Contracts for chiropractors

a 1991 set of lecture notes - they could have been from 1891 or 2008:



September 11, 1991
LECTURE TWO - CONTRACTS

Definition of a contract: A valid and operative contract may generally be defined as an agreement free from vitiating factors such as mistake or misrepresentation and constituted by the unconditional acceptance of an outstanding offer involving a reasonably precise set of terms, between two or more contractually competent parties who intend to create mutual and reciprocal rights and duties that may be the subject of judicial sanction if they are expressed in any required form, are free from the taint of illegality or immorality, and are not subsequently discharged by law, by agreement or breach or by sufficient supervening circumstances.

A contract is an agreement between two parties.

Contract law permeates all parts of a chiropractic practice from the purchase of equipment, lending agreements, providing of services and receiving payments.

All contracts are promises but not all promises turn into contracts. ie. I promise to buy your car. I promise to buy your practice. Both parties in a contract will have made a promise to each other.

Agreement to enter into an agreement is not enforceable.

This course is not intended to teach you how to either write a contract or determine the validity of a contract. We are more concerned about become familiar with the elements of a contractual arrangement in order to determine how a contractual obligation arises and under what circumstances the obligations come to an end.

It is amazing how many people execute agreements without reading or understanding the obligations to which they have become contractually bound. Not reading or understanding a contract is irrelevant to being bound to the contract. ie. purchasing equipment, services, lending or even real estate.

Do not presume that what is put down on paper is fair to both sides of a transaction.

A lawyer prepares a contract on behalf of a client, not on behalf of both parties to a contract.

What is advantageous to one party may not be advantageous to the other party.

Contracts do not have to be fair to be enforceable in court. The contract may actually be very disadvantageous to one party in a contract and yet still be enforceable.

What does it take to have a valid contract?
offer and acceptance
consideration
competent parties
genuine consent
legal purpose

A contract is an agreement enforceable at law. Not all agreements are legally binding. The parties must intend to assume legal rights and duties as opposed to engagements of a social nature. ie. missing a theatre party.

The contractual intention does not have to be expressed in a formal way. The conduct of the parties may be enough to prove the existence of a contract. ie. entering into a restaurant
Even if the parties intend to enter into a contract it may still be unenforceable if it does not comply with legal requirements involving a)form or b)the necessary elements of validity.

FORMS OF CONTRACT

Specialty Contracts: one that must be "in writing and under seal". Must comply with the Statute of Frauds, ie. guarantees and purchase of real estate, any agreement not to be performed within one year from its creation (partnership agreement).

The writing of the contract may involve only a written memorandum ie. associateship agreement with memo vs. contract

Part performance may be a method of avoiding the obligation for a contract to be in writing.

OFFER AND ACCEPTANCE

Is it an inventation or is it an offer to sell. Why is it important? Carbolic Smoke Ball case.

There must be an intention.
If a chiropractor says in exasperation in a chiropractic meeting: "I would sell my practice for ten thousand dollars right this minute if I could get it?" If someone in the audience says you've got a deal is there a contract? Remember it must be enforceable.

The offer and acceptance must be communicated. An offer must be made and the offer must be accepted.

There are circumstances where acceptance does not have to be communicated. ie. rewards and contests.

In some cases, conduct will prove the acceptance of all of the terms of the contract, parking stubs or admission ticket to sports events, with certain exceptions

An offer will lapse and cannot be accepted if either the person who makes the offer retracts it before it is accepted, the offer dies, or it not accepted within the time specified or if no time is specified then within a reasonable time, ie. purchasing commodities such as food.

The offer must be accepted in the manner stipulated or indicated in the offer. If an offer requires acceptance by mail then no other method of acceptance may be acceptable.

Method of acceptance is important because it will determine whether there is in fact a contract. ie. if the contract expressly or impliedly requires acceptance is to be by mail then the contract is closed as soon as the letter of acceptance is placed in the mail, even though there is some delay.

If the method of acceptance is neither expressed nor implied in the offer the acceptance may be made by any method ie mail, telegram, fax or telephone but the acceptance is not effective until it is actually received.

A refusal of an offer causes it to terminate and cannot be accepted unless the offer is repeated., ie. sell my practice for 100,000. I'll buy it for 75,000.00. No. O.K then I'll buy it for 100,000.00. However, a mere inquiry as to whether the terms of the offer can be changed is not considered a counter offer or a refusal.

An offer may be revoked or withdrawn at any time before it is accepted. To be legally withdrawn the revocation must reach the person to whom the offer was made before that person's acceptance has become effective.

CONSIDERATION

A contract requires consideration to make it valid. Consideration has been defined as "some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by another."

If a person gratuitously promises to supply his services, the person could not be held responsible for a breach of contract but could be held liable for damages for negligence if the work was not done properly.

In charitable matters pledges are generally unenforceable unless specific consideration can be shown for the promised subscription ie. the building of a room in a hospital.

Adequacy of Consideration: Consideration must be of some value in the eyes of the law, but it need not be adequate. ie stamp collector or baseball collectors or chiropractic practices for sale.
Friendship, gratitude, natural love and affection are not valuable consideration and will not make a promise legally binding.

Past Consideration. Past consideration is not legally enforceable since promises of this nature are really gratuitous.

Forbearance may be proper consideration. If you do not sue me then I will provide some other service for you.

Illegal Consideration: ie. a promise to bribe a public official, an agreement to give false evidence

COMPETENT PARTIES

Generally the law regards a sane, sober adult as being capable of managing his or her own affairs and therefore able to make contracts of a binding nature. However some persons are regarded as less than fully capable and their ability to make contracts is restricted for their own protection: The major classes of persons who enjoy this protection are:

1 Minors:
2 Mentally incompetents
3. Intoxicated persons ie. drugs or alcohol

Should not be allowed to be taken advantage of. Such contracts are generally voidable. Voidable contracts are contracts which are valid and enforceable but may be accepted or avoided by one or two of the parties. The person to be protected may elect to treat the contract as either binding or not binding as the person wishes.

1. Minors: divide into four types of contracts:
Valid Contracts: apprenticeships and contracts of services for the infant's benefit
Void Contracts: clearly prejudicial to the infant or detrimental ie. guarantees or releases of claims for injuries or compensation
Voidable Contracts: may either accept or avoid the contract. A voidable contract can be divided into two classes:

a. A contract which is binding on the infant unless he takes some step to repudiate the contract during his or her infancy or within a reasonable time after reaching his or her majority. The are contracts involving acquisitions of an interest in property of a permanent nature with a continuing obligation, ie. leases or purchases of shares in companies

b. contracts which are not binding on the infant unless ratified after he or she reaches majority. These are the majority of the contracts for things like purchase of cars, bicycles, and personal items

The effect of avoidance does not indicate that the infant will be reimbursed for any consideration already expended. The exception is the contract in which no benefit has been given the infant.
Minors must pay for necessities of life ie. food and shelter with the proviso that these are suitable to the infant's circumstances or "station in life" and are needed at the time of the purchase.

Consideration must be fair.

The situation will not change because an infant lied about his or her age.

Parents under Federal and Provincial Legislation may be responsible for providing the necessities of life for a minor or someone in need of protection

A child may be the agent of the parent. This would be considered an agency relationship and could be created by express or implied approval of the relationship to third parties. Ie. advising a storekeeper that the child can buy anything he or she wants. or by implication when a child from time to time makes purchases in a store on a parent's account.

Intoxicated Parties:

A contract is voidable if it is established that:

1.the condition of intoxication or insanity made the person incapable of understanding what he was doing, and

2.the other contracting party knew of the condition

In any event such persons will be responsible for the necessities of life.

If such a person elects to avoid a contract, he or she must repudiate it within a reasonable time after recovering from his incapacity and ascertaining what he or she has done.

Other parties having Limited powers to contract:

Corporations: it is a creature of statute and is limited by legislature and by the by-laws of the corporation ie. mining companies, banks, charitable institutions

GENUINE CONSENT

Consent is not genuine if it was obtained through misrepresentation, either innocent or fraudulent, or by means of undue influence or duress. May not be real if there was a mistake about some fundamental condition of the contract, ie. 1988 car instead of 1990 car.

Misrepresentation: A false statement of a material fact. A material fact is one that induces or brings about a contract. ie. 1988 instead of 1988 not that it has fuzzy dice unless the parties agree that it is material. Can be an innocent misrepresentation if the party thinks it is true and it was said without intent to deceive, or can be fraudulent if it was intended to deceive either deliberately or with reckless regard for the truth.

For innocent misrepresentation then rescission of the contract, and put the parties back in the position they would have been in if the contract had not been made. Rescission could be lost and then must be dealt with by damages.

For fraudulent misrepresentation then could be a tort. Could claim either rescission, damages or both.

Undue Influence: The improper use of any power exercised over the mind of a contracting party so that consent is not voluntary. This would create a voidable contract. Person alleging the undue influence must allege and prove the undue influence. ie. wife and husband. Independent legal advice.

Duress: Some unlawful pressure imposed upon a person which compels him or her to enter into an agreement against his or her will ie. violence. Again, voidable and must be proven.
Mistake: mutual mistake voids a contract since it was not supposed to happen.

CAVEAT EMPTOR: a bad bargain does not void the contract.

LEGAL PURPOSE

A contract is not enforceable it its object is contrary to established law (illegal) or against public policy. Otherwise people may contract as to anything.

A contract to commit a crime or perform a tortious act is illegal and void.

Some provincial and municipal laws require certain professional people and tradespeople to be licenced to pursue their profession or trade. If they are unlicenced then such contracts would be unenforceable at law.

Interest Act

Gambling Debts

Consumer Protection

Non-competition agreements: contracts in restraint of trade

need consideration and cannot be contrary to public policy (ie reasonable)

Contracts in restraint of competition

contracts in restraint of marriage

ASSIGNMENT OF CONTRACT

Generally a person may transfer his or her rights under a contract but may not assign his or her obligations without the consent of the other party to the contract.

A contract may allow or restrict the assignment of rights under the contract. It is not illegal to do so.

To assign rights under the contract:

1.must be in writing

2.the assignees must give the debtor written notice of the assignment otherwise payment to the original creditor by the debtor would be valid

3.the assignment must not increase the debtor's burden or diminish his or her rights and remedies.

4.the assignee acquires the same rights subject to the same defences as the original creditor had.
Assignment of obligations: Can be done with the consent of the other party. Original party remains liable unless specifically released by writing. ie. assignment of lease.

Assignment of Accounts Receivable: billing less monies received represent accounts receivable. Used for security to the bank.

Assignment in Bankruptcy.

LIMITATION OF ACTIONS

Statutory limitation with respect to the time in which action might be taken. Exists in all law suits., ie. negligence, highway traffic law

Six year for simple contract from when the debt arose or it begins to run when entitled to bring action but may change with part payment, written promise to pay or even a written acknowledgment of the debt to start new limitation period. NOW IN ONTARIO -- TWO YEARS

BREACH OF CONTRACT

may be minor or a fundamental condition or may be a breach of the contract as a whole. The remedy available for a breach may depend upon the nature of the default.

If there is a complete breach then the other party is discharged from the contract and may make a claim for damages.

If the contract has been substantially completed and there is a breach of a minor nature then the other party will not be discharged but will be entitled to damages.

Could be liquidated damages where the parties have agreed to the amount of damages if there is a breach. This must not be a penalty provision.

Mitigation: The party who has suffered the loss must take reasonable steps to avoid any unnecessary loss.

Specific Performance: When damages would not be an adequate remedy, specific performance will be enforced if the court can compel the defaulting party to perform the contract. No personal service or if property has disappeared. However, the remedy for breach of contract for the sale of goods is usually money damages. ie. personal services
Injunction: force a person to do something or not continue to do something.

DISCHARGE OF CONTRACT

Discharge by performance.
Discharge by mutual agreement.
Discharge by impossibility of performance:
1. lose licence
2. fire, earthquake
3. incapacity relating to personal service
4. change in law ie. war materials

PARTIES
OBJECT
CONSENSUS
ABILITY
MISTAKE
INTENTION
CONDITIONS SUBSEQUENT AND PRECEDENT
LIMITATIONS ON CONTRACTS: matrimonial homes cannot be dealt with except in accordance with the Family Law Act

Problems with verbal vs. written contracts:
memory fault
proof

Contracts are not necessarily important for the people who are entering into them. They become important when there is a breach of the agreement or people who want out of the agreement.

Option agreement

Interpretation Rules: Contra Preferendum

Conditions, Representations, warranties, guarantees: difference and effect

Tendering

Exculpatory provisions which release a party from liability

Concept of an Offer to Purchase and Offer to Lease

Consesus Ad idem

Collateral Contracts