Section 2 - Buying Goods and Services

Lesson 7 - Making Contracts

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Test Yourself :

1. Create a chart like the following one and use checkmarks to indicate whether each contract is implied or express.

What Makes a Valid Contract?

Although contracts may be express or implied, you don't make a contract that's enforceable by law every time you agree to do something. In fact, for a contract to be valid, it must meet a number of criteria.

Tell whether you think each of the following is a valid contract that the courts would enforce:

You might be surprised to learn that only the last situation (letter g) would result in a valid contract. To discover why this is so, read on to learn the five elements of a valid contract.

To be a valid enforceable contract, any agreement must have five elements.

Element 1- Offer and Acceptance: There must be a genuine offer and a genuine acceptance of that offer. The offer must be clear, exact, and intended seriously as an offer. The acceptance has to be unqualified and clear, and it has to agree with the precise terms of the offer.

Here's an example of a clear offer and acceptance: "I will sell you these hockey skates right now for $100" (offer). "I will take them right now for that amount." (acceptance).

Now here's an example of an unclear offer: "I am thinking of putting my house on the market for around $180,000."' And here's an inadequate acceptance of the preceding "offer": "Tell you what: I will give you $150,000 for it."' This is not an agreement to the original offer; rather, it is a brand new offer, as someone is offering to buy the house for a different price ($150,000).

Offer: a proposal to enter into a contract

Acceptance: the clear assent to a definite offer

Element 2- Consideration: There must be consideration on both sides-a legal term meaning something of value. Consideration can be money, goods, services, or something else. It cannot, however, be something abstract like love or gratitude. It also cannot be for something done in the past. In other words, if you shoveled your neighbor's walk as a favor last winter and your neighbor today promised you $20 for doing it, no contract has been made. There must be consideration on both sides at the time of the agreement.

Consideration: something of value exchanged by the parties to a contract.

Element 3- Capacity: The parties to a contract must have legal capacity-or be legally competent. In other words, they must be considered by law to be capable of handling their own affairs. Minors, people with mental disabilities, and people who are intoxicated, for instance, can't make legally binding contracts (with some exceptions). This is meant to protect them from others who might take advantage of their inability to make informed decisions.

Capacity: the legal ability to enter into a valid contract

Minor: a person under the age of majority-the age at which he or she can assume a legal obligation (in Alberta, 18)

Element 4- Legal Purpose: The purpose of every legally enforceable contract must itself be legal. If, for example, a woman pays a hit man to murder her husband and the murder does not take place, she cannot take the hit man to court for breach of contract.

Breach of contract: failure to perform an obligation in a contract

Element 5- Genuine Consent: There must be genuine consent on both sides of a contract. For example, intimidation or misrepresentation (lying) can't be present.

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Simple Contracts and Specialty Contracts

One important way in which contracts can be divided into two groups is the distinction between specialty contracts and simple contracts.

• Specialty Contracts (or contracts under seal) are contracts that, according to law, must be written out. Examples of specialty contracts are mortgages, property deeds, and long-term leases. Specialty contracts differ from most in that they-and they alone-may lack consideration because the courts assume that if you have taken the time to write out or study a document and sign it, you are not simply making an impulsive promise. Therefore, specialty contracts are the only agreements that are enforceable without consideration.
  
  

• Simple Contracts are all contracts that don't fall into the first category. The vast number of contracts people make are simple contracts.
  
  

Seal: a marking placed on a written contract to express serious intent.

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Consider the following CASE STUDY: HOMER SIMPSON

Case Study: Contract Law and the All-You-Can-Eat Seafood Restaurant: The Simpsons

While most people have been to an all you can eat buffet, not many have been kicked out of one for overeating. Homer Simpson was, in the Season Four episode entitled " New Kid on the Block ".

The case facts:

After seeing a TV advertisement for the Frying Dutchman , Captain McAllister's all you can eat seafood restaurant, Homer put on extra-loose pants and headed there for a gorging.

Homer began his meal by removing an entire steam tray of shrimp from the buffet. Allegedly, Homer ate all of the restaurant's shrimp and even two plastic lobsters before Captain McAllister finally kicked him out after closing time.

Enraged, Homer sought advice from attorney Lionel Hutz. Hutz described the situation as "the most blatant case of fraudulent advertising since my suit against the film The Never-ending Story.

The trial:

During the trial, the following exchange took place:

Hutz: Mrs. Simpson, what did you and your husband do after you were ejected from the restaurant?

Mrs. Simpson: We pretty much went straight home??

Hutz: Mrs. Simpson, you are under oath!

Mrs. Simpson: We drove around until 3:00 a.m. looking for another all you can eat fish restaurant.

Hutz: And when you couldn't find one?

Mrs. Simpson: We went fishing.

Hutz: Do these sounds like the actions of a man who had ALL he could eat?

The outcome:

Captain McAllister and Homer came to an out of court settlement. An out of court settlement is an agreement by both parties to a lawsuit that resolves their legal dispute without asking a court to make a judgment. Generally, out of court settlements can be made at any time before a verdict is rendered by a judge or jury.

In Captain McAllister's and Homer's out of court settlement, Homer was offered an evening of all you can eat dining. In return, Captain McAllister would promote Homer as "Bottomless Pete ? Nature's cruelest Mistake" and invite customers to watch him eat. This settlement provided Homer with all the food he could eat while providing Captain McAllister with a stream of customers.

Considering Contract Law and all you can eat restaurants:

Homer's lawsuit against the Frying Dutchman has roots in contract law. As you have learned, to be enforceable, every contract must consist of 5 components.

It appears that Homer has a contractual agreement with the Frying Dutchman. Homer had an offer to participate in the all you can eat seafood buffet by The Frying Dutchman. His acceptance took place when he ordered the all you can eat buffet.

The consideration would have been the money exchanged for the food, although it should be noted that this part of the transaction was never shown on the episode.

There is legal capacity , as both Homer and the Frying Dutchman are past the age of majority.

There is legal purpose ; there is nothing illegal in the transaction.

Is there genuine consent? In the eyes of the law, if a false representation of the material facts of a contract is knowingly made, fraud exists. If Captain McAllister offered all you can eat with the intention of NOT allowing his customers all they could eat, then it could constitute fraud. But it appears that he never imagined "a remorseless eatin' machine" such as Homer. As it appears he was genuine in his offer, there would be genuine consent.

Also, given that Homer continued to eat past closing time, it was reasonable for the Frying' Dutchman to eject him.

Suggested Answers for Types of Contracts Chart

Your chart should look like this one: