CHAPTER PowerPoint ® Presentation Prepared By Susan McManus, Mount Royal College CHAPTER PowerPoint ® Presentation Prepared By Susan McManus, Mount Royal College © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 4 The Enforceability of Contractual Rights

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-1 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. LEARNING OBJECTIVES Identification of contracts that require special form or writing to be enforceable Examination of the effects of misrepresentation, mistake, undue influence and duress on enforceability Outline assignment of contracts CH 4

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-2 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements of Form and Writing Formal contracts: required to be in specific written form Informal or simple contracts: no prescribed form, but some must have written or electronic memoranda as evidence of the contract 4.1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-3 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements of Form and Writing (Cont’d) Statute of Frauds (1677 – Britain) Requirement that certain contracts have:  Written evidence  Signed by the party to be charged  To be enforceable – to have any legal enforcement by the court, however, the contract is valid between the parties Business contracts under the Statute of Frauds requiring written evidence:  Contracts of guarantee  Assumed tort liability  Contracts concerning an interest in land 4.1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 1-4 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Guarantee Relationship Figure 4-1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-5 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements of Form and Writing (Cont’d) Guarantees: Guarantor promises to pay the Creditor IF the Debtor defaults Creditor promises to provide the Debtor with goods, services or money on credit Must be in writing and signed by the Guarantor to be enforceable 4.1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-6 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements of Form and Writing (Cont’d) Alberta: additional process for personal guarantees to be enforceable Guarantee Acknowledgement Act – notary public (usually a lawyer) must certify that the guarantor understands the obligations What elements of guarantees brought about this legislation? 4.1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-7 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements of Form and Writing (Cont’d) Assumed Liability: Tort A third party agrees to compensate a person injured by the tort of another – must be in writing Contracts Concerning Interests in Land Limited to sale or disposition of interests in land (such as leases) 4.1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-8 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Contracts Concerning Interests in Land Must be in writing to be enforceable Doctrine of Part Performance Used by a party adversely affected by the requirement of writing; performance is evidence of the contract, four criteria: 1.Acts clearly refer only to the land agreement 2.Unenforceability creates hardship & fraud 3.Agreement relates to an interest in land 4.Agreement itself is a valid contract, with verbal evidence to establish its existence 4.1

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-9 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements for the Written Memorandum Written evidence required by the Statute of Frauds: All essential terms (parties, price, property) can be determined from the written documentation Signed by party to be charged; the party that is using the Statute of Frauds as a defence 4.2

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-10 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Requirements for the Written Memorandum (Cont’d) Parol Evidence Rule: No oral evidence can be used to contradict a clear, unambiguous written contract Oral explanation of contract terms or to prove facts (fraud) may be allowed Exceptions (oral evidence accepted) :  Condition precedent  Doctrine of implied term  Collateral agreement  Subsequent agreement 4.2

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-11 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Sale of Goods Most provinces have legislation (Sale of Goods Act) that require written evidence for the contract to be enforceable Exceptions (alternate evidence of the contract): Payment of a deposit Acceptance of part delivery of the goods “Something in earnest” – trade-in Consumer Protection legislation: requires writing and disclosure for certain types of contracts (door to door) Is the requirement of writing necessary and relevant in our current business environment? 4.3

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-12 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Failure to Create An Enforceable Contract Terms and remedies: Void – contract is declared a nullity or non-existent Voidable – contract may be avoided Rectification – judicial correction of the contract Rescission – revocation of a contract based on contract being voidable; parties are placed back in the same position as prior to the contract Damages – for losses, if rescission is not possible, and even punitive damages 4.4

Essentials of Canadian Business Law, 1st Canadian EditionSlide 1-13 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Failure to Create a Legal Relationship Figure 4-2

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-14 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Failure to Create An Enforceable Contract (Cont’d) Mistake: One or both parties have made an error (as determined by the courts and precedence) regarding an essential part of the contract rendering the contract unenforceable Unilateral Mistake:  only one party is mistaken, the other is aware of the error Mutual Mistake:  both parties make an error or mistake 4.4

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-15 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Failure to Create An Enforceable Contract (Cont’d) Mistake of Fact – unilateral and mutual Existence of the subject matter at the time of contracting – contract will be void Identity of one of the parties – contract will be voidable (nullified) if the identity was essential 4.4

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-16 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Failure to Create An Enforceable Contract (Cont’d) Non est factum – S.C.C. has limited this defence and the contract is voidable if: Person was not careless in signing Nature (not degree) of contract is different from the representation of the contract Person making the mistake is illiterate or infirmed Independent opinion was not possible Rectification – typographical or omission errors in a written contract; neither party is aware of the error: Court will “save” the agreement by changing the written words to equal the original agreement Requires clear & unequivocal evidence of original 4.4

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-17 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Misrepresentation Contract may be voidable at the option of the innocent party, providing they act promptly and take no further benefits 1.False statement (may be by conduct) of material fact, not just opinion by the maker 2.Reliance by the other party to enter a contract (inducement to enter the contract) 4.5

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-18 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Misrepresentation (Cont’d) Misrepresentation Innocent: maker honestly believes in the truth of the statement Fraudulent: maker knows the statement is false and intends to deceive Negligent: maker is careless to a degree that constitutes a breach of the requisite standard of care Nondisclosure: in contracts of “utmost good faith” (where there is an obligation based on trust and confidence) one party fails to disclose material facts – example is insurance contract rendering the contract voidable 4.x

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-19 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Undue Influence Prompt action by the weaker party is required to avoid the contract Contract entered due to domination or influence of a dominant party over a weaker party Proof is required of the domination Confidential relationship:  Onus shifts to the dominant party to show no undue influence Court will review:  Fairness of the bargain – adequacy of price  Full disclosure at time of contract  Availability of independent legal advice 4.6

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-20 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Duress Duress (rare business occurrence) Threat of violence, injury or imprisonment to force a contract Economic duress Exploitation of a weaker party to extract unfair benefits to the stronger party under a contract 4.7

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-21 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Assignment of Contractual Rights Privity: limits the enforcement of rights and duties under a contract to the parties in the contract Exceptions: Partnership – a partner can bind the partnership to a contract Subsidiary agreement – acceptance of contract liability with the goods or property 4.8

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-22 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Assignment of Contractual Rights (Cont’d) Exceptions Land: many restrictions binding third parties “run with the land” Doctrine of Constructive Trust: courts will find a contract benefits a third party (beneficiary) Legislation: statutory enforcement of third party rights (beneficiary under a life insurance policy) 4.8

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-23 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Assignment of Contractual Rights (Cont’d) Novation: replacement or substitution of one party under a contract Requires mutual consent Terminates original contract and establish a new contract with the third party Not available for specific personal performance contracts Vicarious performance – employee or independent contractor performs contract obligations; primary liability remains with the original contract party 4.8

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-24 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Assignment of Contractual Rights (Cont’d) Novation (Cont’d) Elements:  New party (third party) assumes complete liability  Remaining party accepts or consents to the new party  New contract is in full satisfaction for ending the original contract 4.8

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-25 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Assignment of Contractual Rights (Cont’d) Assignment: Assignor assigns contract rights (usually debts owed by a debtor) to the Assignee (third party) Assignee  Gains the same title or rights as the assignor  Subject to same defences or use set-off as against the assignor  May recover from assignor First assignee to give notice would be entitled to payment Upon notice of the assignment the debtor is obliged to pay the assignee 4.8

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-26 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Assignment of Contractual Rights Statutory Assignment Legislation governs complete or absolute assignments, allowing the assignee to begin action under the original contract Conditions  Written assignment signed by assignor  Absolute assignment  Express, complete written notice to the debtor  Title was taken subject to equities or conditions under the original contract (same title as assignor) Assignment by law – statutes declare assignments (death and bankruptcy) 4.8

Essentials of Canadian Business Law, 1st Canadian EditionSlide 4-27 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. SUMMARY Statute of Frauds – written evidence for certain contracts to be enforceable Parol Evidence Rule – excludes oral evidence to alter a written contract with exceptions Failure to enforceability of contracts rendering them void or voidable: mistake, misrepresentation, undue influence or duress Privity of Contract – bars third parties from obtaining contract rights Novation – mutual consent allows the formation of a new contract with a third party by replacement Assignment – assignee receives rights under a contract from the assignor CH 4