LESSON 7

Question 1

INTRODUCTION

Answer 1

Contract of purchase and sale is a contract of purchase or sale of land which contains the obligation of the vendor and purchaser with respect to the purchase and sale.

Contract is an agreement between two or more persons which creates an obligation to do or not to do a particular thing.

Usually there are two contracts involved in aa real estate transaction: an agency contract (either a listing contract or an exclusive buyer’s agent contract) and the contract of purchase and sale.

If either contract is improperly executed, and the vendor or purchaser suffers a loss, the licensee may be held responsible for such losses. Additionally, the licensee’s right to a commission might also be at risk.

The term “contract” means a promise or promises, made by one person to another, which the courts will enforce. A contract can contain any number of promises or “terms”, to be performed by either party. The person who makes the promise is called the “promissor” and the person can enforce that promise is called the “promissee”.

A contract has seven essentials:
-offer
-acceptance
-consideration
-legal intention
-capacity
-legal object
-genuine consent

Question 2

VOID, ILLEGAL, VOIDABLE AND UNENFORCEABLE CONTRACTS

Answer 2

Contracts can be ineffective in four different ways” they can be void, illegal, voidable or unenforceable.

VOID
A void contract is one that has never existed at all. Even if the parties want it to exist and to have effect, it cannot. The parties are in the same position as if they had never attempted to contract. Money paid by one party to the other will be repayable an no rights can be acquired under it. For example, where parties seek to make a contract in circumstances where there is a mutual or common mistake the resulting contract will be void.

void contract is a contract which never had any legal existence or effect and which is not capable of being enforced.

ILLEGAL
An illegal contract is one which offends against public policy or against a particular statute. Illegal contract are also void, but the results of a finding of illegality might vary. In some cases, a person who has paid money under an illegal contract will not be able to recover the money, even though the contract is void. In other cases the effect of the finding of illegality will not be severe.

VOIDABLE
A voidable contract is one which one of the parties has the option to rescind (cancel). Until the contract is rescinded, it is valid and binding on the parties. An example of a voidable contract would be a contract for purchase of a car by an infant. Such a contract is voidable by the infant, but it is binding upon the other party. If it is rescinded by the infant, neither party will have any further obligations under the contract. The right to rescind may be limited where the other party has acted in such a way that it becomes inequitable to allow the contract to be cancelled.

UNENFORCEABLE
An unenforceable contract is one which has the essential of a valid contract but it cannot be sued upon for some procedural reason.

Question 3

OFFER

Answer 3

Offer is a proposal to do or refrain from doing some specified thing usually followed by an expected acceptance, counter offer, return promise or act. The person who makes the offer is called the offeror. The recipient of the offer is called the offeree.

An offer is a promise made by the one party to another. At common law, if the offer contains a promise, it can be expressed in any form: in writing, orally or even by conduct. If a dispute arises, the court must find that a reasonable person would feel there is only one reasonable interpretation which can be given to the “offer”.

Question 4

STANDING OFFERS

Answer 4

There is an exception to the above principle. Certain offers known as “standing” offers can be made to the public at large. These can be accepted by anyone. An example of this type of offer would be the offering of a reward to the public for providing information. Here the first person to meet the requirements of the offer and to communicate this to the offeror will be the one entitled to enforce the contract. Once a standing offer has been accepted by one person no one else can accept it unless more than once acceptance was contemplated in the offer.

Question 5

INVITATION TO TREAT

Answer 5

Invitation to treat is a type of advertisement used by one to induce the public or some individual to submit their own offers. An invitation to treat is not an offer capable of acceptance to form a contract.

It is important to distinguish an offer from an “invitation to treat” which is something less than a legal offer. An offer , once accepted, creates a contract and can be enforced in the courts. The courts draw the line between promises that are meant to be binding if accepted and statement that are intended only as a form of invitation to the public to submit their own offers.

Question 6

RELEASE OR EXPIRY OF AN OFFER

Answer 6

Revocation is the term for the cancellation of an offer communicated by the offeror to the offeree prior to acceptance.

An offer is released or expires when any one of the following occurs:
-a time limit is specified in the offer and the offer is not accepted within the limit
-no time limit is specified in the offer but a reasonable time has passed
-the person who made the offer communicates revocation before acceptance
-either party becomes insane or dies before the offer is accepted
-a counter-offer is made
-the offer is rejected.

The reasonable time allowed for acceptance of an offer depends upon the circumstances in each case.

Assuming that a definite time is set out in the offer, must the offer be kept open for the specified period?
The answer is that the offer can be revoked without waiting for the time limit to run out, as long as the offer has not yet been accepted.

It should be noted that the revocation of a written offer does not need to be in writing. However, because the revocation might need to be proven in court, it is wise practice to put the revocation in writing and to retain a copy for the offeror’s records.

Option agreement
It is possible to ensure that an offer will be kept open for the stipulated time period by using a type of contract known as an option agreement. Separate consideration is given to keep the offer open. In effect, a separate contract must be formed. “Consideration” is discussed in the later chapter.

An option agreement provides one party with the right within a specified time to purchase or lease property upon certain terms and at an agreed upon price. Option agreements are intended to tie up someone’s property for a period of time and are used for a variety of reasons. A licensee should have a lawyer review any option agreement prepared by the licensee.

Counter offer is an statement by the recipient of the offer which has the legal effect of rejecting the offer and of proposing a new offer to the offeror (who then becomes the recipient of the “new” offer). A counter offer is different from an inquiry of a request for information. Such an inquiry or request does not terminate the offer.

Question 7

ACCEPTANCE

Answer 7

The acceptance, like the offer, must be given in clear terms. It must be a positive act. For example, an offer cannot state “If I don’t hear from you. I’ll assume you’ve accepted”. Doing noting will not be considered legal acceptance.

Question 8

PROPER MEANS OF ACCEPTANCE

Answer 8

As a general principle, the offeree must accept in one of two ways to ensure “proper” acceptance:
-if the offer specifies how the acceptance should be made, the offeree should accept that method; or
-if the offer says nothing about acceptance, the offeree should accept by the same method as the offer was itself made.

Question 9

WHEN ACCEPTANCE IS COMMUNICATED

Answer 9

An acceptance has no effect until it is communicated to the offeror. Sometimes it is difficult to determine when this communication actually happens. Contracts are categorized in two types: those which can be accepted by instantaneous means, and those where the parties except the offer to be accepted by non-instantaneous means.

When an acceptance is communicated depends on the intended method of acceptance.

Question 10

IMPROPER COMMUNICATION OF ACCEPTANCE

Answer 10

The first situation occurs where the intention of the parties is that acceptance should be by instantaneous means and the offeree chooses to accept by a non-instantaneous method. In this instance, it is the offeree who assumes the risk. Acceptance must be actually communicated to be effective. Is the acceptance is lost, or if the offer lapses before the acceptance reaches the offeror, no contract will result. An offer lapses if the stipulated time period expires or a reasonable time passes before communication of acceptance.

The second situation occurs where the offeror specified non-instantaneous acceptance, and the offeree chooses an instantaneous method. For example, the offer states that acceptance should be communicated by registered mail and the offere chooses telephone.

Question 11

IMPROPER COMMUNICATION OF ACCEPTANCE

Answer 11

The first situation occurs where the intention of the parties is that acceptance should be by instantaneous means and the offeree chooses to accept by a non-instantaneous method. In this instance, it is the offeree who assumes the risk. Acceptance must be actually communicated to be effective. Is the acceptance is lost, or if the offer lapses before the acceptance reaches the offeror, no contract will result. An offer lapses if the stipulated time period expires or a reasonable time passes before communication of acceptance.

The second situation occurs where the offeror specified non-instantaneous acceptance, and the offeree chooses an instantaneous method. For example, the offer states that acceptance should be communicated by registered mail and the offeree chooses telephone. In this case, the offeror can probably refuse the acceptance because it was not what the offer asked for. In some cases, the difference may not be crucial - registered mail and certified mail are equivalent, for example.

Question 12

CONSIDERATOIN

Answer 12

One of the seven essential elements of a contract is the presence of consideration. “Consideration” means “some right, benefit or profit accruing to the promissor or some forbearance, detriment, loss or responsibility suffered by the promisee”.

Consideration is the legal term for something of value that is bargained for, and received by, each party to a contract. Consideration may be in the form of a right, interest, profit or benefit accruing to one party. It may also be in the form of an agreement no to do something, or loss suffered by the other.

What is known as “past consideration” is not legally effective. In past consideration, the “payment” given by the promisee has already been made the promissor offers to pay for it.

Question 13

SEAL

Answer 13

A contract made without consideration can still be binding if it is made under seal. The sealing of the contract made it binding to parties, even though no consideration existed.

Two things should be remembered. First, the parties must be aware of the legal effects of a seal to be bound by the contract. Second, a corporate seal, which is used by a company when signing a document to confirm that it has been approved by the corporation, will not fulfill the requirement for consideration.

Question 14

CONSIDERATION AND AMENDMENTS OF A CONTRACT

Answer 14

There may be time when the parties to an enforceable contract want to change or alter the terms of that contract. This process is known as amending the contract.

An amendment is only possible if all of the parties to the contract agree. At law, an amendment is a contract to change an existing contact.

Rosas v Toca stated “When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable”.

Question 15

QUANTUM MERUIT

Answer 15

Quantum meruit is literally “as much as they deserve”. A doctrine that no one who benefits by the labor and materials of another should been unjustly enriched thereby; under those circumstances, the law implies a promise to pay a reasonable amount for the labor and material furnished, even though a specific contract price may not have been agreed to.

The principle of quantum merit will be applied by the courts in each of the following circumstances:
-where there was no amount specified in the contract for performance of contractual services
- a breach of the contract has occurred and the “innocent” party has performed part, but not all of its obligation under the contract and wants to be paid for the partial performance
-where the contract is void and there has been work performed or services rendered on the assumption that the contract was valid
-where the original contract has been replaced by a new and different contract. Such a situation may arise when one party is in breach of a contract and the party not in default accepts partial or substituted performance in place of the original contractual obligations.

Question 16

LEGAL INTENTION

Answer 16

A person must have intended to create legal obligations in order for a contract to be formed. The law presumes that there is a serious intention to be bound in the case of an agreement between strangers or in a commercial contract. It is important to remember that whether such an intention exists or not in a decision that the courts will make objectively.

Question 17

CAPACITY

Answer 17

Incapacity to make a contract can arise in a number of ways. The most common types of incapacity are infancy, insanity, drunkenness and the lack of capacity of a corporation.

Question 18

INFANCY

Answer 18

Infant is BC, a person under 19 years of age which, generally speaking, is the age of legal competence.

Section 19 1) of the Infants Act provides that a contract entered into by an infant will be unenforceable against the infant unless one of four exceptions applies. These exceptions in which the contract will be enforceable against an infant are:
-where another statute provides that the contract is enforceable
-where the infant affirms the contract after turning 19
-where the infant performs or partially performs the contract within one year of turning 19
-where the infant does not repudiate the contract within one year of turning 19

Question 19

MENTAL INCAPACITY

Answer 19

Mental illness or disability does not, in itself, prevent an individual from entering into binding contracts.

There are three parts to the common law test for mental capacity to contract:
1. a contracting party must be able to understand the terms of a contract
2. the contracting party must be able to understand how the contract will affect their interests and
3. the other contracting party must not have knowledge of the first party’s mental incapacity.

The law of mental capacity has important ramifications for licensees.

According to section of the Adult Guardianship Act, a transfer of property by an incapable adult will only be upheld if one of two conditions is met:
1. the purchaser paid a full and fair price for the property; or
2. the purchaser had no reasonable way of knowing that the adult was incapable.

Question 20

POWERS OF ATTORNEY, ADULT GUARDIANSHIP AND REPRESENTATION AGREEMENTS

Answer 20

In many cases, issues of mental incapacity will be raised concurrently with issues relating to powers of attorney, adult guardianship, and/or representation agreements. Licensees should have a general understanding of the differences between the kind of legal arrangements.

Question 21

POWERS OF ATTORNEY AND ENDURING POWERS OF ATTORNEY

Answer 21

A power of attorney is a legal document that allows for the appointment of a trusted person or “attorney” to make financial or legal decisions for another person (known as the “donor”). A power of attorney document may be very specified or very general.

Enduring powers of attorney have many of the same characteristics as regular powers of attorney. However, they do not expire after 3 years and will remain valid if the donor becomes incapable.

Question 22

ADULT GUARDIANSHIP COMMITTEES

Answer 22

If a person becomes mentally incapable because of disease, accident, or age and there is no enduring power of attorney agreements in place, the BC Supreme Court can appoint an adult guardian (also known as a “committee”) to make important decisions on the incapable person’s behalf.

Licensees may find themselves dealing with adult guardians and should be aware of that, if a committee is appointed for an adult, then that adult no longer has the capacity to enter into contracts on their own behalf, even if they appear lucid or otherwise meet the common law test for capacity.

Question 23

REPRESENTATION AGREEMENTS AND ADVANCED DIRECTIVES

Answer 23

Representation agreements are planning documents that allow individuals to transfer their legal decision making power to another person. Representation agreements typically cover routine financial affairs as well as personal and healthcare decisions.

Question 24

PRACTICAL STEPS FOR LICENSEES

Answer 24

The law of mental capacity and its relation to real estate transactions and agreements is complex.

When faced with a client who appears to have a cognitive impairment licensees should proceed as follows:
1. try to determine if there is a valid power of attorney, enduring power of attorney, or adult guardian that has been appointed.
2. if there is a power of attorney or guardianship arrangement, advise the parties to seek legal advice. The original document will be required to register a transfer of real estate in the land title office.
3. When dealing with attorneys or guardians, licensees should speak with their managing broker and seek legal advice to ensure that no procedural or legal errors are made when purchasing or selling real estate on behalf of an incapacitated party.
4. If there are no power of attorney or guardianship arrangements, ensure that the client obtains independent legal advice before entering into any listing agreements or real estate transactions. Also, obtain a Certificate of Independent Legal Advice from the client before proceeding.
5.Licensees should not personally accept powers of attorney designations without legal advice, as these powers carry with them substantial obligations, responsibilities and potential liabilities.

Question 25

FOREIGNS AND ILLITERATES

Answer 25

A foreign or illiterate refers to persons who cannot read or speak English. Foreigners or illiterates will be bound by a contract if they neglect to find out the contents of the document before signing. The rule is that is the foreigner or illiterate person knew the general nature of the contract, they are bound. However, if the person who read the doc to the foreigner or illiterate fraudulently misrepresented what was written, there is no contract. Foreigners or illiterates will be bound by a contract if they neglect to find out the contents of the doc before signing.

Question 26

INCORPORATED COMPANIES

Answer 26

When a corporation is involved as a party to contract, a licensee must ensure that the corporation exists. A company cannot make a contract until it is actually formed and legally recognized under the laws of the province.

All companies must have an official records office. In that office, any person can look over the incorporation documents. At common law, a contract purportedly entered into by a company before the company exists cannot be ratified by the company after it has come into being.

A licensee is still well advised to always ensure the “company” they are dealing with actually exists.

Question 27

LEGAL OBJECT

Answer 27

Contracts for certain purposes may be considered illegal: for example, a contract relating to operating a bawdy house; a contract seeking to subvert justice; a contract to commit a crime or a tort; and contracts resulting in breaches of states, including the Criminal Code, Income Tax Act, and the Competition Act. In each of these examples the “contract” may be completely void and court would not help a part to recover money or property transferred under the illegal contract if the party knew of the illegality.

Question 28

GENUINE CONSENT

Answer 28

Genuine consent means that the parties has a clear understanding of the substance of the contract, and lack of genuine consent can negate the contract. Genuine consent is considered under the categories of misrepresentation, mistake, duress, undue influence and unconscionable transaction.

Question 29

MISREPRESENTATION

Answer 29

Misrepresentation is a false assertion of fact which, if accepted, leads one to an incorrect belief about a given situation.

There are three criteria to determine misrepresentation: 1) the statement must be false 2) it must have induced the other party to enter into the contract 3) it must also be one which would have induced a reasonable person to enter into the contract.

If any one of these points is not proven, the misrepresentation will not be sufficient to render the contract voidable.

In the case of innocent misrepresentation:
- the innocent party (plaintiff) can sue for rescission (the court will cancel the contract) prior to execution of the contract. With respect to a transfer of land, this means the rescission of the contract will not be available after the completion of the sale
- the plaintiff cannot sue for damages.

In the case of fraudulent misrepresentation:
- the plaintiff can sue for rescission at any time
- the plaintiff can sue for damages (based on tort law).

Some protection from liability is usually provided to a vendor in a contract of purchase and sale by what is called an “escape clause”. The escape clause will never protect the licensee working for the vendor. That is because the contract of purchase and sale is a contract between the vendor and the purchaser. The licensee is not a party to the contract and cannot rely on any of its terms.

Question 30

DISCLOSURE OF DEFECTS

Answer 30

Caveat emptor
Is a Latin phrase translation to “let the buyer beware”, and used in the real estate context to describe the obligation on the buyer of real property to conduct appropriate due diligence on a property before purchasing it.

Patent defect
Is a defect in real property that is visible to the eyer or that can be discovered by conducting a reasonable inspection and making reasonable inquiries about the property.

Latent defect
Is a defect in real property that cannot be discovered by conducting a reasonable inspection and making reasonable inquiries about the property.

Silence has been recognized as a form of misrepresentation.

A “defect” can generally be defined as a characteristic or feature of the property that materially affects the property’s use or value.

The starting point of the disclosure of defect is the concept of caveat emptor. The concept of cavaet emptor applies to defects in a property known as paten defects, which are defects in a property that are visible or that can be discovered by conducting a reasonable inspection and making reasonable inquiries about the property. Examples of potential patent defects are broken windows, stained carpets, visible water damage on the walls or ceiling and encumbrances on title.

The inability of an inexperienced buyer to understand and recognize patent defects will not impose a duty to disclose those defects upon the seller. In this way, “reasonable inspection” and “reasonable inquiries” almost always involves consulting a qualified individual.

There are some expectations to caveat emptor, one being in the case known latent defects. Examples of latent defects are the presence of mold behind the walls of the buildings, environmental contamination of the soil of the property, and structural issues with the building. Not all latent defects need to be disclosed by the seller. Only latent defects that render a property dangerous or unfit for habitation need to be disclosed to buyers. In addition, the seller is only required to disclose defects that they know or should have reasonably known.

Question 31

MATERIAL LATENT DEFECTS IN THE RULES

Answer 31

The previous section focused on the common law requirements that sellers have to potential buyers of their properties. However, licensees often act on behalf of sellers and make a variety of representations to potential buyers, which can lead to liability.

Material latent defect is defined as a defect that cannot be discerned through a reasonable inspection of the property, and includes:
a) a defect that renders the real estate
i) dangerous or potentially dangerous to the occupants
ii)unfit for habitation, or
A) the party has made this purpose known to the licensee, or
B) the licensee has otherwise become aware of this purpose
b) a defect that would involve great expenses to remedy
c) a circumstance that effects the real estate in respect of which a local government or other local authority has given a notice to the client of the licensee, indicating that the circumstance must or should be remedied; and
d) a lack of appropriate municipal building an other permits respecting the real estate.

Question 32

DEFECTS VERSUS STIGMAS

Answer 32

Defects must be contrasted with stigmas. A stigmatized or psychologically impacted property is subject to a circumstance which may affect the value of the property for reasons of taste, sentiment, design or personal preference.

The significance of the stigma can be affected by a person’s beliefs, values and perceptions, ethnic background, religion, gender, age and other individual characteristics.

An essential distinction between a defect and a stigma is that, while a defect’s impact on a property’s value can be objectively determined (through appraisals, estimates to fix the defect, etc).

Typical example of stigmas include:
-a sexual offender or serial killer living in the neighborhood or occupying the property at one time
-a death having occurred on the property, whether it be by natural causes, suicide or murder
-the property was robbed or vandalized on a number of occasions
-the property is alleged to be haunted or subject to other paranormal activity
-a former resident is suspected of being a member of organized crime.

Question 33

MISTAKE

Answer 33

Mistake
Is a legal term which describes the situation where a person, under some erroneous conviction of law or fact, does or omits to do, some act which but for the erroneous conviction, they would not have done or omitted doing.

Although there is much dispute as to the different categories of mistake recognized in law, it is helpful to draw distinctions amongst the following:
-common mistake
-mutual mistake
-unilateral mistake

Question 34

COMMON MISTAKE

Answer 34

For our purposes, a common mistake is one where both parties to contract have made the same mistake about a fundamental term of the contract. For example: both buyer and seller make a contract believing that what is being sold exists, but in fact, it has been destroyed. This fact is unknown to both parties. The existence of a common mistake means the contract is void and neither party will have any legal obligations under it.

Question 35

MUTUAL MISTAKE

Answer 35

A mutual mistake occurs when both parties make a fundamental mistake about the contract but each makes a different mistake. It should be noted that in the case of a mutual mistake, if one interpretation is more reasonable than the other, the court will accept it and will interpret the contract in this way.

Question 36

UNILATERAL MISTAKE

Answer 36

A unilateral mistake occurs when one party is mistaken about a fundamental term of the contract and the other party is aware of this mistake but does nothing to correct it.

A specific type of unilateral mistake is also referred to as “non est factum”, which means “it is not my deed”. This occurs when a person executes one form of document thinking that the document is something else.

Question 37

DURESS, UNDUE INFLUENCE AND UNCONSCIONABLE TRANSACTIONS

Answer 37

Duress
is a situation where a person is forced to enter into a contractual relationship against their will by the threat of imprisonment either to themselves or their family, or the threat of actual physical force.

Undue influence
Is any improper or wrongful constraint, manipulation, or persuasion whereby the will of person is overpowered and they are induced to do or refrains from doing an act which they would not do or would do if left to act freely.

Question 38

TERMINATION OF A CONTRACT

Answer 38

Once a contract has been made, it can be terminated or discharged in many ways. These are:
-performance
-agreement to waive performance or substitute another agreement
-nonfulfillment of a condition precedent
-frustration
-breach of a condition of the contract which is accepted by the injured party.

Question 39

PERFORMANCE

Answer 39

This is the manner intended by the parties at the outset to be the proper way to terminate their contract. When the final act of performance occurs, the contract is at an end. If substantial performance is made, but one of the parties will not accept it, the party performing it will have met their obligations under the contract, and the party refusing such performance will be breach of the contract.

Question 40

AGREEMENT

Answer 40

Often the parties will agree to waive full compliance with the terms of the contract. If both parties still have obligation left to perform, the mutual waiver of their obligations will be sufficient consideration to bind them.

Otherwise, either new consideration will have to be given to support the variation, or the agreement to waive the balance of the contract will have to be made under seal. The same rules apply if the parties decide to substitute a new agreement for the first one.

Question 41

NONFULFILLMENT OF A CONDITION PRECEDENT

Answer 41

A condition precedent is the formal term for what is usually called a “subject” clause in the real estate industry. A condition precedent is a condition in a contract which must be satisfied before the contract is to be performed.

For example, a residential home may be solve under a contract of purchase and sale which contains a clause allowing for a mortgage to be arranged by the purchaser. If the other issue cannot be resolved, the contract will be terminated.

Condition precedent is a legal term for a “subject to” clause. In contrast law, a condition precedent calls for the happening of some event of the performance of some act before the contract shall be binding upon the parties.

Section 54 permits a party to a contract to waive a condition precedent if:
-the condition precedent benefits only that party to the contract
-the contract can be performed without the condition precedent being fulfilled
-the waiver is made before any time stipulated for fulfillment of the condition precedent, or within a reasonable time if no time is stipulated.

Note that any waiver by a party to the contract is only possible if all of the above are satisfied.

Question 42

FRUSTRATION

Answer 42

Frustration
Is a legal doctrine that provides that where the existence of a specific thing is necessary for performance of the contract, the duty to perform is discharged if the thing, for reasons beyond anyone’s control, is no longer in existence at the time for performance.

After a contract has been made, but before it has been performed, it will be frustrated if events outside of the control of the parties destroy the subject matter or change it in such a way that it becomes fundamentally different from the original contract and the parties did not, by express or implied terms, make provisions as the consequences flowing from the happening of the event.

Frustration is similar to common mistake in that both deal with the destruction ( or substantial alteration) of the subject matter of a contract. In common mistake, the subject matter of a contract is destroyed before the contract is made, and neither party knows about it. In frustration, the subject matter of a contract is destroyed after the contract has been made.

Question 43

TERMINATION BY BREACH

Answer 43

Breach of contract
Is failure, without legal excuse, to perform any promise which forms the whole or part of a contract.

A breach can arise in three ways
-by one party announcing that they will not perform although the time for performance has not yet arrived
-by one of the parties making the performance of the contract impossible
-by failure of a party to perform at the time stipulated for performance.

It was mentioned above that only a breach of a fundamental term of the contract will allow the innocent party to sue for damages and to terminate the contract. A promise in a contract which is fundamental is called a condition. A condition is a term which does to the very heart or roof of the contract.

A warranty is a promise which is not fundamental to the contract. For example, if A contracts to buy B’s home and one term is that the master bedroom be painted before possession, a breach of this obligation is probably a breach of warranty.

The main reasons for distinguishing between conditions and warranties is that different remedies are available for each type of breach.

Where a breach of condition occurs, the injured party has three choices:
-they can choose to terminate the contract and sue for damages, and their obligations under the contract also end
-they can chose to continue the contract and sue for damages, just as in the case of a breach of a warranty
-they can choose to continue the contract and sue for specific performance.

Question 44

ASSIGNMENT

Answer 44

Assign
To transfer over to another (e.g. “I assign all right, title and interest in Blackacre to my husband, Adam”)

A person can assign away benefits under a contract to a third party, and the third party can sue to enforce those benefits. Generally, a person cannot assign liabilities under a contract. For example, if a person owes money, they cannot assign that obligation to pay to another party.

There are two types of assignment - statutory and equitable. A statutory assignment is one which complies with the legal requirements. A statutory assignment has three essentials:
- the assignment is in writing
-the assignment is absolute and unconditional
-notice of the assignment has been given in writing to the original promissor.

An equitable assignment and a statutory assignment are enforced differently. In an equitable assignment, all three parties must be named as parties in a court action to recover the amount outstanding. In a statutory assignment only the original promissor and the assignee are named as parties to the action. The assignor is not a party to the action.