Mar. 23, 2026 - Business Law Notes

What Does it Mean to Impugn a Contract?

Means to challenge or attack whether the contract is valid. The defendant is trying to show the contract isn’t valid so they don’t have to be liable.

• In a lawsuit, the plaintiff is trying to enforce the contract (they want it upheld).

• The defendant is the one being sued, so they want to prove the contract isn’t valid.

• If the defendant succeeds, they can avoid being held responsible under the contract.

Four Results When Attacking a Contract

• Valid Contract

• Void Contract (Common Law)

• Voidable Contract (Equity)

• Unenforceable contract

Unenforceable Contract

A contract that is valid in its formation (meaning it has all the elements of a contract: offer, acceptance, consideration, and intention to create legal relations), but cannot be enforced in a court of law due to some legal technicality or rule.

1. Valid but legally barred: The contract itself is not void or illegal; it could have been validly agreed upon, but the law prevents the court from enforcing it.

2. Common reasons a contract becomes unenforceable:

   • Statute of limitations: Too much time has passed since the contract was breached.

   • Lack of written form: Some contracts (like real estate sales or certain guarantees) must be in writing to be enforceable.

   • Illegality or public policy issues: Even if the parties agree, certain contracts are unenforceable if they conflict with the law or public policy.

   • Incapacity or misrepresentation: If one party lacked legal capacity or there was fraud that doesn’t make the contract void but makes it difficult to enforce.

Void Contract (Common Law)

A void contract is treated as if it never legally existed at all. Not a real contract, and no ownership title ever passes onto anyone else (even an innocent buyer), when a contract is found void. So even an innocent buyer does not get good title, and must return the goods to person A.

• Grounds are very narrow: Only specific, limited situations make a contract void. Regardless of the situation (e.g. duress, coercion, threat), the contract is still valid.

  • There was a desire for certainty within a contract for economic means, so voiding was difficult to do even if someone was coerced, or forced to sign contracts.

• Key effect of a void contract: No transfer of ownership (title) ever occurs. The original owner (e.g., vendor A) keeps legal ownership.

• Property consequences: If property was given under a void contract:

  • The original owner can get it back.

  • Even if it was passed to someone else.

Situations that Make a Contract Void

• Uncertainty: Offer is unclear or can’t be accepted.

• Non est factum: “Not my signature” / didn’t understand what was signed.

• Fundamental mistake: About subject matter or identity.

Important Rule in Void Contract

Important rule: The original owner can recover the property from the other party (e.g. B), or any later buyer. Even if the later buyer paid for it, and did not know that anything was wrong (they’re innocent). If a contract is said to have never existed, then the original owner always gets their property back.

Example (3 parties):

• A (vendor) → B (rogue/thief) → C (innocent buyer).

• A can recover the item from C.

• C may sue B, but C loses the item.

ISTP4V (Innocent Subsequent Third Party for Value)

Void Contract (Common Law)

An ISTP4V is someone who buys something in good faith, pays for it, and has no idea there was a problem with the original deal. They are an innocent buyer. The Void (Common Law), and Voidable (Equity) approach, take different positions of dealing with this.

• Innocent: Person did not know anything was wrong (no fraud, no bad intent).

• Subsequent: Person got the item after the original transaction.

• Third party: They are not one of the original people in the contract.

• For value: Paid for it (not a gift).

Voidable Contracts (Equity Law)

Equity tries to be fairer than the common law. It often favours the innocent third party (C). Unlike void contracts, they are not automatically invalid. A voidable contract is valid at first, and it remains valid until it is rescinded (cancelled).

• Ownership (title): Ownership can pass under a voidable contract. If the buyer (B) sells to C (an ISTP4V): C usually keeps the property. This is different from void contracts

• Who is protected: Equity aims to protect innocent third parties (C). So C often “wins” over A (original owner)

• Rescinding the contract: The original party (A) can cancel (rescind) the contract: Through court process, or by informally giving notice

• When contracts are voidable: Situations involving unfairness, such as threats, duress and misrepresentation.

• Voidable contract: Exists until cancelled → C may keep property

Important Timing Rule in Voidable Contracts (Recision)

Equity Law

You must rescind before the goods are passed to an innocent third party (ISTP4V).

• If you wait too long → you may lose the property permanently.

Important timing rule:

• If A rescinds before B sells to C, then A can get the property back.

• If A rescinds after B sells to C, then C keeps the property.

Difference Between Void (Common Law) and Voidable (Equity)

Void contracts (Common Law): No ownership (title) ever passes

• A person who gets goods under a void contract cannot pass ownership to anyone else.

• So even an innocent buyer (ISTP4V): Does NOT get good title, and must return the goods to the original owner (A).

Voidable contracts (Equity Law): The contract is valid until it is rescinded (cancelled)

• Ownership can pass between parties, if goods are sold to an ISTP4V before rescission: The innocent third party gets good title and they keep the goods.

How do you rescind (set aside) a contract?

Rescission undoes the contract as if it never happened (for voidable contracts). Cancelling of contract.

• Give clear notice: Tell the other party you are rescinding the contract (e.g. written or verbal).

• Act quickly: You must rescind within a reasonable time. Waiting too long can mean you lose the right.

• Return what you received: Both parties should be returned to their original positions. This is called “restoration.”

• Avoid affirming the contract: Don’t act like you still accept it (e.g., continuing to use goods). If you do, you may lose the right to rescind.

• Go to court if needed: If the other party disputes it, you can ask a court to rescind the contract officially.

Elements of a Voidable Contract (Equity Law)

1. Misrepresentation: Inside or outside.

   1. Innocent

   2. Negligent

   3. Fraudulent

2. Undue Influence:

3. Duress: Rectification.

Misrepresentation (IO)

Voidable Contracts

A false statement of fact that influences someone to enter a contract. Makes the contract voidable (can be cancelled). Courts often try to treat misrepresentations as terms of the contract. Makes it easier to sue for breach.

• Inside the contract: Becomes a term, easier to sue (breach of contract). Person has not lived up to the terms of the contract. Courts tend to attempt to find ways to make misrepresentations a part of the contract.

• Outside the contract (before it’s made): Not a term within the contract, but rather a representation that has induced an individual to enter into the contract. Still matters if it induces someone to agree. This is determined by the objectives test.

  • Ask: Would a reasonable person be influenced by the statement? If yes, then the contract can be voidable.

  • Includes innocent misrepresentation, negligent misrepresentation and fraudulent misrepresentation.

Types of Misrepresentation (INF)

Voidable Contracts

• Innocent: Person believed the statement was true. This can lead to a rescinded contract.

  • Remedy: Rescission only.

• Negligent: Person should have known it was false.

  • Remedy: Rescission + damages.

• Fraudulent: Person knowingly lied.

  • Remedy: Rescission + damages (for deceit).

Caveat Emptor

Voidable Contracts

The buyer is responsible for checking the quality of goods. Must do their own research and inspection.

• If the product has defects → buyer generally can’t complain later.

• Misrepresentation is about a fact, unless from an expert opinion. Unless it is mentioned in the contract, there is not typically a remedy awarded for apparent misrepresentation.

• Exception: if the seller misrepresented a fact, then there may be a remedy.

Contracts of Upmost Good Faith (Uberimma Fides)

Voidable Contracts

Opposite of caveat emptor. Requires full disclosure of all important facts. Duty for one to give full details about a purchase.

1. Insurance contracts: Buyer must disclose health and relevant info.

2. Securities contracts: Must disclose all important financial information.

Doctrine of Merger

Voidable Contract

States that warrants cease to exist after closing so we must create a clause to correct this.

• After the deal “closes”: Warranties/promises no longer apply.

• To avoid this: Add a clause in the contract to keep them valid after closing.

Undue Influence

Voidable Contract

Happens when one person dominates or pressures another so much that, the other person can’t make an independent decision. The contract becomes voidable (can be cancelled by the victim).

• The victim must act quickly to cancel the contract.

• If they delay or accept it, they may lose the right to rescind.

• There are the key elements of undue influence.

Three Key Elements of Undue Influence (SLB)

Voidable Contract

• Special relationship: One party trusts or relies on the other.

  • Examples: Family members, lawyer–client, doctor/patient or caregiver, and financial advisor (e.g., stockbroker).

• Likelihood of domination: The situation suggests the stronger party could influence or control the weaker one. If a special relationship exists, this is usually easier to prove.

• Burden shifts to dominant party: If (1) and (2) are proven. The dominant person must prove they did NOT use undue influence.

Factors Courts Look at in Undue Influence

To determine undue influence, the courts look at a few factors. This includes:

• Nature of the relationship (how much power one had). Reviewing the nature of the relationship.

• Size of the benefit (did one person gain a lot?). What was the extent of the benefit.

• Whether there was independent legal advice. Check is there was any provided prior.

Duress & Rectification

Voidable Contract

Occurs when someone is forced into a contract through improper pressure. Makes the contract voidable. Examples: Threats of physical harm, actual physical force and economic duress (very limited and narrowly applied)

Rectification (Fixing a Written Contract): A legal remedy to correct mistakes in a written contract.

Requirements:

1. There was a clear agreement between the parties (no ambiguity)

2. The parties did not later change or renegotiate the terms

3. The written contract contains a recording error

   • The mistake is obvious and explainable

Enforcement of Contracts

1. Requirement of contract in writing: Statutes of Frauds 1677, the Sales and Goods Act.

2. Interpretation of contracts:

3. Doctrine of Privity:

Requirement of Contract in Writing (Common Law)

Some contracts must be in writing to be enforceable. In common law contracts, the contracts do NOT need to be in writing.

• In Canada this applied in most provinces, however it does not apply in Manitoba and BC.

• It is still important if dealing with other provinces or jurisdictions.

• However, for statutory contracts the requirements differ.

Types of Contracts Affected by the Statute of Frauds (must be in writing):

The statute of frauds indicates that certain types of contracts are unenforceable if they are not in writing. Contracts effected under this rule include:

• Executor/Administrator promises: A promise to personally pay debts/damages from an estate.

• Guarantee of another’s debt: Promise to pay someone else’s debt if they don’t. Does NOT include indemnity agreements.

• Agreements made in consideration of marriage: Prenuptial agreements.

• Contracts involving an interest in land: Buying, selling, or transferring land/property.

• Contracts not performable within 1 year: If it cannot be completed within one year, must be in writing.

• Ratification of a minor’s contract: When a person confirms a contract made while they were a minor.

Statutory Contracts Requirement (SF / SG)

These are contracts that are governed or required by legislation (statutes/laws) rather than just common law. The law sets a specific rule for these contracts (e.g. must be in writing, or follow certain formal requirements). If the rules are not followed for these specific contracts, then they would be deemed unenforceable.

Statutory contracts must be in writing. Two types of statutory contracts include:

Statute of Frauds (1677, England):

• Created to prevent fraud and lying in court

• Requires written evidence of certain contracts

• Idea: written proof = more reliable than verbal claims

The Sales of Goods Act: Governs buying and selling of goods:

• Sets rules about: Rights and duties of buyers and sellers, quality of goods and remedies if something goes wrong.

• In some cases (especially higher-value goods), the contract may need: Written evidence or proof of the agreement.

What Does “Writing” Mean (Statute of Frauds)

There must be a written memorandum (record) of the contract. It must include the essential (key) terms:

Essential terms: Identity of the parties (who is involved)

• Subject matter (what the contract is about)

• Consideration (what is being exchanged)

• Key details (e.g., possession/closing date)

Form of the writing:

• Does NOT have to be one single document.

• Can be multiple documents combined.

• Must be signed: Only by the party being sued (the defendant).

Effect if not in Writing (Statue of Frauds)

Contract is unenforceable in court. However, this does not make the contract void.

• The contract is NOT void: Contract is still a real agreement. It is not treated as if it never existed.

• The contract is unenforceable: You cannot go to court to enforce the contract.

• It can still affect the parties in real life: Even though it’s unenforceable, things that already happened may still stand.

  • Example: A gives B a car under an unwritten contract (that should have been in writing). B keeps the car. A can’t use the contract to get it back through court.

• Both parties are struck: Neither side can enforce the contract. So, A can’t demand performance. B can’t demand performance. The law just refuses to get involved.

• To prevent fraud and false claims, courts assume that important agreements should be written.

Doctrine of Part Performance (Statute of Frauds)

Courts may still enforce the contract (especially land deals) if the plaintiff can show that they initiated performance of the contract with the reliance on the contract. Then the courts would accept the evidence of part performance in lieu of evidence of a memorandum.

Requirements:

1. Contract involves land.

2. There is clear action showing the contract exists.

   • Must be obvious and unambiguous.

   • Example: taking possession of land (not just paying a deposit).

3. The plaintiff performed the act.

   • They relied on the contract and suffered a loss or hardship.

The Sales and Goods Act

The Sale of Goods Act is a law that governs contracts for buying and selling goods (movable items). It is a statutory rule that can require written proof for certain sales

• In Manitoba: Applies to sales of goods over $50. There must be some written evidence of the contract.

• Writing counts as something that is not a full contract, and a simple receipt is good enough.

• This proves who the parties are, what was sold and that a deal actually happened.

• If there is NO writing the contract may be unenforceable, meaning that someone cannot sue to enforce it in court.

• The Sale of Goods Act adds extra rules on top of common law, as a mechanism to reduce fraud.

Interpretation of Contract

It means the court figures out what the contract actually means. Ambiguous = unclear or capable of more than one meaning.

A contract may seem clear at first, but later (often during a lawsuit), a party argues that a term has become unclear or uncertain.

• The defendant will have to claim the contract is too uncertain. If they are successful, then the contract could be void (invalid)

• Courts have a strong preference to enforce contracts. They will try to interpret unclear terms or give meaning to the contract. They avoid declaring contracts void unless necessary.

  • There are two other ways that contracts can be interpreted.

Two Other Ways Contracts can be Interpreted

• Literal/plain meaning approach: Restricts interpreting to the dictionary meaning, however there is often more than one, therefore dictating certainty.

• Liberal approach: Looks to the intent of the parties in drafting their agreement. It stresses the circumstances surrounding the contract, negotiations leading up to the contract and the knowledge of the parties and any relevant facts as due by the reasonable person. Generally the courts combine the two approaches. They take the approach that will render the contract effective. This, however, creates uncertainty

Parol Evidence Rule

Creates certainty in contracts. If parties put their agreement in final written form, prior or contemporaneous oral or written statements (outside the document) cannot be used to change or add to the contract. “Parol” = outside the written agreement (extrinsic). This creates certainty and clarity for enforcement.

This applied when:

• Oral agreements being reduced to writing.

• Written agreements being formalized under seal.

• Only applies to terms NOT in the written contract.

Parol Evidence Rule Exceptions

Parol Evidence Rule = “what’s not in the written contract, you can’t rely on.” Exceptions exist for incomplete, amended, collateral, or conditional agreements.

1. Written contract not meant to include all terms: If parties intended some terms to remain outside the document, evidence is allowed.

2. Subsequent amendments: Changes after the written contract can be considered.

3. Collateral agreements: Separate, additional agreements can still be enforced.

4. Condition precedent: Terms that must happen before the contract takes effect can be introduced.

Other Terms / Rules of Interpretation

Courts use these additional rules to resolve ambiguity, protect weaker parties and ensure that contracts are reasonable and workable.

• Contra Proferentem: If a contract term is ambiguous, the court will interpret it against the party who drafted it. Protects the weaker party from unfair drafting.

• Judicial Notice: Some facts or details in a contract don’t need to be proven in court. Court accepts them as given.

• Agreements to Agreements: When a contract depends on another agreement to be made later (e.g., house possession dates). Usually uncertain → contract is void.

  • Exception: An arbitrator clause can help save the contract.

• Incompleteness: If important details are missing (e.g., lease start date), the contract can fail

• Implied Terms: Terms not written in the contract but courts assume reasonable parties would have included

  • Two types: Statutorily implied terms – required by law. Common law implied terms – based on custom or court precedent.

    • This filles gaps in the contract, and handles issues that arise later that parties did not fully cover.

Reasonable Notice (Implied Term in Employment Contracts)

An implied term courts insert into employment contracts. Applies especially to non-union (non-collective bargaining) employees. Employer must give reasonable notice before terminating an employee without just cause. Employees also must give reasonable notice to employers if leaving.

Factors determining reasonable notice:

1. Length of service – more years = longer notice.

2. Type of occupation – skilled/professional jobs may require longer notice.

3. State of the economy – general and sector-specific conditions.

4. Age of the employee – older employees may need more time to find new work.

Typical Reasonable Notice Guideline & Mali Fides Dismissal

Usually 2–4 weeks’ notice per year of service. Maximum 2 years’ notice. Based on UGG v. Wallace case.

• Mali fides dismissal (bad faith): Notice period can be extended

• Alternative to notice: Employers can give severance pay

  • Example: give cash for 6 months instead of working it out

  • Sometimes employees can choose between severance or working notice

Doctrine of Privity of Contract & Exceptions

The thought is that “if you did not sign it, then you cannot sue.” Courts enforce this doctrine to prevent third parties from interfering in contracts. Only parties can sue or be sued, unless insurance, trust, or novation.

Basic Rule: Only parties to a contract can enforce the contract (sue for breaches), and be bound by its obligations. People who are not parties cannot sue or be sued under the contract.

• You become a party through either:

  • You are either the offeror or offeree.

  • You give consideration (something of value in exchange).

    • Only then can you enforce promises made to you.

Exceptions:

1. Insurance contracts – a beneficiary can sue the insurer, even if not a party

2. Trusts – beneficiaries may have rights (though not technically a contract)

3. Novation – a new contract replaces an old one, creating new parties and rights

Contract Differences (Void, Voidable & Unenforceable)

Difference from other types of contracts:

• Void contract: Never valid, no legal effect from the start.

• Voidable contract: Valid but one party can choose to cancel it.

• Unenforceable contract: Valid in formation but the law prevents enforcement.