Chapter 20: Contract Law

1.      What is a contract?

Simply stated, a contract is a legally enforceable agreement made between two or more parties. 

2.      Explain the elements of a valid contract.

·         The Offer: An offer is a promise made by one party to another to do something

·         Acceptance of the Offer: Acceptance is a promise to accept the offer. 

·         Intention to Create a Legal Relationship: The parties entering into an agreement must intend to form a legally binding agreement. 

·         The Legal Capacity to Enter into a Contract: Parties must be approximately equivalent in bargaining power and must meet minimum standards in regards to maturity and intellect to be deemed to have the legal capacity to enter into a contract. 

·         Legality Requirements: Every contract must meet certain legality requirements.  It must have a legal purpose.  To be considered legal, this purpose cannot violate any law, statute, or public policy. 

·         Exchange of Consideration: Although there are exceptions, parties to a contract must agree to exchange something of value in return for their promises. 

3.      If misrepresentation exists, what option is available?

The contract may be rescinded, meaning that the contract will be cancelled and the parties will be returned to their pre-contract states. 

4.      Discuss the differences between duress and undue influence.

Duress is defined as a threat or act, whether aimed at personal property or a person that induces or causes another person to perform some act against his or her will, while undue influence can be described as any pressure or act of persuasion, short of physical force and therefore not meeting the definition of duress, that overcomes an individual’s judgment and free will. 

5.      Under the doctrine of privity of contract, who can enforce the terms and conditions of a contract?

Only the parties to a contract may enforce it.

6.      What condition precedent is most common in real estate transactions?

A condition for financing which allows the Borrower to cancel the contract if he or she can not obtain mortgage financing.

7.      Larry owns a car that is being stored in a self-storage unit.  If Bob and Larry enter into a contract for Bob to purchase Larry’s car but before Bob can take possession of the car the self-storage unit is destroyed by a fire, and Larry’s car along with it, what will happen to this contract and why?

The contract will be voided due to Frustration.

8.      Abena has entered into a valid purchase and sale agreement to purchase a home from David.  David decides not to sell Abena the home and instead enters into another agreement of purchase and sale with Bob.  What options does Abena have?

Abena may obtain an injunction to prevent the sale to Bob and sue for specific performance to force David to sell her the house.

9.      A contract of employment between a Mortgage Agent and a Mortgage Brokerage contains a clause that states, “This contract may be terminated by either party by providing thirty days’ notice to the other party”.  Of what is this an example?

This is an example of “discharge by right” which occurs when there is a clause written into a contract that provides one or both parties with the option to cancel the contract before performance.  Such clauses include an option to terminate, a condition precedent and a condition subsequent.

10.  Dominic is twelve and in the neighbourhood in which he lives he is known as the grass cutter.  He wishes to get Mr. Malikson, another neighbour, as a customer so on Monday cuts his lawn without being asked, and leaves a note on Mr. Malikson’s front door.  Mr. Malikson comes home from work on Monday night, sees the lawn, and is extremely happy with the quality of Dominic’s work.  He calls Dominic and tells him that on Friday he will give him ten dollars for cutting his lawn.  On Friday Dominic arrives at Mr. Malikson’s home and asks for the ten dollars, but Mr. Malikson refuses to pay, telling Dominic that when he saw the lawn on Tuesday he realized it was not as good a job as he had thought on Monday so he changed his mind about paying Dominic.  In this situation, is there a contract and can Dominic enforce the promise to pay?

No, there is no contract because there was no offer and acceptance before Dominic had cut the lawn.  Mr. Malikson’s promise to pay was simply that: a promise, and not a contract.