4 Common Myths About Contracts

In How are Contracts Formed?, I discussed the elements that are required to form a contract in Canada. I want to expand on that discussion and highlight some common mistakes and misconceptions about contract formation.

Myth 1: A contract must be in writing to be enforceable. Most contracts in Canada may be oral or implied and still be legally binding. Courts have repeatedly affirmed that enforceability depends on the presence of essential elements, not form. In Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), the Ontario Court of Appeal confirmed that an oral agreement can be binding. Writing is generally about evidence, not validity. Some exceptions include land transactions, certain guarantees, and consumer protection statutes.

Myth 2: No signature means no contract. As an extension of Myth 1, a signature is not required where acceptance can be inferred from conduct. In Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd. (1964), the Supreme Court of Canada held that a contract may be formed through conduct demonstrating acceptance of terms.

Myth 3: You can get out of a contract if it’s a bad deal. Canadian courts do not relieve parties from imprudent bargains. In Hunter Engineering Co. v. Syncrude Canada Ltd. (1989), the Supreme Court of Canada emphasized freedom of contract, enforcing negotiated risk allocation between sophisticated parties. See my post Interpreting Contracts, for situations in which you may have a defence against an unfair contract.

Myth 4: Contracts can’t be changed once agreed. Contracts may be amended by mutual agreement, even informally. In Rosas v. Toca (2018), the British Columbia Court of Appeal confirmed that contractual variations do not always require fresh consideration where the variation is voluntarily agreed upon.

Canadian courts focus less on rigid formalities and more on the parties’ intentions, conduct, and allocation of risk. Understanding these principles can help organizations avoid costly misunderstandings and disputes. Ultimately, however, the best practice is to have your contracts clearly and thoroughly written and signed.