Contract Law Fundamentals Flashcards

What is the legal effect of a counter-offer in the formation of a contract?

Answer: It terminates the original offer and substitutes a new offer

A counter-offer rejects the original offer and substitutes a new offer. The original offeror then becomes the offeree with the power to accept or reject. The original offer is no longer available.

Which type of contractual term, if breached, entitles the innocent party to terminate the contract and claim damages?

Answer: Condition

A condition is a fundamental contractual term. Breach of a condition entitles the innocent party to treat the contract as repudiated (terminated) and claim damages. Breach of a warranty only gives rise to a damages claim, not termination.

An engineer signs a contract that includes an exclusion clause in fine print, not drawn to their attention. Under Canadian contract law, what is the most likely effect of this clause?

Answer: It may be unenforceable if the party seeking to rely on it did not bring it to the other party's attention at or before contract formation

Canadian courts require that unusual or onerous clauses in standard form contracts be specifically brought to the other party's attention. Failure to do so may render the clause unenforceable.

Under the doctrine of frustration in Canadian contract law, a contract is frustrated when:

Answer: An unforeseen supervening event makes performance impossible or radically different from what was agreed

Frustration discharges a contract when an unforeseen event, outside the parties' control, makes performance impossible or radically different from what was contemplated. Mere increased cost or difficulty is not sufficient.

What distinguishes liquidated damages from a penalty clause in Canadian contract law?

Answer: Liquidated damages are a genuine pre-estimate of loss enforceable in Canadian courts; a penalty clause intended to punish is unenforceable

Liquidated damages clauses are enforceable as a genuine pre-estimate of anticipated loss. A clause that is a penalty (designed to punish rather than compensate) is unenforceable in Canadian common law.

Under Canadian contract law, which of the following is required for a contract modification to be binding?

Answer: Mutual consent and consideration, or execution under seal

Contract modifications require fresh consideration — something of value flowing from each party — or, in some provinces, the modification can be binding if executed under seal (a formal written agreement with the party's seal). Gratuitous modifications may not be enforceable.