Law class 3:May 19th: The Practical Application of Business Law

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  1. What are contracts?
    A contract is a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

    Voluntary exchange of promises, creating obligations that if default on, can be enforced and remedied by the courts

    If you coerce someone into an arrangement, it brings the whole nature of the arrangement into question .. they may not be enforceable. 

    You don't draft contracts for the sunny periods of life.

    Contracts are agreements between a number of parties to set out expectations.  


  2. Why are contracts important?
    Breaking or breaching a contract can give legal remedies to the innocent party.

    If you are in breach of the contract (e.g. you did not follow through), the other side can sue you ... as they have the right of action.
  3. In order to establish a contract exists, what are 5 elements of a contract?
    Consensus (offer & acceptance) - the most important of the five elements

    Consideration

    Capacity -if parties are able to enter the contract

    Legality

    Intention - if the parties intended they would enter a legally binding contract
  4. What are oral contracts?
    An oral contract is a contract, the terms of which have been agreed by spoken communication. This is in contrast to a written contract, where the contract is a written document.

    A contract does not need to be written in order to be valid and enforceable.

    The challenge is that it is difficult to prove it.

    It is not always practical to have a written contract (e.g. buying a coffee)
  5. Consensus ad idem
    Consensus.

    This is made up of two aspects: the offer and acceptance.

    Consensus is made up of two parts—offer and acceptance. (e.g. does anyone want a vitamin water for two bucks/sign stating this? Sure here's two bucks.)  Acceptance can be conduct/gesture.

    • Need both offer and acceptance. What are the rules surrounding them? In order for an offer to be valid and enforceable, it must include all of the material terms (e.g. what is being exchanged....).  You are able to apply a reasonable person test (e.g. we are in Canada, so likely it is Canadian currency).
    • Example: If I put a bunch of vitamin waters up and I ask does anyone want to buy one? Some terms may be implied...



    Can you have a “meeting of the minds” without someone having read the contract?
  6. Offer by conduct
    • Blackjack (hit me)
    • Silent auction
    • Bringing something to the cash register
  7. Who can accept an offer?
    An offer can only be accepted by the person it is offered to.

    E.g. Dan would like to rent out his basement suite, asks Marcus if he would like to.  If Luis says "I would", Luis cannot technically do this because a contract is only applicable to the person it is made.
  8. Counteroffers
    A counter offer means that the original offer no longer exists.  The counter offer turns into the valid offer.  A counter offer does not always have to deal with the price.

    • Dan: want a basement suite for 1200
    • Marcus: how about 1100
    • Dan: No
    • Marcus: OK I will take it for 1200
    • Dan: Sorry, not interested any more.
  9. When you an accept an offer...
    It should be absolute and unconditional.
  10. Carbolic smoke ball contract example
    People were afraid of influenza. 1,000,000 people die.

    This company created a ball in a tube, and in the ball is carbolic acid.  The theory was you would inhale the vapors and the carbolic acid would clean you out and you will not catch the flu.


    The smoke company was so firm behind their product that they offer a 100 pound reward to anyone who catches influenza if they use the carbolic smoke ball.

    One woman uses it 3 times a day. Uses it for two months.  Catches the flu.  She then asks the company for the hundred pound reward.  They refuse, stating it was just an ad (it's just mere puffery).  

    She sues.

    The judge looks at this and says that if the company had no intention to treat this as a real offer... this is mixed up because you have on the ad that you have a thousand pounds in the bank account, so yes this constitutes a valid offer.  The woman accepted the offer.

    The carbolic smoke ball was found in breach of the contract.

    She was awarded the 100 pounds.
  11. Leonard vs Pepsico
    ~ 20 years ago Pepsico offered pepsi points.  If you bought a certain number of pepsi products you could trade them in for rewards.  At the end of the comercial, they show a harrier jump jet. On the screen they put 7 million pepsi points.

    Leonard realizes that the value of the jumpjet is in the tens of millions of dollars.  He looks up the official rules, and sees that at least 1 point must be earned through a purchase but the rest can be bought.  He spent 700,000 to buy the points, then tries to cash in for the jet.

    Pepsico says... whaaaat ... 

    Pepsico is like.... no. go away.

    Leonard sues.

    The court said look... that really is puffery.  No resonable person would believe that pepsico would provide you with a fighter jet.  That's not a true offer.  It is ludicrous. It is probably illegal to buy a fighter jet.

    This was not considered an offer; means there was no consensus; means there was no contract

    Pepsi gave the money back minus the legal costs.
  12. Brogdon vs Metropolitan Railway company example
    Man sold coal to the Metropolitan Railway Company.  Friend says, why don't you write your contract down?  Brogdon finally creates a document and discusses with MetroRail and shares the new terms... Metropolitan railway company says I'll give it to my lawyer.  They never sign it or give it back.  They keep doing business on the new terms they had discussed.

    After a while, Metro says I'm not going to go with you anymore.

    Brogdon says, wait, you can't break the contract I'll sue you!!


    Railway says, we never had a contract!!

    In court, Brogdon said they accepted the offer by conduct - under the new terms.  The terms and conditions they agreed to... they were acting in the way as though they had accepted the agreement as the way it was presented to them.
  13. Consensus Definition:
    A decision achieved through negotiation whereby a hybrid resolution is arrived on an issue, dispute or disagreement, comprising typically of concessions made by all parties, and to which all parties then subscribe unanimously as an acceptable resolution.
  14. Consideration
    Each person in the contract must get something.

    1) payment or money. 2) a vital element in the law of contracts,consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract.


    E.g. Coffee & $$
  15. Each person in the contract must have capacity
    Some people are more vulnerable than others and require special protection under the law.

    Minors - people under the age of 18 do not have the capacity to enter into contracts.  This is why sometimes a contract requires a parent to sign.  Minors can contract for "necessaries" of life for example at 16 they can go rent an apartment and enter a binding agreement.  If you are a minor, you should enter into as many contracts as possible because it is binding to the other person.



    Other special cases - for example drunk persons,people who have mental incompetence, insanity..

    How drunk is too drunk? How incompetent is too incompetent?  If people understand the nature of the act, and the other side too.
  16. Does consideration have to be money?
    No.

    It can be a promise to do something or a promise to not do something.

    For example, I will pay my brother $1,000 to quit smoking.. He gets the 1,000 I get his promise to not do something.
  17. Legality of a contract
    Legality can be defined as an act, agreement, or contract that is consistent with the law or state of being lawful or unlawful in a given jurisdiction. According to merriam-webster dictionary definition ofLegality is 1 : attachment to or observance of law.

    A contract must be legal and not contrary to public interest.

    A contract that is performed illegally
    - e.g. you will have to speed to get Dan to the airport in time.  Dan can jump out and say ah-ha!! I don't have to pay you because speeding is illegal.  Just because a contract is performed illegally does not mean the contract itself is illegal.  Therefore the contract is valid.

    Illegal contracts   e.g. I want you to drive me to the bank so I can commit a crime.  Price fixing (e.g. all companies agreeing to sell batteries for $20.. making a monopoly).  Illegal contracts are not enforceable. Another example is payday loans... the highest permissible rate of interest in Canada is 60%.
  18. What is the highest interest rate you can charge in Canada?
    60%
  19. Intention of a contract
    The parties must intend to enter into the contract and that legal obligations will ensue.

    Marcus invites Dan to dinner. Dan says sure, lets go tomorrow.  The next day rolls around, Marcus goes to the restaurant but Dan doesn't show up. Dan did not break the contract because it is not a contract because there is no intention.  It would be difficult for a lawyer to argue that Dan intended to be bound by legal obligation to go to dinner with Marcus.

    How could you make this invitation binding?  A penalty clause (e.g. if you don't show up you owe me xx amount of money).  Many contracts have clauses that say the parties intend to be bounded by contract.  To give bullet proof evidence that the parties intend to be bound.


    • In assessing intention, courts will consider:
    • Stated intention of the parties (courts will assume there is intention
    • Commercial relationships (courts assume there is intention)
    • Domestic / social relationships (course assume no intention to be bound)
    • Social / business relationships (Courts look at the case specific facts...e.g. lottery pools)
  20. What are some factors affecting contractual relationships?
    Mistake - a common mistake/misapprehension that is present at the time that the contract was made.  For example, buying a fake coin but both parties believe it is real.  This was a mistake because both buyer and seller share misapprehension about the coin and is in existence at the time the contract is made. If at a later time you learn it was a mistake, it absolves both parties of the situation (give back the coin, get back the money)

    Misunderstanding - where each party has a different understanding of the agreement ... e.g. talking about a contract of sale of goods, then delivering the $$ in Canadian, then the other party says wait wait, I thought american $$.

    Non est factum - latin for it IT IS NOT MY ACT.  It basically applies in the event that it is not your signature at the bottom on the paper.  E.g. Fraud, someone incurs a bunch of costs in your name.  It is not your act so you are not responsible for it.

    Misrepresentation - Where the language you use to describe the contract is misleading.  This boat is in mint condition.  But it's not.

    Duress and undue influence - If you are not a free mind (e.g. I'm coercing you), or have a gun to your head, the contract is not valid.  It can be subtle.... for example a position in authority, the dean, saying you know what... I really like that bike you are selling, how about we do a deal for 50$

    Unconscionable transactions -  Similar to duress... when there is such an inequality of power that an advantage is gained by one party over the other.
  21. Raffles V. Wichelhaus
    Raffles agrees to sell Wichelhaus 125 bushels of cotton and they will be arriving in Liverpool on the sail ship Pearless. 

    There are two sailing ships called Pearless and they are both arriving in Liverpool in the same year.  One arrives in October, the other arrives in December.

    Raffles thought they were talking about the December Pearless.  Wichelhaus thought they were talking about the October Pearless. 

    Time passes, Raffle sues Wichelhaus.

    Both parties had a common misapprehension about the terms of the contract. 

    They could have avoided this by specifying.

    The court wants something to go through.  They try to say, what would a reasonable person have thought?  The court can't come to a decision.

    The court decided that this was a mistake, so both were released from the contract.



    --

    acts[edit]The claimant entered into a contract to sell "125 bales of Surat cotton, guarantied middling fair merchant's Dhollorah" to the defendant at the rate of 17 1⁄4 d. per pound. The contract specified that the cotton would be arriving in Liverpool on the ship Peerless from Bombay ("to arrive ex Peerless from Bombay"). It so happened that there were two British ships named Peerless arriving in Liverpool from Bombay, one departing in October and another departing in December. The defendant, according to statements presented in court, thought the contract was for cotton on the October ship while the claimant thought the contract was for the cotton on the December ship. When the December Peerless arrived, the claimant tried to deliver it, however the defendant repudiated the agreement, saying that their contract was for the cotton on the October Peerless.The claimant sued for breach of contract, arguing that the date of the ship was not relevant and the only purpose of specifying the name of the ship is that in the contingency that the ship sink en route, the contract could be voided.The issue before the Court was whether the defendant should be bound by the agreement to buy the cotton of the claimant'sPeerless.Judgment[edit]Though courts will strive to find a reasonable interpretation in order to preserve the agreement whenever possible, the court inRaffles could not determine which ship named Peerless was intended in the contract. Consequently, as there was noconsensus ad idem (as defendant alleged), the two parties did not agree to the same thing and there was no binding contract. Therefore, the defendants prevailed, and did not have to pay.“Declaration. For that it was agreed between the plaintiff and the defendants, to wit, at Liverpool, that the plaintiff should sell to the defendants, and the defendants buy of the plaintiff, certain goods, to wit, 125 bales of Surat cotton, guaranteed middling fair merchant's Dhollorah, to arrive ex “Peerless” fromBombay; and that the cotton should be taken from the quay, and that the defendants would pay the plaintiff for the same at a certain rate, to wit, at the rate of 17½d. per pound, within a certain time then agreed upon after the arrival of the said goods in England. Averments: that the said goods did arrive by the said ship from Bombay in England, to wit, at Liverpool, and the plaintiff was then and there ready, and willing and offered to deliver the said goods to the defendants, &c. Breach: that the defendants refused to accept the said goods or pay the plaintiff for them.Plea. That the said ship mentioned in the said agreement was meant and intended by the defendants to be the ship called the “Peerless,” which sailed from Bombay, to wit, in October; and that the plaintiff was not ready and willing and did not offer to deliver to the defendants any bales of cotton which arrived by the last mentioned ship, but instead thereof was only ready and willing and offered to deliver to the defendants 125 bales of Surat cotton which arrived by another and different ship, which was also called the “Peerless,” and which sailed from Bombay, to wit, in December.Demurrer, and joinder therein.Milward, in support of the demurrer. The contract was for the sale of a number of bales of cotton of a particular description, which the plaintiff was ready to deliver. It is immaterial by what ship the cotton was to arrive, so that it was a ship called the Peerless. The words “to arrive ex ‘Peerless,’” only mean that if the vessel is lost on the voyage, the contract is to be at an end. Pollock CB It would be a question for the jury whether both parties meant the same ship called the Peerless.] That would be so if the contract was for the sale of a ship called the Peerless; but it is for the sale of cotton on board a ship of that name.Pollock CB The defendant only bought that cotton which was to arrive by a particular ship. It may as well be said, that if there is a contract for the purchase of certain goods in warehouse A., that is satisfied by the delivery of goods of the same description in warehouse B.] In that case there would be goods in both warehouses; here it does not appear that the plaintiff had any goods on board the other “Peerless.” [Martin, B. It is imposing on the defendant a contract different from that which he entered into. Pollock CBIt is like a contract for the purchase of wine coming from a particular estate in France or Spain, where there are two estates of that name.] The defendant has no right to contradict by parol evidence a written contract good upon the face of it. He does not impute misrepresentation or fraud, but only says that he fancied the ship was a different one. Intention is of no avail, unless stated at the time of the contract.Pollock CB One vessel sailed in October and the other in December.] The time of sailing is no part of the contract.Mellish (Cohen with him), in support of the plea. There is nothing on the face of the contract to shew that any particular ship called the “Peerless” was meant; but the moment it appears that two ships called the “Peerless” were about to sail from Bombay there is a latent ambiguity, and parol evidence may be given for the purpose of shewing that the defendant meant one “Peerless,” and the plaintiff another. That being so, there was no consensus ad idem, and therefore no binding contract. He was then stopped by the Court.Per Curiam. 1 There must be judgment for the defendants.
  22. How do contractual relationships end?
    Performance - contract completed (e.g. coffee paid for)

    Tender - If one party is willing and able to complete the contract but the other party prevents them from doing it....f one person attempts to fulfil the contract but the other refuses to comply... e.g. enter a contract to install gutters, guy comes to install gutters, you change your mind and say NO... the gutter person was willing able and ready to live up their end of the deal.  The customer who prevented the contract would likely have to pay compensation to the contractor (e.g. due to lost jobs/etc).

    Breach -If one party breaks their promise then the contract can be at an end.  If a contract is breached, most often the claim or the remedy is known by damages.  Damages is a monetary amount to pay the victim of a breach..  There are other remedies but most often damages is the best.  Sometimes the remedies cannot be paid in damages... and must be performance. E.g. rare collectable coin...   enter a contract... find out you have 9 out of 10 coins..  say you don't want to sell the coin anymore... sue to get the coin.  The amount of money that is sought is limited to what is reasonably foreseen.  Damages must be reduced by the victim of the breach.

    Repudiation -N/a

    Frustration (vs. Mistake) - This exists when the parties have entered into a contract and after the contract was entered into something that was unforseen happened that affected the contract and caused frustration.   Remember: The event is after the contract is formed.
  23. Damages
    A monetary reward paid to compensate the victim of a breach.

    Must be limited to what was reasonably foreseen

    Must be reduced / mitigated by victim of breach (e.g. deciding to get out of a lease five years early... may have to pay the whole lease... the landlord has a duty to mitigate and re-lent the property to someone else... if they do so then the difference is owed by the person breaking the contract.
  24. Jarvis Case
    The concept of damages has expanded.

    1972 there is a guy named Jarvis.  Jarvis really wants to go to switzarland for christmas vacation.  He finds an outfit from Swan tours (travel agency).  He pays 64 pounds for the christmas vacation.  In the brochure... it says the alps is amazing because there will be skiing, there will be house parties etc....

    He goes on the vacation and is disappointed because he is the only guest.  There is no skiing.  There is no bar... etc..

    Jarvis goes back home and sues Swan Tours for misrepresentation and breach of contract.

    The court says OK... 64 pounds... we will give you half back because we think that's the difference between what you got and what you promised to received.

    Jarvis is dissatisfied by this. He appeals.

    Lord Denning expands the concept of damages and created lost of enjoyment and entertainment.  He ended up getting 125 pounds back.

    Just giving me my money back is not good enough.
  25. Coral VS Henry
    1903

    Henry want's to rent Coral's flat.  Coral wants to rent his flat out for 75 pounds for one day.  This is because the apartment is on the second floor where a parade will go by.

    They make an agreement.

    The parade is rescheduled.

    Coral says hey, I want my money back.  Henry says noooo.

    The court says this is an example of frustration.  This exists when the parties have entered into a contract and after the contract was entered into something that was unforseen happened that affected the contract and caused frustration.
  26. Frustration happens when
    the unforseen event happens AFTER the contract 

    This exists when the parties have entered into a contract and after the contract was entered into something that was unforseen happened that affected the contract and caused frustration.
  27. Mistake happens when...
    The issue affecting the contract happened BEFORE.

    E.g. enter  a contract not knowing that the boat burned down three weeks prior
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Law class 3:May 19th: The Practical Application of Business Law
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Law class 3:May 19th: The Practical Application of Business Law
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