BUS393 Final.pdf

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Simon Fraser University
Business Administration
BUS 393
Shafik Bhalloo

CH3–ContractLaw Contract Agreement b/t two or more parties to do a particular thing, in exchange for something of value – legally enforceable in courts  Types of contracts: retail store transaction, buying and selling, employment, house purchase or renting, obtaining a purchase  Essentials of a legally enforceable contract o Must be between two or more parties o Terms is certain  a firm offer, not ‘ I am thinking of .. ‘ o There is consensus in the form of offer and acceptance o Consideration has been exchanged o Both parties have capacity to contract o The agreement is legal o Parties have intention to be bound o If any, comply with requisite formalities (eg writing requirement)  Written contract is not a legally required o Good practice to put into written form – provide evidence for contract o Verbal contract can be just as binding o Exception: statue require some contract be enforceable only if it is in writing  (eg) dealings with land, agreement to be responsible for debt of another  If writing is required, but absent, then contract is unenforceable  However if partial payment or partial performance (consistent with terms of agreement) exist, will satisfy writing requirement, contract enforceable  Standard Form Contracts o Use in common type of transaction (insurance contract, purchase of property) o Standard phrases and clauses with known legal effects, so interpretation of legal agreement can be certain o Lawyers on both side known meaning, and how it will be enforced in courts if it comes to that o Such certainty justifies the complexity of documents, lawyers resist risk to change or simplify documents o Contains exemption clauses  Exemption clause o Must be communicated – brought to attention, highlighted, bolded (at the time contract is entered, not later) o Must be concise and easily understood  (Eg) “not responsible sign” write on parking receipt, or sign at tickets booth  Cannot be after the fact (eg bill sent later, are where customer not likely to see) o Exempt one side from liability, often biased – court will not interfere even if unfair  But any ambiguity will be interpreted to party that is not favoured  (eg) ‘not responsible for lost or stolen goods’ – but if fire destroy, then hotel still liable o Before, clause if ignored if unfair b/c of doctrine of fundamental breach – no longer apply today Comparison with Torts  Similarities o Both create civil law obligations, civil courts have jurisdiction to hear claims arising from torts/breach of contract o Breach of obligations in both give rise to action for damages  Differences Source of obligations Voluntarily undertaken Imposed by law Duty owed to Only to other party in contract To everyone who can be foreseeably be harm from conduct Liability Strict (don’t need to show careless, or intendeLiability is based on fault just need to show breached contract) Liability imposed on Person who did not fulfil contract duties Person who carried out activities negligently and caused harm Object of awarding Put claimant in position he would have been if Make victim ‘whole’; put in position he would have damages contract was carried out been if tort had not happened Unilateral vs Bilateral  Unilateral contract = Only offeror makes promise, cannot impel anyone to fulfill order, but if offeree fulfilled contract’s requirement, offeror must provide reward o Advertisement to public is the offer  Eg $100 for dog found o Method of acceptance is action, not another promise  eg actual return of the dog o Acceptance need not be communicated o What moment in time the offer is accepted may not always be clear  Bilateral contract = two promises, offeror cannot revoke offer after acceptance, acceptance must be communicated Consensus Consensus achieved through a process of offer and acceptance - results in a shared commitment when both parties clearly understand the obligations and responsibilities they are assuming  Not necessary for both parties to have complete understanding of contract – only need terms to be clear and unambiguous – if one party fail to read/misunderstands, not an excuse to get out of contract OFFER A tentative promise that contains essential terms of anticipated contract  “Invitations to treat” is NOT an offer, will not create a contract o (eg) Advertising, provide product/service information, catalogues, brochures, window displays o Reasons: limited quantity, cannot give to everyone!! o Display is an invitation – customer makes offer, store gives acceptance  Offers must contain all important terms of contract: who what where when how o (Eg) id parties, subject matter, price, payment schedule, interest payable, etc) o If missing elements may not be enforceable, “terms to be arranged later” = no contract, no agreement reached  Offer effective at time when it was communicated  Exemption clause – also must be communicated (see later) ACCEPTANCE Consist merely an indication of a willingness by offeree (eg handshake, signature) to be bound by terms to create binding contract  Acceptance must be total (all or nothing, cant pick and choose parts) and unconditional (cant set conditions or is counter offer)  Agreement FORMED when offeree communicate acceptance to offeror o Determines when and where the contract come into effect – important to determine which court has jurisdiction o If offeror insist on a particular method of acceptance, the method must be followed to be proper acceptance o Contracts inter praesentes = formed with physical presence, not by post o Acceptance can be indicated by conduct  Silence is NOT acceptance (unless have pre-existing business relationship) o Cannot impose contractual obligations on offeree by saying silence is sufficient acceptance o (eg) company send product to customer, stating if don’t send back, they have purchased it – person not required to return– but must NOT use or would affirm contract, simply store for reasonable time, if not reclaimed, can dispose o (eg) receive regular supply from company, they send note “if we don’t hear otherwise we will renew order next month” – because of established relationship, there is duty to communicate a cancellation in these circumstances  Post-box rule o Exception to “effective when communicated”, acceptance is now effective when+where mailed was sent (eg offer ends Saturday, mail sent Friday, receive Monday, still valid) o To avoid problems, can specify the appropriate means of acceptance in offer o ONLY applies to postal service or telegrams (not fax or email, which is effective when acceptance received) o ONLY applies to acceptance (not mailed revocation, which is effective when received) o Example  Jon make me offer 10$ and ask me to mail acceptance. I got another offer for $11. I send jon email revoking acceptance.  contract still binding, once letter is posted, contract is effective because of post box rule Termination of an offer a. After expiration of a specified time b. If not specified, after a reasonable time c. After death or insanity of offeror d. After revocation (by offeror) – must communicate to offeree before acceptance e. After rejection (by offeree) – offeree communicates a rejection, offer will ends, cannot change mind later f. After counter-offer (by offeree) – destroy original offer, if counter offer rejected cannot reinforce old one  Help eliminate confusion as to what offer is being accepted to form basis on contract g. Sale to another  Do NOT end offer  Unless offeree learned of sale before accepting, this communicates revocation indirectly h. Option agreement  Offeree pays small sum to hold offer open for designated time, offer cannot be revoked until expiration “Tender agreement” = Request for bids on a special project (hiring?)  More than just invitation, has special contractual relationship, independent of ultimate contract to do the job  Rules: disclose all relevant info affecting project, accept bids compliant with terms of tender, not accept bids after closing date, accept most competitive bid, treat all parties equally and in good faith  Both parties bound to these subsidiary agreement, and not to change once bid submitted  Similar to option agreement, b/c without subsidiary agreement, normally have right to withdraw or change mind before ultimate acceptance Consideration  Exchange of promises/benefits required o Exchange benefits – money, service, goods, others o Exchange promises – make commitment to give other form of consideration pursuant to the agreement  Paid the price that now have assumed obligations that did not have before o (eg) bank make guarantee sign before loan money to debtor, bank now commits to advance funds, guarantor now responsible for paying loan if debtor fails, changed legal position pursuant to the deal so there is consideration on both sides  Consideration must be specific o To pay “something” or a “reasonable price” is not enough, need more negotiation, no specific commitment o Exception: when services are requested – based on principle of quantum meruit – requester is obligated to pay amount for service, if reasonable, even if did not agree to price beforehand (eg) plumber fix leak before give you bill  Consideration need not be reasonable – but must be legal, possible, have some value o Else will not be legally enforceable (eg) bring dog back to life, pay to perform illegal act, pay with love (no value can be put) o Not need to be fair/reasonable (court do not interfere in bargaining process)  unless grossly one-sided, support allegation of fraud or claim of incapacity, raise issue of competency  Past consideration is no consideration o (eg) But if money is advanced before guarantee is extracted – is a gratuitous promise, not binding – b/c guarantor made commitment but bank did not change legal position (since already gave money) – benefit given before deal cannot be part of an exchange anymore Gratuitous promises  A one sided promise/gift that is not legally enforceable o (eg) I give you a coat, I can’t force its return; if I promise to give you coat but change my mind, nth you can do legally  No contract if no consideration on both sides = Both side much have changed legal position o (eg) builder had contract to finish house by June, 5 days left and he is behind, you agree to pay extra $2000 to hire more help  you made commitment, but builder did not change commitment, even if hire extra help, he is still in exact same legal position, must finish house before June  you made a one-sided promise and is not obligated to pay the extra $2000, unless builder does something extra o (eg) paying less in a debt  I owe you 100, offer to pay 80, you agree  you get nothing out of it, yes you will be paid but I was obligated to that before any new agreement, so unless I do something extra (eg pay earlier), you can sue me for the other $200 as our new contract was not binding  Many jurisdictions passed legislation to ‘taking less in satisfaction of a debt made binding’ – if creditor agrees to take less in full satisfaction of a debt, and TAKES the money, cannot sue for remainder  Exceptions o Promissory estoppel = Promisee relies upon the promise to his detriment, then can sue to make promise enforceable  “use as a shield, not as a sword”  I build house, then I ask for more, you agree – one side promise  You do not have to pay (shield)  I build house, you offered and paid me more  you cannot sue to recover excess (sword)  (eg) Builder relied on promise, used money to do something he would not have done otherwise, can raise defence of promissory estoppel o Seal = if contract made under seal, do not need to establish consideration -- do not replace consensus though  (eg) bank affix seals to credit transactions involving guarantor to avoid any possible lack of consideration Capacity  Some people are considered incapable of negotiating a contract Infants  Anyone under 18/19 is considered an infant, protected to the extent that the contracts they make is voidable o The adult is STILL bound by contract o The infant can escape if choose to, but must return product obtained under agreement o (eg) infant buy car on credit, stop paying, no further obligations to pay, but must return car  Voidable: contract is valid, but one parties has the right to escape if chooses to  Void: no contract, both parties are free form any obligations under the agreement  Exceptions to the infant’s right to escape: o Bound to pay for necessities (eg food, clothing, lodging, transportation – not car!) o Bound by beneficial contracts of service (eg contracts in the infant’s best interest, eg apprenticeship arrangement)  BC Infants Act = Declares ALL contracts with infants are unenforceable (even beneficial contracts of service/contracts of necessities) o Except those made enforceable by statue (eg student loan) o Only prevents adult from suing infant, but do not empower infant to get out of deal if already performed duties (infant cannot sue to enforce contract against adult) o BC age of majority is 19  If infant ratifies contract after becoming adult, then becomes binding o Requires child to do something to indicate that he considers contract binding (eg in writing, by implication such as receiving further benefits or making additional payment)  Protection do NOT extend to tort liability, infants are liable for all torts committed o BUT Adult cannot get around contract protection by suing in tort instead (eg child damage car, cant sue in contract, try to sue in tort claiming negligence on part of infant – not allowed)  Parents generally NOT liable for contracts/torts of child, unless made by statue o Not responsible for contracts entered by child – UNELSS they authorized (guarantor, co-debtor) o Not responsible for torts committed – UNLESS was negligent (eg allowed access to loaded gun), then personally liable o Some statue made parents responsible for torts, and also criminal conduct by child Insanity and Intoxication  To escape contract for a non-necessity on basis of insanity/intoxication, must establish: o 1) Show so insane/impaired did not understand nature of transaction he entered (else contract is binding)  (eg) if drunk, but still know what is happening, still binding – must be so intoxicated that do not understand action o 2) Show the other party knew, or should’ve known, reasonable expectations  (eg) If nothing alert the party of the insanity, contract will still be enforceable o 3) If regain sanity/sobriety, must take steps to repudiate agreement immediately (eg cant wait to see if shares gone up/down)  Especially important w/ Intoxication (by drugs or alcohol), since sobriety usually follows  Insanity is defence to criminal charge, but intoxication usually no defence to a crime  If person insane and go to mental institution, trustee look after affairs, but no contract enters are binding, not even for necessities Other protections  Statutory bodies – limited capacity to contract, depending on legislation that creates them (eg crown corporations, gvmt agencies)  Diplomats – foreign government and their representatives, immune for court actions in Canada  First nations – limited capacity intended to protect them from exploitation, under Indian Act, should review before making transactions Legality  Contracts with unlawful objection or illegal consideration are void o (eg) contract to commit a crime, contract to sell government secrets, etc  Valid insurance contracts must show you have an insurable interest (established by direct relationship, can have interest in own homes, not neighbour or stranger’s homes)  Competition Act imposes criminal penalties on various forms of agreement between business that have the effect of unduly injuring/limiting competition (eg conspiracy, bid-rigging)  Provision in business contracts that prohibit seller from carrying same business – is permissible only if reasonable – go no further than necessary to protect the goodwill of business being sold  should include time/area limitation, no further than necessary o Also not harm public interest (eg one barber left, charge high prices, then restrictive contract will be void) Intention  Parties must intend to be legally bound by agreement court give effect to reasonable expectations of parties o Not whether you intended to be bound (so you cant say you were kidding) o But whether other party reasonably thought he was entering into a legally binding contract  Family/social relationships = presumption of NO intention to be legally bound o Party must produce evidence that party truly did intend to produce legally binding contract, else unenforceable o (eg) parent pay child allowance – not enforceable  Business/Commercial transaction = presumption of intention to be legally bound o Party can overcome presumption if produce evidence indicated no intention  Exaggerated million dollars bet example? Each situation looked at separately – reasonable person test applied - was it reasonable to expect legal consequences to flow from the agreement? If yes, and other elements in contract exist – is legally enforceable CH4–ENFORCINGCONTRACTUALOBLIGATIONS Mistake  Must have consensus (meeting of minds) for contract to be valid and enforceable  Shared mistake (common mistake) = contract is void for lack of consensus o Both party make the SAME mistake o (eg) A and B make contract to sell car. Both unaware C took car and destroyed it. But made mistake with respect to the existence of the car so contract void  Misunderstandings (mutual mistake) = courts will apply reasonable interpretation o Both party misunderstood terms of agreement, neither party is aware of other’s different understanding o Reasonable person test to determine which interpretation of the contract is more reasonable, then adopt it to be the correct interpretation of the contract o (eg) You show me a car with sheepskin seats, but didn’t include during transaction, courts will find it reasonable to include o If BOTH sides equally reasonable, then contract declared void  One-sided mistake (unilateral mistake) = not effect contract (if no misleading) o No one mislead, but you made a bad deal, or mislead yourself, too bad o (eg) miller give invoices to john who pays, they then sign contract saying everything is paid. Then miller finds out he forgot $400,000 worth of invoices. Court said miller has the obligation to provide correct invoice, if he forgot then he bored the risk, cannot impose the risk of mistake on the other party.  Recording mistakes = courts may correct mistake through retification  if both party clearly agreed some terms but recorded it wrong o (eg) agree 500 but wrote 50, courts will supply the missing 0  Unjust Enrichment (benefit obtained by one person at the expense of another, w/o legal justification) = court will remedy the mistake o (eg) 500 in bank, teller gives me $5000, I have received a payment I am not entitled so no legal justification, court will order me to return $4500  Non est factum (it is not my act) = contract void o Person sign contract, the nature of agreement in its entirety (not part) is completely different from what he thought o Person must NOT be negligent when signing by not reading or asking about the document  Mistake to identity = contract void o Unilateral mistake to identity, not attributes rd o Must show the 3 party with whom the contract was intended for o Hire a realtor, both called John Smith working in same office  Mistake to attributes = contract not void o Unilateral to attributes o (eg) hire a realtor think she sells on east side, but she actually sell on west side  Missing terms? Court will imply if the term is clear that parties would have done so had they thought of it – not renegotiate contract nor supply missing term that is necessary for contract to exist o If forgot to state price, will not supply for them o If not when to be paid, court will imply to be paid upon performance or within reasonable time Contract Interpretation  If simple misunderstanding, will determine reasonable expectations of the parties and looking at wording of agreement to determine “what a reasonable person would have understood the terms to mean”  If terms is clear and no ambiguity = will apply the literal meaning  If terms are ambiguous = will apply the most reasonable meaning of the terms (golden rule) o Will look at how terms are normally used in the industry o May look at past dealings between the parties (only if unclear, else see parole evidence rule)  Parole Evidence Rule o No outside evidence (eg oral evidence) can be used to contradict terms of a written contract o Contract must be in WRITING + CLEAR and UNAMBIGUOUS o Exception: evidence of fraud, duress, changing contract o Exception: collateral contract (consideration is the entry into another contract) – exist side by side with main contract  (eg) guy promise to give you one month free rent to sign lease – then don’t give you, you can bring in collateral contract as evidence.. only signed lease because becuz of collateral contract Misrepresentation  A false and misleading statements  That INDUCE a person to enter into a contract/refrain from acting (during pre-contract negotiations) o Include half-truths, not mention something to mislead (half of all assets are in the form of outstanding loans) o About the ‘material in the transaction’ (sell bracelet but lie about house don’t count) o Even if did write in contract (tell u resort open nearby, use false info to persuade you to purchase property)  Victim – believed misrepresentation and reasonably relied on it (lie about bracelet did not induce contract with house, no remedy) o Suffered damages because of the lie  Must be a statement of FACT, not a statement of opinion o Can have opinion ‘car is in good shape’ – not liable unless is expert making statement (mechanic) o Fact – lie and say engine of car recently rebuilt – liable even if non expert  Silence is not misrepresentation o Unless have duty to disclose, duty of good faith – if fail to disclose is misrepresentation Innocent Misrepresentations  Person mislead another without knowing – Believe it to be true, made honestly, without carelessness  Contract = voidable, party can decide whether to continue to be bound or rescind  Remedy: Rescission only (to restore the parties to original position) o (eg) return car + other incidental costs (repair and maintenance fees) o Rescission not possible if  Item destroyed/resold/not available – damages not available  Victim did something inappropriate (cause delay, cheat the other party)  Victim affirms the contract (victim did something to acknowledge validity of contract after learning the misrepresentation – eg try to resell goods, even though know misrepresentation Fraudulent Statement  Person KNOW it is false OR ‘reckless as to whether true or not (cant say bracelet on street is MJ’s even tho technically possible)  Innocent become fraud – if learn statement false but fail to correct it  Remedies: Rescission, or damages for tort of deceit, or both o Put victim back in position he would’ve been if misrepresentation never taken place o If serious enough, also award punitive damage (receive more money than he lost)  Often will sue for innocent because fraud and intention harder to prove, if only want rescission, will sue for innocent Negligent Statement  Person did not verify whether fact is true/false  no reasonable ground to believe is true o False fact must be about a past or existing fact (not future/opinion) o (eg) guy live in house for 10 years, always quiet in past, then after sell is not quiet anymore, not his fault because was have basis to believe – then is innocent misrepresentation  Remedies: Rescission, damages, both Disputes related to the formation of contract Duress  Duress = threats/pressure to force someone to sign contract o Free will to contract is lost w/ threats of violence, imprisonment, scandal, damages to property, financial pressure, etc o Physical duress = use of force, false imprisonment, o Duress of goods = will not release goods until payment that is illegitimate (eg not give ur locker stuff back until renew contract)  (but if wont give car back until payment – is legal) o Economic duress = commercial pressure (eg open store for 4 months, if don’t sign contract we stop ur rent and u lose business)  Contract is voidable (can set aside unless decides to affirm) o Victim must seek rescission asap after pressure ceased Undue Influence  Abuse a trusting relationship/position of power, prevent free bargaining  Contract voidable  Presumed influence = relationships that courts presume undue (eg) parent/child/aging parent; solicitor/client; doctor/patient; priest and parish member o If no other evidence, simply show the relationship can help escape contract on basis of undue influence o Professionals will avoid problem but advising client to obtain independent legal advice before committing to transaction – enough evidence to overcome the presumption of undue influence  Actual undue influence = no presumption, show evidence that there is clear evidence of undue influence o (eg) Adam yell at brother to transfer will money to him instead of nephew Unconscionability  Vulnerable people taken advantage of (eg poverty, mental impairment)  Contract void  Must show: 1. Unequal bargaining position between parties (eg shafik car tire stuck in forest example) 2. One party dominated the other and took advantage of that party 3. The consideration is grossly unfair (not simple economic disadvantage eg high interest rate because you are high risk, is fair) o (eg) wrongful dismissal, company give long form to long-term employee to sign, little compensation, very complicated wording average person would not understand, employee lack English skills WHO has claims under contract and who can sue to enforce Privity  Only the parties to a contract are bound by it, have rights and claims, can sue to enforce claims o (eg) accountants vs corporation – not shareholders o (eg) I pay you to fix mom’s house, you don’t fix, I can sue, mom cant sue you  Exception o Agents = only enter for the principal, agent not bind to contract o Novation = “new deal” = Replacing obligations / Replace a party of a contract  all party must agree, make new contract  (eg) change to paint outside rather than inside, then is new deal  (eg) John sell to sally, Sam takes over business, sally can refuse because no contract  But if sally accept deliveries, then consent to contract change by implication, substitute new contract for old o Interest in land = contract rights run with the land  (eg) I rent to you, then sell to another, no privity between new owner and tenant, former cannot kick out tenant o Trust agreements = A put property in trust with C for the benefit of B – then B can enforce the trust o Life insurance = beneficiary can enforce policy taken out by deceased o Statue = some jurisdiction remove the restrictions of Privity to allow consumer to sue manufacturer for breach of contract Assignment  Assignor transferring a benefit to which they are entitled under a contract to a third party (assignee) o (eg) You owe me money, I assign (assignor) the claim to my sister – the assignee now collects the debt  Only benefits can be assigned, not obligations (eg) if car defective, car company still responsible for breach of contract  Breach of agreement – assignee join assignor to sue debtor, unless: o Statutory assignment = Statues have enacted to allow assignee to sue directly if debtor don’t pay (w/o assignor involved) 1. Assignment must be complete and unconditional (assign full amount to assignee, no conditions (eg cant make sister babysit) 2. Assignment must be in writing, signed by assignor (car company) 3. Proper notice of assignment given to debtor o (eg) I send copy of assignment to you, asking all future payments be made to sister, if don’t pay, then requirements of statutory assignment have been met and sister can sue debtor directly  Assignee is “subject to the equities” between the original parties (cant be in better position than assignor, cant more than assignor gets)  Cannot assign: o Right to ‘support payments’ (child support payment, spouse payments) o Right to sue another in tort (car accident, cannot allow someone else to sue the person who hit you)  BUT can assign proceeds from lawsuit to someone else o Cannot assign certain performance becuz involve personal performance of a particular skill (sfu and shafik contract, sfu cant assign shafik to lecture at someone’s house)  Involuntary assignment = when a party to a contract goes bankrupt/dies o Bankruptcy = Assets are transferred to a trustee (receiver) who distributes them to creditors  (eg) If you owe so much money, cant pay, then creditor puts you into bankruptcy, and claim assets
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