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Part 3 – The Law of Contract

Part 3 – The Law of Contract. Chapter 10 The Requirements of Form and Writing. Overview. Formal and Simple Contracts The Statute of Frauds Executors and Administrators Guarantees Contracts concerning an interest in land. Overview. Requirements for the Written Memo Parol evidence

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Part 3 – The Law of Contract

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  1. Part 3 – The Law of Contract Chapter 10 The Requirements of Form and Writing Prepared by Douglas Peterson, University of Alberta

  2. Overview • Formal and Simple Contracts • The Statute of Frauds • Executors and Administrators • Guarantees • Contracts concerning an interest in land © 2006 McGraw-Hill Ryerson Limited

  3. Overview • Requirements for the Written Memo • Parol evidence • Condition precedent • Implied terms • Collateral agreements • Subsequent agreements • Reduction to Writing • Sale of Goods Act and CISG © 2006 McGraw-Hill Ryerson Limited

  4. Formal and Simple Contracts • 2 general classes of contracts • Formal (derives its validity from its form) • Not common • Informal (simple) (most common) • Implied • Oral • Written © 2006 McGraw-Hill Ryerson Limited

  5. Informal (Written) • To meet the requirement of writing, the agreement need not be formal, but it must: • (1) identify the parties, • (2) contain the terms of the agreement, and be signed by the party to be charged. • Where the Statute of Frauds includes a one year writing requirement, the courts have stated that if either party can fully perform the contract in less than one year, the contract need not be in writing to be enforceable. © 2006 McGraw-Hill Ryerson Limited

  6. Contract © 2006 McGraw-Hill Ryerson Limited

  7. Contract © 2006 McGraw-Hill Ryerson Limited

  8. Formal and Simple Contracts • 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. • Example of a formal contract © 2006 McGraw-Hill Ryerson Limited

  9. Statute of Frauds • Characteristics • Introduced from the UK into Canada as a colony • Still exists in some provinces, in others it has been repealed but incorporated into other statutes • Certain contracts if not in writing are not enforceable • Still valid and existing contracts for other purposes (not void or prohibited) © 2006 McGraw-Hill Ryerson Limited

  10. Types of Contracts • Following contracts covered by the Statute of Frauds • Contracts by Executors and Administrators • Guarantees • Assumed liability for a tort • Contracts concerning an interest in land © 2006 McGraw-Hill Ryerson Limited

  11. Contracts by Executors/Administrators • Executor or administrator of an estate is not generally liable for the debts of the testator (the estate) • Can personally assume such debts but only if such contract is in writing © 2006 McGraw-Hill Ryerson Limited

  12. Guarantees • Guarantee • A collateral promise (in writing) to answer or the debt of another (the principal debtor) if the debtor should default in payment • 3 parties in a guarantee • Creditor • Debtor (Primary liability) • Guarantor (Secondary liability) © 2006 McGraw-Hill Ryerson Limited

  13. Guarantees • Consideration required to enforce the guarantee • Alberta (Alberta Guarantees Acknowledgment Act) the guarantee must also be notarized • Must distinguish between guarantees and indemnities • Guarantees must be in writing • Indemnities need not be in writing © 2006 McGraw-Hill Ryerson Limited

  14. Assumed Liability: Tort • Concept • Any agreement whereby a third party promises to answer for the tort of another • Must be in writing • Signed by the party to be charged © 2006 McGraw-Hill Ryerson Limited

  15. Land Contracts • Land Contracts • Contracts concerning an interest in land • Vague concept • Includes sale of land or lease of land • Does not include those things ancillary to the land or remote (repairs, renovations, etc) • Does not include room and board contracts © 2006 McGraw-Hill Ryerson Limited

  16. Land Contracts • Part Performance (equitable doctrine) • A doctrine that permits the courts to enforce an unwritten contract concerning land where certain conditions have been met • Requirements • Acts performed relate to land in question • Lack of a written memo would perpetuate a fraud and a hardship on the person • Agreement must relate to an interest in land • Agreement must be valid and enforceable apart from the requirement of writing and verbal evidence must be available to establish the existence of the agreement © 2006 McGraw-Hill Ryerson Limited

  17. Requirements for a Written Memorandum • Requirements • Need not be in a formal document • Need all terms of contract (3 P’s: parties, property, price) • Can be an exchange of letters – 2 letters together can constitute an agreement in writing • Must be signed by the party against whom it is being enforced © 2006 McGraw-Hill Ryerson Limited

  18. Parol Evidence Rule • Rule • A rule that prevents a party from introducing evidence that would add to or contradict terms of a contract • Limits the kinds of evidence that may be used to prove terms of a contract • Cannot contradict a clear unambiguous contract © 2006 McGraw-Hill Ryerson Limited

  19. integration clause, ormerger clauseExample: • "This Agreement, along with any exhibits, appendices, addendums, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the Parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. The parties hereby waive all rights and remedies, at law or in equity, arising or which may arise as the result of a party’s reliance on such representation, assertion, guarantee, warranty, collateral contract or other assurance, provided that nothing herein contained shall be construed as a restriction or limitation of said party’s right to remedies associated with the gross negligence, willful misconduct of fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Agreement." © 2006 McGraw-Hill Ryerson Limited

  20. Exceptions to the Parol Evidence Rule • Condition Precedent • A condition that must be satisfied before a contract may come into effect • Contract is in a state of postponement until the condition is met, not met, or waived by the party who inserted it • If the condition is not met then the contract is cancelled © 2006 McGraw-Hill Ryerson Limited

  21. Exceptions to the Parol Evidence Rule • Doctrine of Implied Term • The insertion by the court of a standard or customary term omitted by the parties when the contract was prepared • Implied terms cannot conflict with express terms • Usually implied in order to implement the agreement © 2006 McGraw-Hill Ryerson Limited

  22. Exceptions to the Parol Evidence Rule • Collateral Agreement • An agreement that has its own consideration, but supports another agreement • Could alter or add to the main agreement • Courts usually don’t allow unless one can prove it exists as a separate and complete agreement with its own consideration © 2006 McGraw-Hill Ryerson Limited

  23. Exceptions to the Parol Evidence rule • Common Factor • All exceptions to the parol evidence rule; the modifying term precedes, or is concurrent with the formation of the written agreement • Subsequent Agreement • An agreement made after a written agreement that alters or cancels the written agreement © 2006 McGraw-Hill Ryerson Limited

  24. Court Decision Parol Evidence Rule – Collateral Agreement • Gallen et al. v. Allstate Grain Co. Ltd. et. al. (1984), 9 D.L.R. 496 (B.C.) • The Manulife Bank of Canada v. Conlin et al. decision illustrates the position of a guarantor of a mortgage debt and the importance of including the guarantor in any changes to the debt repayment or security underlying a debt. In the case, the parties failed to obtain the consent of the guarantor, and when default later occurred on the mortgage, the court held that the guarantor was released from liability because no consent to the changes had been given by the guarantor. © 2006 McGraw-Hill Ryerson Limited

  25. Case Law • Western Dominion Investment Co. Ltd. v. MacMillan. In the case, the judge explains the nature of the liability of the debtor and the guarantor, and sets out the conditions under which the guarantor may be absolved from liability. It is important to note as well that payment of the debt by the guarantor does not release the debtor from all obligation on the debt. When the guarantor has paid the debt, the guarantor is entitled to a transfer of the security, and the creditor’s claim for payment. The guarantor then becomes entitled to claim payment from the debtor. © 2006 McGraw-Hill Ryerson Limited

  26. Reduction to Writing • Negotiations • Issue of when a contract agreed to orally becomes enforceable if it is never reduced to writing • Issue of interim enforceability between time of oral agreement and being put into writing © 2006 McGraw-Hill Ryerson Limited

  27. Sale of Goods Act • Writing Requirement • Certain transactions over a certain value if not in writing are unenforceable • Methods of enforcement (without written requirement) • Payment of a deposit • Acceptance of delivery of part of the goods • Giving of something “in earnest” (such as a trade in) © 2006 McGraw-Hill Ryerson Limited

  28. Summary • Formal or Informal Contracts • Most contracts are informal • May be in writing, oral or implied • Statute of Frauds • Certain type of contracts must be in writing or they are unenforceable • Parol Evidence Rule • Several exceptions exist © 2006 McGraw-Hill Ryerson Limited

  29. CISG - Contract • http://www.uncitral.org/ • http://www.osgoode.yorku.ca/cisg/ • UNCITRAL Model Law on Electronic Commerce • CISG • JAMS International Arbitration Rule © 2006 McGraw-Hill Ryerson Limited

  30. CISG • The CISG applies to contracts for the sale of goods between parties whose places of business are in different countries when both those countries have joined the CISG.In theory the CISG applies even when both countries have not joined the CISG if conflict-of-laws rules lead to the application of the law of a country that has. • The CISG also deals only with contract formation and the rights and obligations of the parties. It is expressly not concerned with questions of validity, which means that domestic law continues to govern such issues as incapacity, fraud, duress, mistake, and unconscionability © 2006 McGraw-Hill Ryerson Limited

  31. CISG • Under the common law, an offer is freely revocable, even if the offeror has promised to hold it open, unless that promise is supported by consideration or reliance. Under the civil law, an offer is irrevocable. • (Firm Offersare irrevocable) • CISG Article 16 allows an offeror to make a firm offer without these limitations. • Article 16 reflects a compromise between the civil law tradition, which presumes that offers are irrevocable, and the common law tradition, which presumes the opposite © 2006 McGraw-Hill Ryerson Limited

  32. CISG - Contract Art. 16 • CISG Article 16(2) provides • (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. • (2) However, an offer cannot be revoked: • (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or • (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. © 2006 McGraw-Hill Ryerson Limited

  33. CISG - Contract Art. 16.2 • Article 16(2) is a compromise between the civil law conception of the irrevocability of offers in certain circumstances and the common law conception that offers are always revocable until accepted unless an option contract is concluded. • Article 16(2)(b) is most clearly applicable when the offeree must spend time and perhaps considerable amount of money to determine whether to accept the offer or not. It cannot apply to this case since Wine Cooperative did not act in reliance on the offer – except to accept it. © 2006 McGraw-Hill Ryerson Limited

  34. UNCITRAL Model Law on Electronic Commerce 15(2) • UNCITRAL Model Law on Electronic Commerce. It provides in Article 15(2) • “(2) Unless otherwise agreed between the originator and the addressee, • the time of receipt of a data message is determined as follows: • (a) if the addressee has designated an information system for the • purpose of receiving data messages, receipt occurs: • (i) at the time when the data message enters the designated • information system; or • (ii) if the data message is sent to an information system of • the addressee that is not the designated information • system, at the time when the data message is retrieved • by the addressee; • (b) if the addressee has not designated an information system, • receipt occurs when the data message enters an information system of • the addressee.” © 2006 McGraw-Hill Ryerson Limited

  35. CISG Article 16 (1) • CISG Article 16 (1) provides that “[u]ntil a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.” © 2006 McGraw-Hill Ryerson Limited

  36. CISG Article 35(2) • CISG Article 35(2) provides in relevant part • “(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: • * * * • (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgment;” © 2006 McGraw-Hill Ryerson Limited

  37. CISG Article 35 (2) • It must be noted that this issue is relevant if, and only if, there is a contract. Moreover, it also depends on the arbitral tribunal having jurisdiction. © 2006 McGraw-Hill Ryerson Limited

  38. JAMS International Arbitration Rules • JAMS International Arbitration Rules, Article 18.1 provides that • “The Tribunal will decide the merits of the dispute on the basis of the rules of law agreed upon by the parties. In the absence of such an agreement, the Tribunal will apply the law or rules of law which it determines to be most appropriate.” © 2006 McGraw-Hill Ryerson Limited

  39. JAMS Rule 17.3. • JAMS Rule 17.3. • “17.3By agreeing to arbitration under these Rules, the parties will be treated as having agreed not to apply to any court or other judicial authority for any relief regarding the Tribunal’s jurisdiction, except with the agreement in writing of all parties to the arbitration or the prior authorization of the Tribunal or following the latter’s ruling on the objection to its jurisdiction.” • Article 17.3 is applicable only if there is an agreement to arbitrate under the JAMS Rules © 2006 McGraw-Hill Ryerson Limited

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