NCA Contract Law — Questions and Answers
Question 1: Under Canadian common law, what is 'consideration' and why is it necessary for a valid contract?
- It means thinking carefully before signing a contract
- It is something of value exchanged between the parties (a benefit received or detriment incurred), required to distinguish enforceable contracts from gratuitous promises (Correct answer)
- It is a cooling-off period before a contract becomes binding
- It only applies to contracts over $1,000
Correct answer: It is something of value exchanged between the parties (a benefit received or detriment incurred), required to distinguish enforceable contracts from gratuitous promises
Consideration is the exchange element that makes a promise enforceable. Each party must provide something of value — a benefit to one party or a detriment to the other. Past consideration (something already done) is generally not valid. The adequacy of consideration is not examined by courts (peppercorn sufficiency), but it must be real and not illusory. In Quebec's civil law, consideration is not required — 'cause' serves a similar but distinct function.
Question 2: What is the 'parol evidence rule' in Canadian contract law?
- A rule requiring all contracts to be witnessed
- When a contract has been reduced to a final written form, extrinsic evidence generally cannot be used to add to, vary, or contradict its terms, subject to exceptions such as ambiguity, fraud, mistake, or collateral agreements (Correct answer)
- A rule that verbal contracts are never enforceable
- A rule requiring all evidence to be presented verbally in court
Correct answer: When a contract has been reduced to a final written form, extrinsic evidence generally cannot be used to add to, vary, or contradict its terms, subject to exceptions such as ambiguity, fraud, mistake, or collateral agreements
The parol evidence rule prevents parties from introducing external evidence to contradict or vary the terms of a written contract that appears to be complete (an 'integrated' agreement). Exceptions include: interpreting ambiguous terms, establishing fraud, duress, or mistake, proving a condition precedent, establishing a collateral agreement, or proving subsequent variation. The rule protects the certainty of written agreements.
Question 3: What is 'frustration of contract' under Canadian law?
- When one party is frustrated with the other's performance
- When a supervening event, without the fault of either party, makes performance impossible, illegal, or radically different from what was contemplated, automatically discharging the contract (Correct answer)
- When a contract is terminated by mutual agreement
- When a contract is breached by one party
Correct answer: When a supervening event, without the fault of either party, makes performance impossible, illegal, or radically different from what was contemplated, automatically discharging the contract
Frustration occurs when an unexpected event beyond the parties' control fundamentally changes the nature of the contractual obligation. Examples include: destruction of subject matter, supervening illegality, or cancellation of an event central to the contract's purpose. Frustration is narrowly applied — mere hardship, increased cost, or difficulty is insufficient. Self-induced frustration does not apply. Provincial legislation (Frustrated Contracts Acts) governs the consequences.
Question 4: What remedies are available for breach of contract in Canadian common law?
- Only monetary damages
- Damages (expectation, reliance, restitution), specific performance, injunctions, rescission, and in some cases, quantum meruit — the primary remedy is expectation damages to put the innocent party in the position they would have been in had the contract been performed (Correct answer)
- Only the right to terminate the contract
- Only punitive damages
Correct answer: Damages (expectation, reliance, restitution), specific performance, injunctions, rescission, and in some cases, quantum meruit — the primary remedy is expectation damages to put the innocent party in the position they would have been in had the contract been performed
The primary remedy is expectation damages (putting the innocent party in the position they would have been in had the contract been performed). Other remedies include: reliance damages (restoring the pre-contract position), restitution (preventing unjust enrichment), specific performance (compelling performance — available when damages are inadequate, commonly for unique goods or real property), injunctions, and rescission.
Question 5: What is 'promissory estoppel' and how is it applied in Canadian contract law?
- It is a type of breach of contract claim
- It prevents a party from going back on a promise to waive or modify a contractual right when the other party has relied on that promise to their detriment, though in Canada it is generally used as a shield (defence) rather than a sword (cause of action) (Correct answer)
- It is a rule about written contracts only
- It allows any promise to be enforced regardless of consideration
Correct answer: It prevents a party from going back on a promise to waive or modify a contractual right when the other party has relied on that promise to their detriment, though in Canada it is generally used as a shield (defence) rather than a sword (cause of action)
Promissory estoppel arises when: (1) a clear and unambiguous promise is made; (2) the promisee relies on the promise; (3) the reliance is reasonable; and (4) it would be inequitable to allow the promisor to renege. In Canada, it is primarily a defence (shield) — it prevents enforcement of strict contractual rights but does not create new causes of action (sword). This distinguishes Canadian law from some other common law jurisdictions.
Question 6: What is the doctrine of 'unconscionability' in Canadian contract law?
- It means a contract must be performed consciously, not while asleep
- It allows a court to set aside a contract or contractual term where there is an inequality of bargaining power between the parties and the resulting bargain is substantially unfair, taking advantage of the weaker party's vulnerability (Correct answer)
- It applies only to consumer contracts
- It means the contract must be in writing to be fair
Correct answer: It allows a court to set aside a contract or contractual term where there is an inequality of bargaining power between the parties and the resulting bargain is substantially unfair, taking advantage of the weaker party's vulnerability
Unconscionability requires two elements: (1) inequality of bargaining power (one party is vulnerable due to necessity, ignorance, disability, or similar circumstances) and (2) an improvident or unfair bargain that takes advantage of the inequality. Courts consider the circumstances at the time of contract formation. If established, the court may set aside the entire contract or the unconscionable term. The burden shifts to the stronger party to show the bargain was fair.
NCA Contract Law
Under Canadian common law, what is 'consideration' and why is it necessary for a valid contract?