Formation Of A Contract - CONTRACT LAW

Contract is:

• An agreement between 2 parties

• Legally binding

• A promise or a set of promises which are enforceable in law

• A description of a promise one party is willing to make, subject to the agreement of the other party

• Must be definite and certain

• Cannot be vague, must be some level of certainty

• Must be communicated to the intended recipient

• It is intended to be binding on both of the parties as soon as it is accepted

  • Example: Ill pay $500 for your make/model/type of car on this date and it becomes an offer

  • Vs. Hey ill buy your car, this does not make it an offer

• Offeror: The person making the offer

• Offeree: The person to whom the offer is made

• An offer prepared in advance by the offeror, including terms favourable to the offeror that cannot be changed by the offeree, but must be accepted as is or rejected in their entirety, also known as a contract of adhesion

• The most common type of a contract

• The “Take it or leave it” offer

• No room for negotiations over terms of the contract

• Most contracts are verbal and we don’t realize it

  • E.g. Buying a coffee at Starbucks is a verbal contract

• Advantages

  • Highly efficient

  • Fast

  • Easy

• Disadvantages

  • Inequality of bargaining power

    • 3 means of protection from inequality bargaining

      1. If the business falls within an area regulated by government board, the terms of its contract are subject to board approval

      2. Some segments of the public, such as consumers, are offered special protection

      3. In the vast range of unregulated activity, the public receives only as much protection as the courts can find in the general law of contract

  • Little of no room to negotiate terms

• Unusual or unexpected terms:

  • The need to point out any unusual or unexpected terms to the person signing the contract at the time of contract formation or the term will be struck from the contract by the court

  • Tilden Rent-A-Car Co. v Clendenning (1978), 18 O.R. (2d) 601

• Clendenning got a car + insurance from Tilden

• Clen got in a car accident for impaired driving, pleaded guilty, however insurance refused to pay

• Clen’s insurance contract had a bunch of wordy tricks that said Clen’s at fault if he gets in a crash while under the influence

• Court removed the clause and insurance company became

100% liable

• Counter- Offer

  • Amending the contract in order to ‘accept’ the contract does not equal acceptance

  • This amounts to a rejection of the offer and a counter-offer

• Example: If someone offers $5000 and you accept it but say you want $6000

  • This is called a rejection and counter offer

  • The offers dead since you rejected by then if they give you $6000, then it’s a new offer

• Final unqualified consent to the terms of the offer

• Must be communicated to the offeror either by word or conduct

  • Does not have to be verbal or written

    • Example: Auctions

    • Example: If you lost your dog and offer $500 to anyone who finds it, you cannot just accept the offer if you don’t find the dog, there is a breach and therefore can only base your offer on performance and once the dog has been found

• Unilateral contracts

• Revocation- Offeror can revoke the offer any time up to acceptance

• Exceptions:

1. Where an offeree has paid money to keep an offer open

2. Where the offer was made under seal

• An offeror may be able to revoke (withdraw) an offer at any time before acceptance, even when it was promised to hold the offer open for a specific time

• The termination of an offer when the offeree fails to accept it, within a specified time, or if no time is specified then within a reasonable time period

• An offer may lapse in the following ways:

1. When the offeree fails to accept within a specified time in the offer

2. When the offeree fails to accept within a reasonable time, if the offer has not specified a time limit

3. When either of the parties dies or becomes insane prior to acceptance

• Method of acceptance should be reasonable in the circumstances and reasonable to the offer

  • E.g. Responding by snail mail on a time sensitive offer is not reasonable

• Jurisdiction

  • Location where the contract was formed is determined by where the acceptance is completed

  • Jurisdiction is important in aiding in determination of what province or country’s laws will govern that contract

  • Where and when the contract was formed is very important

• The price paid for the contract

• Usually money, but does not have to be

• Price could be performance or goods/services in trade

• No consideration= no contract

• Example: Making a donation, there is no contract- it is a gracious promise so if you actually end up donating, nothing can happen to you

• If a party agreed to a grossly inadequate consideration for their promise, then it was up to them- not the task of the courts to assess the adequacy of the consideration

• A gratuitous promise previously conferred upon a promisor

• Motive cannot change a gracious promise into a binding contract, nor can it reduce a binding promise into a merely voluntary obligation

• No new consideration, so no new contract

• Foakes v Beer (1884), 9 App. Ca. 605

  • No new consideration for promise to reduce debt = no new contract

  • Exceptions created to avoid unfair results

• Mercantile Law Amendment Act, R.S.O. 1990 c. M.10, s.16

  • Amended the rule in Ontario

• Act of sealing a document meant that the covenantor adopted the document as his/her “act and deed”

• Covenanter: One who makes a covenant

• Solemn...