Contract basics

Not every agreement is a legally binding contract. To be legally enforceable a contract has to be valid. That means it has to have certain key ingredients, specifically:

• Intent: The parties intended to make a contract.  If there is a dispute courts look at the words and actions of the parties to figure out whether a reasonable person looking at the situation would think that the parties intended to be bound by their agreement;

• Capacity:  The parties must have the legal ability to enter into an agreement. Generally, to have capacity a person must be mentally competent, must not be impaired by alcohol or drugs, and they must be 19 or older (19 is the age of majority in Nova Scotia). A minor (person under 19 in NS) may enter into contracts, but they can choose to void the contract when they reach the age of majority. However, there are exceptions. For example, employment contracts and contracts for "necessaries" of life, including food, clothing and shelter, cannot be voided when the person reaches the age of majority;
  
  
• Offer: An offer is the indication by one person to another that she is prepared to enter into a legally binding agreement;

• Acceptance: when one party accepts an offer made by the other party. A person can accept an offer with their by words (for example,  by saying or writing, “I accept your offer”). However, a person can also accept an offer through their actions (for example, by signing a contract, or when a reward is offered for finding and returning a lost dog and someone actually finds and returns the dog).

• Consideration: Something of value (consideration) is exchanged.  Consideration may be money, or a service, product, or anything that the parties consider acceptable in the situation. For example, if a baker sells a loaf of bread to a customer for $3.50 then the baker's consideration would be the loaf of bread and the customer’s consideration would be the $3.50.

• Legal purpose: A contract made for an illegal purpose will not be enforceable by the courts.

• Certainty of terms: The terms of a contract must be certain enough so that each party knows what they are obligated to do under the contract. If there is too much confusion or misunderstanding about what the terms of the contract are then there is not really any agreement for the court to enforce.

1. Shop around. Understand exactly what each company is offering. The more you know, the more you can negotiate. Compare price, guarantee or warranty, how long the contract is for and any other terms or conditions that are important to you.
2. Know who you're dealing with. Reputation is important, so ask friends or family for references. If you are not sure about a company's reputation check with the Better Business Bureau..
3. Negotiate. Most contracts can be negotiated. Use the information you gathered while shopping around to get the best service and price. Don't feel pressured to sign immediately – if the company or individual wants your business, they will listen to your concerns.
4. Read the contract and pay attention to the details. Make sure any verbal agreements or claims made by the salesperson are written into the contract. Cross-out any parts that you do not want to agree with, and have these changes initialled by you and the salesperson before you sign. Fill all blank spaces so that details cannot be added later by the salesperson.
5. Understand everything in the contract. Ask the salesperson questions and get advice if there are parts that  you don't understand. Don't forget that the fine print is part of the contract too. You can have a lawyer review the contract if you feel you need to.
6. Know who to call for help or make a complaint. Ask the salesperson for a customer service phone number and the steps to take if you need to make a complaint.
7. Remember that a signed contract is a legal document, so you will have to live with what you agreed to. Generally, a contract cannot be changed or broken unless you and the other party both agree.
8. Know how to get out of it. In some cases a short period of time is allowed to cancel a contract without penalty; it's called the "cooling off period" and it should be described in the contract. Even if it isn't, you might still have a cooling off period. Contact Service Nova Scotia to find out if there is a cooling off period in your situation, and how long it is if there is one. To cancel a contract before it is over, both sides have to agree, but usually it will cost you.
9. Sleep on it. Is this what you really need and want? It's okay to change your mind before signing or agreeing to a contract.
10. Once it's signed, get a copy and keep it. You may need it later on for reference, or to launch a complaint if you have a problem.

Adapted from Justice Education Society of BC and the Financial Consumer Agency of Canada.

If a contract is valid then the parties are bound by it. That means most of the time a contract cannot be cancelled without penalty.

If you change your mind and no longer wish to be bound by the contract, in most cases you'd need to try to negotiate with the other party to try to get them to agree to let you out of the contract.

If the other party does not agree to let you out of the contract, they may allege the contract was breached (that you broke the contract terms) and you may still be on the hook for whatever it is you agreed to under the contract, or at least for whatever penalty might be in the contract for breaking its terms, or for the remedies a court can award for breach of contract.

However, there are a few exceptions.

Some contracts might be cancelled depending on the type of contract or the conduct of the parties. The contract itself might have terms saying how the contract may be cancelled, and if it is, what the consequence would be.

Also, in some cases there might be an automatic cancellation period, sometimes called a "cooling off period", that allows one of the parties to change their mind without consequences and withouth having having to give a reason, within a specific window of time.  If there is a cooling off period it would either be specifically written in the contract, or come from a statute like Nova Scotia's Consumer Protection Act.  For example, in Nova Scotia there is a cooling off period for gym contracts, payday loans, direct sales, online sales, and prepaid funeral service contracts.

If a contract does not have all the ingredients listed in the section “Basic Ingredients of a contract" then it is void and likely would not be legally enforceable because it is invalid. Examples of invalid contracts would be contracts for the sale of stolen goods, contracts made with a person who lacks capacity, or contracts where nothing of value is exchanged.

Some contracts are voidable and might be cancelled for reasons such as:

• a serious misrepresentation made by one of the parties;
• a mistake about a key contract term; or
• duress or undue influence or pressure being put on one of the parties.

Before a contract is made, the parties often talk about the terms of the agreement. They may make statements to encourage the other person to make the contract. These statements are called representations. 

Misleading,  untrue or inaccurate representations are known as misrepresentations. A misrepresentation is something that is untrue, inaccurate or misleading that convinces the other person to enter into a contract. The law recognizes several different kinds of misrepresentation:

• Fraudulent or false misrepresentation is when a person misrepresents something intentionally or recklessly, knowing it is false, to convince another person to enter into a contract.  For example, a person who sells fake weight loss pills that they know don’t really work.

• Negligent misrepresentation is when a person carelessly makes a misrepresentation that they really should have known not to make. For example, a health care professional who sells phony weight loss pills that don’t work and who didn’t bother to research them.

• Innocent misrepresentation is when a person makes a misrepresentation that they had good reason to believe was true.  For example, a person who sells phony weight loss pills, but who was told by a doctor that they were effective.

If a person decides to enter into a contract because of a misrepresentation, they may be able to get out of the contract, or receive damages (money) from the party that made the misrepresentation, depending on the misrepresentation and all of the facts.

If a person can prove that they were forced into a contract under duress or because of undue influence then the contract may not be enforceable.  Duress is a wrongful act or threat that makes someone do something against their will. If a person signs a contract because the other person threatened them the contract may be unenforceable, depending on the circumstances and kind of threat that was made.

Undue influence is when someone abuses their power over another person to convince them to do something against their will. If there was an unequal relationship where one person took advantage of another person’s position to pressure them into making a contract, that contract may be unenforceable..

If, through no fault of either party, something happens so that the contract becomes impossible to fulfill then the contract may be what is called frustrated and the parties may be excused from the contract.

For example, imagine that Alice agrees to purchase Betty’s car for $2500. Unfortunately, before they can complete the sale Betty’s car is stolen. Through no fault of either party, Alice no longer has a car to sell to Betty. The contract would be frustrated and Betty would not have to pay.

This is different from a party breaching (breaking) the terms of a contract, as the event is due to unforeseen circumstances and is not because of the actions of either of the parties.

Breach of contract is when a party does not do what they agreed to under the contract.

For example, imagine that Alice entered into an agreement with Betty to shovel her driveway for $15 on a particular day. If Alice does not show up to shovel Betty's driveway on the day agreed to, then she has breached their contract.

Someone who breaches a contract might be sued by the person who did not break the contract terms. If they are successfully sued in court then the party who broke the contract terms may have to pay damages (compensation), or in some cases the judge might order them to do what they promised to do under the contract.  

A breach of contract does not automatically end the contract. Instead, the person who did not break the contract terms gets to decide whether to treat the contract as still in place, or to treat it as at an end.

Someone who breaches a contract may be sued by the other party. The lawsuit would either be in Small Claims Court or the Nova Scotia Supreme Court depending on what the case is about, the amount of money involved, and what remedies the plaintiff is seeking.

If the other party is successful with their lawsuit and the judge decides that there was a breach of contract then the next step is for the judge to decide what remedy they should grant.

A court will look at all of the circumstances of the case before choosing what remedy to award. The following are the general types of remedies that a court may award:

• A party may be compensated in damages (money) for the loss they suffered or for the work they completed under the contract;
• The party that breached the contract may be ordered to do what they were supposed to do under the contract in the first place.  This is called specific performance;
• The contract might be rescinded (cancelled) so that the parties are no longer bound by it.

Even if there is a breach of contract, the person who did not break the contract terms is expected to mitigate their losses.  This means they are expected to take reasonable steps to avoid further damage or increased costs arising from the breach of the contract.

If you are thinking about a law suit it is a good idea to see a lawyer to get legal advice before you decide whether that is the best course of action, and also to decide which court to go to.

Most businesses who sell things to the public in Nova Scotia are subject to the Consumer Protection Act.

The Consumer Protection Act applies whenever a consumer sale is made by a seller in the ordinary course of business in the province.

A consumer sale is a sale where goods or services are purchased for the buyer’s personal consumption or use. A seller is any person who is in the business of selling goods or services to buyers.

Under the Consumer Protection Act there are certain terms that every consumer sales contract is deemed to have even if they are not mentioned by the seller or written into the contract.

These are the terms that automatically apply to every consumer sales contract in Nova Scotia:

• The seller can only sell goods if they are the true owner of the goods; this is called a "right to sell" condition

• A buyer has the right to use and enjoy the goods that they purchase. No other party may use or enjoy the goods without the buyer’s consent; this is called the warranty of quiet enjoyment

• The goods must be free of any financial claims like outstanding payments or liens; this is called the "freedom from encumbrances" warranty

• The goods must fit the description provided by the seller; this is called the "correspondence with description" condition

• If the seller is aware why the buyer is purchasing the goods then the goods must fit the purpose that the buyer is buying them for; this is called the "fitness for purpose" condition

• The buyer must be able to use the goods for their ordinary purpose, unless there are defects that are acknowledged by the buyer and the seller; this is called the "merchantable quality" condition

• The goods are presumed to be new and unused unless they are described otherwise

• Goods must be durable for a reasonable period of time based on their normal use and the circumstances of the sale

• If services are performed, the services are to be performed in a skillful and professional manner.

The seller is not permitted to override these terms, or state that they do not apply. If a seller does attempt to override these terms, or state that they do not apply, then a court would likely consider the contract to be void and unenforceable.

Direct sellers are sellers who sell goods or services away from their usual place of business.  Door-to-door sales are the most common example, but direct sellers also include telemarketers and people who sell goods at home-based parties.

Direct sellers are regulated under the Direct Sellers’ Regulation Act. Every direct seller must be licensed by Service Nova Scotia.  

Most direct sales contracts have to be in writing and they have to include:

• the direct seller’s name, business address and telephone number

• the salesperson’s name and signature

• the date and place of the contract

• an itemized price of the goods or services, terms of payment and the total cost of the contract

• a good enough description of the goods and services to identify them

• a statement of the buyer’s cancellation rights

• the delivery date of the goods or services if not provided on the transaction date

• the completion date for providing the services if applicable

• where credit is extended, a statement of any security taken and the cost of borrowing

• a description of any goods taken in trade and the value given to the goods; and

• the signature of the purchaser.

A direct sale can be cancelled within 10 days of making the purchase. The buyer has to provide notice, in writing, to the seller that they wish to cancel the sale. The buyer does not have to tell the seller why they want to cancel. The 10 days to cancel a sale starts from the day the buyer receives the contract.

For more information on your rights when dealing with direct sellers, contact Service Nova Scotia at (902) 424-5200 or 1-800-670-4357.

• Information about consumer contracts from Consumer Affairs Canada's Canadian Consumer Handbook
• Service Nova Scotia - consumer information, or call 1 800 670-4357 or 902-424-5200
• Better Business Bureau of the Atlantic Provinces