This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.
In any business deal, whether it's hiring an employee, negotiating a sale, or renting a commercial space, contracts play a vital role. Each one is unique: the parties change, the details vary, and no two circumstances are ever the same.
But how do we make a contract? To start, each must have certain essential elements.
We’ll cover them in today’s post.
WHAT’S A BUSINESS CONTRACT?
A business contract is an agreement that details the obligations of each party. These include sales agreements, service contracts, and partnership agreements to name a few. It’s important to be aware of the key factors that make it valid and enforceable so that you can protect yourself and enforce your rights. Schedule a consultation with us to review or draft your business contracts.
MAKING A BUSINESS CONTRACT VALID AND ENFORCEABLE
A valid and enforceable contract must contain the essential elements.
FORM
It is generally accepted that in Quebec, the sole exchange of consent between parties with the required capacity forms a contract. In some cases, the agreement of the parties is enough and you don’t need to have any written document.
However, some contracts need a specific form to be valid. For example, under the Civil Code of Quebec contracts relating to hypothecs on an immovable property must always be granted by notarial act en minute.
As your business moves through different stages, it’s imperative to know which of your contracts require a specific form. We can take care of your drafting needs to ensure the use of the right form.
CAPACITY
Capacity is the legal ability to sign a contract. You must at least 18 years old in Quebec to sign one. But, the caveat is that an adult under tutorship or curatorship may have rules in place limiting their ability to agree to a contract. Additionally, for employment, a minor aged at least 14 years old can agree to work.
There are also other situations to consider. If you’re working with a corporation you need to ensure that the person signing the contract has the authorization to represent the company.
If one of your signing parties does not have the legal capacity to sign, the contract may be considered relatively null. Consequently, it will have been as if it never existed and each party will have to restore the prestations received.
CONSENT
To form a contract, all parties must give their free and informed consent. It's important to understand what is required of you, as well as what the other parties are required to do.
In certain circumstances, the consent won’t be valid. Notably, in the presence of an error, fear, or lesion.
Let’s see why.
1. Error
On the one hand, we have a simple error. The person who agreed to the transaction wouldn’t have agreed had the error not occurred. For example, you operate an art gallery and you want to purchase an authentic art piece. You sign the agreement. Then you find out the piece you’re purchasing is a replica. Had you known this before you signed the agreement, you wouldn’t have bought it.
However, only certain categories of this type of error will vitiate consent:
In the first case, if the parties don't agree on the type of contract to be signed. For example, you applied for a loan with a bank and you didn’t know you were signing a surety.
Second, an error regarding the prestation of the contract. This is like our art gallery example. You bought something completely different from what you believed you were purchasing (a replica instead of the authentic art piece).
Third, none of the parties agree on one (or more) of the essential elements of the contract.
No matter what kind of simple error you made, it must have been one that drove your decision to sign the agreement. But, remember that you have the responsibility of informing yourself properly before agreeing to anything.
On the other hand, we have cases of fraud, situations where the error is based on a mistaken belief of facts, or a false representation of reality. This is with the knowledge of the party who is benefitting from this falsehood. It also includes remaining silent or concealing information. Here, if you had the right information or at least the necessary information, you wouldn’t have agreed to make the deal. For example, the other party lied to you, or they confirmed false information to get you on board.
2. Fear
Here, fear plays a direct role in the person's agreement.
Fear of serious injury to a person or your property vitiates consent. This fear comes from threats or violence from the other party. For example, if someone threatens your reputation if you don’t agree to their terms. This notion also covers fear induced by abuse of power (or a threat relating to it). In analyzing this concept of fear, we’ll often assess multiple factors such as the person’s age, gender, and situation to name a few.
3. Lesion
Lesion is exploiting the other party and creating a serious disproportion between their obligations.
Except in certain situations, lesion only vitiates consent for minors and protected persons of full age (18 years old in Quebec). However, there are exceptions to this rule which can be found in different laws like the Consumer Protection Act and the Charter of Human Rights and Freedom.
You may be able to obtain the relative nullity of the agreement, damages, or a reduction of your obligations, among other remedies for consent obtained through error, fear, or lesion. Each circumstance is different and the resulting remedy will depend on a variety of factors.
OBJECT
The object refers to the legal purpose of the contract - is it a service, a sale, a loan? To have a valid and enforceable contract, the object (i.e. the purpose for which you are concluding this contract) must be legal.
For example, the object of the clause is illegal if someone writes out a sale contract in which they are selling their blood. Despite every other clause in the contract being valid since the object is illegal the contract will be invalid.
Then we have the object of the obligation, which is the responsibility of each party. This must also be legal and set out in a clear way that allows each party to know the obligation for which they’re signing up. Finally, we have the object of the performance, the matter to which the performance relates. In a real estate sale, the object of the performance for the seller is the property and for the buyer it is the funds.
CAUSE
The cause is the reason for each party to agree to the contract. We can break this down further into a non-personal and personal cause.
First, the cause of the contract will be the same for all contracts of the same category. For example, in a service contract, one party’s cause will be to pay for the services and the other party’s cause is to perform the service.
Second, the cause for the contract is your reason for agreeing and it must be legal. For example, someone decides to lease an apartment to commit a crime. Renting an apartment is perfectly legal, but the cause - the reason for the rental - is illegal. In determining the legality of a contract, a judge may use this type of reason to potentially terminate the agreement.
THE PLACE WHERE THE CONTRACT IS FORMED
Since we can do business anywhere, the question of where a contract is drafted becomes a challenge.
Under Quebec law, the place where a contract is formed is where the offeree receives the acceptance. For example, it would be formed in Montreal if you made an offer over the phone to someone in Ottawa who then accepted.
What about a contract that you send by email or through some other technological means? Generally, if you’re making the offer, your business address will be the place of formation.
Careful! There are many exceptions to this rule. For example, in consumer contracts, the place of the contract's formation is usually the consumer’s address.
Knowing the place where your contract is formed is critical if you need to exercise your rights; get in touch with a lawyer to figure out the details.
As you work toward completing a transaction, keep in mind the fundamental elements that make a contract. Get in touch with us to discuss the steps you need to take.