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A contract is a legally binding agreement between two or more persons, also called parties. One party promises to do something. The other party promises to do something in return. For example, Pat promises to cut Robin’s lawn once a week and Robin promises to pay Pat $10 per week. Pat and Robin have a contract.
More complicated contracts exist when we enter into major agreements, like buying a house or borrowing money from a bank.
For a contract to be enforceable, there must be something of value (also called consideration) exchanged. Each party must receive a benefit. In our lawn-mowing example, Pat’s labour has been exchanged for a fixed sum of money from Robin.
Not all promises are legally binding contracts. For example, social engagements are not legally enforceable contracts. If Pat agrees to meet Robin for lunch tomorrow and does not show up, neither Pat nor Robin expects any legal action as a result.
Promises of a gift are also not legally binding contracts. Your uncle could promise you a trip to Europe for successfully completing high school, but he would be under no legal obligation to give you the trip when you graduate.
A contract must contain three things:
offer – a serious proposal which will lead to a contract being formed
acceptance – an unconditional acceptance must be given that follows the terms of the offer: acceptance can be either spoken or clearly indicated by actions
consideration – something of value exchanged to fulfil the contract
Let’s see how offer, acceptance, and consideration could play out in real-life scenarios...
Pat: I’ll give you $20 for those skates. (Offer)
Robin: It’s a deal! (Acceptance)
Pat gives Robin $20 (Consideration) in exchange for the skates.
If the offer, acceptance, or consideration is missing, there is no contract.
Pat: I’ll give you $20 for those skates. (Offer)
Robin: Well… I’m not sure. (No Acceptance)
Pat: On second thought, I think I’ll buy a new pair instead. (Offer withdrawn)
Robin: No, don’t. I’ll take the $20. (Acceptance is too late – there is no contract)
Once you have entered into a contract, you cannot cancel or alter it simply because you change your mind, unless the other party also agrees to cancel or alter it. If you refuse to perform your part of the contract, the other party can sue you in court.
The court can enforce the contract either by ordering you to perform your part of the contract or by ordering you to pay damages to the other person for breach of contract. Breach of contract is the legal term for one person failing to perform their part of a contract.
Imagine going to a store and finding a big-screen TV with a $25 price tag stuck to it. This is probably an error. But does the $25 price sticker mean that you can purchase the TV for $25?
Unfortunately for you, the price sticker is not considered an offer for sale. Instead, a price sticker is considered an Invitation to Treat. In other words, the price sticker is an invitation for you to make an offer. The retailer can either accept or reject your offer. The retailer has no obligation to sell merchandise for the price on the tag.
The retailer does not necessarily have to accept any offer that you make for their merchandise. As long as their reason for refusing your offer is not in violation of human rights legislation, such as refusing to sell to you based on gender, religion, race, or sexual orientation, the retailer is within their rights to refuse the offer.
Imagine going to the checkout at a major retailer. When your item is scanned, the price that comes up is different than the price tag on the shelf. You may be entitled to a discount, or may even have the item for free.
If the item costs over $10, you are entitled to a $10 discount. If the item costs less than $10, you can receive it for free. The only exceptions to this rule are prescription drugs, behind-the-counter cosmetics, and items with an individual price sticker.
These rules are spelled out in the Retail Council of Canada’s Scanner Price Accuracy Code. The code was created in 2002, to give consumers confidence that the shelf sticker price would match the price at the cash register.
The Scanner Price Accuracy Code is not a law. It is a voluntary agreement that many major retailers have signed onto. Shelf stickers are still considered an Invitation to Treat, just like a price tag stuck onto an item.
Find full rules of the Code and a list of participating retailers at www.retailcouncil.org/scanner-price-accuracy-code/
Decide if a contract exists in the following everyday scenarios.
