1. CHAPTER Microsoft ® PowerPoint ® Presentation Prepared By Gail McKay, LLB, Thompson Rivers University © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved. © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved. 4 Enforceability of Contractual Rights

2. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-1 OBJECTIVES 1.To learn what types of contracts must be in writing or in a specific form to be enforceable 2.To examine defences against enforceability such as misrepresentation, mistake, undue influence and duress 3.To identify the processes by which a contract may be assigned

3. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-2 REQUIREMENTS OF FORM AND WRITING The Statute of Frauds initiated a writing requirement to demonstrate intention for certain contracts Examples of contracts associated with business which are consequently required to be in writing and signed include those respecting an interest in land, guarantees, and agreements to assume liability in tort law Electronic documents meeting PIPEDA standards for data scrutiny and integrity may be deemed equivalent to writing

4. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-3 ASSUMED LIABILITY: THE GUARANTEE A guarantor is a third party to whom a creditor will turn if a principal debtor defaults on the payment of a loan, but who is otherwise not primarily liable The guarantor’s consent is required if the creditor and debtor wish to alter the security for the loan A court may refuse to enforce a guarantee where a guarantor’s consent was not obtained

5. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-4

6. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-5 ASSUMED LIABILITY: IN TORT LAW The assumption of liability by a third party for the tort of another must be in writing and must be signed to be enforceable This type of agreement parallels the assumption of liability in a guarantee In place of a default upon a debt, the third party arranges a settlement – out of court compensation for an injured plaintiff

7. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-6 INTERESTS IN LAND The intention of the writing requirement for the disposition of land was to prevent fraud The doctrine of part performance creates an exception if 1The acts performed refer only to the contract for the land in question 2To enforce the statute would be a hardship 3The agreement relates to an interest in land 4Apart from the missing writing requirement, the agreement is valid and enforceable

8. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-7 WRITTEN MEMORANDUM REQUIREMENTS To comply with the Statute of Frauds, no formal document is necessary so long as the essential terms of the contract are included and the memorandum is signed The parol evidence rule prohibits the use of evidence which contradicts otherwise unambiguous contract terms A condition precedent may preclude a contract from coming into force until a condition is met

9. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-8 PAROL EVIDENCE RULE EXCEPTIONS An implied term is another exception to the parol evidence rule permitting the inclusion of a term intended by the parties but omitted, and normally included by business practice A third exception is the collateral agreement, one relevant to and supporting the original agreement but having its own consideration The parol evidence rule does not exclude the later evidence of a subsequent agreement

10. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-9 AGREEMENTS IN PRINCIPLE An agreement in principle confirms that the parties have a view to making a formal contract in the future These letters of intent contain key issues but not necessarily the detail expected in a formal contract To be enforceable, all terms must be certain and the agreement must contemplate a second contract as a condition to the present bargain

11. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-10MISTAKE A mistake is an error made by one or both of the parties to a contract, falling into one of four categories A mistake of fact is an error regarding the subject matter of the contract or the identity of one of the parties Non est factum is a mistake as to the very nature of a contract often arising from having been misled, and sometimes allowing an illiterate or infirm person to avoid liability

12. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-11 OTHER TYPES OF MISTAKE A unilateral mistake is an error made by only one of the parties to the agreement A mutual mistake is an error made by both parties Rectification is a judicial correction of a mistake when the intention of the parties was clear and the written agreement does not match the verbal arrangement

13. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-12 MISREPRESENTATION A misrepresentation is a false statement which induces someone to enter a contract Someone making an innocent misrepresentation believes the material fact is true but later discovers it is not, and the remedy is rescission of the contract Negligent misrepresentation occurs when someone carelessly makes a statement, without concern as to its truth or falsehood, which induces another to enter a contract

14. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-13 FRAUDULENT MISREPRESENTATION In fraudulent misrepresentation cases, the maker of the statement knows it is false and intentionally misleads the other party Similarly, if a statement is made recklessly, without caring whether it is true or false, fraudulent misrepresentation may also arise Besides rescission, punitive damages are available as punishment for the fraud, so long as the victim does not accept any benefit after the fraud is discovered

15. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-14 MISREPRESENTATION: NONDISCLOSURE Utmost good faith contracts are those which impose a duty of disclosure A special relationship of trust or confidence is required under these contracts, such as a contract for insurance Non disclosure of material facts could seriously affect the position of the other contracting party, who is entitled to treat a nondisclosure or partial disclosure as fraud

16. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-15 UNDUE INFLUENCE The concept of freedom to contract is altered when one of the parties is under the power or influence of the other to the extent that his or her decision making is impacted There is a presumption at law of undue influence in certain relationships such as doctor-patient or solicitor-client The presumption can be rebutted by evidence of the weaker party getting independent legal advice

17. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-16 RISK MANAGEMENT OF UNDUE INFLUENCE Businesses should be alert to situations which might give rise to a defence of undue influence When business persons realize that a potential for undue influence exists, they should insist upon evidence that the vulnerable party at least had the opportunity to receive independent legal advice regarding the transaction

18. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-17 DURESS Duress is a threat or actual violence perpetrated upon someone to induce him or her to enter a contract The type of harm may be physical, psychological or a financial exploitation; and the threat may be direct or indirect - made to harm the contracting party him or herself or to harm a member of his or her family Such a contract may be held to be unenforceable at the option of the victim

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20. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-19 ASSIGNMENT OF CONTRACTUAL RIGHTS The privity of contract rule states that only the parties to a contract can enforce the contract or be liable under it There are exceptions to the privity rule such as partnership contracts in which one partner can create liability for another; the acceptance of land or goods with conditions negotiated by others; the doctrine of constructive trust in which a court finds a contract will benefit a third party; and statutory enforcement of third party rights – such as a life insurance policy

21. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-20 NOVATION A third party may acquire rights under a contract through a novation, where his or her name is substituted for the name of one of the original parties to the agreement by consent Alternatively, a fresh agreement can be created in which the third party becomes one of the two contracting parties, terminating the original contract Vicarious performance allows an employee or contractor to perform an employer’s duties

22. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-21 STATUTORY ASSIGNMENT An assignee of contractual rights can sue in his or her own name if 1.The assignment is in writing, signed by the assignor 2.The assignment is absolute 3.Express notice is given to the party whose debt is assigned, with title taking effect on the date of the notice 4.Title to the assignment is taken subject to any equities between the original parties to the contract There is a risk the debtor may claim a set-off

23. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-22 ASSIGNMENTS BY LAW Upon the death or bankruptcy of a party to a contract, a number of assignments are automatically engaged Upon death, a deceased’s rights and obligations under contracts are assigned to his or her executor Similarly, following a voluntary assignment into bankruptcy, the bankrupt’s rights and obligations pass to the trustee in bankruptcy

24. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-23 NEGOTIABLE INSTRUMENTS The Bills of Exchange Act governs cheques, promissory notes, and bills of exchange The legislation covers the assignment of these negotiable instruments A negotiable instrument, when it is transferred in good faith and for value without notice of any defects, passes a good title to the negotiable instrument to the transferee

25. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.4-24 SUMMARY Certain types of contracts must meet the writing requirement of the Statute of Frauds such as those for interests in land, guarantees and assumptions of liability for torts Mistake, misrepresentation, undue influence and duress may operate as defences against the enforceability of a contract making it void or voidable There are various formal processes for the assignments of contractual rights in business