Law 101
February 1, 2007
Contract Law
Contract Formation
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Offer
Acceptance
Consideration
Intention to Create Legal Relations
People create contracts, courts enforce contracts; law of contract provides tools
needed to create an enforceable contract
Consideration
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“If there is no consideration there is no contract” – Fridman
“A valuable consideration, in the sense of the law, may consist either in some
right, interest, profit, or benefit accruing to the one party, or some forbearance…
Consideration: quid pro quo (“this for that”)
Mutual exchange of something of value
Promises have value
Hamer v. Sidway
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Uncle promises his nephew to pay $500 to the nephew if the nephew refrains
from drinking, using tobacco, swearing and playing cards until age 21
At age 21 nephew writes to his uncle informing him that he has refrained from
drinking, using tobacco, swearing and playing cards until age 21
Uncle then sets aside the money with the intention of giving it to the nephew
when the uncle feels that the nephew is mature enough to responsibly manage the
money
Uncle dies
Nephew sells his claim to a third party (Hamer)
Hamer sues the executor of the Uncle’s estate (Sidway)
Does Hamer (standing in for the nephew) have a claim against Sidway (standing
in for the uncle)
Issue: Did the nephew provide consideration?
After all, the nephew “by refraining from the use of liquor and tobacco, was not
harmed, but benefited; that which he did was ..
The Decision: Nephew had a legal right to drink liquor and use tobacco
Nephew abandoned that right for a period of years leading up to his 21st birthday,
on the strength of the uncle’s promise that the nephew would be compensated
($5000) for such forbearance
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It is sufficient that the nephew “restricted his lawful freedom action within certain
prescribed limits upon the faith of his uncle’s agreement”
Wood v. Lady Duff-Gordon
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Three Rules Governing Consideration
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Consideration need not be adequate (a “peppercorn” will do); need not be fair
Consideration must move from (each) promisor
Past consideration is not valid consideration
o If not given in exchange for anything, is a gratuitous promise
The Doctrine of Promissory Estoppel
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Exception: Where A makes a gratuitous promise to B and B subsequently…
In Canada, the doctrine of promissory estoppel applies only to promises made
within an existing contractual relationship (as in the High Trees case)
Intention to Create Legal Relations
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For an agreement to be enforceable as a contract, the parties must have intended
to create legal relations
In other words, the parties must have intended that the agreement would be
legally binding
The test for whether there was an intention is objective (reasonable person test)
Rebuttable Presumptions
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Domestic and social agreements are presumed to not have been intended to create
legal relations
o Jones v. Padavatton – presumption not rebutted
Commercial and business agreements are presumed to have been intended to
create legal relations
o Rose and Franck – presumption rebutted
Fobasco v. Cogan
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