Understanding Contracts

November 24, 2013

The law of contracts is a vast subject area and is relevant to almost all areas of the law. A contract is an agreement between two or more parties which the courts may enforce. A binding contract must involve "offer and acceptance". They are legally binding once signed and cannot be cancelled unless there has been:

  • misrepresentation
  • fraud
  • duress
  • a clause that allows you to cancel
  • a mutual agreement to cancel

Certain persons are protected by law. Unless the contract is for "necessities of life", for example, food and clothing, the following persons are unable to make binding contracts:

  • minors
  • mentally challenged
  • drunken persons

Not all contracts need to be in writing. We make contracts everyday when we ride a bus, buy a newspaper, or go shopping. The act of exchanging goods or services for payment is a contract. The necessity of having a contract in writing becomes apparent when there is a dispute, and one party seeks to have the other party fulfill their obligation. The contracts which MUST be in writing are:

  • Promises by an executor of a will to pay a debt of the estate out of their own pocket;
  • Promises to guarantee payment of another person's debts;
  • Promises made in consideration of marriage;
  • A contract for sale of land, or any interest in, or concerning land;
  • Any contract not to be completely performed within a year of the date of agreement.

A formal written contract should include the following:

  • full name, address, and phone number for both parties.
  • definite dates for the delivery of the product or the start up and completion dates of this service.
  • a detailed description of the product or services including the type and quality of materials to be used.
  • a statement of all warranties.
  • place and date of the contract.
  • both parties signature. A witness to the signatures would also be helpful.

It is best (and less expensive) to not sign any contract or complete a transaction until you are absolutely certain you understand and agree to all the terms of the contract. If you are unsure about the contract take it to someone who can help you understand it. Ignorance is not a defence. Contracts are binding once both parties sign or complete the transaction. Withholding payment or stopping payment on a cheque as a means of cancelling a contract is not advisable. You could be sued for breach of contract.

An exception to the above is a Direct Sales contract. When sales contracts over 25 dollars are not made at the salesperson's normal place of business but in the buyer's home, such as door to door sales, the buyer may cancel the contract in writing within 10 days of receiving a copy of the sales contract without needing or providing a reason for cancellation. 

A contract may be discharged by:

  • Agreement
  • Performance
  • Impossibility
  • Operation of law
  • Breach
  • Failure to perform
  • Where a party suffers a loss as a result of breach of contract, they are usually entitled to recover that loss. If the party suffers no loss, they cannot receive compensation.

For more information on the Door to Door sales and the Direct Sales Cancellation regulation, contact Service Alberta toll-free at 1(877) 427-4088.