What follows is a general summary of the common law and equity principles on contract law. The law of Quebec, contained in the Civil Code chapter on "Obligations", is very similar but, in some respects, different. For example, consideration is not required for a binding contract in Quebec.
Readers should also be aware that significant codification and, in some cases, variation of these common law and equity principles has occurred in individual common law provinces, mostly in sale of goods legislation (see, for example, British Columbia's Sale of Goods Act). Throughout the articles of Duhaime's Canadian Contract Law Centre, references may be made to B.C.'s Sale of Goods Act, to serve as examples.
Duhaime's Contract Law: 1 - 2 - 3 - 4 - 5 - 6 - 7 - 8
Part 1: Introduction and Origins
“Withdraw contract … suppose that no one can count upon the fulfilment of any engagement … and the members of the human community are atoms that cannot effectively combine; the complex co-operation and division of employments that are the essential characteristics of modern industry cannot be introduced among such beings. Suppose contracts freely made and effectively sanctioned, and the most elaborate social organization becomes possible.”
H. Sidgwick, The Elements of Politics, 1879.
Contract law, like so much of English-origin law, is sometimes described in lengthy legalese diatribe, from which it is no easy task to excise a short, succinct and plain-language description. Consider, for example, the following definition we came across for "contract" in the Canadian Encyclopedic Digest:
"... an agreement free from vitiating factors such as mistake or misrepresentation and constituted by the unconditional acceptance of an outstanding offer involving a reasonably precise set of terms between two or more contractually competent parties who intend to create mutual and reciprocal rights and duties that may be the subject of judicial sanction if they are expressed in any required form, are free from the taint of illegality or immorality and are not subsequently discharged by law, by agreement, by breach or by sufficient supervening circumstances."
Another clarification is in order. The description given in this document is indicative of the common law only. In many jurisdictions, laws have been implemented which directly alter the common law.
For example, the United States of America has a Uniform Commercial Code which codifies much of the contract common law, but also changes much of it.
The contract common law still applies in the USA but only to the extent that it has not been changed by statute.
Similarly, in Australia, Canada, England, New Zealand, laws have been enacted to change the rules of contract common law in certain areas. For example, contract common law recognizes all contracts whether they are written or verbal.
But a Statute of Frauds has been adopted in many common law countries which requires a written document for some contracts (eg. land contracts) (for more on the Statute of Frauds, see Part 7: Interpretation of Contracts). Consumer protection laws are in place in many jurisdictions as well.
Therefore, what follows is the general rule of common law which applies only to the extent that it has not been changed by specific laws. Those readers with a real legal problem should be careful to do additional research in their own jurisdiction to verify to what extent, if any, statutes have altered the following summary of contract common law. In addition, the Case Books summaries are those of the author only and may not convey doctrine which, to other readers, may have appeared important. Note also that case names may have been shortened.
Contract law has come to us from common law and it is said that it is an offspring of tort law.
Both contracts and torts give rise to obligations. But tort obligations (ie. the obligation to indemnify for your negligence) are imposed by the law; it is not normally a choice one makes.
Contracts, on the other hand, are a vehicle by which persons voluntarily create obligations upon themselves.
In some circumstances, you can contract your way out of tort liability. For example, the owner of a sporting event stadium or a concert hall may have a disclaimer on the back of your ticket (a tiny contract but a contract nonetheless) which says that they cannot be held liable for any accidents on the premises. This is an attempt to contract out of tort liability.
In addition, tort liability does not require consideration (see discussion on "consideration" in Part 3).
It should also be said that the existence of a contract does not necessarily relieve a person of liability under tort law between the contracting parties, unless the contract specifically says so.
| Central Trust Co. v. Rafuse (1987) |
"Where concurrent liability in tort and contract exists, the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence" except where the effect of this "concurrent or alternative liability in tort ... would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort."
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| Sodd Corp. v. N. Tessis (1977) |
A trustee in bankruptcy misrepresented the value of inventory of a furniture store he was trying to sell. The purchaser relied on those statements in executing the contract of sale. The court found that there was a "pre-contractual negligent misrepresentation which induced the plaintiff to submit its tender, and the defendant's liability follows."
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| BG Checo International Ltd. v. British Columbia Hydro (1993) |
Canada's Supreme Court recognized that the parties to a contract may "preclude the possibility of suing in tort for a given wrong where there is an express term in the contract dealing with the matter.... It is always open to the parties to limit or waive the duties which the common law would impose on them for negligence." This distinction made, the court then went on to review "three situations that may arise when contract and tort are applied to the same wrong."
- "Where the contract stipulates a more stringent obligation than the general law of tort would impose. In that case, the parties are hardly likely to sue in tort."
- "Where the contract stipulates a lower duty than that which would be presumed by the law of tort in similar circumstances. The most common means is ... a clause of exemption or exclusion of liability in the contract. The duty imposed by the law of tort can be nullified only by clear terms.... In the second class of cases, there is little point in suing in tort.... An exception might arise where the contract does not entirely negate tort liability."
- "Where the duty in contract and the common law duty in tort are co-extensive. The plaintiff may seek to sue concurrently or alternatively in tort to secure some advantage peculiar to the law of tort, such as a more generous limitation period."
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Promises are what contracts are all about. A contract is made up of a promise of one person to do a certain thing in exchange for a promise from another person to do another thing.
Contract law exists to make sure that people keep their promises and that if they do not, the law will enforce it upon them.
Contract law is based on several Latin legal principles, the most important of which is consensus ad idem, which means a meeting of the minds between the parties or, in other words, a clear understanding, offering and acceptance of each person's contribution. Lawyers say that it is from the moment of "consensus ad idem" that a contract is formed and may be enforced by the courts.
So a contract requires an agreement between the parties.
But not all agreements are contracts. Non-business, religious, or charitable agreements are not always contracts. The same has been said of family or household agreements (in one 1991 case, a casual arrangement between friends to share hockey tickets was held not to be a contract: Eng v. Evans). In fact, there exists a common law presumption against such agreements being contracts, although this presumption can be rebutted. Conversely, where an agreement issues from a commercial relationship, it will be presumed to be a contract.
An example of family agreements or situations not being construed as being contracts arose in Canada several decades ago. At the time, there were no laws giving common-law spouses any rights to their spouses property even if they had been living together for a long time and both spouses had contributed to the growth of those assets. Rather than construe a contract out of the situation, the Canadian courts preferred using another mechanism, that of unjust enrichment, to resolve the unfairness.
| Balfour v. Balfour (1919) |
When a husband failed to pay a promised allowance, the wife sued. The court said "There are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together (or) arrangements which are made between husband and wife. They are not contracts because the parties did not intend that they should be attended by legal consequences. Each house is a domain into which the King's writ does not seek to run."
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| Rose and Frank Co. v. J. R. Crompton and Bros. Ltd. (1923) |
Two businessmen signed a document which read: "This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement ... but it is only a definite expression and record of the purpose and intention of the ... parties concerned to which they each honourably pledge themselves with the fullest confidence, based upon past business with each other, that it will be carried through by each of the ... parties with mutual loyalty and friendly co-operation." The deal went sour and one of the parties sued. The court: "It is quite possible for parties to come to an agreement by accepting a proposal with the result that the agreement concluded does not give rise to legal relations. The reason of this is that the parties do not intend that their agreement shall give rise to legal relations. This intention may be implied from the subject matter of the agreement, but it may also be expressed by the parties. In social and family relations such an intention is readily implied, while in business matters the opposite result would ordinarily follow."
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Contract law is said to be a part of private law because it does not involve or bind the state or persons that are not parties to the contract.
Some legal commentators have described contract law as a private miniature legal system which persons establish between themselves; the contract becoming binding upon them as a sort of self-imposed law. Thus, contracts are voluntary and require an "exercise of the will of the parties".
Duhaime's Contract Law: 1 - 2 - 3 - 4 - 5 - 6 - 7 - 8