October 8, 2013
Formation of Contracts: Legality (Chapter 7)
2. Illegality with Respect to Contracts: Contracts Void or Illegal by Statute
Void contract is one that the court will not uphold. The court tries to put the parties back to the position
they were in before the contract was entered into. Void Ab Initio: when there is a contract, it never
existed in the first place. Illegal statute: the court will not assist the parties in any way.
a) Contract Void by Statute: Residential Tenancy Act – if you have a lease agreement and there is a no
pets provision, that provision can be void.
b) Contracts Illegal by Statute:
i) Illegal when Formed: is a contract that has as its object something illegal.
ii) Illegal when performed: a contract that the object of the contract isn’t to break the law. The
contract happens to break the law as it’s being performed.
Example 1- Battison V. Mauty.. Battison & sons is a construction company (home renovations),
Mauty is a guy who wants renovations done to his house. Battison provides Mauty with a
contract, $40,000. Contract isn’t illegal. “anytime a construction company enters a contract with
a home owner, they have to use a certain type of contract” Battison does the work, it comes to
pay the bill, Mauty says I’m not paying. Battison says why not, Mauty says this contract is illegal.
City of Toronto says you have to use this form. Battison sues Mauty; goes to court appeal. The
court said in a case like this, modern approach; if the contract is illegal when performance but
the object isn’t illegal they are going to uphold the contract. Battison still has to pay the fine.
Example 2- Johnson V. Lazzarino: Johnson was an accountant, Lazzarino was a client. Whatever
you get back on those returns, I get 30%. Accountants were not allowed to enter into
contingency arrangements (fine of $5000 + suspension of license for 30 days). Gets 300,000$
back and Lazzarino says he won’t pay. Johnson sues. Traditional approach would make the
contract void, but modern approach says Johnson gets his 90,000 bucks but has to pay fine and
may be suspended.
3. Illegality with respect to contracts: contracts illegal by common law and public policy
a) Contracts Illegal by common law: contract that can only be upheld if it forces a party to breach a
contract with someone else.
b) Contracts illegal by public policy: what do we in Canada uphold as a standard of living and what don’t
we. Values and virtues we uphold in Canada. E.g. contracts that perpetrate of fraud