Anaya Nolan
Contract law in Canada is composed of two parallel systems: a common law framework outside of Quebec and a civil law framework within Quebec. In Canada, a contract is a written or spoken agreement between two or more parties intended to be enforceable by law. For a contract to be valid, there are five conditions that must be met: mutual consent, offer, acceptance, consideration, and performance in good faith. If a party fails to carry out their promise, the other party can take them to court to force them to comply or receive financial compensation.
| Characteristics | Values |
|---|---|
| Number of legal systems | 2 |
| Types of legal systems | Common law (outside Quebec), Civil law (Quebec) |
| Basis of common law | Jurisprudence, traditional British common law |
| Basis of civil law | French civil law, Roman law |
| Number of conditions for a valid contract | 5 |
| Conditions for a valid contract | Mutual consent, offer, acceptance, consideration, exchange of something valuable |
| Contract performance requirements | Must be performed in good faith, duty of honest performance |
| Contract enforcement | Bound by law to carry out promise, court-ordered compliance, financial compensation |
| Consumer protection | Cooling-off periods, consumer protection offices, consumer protection law |
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What You'll Learn
Contract formation
Canadian contract law is composed of two parallel systems: a common law framework outside of Quebec and a civil law framework within Quebec. Outside of Quebec, Canadian contract law is derived from English contract law, though it has evolved since Canadian Confederation in 1867. Quebecois contract law, on the other hand, was originally derived from French civil law at the time of Quebec's annexation into the British Empire. It was later overhauled and codified in the Civil Code of Lower Canada and, later, in the Civil Code of Quebec, which outlines most elements of contract law.
In Canada's common law provinces and territories, three components are required for the formation of a valid contract: offer, acceptance, and consideration. In other words, each party to a contract is required to exchange something of value, and a gratuitous contract is not valid. Where one party retains discretion over the performance of an obligation under a contract, that obligation is a "mere option" and cannot serve as valid consideration.
In Quebec, articles 1377 and 1456 of the Civil Code of Quebec (QCC) govern contracts and are derived mainly from French civil law. In other provinces, regulations governing contracts are based on jurisprudence (previous court decisions) and traditional British common law. Many provinces have adopted legislation codifying the rules of certain contracts, especially sales and consumer contracts.
Regardless of the jurisdiction, a contract is generally a written or spoken agreement between two or more parties intended to be enforceable by law. For a contract to be valid and legally binding, five conditions must be met: there must be mutual consent from both parties, offer, acceptance, and consideration. When consent is given by error, under duress, or as a result of fraudulent practices, the contract may be declared null and void.
In some provinces and territories, there is an automatic cancellation or "cooling-off" period for certain types of contracts. This is a specific period during which a party can reconsider their decision and cancel the contract for any reason.
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Consumer protection
The CPA also provides consumers with certain rights and protections. For instance, it grants consumers a "cooling-off" period, allowing them to cancel certain agreements without penalty within a specified timeframe. This applies to door-to-door sales, advance payments for gym memberships, and purchases of newly built condominiums. Additionally, the CPA ensures that ordered products are delivered within 30 days of the promised date, after which consumers can request a refund. It also prohibits charging consumers for unsolicited items or services.
The Sale of Goods Act complements the CPA by establishing conditions and warranties for all sales of goods to consumers. This Act guarantees that the goods received match their description and meet acceptable quality standards. Consumers have the right to refuse acceptance of non-conforming goods and demand a refund. If consumers have already accepted defective goods, they may still be entitled to a partial refund.
In the context of safety, the federal Consumer Product Safety Act sets out mandatory standards for a wide range of consumer products, although specific categories of products may be regulated by other statutes. Consumers who experience issues with consumer transactions can seek remedies through common law claims, including negligence, negligent misrepresentation, fraudulent misrepresentation, failure to warn, or general breach of contract. Damages are the most common remedy awarded in such cases, with punitive damages having a higher threshold for awarding.
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Contract interpretation
Canadian contract law is composed of two parallel systems: a common law framework outside Quebec and a civil law framework within Quebec. Outside Quebec, Canadian contract law is derived from English contract law, though it has developed distinct features since Canadian Confederation in 1867.
As the interpretive exercise is objective, the subjective intentions of the parties are not relevant. Similarly, extrinsic evidence of the parties' intentions is generally barred by the parol evidence rule, which precludes evidence outside the words of the written contract that would add to, subtract from, vary or contradict it. However, this rule is subject to many exceptions. Another relevant principle of interpretation is that Canadian courts will seek to promote commercial efficacy. Interpretations that make 'no commercial sense' or result in a commercial absurdity will be strenuously avoided, while interpretations that 'allow the contract to function and meet the commercial objective' will be preferred.
Where commercial reasonableness has conflicted with a plain reading of the words of a contract, the courts have taken inconsistent approaches. The correct approach in Ontario appears to be that, in such cases, commercial efficacy will only overwhelm the written words where the words lead to a result that is 'clearly' commercially absurd. In Manitoba, by contrast, the Court of Appeal has ruled that where 'a tension exists between the literal meaning of a contract and an interpretation based upon its commercial purpose', the latter interpretation may prevail where dictated by 'business common sense'.
The Alberta Court of Appeal has phrased the test differently, holding that an interpretation that 'defeats the intention of the parties and their objective in entering into a commercial transaction in the first place should be discarded in favour of the interpretation which promotes a sensible commercial result'. Furthermore, Canadian courts will only imply a term into a contract in limited circumstances, namely if it is: based on custom or usage; legally incident to the particular class or kind of contract at issue; and based on the presumed intention of the parties where the implied term is necessary 'to give business efficacy'.
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Contract performance
In general, contracts are always formed in the same pattern. A person offers to give another person something, such as delivering an item in exchange for a certain price, providing a service, or refraining from doing something. In Canada, as in most jurisdictions, the Convention on Contracts for the International Sale of Goods (CISG) governs contracts concerning the international sale of goods.
The duty of honest contractual performance, referred to in Quebec as the doctrine of abuse of rights, is an implied term of a contract. This duty prohibits parties from lying or knowingly misleading each other about matters directly linked to the contract's performance. It is rooted in the Quebec Civil Code, which provides that "every person is bound to exercise his civil rights in accordance with the requirements of good faith". This duty has also been extended to Canada's common law provinces and territories as a result of the Supreme Court's decision in Bhasin v. Hrynew.
In the context of contract performance, Canadian courts will not typically compel the performance of a contract. However, if damages are deemed inadequate, courts have the power to order specific performance or issue injunctions to prevent the breach of an agreement. This is known as equitable relief, and courts may also award damages alongside or instead of this type of relief.
There are practical considerations to take into account when determining whether specific performance is the desired remedy. These include the time required to obtain a judgment, the financial state of the buyer/seller, and the risk to the business during the waiting period. Additionally, in some cases, contract performance may not be possible due to unforeseen events that render the agreement significantly different from what was initially undertaken.
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Contract dispute resolution
Mediation, for instance, is a popular option for litigants as it minimises the cost of litigation by encouraging early resolution. Some jurisdictions in Canada require mediation as part of the court process, and commercial contracts may also include mandatory mediation clauses. At the conclusion of a successful mediation, the parties will normally memorialise the terms of the settlement in a written agreement that is signed by the parties or their lawyers. Oral agreements are also enforceable if there is sufficient evidence to prove their existence and terms.
Arbitration is another option, and businesses in Canada are increasingly choosing this method to resolve their contractual disputes. Arbitration clauses can be included in contracts, requiring any disputes to be dealt with in a specific jurisdiction or forum. Canadian courts will uphold these clauses unless there are valid reasons for overriding them, such as the validity of the contract being called into question.
In Canada, damages awards tend to be lower than in the United States, especially in the area of tort claims. This is partly because jury trials rarely occur in civil cases in Canada. Additionally, the losing party in litigation will generally be ordered to pay a portion of the litigation costs of the successful party.
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Frequently asked questions
Contract law in Canada is composed of two parallel systems: a common law framework outside Québec and a civil law framework within Québec.
Outside of Quebec, Canadian contract law is derived from English contract law, whereas Quebecois contract law is derived from French civil law.
In Canada's common law provinces and territories, three components are required for the formation of a valid contract: offer, acceptance, and consideration. Additionally, for a contract to be valid and legally binding, mutual consent of both parties is required.
In Canadian common law jurisdictions, it is controversial whether the performance of pre-existing duties is considered good consideration. Court rulings in New Brunswick and British Columbia have abrogated this rule with regard to post-contractual modifications, while courts in Ontario have continued to require fresh consideration.
The duty of honest performance is a general doctrine of contract law that imposes a minimum standard of honest performance on parties to a contract. It applies to all contracts and states that parties must not lie or knowingly mislead each other about matters directly linked to the contract's performance.
