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

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Presentation on theme: "CHAPTER Microsoft ® PowerPoint ® Presentation Prepared By Gail McKay, LLB, Thompson Rivers University © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved."— Presentation transcript:

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

2 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-1 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 THE REQUIREMENTS OF FORM AND WRITING Contracts may be simple or formal They need not take any specific type of form Some types of contracts are mandated by legislation to be in a certain form, such as deeds of land, mortgages, and powers of attorney Contracts need not be in writing to be enforceable Oral agreements are generally enforceable, with a few exceptions Contracts may also be in electronic format Several provinces have enacted legislation dealing with electronic contracts Other provinces including Ontario allow deeds of land and mortgages to be in electronic format and to be registered electronically in the counties that have adopted electronic land registration Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-2 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

4 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-3 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5 Assumed Liability: The Guarantee A guarantee is a promise by a third party to pay a creditor of the principal if the debtor either refuses to or is unable to pay a debt Guarantees must be in writing Guarantees must be under seal, since there is no consideration flowing to the guarantor A creditor must exhaust its remedies against the principal debtor before it may proceed against the guarantor Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-4 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

6 Assumed Liability: The Guarantee There is a trend away from guarantees by banks and other lenders. They would prefer that the potential guarantor be a co-signor or principal debtor One of the reasons for this is that there are a number of defences available to guarantors who are sued by the creditor These defences include: -Lack of independent legal advice -An amendment to the principal debt without the consent of the guarantor -A release of one guarantor is a release of all Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-5 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

7 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 Subrogation is the right of a guarantor to recover from the debtor any payments made to the creditor on behalf of the debtor A guarantor is liable for the whole amount of the loan even if there is more than one guarantor; they are generally jointly and severally liable The creditor may choose which guarantor it wishes to proceed against It is up to the guarantor to seek contribution and indemnity from his co- guarantors An officer of a corporation who gives a personal guarantee cannot hide behind the corporation's limited liability (more on this in later chapters) Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-6 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

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9 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-8 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

10 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 To comply with the Statute of Frauds, there generally is no requirement that the contract be in a formal document An exchange of letter may qualify For example, Jim writes to Louis: "I would like to rent your apartment located at 1213 Main Street for $ per month." Louis writes back confirming the arrangement Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-9 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

11 Parol evidence rule A rule that oral evidence cannot be used to contradict the terms of a written contract. As long as the terms of the contract are clear, the courts will not admit any irrevelant evidence to prove the terms of the contract If the contract is in writing, all of the agreed-upon terms must be there Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-10 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

12 PAROL EVIDENCE RULE EXCEPTIONS Condition precedent (CP) refers to an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual duty arises. For instance, in the sentence "Jack will only go to heaven after he has died," the death of Jack is a condition precedent to Jack going to heaven. The contract is in good standing, it is just that performance has been suspended until the contemplated event occurs This is one of the exceptions to the parol evidence rule Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-11 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

13 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-12 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

14 PAROL EVIDENCE RULE EXCEPTIONS An implied term is another exception. It means it is As a matter of fact. Something that’s so obviously included that it didn’t need to be mentioned in the contract. If I agree to pay you $50 for a lawnmower, it probably wouldn’t occur to us to write down that we mean fifty Canadian Dollars, as opposed to any other sort of pound. That’s obvious to both of us. (Beware of this point – it has to have been obvious to both parties – it’s not enough to show that one party thought it was included, or that the contract would have been more reasonable with the added term.) Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-13 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

15 The third exception is collateral agreement A collateral agreement is a separate agreement which is somehow tied to or related to the main agreement The courts have held that, unless this collateral agreement is referred to in the primary agreement, the collateral agreement must meet the normal requirements of a contract and have separate consideration Where a separate collateral agreement does exist, the courts will enforce it even though it may conflict with the primary agreement Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-14 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved. PAROL EVIDENCE RULE EXCEPTIONS

16 collateral agreement For example If 'Adam' enters into a construction contract with 'Bob' on the basis of which 'Bob' enters into a contract with 'Charles' for a material used in the construction, 'Adam' may have the right to sue 'Charles' for compensation if the material turns out to be defective. A collateral contract between three or more parties requires the contracting parties to fulfill their individual obligations to each party. Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-15 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

17 Subsequent Agreement The parol evidence rule will not exclude evidence of a subsequent agreement The subsequent agreement represents a new agreement made by the parties Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-16 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

18 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-17 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

19 LEARNING GOALS REVIEW The Statute of Frauds requires certain types of contracts to be in writing in order to be enforceable These include: guarantees, assumed tort liability, interests in land Some agreements must be in a particular form to be enforceable: mortgages, deeds of land, etc. A simple contract under the Statute of Frauds must identify the parties, contain the terms of the agreement, and be signed by the responsible parties Other doctrines may permit other evidence of changes to the agreement, such as doctrine of implied term, condition precedent, collateral agreement, and subsequent agreement Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-18 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

20 o MISTAKE o MISREPRESENTATION o UNDUE INFLUENCE o DURESS o ASSIGNMENT OF CONTRACTUAL RIGHTS Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-19 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved. FAILURE TO CREATE AN ENFORCEABLE CONTRACT

21 MISTAKE A mistake is an error made by one or both of the parties that seriously undermines a contract Mistake generally refers to the situation where the parties have entered into a contract which does not reflect their true intentions For example, the parties may agree that Joshua will sell his truck to Graham for $10,000. However, when the agreement is drawn up, a couple of zeros were left off and it was recorded as $ The courts will not allow Graham to enforce this contract Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-20 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

22 MISTAKE Unilateral and Mutual Mistakes Mistakes may take one of two forms A mistake may be made by only one party, which is called a unilateral mistake It may be made by all parties to the agreement, in which case it is a mutual mistake In the case of unilateral mistake, the other party not aware of the mistake may take advantage of the innocent party This is often very close to misrepresentation, which will be discussed later Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-21 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

23 MISTAKE Non est factum ("it is not my act") 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 A failure of a party to examine the document does not excuse it Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-22 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

24 MISTAKE 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-23 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

25 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-24 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

26 MISREPRESENTATION To count as a misrepresentation, one must prove that the statement is: o False o Clear and unambiguous o Material to the contract o Actually induced the aggrieved party to enter into the contract, and o Is concerned with a fact Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-25 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

27 INNOCENT MISREPRESENTATION An innocent misrepresentation is a misrepresentation of material fact that the maker honestly believed to be true, but is discovered to be false after the parties entered into the contract It does not entitle the affected party to relief unless it can be shown to be a material term of the contract If it is a material term, then he/she may view the contract as voidable and sue to have the action rescinded Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-26 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

28 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-27 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

29 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-28 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

30 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-29 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

31 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-30 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

32 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-31 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

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34 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 If Anne-Marie and Paige were the only parties to the contract, William could not sue Anne-Marie if she failed in her part of the bargain, even if William was depending upon Anne-Marie's performance in her contract with Paige Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-33 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

35 ASSIGNMENT OF CONTRACTUAL RIGHTS One of the exceptions is a partner who can bind the partnership in a contract with a third party Another exception occurs when a party purchases land with an existing encumbrance registered against it, for example, a mortgage. If the purchaser acquires that property, the mortgagee may bring an action for enforcement against the innocent purchaser, even though it is not his/her debt nor had he/she signed the mortgage agreement Certain statutes also confer benefits upon third parties as well, such as a beneficiary being entitled to sue a third-party life insurer Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-34 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

36 NOVATION The parties may discharge an existing agreement by agreeing to enter into a whole new contract In this case, a third party replaces one of the original parties to the agreement and becomes a contracting party to a new agreement and agrees to be bound by its terms 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-35 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

37 NOVATION There are a number of legal elements which must be present to establish a complete novation: 1. The new party must assume complete liability under the contract 2. The remaining party must agree to accept the new party 3. The remaining party must accept the new contract in full satisfaction of the former contract Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-36 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

38 NOVATION Often, when one hires someone to do a job, it will not be performed by that person. Someone else may do the job. The job may be subcontracted to a third party, or it may be an employee This is called vicarious performance and involves two or more contracts The first contract is between the parties, in which the contractor agrees to do certain work or perform certain services The second contract is between the contractor and his employee or subcontractor When one engages a corporation to do something, the work is done through its employees For example, if I went to Acme Window Cleaning Inc. I would not expect there to be a Mr. Acme who would do the cleaning. Instead, it would be done by any of a number of employees In all cases the primary liability rests with the primary contractor Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-37 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

39 NOVATION The only exception occurs when the contract specifies that a specified person undertake that work, such as in the case of a professional or an entertainer For example, I contracted with Jessica Simpson to give a concert. She cannot send her younger sister Ashlee to sing in her place Likewise, if I told Acme Window Cleaning Inc. that I wanted Rajeev and only Rajeev to clean my windows, if anyone else were sent, there would be a breach of contract Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-38 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

40 STATUTORY ASSIGNMENT Businesses frequently assign contractual rights An assignment often occurs when one leases an automobile. The dealer assigns the title to the car to a finance company to whom you make your monthly payments Some risk is incurred that the debtor may claim set-off For example, Abraham purchased a new car from Charlotte's Chev Olds. Charlotte's agreed to finance the purchase, but immediately thereafter assigned the debt to CountiFinancial. If Abraham were in litigation with Charlottes' over a deficiency in the car, Abraham might be able to set-off the repair claim against his debt which is now owing to CountiFinancial Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-39 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

41 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-40 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

42 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-41 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.

43 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 Fundamentals of Canadian Business Law, 2nd Canadian EditionSlide 1-42 © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved.


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