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Il est précisé que le thème « CONTRACT LAW » est abordé à travers 2 fiches.
- VALIDITY OF THE CONTRACT
- LEGALITY OF THE SUBJECT MATTER
- REALITY OF CONSENT
- DISCHARGE OF TERMINATION OF CONTRACT
- BREACH OF CONTRACT AND REMEDIES
I. VALIDITY OF THE CONTRACT
Parties must be competent – A person who agrees to a transaction must have complete legal capacity to become liable for duties under the contract.
Minors – Minors (those generally under the age of 18) lack the capacity to make a contract.
A contract concluded by a minor is voidable but is valid and enforceable until disaffirmed by that person.
However, there are a few exceptions. For example, in most states, a minor cannot void a contract for necessities like food, health, comfort or education.
Mental incapacity – Persons who lack mental capacity can void most contracts.
Some of them have been adjudicated mentally incompetent by a court and have a guardian appointed : in this case, the person in unable to consent to the contract so that the contract is void.
If there has been no adjudication of insanity, the contract is voidable by the mentally incapacited person.
Intoxicated persons – A contract concluded by a person who is intoxicated by drugs or alcohol is voidable.
However, if the person who was intoxicated becomes sober, the person can choose to ratify the contract.
II. LEGALITY OF THE SUBJECT MATTER
A valid contract depends on the legality or illegality of the subject matter.
Contracts that involve unlawful things or acts won’t be enforceable.
III. REALITY OF CONSENT
There is no binding contract without the real consent of the parties.
Mutual mistake –When both parties to a contract are mistaken, the court will evaluate the subjective intention of the parties. If the mutual mistake significantly changed the subject matter of the contract, the contract won’t be enforceable.
Unilateral mistake – If only one of the parties is mistaken, the contract is voidable:
- if the error in value is substantial or
- if the other party knows or should have known of the mistake.
If the mistake is obvious, the contract will not be enforced.
Mistake of Law – When a party having full knowledge of the facts enters into a contract, and makes a mistake of law, the contract is not void. Ignorance of law is not an excuse.
Fraud – Contract fraud occurs when one party in a contract presents information to another that is incorrect, deceitful, or meant to confuse the other party.
Since fraud prevents a meeting if the minds of the parties, the contract may be void ou voidable.
If the fraud occurs during the execution of the contract so that the party would not have concluded the transaction, the contract is void from its inception.
Misrepresentation without fraud – A misrepresentation is a false statement of fact made by one party to another, which induces the other party to enter the contract.
A contract can be invalidated if it was based on any innocent misrepresentation.
Representations and warranties – Representations and warranties are assurances that one party gives to another party in a contract.
Representations are statements of past made to induce someone to enter into a contract.
Warranties move from the present to the future.
Warranties can be either expressed or implied :
- Expressed warranties mean they are written into the contract ;
- Implied warranties fall under the Uniform Commercial Code, which in all sales of goods implies that there be a “fitness for a particular purpose”.
Disclaimer of Warranties – Parties can disclaim any warranties for the product being sold.
An express warranty can be disclaimed by statements in the contract.
To disclaim implied warranties, the seller must inform the buyer in writing. But the seller can’t remove liability for defective or dangerous products.
Duress – It refers to a situation whereby a person has been forced into a contract as a result of violence, threat, or other pressure against the person.
A contract induced by duress is either void or voidable.
Undue influence – It operates where there exists a relationship between the parties which has been exploited by one party to gain an unfair advantage from the other party.
The contract is voidable.
IV. DISCHARGE OF TERMINATION OF CONTRACT
Discharge of contracts by operation of law – When there is a legally binding termination of duties, the duties under a contract are discharged.
Example : by death: Whenever one of the parties comes across death, contractual relations will come to an end.
Discharge of performance – Discharge of a contract takes place when parties perform their duties as required by the contract. Performance thus means the end of the contract.
Satisfactory performance – A contract may be conditioned upon the satisfaction of a person’s opinion. The courts apply a good faith test in determining rejection of a performance was reasonable.
Breach of conditions – A contract is said to be discharged by breach of contract if any party to the contract refuses or fails to perform his part of the contract or by his act makes it impossible to perform his obligation under the contract.
Substantial performance – A party fulfills the necessary terms and the essential purpose of a contract so that, even if the performance does not precisely match the terms of the agreement, the performance will be considered complete.
Mutual discharge by the parties – If both the parties to the contract agree to terminate the contract, the contract is said to have been discharged by mutual consent.
Mutual discharge of a contract may take place in different ways such as :
- Novation : it means substitution of a new contract in place of the old one ;
- Accord : agreement to accept some performance other than that which was previously owed ;
- Satisfaction : performance of the terms of that accord.
Assignment – The contract is transfered to another person.
Third-party beneficiaries – Third-party beneficiaries are non-parties to a contract that receive rewards from a contract either directly or indirectly.
Although the creditor is not a party to the contract, he has enforceable rights against the promisor.
Frustration of contract – When unexpected events arise, outside the control of the parties, they entitle the frustrated party to rescind the contract wihtout paying damages, if the contract is impossible or impracticable to perform.
Example : fire, accident etc.
Hardship clause – Hardship clauses recognize that parties must perform their contractual obligations even if the equilibrium of a contract is altered because of unforeseen events.
However, if continued performance has become excessively burdensome, the clause can obligate the parties to negotiate alternative contractual terms.
Hardship is where the performance of the disadvantaged party has become much more burdensome, but not impossible / Force majeure.
Force majeure – If a party is obstructed in performing any of its obligations by an event outside its reasonable control, then performance is suspended for so long as the obstruction continues, or the contract is terminated.
Examples of common events usually listed in contracts as force majeure events include: war, famine, terrorism, earthquake etc.
Statutes of frauds – The term « Statute of Frauds » refers to a law that requires certain types of contracts be made in writing, and signed by the parties to the agreement.
Example : the sale or other transfer of real property must be made in writing.
Parol evidence rule – It means that once a written agreement has been duly executed (signed by all concerned parties), then it cannot be altered or annulled by any oral evidence that may contradict the terms of the agreement.
Ambiguity – When a writing is ambiguous, parol evidence is admissible only to clarify it.
V. BREACH OF CONTRACT AND REMEDIES
Breach of contract : definition – One party’s failure to fulfill any of its contractual obligations is known as a breach of the contract.
Remedies for breach of contract :
1. Damages – There are various types of damages :
- Compensatory damages : the amount awarded to the nonbreaching party (the victim) is intended to make good or replace the loss caused by the breach :
- General damages – they cover the loss directly incurred by the breach of contract ;
- Special or consequential damages – they cover any loss incurred by the breach of contract because of special circumstances or conditions that are not ordinarily predictable. The nonbreaching party must prove that the breaching party knew of the special circumstances at the time the contract was made.
- Nominal damages : nominal damages are small amounts of money awarded to the plaintiff because the plaintiff did not suffer from any real financial loss, or the economic harm cannot be calculated.
- Punitive damages : they are awarded to punish a defendent who has acted willfully, maliciously or fraudulently. Punitive damages are awarded in addition to compensatory damages.
2. Duty to mitigate damages – The injured party is required to mitigate the damages that he or she may sustain.
Example : the party must no incur further costs or expenditures.
3. Partial performance – When the defendant has failed to complete performance of an agreement according to its terms, the plaintiff may recover such damages as will compensate him or her to the same extent as though the contract had been completely performed.
4. Defective performance – Damages for defective performance of a contractual agreement are measured by calculating the difference in value between what is actually tendered and what is required as performance under the agreement.
5. Delay in performance – The loss precipitated by the wrongful delay of the performance of a contract is calculated from what the value would have been if the contract been performed on time.
Equitable relief or equitable remedies (réparations équitables) – This type of remedy is often used when there is no financial remedy available. It means there is no money to be given to the breached party.
1. Reformation – When the written agreement doesn’t correspond to the contract actually formed by the parties. There is an existing contract that needs to be re-written in a more clear way.
2. Rescission – It happens when a previously existing contract was retracted because it was breached. The contract can be re-written in a different way so that both parties are satisfied with the terms.
3. Restitution – Restitution is another equitable remedy and involves restoring a breached party back to his original state, prior to the formation of the contract.
4. Specific performance – A person is required to execute a promised performance because monetary damages are inadequate to compensate for the breach.
– liable = responsable