Basic Rules of Contracts

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We might not realize it, but many everyday situations involve contracts. For example, most people have experience with a contract to sell something. But sometimes contracts raise tricky questions.

In this article, Éducaloi explains the basic principles of contracts, how to prove a contract exists and what it says, and the options available when there is a disagreement.

How are contracts created?

A contract is created the moment two people agree to do something for each other. These people, who are called "contracting parties", can be individuals, a group of people or representatives of a business.

In general, it is not necessary to sign a document for a contract to be created.  A simple verbal agreement can be enough. Imagine that Ulysses told Irene he would come to trim her cedar hedge next Tuesday for $10 an hour. Irene accepted. As a result of this simple conversation between Ulysses and Irene, a contract was created that they both must respect.

However, some kinds of contracts must be in writing, and some must even meet other requirements to be valid. For example:

Of course, even when the law does not require a written document, it is often a good idea to put a contract in writing. When there is a written document and a problem arises, the disagreement doesn't become a case of "his word against mine".

Can anyone make a contract?

No. Some people cannot make contracts or can only do so in certain situations. For example:

  • Children and adolescents can only make contracts to meet their ordinary needs. These needs vary according to age and level of maturity. Simon, who is 15 and has no job, can therefore buy bus tickets on his own, but not a $9,000 scooter.
  • Adults under protective supervision can only make contracts in certain situations. The situations depend on the type of protective regime: curatorship, tutorship or help from an advisor.

Is the place where the contract is made important?

Yes. It is important because it can determine the choice of courthouse for filing a lawsuit.

Normally the contract is made at the place the two people involved in the contract were when they came to an agreement.

If the people involved were not in the same place, the contract is considered made in the place where the person who made an offer received the acceptance of the other person to make the contract.

For example, Patricia, who is in Quebec City, put an advertisement on the Web to sell her bike. Olivier, who is in Trois-Rivières, wrote to Patricia to say he was interested in the bike. After a few conversations during which they agree on the key parts of the sale ? the price, how the bike will be delivered and date of delivery ? Olivier agreed to buy Patricia's bike. The contract is made in Quebec, where Patricia received Olivier's acceptance to purchase the bike.

But if the contract is between a merchant and a consumer, and there is a dispute that the merchant and consumer cannot settle, any legal action must be brought before the court where the consumer lives. 

Insurance contracts are an exception: they are made at the place the insurer accepts the offer of the person who would like to be insured.  However, if there is a disagreement, the insured person can still file a lawsuit against the insurer at the courthouse in the area where he lives.

Do I still have to respect the contract if the other person doesn't respect it?

In principle, commitments must always be respected. However, you can refuse to respect your part of the contract if the other person was supposed to do something first and fails to do it.  This is a way to put pressure on the other person to respect his commitments. Failure by the other person to respect the contract is also a defence that can be used in court if the other person claims you did not respect your own commitments.

For example, let's say Sarah hired Damien to paint the walls of her room on Friday. Unless Damien is prevented from coming to paint because he is the victim of an accident or other event beyond his control, Sarah would be entitled to refuse to perform her part of the contract (paying Damien) if

  • Damien doesn't paint the walls,
  • Damien only came on the following Tuesday to paint the walls,
  • Damien painted the walls the wrong colour, or
  • Damien only painted one of the walls of the room.

In these situations, Sarah can refuse to pay Damien in proportion to the work he does or does not do. So, if Damien did nothing, Sarah could pay him nothing. If he only painted one wall, she could pay him in proportion to the amount of work he did, that is, one-quarter of the whole amount agreed to.

An event beyond my control prevented me from respecting the contract. What happens?

Impact on Your Responsibility

If you are sued because you did not respect your contract, you can avoid responsibility if you can prove there was an "act of God" (event beyond human control), unless the contract states that you are responsible even if an act of God occurs.

To be considered an act of God, the event must be outside your control. It must have been absolutely impossible for you to predict the event and prevent its negative impact. Finally, you must have been completely prevented from respecting the contract and from having someone else carry out your duties under the contract for you.

For example, let's say it was impossible for you to get to a client's house to repair his heat pump on the date you agreed to do this.

  • If you could not get there because your car ran out of gas, this is not an act of God since you could have prevented this by getting gas. Also, you could have prevented the incident from causing the client inconvenience by calling to say you would be late, asking the client to come pick you up, sending a colleague in your place, etc.  
  • On the other hand, if you hit a moose and ended up in the hospital, this could be considered to be an act of God. 

Impact on the Validity of the Contract

If it is still possible and useful to carry out your obligations under the contract despite the act of God, you must do so. The contract therefore remains valid. However, you are not responsible for delays caused by the act of God.

If you can no longer respect your obligations under the contract or if it is no longer useful to do so, the contract is cancelled. For example, if you agreed to deliver a wedding cake the day of the marriage ceremony, delivering it the next day would be too late!

If you got money in advance to carry out your obligations under the contract, you must reimburse this money. If you have already fulfilled your part of the contract when the act of God occurred, you are entitled to be paid for this part.

How are the existence and contents of a contract proved in court?

When the Contract Is Available

When you take or contest a lawsuit, you must present "exhibits". Exhibits are documents or other evidence (other than the testimony of witnesses) that support your version of events. You must present the original of the contract if you can get it. If you don't have access to the original, you can present a copy.

When the Contract Is Not Available

Between a Consumer and a Merchant 

When the contract is between a consumer and a merchant, the consumer who lost or never got the contract can prove its existence and contents through testimony regardless of the amount of money involved. However, this evidence is not considered to be as good as the written document.

Other Cases (e.g., between two individuals)

If you don't have the written document, you can prove the existence and contents of a contract of $1,500 or less with testimony, but this evidence is not considered to be as good as the written document. 

Above $1,500, a contract can be proved with testimony only if the opposing party acknowledges, directly or indirectly, the existence of the contract. For example, the opposing party might acknowledge this through an admission, testimony or a document he wrote.

Let's say François sold his car to Gaston for $5,000 but did not put anything in writing. Gaston paid $500 by cheque. Several weeks later, despite requests from François, Gaston refused to pay the rest. François decided to file a lawsuit. To be able to use testimony to prove the existence of the contract, François can present as an exhibit a cheque from Gaston that says "partial payment for car", or an email in which Gaston says that he will pay the balance owing in a few months.

Can a contract be cancelled?

Generally a contract cannot be cancelled. However, it is possible to cancel a contract in some situations. Here are examples: 

Legal Capacity

A contract can be cancelled when the people involved did not have the right to enter into a contract. For example, if 15-year old Lea buys a scooter, her parents can ask that the contract be cancelled. 

Physical or Mental State at Time Contract Entered Into

A person cannot enter into a contract if his mental state prevented him from understanding the implications of his actions. For example, if a person is completely drunk, under the influence of drugs, or suffering from severe depression, he can ask for the cancellation of any contracts he entered into while he was in that state. 

Error, Lies, Extreme Pressure

A person who entered into a contract can also ask for it to be cancelled if he was victim of an error, lie (either something that was said or the failure to say something) or extreme pressure. In these cases, this person did not really intend to enter into the contract or would have only done so on different conditions. This kind of situation can arise when:

  • a person made a very important error regarding the contract. Here is an example: Huguette thought she was buying an original painting by her favourite painter when in fact the contract she signed only let her borrow this painting.

  • a person was intentionally misled, either by something the other person did or through the other person's fraudulent failure to do or say something. For example, Huguette got obviously excited by what she referred to as an original painting by her favourite painter but the seller failed to tell her it was a reproduction. 

  • a person is forced to enter into a contract through physical threats or psychological pressure that goes beyond a normal sales pitch. For example, the seller threatened to reveal to Huguette's husband that he was having an affair with Huguette unless she bought the painting.

Contract Missing Required Statements

Certains contracts can sometimes be cancelled if they are missing statements required by law. This is especially true for contracts between consumers and merchants. To learn more, see our Consumers section.

Can you cancel a contract because you paid too much for something?

It depends. As a general rule, contracts are valid even if one person paid too much for a thing or service. But there are exceptions.

  • If a consumer overpaid, a contract between a consumer and a merchant can sometimes be cancelled in these situations:
    • When the merchant has too big a financial advantage over the consumer. For example, let's say Kim paid much too much for her home theatre system compared to what it is worth. Kim can ask a judge to cancel the contract or give her a reduction in the purchase price.
    • When the consumer does not have the financial means to make the purchase. Let's look again at Kim's purchase of a home theatre system. This time she bought the latest high-end model. She only earns a very small salary, is heavily in debt and does not even have room in her home to install it. A judge could decide to cancel the contract, especially given the seller's disregard of Kim's credit rating in relation to the cost of her purchase. Kim could also ask for a reduction in the price.

  • A minor or person under protective supervision can rely on the fact he overpaid to cancel any kind of contract, that is, even if contract did not involve a merchant.

Are all kinds of statements in contracts legal?

It depends. When the other person imposed the contents of the contract on you and you had no chance to negotiate (this is called an "adhesion contract"), or when you are a consumer who entered into a contract with a merchant, there are rules about what the contract can say. 

These kinds of contracts cannot: 

  • refer to another document of which you are not aware or which is not available to you. For example, your rental contract for a lawnmower cannot refer to a user manual for the lawnmower found in another document not available to you. 
  • contain writing that is so small you can't read it
  • be written in language that can't be understood by an average person in the same situation. For example, a contract with a statement that uses specific computer terms might be considered incomprehensible for the average person. On the other hand, if you are a computer technician, this clause would be acceptable because you can understand it.
  • purposely place the other person at a disadvantage in an abusive way. For example, if an insurance contract states that claims must be made within 24 hours, the judge will evaluate whether this clause is abusive by looking at the circumstances and benefits of the contract for the people involved. 

In these situations, it is possible to ask for cancellation of the part of the contract that violates these rules. It is also possible to ask for cancellation of the whole contract if taking out that part makes the contract useless. 

What happens if my contract is cancelled?

If your contract is cancelled, it is as though it never existed. The people involved must therefore return to the situation they were in before the contract was entered into. To do this, they must give back to the other person everything they received because of the contract.

Let's say that Zoe sold her stamp collection to Xavier for $3,000. If the contract is cancelled by a judge, Xavier must give back the collection to Zoe and Zoe must give back the $3,000 to Xavier.

In the case of a contract for services, the person who performed services obviously cannot demand that they be returned in the form of services. But that person can ask for payment of the value of any services performed before the contract was cancelled.

For example, let's say that Nicole hired Christian, a carpenter, to renovate her bathroom for $5,000. When the contract was cancelled, Christian had finished half the work. He can ask to be paid $2,500, the value of the services performed up to the time the contract was cancelled.

Can two people agree to end a contract?

Yes. Sometimes we say that a contract "is the law for the parties". This means that you and the other person who made the contract can agree to change part of it or to end it. If you do this, you must agree on the impact of changing or ending it.

To avoid problems, it is better to put your agreement in writing. For some kinds of contracts, the law requires you to put your agreement in writing.

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Important !
This article explains in a general way the law that applies in Quebec. This article is not a legal opinion or legal advice. To find out the specific rules for your situation, consult a lawyer or notary.

Articles in the category "Making and Respecting Contracts"