Introduction to Contracts - LawNow Magazine

Introduction to Contracts

Consumer law covers a wide range of topics that are pervasive in our everyday lives – including contracts, advertising, credit, buying of goods and services, privacy and more. CPLEA often receives questions from the public about consumer law-related issues and so LawNow is launching this column to address these concerns. Our new Consumer column aims to help readers become better-informed consumers. This first article of the column will introduce what contracts are, what they look like and what laws apply to them.

Introduction to Contracts

The main source of law that applies to contracts is common law (judge-made law).Contracts are in every aspect of our everyday lives. When you rent a home, you have to abide by the terms of a lease. If you have a mortgage on your home, you essentially have a contract with your bank to pay back the money they lent you. When you go to work, the terms and conditions of your employment are likely outlined in a written employment contract. You are under a contract whenever you use your mobile phone or queue up your favorite show on your television subscription service. By the end of today, you will probably enter into some more contracts. Did you buy a coffee in the morning or grab some groceries? Work out at a gym? How about open up your web browser to read the news? Have you done some online shopping? All of these activities are governed by contracts.

What is a contract?

A contract is a type of agreement where there is an exchange of legally enforceable promises between parties. To create a legally-binding contract, there must be 6 essential elements:

  1. There must be an offer where one party is willing to enter into an agreement with another party.
  2. There must be an acceptance where one party signifies their willingness to enter into a contract with the party making the offer. An offer can be accepted by words or actions.
  3. There must be consideration given by each party. Consideration is a right, interest, profit or benefit experienced by one party with some detriment, forbearance, loss or responsibility experienced by another party. An example of consideration between parties is one party paying money and the other party providing a service.
  4. Parties to a contract must intend for the agreement to become binding when it is accepted by the other party.
  5. Generally, only parties who are privy to (named in) a contract can sue or be sued on the contract. Third party rights are usually not recognized except in specific circumstances.
  6. There must be certainty of terms between the parties to the contract. Each party must know what the terms of the contract are.

For each of these elements, there are additional rules that have been developed in case law. While we won’t be going into further details about the elements of a contract in this article, what you should know is that the elements of a contract often overlap. For example, the rules of certainty of terms and the rules of offer and acceptance overlap.

What does a contract look like?

A contract is often in the form of a written agreement between parties. Contracts can also be in the form of an oral agreement but oral agreements can be much harder to prove when a dispute arises.

A typical form of a written contract contains information such as:

  • the names of the parties to the contract;
  • when and where the contract was made;
  • terms and conditions that must be met by the parties;
  • what service, product or good is provided;
  • what is being exchanged (e.g., money) for the service, product or good that is provided;
  • an acknowledgment that the parties agree to the terms in the contract; and
  • the signature of the parties agreeing to the contract.

For example, when your employer offered you your job, they may have sent you an offer letter. This letter would have set out the name of your employer, your name, your salary, the number of holidays you get, your job description and duties, and any other terms of the job. This is a contract.

What laws apply to contracts?

The main source of law that applies to contracts is common law (judge-made law). The general rules on agreements and contract theory comes from the decisions of judges in past contract dispute cases, many of which come from England. While our body of knowledge in contract law in Canada has its roots in English case law, it has evolved over the years in the Canadian courts to suit our circumstances. In Canada, the Supreme Court of Canada has the ultimate authority in making binding decisions that Canadian courts must follow in contract dispute cases.

A contract is a type of agreement where there is an exchange of legally enforceable promises between parties.There is some legislation (parliament or legislative assembly-made law) that applies to particular types of contracts. However, the legislation is usually limited to setting out what the default rules are for the particular type of contract. There are varying degrees on how far legislation goes in setting out the “default rules” for a particular type of contract.

For example, the Residential Tenancies Act (RTA) applies to residential leases. If there’s an inconsistency between the RTA and a residential lease, then the terms in the Residential Tenancies Act will override the inconsistent terms of the lease. The RTA doesn’t go as far as setting out what information must be in a lease. On the other hand, the Consumer Protection Act, which applies to direct sales contracts, outlines specific information that must be in a direct sales contract –for example, a detail description of goods, a statement of cancellation rights, etc.

Conclusion

Contracts can take many different forms and exist in many different situations. In upcoming issues of LawNow, we will look closer at specific types of contracts that consumers enter into.

Authors:

Judy Feng
Judy Feng
Judy Feng, BCom, JD, is a staff lawyer at the Centre for Public Legal Education Alberta. The views expressed do not necessarily reflect those of the Centre.
 


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