law surrounding contract - Both parties make mistake: misunderstanding - When mistake relates to terms of agreement itself, courts more willing to remedy - Won’t interfere unless demonstrated mistake significant/material to agreement - Where mistake caused by negligence of one of parties, party will normally be held responsible for error - Courts less likely to remedy mistake in law - One parry received payment he is not entitled to because other has misunderstood legal obligations  unjust enrichment - Shared mistake  two parties in complete agreement but they have both made same mistake regarding some aspect of contract  usually when subject matter of contract no longer exists at time contract made - When shared mistake relates to value, not affect enforceability - If written doc does not reflect common intention of parties to contract, courts willing to correct/rectify doc - Only done when both understood what they were agreeing on - Rectification also used as remedy in other situations - Misunderstanding  one party to agreement thinks agreement is to do something else, court usually applies reasonable person test, determine which interpretation of contract more reasonable - Where court cannot choose btw two positions since both are equally reasonable, contract VOID - One sided/unilateral mistake  only one party to contract makes mistake with respect to contract - No remedy  purchaser misled himself, let buyer beware - When offeror makes obvious error in relation to his/her offer, purchaser will not be able to take advantage of error and take offer - Remedy for one-sided only available when party misled - Lack of consensus important to establish even when misrep involved - If mistake sufficient to destroy consensus takes place, contract void  one-sided mistake MUST be profound - If mistake goes to identity, void contract - Where one of parties unaware of nature of doc being signed, court will (rarely) declare agreement void on basis of non est factum (it is not my act) - Must be shown that mistake about doc went to nature of doc rather than terms - Negligence (failure to read) can defeat defense - Courts care only about what parties SHOULD have been aware of and expected when they made agreement - Courts look at wording, use reasonable persons test - Dispute involving meaning of specific term  courts have choice of literal meaning or liberal meaning - Misrepresentation  false statement of fact, persuades someone to enter into contract - Can be made fraudulently, negligently, completely innocent - Statement that forms basis of misrep must be allegation of fact  current state of things that prove to be incorrect - Misrep must be fact, not opinion or promise  promise qualify as misrep only when it can be shown that person making promise had no intention of honoring promise when made - For misrep to take place, must be communication of info  silence/non disclosure alone not enough, unless duty to disclose - Misleading comment qualifies as allegation of fact, also statement is incorrect and untrue - Even when person tells truth but withholds info, can amount to misrep - Victim of misrep must show that he was induced into entering contract by false statement - Falsity must affect outcome of agreement, victim must have been misled into doing comething he would not otherwise have done - If misleading statement part of term of agreement, normal rules of breach of contract apply, much broader remedies - Victim must rely on rules of misrep to obtain remedy - Innocent misrep  false statement, made honestly without carelessness, by person believe to be true  remedies limited, only recourse to victim is ask for equitable remedy of rescission - Rescission attempts to return both parties to original positions. NOT available in following situations: 1. Affirmation  victims affirmed contract, cant back out now 2. Impossibility of restoration  parties can’t be returned, subject matter of contract destroyed/damaged 3. Third party involvement  wont be granted if adverse affect on third party 4. Failure on part of victim  victim does not have clean hands - Where misrep causes victim to make mistake about nature of contract, can recover money/goods supplied despite effect on third parties or presence of affirmation (in few situations) - If misrep of fact intentional and induces another person to enter into contract, victim of fraud can sue for damages under tort of deceit in addition to/instead of contractual remedy of rescission - Fraud established when false statement made knowingly, without belief in its truth, or recklessly - If person makes false statement innocently, must inform other person of misrep without delay  failure to do so turns innocent misrep = fraud - Once false statement established as intentional and fraudulent, court awards damages: 1. Rescission or avoidance  parties returned to original state 2. Demages for deceit  monetary compensation for any loss incured as result of fraud, not trying to return parties to original state - Major problem with fraudulent misrep is need to establish person being sued knowingly misled victim  not necessary if only rescission sought - If it can be shown that parties should have known what they said was false, remedies of damages as well as rescission will be available - Plaintiff may have choice about whether to sue in contract or tort of negligence - Only when misrep truly innocent and without fault is victim restricted to remedy of rescission - When people forced to enter into contracts against their will by threats of violence/imprisonment, contract challenged based on duress  includes threats of criminal prosecution, blackmail, threat to goods/property (Canada) - Necessary to show threat was main inducement into agreement - Duress only causes contract to be voidable  third party’s position cannot be jeopardized if victim seeks remedy - Undue influence  when pressure from dominant/trusted person makes it impossible to bargain FREELY, regarded as undue influence  can be found: 1. Presumption based on special relationship  undue influence presumed, presumption not rebutted, contract set aside (doctors, lawyers) 2. Presumption based on unique circumstances  husband or wife signing guarantee for spouse’s indebtness etc. 3. Undue influence determined from facts  victim produces evidence, victim must prove relationship of trust developed and that trust was abused - If victim overcame influence, or did nothing to rescind it, contract stays - Unconscionable transactions  equitable doctrine that permits court to set aside contract in which one part has been taken advantage of because of factors: desperation due to poverty, intellectual impairment not quite incapacity - Bargaining positions of parties UNEQUAL  must be evidence that debtor was taken advantage of because of some problem - Court will not grant remedy based on undue influence/ unconscionability where third party negatively affected/where victim has unclean hands - Privity  contracting is bargaining process, only those participating in bargain can be affected by it  parties to contract do not have power to impose benefits or obligations on third parties, and third parties have no influence on contract EVEN IF THEY BENEFIT FROM IT privity of contract - EXCEPTIONS: third party designated to receive benefit cannot enforce contract, original parties still have right to insist on performance - Land  rights of parties run with land - Trust  one person transferring property to second person who is obligated to use to benefit of third person (estate planning  beneficiary (third party) can enforce contract - Insurance  beneficiary has power to enforce contract after death of insured  constructive trust - Parties to contract agree to sub someone new for one of original parties  novation  see diagram, pg. 287 - Right of subrogation  insurance company pays out claim, takes over right of claimants to sue person who causes loss - Person entitled to receive benefit under contract transfer that benefit to third party is free to resell goods bought under contract  assignment, benefit transferred: chose in action - Only benefit can be assigned - Assignee is subject to equities, can be in NO better position than assignor - Work or service involved will be performed by employee/subcontractor  vicarious performance - Original part to contract remains responsible for work no matter who does it - Statutory assignment  assignee can enforce claim directly without involving assignor - Qualifications required to establish statutory assignment  assignment must be absolute (unconditional and complete), in writing, signed by assignor, original party obligated to pay must be notified in writing of assignment - Sometimes, assignor may be tempted to assign same claim to two assignees  first assignee give debtor notice of assignment who will collect, other seek remedies against assignor - Involuntary assignment  party to contract goes bankrupt  bankrupt’s assets transferred to trustee (receiver), distribute to pay creditors - Negotiable instruments  freely exchange/pass on claims for debt (cheques etc.)  flexibility inconsistent with doctrine of
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