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contractWhat is a Contract?

This issue was decided for better or for worse in the seminal Supreme Court of Canada case,  Murphy v. McSorley.  Read how…this Canadian case from 1929 went on to change  the nature of contracts and how this decision helps to define a contract even today…

Murphy v. McSorley, [1929] S.C.R. 542
ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

In late 1926 the parties entered into a contract of lease for one year with Murphy  given the option to purchase the premises for the amount of  $45,000, with a cash payment of $15,000 and “balance to be arranged”.  Shortly before the expiry of the one year there were subsequent meetings where, based on the option within the contract, Murphy offered to purchase the hotel.  Each time McSorley refused, as he insisted the balance of $30,000 to be paid “practically cash” or be placed in escrow in the bank pending delivery of title of the hotel.  Murphy, resistant at first, eventually agreed to the terms, but it was past the last day of the year stated in the option.  When McSorley refused to accept the offer, the Murphy filed a lawsuit claiming breach of contract.

The case went to the Supreme Court of Canada where a very important question was asked…

“Was there really a contract?…”

The Chief Justice stated, “an agreement which leaves one of the essential terms to be determined by the parties mutually at a future time is unenforceable.”  He indicated the wording, “the balance to be arranged” suggested a further understanding was needed to be reached between both parties for the contract to be enforceable, and by the time Murphy had decided to accept McSorley’s terms, it was simply too late as the 1-year period stipulated in the terms had expired.  The Chief Justice stated, “the court cannot make for the parties a bargain which they themselves did not make in proper time.

In other words in order for there to be a contract there must be both offer and acceptance.  In Murphy v. McSorley there were numerous offers but no acceptance until after it was too late.   But more importantly, Murphy v. McSorley demonstrates that terms of a contract must be clear enough to be enforceable-  “balance to be arranged” was simply not clear enough to be enforced by the courts.

The relevance of this decision established Murphy v. McSorley as seminal case in Canadian Law further establishing the legal definition of a contract, while at the same time clarifying the role of the Courts in contract disputes.  The Murphy v. McSorley decision has been referenced extensively in subsequent contract disputes such as Bonilla v. Ciurariu,[2]  Manparr v. Canada,[3] 0723922 B.C. Ltd. v. Karma Management Systems Ltd.(DBA Madame Cleo’s)[4] and similar case law where the terms of a contract are called into question.

Summary

What can we learn from Murphy v. McSorley?   There must be offer and acceptance, and terms must be clear.  If parties in a contract leave any part of the contract to be decided upon at a future date, they may very well run into the same legal entanglements as Murphy and McSorley. 

Click Here to download the 1929 Supreme Court of Canada decision (Canlii)


[1] Fridman, Construing, Without Constructing, a Contract, 76 L.Q.R. 521 (1960

[2] Bonilla v. Ciurariu (c.o.b. Geo Construction), 2008 BCSC 925, at para. 77, quoting from Rafal (c.o.b. RJG Contracting and Management) v. Legaspi, 2007 BCSC 1944, at paras. 29-30.

[3] Manparr Enterprises v. Canada (1999), 173 D.L.R. (46′) 243 (B.C.C.A.).

[4] 0723922 B.C. Ltd. v. Karma Management Systems Ltd. (DBA Madame Cleo’s) 2008 BCSC 492

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contract

Contracts 101-  What is a Contract?

There are many definitions of contracts, but in general a contract is an agreement between parties that is enforceable by law.  While a contract always involves an agreement, not every agreement is a contract.  Below are 2 examples.

Example 1: Daniel has a car for sale.  He offers to sell it to Chuck for $5,000.  Chuck agrees to pay Daniel his asking price.  They both agree that the money will be paid on Friday.  On Thursday Daniel calls Chuck and explains that he’s changed his mind and that the car is no longer for sale.  Can Chuck sue Daniel for breach of contact?

Example 2:  Jack and Jill are friends.  Jack asks Jill over for dinner this Saturday night at 5:00 pm.  Jill accepts.  Jack spends $100.00 hiring an executive chief to make dinner for Jill.  Jill does not show up.  Can Jack sue Jill for breach of contract?

The Elements of a contract:

  1. An agreement as evidenced by Offer and Acceptance.
  2. An intention to create a legal relationship.
  3. There must be consideration or in other words, and exchange of something of value.
  4. There must be mental capacity or legality.  What this means is both parties must be in a lawful position to enter into a contract.

Example 1: Can Chuck sue Daniel for breach of contact? Yes.

Chuck could take Daniel to court for breach of contract as all the elements of a contract were present—agreement as evidenced by Offer and Acceptance, an intention to create a legal relationship, consideration (Daniel to give Chuck a car in exchange for $5,000) and both adults were of sound mind.

Scenario 2: Can Jack sue Jill for breach of contract? No.

A dinner date is simply a promise with neither party intending to create a legal relationship. In short, a date does not create contractual expectations (all emotions aside!).  It has been said that, “to offer a friend a meal is not to invite litigation.”

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