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ADMS 2610 (409)


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York University
Administrative Studies
ADMS 2610
Rebecca Jubis

Ch. 8 Consideration & Privity 3 Elements of Contract 1) Parties intend to create legal relations 2) Meeting of the Minds 3) Exchange of value (Consideration)  Consideration 1) Sufficient & Adequate Consideration 2) Past Consideration 3) Pre-existing obligations 4) Promises enforceable w/o consideration Privity of Contract 1) Assignment 2) Trust 3) Statute 4) Employment Consideration ♥ Law enforces bargains supported by consideration (ie. Contract) ♥ Law does NOT enforce gratuitous promises (1-sided consideration: this is NOT contract) ♥ Consideration – exchange of something of value ♥ Consideration, must: (1) move from each side of the contract; (2)but NOT necessarily to the other side (benefit could go to someone else) ie. Contract: transfer the car to someone’s sister ♥ Consideration can be an act or a promise: (1) to do something; or (2) to not do something (including suffering a detriment) ie. If someone’s sister can’t receive the car, he/she can’t sue that party ♥ Consideration can: (1) Benefit you; or (2) Benefit someone else (e.g. I’ll pay $5000 to your brother if you transfer a car to my sister) Sufficient & Adequate Consideration ♥ Consideration must be sufficient (ie. Any legal value) (1) Money, goods, land, services, or a promise to provide 1 or more of these things (2) But not “Love & Affection” – presumption no intention to create legal relations b/w family members or friends ♥ Consideration need NOT be adequate (ie. Need not be equal value) Forbearance to Sue (FTS) ♥ Promise NOT to pursue a lawsuit ♥ FTS is consideration if claim was: (1) valid; or (2) invalid but you honestly believed you had a claim Past consideration ♥ Contracts require mutuality (an exchange) of consideration ♥ Past Consideration is NOT consideration • it was given before the contract was contemplated • no mutuality • p.181 case Pre-Existing Obligation (PEO) ♥ Can a contract be supported by a promise to fulfill a PEO that has not been performed? ♥ 3 types of PEO (1) PE public duty (2) PEO owed to 3 party (3) PEO owed to the same party (1) PE Public Duty ♥ Can a police officer or firefighter who attends an emergency sell his/her services for a fee? ♥ NO, why? (1) NO consideration: he/she has a duty to help (it’s his/her job) (2) Public Policy: Don’t want officials taking advantage of people not treating them differently (poor vs wealthy) rd (2) PEO to 3 Party (TP) rd ♥ A promise to perform a PEO under a contract w/ a 3 party can be good consideration for a new contract w/ another party ♥ E.g. You enter into a contract to perform a concert to $10000. Under a separate contract w/ a record company you agree to allow it to record the concert for $20000 (3) PEO to the Same Party ♥ Can you create a new contract w/ a person be merely promising to do something you already agreed to do for that same person in an earlier contract? ♥ NO (1) NO consideration (no new benefit) you already promised to do that (2) Policy reason – Do NOT want to encourage someone to threaten breach of contract in order to get extra $/ benefits ♥ To avoid the Gilbert Steal rule, do one of the following: (1) Novation: agree to terminate original contract & enter into new one at a higher price (2) Agree to do something new in exchange for extra price; or (3) Seal ♥ Promise to Forgive an Existing Debt: ♥ Is there a contract? ♥ NO, because Policy reason: Do not want to encourage some to threaten breath of contract in order to get extra $ ♥ No contract since no new consideration, but there are 3 exceptions: (1) Promise under Seal (2) Promise exchange for New Benefit • Earlier payment • Payment in different form (cash instead of cheque) • Payment plus New benefit (3) Statutory (Ont. Mercantile Law Amendment Act, not in all Prov.) - Allows a debt to be extinguished upon payment of a lesser amt if: - (a) part payment actually received by creditor, and - (b) statute NOT used in an unconscionable way Promises Enforceable Without Consideration ♥ General Rule: NO Contract w/o exchange of consideration ♥ 2 Exception: (1)Seal (2)Promissory Estoppel Estoppel: Rule prevents retraction of statement regarding past or present facts P.S. Rule prevents retraction of promise (e.g. “you only have to pay me half the rent” this promise is enforceable even w/o consideration 4 Elements of Promissory Estoppel (1) Representor clearly indicates he/she will NOT enforce its legal rights against Representee (2) Representee relies (3) Representee must NOT behave inequitably (4) Statement made in context of an existing legal relationship (Effect: vary or suspend existing rights; does not create new rights) NOTE: Representor canNOT assert original rights w/ repect to the past but CAN insert original rights in the future after reasonable prior notice Privity of Contract ♥ General Rules (1) Only parties to the contract can sue & be sued under contract (2) A beneficiary of (but not a party to) the contract cannot sue or be sued - “I’ll pay $5000 to your sister if you give me your car” - NOTE: your sister cannot sue or be sued since she’s a beneficiary Exceptions to General Rules of Privity (1) Assignment • Def’n: a party to a contract transfers his/her rights to a 3 party • Good way to avoid Privity Doctrine (Assignee has authority against Debtor) • Parties (1)Assignor is party transferring rights (2)Assignee is party receiving rights (3)Debtor is party owing obligation Forms of Assignment: (1)Equitable • Enforced by Court’s power of equity (fairness) • Requirements: (1) Oral or written assignment; and (2) With or Without notice to Debtor • Taking subject to the equities – Assignee & Assignor subject to Debtor’s claims – Debtor can use same defenses & counterclaims (D&C) against the Assignee that it could have used against Assignor (2)Statutory • Create under statute • Requirements: (1) Written assignment; and (2) Written notice to Debtor; and (3) Must be absolute - Unconditional; not dependent upon future event - Complete: all of existing debt • Effect of Non-compliance w/ Statute - invalid as statutory assignment - may still be valid as equitable assignment (3)By Operation of Law • Bankruptcy: assignment to trustee in bankruptcy • Death: assignment to personal representative (4) Assignment of Obligation & Vicarious Performance • Rights generally can be assigned - can assign right to receive $500 • Obligation generally canNOT be assigned - canNOT assign obligation to act in a movie • Vicarious Performance (VP) - If a party’s personal skills are not essential, generally another person can perform the obligations (builder hires sub-contractors to build a house) - VP is NOT an assignment (builder is fully responsible for building house) (2) Trust • Def’n: a person holds property on behalf of another • Parties - Trustee is party holding property - Beneficiary is party entitle to the property • Trusts & Privity - Trusts used to avoid privity doctrine - Beneficiary is not a party to the contract but may sue (3) Statute • Insurance Act allows a non-party to enforce the insurance • Life insurance is purchased by insured but is intended for benefit of beneficiary (4) Employment • Exclusion Clause in a Contract - Contract b/w business. & customer - “Exclusion Clause” for benefit of business but not employees of
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