Contract Law In Ontario Today

Published: 18th August 2009
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(extracted from Ben-zvi Barrister & Solicitor, 416-568-1411,, 10 Milner Business Court, Suite 210, Toronto, Ontario, M1B3C6)

What is a contract?

A) What is a Contract?

A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act, which resulting contract is enforceable in a court of law.

Agreement is said to be reached when an offer capable of immediate acceptance is met with an unqualified acceptance. The parties must have the necessary capacity to contract.

Any oral or written agreement between two parties can constitute a binding legal contract. However, only parties to a written agreement have material evidence (the written contract itself) to prove the actual terms uttered at the time the agreement was struck. If the agreement is only oral in nature, it might be difficult to prove the existence of the contract in some scenario.

In common law, the five key requirements for the creation of a contract are:

1. Offer and acceptance

2. Consideration

3. An intention to create legal relations

4. Legal capacity

5. Formalities

The full particulars of drafting a contract are very technical and there are many steps and details to which you need to pay attention in drafting a contract. To draft an enforceable contract to fully protect your legal interests, an experienced lawyer can help. Please contact us for a Free Lawyer Consultation for further details.

B) Offer and Acceptance

As a contract is an agreement, an offer is an indication by one person (the "offeror") to another (the "offeree") of the offeror's willingness to enter into a contract on certain terms without further negotiations. A contract is said to come into existence when acceptance of an offer (agreement to the terms in it) has been communicated to the offeror by the offeree.

i) Offer

An offer is defined as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree".

The "expression" referred to in the definition may take different forms, such as a letter, a newspaper, a fax, an email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract.

ii) Acceptance

Acceptance is a final and unqualified expression of assent to the terms of an offer. There are several rules dealing with the communication of acceptance:

• The acceptance must be communicated. Silence cannot be construed as acceptance. Prior to acceptance, an offer may be withdrawn at any time.

• An offer can only be accepted by the offeree, that is, the person to whom the offer is made. In other words, an offeree is not bound by the acceptance if any person accepts the offer on the offeree's behalf without the offeree's authorization.

• If the offer specifies a method of acceptance, such as by post or by fax, you must accept it using a method that is no less effective than the method specified.

The full particulars of offer and acceptances are very technical. Please contact us for a Free Lawyer Consultation for further details.

C) Consideration

Consideration is a promised action, or omission of action, that the promisee did not already have a pre-existing duty to abide by. It can take the form of money, physical objects, services, undertaking, or a forbearance of action. Both parties to a contract must pass consideration to the other party for there to be a valid contract.

Usually, as long as there's a consideration, the court will not second guess the sufficiency of the consideration.

As stated above, a party which already has a legal duty to provide money, an object, a service, an undertaking or a forbearance, does not provide consideration when promisee merely upholds that duty required by contractual duties, statutory law or other pre-existing duties.

It is also important to note that past consideration usually has no legal value. In other words, it must be money, object, service, undertaking or forbearance given out in anticipation of the contract to be valid consideration.

For example, if A signs a contract with B stating that A will give B $5,000 monthly in consideration of B's good service in the company for the past 30 years, that's not a valid consideration, because the 30 years of service in the past is not a valid consideration.

If A signs a contract with B stating that if B does not rob any bank by the age of 20, A will give B $5,000 monthly is not a valid consideration, as B already has an pre-existing obligation by law not to rob any bank.

On the other hand, if A signs a contract with B stating that A will give B $5,000 monthly for B's good service in the company for the past 30 years in consideration of B's continuing service for one more day, that's a valid consideration.

The full particulars of consideration are very technical. Please contact us for a Free Lawyer Consultation for further details.

D) Legal Capacity

The capacity of both natural and artificial persons determines whether they may make any binding agreement. When a person lacks capacity to enter into a contract, any agreements or contracts to do so are either voidable or void for incapacity.

i) Natural Persons

Legal contracts, in which one of the contracting parties is a minor, are voidable by the minor. For the purpose of Contract Law, a minor is someone under the age of 18. However, the entire contract must be void. Usually the minor is required to restore the adult (other party) to the state they were in before the contract was made. The minor cannot keep any of the goods traded for if the contract is voided by the minor. A minor may, at his/her choosing, ratify a contract on reaching age of majority.

People that are drunk or mentally incompetent at the time of signing a contract are considered to be without legal capacity for forming a contract.

ii) Artificial Persons

For the purpose of Contract Law, a corporation is deemed as an artificial person as it's a separate and distinct entity. The extent of an artificial person's capacity depends on the law of the place of incorporation and the enabling provisions included in the article of incorporation. The general rule is that anything not included in the corporation's capacity, whether expressly or by implication, is "beyond the power" of the corporation, and so any contract entered into for that subject matter may be voidable by the corporation, but the rights and interests of innocent third parties dealing with the corporations are usually protected either by statutory provisions or through equity law.

The full particulars of legal capacities are very technical. Please contact us for a Free Lawyer Consultation for further details.

E) Formalities and writing

An exchange of promises or verbal contracts can be binding and legally as valid as a written contract. However, in Canada there are rules of law or statutes which may render otherwise valid oral contracts unenforceable.

For instance, a contract is unenforceable if it violates the common law Statute of Frauds or equivalent provincial statutes which require certain contracts to be in writing. The point of the Statute of Frauds is to prevent false allegations of the existence of contracts that were never made, by requiring formal (i.e. written) evidence of the contract.

Statutes of Frauds are typically codified in provincial statutes covering specific types of contracts, such as contracts for the sale of real estate. However, a party unjustly enriched by an unenforceable contract may be required to provide restitution for unjust enrichment to the other party.

If a contract is in a written form, and somebody signs the contract, then the person is bound by its terms regardless of whether they have read it or not, provided the document is contractual in nature and that reasonable notice of all material terms have been given to the other party prior to their entry into the contract.

The full particulars of Statute of Frauds and other formalities are very technical. To make a contractual agreement that is enforceable, you need an experienced contract lawyer. We can help. Please contact us for a Free Lawyer Consultation for further details.

F) Breach of Contract and Unpaid Invoices

A breach of contract is failure to perform as stated in the contract. Unpaid invoices, failure of the contractee to pay for the work performed by the contractor, is a form of breach of contract. There are many ways to remedy a breached contract assuming it has not been waived. Typically, the remedy for breach of contract is an award of money damages. When dealing with unique subject matter, specific performance may be ordered.

i) Damages

There are five different types of damages:

1. Compensatory damages, which are given to the party which was detrimented by the breach of contract. There are two forms of compensatory damages including consequential damages and direct damages.

2. Exemplary damages, which are used by courts to make an example of the party at fault to discourage similar crimes. Fines are punishments in nature and can be a multiple many times in excess of the actual damages suffered.

3. Liquidated damages are pre-estimate of losses agreed upon in the contracts. However, if the courts determine that a liquidate damage in the contract was a penalty in nature, it would be struck out of the contract. A penalty clause is one which is intended to deter breach and is typically excessive in amount compared with the greatest loss which the parties could have anticipated as resulting from breach at the time the contract was made. The only material time in consideration is the time when the contract was made, not the time when the breach of contract happens.

4. A Nominal damage is awarded where the court concludes that the defendant is in breach but the plaintiff has suffered no quantifiable pecuniary loss. It consists of a small cash amount of nominal value. It is often sought to obtain a legal record of who was at fault.

5. Punitive damages are not usually given regarding contracts but might be awarded if the plaintiff was tricked into signing the contract by fraud or the contract involves a fraudulent transaction. Punitive damages are used to punish the party at fault in bad faith.

ii) Specific Performances and Injunctions

Whenever a monetary damage at law is insufficient to fully compensate the plaintiff, the equity principle of specific performance or injunction might be available.

A Specific Performance requires that the acts specified in the contract be performed by the defaulting party. Related to orders for specific performance, an injunction may be requested when the contract prohibits a certain action. Action for injunction would prohibit the person from performing the act specified in the contract.

Both specific performances and injunctions are discretionary remedies and under most circumstances a court will not normally order specific performances or injunctions. Specific Performances are especially rare in service contracts. A contract for the sale of real property, on the other hand, is a notable exception to this general rule, for which specific performances are frequently granted.

The full particulars of Breach of Contracts are very technical. If you are a victim of a breach of contract, you need an experienced contract lawyer. We can help. Please contact us for a Free Lawyer Consultation for further details.

(extracted from Ben-zvi Barrister & Solicitor, 416-568-1411,, 10 Milner Business Court, Suite 210, Toronto, Ontario, M1B3C6)

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