A contract is an agreement between two or more parties that is enforceable by law. • In order for a contract to be considered valid, there must be:
1. Offer and acceptance 2. Consideration 3. Capacity 4. Consent 5. Lawful purpose
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Offer, Acceptance, Consideration
• In every valid contract, offer, acceptance and consideration are vital aspects. First: An offer is made that contains all of the important and relevant terms of the contract.
Second: Another party agrees to, or accepts, the offer.
Third: After the offer is accepted, something of value (an item or service) is exchanged between the parties involved in the contract. This is called consideration.
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Capacity, Consent, Lawful Purpose
• In every valid contract, both parties must have the ability, or capacity, to understand the terms and nature of the contract. • Each party involved in the contract must also freely consent, or agree, to the terms in the agreement. • Finally, every contract that is negotiated in Canada must have a lawful purpose or objective; in other words, no contract can violate any law.
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Types of Contracts
• An express contract is a legal agreement in which the terms are transparent and known to all the parties involved (e.g. a mortgage with a bank) • An implied contract is a contract that is implied, or inferred by the parties' conduct. (e.g. at a restaurant, it is implied that after eating dinner the customer will pay the bill) • Most contracts are under seal – a formal, written contract that is signed, witnessed, and marked with a seal. • A simple contract is a contract that is not under seal (verbal, written, or implied).
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Elements of a Contract
• In an offer and acceptance, the party who initiates, or makes the offer, is known as the offeror; the party to whom the offer is made is known as the offeree. • In valid contract offers, there must be serious intent on the part of the offeror. • The offer must also contain definite terms, or details. Some terms are clearly defined while others are implied. • When a company or business encourages the purchase of a product or service through advertising, this is an invitation to treat. A contract occurs when the product or service has actually been purchased.
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Communicating & Terminating
• Part of an offer includes communicating the proposed contract to the offeree. • Common methods include communicating in person, by mail, courier, fax, and e-mail. • Communication is not successful unless it is received by the offeree. • An offer can be terminated, or cancelled, for various reasons. • A lapse occurs when an offer is not accepted within a period of time and the offer ends. • An offer may also be revoked, or cancelled, by the offeror before it can be accepted.
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Acceptance
• Similarly, the offeree has a responsibility to clearly communicate its acceptance of the proposed agreement. • Offers may be accepted using the same methods of communication (e.g. mail, courier). • An acceptance must occur before a specified time limit on the offer expires. • The offeree may decide to make a counteroffer, which is a new offer, or amendment to the original offer. • Any counteroffer ends the original offer.
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Consideration
• After an offer is accepted, something of value must be exchanged between the parties who are involved in the contract. • The actual value or amount exchanged between the two parties (consideration) does not matter to the courts. A contract can appear to clearly favour one side over the other. • A court simply wants to see that there is some degree of exchange or consideration involved in the contract.
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Capacity
• A contract will only be considered valid in court if the offeror and offeree had the capacity to understand what they were agreeing to. • Anyone with a developmental disability, impaired judgment, or who is under the age of majority in Canada (18 or 19 years) does not have the capacity to enter into a valid contract. • A minor may enter into a valid contract if it is considered necessary to ensure his or her health and welfare (e.g. an employment contract). • If a contract is not considered to be in the minor’s best interests, it is declared void.
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Consent
• In general, each party in a contract must freely agree, or consent, to the contract. • An offeree must completely understand the terms of the contract. • There are some situations that may prevent consent from occurring: – misrepresentation – mistake – undue influence – duress
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