Estates & Wills & Trusts

Contractual obligations and estates

By Ian Hull

An estate trustee may be bound to a contract previously entered into by the deceased. This duty is distinct from the duty of an estate trustee to discharge all debts of the deceased.

There are four main elements of a contract:

  • Offer
  • Acceptance
  • Intention (consensus ad idem/meeting of the minds)
  • Consideration

Prior to the formation of a contract, it is possible for an offer to be revoked by death, if the contract has not been accepted by the surviving party. If performance of a contract has already been initiated by the surviving party, the contract may not be able to be revoked. This is due to the fact that part-performance of a contract may validate a contract. The doctrine of part-performance has been upheld in cases such as Lensen v. Lensen, 1984 CanLII 2424 (Sask CA), and Thompson v. Guaranty Trust Co., [1974] S.C.R. 1023.

In general, contracts often will have a clause stating that the terms are binding on the estate of a contracting party. Therefore, if a contract is found to be valid, the estate of a deceased may be bound by a contract entered into by the deceased. It is important to note that a contract need not be formally executed and signed in order to be considered enforceable by the court.

In this case, the British Columbia Superior Court upheld a contract on the death of a party. In this case, the deceased and his employer entered into an employment agreement for 10 years, with an annual base salary of $60,000 plus benefits. The contract provided that, upon the death of the employee, the employer would pay into deceased’s estate an amount equal to the salary and benefits that the deceased would have earned. The amount paid into the estate was to be based on how much time was left in the employment contract. The contract also had a provision naming the employer as a beneficiary of the deceased’s insurance policy, so long as the employer was to maintain insurance on the life of the deceased. Upon the death of the employee, the employer tried to submit that the employment contract was not enforceable. The court rejected the employer’s submissions and upheld the contract, requiring the employer to pay the deceased’s salary into his estate.

Aside from part-performance of a contract or having a formally executed contract, it is possible to enter into a verbal contract prior to the formal contract being executed. Where a tentative agreement is reached from oral negotiations, the intentions of the parties are the key factor in determining if a contract is in existence. In attempting to enforce a contract in which one of the parties is deceased, the court will look to the intention of the deceased in order to determine whether or not they intended for a contract to be formed.

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