Canadian Business Contracts Handbook. Nishan Swais
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would interfere with the free market in such a way that it would leave every exchange of goods or services open to judicial review. You couldn’t sell an ice cream cone without the potential of someone going to court to challenge the price he or she paid.
Second, courts do not presume to replace their business judgment with yours. If you believe that a Jackson Pollock painting — one with subject matter made up of colourful splashes and swirls — is worth several million dollars, then no court will stand in the way of your desire to pay that price for it.
That being said, there is the caveat that while courts do not look into adequacy of consideration, it may on occasion exercise its broad powers to overturn transactions on other basis if it believes that an exchange of value is grossly disproportionate. The classic example is that of an embittered spouse who may wish to unload valuable, jointly owned goods (e.g., a family sports car) just to get back at the other spouse. In those circumstances, a court may find some other reason to invalidate the contract even though its real, unspoken reason for doing so will likely be related to a lack of adequacy of consideration.
3. Exceptions
You now know the three components of a contract: offer, acceptance, and consideration. Each contract begins with an offeror presenting something to an offeree that the offeree can either reject or accept. If the offeree accepts it and there is an exchange of value between the offeree and offeror, then all of the requirements of a contract have been met and a contract will, in the eyes of the law, have been formed.
However, there are exceptions to every rule and it won’t surprise you to learn that there are circumstances where the law will not consider a contract to exist despite the presence of offer, acceptance, and consideration.
3.1 Agreements contrary to law
The first exception is an agreement that is contrary to law. A classic example is the contract for murder, popularized in cinematic crime dramas. It is against the law to murder. Therefore any contract to have someone murdered is void ab initio, meaning it is treated as invalid from the outset in the eyes of the law regardless of the fact that offer, acceptance, and consideration may be present. This goes for any contract concerning any matter that is against the law (e.g., a contract to illegally transport persons across borders, contracts to purchase illegal narcotics, and so on).
3.2 Lack of capacity
A second exception is a contract made with minors, the infirm, or those who otherwise lack the capacity to form a contract.
We will look at the concept of capacity to contract in detail in Chapter 2, section 2. For now, you need only know that a contract will be considered void ab initio if one of the persons contracting was a minor or lacked the mental ability to exercise sound judgment.
3.3 Lack of mutuality
Despite the presence of offer, acceptance, and consideration, a contract may not be said to exist at law where mutuality is lacking. Mutuality means that there has to be a “meeting of the minds” by the persons involved in a transaction. Where mutuality is lacking, a contract will be deemed by a court to be void ab initio.
To return to our example: You offer to sell your car for $10,000 and the offeree accepts and pays you. However, instead of giving the offeree the car, you thank him for the monetary support of your “performance art” piece. The offeree looks at you as if you are from another planet. You explain that you weren’t really selling your car; instead, you were simply putting on a show for him and that his $10,000 donation was the equivalent of dropping money in a hat.
The situation is absurd, of course, but it illustrates what is meant by a lack of mutuality. Clearly, there was no meeting of the minds about what was really going on regarding the supposed sale of your car. In those circumstances, a court will find that no contract existed, despite the existence of offer, acceptance, and consideration.
4. Summary
What is a contract? That is the question we posed at the beginning of this chapter and are now in a position to answer.
A contract is a legally binding agreement. That is the practical definition that best encompasses what we have discussed so far and will serve as the basis for everything to follow, including our look at what a contract does, which is the subject of Chapter 2. Before we go there, Worksheet 1 is a short quiz designed to help you review what you have learned about contracts so far.
Worksheet 1: Quiz: Contract or No Contract
Consider each of the following scenarios and, based on what you know now about offer, acceptance, and consideration, determine whether in your opinion a contract was formed. The answers are at the end of the quiz.
Questions
1. You call your favourite restaurant to make dinner reservations. You arrive at the restaurant on time but there is no table waiting for you. In fact, the hostess tells you that she gave your table to another couple and nothing else is available. Was your reservation a contract?
2. You promise to stop by your friend’s house to help clear the leaves from his eavestrough. It turns out that the Argos are on TV that afternoon and you decide to stay home. Your (now former) friend calls to tell you that you broke your contract to help him. Is he right?
3. You tell your tailor that you love the new silk she’s just shown you. Two weeks later she tells you that the dress she made for you is ready for pickup and the price tag is $1,000. Shocked, you ask, “What dress?” She says, “The one you ordered when you said you loved the silk.” Did your words create a contract?
4. You play the saxophone and your friend has asked you to sit in on a gig in place of his regular saxophonist, who has come down with a case of bronchitis. You agree and are told you will receive the regular saxophonist’s share of that evening’s gig fees. Has a contract been formed?
5. Because I can’t stand the sight of your purple garage, I agree to paint it at no charge to you if you agree to buy the white paint and brushes for me to use. Do we have a contract?
6. I agree to pay you $20 for a poem, on the condition it is in sonnet form. You provide me with a poem in free verse form. Do I have to pay you the $20?
7. I offer to buy your record collection for $200. You tell me that you want $250. I tell you that is too expensive for me. You tell me that you will accept the $200. Do we have a contract?
Answers
1. No, your reservation is not a contract. Although offer and acceptance are present in making a reservation, consideration is not. That is why neither the patron nor the restaurant can claim the existence of a contract between them. That is also why many restaurants now require a “reservation contract” when reservations are being made for large groups of people.
2. No, your friend is not right. You offered to help him clean his eavestrough and he accepted, but again there was no consideration given for the promise, so there was also no contract. As you know, situations in which someone makes a gratuitous promise to someone else arise on an almost daily basis. If those promises had the force of law behind them, the courts would be even more overburdened than they are now.
3. No. In order for there to be a contract, offer and acceptance are required. Simply stating that you “love” a certain fabric is too ambiguous to reasonably be construed as an offer to purchase a dress. To the extent that showing you the silk can be said to be the offer, simply saying that you “love it” is too ambiguous to reasonably be construed as acceptance. Think of everything that you would be legally obligated to do every time that you said you loved something.
4. Yes. Offer, acceptance, and consideration are all present.
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