• The theory of precedent: a basis for legal decisions. When a decision has been made in a similar case before, that decision should be used again. In apparently similar cases there might be distinctions that cause a court to not follow precedents. Occasionally precedents are used from other provinces, england, or occasionally the USA.
• Arbitration is an alternative to a court based lawsuit. This allows matters to be argued (either by choice or as dictated by contract). Engineers may be asked to act as arbitrator, effectively this process makes the arbitrator a judge in an ad-hoc court empowered by statutes (e.g., The Arbitrations Act of Ontario). It is possible that the result will be taken to a formal court. [Re Thomas Hackett]
limited partnerships are registered partnerships (Limited Partnerships Act of Ontario) where one or more partners can limit their liability to their own contribution. They cannot be advertised as part of the firm, represent themselves as a general partner, partake in business decisions, etc.
a corporation has the same legal status as an individual. This principle is called the “corporate veil” [Salomon v. Salomon & Co. Ltd.]. This may be lifted in some cases when fraud is involved [Fern Brand Waxes Ltd. vs. Pearl]
by following provincial acts (eg, Canada Business Corporations Act or Business Corporations Act of Ontario)
“objects” are the purposes of the business which a corporation may opt to define or limit. Some businesses, such as engineering corporations are limited by statute already. (eg, the primary control must rest with an engineer holding a certificate of authorization)
a public corporation offers shares for sale publicly (often to generate investment capitol). The shareholders elect a board of directors. The board of directors appoint officers to manage day to day affairs.
in private corporations, shareholders agreements are often used to set up ownership, control new shares, sale of shares, etc. Minority shareholders can be very vulnerable if not protected by a shareholders agreement.
Directors in corporations are required to disclose all conflicts of interest that pertain to any business in the company. Not doing so will make the directors liable for any profit or gain.
• A contract goes through a number of phases. As a matter of habit, I will illustrate general possibilities with a flowchart. This chart is by no means complete, but can give a simple picture of the life of a contract.
• Assignment of rights: unless limited in a contract, other parties can be assigned benefits. For example the use of a “collection agency” is a common method of dealing with bad debts using a third party.
• simple offers can be revoked at any time (before acceptance), but in some cases we might want “irrevocable offers”. This involves submitting the offers under seal, or in other word giving contract consideration.
• The “option contract” is another type of irrevocable contract. Something of value is exchanged to in effect make the “option contract” a full contract that can lead to another contract. This type of contract could be used in mining to allow some investigation of a mine before buying mining rights.
• Care should be taken to state which jurisdiction the contract is in. If this is not stated in the contract it will be determined to be where the offer was accepted. [The Queen et. al. v. Commercial Credit Corp. Ltd.]
• Letters of Intent: a common device to start business decisions, often a prelude to entering into contracts. These “agreements to agree” are not contracts, and are not legally enforceable. [Bahama Consult Ltd. v. Kellogg Salada Canada Ltd.]
• Consideration is an important part of a contract, in effect both parties must be giving and getting something of value (not necessarily money) to make it worthwhile to enter into the contract. The only case where consideration is not “something of value”, is when the contract is sealed (the seal is seen as something of value). Seals may be the mechanical imprint of a corporation, or a small adhesive label, as is used to make an irrevocable offer a binding contract.
• Gratuitous promise: a promise without consideration that generally wont be upheld by a court. An example is a verbal amendment to a written contract where there is no consideration. Note that this promise is moral not contractual.
• “promissory or equitable estoppel”: In some cases when a contract is amended without consideration (a gratuitous promise), but one party would be inequitably punished by the strict enforcement of the contract, then the amendment may be accepted as valid. [Conwest Exploration Co. Ltd. et. al. v. Letain] [John Burrows Ltd. v. Subsurface Surveys Ltd. et. al.] [Owen Sound Public Library Board v. Mial Developments Ltd. et. al.]
• Minors do not have the capacity to contract, but if they contract, they can enforce the contract, the other party cannot hold the minor liable (unless it was for a necessity). The age of majority is 18 in most provinces, except in Nova Scotia, New Brunswick, Newfoundland, and British Columbia.
• Drunks and lunatics (like minors) can enter into contracts for necessities, but for non-necessities the contract is unenforceable if the party was obviously incapacitated and repudiates the contract in reasonable time.
when some form of license is required (e.g., P.Eng.) but not held. [Kocotis v. D’Angelo] [Calax Construction Inc. v. Lepofsky] In some cases this will only void part of the contract [Monticchio v. Torcema Construction Ltd. et. al.]
• a contract that is against public/common law may also be voided. For example, non-competition clauses that could lead to monopoly type situations, or make an engineer unable to earn a living might not be enforced.
• unenforceable contracts will still be recognized to prevent inequities. For example, if a verbal sales contract is made and one party disputes the contract, it might be unenforceable, but they could force the returns of goods, money, etc.
• Innocent misrepresentation involves a mistake that is not intentionally misleading, but results in another party entering into a contract. If the mislead party comes forward in time, the contract can be rescinded, and they can recover costs incurred. [Township of McKillop v. Pidgeon and Foley]
• Rectification can be done for a “common mistake” where an agreement had been reached but inaccurately recorded. If a clerical error has been made in a contract then the court may rectify it. An example of this is a figure of ‘$100 million’ is accidently typed as ‘$100’.
• “parol evidence rule”: conditions that have been agreed upon verbally, but don’t appear in a written contract cannot be entered as evidence. i.e., if it is not written it does not exist in the eyes of the court. This will only be overlooked when it can be seen that the condition was essential for the contract to be effective. [Pym v. Campbell]
• Implied terms are terms that would obviously be expected to be in a contract, but have been overlooked. [The Moorcock] [Markland Associates Ltd. v. Lohnes] [Pigott Construction Co. Ltd. v. W.J. Crowe Ltd.] [G. Ford Homes Ltd. v. Draft Masonry (York) Co. Ltd.]
• Repudiation: an obvious indication by one party (verbal or otherwise) that they do not intend to follow the terms of the contract. The other party may ignore the breach, treat it as breached and sue, or (in a reasonable time) notify the other party that they agree to discharge the contract. NOTE: in some cases repudiation may be warranted.
• Penalty Clause: a clause that must be a contractual remedy that avoids a breach. If a condition of the contract is not met it can be used to recover damages. These damages must be a reasonable estimate of the incurred loss, or else the court will not uphold the term.
• Substantial compliance: when a contract has been fulfilled for the most part, except for some minor provisions of a contract, the court will award partial payment for work and services done. [Fairbanks Soap Co. Ltd. v. Sheppard]
• Fundamental Breach: when a contract contains an exemption clause (e.g., a maximum liability) and it has been fundamentally breached, then the limitation clauses no longer apply. [Harbutt’s Plasticine Ltd. v. Wayne Tank and Pump Co. Ltd.] [Photo Production Ltd. v. Securicor Transport Ltd.] [Murray v. Sperry Rand Corporation et. al.] [Beaufort Realties (1964) Inc. and Belcourt Construction (Ottawa) Limited and Chomedey Aluminum Co. Ltd.]
• Mailbox Doctrine: When making an offer the medium of communication is usually set by the communication used for the offer. For example, if an offer is mailed, by Mr. A to Mrs. B. The offer is made on the date that A put the letter in the mail. If B accepted the offer, and returned it by mail, then the offer was accepted as soon as it was put in the mail. In other words the contract came into existence when B put the response in the mail. In most other cases the acceptance is only valid when received.
• When an offer has been received, terms can be added or removed by the receiving party. As soon as the terms of the original offer have been modified the offer now becomes a counter offer. This is effectively a new offer, and must be approved by the original party.
• Unilateral Mistake: when an honest mistake is made and it is fundamental. If the recipient of the offer knows that there has been a mistake. The court could be persuaded to fix such mistakes. For example, if Mrs. A is buying a new car for $20,000 plus $500 shipping, but she notices that the contract is for $500, and signs eagerly knowing there was a mistake. Later the autodealer realizes a mistake was made and asks the court to correct the unilateral mistake. Some examples of successful and unsuccessful cases are, [Imperial Glass Ltd. v. Consolidated Supplies Ltd.] [ Belle River Community Arena Inc. v. W.J.C. Kaufmann Co. et. al.] [Imperial Glass Ltd. v. Consolidates Supplies Ltd.] [Ron Engineering et. al. v. The Queen in right of Ontario et. al.] [Calgary v. Northern Construction Company Division of Morrison-Knudsen Company Inc. et. al.] The general principles are,
• Discharge by Frustration: problems arise that could not have been anticipated before the contract was signed. These can allow the contract to be voided. For example a contract to provide phone service to a new facility could be discharged if war caused the city to be destroyed. [Metropolitan Water Board v. Dick Kerr and Company Limited] [Davis Construction Ltd. v. Fareham Urban District Council] [Swanson Construction Company Ltd. v. Government of Manitoba; Dominion Structural Steel Ltd., Third Party]
• Normally a contractual obligation negates a tort [Schewebel v. Telekes] but it is possible for an engineer to be held liable for damages in both contract and tort law [Halvarson Inc. v. Robert McLellan & Co. et. al.] [Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. et. al.] [City of Kamloops vs. Nielsen et. al.] Other cases go against this trend. [Sealand of the Pacific Ltd. v. R.C. McHaffie Ltd. et. al.]
• When hired as an agent/representative, an engineer must remain impartial and independent (there is a small conflict here) from the owner. [Brennan Paving Co. Ltd. v. Oshawa] [Kamlee Construction Ltd. v. Town of Oakville] [Croft Construction Co. v. Terminal Construction Company] [Sutcliffe v. Thackerah et. al.]. If this is not done, actions may not hold up in court. [Grant Smith & Co. v. The King]
• Detailed drawings and specifications are needed to minimize misunderstanding. Improperly prepared drawings and specifications could lead to liability. [Trident Construction Ltd. v. W.L. Wardrop and Accoc. et. al.]
• The tendering process often involves “irrevocable offers” that are submitted. When one of these offers is accepted a contract typically exists between the successful bidder and the owner. Bid bonds are another way to ensure that a binding contract exists for the tendered bid. Note: this process should be directed by a lawyer.
Stipulated-Price/Lump-Sum Contract: the basic bid amount will be paid on completion of the basic work. Additional work may be done, but this is at additional cost. This type of contract can be risky for the contractor (financial) and the owner (quality) if problems arise.
Cost Plus Percentage: When it is not possible to estimate the cost of construction before (e.g., rushing to start a high-rise) the contractor can be paid the expenditures plus some percentage. This contract does not encourage cost reduction.
Design Build: a contractor will likely work on a cost plus bonus, and will supply the engineering services. This allows projects to proceed quickly, as there are no delays waiting for plans and specifications. In this contract the engineer typically has a contract with the contractor, not the owner. Project managers are often hired by the owner to manage the projects on their behalf for a fee.
• Bonds are commonly used to ensure/secure bids, performance and labor and material payments. Here a third party bond agency indemnifies payment. If some contractual obligation is missed, the bond agency will pay, and pursue the party it has indemnified.
• A construction lien directs an owner to hold back a percentage of the total cost for a period after completion (in Ontario it is 10% for 45 days). In this time anybody that is owed money for work, or materials on a property can place a lien on the property and prevent its sale. The holdback is used to pay them (even no there is no privity of contract between them).
• Engineers can also make lien claims [Application of Erickson/Massey] [Englewood Plumbing & Gas Fitting Ltd. v. Northgate Development Ltd. et. al.] [Armbro Materials and Construction Ltd. v. 230056 Investments Limited et. al.]
4.3.1 A Duty of Honesty
4.3.2 The Combines Investigations Act