CONTRACTS

I have written this report based on questions often asked of me while in private law practice in British Columbia and Alberta, Canada, since 1975. Although my first hand experience is limited to those jurisdictions, I have written in non-legal terms and with general principles in mind so that the information will be helpful, in varying degrees, in most jurisdictions of Canada and the United States.

Discussion to agreement to oral contract to written contract - a progression. Here's an example. You get together with a friend who owns a ski area and you talk about skiing. That's a discussion. You then decide that the two of you will meet next weekend for a day on the slopes. That's an agreement. You then give a deposit to your friend for a new pair of skiis he promises to get you. That's an oral contract. You then sign a document with your friend in which you and your friend agree that you will buy the ski area. That's a written contract.

So when does the law get involved? If your discussion gets a little heated - don't call your lawyer. If your friend breaks his agreement and doesn't meet you, you are not going to court (you're going skiing by yourself). But if your friend doesn't get those new skiis for you, or doesn't sell you the ski area, now the law is interested. The law is interested in contracts (oral or written), not discussions and agreements.

By the way, I know that "agreement" is often used to mean something the law would enforce, but that usage is a little loose. Not very impressive around the court house.

So what does it take to make the transition from discussion and agreement to oral and written contracts? That takes us into lots of boring topics, like consideration, offer, acceptance, and one of my favourites, "invitations to treat". Sounds like a party or something. Stay away from all of this. All you need to know is where you're at. Do you have a contract or not? Ask us, and we will tell you if you have a contract, or we will show you how to create one.

If contracts can be oral or written, why would you want to make the transition to a written contract? There are three reasons.

The first reason is that the law requires some contracts to be in writing. For example, in some jurisdictions, contracts with respect to an interest in land are in this category.

The second reason is that the law needs to know what to enforce. Having a contract in writing solves that problem. It's called evidence, and written is better than oral.

And now the third reason - the biggy. In the process of putting a contract into writing, misunderstandings are identified and worked out before they become a problem. This is why oral contracts get into so much trouble - they never go through this step. Certainly some situations in court are good guy vs bad guy, honest vs dishonest, but there are as many situations (and maybe more) that involve two honest people who thought they had it all figured out, but in truth had misunderstood each other. They simply passed in the night and didn't know it. One person thought they said $10 and the other person thought they heard $11, and they don't know of their near miss until it comes time for payment. It happens all the time, not from trickery or dishonesty, but only from the perils of oral communication. Although the risk of disagreement and misunderstanding will never be eliminated, risk is reduced dramatically by putting contracts in writing.

Of course, you need to be practical. Even if the legal considerations say put it in writing, sometimes it isn't worth the time or expense. You need to weigh the time and expense of putting it in writing against the loss to you if the contract is broken.

Ok, you say, I have decided to put a contract in writing, and I will do it myself to save money. Again, it's a balance. A lawyer is trained to think of various options, question various possibilities, and suggest solutions. I regularly have people come to me to write a contract. They will tell me the whole contract (as they see it) and I will say "That's great, now what about this", to which the usual answer is "Hmmm, hadn't thought about that". Weigh the cost of getting a lawyer's input against the consequences of a breach of contract. And remember, you don't have to consider all possibilities. Lawyers will always start with the most important, and from there go into as much detail as you wish. Not every contract has to consider what happens if the earth is struck by an asteroid. More detail, greater cost, lower risk.

Now that you understand the reasons for putting a contract in writing, let me ask you a question. How frequently do you think people enter contracts with people they don't trust? Kind of a no brainer question, right? So if you enter a contract with someone you trust, why does it have to be in writing? The answer is in all of the above reasons. If you think the answer is only reason number two (so you have written evidence of the contract), it is probably a pretty good indication that trust isn't there and you should run for the hills. You should run for those same hills if someone suggests you don't trust them because you ask for a written contract. Alarm bells all over the place! Take off, eh - and take your skiis with you.

You wouldn't expect to read anything "legal" without some kind of caution - so here it is. This report is general information only and not to be relied upon without legal advice. For legal advice, call us.

Hoped this helped.

Best regards,

Derek McManus, MA (Econ), LlB.

Derek McManus Law Corporation

Phone 833 4720

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