Module 3: Legal Overview

Question 1

What is the most basic definition of a contract?

Answer 1

A promise made by one person to another, which courts will enforce.

Question 2

Who is the promisor and promisee?

Answer 2

The promisor is the person who makes the promise and the person who can enforce the promise is the promisee.

Question 3

Usually the following two contracts are involved in a real estate transaction:

Answer 3

1. Listing Agreement
2. Contract of Purchase and Sale (also called the Agreement of Purchase and Sale or Offer to Purchase.)

Question 4

A legal contract has seven essential elements. If any of these elements are lacking, the contract will not be valid. What are the 7 essential elements?

Answer 4

1. Offer
2. Acceptance
3. Consideration
4. Legal Intent
5. Legal Object (or legality)
6. Capacity (or Incapacity)
7. Genuine Consent

Question 5

1) Explain some common characteristics of an offer:

Answer 5

-An offer can be expressed in any form, written or oral.
-Offers for land must be in writing
-A standing offer is an offer made to the public at large
-An invitation to treat is an invitation to members of the public to submit their own offers

Question 6

2) What are some common characteristics of Acceptance?

Answer 6

Offers must be accepted in one of the two following ways:
-If the offer specifies how the acceptance should be made, the offeree should accept by that method
-If the offer says nothing about acceptance, the offeree should accept by the same method as the offer was made

Question 7

3) What are some common characteristics of Consideration?

Answer 7

Consideration means “some right, beneift or profit accruing to the promisor or some detriment, loss or responsibility suffered by the promisee.” In other words the promisee must pay something in return for the promise.

Question 8

What is Quantum Meruit?

Answer 8

This means that no specific amount is stated in the contract, the courts will determine a reasonable amount to be paid for the services rendered.

Question 9

4) What are some common characteristics of Legal Intent?

Answer 9

Legal intent means that a person must have intended to create commitments in order to be bound by a contract.

Question 10

5) Common characteristics of Legal Object:

Answer 10

Contracts for certain purposes may be considered illegal. Examples are a contract to commit a crime, or a contract resulting in breaches of statutes, such as the Criminal Code or the Income Tax Act.
-It is important to ensure that the object of the contract is legal.

Question 11

6) Common characteristics/definitions of Capacity (or Incapacity):

Answer 11

In order for a contract to be viable, the parties to the contract must have the capacity to enter into the contract. Incapacity refers to the inability of people to make or engage in certain binding dispositions of their rights, such as entering into contracts.
The most common types of incapacity are as follows:
-Minor in infants
-Cognitive impairment and intoxication
-Language barriers
-Lack of Capacity of a Corporation

Question 12

7) Common characteristics of genuine consent:

Answer 12

Genuine consent means that the parties involved have a clear understanding of the substance of the contract when they consent to be a party to it.

Question 13

What are the 3 types of misrepresentation?

Answer 13

1. Innocent Misrepresentation - False statements without knowing their false. Contract can be cancelled before being completed.
2. Fraudulent Misrepresentation - Person knowingly makes false statements. Contract can be cancelled before or after completion.
3. Failure to disclose latent defects - presence of potential imperfections or blemishes that are not readily evident.

Question 14

What are the 3 common types of mistakes?

Answer 14

1. Common Mistake - Both parties have the same false belief. Can void contract as a result.
2. Mutual Mistake - Both parties make the same fundamental mistake but have a different belief about what’s correct. This will also void the contract.
3. Unilateral Mistake - One party is aware of a fundamental contract mistake while the other party is not. Does not void a contract.

Question 15

What is Duress?

Answer 15

Threat of force, false imprisonment, or threats upon individuals to result in action or lack of action contrary to their wishes or interests.

Question 16

What is Undue Influence?

Answer 16

When one party experiences pressure (non-physical force such as manipulation or persuasion) to enter a contract against his or her wishes or interests.

Question 17

What is Unconscionable Transaction?

Answer 17

This situation occurs when there is a disproportion of power between individuals, with the weaker individual in the control of the stronger individual and acting under that persons direction in an unreasonable or unfair manner.

Question 18

The following are suitable reasons for contract termination:

Answer 18

-Performance: Not fulfilling ones contractual obligations.
-Agreement to Waive Performance or Substitute Another Agreement: When a party relinquishes right to enforce a contract which is replaced by a substitute contract.
-Non-Fulfillment of a Condition Precedent: A ‘subject to’ clause lays down factors or events that mut occur for the agreement to be binding.
-Frustration: When unexpected events occur that render the contract impossible to be performed.
-Breach of Contract: Failure to perform all or parts of contract.
-Assignment: The act of transferring rights held by one party, the assignor to another party, the assignee.
-Doctrine of Privity: Only parties to a contract have the right to take action to enforce the contract. An important exception is a contract that “runs with the land”, which means that the contract is transferred to any new person who owns the land.

Question 19

What is a void contract?

Answer 19

A contract never existed.

Question 20

What is an illegal contract?

Answer 20

A contract that is contrary to public policy or a political statute. Illegal contract are also void, but the results of a finding of illegality might produce differing results.

Question 21

What is a voidable contract?

Answer 21

Is a contract which one of the parties has the option to cancel. An example of a voidable contract would be the purchase of a car by a minor.

Question 22

What is an unenforceable contract?

Answer 22

Similar to a void contract, but in this case, the contract cannot be acted upon for some procedural reason. An example of this would be an oral contract for the purchase of land.

Question 23

What are the main remedies for a default contract?

Answer 23

-Damages: Compensation for one party due to injury from another.
-Specific Performance: Remedy to compel performance of contract, example, an order to complete the contract.
-Injunction: Court order to require a person to do or not do something.
-Quantum Meruit: Establishes a fair payment if the contract is not specific with respect to how much should be paid for full or partial completion of a contract.

Question 24

What are the different types of ways Canadians own land?

Answer 24

-Fee Simple: Owner controls land for all time.
-Life Interest: Ownership lasts for a lifetime only. At the end of that lifetime the property passes to a person specified by the person who granted the life interest.
-Leasehold: Contract (lease) created between a landlord and a tenant.
-Co-ownership: Occurs when two or more people have simultaneous ownership rights in the property. In Joint Tenancy, if one dies shares automatically passed onto other owner. In Tenancy in common, if one dies the shares are passed on through their estate.

Question 25

What is an encumbrance?

Answer 25

Any interest that follows the transfer of any land. An encumbrance is an outstanding claim or lien recorded against the property, or any legal right to the use of the property by a person who is not the owner.

Question 26

What are the most important types of encumbrances on land?

Answer 26

-Mortgages: A right in land created as a security for a loan made by a lender to a borrower who owns property.
-Easements: A right acquired by a person to use another person’s land.
-Restrictive Covenants: A legal obligation to do something or not do something that is imposed upon the buyer of a property by the seller.
-Building Schemes: A group of restrictive covenants attached to two or more lots within a development plan that are binding upon all purchasers of lots in the area to which a building scheme applies (think subdivisions, I think).
-Leases (except Quebec): Gives holder right to use and occupy the land and buildings for a defined period of time.

Question 27

Name the three primary real estate documents:

Answer 27

1) The listing agreement
2) Agreement of Purchase and Sale
3) Transfer/Deed of Land

Question 28

What is the concept of Equity of Redemption?

Answer 28

Equity of Redemption gives a defaulting borrower the right, within a reasonable period of time to retain the property by paying off the debt.

Question 29

What is Power of Sale?

Answer 29

An alternative to foreclosure. If a borrower defaults on a mortgage, the mortgage lender can force the sale of the property without taking ownership and use the proceeds to payoff the mortgage.

Question 30

What are the 5 borrower covenants?

Answer 30

1) Repay the loan amount
2) Pay property taxes
3) Pay property insurances
4) Maintain the property
5) Pay common element fees (things such as condo fees)

Question 31

What are the 2 mortgage lender covenants?

Answer 31

1) Discharge the mortgage upon repayment in full.
2) Leave the mortgagor, or borrower in “quiet possession” of the property and not interfere with their use and enjoyment of the mortgaged property.

Question 32

What are the two most common remedies for borrower mortgage default?

Answer 32

-Foreclosure
-Power of Sale

Question 33

Which of the two mortgage default remedies is only allowed in Nova Scotia?

Answer 33

-Foreclosure

Question 34

Does power of sale generally involve or exclude the courts?

Answer 34

Exclude

Question 35

What is the ‘Land Registration Act’ in Nova Scotia?

Answer 35

The Land Registration Act sets out the structure of the system which is commonly referred to as Land Titles.

Question 36

What is/are Land Titles?

Answer 36

Land Titles represents a shift from a names-based registry to a parcel-based land registration system. Each land registration parcel displays the registered interest holders (or owners) of the property and other recordable interests affecting at the property (mortgages for example). The entirety of the information relating to the parcel is known as the parcel register.

Question 37

Have all properties been migrated to the new Land Titles system yet?

Answer 37

No not all properties have migrated to the new system yet. There are 3 main triggers that require a shift to the new system:
1) The transfer of land for consideration (including monetary consideration)
2) Mortgaging the land
3) Subdividing the land into three or more lots

Question 38

What is an ‘abstract title’?

Answer 38

The title report prepared by the title searcher is called an abstract title.

Question 39

Again what are the 7 essential elements of a contract?

Answer 39

1) Offer
2) Acceptance
3) Consideration
4) Legal Intent
5) Capacity
6) Legal Object
7) Genuine Consent

Question 40

What are common remedies for contract issues?

Answer 40

-Damages
-Specific Performance
-Injunction
-Quantum Meruit