Copyright © 2004 McGraw-Hill Ryerson Limited 1 PART 3 – THE LAW OF CONTRACTS  Chapter 9 – The Requirements of Form and Writing Prepared by Douglas H. Peterson, University of Alberta

Copyright © 2004 McGraw-Hill Ryerson Limited 2 THE REQUIREMENT OF WRITING Formal and Simple Contracts The Statute of Frauds Requirements for the Written Memorandum Sale of Goods Act

Copyright © 2004 McGraw-Hill Ryerson Limited 3 FORMAL AND SIMPLE CONTRACTS 2 General classes of contract Formal Simple Distinction made between substance and form Derived from solemn or ritualistic aspect of the subject matter of the contract

Copyright © 2004 McGraw-Hill Ryerson Limited 4 FORMAL AND SIMPLE CONTRACTS Formal - contract derives validity from the form it takes (covenant) Signed, sealed and delivered Often under seal Power of attorney, guarantees, deeds of land Power of Attorney – a legal document usually signed under seal in which a person appoints another to act as his or her attorney to carry out the contractual or legal acts specified in the document

Copyright © 2004 McGraw-Hill Ryerson Limited 5 FORMAL AND SIMPLE CONTRACTS Simple – No prescribed form Implied, oral, or written Look to substance of contract not the form it takes to derive validity Needs the required elements of a contract Offer, acceptance, intention to create legal relations, consideration

Copyright © 2004 McGraw-Hill Ryerson Limited 6 THE STATUTE OF FRAUDS Old piece of English legislation (1677) Designed to prevent perjury and fraud with respect to leases and land agreements Required some contracts to be evidenced in writing Amended or repealed in some jurisdictions Applies if one party is in a jurisdiction where it is still in force

Copyright © 2004 McGraw-Hill Ryerson Limited 7 THE STATUTE OF FRAUDS Statute of Frauds requires written evidence of contracts that are: Concerning an interest in land A promise by an executor or administrator Guarantees Longer than one year Consequences: renders contracts that do not meet the writing requirements unenforceable Unenforceable contract - a contract which exists for some purposes but on which neither party may sue Contract is not void, and may be used for other evidentiary purposes

Copyright © 2004 McGraw-Hill Ryerson Limited 8 CONTRACTS BY EXECUTORS AND ADMINISTRATORS Executors and administrators have no obligation to pay the debts of the estate out of personal funds An agreement to do so must be in writing

Copyright © 2004 McGraw-Hill Ryerson Limited 9 ASSUMED LIABILITY: THE GUARANTEE Guarantee – a collateral promise (in writing) to answer for the debt of another (principal debtor) Act as secondary debtor Alberta: Guarantees Acknowledgement Act Must be in writing and under notary seal Applies to guarantees but not indemnities Indemnity – promise by a third party to be primarily liable for a debt Guarantee – secondary liability Indemnity – primary liability

Copyright © 2004 McGraw-Hill Ryerson Limited 10 ASSUMED LIABILITY: TORT Indemnity not for a debt but for the tortious act of another Any agreement whereby a third party promises to answer for the tort of another Must be in writing Must be signed by the party to be charged Compensate for the tortious act of another Father promises to pay victim for his son’s tort

Copyright © 2004 McGraw-Hill Ryerson Limited 11 CONTRACTS CONCERNING AN INTEREST IN LAND Applies to contracts concerning the land itself Narrow interpretation Courts have excluded contracts not deal with land itself Repair of buildings, room and board Test: Whether closely connected with the land itself or too remotely connected

Copyright © 2004 McGraw-Hill Ryerson Limited 12 CONTRACTS CONCERNING AN INTEREST IN LAND Part performance – equitable principle wherein the courts enforce an unwritten agreement concerning land Acts as evidence of the contract in place of a written memorandum and creates an enforceable contract Plaintiff performed the acts and would suffer a loss if contract not enforced Criteria Acts performed relate to lands in question Contract relates to land and not something else Enforcement of the statute would perpetuate a fraud and be a hardship on the other party Contract is valid and enforceable by itself

Copyright © 2004 McGraw-Hill Ryerson Limited 13 REQUIREMENTS OF A WRITTEN MEMORANDUM Requires a written document Need not be a formal agreement One document or several which contain all essential terms A note or memorandum that provides evidence of a contract 3 P’s Names of parties, subject matter, price Must be signed by the party against whom the agreement is being enforced

Copyright © 2004 McGraw-Hill Ryerson Limited 14 PAROL EVIDENCE RULE Limits the kinds of evidence that may be introduced to prove the terms of a contact Evidence that is not contained within the written contract generally cannot be used to add to, subtract from, qualify or vary the terms of the document Does not allow parol evidence (extrinsic, oral) Only allowed to rectify or explain the terms agreed upon or to prove some fact of fraud or illegality

Copyright © 2004 McGraw-Hill Ryerson Limited 15 PAROL EVIDENCE RULE Exceptions: where parol evidence is allowed Condition precedent Event that must occur before the contract becomes operative Implied terms To establish the existence of an implied term Collateral Agreement An agreement that has its own consideration but supports another agreement Must be separate and apart with its own consideration Common element: the modifying term precedes, or is concurrent with the formation of the written agreement

Copyright © 2004 McGraw-Hill Ryerson Limited 16 SALE OF GOODS ACT Contains a requirement of writing Evidence of a written agreement required for purchases of goods over a certain value Exemptions from requirement Payment of a deposit (part payment) Acceptance and receipt of goods Giving of something “in earnest” Now subject to Consumer Protection provisions

Copyright © 2004 McGraw-Hill Ryerson Limited 17 SUMMARY Formal contracts – derive validity from the form they take Informal contracts – written, oral, implied. Statute of Frauds requires certain informal contracts to be in writing otherwise they are unenforceable Set out terms Signed by part to be charged Part Performance – equitable mitigation for the harshness of the statute of frauds Applies to transactions of land

Copyright © 2004 McGraw-Hill Ryerson Limited 18 Summary Parol Evidence Rule – excludes evidence of any prior or concurrent agreement which may add to, or contradict the terms of an unambiguous written agreement Exceptions to Parol Evidence rule exist Condition precedents, implied terms, collateral agreements Sale of Goods Act – requires certain transactions be in writing Can overcome this in other manners

Copyright © 2004 McGraw-Hill Ryerson Limited 19 LAW OF CONTRACT ESSENTIALS OF A VALID CONTRACT ELEMENTREQUIREMENTS/APPLICATION OFFER ACCEPTANCE Distinct from Invitation to Receive Offer Communication to Offeree — By Offeree — Unconditional — Communication to Offeror CONSIDERATION — Legal — Have Value Move from Promisee to Promisor — Seal as Consideration Cont’d INTENTION TO CREATE A LEGAL RELATIONSHIP

Copyright © 2004 McGraw-Hill Ryerson Limited 20 LAW OF CONTRACT ESSENTIALS OF A VALID CONTRACT, cont’d ELEMENTREQUIREMENTS/APPLICATION CAPACITY LEGALITY Infants— Necessaries — Binding — Non-Necessaries — Voidable at option of infant Insane/Drunken Persons Enemy Aliens FORM AND WRITING Statute of Frauds Special Types of Contracts — Power of Attorney, Deeds, etc. Applies to Subject Matter of Agreement Restrictive Covenants— Sale of Business — Employment