Business Law – Assignment #2

Chapters 6, 7 & 9 – Elements of a Contract/the End

of the Contractual Relationship

Review Questions

Question 1

List and explain the elements that must be present for an

agreement to qualify as a valid contract.

To consider an agreement as a valid contract, you need the following elements:

1. Consensus: all the parties must reach a mutual agreement to commit
themselves to a certain transaction. They must have negotiated from each of
their positions, where one offered and the other accepted.
2. Consideration: Consideration happens when each party commits to doing
something or abstains from doing something. This is the price each of the
parties is willing to pay to participate in the contract.
3. Capacity: Both parties must be legally capable of understanding and entering
into the agreement. There are some limitations on a select group of people:
infants, insane or intoxicated people (like on drugs), aliens (non-Canadian
citizens), corporations, and indigenous persons.
4. Legality: The agreement must involve objects and considerations that are
legal and not against public policy.
5. Intention: The involved parties must be serious when making the agreement,
and must intend that legally enforceable obligations will result from it.

Question 2

Explain the difference between void and voidable. What is a

practical result of this difference?

A void contract is one that contains an element of the contract that is illegal and
cannot be brought to a court to sue the other party, or an essential element is
 missing. A voidable contract is one whose elements could change, but one of the
parties has the opportunity to keep it valid or make it void.

Question 3

At what stage in the process of forming a contract are the

significant terms of the contract clearly set out?

The significant terms must all be clearly set out at the offer stage. This stage is a
tentative promise from one party to the other.

Question 4

Explain the role of implied terms in a contract. Who has the

power to imply terms into a contract? When will that power be
used?

Implied terms are not necessarily included in a contract, and the court of justice,
who has the power to imply them, will assume they were intended to be
included as a matter of business efficiency.
Implied terms are usually added to a contract by law, and this only happens if
the court feels it is necessary to do so. They will be implied only if they are
reasonable, necessary, and justifiable with the parties’ overall intentions.
The power to imply these terms is used to enhance the effectiveness of the
business.

Question 5
List and explain the various ways an offer can come to an end.

There are many ways for an offer to come to an end before acceptance:
1. End of a specified time: the offer specifies a time when it is valid. If the time
comes, it will end. The offeror also has the right to revoke the offer before it
expires.
2. Expiration of a reasonable time: if the offer didn’t specify an expiration date,
at the end of a reasonable time, the offer can come to an end. Reasonable
depends on the circumstances. For example, the larger the product or
service, usually the longer the reasonable time.
 3. Death or insanity of the offeror: Even if the offeree is unaware of the death
or insanity of the offeror, the offer ends.
4. Revocation on offer: As specified in reason #1, an offeror can revoke an offer
at any given moment. However, there are communication protocols to be
followed. The revocation MUST be communicated to the offeree to be
effective.
5. Rejection and counteroffer: every rejection and counteroffer put an end to
the offer before it. A great example of this is when people bargain in a car
sale, and a buyer makes counteroffers to the original price established by the
seller.

Question 6
Describe the various ways in which a contractual relationship can
come to an end.

A contractual relationship can come to an end by performance, breach, an

agreement between the parties to end or modify, or frustration.
It is discharged by performance when the contract comes to an end and both
parties fulfilled their obligations under the contract. Often this happens
simultaneously.

Question 7
Describe the differences between a condition and a warranty.
Why is the distinction significant?

A condition is indispensable in a contract. It represents the obligations, terms

and provisions imposed by both parties and should be satisfied to fulfill the
contract. On the other hand, a warranty is a written guarantee that one of the
parties issues to the other party regarding particular items. Warranties concern
fitness, quality and performance of the service or product provided. A warranty
is a confirmation that the product or service will be complete as promised during
the specified time. If the warranty is proven false, the other party may seek
remedies as stated in the contract.
The distinction is significant because conditions are ALWAYS set in a contract,
while warranties aren’t.

Question 8
Define frustration. List three ways in which frustration can take
place.

Frustration is when something interferes with the fulfillment of the contract by

an exterior unforeseen event, and it makes the performance impossible or
essentially different in the future.
Frustration happens when one of the following takes place:
1. The performance of a contract becomes impossible because the subject
matter of the agreement is destroyed or otherwise unusable. This could
happen when for example, a person who will provide a service becomes
sick or dies.
2. When an event that forms the basis of a contract fails to take place. This
happens when on occasions, a contract has a special condition that
depends on another, and that independent variable doesn’t occur.