In Canada, whether or not the contract is valid depends on several factors. One of them is that all the signing parties must have legal capacity to sign the contract. For individuals, the signor must reach the age of majority (18 years in Ontario), and have no metal capacity issues. Accordingly, the contract will have a validity issue if a child or a person lacking mental competence signs the contract. For companies, the company must exist and not be in a bankruptcy proceeding. The company which is bankrupt has no capacity to enter into a contract. Some people ask if they can buy real estate under their children’s names. If the child is still a minor, the contract signed by the child is invalid. If any lawyer says that the contract signed by a child is valid, please ask the lawyer to provide a legal opinion, then the lawyer will take responsibility if there is dispute in the future.

People naturally want their contracts to become effective when signing them. But some contracts are the initial negotiation results, such as letter of intent (LOI), memorandum of understanding (MOU) and term sheet. There will be formal contracts after LOI, MOU and term sheet have been signed. Are the initial documents binding on the parties? They may and may not. It depends on what the parties need and how the document has been drafted. Usually, the terms regarding the transaction, such as price, payment terms, closing conditions, etc., should be included in the formal contract; and these terms are often not binding. Other terms, such as confidentiality, expenses, due diligence, no shop, etc. would be binding. Signing initial documents is just like an engagement. Once you find the right one, engage first. Whether or not the marriage will occur will depend on whether the conditions are satisfied. Closing a transaction is like getting married.

After signing the purchase agreement for a business or estate, the seller does not want to sell the business or the real property. If there are conditions which need to be met by the seller and the seller does not satisfy them, then the conditions are not met, and the contract cannot be performed? This is a common breach in the real estate transactions. After the purchase agreement has been signed, the price goes up. Thereafter, the seller does not want to perform the purchase agreement. For example, the agreement requires the seller to apply for a renovation permit. The seller does not apply. The seller thinks that the condition is not met, the agreement therefore cannot be performed. It is unreasonable in law. The seller cannot avoid legal liabilities using his own breach. If the seller fails to perform the contract, the buyer can sue the seller and will win in the most cases. The court may order the seller to apply for the renovation permit and close the transaction of the real property. The court may order that the seller compensate the buyer for the losses caused by seller’s breach. The losses may include the extra money which the buyer may pay to buy a similar real property, the accommodation cost (hotel or rent) before moving to the new house, lawyer’s fees, etc. If you decide to breach an agreement, you should know the liabilities first.

Many contracts have a clause restricting assignment. For example, in a lease contract, the landlord prohibits the tenant transferring the lease to a third party without consent of the landlord. Another example, in a service contract, the services cannot be taken over by a third-party service provider. These are the common terms. The house is to be leased to you. The services need to be provided by you. What if the tenant or the service provider transfers its own shares to a third party? The tenant or the service provider is still the party of the lease/service contract. The clause restricting assignment does not apply under this situation. If there is a clause in the lease or service contract restricting the change of control of the tenant or the service provider and requiring the tenant/service provider to obtain landlord’s/client’s consent for any change of control, then this loophole will be plugged.