BUSINESS LAW FINAL EXAM NOTES
SUBJECT 4: Contracts
Definition of Contract: It is important that a contract be enforceable by law. The purpose of a contract would
otherwise be of no use.
• A contract is a voluntary exchange of promises, creating obligations which, if defaulted on, can be
enforced and remedied by the courts
o Primary concern of the courts is to enforce the reasonable expectations of the parties
• CCQ 1378: “A contract is an agreement of wills by which one or several persons obligate themselves to
one or several other persons to perform a prestation.”
o CCQ 1373: “Prestation” = “doing or not doing something”
Conditions of a Valid Contract
• Consensus (offer and acceptance) (ch.5)
• Formalities (if required)
Civil Law (CCQ 1385)
• Consents (offer and acceptance) (1386-1387) same as consensus in common law
• Willingness to be bound (1388)
• (Cause) (reason and legality) (1410-1411)
• (Object) (legality of prestation) (1413 and 1373 par. 2)
• Formalities (if required) (1414-1415)
Consensus: to establish, to determine whether there is a valid offer to enter into a contract and a valid
acceptance of that offer.
1 addition criteria in common law; consideration:
Intention: willingness to be bound. If a guy in a sports bar says “If that player scores a home run I’m
giving you $1 mln” and it happens, then there is an offer, there is acceptance…but it lack willingness
to be bound (also known as “mere puff”).
o The requirement of an intention to contract has been important in interpreting the legal effect of
advertisments. Ex: Carlil v. The Carbolic Smoke Ball Company. Pepsi Points for a jet.
Seriousness of intention for the Pepsi Point litigation was assessed based upon the objective
standard of what a reasonable person would believe.
Even if a valid offer as been made and there is consideration, there is no contract in law unless both
parties intended to create a legally enforceable agreement. Courts presume in favour of an intention to
contract where parties have signed a commercial document.
The seriousness of intention is also important (case with Pepsi points and the Harrier jet); would a
reasonable person believe that the other party had such intentions?
Capacity: if a person does not have capacity, a contract may not be binding. Factors affecting capacity:
age, a person of unsound mind, incapacitated through alcohol or drugs (treat the case the same way as
if it were a minor). Problem; additional burden of proof to show that at the time he entered into a
contract he was incapacitated and that the other party was aware of his condition. A minor may enter
into a contract for supply of necessaries (essential goods and services). He may “back-out” of any
contract for non necessaries (cannot do this if he is the seller of the goods). A minor who has benefited
from a contract for non-necessaries will not be able to recover money already paid, though he will be
able to repudiate his remaining liability. A person of unsound mind or incapacitated (drugs or alcohol), is
protected by law the same way a minor is.
Legality: a court will not enforce an illegal contract (ex: contracts with surrogate mothers) Formalities (for most contracts, formalities are not required): which means that a verbal contract; an e-
mail; can still be a valid contract. The importance of formalities is in the situation where there would be
a dispute over a verbal/no written contract (prove terms of contracts is going to be difficult)
Consideration is the price for which the promise of the other is bought. An accepted offer will not be
recognized as an enforceable contract unless it has consideration. In essence, the accepted offer must
form a bargain – where each party pays a price or gives value for the promise obtained from the other
o In a unilateral contract, the price paid for the offeror’s promise is the act done by the offeree.
o In a bilateral contract, the price paid for each party’s promise is the promise of the other.
o The price is called consideration.
Gratuitous promises: (donation of ppty like a house; always better to sell house for $1 because in
common law it is always possible to challenge a “donation”).
o Gratuitous promise: a promise made in the absence of a bargain. The law deos nothing to
rpevent performance of a gratuitous promise.
If the content of a contract is illegal, it cannot be enforced; ex max interest that can be charged is 60%,
if contract specifies more than this it is not legal thus void. An agreement can be made legal by statute;
Offer: a description of a promise one party is willing to make, subject to the agreement of the other party.
• CCQ 1388 - 1392
• A tentative promise which includes the terms
o CCQ 1388: “all the essential elements”
• Contract is created when the offer is accepted
o CCQ 1387
• Can have an expiry date or not
Termination of an Offer
An offer may end by (for civil law, see CCQ 1392):
o Common law: can be revoked at any time before acceptance
o Civil law = (1390 par. 2, 1391) it is not possible to revoke an offer prior to the expiry of the term.
If no term is attached, the offer can be revoked at any time (like in common law)
o Expiry date or reasonable time (if no specified term)
o a reasonable time is determined by observing industry standards and other factors. It depends
of the circumstances.
o an offer has lapsed:
when the offeree fails to accept within a time spcified in the offer
when the offeree fails to accept within a reasonable time, if the offer has not specified
any time limit
when either of the parties dies or becomes insane prior to acceptance
Counter-offer: Until an offer by one side is accepted without alteration, modification, or condition by the
other, there is no contract. The making of a counter offer is a rejection of the earlier offer and brings it to
an end. If the offeror in turn rejects the counter offer, the original offer does not revive.
• Death or bankruptcy of the offeror
If any of these occurs, the offer cannot be accepted (i.e. since the offer has “lapsed”, any “acceptance”
is in fact a “new offer”)
Option: a contract to keep an offer open. This can happen in the following way:
- the offer itself may specify that it is irrevocable
- a subsequent contract called an option may be made to keep the offer open (the option contract asks
the offeror to keep the offer open for a specified time period; and to not make contracts with other
parties; offeree must pay a sum of money) Acceptance of an Offer
• CCQ 1393-1394
o Must be unconditional
• Otherwise = counter offer
• Acceptance must be communicated to the offeror
o May be by words or actions
o Silence is not consent without a pre-existing agreement
BUT: there can be exceptions
- If for 10 years you placed an order on Monday and received the delivery by Wednesday, and then one
day the supplier decides not to ship based on the argument that no explicit contract was signed…it
would be difficult for the supplier to prove that no contract was in effect.
- A contract can be much like a tennis game where an offeree makes an offer, which is then countered by
the other party (at this point there is no contract because there is no agreement). The other party then
becomes the offeree by making a counter offer; if the first party accepts we have a contract.
- Silence: can be a sufficient mode of acceptance only if the parties have habitually used this method to
communicate acceptance in the past. If an offeror says that if the offeree does not reply to his offer, in
10 days for example, there will be no contract; because an offeror cannot insist on silence as a mode of
- 1394. Silence does not imply acceptance of an offer, subject only to the will of the parties, the law or
special circumstances, such as usage or a prior business relationship
- 1393. Acceptance which does not correspond substantially to the offer or which is received by the
offeror after the offer has lapsed does not constitute acceptance. It may, however, constitute a new
• Acceptance is by a promise
o E.g. Promise of work to be done in exchange for the promise of payment
• BOTH parties have legal obligations
• CCQ 1380, para. 1
• Postal rule: acceptance by mail is communicated when it is dropped in the mail (not when received).
For any other modes of acceptance, the offeror is not bound until the acceptance reaches him (must
also reach him before the offer lapses). Postal rule applies unless stated in contract otherwise.
• Revocation by post is effective only when the notice is received by offeree.
• 1380. A contract is synallagmatic, or bilateral, when the parties obligate themselves reciprocally, each
to the other, so that the obligation of one party is correlative to the obligation of the other. When one
party obligates himself to the other without any obligation on the part of the latter, the contract is
• Acceptance is made by performance of a specified act
o Reward situations
o Offer cannot be revoked after good faith performance has begun
• Here: good faith applies in common law
• Only one party (the offeror) has legal obligations
• CCQ 1380, para. 2
• In a unilateral contract, only one party to the contract makes a promise. A typical example is the reward
contract: A promises to pay a reward to B if B finds A's dog. B is not obliged to find A's dog, but A is
obliged to pay the reward to B if B finds the dog. In this example, the finding of the dog is a condition
precedent to A's obligation to pay.
Defects of Consents Civil Law:
• CCQ 1399. “Consent may be given only in a free and enlightened manner. It may be vitiated by error,
fear or lesion.”
• Undue influence
Error / Mistake – Civil Law
• CCQ 1400. “Error vitiates consent of the parties or of one of them where it relates to the nature of the
contract, the object of the prestation or anything that was essential in determining that consent. An
inexcusable error does not constitute a defect of consent.”
• Broad doctrine of error: CCQ 1401. “Error on the part of one party induced by fraud committed by the
other party or with his knowledge vitiates consent whenever, but for that error, the party would not have
contracted, or would have contracted on different terms. Fraud may result from silence or
• Includes innocent misrepresentation
Error / Mistake – Common Law (Ch.8)
• A mistake, in law, is not an error in judgment but an error with respect to either:
o The terms of the contract
Possible to recover
Reasonable person standard: was there clearly a mistake on the terms?
o Assumptions regarding the facts leading to the formation of the contract
• Exception: Frustration
Error in terms of contract: example you buy whiskey and its supposed to be aged whiskey but in fact you
realise its not; this is a case of an error in the terms of contract (contract may be set aside because of this)
Only certain kinds of legal mistakes will make a contract void or voidable and thereby qualify for equitable
relief. The party asking to set a contract aside must be able to return whatever benefit they received.
If court finds that there has been a mistake, the contract may be declared either void or voidable.
Error / Mistake in Performance is NOT a defect of consent
o Where there has been unjust enrichment, the recipient must repay the money
• E.g. CCQ 1493
Misrepresentation – Common Law
• A false statement of fact which induces the other party to enter into contract
• ***Silence is not misrepresentation (in common law)
o Contrarily to the case in Civil law: see 1401 CCQ on fraud [included in the broad doctrine of
• A statement of opinion is not misrepresentation (unless expert opinion); a false assertion is a
misrepresentation only if it is made as a statement of fact [ex: this is the best car in the world (opinion)
vs. this car can do 1000 km per liter (statement of fact)].
• The misrepresentation must be material
• Reliance is necessary
• In situations where there is misrepresentation or mistake, courts may decide to release parties from
contractual obligations and try to return them to their pre-contract position. • If a misrepresentation is made fraudulently or negligently, it can result to a tort. If a person makes an
innocent misrepresentation, no tort is commited.
• In contract, any material misrepresentation (innocent, negligent or fraudulent) give rise to the right to
rescind (set aside) a contract. If in addition the maker of the misrepresentation acted negligently or
fraudulently, the court may grant damages to the wrongdoer.
• When a party learns that it was the victim of a misrepresentation, it must act promptly, if too much time
is taken, the injured party may not rescind the contract.
Types of Misrepresentation
o Person making statement honestly believed it to be true
o An innocent misrepresentation becomes fraudulent if not corrected when discovered
o Person making statement was careless in not ascertaining the truth
Fear / Duress (p.197)
• Fear can vitiate consent
• CCQ 1402-1404
• Duress: actual or threatened violence or imprisonment as a means of coercing a party to enter into a
contract. Effect is similar to that of undue influence: contract is voidable at the option of the victim
o Threat of violence renders a contract voidable
Lesion / Unconscionability
LESION, contracts. In the civil law this term is used to signify the injury suffered, in consequence of inequality
of situation, by one who does not receive a full equivalent for what he gives in a commutative contract.
• Lesion (CCQ 1405-1406)
• Does not vitiate consent
o Some exceptions
Consumer Protection Act
o Extreme inequality of bargaining power renders a contract voidable
Undue Influence – Common Law
Undue influence: the domination of one party over the mind of another to such a degree as to deprive the
weaker party of the will to make an independent decision.
Undue inlfuence often arises when the parties stand in a special relationship (doctor, lawyer, parent/child). A
party must prove the court that domination was probable (easier when a special relationship existed). Once
this is done, the burden of proof shifts in the hand of the dominant party to prove that undue influence was not
exerted by him (this is very hard)
To counter risk of undue influence, creditors often suggest to their clients to get legal advice so they are aware
of the risks.
Contract will be voidable at the option of the victim
• Family relationships
• Relationships where one party possesses special skill or knowledge
• Presumption may be rebutted
o Independent legal advice will rebut the presumption The Interpretation of Express Terms
Express terms: Provision in a contract that is clearly, directly, and unmistakably communicated in written or
spoken words. See also implied term.
• Most contractual disputes are ones of interpretation
• The parties have different interpretations of ambiguous terms (or, sometimes, even unambiguous
• Frigaliment Importing Co. v. B.N.S. International Sales Corp.,190 F.Supp. 116 (S.D.N.Y. 1960)
o “The issue is, what is chicken?” Plaintiff says 'chicken' means a young chicken, suitable for
broiling and frying. Defendant says 'chicken' means any bird of that genus that meets contract
specifications on weight and quality, including what it calls 'stewing chicken' and plaintiff
pejoratively terms 'fowl'. Dictionaries give both meanings, as well as some others not relevant
• Rules of interpretation require either (2 approaches):
o The strict or plain meaning approach (or “literal”)
o The liberal approach (or “intention”)
o Rather than choosing between them, a court will apply both approaches and choose the best
meaning for the circumstances. In other words, the court must decide, in the circumstances of
each case, how far it should look beyond the words used to explain their meanings. Court might
also ask the opinion of expert witness in the field to interpret the meaning of a word
Rules of interpretation – CCQ
• 1425. The common intention of the parties rather than adherence to the literal meaning of the words
shall be sought in interpreting a contract.
• 1426. In interpreting a contract, the nature of the contract, the circumstances in which it was formed,
the interpretation which has already been given to it by the parties or which it may have received, and
usage, are all taken into account. [All these factors shall be looked at collectively when interpreting a
• 1427. Each clause of a contract is interpreted in light of the others so that each is given the meaning
derived from the contract as a whole.
• 1428. A clause is given a meaning that gives it some effect rather than one that gives it no effect.
• 1429. Words susceptible of two meanings shall be given the meaning that best conforms to the
subject matter of the contract.
• 1430. A clause intended to eliminate doubt as to the application of the contract to a specific situation
does not restrict the scope of a contract otherwise expressed in general terms.
• 1431. The clauses of a contract cover only what it appears that the parties intended to include, however
general the terms used.
• 1432. In case of doubt, a contract is interpreted in favour of the person who contracted the obligation
and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or
the consumer. The party that has the obligations has the benefit of the doubt.
Factors for interpreting a clause in a contract
How to determine intention of the parties?
• Words of the clause
• Other clauses in the contract
• Nature of contract
• Surrounding circumstances at the time of signing the contract
• Industry practice (“usage”) / Commercial efficacy
• Subsequent conduct of the parties
• Rules of interpretation
Some specific rules of interpretation
• Specific overrides general (for the specific situation only) • Contract does not speak for nothing (a clause is given a meaning that gives it some effect rather than
one that gives no effect)
• Words susceptible of two meanings is given a meaning that best conforms to the subject matter of
Implied Terms as a Method of Interpretation
• The court may imply a necessary term which was omitted by the parties
• Sources of implied terms:
o Custom of the trade (past business practice)
o Reasonable expectations of the parties (at the time of formation of the contract)
o Civil law (and some common law contracts): the court will make it an implied term that the
parties act in good faith
So as noted before, one method of interpreting meanings is by considering the most reasonable interpretation
of express terms. Another approach is to consider whether the intention of the parties can be achieved only by
admitting the existence of an implied term (a term not expressly included by the parties in their agreement).
• 1434. A contract validly formed binds the parties who have entered into it not only as to what they have
expressed in it but also as to what is incident to it according to its nature and in conformity with usage,
equity or law.
• Civil law: “Commencement of proof”: 2863
o You cannot contradict the terms of an agreement in civil law unless you have commencement of
proof, which may only be in writing (e.g. emails). Verbal testimony does not work to claim that
agreement contradicts the contract’s terms.
• Common law: “Parol evidence rule”
o Prevents a party to a written contract from presenting extrinsic evidence that discloses an
ambiguity and clarifies it or adds o the written terms of the contract that appears to be whole.
o The rule applies to parol evidence, as well as other extrinsic evidence (such as written
correspondence that does not form a separate contract) regarding a contract.
o If a contract is in writing and final to at least one term (integrated), parol or extrinsic evidence
will generally be excluded.
E.g. Carl agrees in writing to sell Betty a car for $1,000, but later, Betty argues that Carl
earlier told her that she would only need to pay Carl $800. The parol evidence rule would
generally prevent Betty from testifying to this alleged conversation because the
testimony ($800) would directly contradict the written contract's terms ($1,000).
o However, there are number of exceptions to this general rule, including for partially integrated
contracts, agreements with separate consideration, to resolve ambiguities, or to establish
o BUT: testimonies are possible with respect to “context”, especially when a clause is ambiguous
as per its text
• In the case of external evidence, a judge must rule on the basis of credibility
• Burden of proof might eventually play a role
• CCQ 1375. The parties shall conduct themselves in good faith both at the time the obligation is created
and at the time it is performed or extinguished.
• CCQ 6. Every person is bound to exercise his civil rights in good faith.
• CCQ 7. No right may be exercised with the intent of injuring another or in an excessive and
unreasonable manner which is contrary to the requirements of good faith.
o See Houle v. National Bank of Canada Consumer or Adhesion Contracts
• 1436. In a consumer contract or a contract of adhesion, a clause which is illegible or
incomprehensible to a reasonable person is null if the consumer or the adhering party suffers injury
therefrom, unless the other party proves that an adequate explanation of the nature and scope of the
clause was given to the consumer or adhering party.
• 1437. An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising
from it may be reduced.
o An abusive clause is a clause which is excessively and unreasonably detrimental to the
consumer or the adhering party and is therefore not in good faith; in particular, a clause which
so departs from the fundamental obligations arising from the rules normally governing the
contract that it changes the nature of the contract is an abusive clause.
How a Breach Occurs
• Breach may occur by:
o Express repudiation: happens when one of the contracting parties advises the other that it does
not intend to perform as it promised. The promisee can sue for whatever damages it sustains.
Before substituting a new party to proceed with performance, it is prudent for the promisee to
inform the repudiating party that it is treating the contract as immediately terminated and is
reserving its rights to sue for damages for breach.
o By acts that make performance impossible: a wilful or negligent act by the promisor that
destroys its ability to fulfil its contractual promises amounts to breach of contract – this does not
include an act that is an involuntary response to forces beyond its control. (Ex: promising to sell
car to A and then selling it to B who offered a better price; A can sue)
o By failure to perform
• CCQ 1594, 1597
Remedies – Common Law
• Damages: A loss resulting from a breach must be within the foreseeable limits of what the parties would
have expected as a likely consequence of a failure to perform (compensation for damages will be
based on this)
o Expectation damages: = expected gross profit of the contract – injury’s party’s costs of
o Consequential damages: secondary losses incurred by the non-breaching party that were
foreseeable at the time of contracting (seller is liable for any loss incurred in the stage of resale
due to its own breach of contract)
o General damages: non-monetary harm arising from the breach
o Reliance damages: alternative to expectation damages, place the injured party into the position
it would have been in if the contract had been properly performed, an injured party may claim
reliance damages, which compensate the injured party for wasted time, effort and expenses
reasonably made to prepare for performance.
• Equitable remedies: special non-monetary remedies given only when damages alone will not
adequately compensate for a loss
o Specific performance: is an order requiring a defendant to do a specified act, most often to
complete a transaction.
Injunction is a court order restraining a party from acting in a particular manner; in relation to
contract, it prohibits a party from committing a breach. For the remedy to be available, the
courts require the contract to contain a negative covenant (a promise not to do something) – the
covenant need not be stated expressly as a prohibition but may simply be a logical
consequence of an express promise. Ex: an express promise by a tenant to use leased
premises for office space would likely be construed to contain an implied promise not to use
them for a nightclub.
Injunction will be the “procedural” mean
o Rescission: setting aside or rescinding a contract in order to retore the parties as nearly as
possible to their pre-contract positions. If it is not possible to return to near pre-contract position, te court will not order rescission. (ex: people elect rescission whenever they decide to return
defective goods to the store instead of suing for repair or replacement)
o Quantum meruit: such claims arise when valuable benefit is conferred at the request of a
promisee. Definition: the fair amount a person deserves to be paid for benefit conferred). Such
circumstances are common in construction contracts when breach occurs after commencement
of the work but prior to completion (ask court to assess FMV of the work already done and
receive compensation on a quantum meruit basis).
• Plaintiff’s demand and judge’s discretion
Remedies – Civil Law
Resolution = as if contract had not existed
Resiliation = terminated as of today
Performance by equivalence = damages; this is the preferred method in Quebec
• CCQ 1590
o Specific performance:
By way of injunction
o Performance by equivalence (“damages”):
The Purpose of an Award of Damages
Similar to restitutio in integrum = put back the person in the same position they were in had the fault no
If there would have been no breach means that contract would have been completed and performed –
damages will included all profits that were expected from that contract and will not be realized because of the
breach by other party.
Compensation objective, not punishment.
• To put victim in economic position as if contract had been completed
• Compensation not punishment
o History: breach of contract used to be a crime
• Civil law: “performance by equivalence”
Amount of damages
• CCQ 1607, 1611, 1613
• Damage must flow naturally from the breach (causation)
o Unusual losses are not compensated
• Only losses which could be anticipated at time of contract are compensated
o “Foreseen or foreseeable”
Rule of 1613 is one particularity of contractual matters (unlike extra-contractual matters) – debtor is liable only
for damages that were foreseen/foreseeable at the time obligation was contracted.
1607. The creditor is entitled to damages for bodily, moral or material injury which is an immediate and
direct consequence of the debtor's default.
1611. The damages due to the creditor compensate for the amount of the loss he has sustained and
the profit of which he has been deprived.
Future injury which is certain and able to be assessed is taken into account in awarding damages.
1613. In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at
the time the obligation was contracted, where the failure to perform the obligation does not proceed
from intentional or gross fault on his part; even then, the damages include only what is an immediate
and direct consequence of the nonperformance.
Mitigation of Damages
• CCQ 1474 • Plaintiff must keep losses as low as possible
• Recovery only for losses resulting from the breach that could not be avoided by acting reasonably
SUBJECT 5: Agency, Employment and Lease Contracts
The Nature of Agency
• Agent acts to bring principal (Principal: the person on whose behalf the agent acts) and third party into
• Dependent agent acts for single principal
• Independent agents carry on an independent business and act for a number of principals
Creation of Agency Relationship
• Agency may notably be created by:
o Express agreement
o Ratification: situation where the principal and agent relationship does not exist at the beginning,
but the agent enters into an agreement with a 3 party (negotiations), and this agreement is
being ratified by the principal. Ratification is a principal's approval of an act of its agent where
the agent lacked authority to legally bind the principal
o Necessity: situation where a person (aged/disabilities) has a tutor appointed to enter into
contracts on their behalf; tutor acts as agent for the principal.
Duties of an Agent to the Principal
• Duty to comply with contract i.e. follow instructions of agency agreement
• Duty of care – act with competence/skill (be diligent in keeping her principal informed about all
important developments affecting their relationship)
• Duty of personal performance – the implied term is that the agent will personally perform the obligations
under the agency agreement – if the agent has the intention to delegate some of their responsibilities,
they have to provide for it in the agency agreement (this is due to the high degree of confidence
required in such relationships)
• Duty of good faith/fiduciary duty – requires an agent be loyal, act in the best interest of the principal,
and keep the principal fully informed. Agent cannot place themselves into position of conflict of interest
(i.e. be buyer and seller at the same time) – cannot learn of opportunity while acting as agent to
principal, not mention to principal and do the transaction for yourself (accounting for funds) – no secret
commissions allowed (ex: negotiate for agreement and negotiate something favorable for the other
party because you convinced the principal who you represent in order to get some commission on the
o Fiduciary duty includes
Avoiding conflicts of interest
Accounting for funds
No secret commissions
Duties of the Principal to the Agent
• Duty to reimburse the agent for reasonable expenses
• Duty to remunerate the agent Authority of the Agent (Determined by agency agreement)
• Actual authority
o Express or implied
• Apparent authority:
o Contract is valid and enforceable, even when agent had no actual authority to enter into it – if
she had the apparent authority to do so (3 party believed he had the authority). The authority
that a 3 party is entitled to assume that the agent possesses (unless 3 party knows agent
doesn’t have authority, he can claim there is apparent authority).
o If there is apparent authority, then the agreement with the principal remains binding (principal
cannot say they are not bind by contract because the agent did not have some expressed
authority) – principal could sue the agent for going beyond their authority (as long as it was
apparent authority) – check with industry practice – would a reasonable 3 person have thought
that the agent rdd this authority?
o Holding out: 3 party interprets behavior as reasonable interpretation of the agent having
authority (behavior may be by words or conduct, ex: principal honored similar contracts made in
the past) ex: agent had business card with principal’s number… so they are deemed to have
If there is ratification by the principle, then we don’t care anymore if agent had authority or not. The ratification
basically ratifies what was done by the agent (after the fact) and nobody can any longer say that there was a
breach (because whatever conduct has occurred has been ratified). – ratification must be for the entire
contract (i.e. all the clauses)
Cannot ratify a contract made for him if at the time the contract was made, he would not have been able to
enter into the contract himself. Principal cannot ratify when the rights of an outsider are affected. Cannot ratify
if at the time the agent made the contract, the agent failed to name the intended principal
• Subsequent adoption by the principal of a contract
• Ratification must be of the entire contract
• May only ratify a contract which the principal could have made at the time
Rights and Liabilities of Principal and Agent
Potential liability on the contract includes:
• The principal alone is liable on the contract
o When there is actual or apparent authority, only principal will be liable on the main agreement –
3 party thinks that the agent is acting on behalf of principal; then the only recourse of the 3 rd
party will be against the principal and only the principal is bound by the agreement.
• The agent alone is liable on the contract
o If agent was not presenting himself as an agent but rather acts as if he was the real contracting
party, and the 3 party thinks he is negotiating with the party himself and not an agent acting on
behalf of him, then the agent will be bound.
• Either the principal or agent or both are liable
o Where the agent did not specify his status, but was in fact acting on behalf of an undisclosed
principal (3 party finds out during litigation or finds out about existence of principal before
getting a judgement)
o An undisclosed principal may enforce contracts made on his behalf: principal must show that
contract was made with his authority (if agent has no authority, undisclosed principal cannot
o If agent was acting within her apparent authority, 3 party may sue the principal as well as the
agent for the tot of deceit.
• No contract
o If the “agent” acts like if he is an agent but he has NO authority (neither actual nor apparent),
there is no contract, no binding agreement if a reasonable person in the position of the 3 party
should have known that this person did not have authority to act on behalf of the company.
There can still be recourse because there is fault being committed by the “deemed” agent. o Person purporting to be an agent but without any authority may be sued for breach of warranty
of authority(by 3 party)
• If agent is guilty of fraudulent misrepresentation in making contract, even though principal did not
authorize it, 3 party may rescind the contract, just as if the principal had made the misrepresentation
• Principal is liable for torts of agents acting within actual and apparent authority
o = “Vicarious liability”
Terminating an Agency Relationship
• Upon the expiry of the time specified or the completion of the particular project for which the agency
• Upon notice by the agent or principal
• Upon the death or insanity of either principal or agent, or the bankruptcy of the principal
• Upon frustration of the contract (event that makes performance of the agency agreement impossible.
Ex: hire an agent to sell house and your house burns down)
Employment and Labour Law: Developments
- In common law: traditionally based on common law of master and servant (the contractual relationship
between an employer and an employee)
- Supplemented now by
o Statutes that have been passed to regulate employment relationships
o The emergence of trade unions and collective agreements
Contracts: in order to be valid, a person entering into a contract must have capacity; in the case of an
employee-employer relation, it would entail the employee not having authority. rd
- Indoor management rule: refers to a situation where an employee acts as if he has authority towards 3
party and enters into agreements on behalf of the employer. This agreement will be binding to the
employer in the course of business for a corporation.
Employment law non-unionized environment
- each employee/individual has an individual contract with employer – what governs the rights/obligations
of the parties towards each other, employee can act as employer’s agent
- Agreement can be document/not documented (for smaller organizations)
- Important distinction: there are a lot of rules of public order – generally referred to as the “minimum
labor standards” minimum wage
o Agreement will not be enforceable if public order is not followed, even by the consent of the
o Exception: independent contractor (this is not employee)
- As an employee, worker may have action for wrongful dismissal (by contrast, an agent under indefinite
agreement may have no recourse against principal that terminates the agreement without notice)
Employer’s Liability towards Third Parties
• Contract (vicarious liability)
o Employer retains liability for contract entered by its employees in the course of their duties
o Employer is vicariously liable for torts committed in the course of their duties (Ex: an employee
gets mad, during his duty, pushes a customer who falls and injures himself. Is the unauthorized
and wrongful act of the employee connected with the authorized act as to be a mode of doing
it….or is an independent act)
Termination of Employment
- With Notice
o No notice required if employee is under fixed term contract.
o Minimum notice period ranges between 2-8 weeks, depending on years of service o Employees (QC) in addition to a notice, if one believes he is not terminated for cause and that
you are wrongfully dismissed, you can ask to be re-integrated.
o Pay in lieu of notice: give an amount of money instead of pre-notice (8 weeks of salary instead
of 8 weeks of notice). In a human resource perspective, this is better because employees
knowing that they are being terminated may be less motivated, transfer information to
- Dismissal for Good and Sufficient cause
o It is the employer’s burden to show that there’s valid cause for termination
o Disobedience is broad enough to include situations where the employee does not directly
disobey but acts in a manner inconsistent with the usual loyalty expected of that kind of
o Notice is not required for dismissal with cause
o Conduct that creates cause includes:
• Incompetence (difficult to justify the more an employee has been employed)
• Permanent illness
- Wrongful Dismissal
o If an employee quits, employee is not entitled to compensation. If employer purposely makes
employee life miserable by assigning shitty jobs, in this case, if employee decides to quit, he
would be entitled for constructive dismissal (employer acted in such a way that he made you
quit). Employee injured by breach of contract is expected to act reasonably in order to mitigate
his losses find another job
o Action arises where notice was insufficient or cause not established
o Damages determined by calculating reasonable notice (return damaged party to position it
would have been in if the contract had been completed)
o Damages are increased by bad faith dismissal (use hard ball tactics, humiliation)
o Employee is entitled to be “reinstated” (a form of specific performance)
o If reinstated is not possible, employee is required to mitigate her loss
Labor Law unionized environment
- Collective Bargaining (unionized environment)
o One single agreement that governs relationship between all the employees and the employer
o An employer cannot negotiate individually with an employee member of a union
• The process of negotiating a contract between an employer and a bargaining agent for its employees
(the union) is very regulated.
o Employer may voluntarily recognize union
o Or union may apply for certification
o Each bargaining unit negotiates separately, union bargains for the employees instead of them
doing it individually and directly with the employer
Usually cannot do anything while the bargaining agreement is in place, renegotiation
only opens when it expires.
- Unionized environment can have strikes or lockouts. These are restricted rights to interest dispotes,
only after a genuine attempt to reach agreement.
o Conciliation process required to bringing parties together and forming a resolution to avoid
o Picketing should be peachful, cannot interfere with business of employer
o There cannot be strikes before the expiration of a collective bargaining
o Scab, a strikebreaker, a person who works despite strike action or against the will of other
employees (cannot hire replacement workers during a strike) – a replacement worker.
Forbidden in quebec. - In the case of the Journal de Montreal lockout, which lasted more than 2 years, free-lance journalists
were hired to write for the newspaper. The law states that the employer cannot hire replacement
workers to work in the premises. JDM paid journalists which worked from their own private offices.
- Also see s. 96 LSA for liability of successor employer…the case where a S/H would create a new entity,
transfer all assets to new entity (leaving original company an empty shell) and offer some striking
workers to come work for him (the employees don’t have a bargaining agreement with this new entity)
• Certification not invalidated by sale of undertaking
o Labour Code (Quebec) s.45
o Also see s. 96 LSA for liability of successor employer
Implications for the Individual Employee
• Employee cannot bargain individually with employer
• Rand formula requires payment of union dues even without union membership
o If one does not want to pay union dues because he does not want to be associated with the
union must still pay his dues (according to rand) because he is benefiting from the bargaining of
the union so he should pay.
• In common law: distinction between real estate leases and chattel leases
o Chattel = personal property as opposed to “real” property (i.e. real estate); in civil law = movable
assets (ex. of “chattel”: equipment, motor vehicles, etc.) (not land)
• In civil law: distinction between “leasing” (CCQ 1842-1850) and “lease” (CCQ 1851-2000; including
special rules for the leases of dwellings)
o “Leasing” in civil law is usually referred as “finance leases” in common law
The Nature of a Lease
- 2 types of chattel leases:
In an operating lease, since there is no intention to transfer ownership, the term tends to be relatively short.
Long term leases in which payments add up to the value of the property are more likely to be purchase
leases. Ownership is intended to change hands at the end of the lease term.
Finance lease: the supplier of the goods sells them to the financer, who in turn leases them to the lessee. The
financer is technically the owner of the goods, even though he never had possession of the goods.
In common law, finance lease must be registered to the PPSA in order to be valid (same regulations as
Common Terms in Leases
Most chattel leases will contain the following terms:
• Rent: payments of rent, usually payable in advance. (in lease-to-own, rent is computed with reference
to the normal selling price of the asset, with an additional interest element; in operating lease rentals
takes more account of the probable depreciation of the asset over the period of the lease.
• Insurance and other costs: in short-term operating leases, the lessor normally insures the leased asset
and bears the cost of maintenance and repairs. In longer leases, and especially in purchase leases, the
lessee is usually required to covenant to keep the asset insured, to maintain it properly, and to pay cost
of maintenance and repairs.
o Responsibility of the parties
• Early termination and minimum payment: for new assets, the decrease in its value from depreciation is
often greater than the amount of rent payable in the early part of the lease term. Thus lessor will
usually impose a minimum rental payment to offset this loss in value in the situation where there is
early termination (penalty).
• For purchase or finance leases of chattels:
o Purchase option (bargain or not): FMV vs LTB (lease to buy): in FMV lease, the purchase option
corresponds to an estimate of the value of the asset at the end of the lease term. In LTB leases,
the price is nominal (ex: $1). Difference will be reflected in rental payments. Implied Terms: Warranty of Quiet Enjoyment
• Lessee has the right to enjoy possession and use of the leased property without interference from
• An assurance against the lessor’s defective legal title
• Covenant that will not allow interference with enjoyment
• No physical interference
• In civil law: CCQ 1851, 1854
Warranty of fitness: the lessor impliedly warrants that leased equipment is reasonably fit for the purpose for
which it was leased.
Lessee is under a standard of care to take care of the equipment leased to him as is prudent and usual in the
industry for those who own the equipment
Implied Terms: Warranty of fitness for purpose
A landlord may be liable to repair structural defects that develop, particularly if failure to repair amounts to an
indirect eviction of the tenant and consequently a breach of the covenant for quiet enjoyment (leaky roof). In
the absence of an agreement on who pays taxes, it will be the landlord`s duty by default (costs will be included
• Lessor must repair any structural defects
• Lessor also responsible for maintenance of common areas in large buildings
• Tenant is not liable for repairs unless
o An express covenant
o Tenant causes excessive wear
o Is responsible for waste (damages to the premises that reduces its value
• In civil law: CCQ 1854, 1863, 1864-1869
• In commercial leases (as opposed to residential/consumer leases): unless otherwise specified
Rights of the Parties
o Right to whole of rent even if item is returne