Fundamentals of contract law

No matter where you live in North America, you must have seen some humorous cartoons depicting a not-so-trustworthy real estate agent intending to sell a home to an innocent-looking couple. My favorite cartoon, which still makes me chuckle, dates back to a few years ago when I was practicing real estate at United Realty. It was a Pompeii Realty realtor, briefcase in hand, in the process of selling a house to an ancient Roman couple, sometimes around 100 BC. C. The house has views of Mount Vesuvius. There is a menacing, ominous column of black smoke rising from the top of the volcano, and the Roman couple seems a bit surprised when the real estate agent, with a big smile on his face, says the punchline: “Also, with a seen like this is what could go wrong “!

What exactly do you do when you sign a ‘contract’? The term ‘contract’ means a promise or a set of promises made by one person to another, which the courts will enforce. A contract can contain a series of promises or ‘terms’ that either party must fulfill. The person who makes the promise is called the “promisor” and the person who can enforce that promise is called the “fiancee.” If the contract contains several mutual promises, each party will be both promising and promised. Land sales contracts and land interests often have many promises to each other. Contracts are a crucial part of all business transactions, but not as much as in real estate. For example, some contracts are made verbally, while others are made simply by exchanging letters or even emails. This is not the case in the real estate sector, where the law requires that contracts be drafted in generally lengthy legal forms to avoid uncertainty, ambiguity, and be binding.

A contract has seven essential elements:




Legal intent.


Legal object.

Genuine consent.

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


An offer is the promise made by one party to another. Except in the real estate sector where the offer must be in writing, an offer can be made in any way. In all circumstances, however, an offer must be made in clear and unambiguous terms. If more than one interpretation can be given to an offer, the Courts will not follow any interpretation. There are ‘unilateral’ and ‘bilateral’ offers. Offers to purchase real estate are bilateral, that is, they contain the exchange of mutual promises.

No offer is made forever. Offers can be finalized, when all mutual promises are fulfilled. Or they may expire if they are not accepted in time. Or they can be released, if one of the parties does not, or cannot, fulfill the promise. Offers may also be revoked after acceptance, unless an offer term stipulates that revocation is not allowed, as is the case now in British Columbia for offers involving land. A ‘counter offer’ is simply an offer from the recipient to the offerer. The legal effect of a counter offer is to rescind the original offer and replace the recipient’s offer. What this means in practice is that if the counter offer is not accepted, the recipient of the offer cannot attempt to accept the first offer unless the offeror submits it again. This is an often neglected point in real estate, which has caused several tears to be shed.


The acceptance, like the offer, must be given in clear terms. It must be a positive act. For example, an offer cannot say “If I don’t hear from you, I’ll assume you’ve accepted.” Doing nothing will never be considered legal acceptance. The rule of law is that when an offer is required by law to be in writing, then also the acceptance must be in writing for the offer to become a binding contract for both parties. Such is the case of Real Estate. An acceptance does not take effect until it is communicated to the offerer. Communication can be done by “instant means” as in the case of communications by telephone, teletype or fax, or by email or hand delivery and by “non-instant means” such as postal mail. The Law gives the bidder the responsibility to specify how he wants the offer to be accepted. If the bidder chooses a method such as slow mail, then he assumes the risks involved in that type of service (such as incorrect delivery).


For an offer and acceptance to form a contract, there must be consideration or the contract must be signed under seal. The consideration is defined as “some right, benefit or increased benefit for the promisor or some indulgence, injury, loss or any other liability suffered by the promisor”. What this means is that the party trying to enforce the contract must have “paid” for something in exchange for the other party’s promise. The consideration must be of real value, but it does not have to be money. For example, a mutual exchange of promises is a consideration per se.


For a person to be bound by a contract, they must have the serious intention of creating legal obligations. For example, inviting a guest to dinner would not normally be considered a contract intended to create legal obligations. The Law presumes that there is a legal intention in a contract that involves strangers. On the other hand, if the contract is between family members, the Law presumes that there is no intention to be bound (transaction without market conditions). However, this presumption can be reversed if there is evidence to prove otherwise.


Even when all of the above essentials exist, a contract can still be void, voidable, or illegal. A void contract is one that is legally considered to have never existed. A voidable contract is slightly different: it exists until it is repudiated by one of the parties. An illegal contract is one that is made for an illegal purpose and is therefore always void. Examples of voidable contracts are those that are made when one of the parties is a baby, that is, a minor or minor. In this case, the baby can cancel the contract. Likewise, when one of the parties is legally insane, the contract is voidable. A special case is a stipulated contract when one of the parties is a limited partnership or a corporation. Three questions must first be answered before the contract can be enforceable: 1) whether the corporation actually exists and 2) whether it has the ability to enter into the contract and 3) whether the person signing on behalf of the corporation is, in In fact, the authorized signatory.


Aside from openly illegal contracts, such as contracts to commit a crime or tort until recently, here in British Columbia, certain other types of contracts were considered illegal. For example, until the mid-1980s, contracts involving the sale of land made on Sunday were considered a violation of section 4 of the Lord’s Day Law (now repealed) and therefore illegal and void. Since then, the Supreme Court of Canada has ruled that the application of section 4 – in fact, the entire Lord’s Day Act – is unconstitutional because it infringes on the freedom of conscience and religion guaranteed by the Canadian Bill of Rights and Freedom.


If one of the parties misrepresents or if the contract contains an inherent error, the contract may not yet be binding. A misrepresentation is, by definition, a statement that is false and that must have induced one of the parties to enter into the contract. A misrepresentation can be innocent, negligent, or fraudulent and there are different remedies available to the injured party due to the nature of the misrepresentation. If the representation is innocent, the party can demand the termination of the contract. In the case of negligent or fraudulent misrepresentation, the affected party can also sue for damages. Although misrepresentation requires a statement to be made, in real estate silence can also result in some form of misrepresentation. Disclosure of latent defects is an example: Seller’s failure to disclose latent defects will not, by itself, affect the consent of the parties, but will have consequences similar to false statements.

In the case of inherent error, there is no true consent of the parties. The logic behind this notion is that the parties were negotiating on a different issue than that stipulated in the contract. A specific type of error is sometimes called ‘non est factum’, which is Latin for ‘this is not my work’. This occurs when a person executes a document form thinking that the document is something else. Both coercion and undue influence affect the genuine consent element of a contract. Coercion occurs when a person is forced to enter into a contract against their will. As a result, the Courts will find the contract voidable at their choice. Undue influence, on the other hand, is more subtle. Like coercion, it results in one of the parties losing their free will to contract. However, it occurs more frequently when one person is in a superior or dominant position in relation to another and uses this position of influence to induce the other to enter into the contract. Again, if undue influence is found, the contract is voidable at the option of the innocent party.

Luigi frascati

[email protected]

Real estate chronicle

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