Fundamentals of contract Law

Free Legal Forms - Fundamentals of contract Law

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No matter where you live in North America, you must have seen some humoristic vignettes depicting a not-so-trustworthy Realtor intent at selling a house to some innocent-looking couple. My favorite vignette, which still makes me chuckle today, goes back to a few years ago when I was practicing real estate at United Realty. It complex a Real Estate Agent of Pompeii Realty, briefcase in hand, in the process of selling a house to an ancient Roman integrate sometimes colse to 100 Bc . The house is overlooking Mt. Vesuvius. There is a black, threatening, ominous plume of smoke advent out of the top of the volcano, and the Roman integrate looks somewhat startled when the Real Estate Agent - big smile on his face - delivers the punchline: " Plus, with a view like this what could perhaps go wrong" !

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What is it exactly that you do when you sign a 'contract' . The term 'contract' means a promise or a set of promises made by one man to another, which the Courts will enforce. A contract can include a estimate of promises or 'terms' to be performed by either party. The man who makes the promise is called the 'promissor' and the man who can impose that promise is called the 'promissee' . If the contract contains any mutual promises, each party will be both a promissor and a promissee. Contracts of buy and Sale of land and interests in land usually have lots of mutual promises. Contracts are a crucial part of every enterprise transaction, but not nearly as much as in Real Estate. For instance, some contracts are made verbally while others are made by plainly exchanging letters or even e-mails. This is not the case in Real Estate, where it is a requirement at Law that contracts be written down in usually lengthy legal forms to avoid uncertainty, ambiguity and to be binding .

A contract has seven vital elements:

Offer.

Acceptance.

Consideration

Legal Intent.

Capacity.

Legal Object.

Genuine Consent.

Each of these elements must be present for a contract to be binding and enforceable. Let's seek them individually.

Offer

An offer is the promise made by one party to another. Save and except in Real Estate where the offer must be in writing, an offer can be made in any form. In all circumstances, however, an offer must be made in clear an unambigous terms. If more than one interpretation can be given to an offer, neither interpretation will be followed by the Courts. There are 'unilateral' and 'bilateral' offers. Offers to buy real property are bilateral, i.e. Containing the change of mutual promises.

An offer is not made forever. Offers can either be finalized, when all mutual promises are fulfilled. Or they can expire, if not timely accepted. Or they can be released, if one of the parties does not - or cannot - deliver on the promise. Offers can also be revoked after acceptance, unless a term of the offer stipulates that revocation is not allowed.- as it is now the case in British Columbia for offers exciting land. A 'counter-offer' is plainly an offer from the offeree back to the offeror. The legal supervene of a counter-offer is to close the traditional offer and substitute the offer of the offeree. What this means in practicality is that if the counter-offer is not accepted, the offeree cannot try to accept the first offer unless it is tendered again by the offeror. This is a point often times neglected in Real Estate, which has caused any tears to be spilled.

Acceptance

The acceptance, like the offer, must be given in clear terms. It must be a sure act. For instance, an offer cannot state "If I don't hear from you, I will assume you have accepted". Doing nothing will never be carefully legal acceptance. The rule at Law is that where an offer is required by statute to be in writing, then also the acceptance must be in writing in order for the offer to come to be a contract binding on both parties. Such is the case in Real Estate. An acceptance has no supervene until it is communicated to the offeror. Communication can be made by 'instantaneous means' as in the case of telephone or teletype or fax communications, or e-mail or hand-delivery and by 'non-instantaneous means' such as postal mail. The Law gives the responsibility to the offeror to specify how he wants the offer to be accepted. If the offeror chooses a formula like slow mail, then he assumes the risks complex in that type of service (such as misdelivery).

Consideration

For an offer and acceptance to form a contract there must be observation or the contract must be signed under seal. observation is defined as 'some right, benefit or profit accruing to the promissor or some forebearance, detriment, loss or otherwise responsibility suffered by the promissee' . What this means is that the party trying to impose the contract must have 'paid' something in change for the promise of the other party. observation must be of real value, but it does not have to be money. For example, a mutual change of promises is observation per se.

Legal Intention

For a man to be bound to a contract, he must seriously intend to generate legal obligations. For example, exciting a guest for dinner would usually not be carefully a contract intended to generate legal obligations. The Law presumes that there is legal intention in a contract exciting total strangers. On the other hand, if the contract is between house members the Law presumes that there is no intention to be so bound (non arm-length transaction). However, this presumption can be reversed if there is evidence to show otherwise.

Capacity

Even when all the foregoing vital elements exist, a contract can still be void, voidable or illegal. A void contract is one which is deemed at Law never to have existed. A voidable contract is slightly different: it exists until it is repudiated by one of the parties. An illegal contract is one which is made for an illegal purpose, and which is therefore all the time void. Examples of voidable contracts are the ones made when one of the parties is an infant, i.e. A minor or under the majority age. In this case the contract can be voided by the infant. Likewise, when one of the parties is legally insane, the contract is voidable. A special case is a contract stipulated when one of the parties is a dinky enterprise or corporation. Three questions must be first answered before the contract can be enforceable: 1) either the corporation does in fact exist and 2) either it has the capacity to enter into the contract and 3) either the man signing on profit of the corporation is, in fact, the authorized signatory.

Legal Object

Quite aside from blatantly illegal contracts such as, for examples, contracts to commit a crime or tort until recently here in British Columbia sure other types of contracts where carefully illegal. For example, until the mid-80's contracts exciting the sale of land made on a Sunday were deemed to be a contravention of s.4 of the Lord's Day Act(now repealed) and, thus, illegal and void. Since then, the consummate Court of Canada has ruled that the application of s.4 - in fact the entire Lord's Day Act - is unconstitutional in that it infringes on the leisure of conscience and religion guaranteed by the Canadian rent of possession and Freedom.

Genuine Consent

If one of the parties makes a misrepresentation or if the contract contains an possible mistake, the contract may still not be binding. A misrepresentation is, by definition, a statement which is false and which must have induced one of the parties to enter into the contract. A misrepresentation can be innocent, negligent or fraudulent and distinct remedies are ready to the party suffering damages because of the nature of the misrepresentation. If the representation is innocent, the party can sue for rescission of the contract. In the case of negligent or fraudulent misrepresentation, the affected party can sue for damages as well. Although misrepresentation requires a statement to be made, in Real Estate silence too can supervene in some form of misrepresentation. Disclosure of latent defects is one such example: failure to disclose latent defects on the part of the seeder will not, by itself, influence the consent of the parties but will have similar consequences as misrepresentation.

In the case of possible mistake, true consent of the parties does not exist. The logic behind this idea is that the parties were negotiating for a field matter other than the one stipulated in the contract. A specific type of mistake is sometimes referred to as 'non est factum' , Latin for 'this is not my deed' . This occurs when a man executes one form of document mental the document is something else. Duress and undue influence both influence the genuine consent element of a contract. Duress occurs when a man is forced to enter into the contract against his will. As a result, the Courts will find the contract voidable at his option. Undue influence, on the other hand, is more subtle. Like duress it results in one party losing his free will to contract out. Any way it occurs more frequently when a man is in a classic or dominant position in relation to other and uses this influential position to induce the other to enter into the contract. Again, if undue influence is found, the contract is voidable at the selection of the innocent party.

Luigi Frascati

luigi@dccnet.com

http://www.luigifrascati.com
Real Estate Chronicle

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