Other essential elements of a contract

LEGAL INTENTION

-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.

-whether such an intention exists or not is a decision that the courts will make objectively. In other words, they will ask, “Would a reasonable person think that the parties had a serious intention to be bound?”

CAPACITY - Infancy

-The most common types of incapacity are infancy, insanity, drunkenness, and the lack of capacity of a corporation.
-In each province there is legislation which governs the age at which a person is considered to be an adult in society, capable of looking after their own interests.
-in British Columbia, a person under 19 years of age which, generally speaking, is the age of legal competence
-Most contracts to which an infant is a party are voidable by the infant.
-voidable contracts cannot be enforced against the infant but can always be enforced by the infant, unless one of four exceptions applies:
• 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; or

• where the infant does not repudiate the contract within one year of turning 19.
-The court has great discretion in terms of remedies where an infant has made a voidable contract

CAPACITY - Mental Incapacity

-Mental illness or disability does not, in itself, prevent an individual from entering into binding contracts
-However, the law recognizes that, at some point, cognitive impairments may render a person unable to understand the nature and effects of their actions
-At this point, a person is said to be mentally incapable.
-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.
-According to section 60.2 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.

Legal Arrangement - Powers of Attorney

-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”)

-may be very specific or very general

-The Land Title Act has special requirements for the creation of powers of attorney that authorize the attorney to deal with real estate.

-According to section 29 of the Power of Attorney Act, powers of attorney are only valid while the donor is alive and they automatically expire if the donor becomes incapable or bankrupt

-According to section 56 of the Land Title Act, powers of attorney dealing with real estate are only valid for three years after the date of signing.

-Enduring powers of attorney do not expire after 3 years and will remain valid if the donor becomes incapable.

-While the power of attorney agreement will bind the donor to any agreement entered into by the attorney (if made within the scope of the attorney’s authority), some licensees may choose to encourage their clients to sign their contracts for purchase and sale themselves if they are able, or at least obtain direct confirmation of authority from the donor.

Legal Arrangement - Adult Guardianship and Committees

-if a person becomes mentally incapable because of disease, accident, or age, and there is no enduring power of attorney agreement in place, the BC Supreme Court can appoint an adult guardian (also known as a “committee”)

-In most cases, family members or friends will act as committee; in other cases, the Public Guardian and Trustee (a government body) will be appointed to make decisions on behalf of the incapacitated person

-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.

Legal Arrangement - Representation Agreements and Advanced Directives

-Representation agreements are planning documents that allow individuals to transfer their legal decision making power to another person

-typically cover routine financial affairs as well as personal and healthcare decisions

-created on or after September 1, 2011 cannot authorize representatives to purchase or sell real estate.

-Advanced directives are written instructions pertaining to the delivery of healthcare services. These directives cannot authorize representatives to deal with real estate.

Licensees working with clients who may be relying upon a power of attorney should take the following steps

• Obtain a true copy of the power of attorney and read the entire document to ensure that the client has the legal authority to deal with the property;

• Consider obtaining the client’s consent to contact their family members to determine whether anyone else holds a power of attorney;

• Consider contacting lenders to confirm their policies and procedures relating to powers of attorney;

• Consult with your designated individual as to any brokerage policies or other appropriate due diligence relating to powers of attorney; and

• Advise clients to seek legal advice as soon as possible as to the validity of the power of attorney for the contemplated transaction.

Practical Steps for Licensees when faced with a client who appears to have a cognitive impairment

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.

CAPACITY - Foreigners and Illiterates

-A foreigner or illiterate refers to persons who cannot read or speak English

-The rule is that if the foreigner or illiterate person knew the general nature of the contract, they are bound

-However, if the person who read the document 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 document before signing.

CAPACITY - Incorporated Companies

-When a corporation is involved as a party to a 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

-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.

-the law has been altered by statute in BC so that it is possible for companies incorporated under the Business Corporations Act to ratify a pre-incorporation contract by act or conduct

-different ratification rules will apply.

Estate Sale

-the owner of a property has recently passed away and the estate, or a relative of the deceased, is trying to sell the property

-First, a licensee should confirm that there are no surviving joint tenants on title. This should be done by performing a title search of the property.

-If there are no surviving joint tenants, a licensee must confirm that the person claiming authority to act for the deceased has the legal authority to act for the estate.

-If the deceased had a will, the named executor of the estate must apply for a Grant of Probate. Once obtained, and if the will does not gift the property to a beneficiary, a Grant of Probate gives the executor the authority to transmit the property into the name of the estate and to sell it in an estate sale

-If the deceased did not have a will, a successor or another eligible person as allowed under section 130 of the Wills, Estates and Succession Act, may apply for Letters of Administration. Once obtained, the appointed administrator has the authority to sell the property in an estate sale.

-Authority to act is also relevant to timing with respect to a Contract of Purchase and Sale