McClelland Minute - March 07,2010

When is a Contract a Contract?

A contract is a legally binding agreement between two or more capable persons, for consideration or value, to do or not to do, some lawful and genuinely intended act.  Certain essential elements must be present to make a contract enforceable.  For example, the parties entering into the contract must be legally competent.  The arrangement must be lawful.  Each party must receive something.  There must be an offer and acceptance.  Both parties must consent to the terms of the contract and the agreement must be definite and clear.

Some persons are deemed by law as incapable of entering into a contract.  I have had occasion to be called to list a home only to find an owner deep into the bottle.  Intoxicated persons are incapable of understanding the nature of a contract so the discussion was set aside until they were sober.  Sometimes an elderly person experiencing the onset of dementia will ask for our services.  In these cases, I strive to actively involve family members, gently encouraging them to seek general power of attorney over their loved one’s affairs before we go any further.

There must be a lawful or legal object to the contract.  If it involves criminal activity, stolen goods, or is designed to deliberately evade taxes, the contract would be totally void in a court of law.  For the past few years the federal government has had the right to review every real estate trade in Canada in a nationwide effort to eliminate money laundering or the funding of terrorism.  Even so, Realtors are sometimes asked to “look the other way”; for example, selling a revenue property without collecting GST, not taking proper identification from all parties, or accepting significant amounts of cash as partial payment against a sale.  There are even occurrences of sellers and buyers attempting to perpetrate mortgage fraud by secretly collaborating with each other so that too, must be guarded against.

The substance of a valid, binding contract is that each party receives something from the other.  In real estate, this usually is a promise from the seller to sell in return for an agreed upon sum of money from the buyer.  If the consideration was so minimal as to make the contract one-sided, the courts may review the adequacy and act to bring it back into balance. 

I had a client tell me of a private deal in which the seller had contacted him as the buyer offering to throw in the garden tractor if he would accelerate the purchase of a country home.  They agreed between themselves that there was no need to amend the written contract that was already at the lawyers to show this chattel as part of the sale; the good ol’ handshake clause would apply.  Imagine his disappointment when the bonus tractor was not forthcoming on the day of possession and the seller had already left for parts unknown. Not written; not done.  If in doubt, always seek legal counsel.

Vern McClelland is associate broker with RE/MAX of Lloydminster.  If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700 or through the McClelland Group website www.mcclelland.ca

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