Friday, August 10, 2012

Business Law

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Contract � An agreement that is enforceable in a court of law

A contract is legally binding only when it contains certain factors

Capacity � The legal capability of entering into an agreement; some individuals, such as minors, and mentally incompetent or intoxicated persons, are not seen in law as having the capacity to enter into a contract.

Legality � The purpose must be neither criminal nor against the public good.

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Consensus � There must be complete agreement, or consensus, among the participants.

Intention � The intent must be that legally enforceable obligations will result from the agreement.

Consideration � All parties must offer a consideration, which is the price paid for a promise, something of value of promised or paid that is taken to indicate that the person has considered the agreement and consents to be bound by it.

Capacity includes minors, mentally incompetent people and individuals who are intoxicated.

Age of Majority � The age at which a person is recognized as an adult according to the law of his or her province.

Minor � A person who has not attained the age of majority according to the law of his or her province, and therefore is not legally an adult.

• Each province and territory in Canada sets its age of majority. A young person who is legally a minor in one province may be considered an adult in another.

• In general, the courts are unlikely to enforce a contract against a minor.

• It doesn’t matter if a person appears to be over the age of majority and the other party to the contract honestly believes that the young person is an adult. This is true even when the minor has deliberately lied to or misled the adult.

• If a contract is cancelled by the court, the minor is entitled to have any money paid refunded, but must return the goods purchased.

• Parents of a minor are not liable unless they had previously authorized the contract. If a parent co-signs a contract, or persuades the other party that the parents have accepted responsibility for it, they can be held liable.

Repudiation (anticipatory breach) � an indication by a party that he or she will not go through with the agreement as promised.

Minors’ Contracts for Necessities

Contracts that involve matters necessary for the minors’ survival can be enforced by the courts. Necessities are those things which are needed for everyday (food, clothing, shelter, education, medical care, job training, and other programs).

Necessities � The basic goods and services required to function in society

• Minors must fulfill any contracts they make for necessities.

• A minor only has to pay a reasonable price for the necessities. The court will reduce the price if it is not a fair one.

• It is up to the other party to prove that the contract is for necessities or, if job related, that it is beneficial to the minor.

• Loans to minors are not recoverable unless they are used for necessities.

Mentally Incompetent and Intoxicated Persons

Contract law gives special protection to those who suffer from mental impairment when they are entered into an agreement. The impairment may be due to a variety of causes, including

• Physical disease

• Mental illness

• Drug use

• Alcohol use

If someone was under these causes they must immediately try to fix the problem

A contract made by such a person can be voided by the courts, as long as the following rules apply

• The contract is not one for necessities.

• The impairment was sufficiently serious that the individual was unable to understand the nature and consequence of what was going on.

• The other party had actual knowledge, or was put on notice, of the impairment at the time the contract was entered into.

• The agreement was cancelled within a reasonable time by the person deemed incompetent or drunk. A “reasonable time” means the individual must cancel the agreement promptly after the return to mental competence or sobriety.


Courts will not enforce illegal contracts.

Illegal Contracts � Contracts which cannot be enforced because they are contrary to legislation or public policy.

• The agreement involves breaking a civil or criminal statute. This is known as statutory illegality.

• The agreement is against public policy and violates the public interest

Examples of statutory illegality Hitman successfully carrying out contract and if employer doesn’t pay, he cannot sue him in court.

• Statutory illegality can arise from two different situations those that are criminal, and those that are wrong only because they are prohibited by civil statutes or regulations.

• Those contracts that are illegal only because they are prohibited by statute may be enforced if there was no intention to violate the statute.

• The court may find that there was no intention to violate the statute if at the time of the performance the illegality was cured.

Contracts Against Public Policy

Contracts that are against public policy, or the good of the community, are unenforceable.

Example A person cannot sell his business and open up a new one right across the street the next day.

Goodwill � The value of the good name, reputation, and connection of a business.

• In general, any contract clause that limits a person’s right to earn a living is presumed to be against public policy, and therefore unenforceable.

• This presumption can be overturned if the restraint clause can be proved to be reasonable. To be considered reasonable it must a) be necessary to protect the business b) contain restrictions on time, area, and subject matter that are no greater than are needed to protect the business c) not be against the interests of the public.

• The person to be restrained must possess some special skill, or knowledge of trade secrets or special techniques. Alternatively, the individual must represent major potential competition to the business sold or to the employment the individual has left.


Before any contract is finalized, there must be a general agreement, or consensus, between the parties involved. There can be several stages in the process before consensus is reached

• Bargaining or negotiating

• Offer

• Counter offer (this stage does not always take place)

• Acceptance

Bargaining � An Invitation To Treat

Invitation To Treat � The technical legal term for the invitation to engage in the bargaining process.

There is no duty imposed upon people that they should act in good faith. Each party is permitted to try to get the best deal possible for itself.

• An offer must contain all of the terms that will be included in the contract, so that the other party need merely say, “I accept.”

• The essential terms necessary for a contract will vary with the circumstances but they normally are the parties, the price, the terms of payment, and the subject matter.

• If a term indicates that the party making the offer does not intend to be bound, but may want to negotiate further, there is no offer, but an invitation to treat.

Withdrawing an Offer

An offer can be withdrawn or revoked anytime before acceptance, if there is no consideration paid for keeping the offer open.

• Even though an offer is made, it can be withdrawn, or revoked, at any time before it is actually accepted.

• Even if an offer contains a term that states it will remain open till a certain time and date, it can still be revoked provided that a) the offer is withdrawn before it has been accepted, b) the other party is informed that the offer is no longer valid. The information that the offer has been revoked can be communicated directly or indirectly.

Termination Terms

Signing back an offer means, altering the offer presented by changing a term, for example, the price, initialing it and then delivering it to the other party.

• After an offer expires, it cannot be accepted. Offers expire, or come to an end, in seven possible ways 1. At a time specified in the offer. . After a reasonable time if no specific deadline is already given. . On the death of the offeror or offeree. 4. On the rejection of the offer (refusal to accept) 5. When the counter offer is made by the offeree. 6. On the bankruptcy of the offeror or offeree. 7. On the mental incompetence of either offeror or offeree.

Rejection � The refusal to accept the offer

Option � A new and separate


To prevent an offer from revoking, you can add an option which makes it a new and separate contract for a specified time in return for some money.

Money paid for the option in not considered part of the purchase price. The sum is also non-refundable.

Conditional Offers

A specific criteria must first be met in order for the contract to be fully carried out. Example I will only buy the house if it’s in good condition and I get the finance required to purchase.

• An offer can contain a condition which, if not fulfilled, means the contract will not become an enforceable agreement.

• The party who asked for the condition must act in good faith in trying to fulfill it.

• All parties must co-operate in attempting to fulfill conditions.

• Conditions often require the consent of both parties in order to be waived, unless the contract specifies otherwise.

Counter Offer � The rejection of one offer and the proposal of a new one.

• When an offer is rejected it is put to an end.

• When a counter-offer if made, it ends the previous offer.

• An acceptance that includes any changes in terms is a counter-offer.


When an offer is accepted, a contract is formed. The deal is legally binding, and will be enforced by the courts.

Acceptance � An unqualified and unconditional agreement to the terms of the offer.

• Acceptance must be communicated to the other party and must be unconditional.

• Generally, silence cannot be acceptance.

• Acceptance can be by word or by conduct. Acceptance by conduct might be as simple as using a product rather than returning it immediately.

Negative Option Marketing

When a firm sends you its product and tells you that you’re stuck with it unless you notify us.

• The Parties can agree upon the mode of communication, such as the mail, fax, or personal delivery.

• Where there is no agreement between the parties, the courts may find that it was reasonable to use the mail in the circumstances.

• If the court finds that it is reasonable to use the mail. A) acceptance of the offer occurs at the time that the letter is put in the mailbox (assuming that the postage address is correct). B) if the letter is lost or delayed, performance is still fixed at the time the letter was posted.

• The mailbox rules apply only to acceptance of offers. They do not apply to withdrawal of offers.

The Formation Of A Contract

1. Invitation to Treat (seller lists business for sale)

. Offer (purchaser signs standard form offer)

. Counter Offer (seller reviews terms, changes if necessary, signs and returns to vendor); this can happen a number of times

4. Acceptance (Purchaser signs counter � offer)

Cooling-Off Periods � A specified time after a contract is made during which a buyer may terminate the contract by giving written notice to the seller.


The parties to an enforceable contract must have intended from the start of the process that legal obligations would result from their agreement. Parties can also specify if their contracts if they want their contracts to be enforced in the courts.

• Courts assume that parties to an agreement intend to be bound by it.

• The test to decide whether the parties intended to be legally bound is from the point of view of the promise (the person who receives the promise).

• Individuals can state in the agreement that they do not intend to be legally bound, and therefore no contract or enforceable agreement has been created.

• In family and social agreements, the court assumes that the parties do not intend to be legally bound.

• Exaggeration has been accepted by the courts as an indication that a person does not intend to legally bound by the statement. An example of this is advertising where statements are made such as” the best deal in Canada”

Covenants � terms of agreement


Consideration is given in exchange for a promise. The consideration must be given bye the promise to the person who makes the promise (the promisor). Consideration can be anything of value in the eyes of the law (amount does not matter)

Gratious Promise � A promise for which no consideration is given.

• Consideration is anything of value given in exchange for the promise sought to be enforced.

• The courts will not inquire into the adequacy of consideration. It need not be fair or equivalent to the value received.

Shrink-Wrap Rule � contract terms relating to a shrink-wrapped product, often including a limitation-of-liability which limits or excludes the manufacturer’s liability for damages that may occur from the use of the product.

Past Consideration � The consideration has already been given

Click � Wrap Rule � Contract terms which are accepted when the user clicks an appropriate icon on a web site document.

• Past consideration is not consideration for later terms in a contract.

• A promise to continue to perform a contract is not consideration.

Agreements Enforceable Without Consideration

Agreements under seal

Promissory Estoppel � a remedy against a person who made a promise without giving any consideration for it, often used when a creditor waives strict compliance with payment dates and notifies the debtor in default for not making timely payments.

• Promissory estoppel has three factors. It is a promise

• A) Which the maker should realize would induce the hearer to rely upon it.

• B) On which the hearer does actually rely, and

• C) That reliance is to the hearer’s detriment.

Void � Never formed in law.

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