FORMING A CONTRACT

Just sign on the dotted line

What is a Contract?

A contract is an agreement between two parties that creates an obligation to perform (or not perform) a particular duty.

A legally enforceable contract requires:1. An Offer (I’ll mow your lawn this weekend, if you pay me $30)2. An Acceptance (You’ve got a deal)3. Consideration (The value received and given – the money and the lawn mowed)

Structural Elements needed in a contract

Four primary areas have to be identified in a contract and understood be everyone for a contract to accepted as valid.

1. Identifying the parties; by name or reference (party in the first part, guarantor, etc.)

2. time for performance (term or service schedule);

3. the price; and

4. the subject matter or scope of service.

Five essential elements required for a contract to be valid:

1. Offer and acceptance – “meeting of the minds”

2. Consideration – something of value was exchanged

3. Capacity – ability to enter into the contract (or old enough to make the purchase)

4. Genuine consent – no pressure or force was used

5. Legal purpose – nothing illegal involved

The Offer Is when you show an interest or willingness to

enter into a bargain with another party that can be regarded as legitimate and be accepted and would conclude negotiations. Could be words or actions

Advertisements / sales promotions are types of “offers”

Negotiations are not offers – you can walk away from negotiations at any time

Acceptance

Once an offer has been made you can make acceptance in many ways, including starting performance – ie. Showing up for work

Until that point, you can back out of the offer

If those criteria have been met.

The contract is now valid and can be enforced in the courts.

A contract that lacks one or more of the essential elements is void.

Recognition and an acceptance creates a “meeting of the minds’, or mutual assent, between the parties.

Mutual Assent requires the presence of the following factors:

1. Both parties must exhibit a “contractual intent” [words spoken in jest or frustration will lack the requisite intent];

2. The terms of the offer must be clear and definite;3. The acceptance must be clearly communicated.

Consideration Simple contracts need consideration to prove seriousness of

intent. Has to have some form of mutual exchange.

Mutual exchange takes place that either…

benefits the party that receives it Ex. You buy a shirt (your benefit) and give the store owner money (his

benefit).

or inconveniences another. Ex. You refrain from something you usually do, such as skip bingo

(inconvenience) to go to a movie with your friend if she buys you the ticket. Agreeing not to go to bingo is adequate consideration.

Types of Considerations

1. Gratuitous promise: An offer that benefits only the offeree Not usually legally enforceable

Ex. Someone promises to help you move, but does not show up. The promise was made for free, so is not enforceable.

2. Future Consideration: One or both of the parties promise to perform

some part of the contract in the future. (ex. Order flowers to be delivered in two days).

Types Cont.3. Past Consideration:

Arises when an act has already been completed, but not in exchange for consideration from the other party.

Cannot be used to enforce a contract.ex. Your friend helps you move, then after it is done

you say you’ll get a pizza for him. You are not obliged to do so.

But if agreement is worked out ahead of time then it is considered a valid contract

TYPES OF CONTRACTS

SIMPLE

EXPRESS

IMPLIED

Simple Contracts

Verbal Tough to enforce without witnesses.

Written Terms set out on paper.

Implied by conduct or performance.

Ex. Getting on a bus and paying fare.

Express Contracts

All terms and conditions are clearly defined

May be verbal and written

Implied Contracts

Nothing is stated or written but are suggested by a person’s actions.

Eg. Getting on a bus and paying a fare.

Using a credit card after being notified of changes to it.

Contracts under Seal

Certain contracts must be in writing, signed, witnessed and under seal. Eg. Some land sales

Indicates serious thought, awareness of rights and intent to keep the legal obligation.

Changes must be in writing and initialed.

Enforcement In most cases people “live up to their end of the

bargain” and the contract is good.

However, in some cases the performance does not meet the required expectation.

This failure to perform is called a “breach” The courts (law) allow for compensation in this

case Payment for lost money, etc Replacement for lost items etc.

When are Contracts Voided In most contracts there are clauses or parts that

give an opening to the party making the offer Insurance companies = Acts of God Phone companies = dropping in salt water

For the receiving party Unconscionability – intentionally deceived /

manipulated into accepting an unfair contract Elderly, telemarkers etc.,

Mistake

Mistake: misunderstanding on the subject matter of the contract

Common mistake – both parties make same mistake. Ex. Both thought the painting was very rare and valuable, but it was

not.

Mutual mistake – two parties making two different mistakes. Ex. You thought the dealer wanted your personal painting, but she

thought it was a Picasso she was getting.

Unilateral mistake – one party knew the other was making a mistake. An art dealer buys a Picasso off you for $5, knowing it was worth

$1 million.

Misrepresentation Innocent Misrepresentation

Make a false statement, but think it is true. Ex. You tell a potential buyer that “This is a real

diamond ring” because you think it is. Buyer could get out of contract before sale or get

damages after.

Fraudulent Misrepresentation: Knowingly make a false statement to get another person

to act on that statement. Ex. You tell the buyer a fake diamond is real so he will

pay a lot for it. Victim can undo contract (rescission) and sue for

damages.

Defences

Fraud or Duress

When someone purposely deceives you with intent. Lying misrepresenting themselves or their product.

Knowingly taking advantage of people

Knowingly selling offering defective products (covering it up)

Defences Cont. Capacity – legal ability to enter into a contract on one’s own behalf

(do you understand the contract?)

Protected groups include minors, mentally incompetent or drunk

Contracts formed with this group may be valid, void or voidable

MINORS (19 in Nova Scotia)

Receive special treatment under contract law.

Contracts usually unenforceable in court, so adults avoid them.

But there are some exceptions…

Enforceable Contracts for Minors purchase of necessaries

food, clothing, shelter, medical and dental services. must be a fair price.

Employment contracts that greatly benefit the recipient are also enforceable

Parental Liability None unless they co-sign

Vicarious liability may exist Ex. Using your parent’s credit cards

Unenforceable Contracts for Minors

Non-necessaries (anything else)

Parents are not liable if their minor children fail to pay for goods that are not considered necessaries. (still have to give it back)

Minor has to exercise 1 of 2 options

Ratification – show willingness to be in the contract Ex. Minor keeps paying for a service once “of age”.

Repudiation - reject a contract to avoid being liable Ex. Minor says she does not want the service and stops paying

once “of age”.