Study 6 Learning Objectives

Question 1

Learning Objective 1 Outline the requirements for forming valid contracts under common law and the Civil Code of Québec.

Answer 1

1. The following conditions must be present to form contracts under common law:
   o Agreement—definite offer and acceptance and “meeting of minds.”
   o Consideration—value received to bind a contract.
   o Genuine intentions—the parties mean to create a legally binding agreement.
   o Capacity to contract—legally able to enter and be bound by the terms of contracts.
   o Legality of purpose—not illegal, against public policy, or for a crime.
2. The following must be present to form valid contracts in Quebec:
   o Consent—offer and acceptance.
   o Capacity to contract—lesion is a cause for avoiding a contract made by a minor under certain
   circumstances.
   o Cause of contract—the purpose for contracting (consideration).
   o Object of contract—subject matter of the contract.

- In Quebec, 4 things can cause nullity in contracts:
o Error 
o Fraud 
o Violence or fear 
o Lesion

Question 2

Learning Objective 2 Explain the additional elements of insurable interest, indemnity, and utmost good faith that distinguish an insurance contract from other types of contracts.

Answer 2

• Valid insurance contracts need the essential elements of ordinary contracts under common law and the Civil Code of Québec.
• They also need additional elements:
  o Insurable interest—having a legal relationship to the subject of insurance to be financially
  prejudiced by its loss or damage or financially benefit by its continued existence.
  o Indemnity—being returned to the same financial position as before a loss; reinforced by salvage,
  subrogation, and contribution.
  o Utmost good faith—superior standard of honesty; reinforced by materiality, misrepresentation, and
  non-disclosure.

Question 3

Learning Objective 3 Explain how insurable interest and indemnity are present in the following types of insurance contracts: actual cash value contracts, replacement cost contracts, and valued contracts.

Answer 3

• Indemnity aims to put insureds who suffer losses into the same financial situation as they
were in before the loss.
• Insurable interest is necessary for all insurance contracts, but indemnity is not.
• People have an insurable interest in the following:
o Property—when they stand in such a legal relationship to it that they would be financially prejudiced by its loss or damage and financially benefited by its continued existence.
o Liability—when they may be held responsible to pay damages for causing injuries to others or
damage to their property