Contracts: the basics

What is a valid contract?

In Quebec, a contract is an agreement between at least two people, which is intended to be legally binding. Generally, in order for a contract to be valid, the contract and its formation process must respect the following fundamental principles: (1) each party must have consented willfully to the contract; (2) each party must have acted in good faith during the negotiations leading up to the contract and the effects to each party created in the contract must not be unreasonably excessive; and (3) the contract must not violate a rule of public order.

What are the necessary elements to form a valid contract?

For a contract to be legally enforceable, it must satisfy four essential substantive conditions: (1) consent; (2) capacity; (3) the object of the contract; and (4) the cause. If one (or more) of these conditions has not been met, the contract may be deemed null.

(1) Consent

In order to bind oneself by a contract, a person must consent by way of her own volition to take on certain obligations. Consent is usually exchanged by the parties in a two-step process: the offer and the acceptance of the offer. In the first instance, one party makes an offer to contract, or, in other words, declares herself ready to accept certain obligations under certain conditions; then, in the second instance, the other party decides to accept the offer or not. Acceptance is, at least in principle, sufficient to create a valid binding contract.

(2) Capacity

Consent must be given legally. Capacity is the aptitude required by law to bind oneself by a juridical act. Indeed, to be able to enter into a contract, a person must be in possession of her rights since a right which one does not possess cannot be modified. For example, children who have not reached the legal age of majority (18 years in Quebec) form a protected class when it comes to contracting, and this protection takes the form of a limited incapacity.

(3) The Object of the Contract

To form a valid contract, a person must legally consent to a predetermined and concrete thing. Thus, a contract must have a precise object. Even if there is ongoing debate regarding the exact meaning of this notion of the object, this element can be defined for our purposes as the main juridical operation that the parties had in mind when they concluded their agreement. In this manner, the object can vary infinitely from contract to contract. Sometimes, however, the law limits this vast scope by forbidding certain juridical operations, which, in turn, cannot form the object of a contract. For example, since an act of fraud is illegal, it cannot form the object of a valid contract. In some cases, if a contract with an expressly illegal object is nonetheless entered into, it will be deemed null, as if the contract did not exist anymore.

(4) The Cause

Finally, since entering into a contract is a willful act, each party must have had a valid reason or motivation for entering the contract. This reason or motivation is called the “cause,” or in other words, it is the “why” of the contract. In effect, this notion of the cause presumes that a person does not assume obligations without a reason that pushes her to act this way.

Must a contract be in writing to be valid?

The quick answer is no. Generally, the law does not require contractual agreements to be in writing in order for them to create legal obligations it is a valid contract.

However an important exception to this rule exists for artists in certain fields. Section 31 of the Act Respecting the Professional Status of Artists in the Visual Arts, Arts and Crafts and Literature, and Their Contracts With Promoters (R.S.Q Chapter S-32.01) requires that contracts between artists (in the above-mentioned fields) and promoters be written in order to be valid. Section 31 of the Act also sets specific content requirements: in order to be valid, the contract must specify:

(1) Its nature

(2) The work(s) which form the object of the contract

(3) Any transfer of right consented to by the artist

(4) Transferability of the license to third parties

(5) Money due to the artist and intervals of payment, as well as any other considerations of payment

(6) Frequency in which the promoter must report to the artist on transactions made with the work

It is also important for artists to keep in mind that promotion contracts are not enforceable unless the artist has a copy of the contract pursuant to s.32 of the Act.

In other matters where writing is not a requirement, it is still important to keep in mind that it is not prudent to rely solely on an oral agreement. Indeed, should a dispute as to the content or even the very existence of the agreement arise, one must be capable of proving the terms and existence of the contract in a court of law. As such, even though the law recognizes oral contracts, a written document outlining the terms of the oral agreement will serve as stronger evidence.

What are the effects of a contract?

Valid contracts bind parties to the performance of the promises they made in the contract. Each party must therefore provide to the other the benefits bargained for in the contract, and one party cannot unilaterally terminate or otherwise modify her contractual obligations.

If one of the parties completely refuses to carry out her promise, or performs only partially or otherwise inadequately, the other party may initiate judicial proceedings. These proceedings will offer the aggrieved party a possibility of various remedies, including specific performance(a sort of forced execution of the contrat) and monetary damages.