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Law 122: Chapter 10 Contractual defects.docx

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Law and Business
LAW 122
Avi Weisman

Chapter 10: Contractual defects Contractual defects: They provide one of the parties with a defence when the other commences a lawsuit There are five different contractual defects: 1. Incapacity to contract 2. Absence of writing 3. Mistake 4. Unfairness during bargaining 5. Illegality 1. Incapacity to contract - A person cannot enter into contract unless they have legal power to give consent (ex. A 10 year old may not be bound by contract) -The line drawn here is capacity; if a person has capacity then they have the legal power to give consent -People who may or may not have capacity include: A. Minors B. Mental capacity C. Intoxication D. Business corporations E. Associations A. Minors - Person under the age of majority -Age varies between jurisdictions (either 18 or 19) -Age of majority: The age at which the person is held fully accountable in law -Anyone under age of majority lacks capacity -Minors contracts can either be voidable or enforceable Incapacity to contract (Minors) Most minor’s contracts are voidable -Protection against exploitation and immaturity -Rule applies even if the child seems older Process of avoidance -Minor has option to accept or avoid contract -Must choose soon after reaching majority whether to avoid a contract entered into as a minor -Must return benefits if they avoid the contract Some contracts that minors cannot avoid and therefore are enforceable -Contracts for necessary goods and services such as food, clothing…etc. -Minors cannot avoid contracts of employment that are to their benefit B. Mental incapacity Regardless of age, person may lack capacity because of a deficient intellect -If court has declared a person to lack mental capacity their contracts are void and cannot be enforced at all -Even if there is no court declaration, person can still be considered mentally incompetent at time the contract was formed -Contract is voidable only if the other party should have recognized the problem -Risk management: Employees should be trained to identify potential problems C. Intoxication -Similar to rules for mental capacity -Contract is voidable if two conditions are met: i.) Too drunk to understand circumstances and ii.) Other party aware of extent of intoxication -To void, intoxicated party must make a prompt election once sober D. Business corporations -Corporations are treated as legal persons -Capacity of chartered corporation: Same as person of sound age and sound mind. Therefore full capacity to contract and enforce contract -Even if contract is created in breach of that company’s charter, it is still valid and enforceable E. Associations -Only legal persons can have capacity -Associations are usually unincorporated -Therefore, associations usually lac capacity -One of its members may enter into contract for its benefit -Individual member is liable/ responsible under the contract -RM: Ensure that members are able to perform 2. Absence of writing -For most contracts there are no formal written requirements -Certain types of contracts must be evidenced in writing -Statue of frauds: -Ancient English statute that requires some contracts to be evidenced in writing -Requirement was to discourage people from falsely claiming the existence of oral contracts -Contracts must be evidenced in writing: i.) Guarantees for repayment of debt: –Statute applies to guarantees -It’s a contractual promise to satisfy a debtor’s obligation if they can’t satisfy them (Ex. Bank loan/ mortgage) -Guarantor gives a conditional promise ii.) Sale of and interest in land – must be evidence in writing -Evidence of writing: -Essential elements of contract (Parties, subject matter, price) -Signature -Several documents may be pieced together -Effects of non-compliance with statue of frauds: -Contract is unenforceable but not necessarily void -ex. Deposit for sale of land does not have to be returned if party
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