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Law 122 - Chapter 10.docx

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Ryerson University
Law and Business
LAW 122
Theresa Miedema

Chapter 10 Contractual Defects: are particularly significant because they often provide one of the parties with a defence when the other party commences a lawsuit. December-11-11 2:09 AM Minors:  Are people who have not reached the age of majority  Age of Majority: is the age at which a person is held fully accountable in law o Including Alberta, Saskatchewan, Manitoba, and Ontario, AOM is 18yrs o In Yukon, Nunavut, Newfoundland, and Labrador, New Brunswick, and British Columbia, AOM is 19yrs  Some contracts are voidable at the minor's option o A contract is voidable if a minor is entitled to avoid the legal obligations that it created o The minor may also choose to carry out the contract, making the obligations binding  EX: if a 15yro boy rent an equipment for 12 months, but after 2 months, the boy wishes to avoid the contract after 2 months. The boy cannot be sued for the other 10months, but he can, however, be sued for the first 2 months.  If there is a substantial delay, a count may say that the boy affirmed the contract and therefore lost the right to avoid it. o Minors who elect to avoid contracts must give back any benefits that they received under them. o There are some contracts that minors cannot avoid - contracts for necessary goods and services such as food, clothing, education, medical treatment, and legal advice, which are to their benefit. Incapacity to Contract A person cannot enter into a contract unless they have the legal power to give consent. - EX: a 10yro child may be able to read, understand, and sign the document, but he/she is not legally bound by it. o Same is also true for adult who lack the ability to consent. To protect specific groups of people, the law has drawn a distinction between those who have the capacity to contract and those do not. o 7 groups of people who may have no capacity or only limited capacity to create a contract.  Minors  Mentally disabled persons  Intoxicated persons  Corporations  Associations  Indian bands and Aboriginal persons  Public authorities Mental Incapacity  If a count has declared a person to lack mental capacity, their contract are VOID and cannot be enforceable at all If there is no court declaration, a person may still be considered mentally incompetent if he or she  lacks the mental capacity to contract at the time contract is formed. o Their contracts are voidable, like minors  BUT a minor's contract is voidable even if the other party was unaware of the age issue.  In contrast, so long as it is fair to do so, the contract of a person with a mental incapacity is voidable only if the other party should have recognized the problem Business Corporations  Chartered Corporations: are treated the same as individuals who have reached the age of majority o If a chartered corporation enters into contracts in breach of its charter, its charter maybe be forfeited, but the contracts made in breach of the corporate charter will still be binding.  Statutory Corporations: have limited contractual capacity o Have a limited contractual capacity. o Because they care statutory creations, their capacity to contract is limited to the powers given to them through legislation.  If a statutory corporation tries to attempts to contract in a manner that exceeds its statutory powers, it ultra vires  Those agreements are consequently unenforceable Intoxication  Similar to those with mental incapacity  The agreement is voidable if 2 conditions are met 1. The person must have been so drunk that they could not know or appreciate what they were doing i. It is not enough when intoxication only darkens the ability to reason 2. The other contractual party must have been alerted to that fact. Associations  Unincorporated business organizations that lack contractual capacity o Some provinces have legislation that gives contractual capacity to associations involved in activities as education, religion, and charity.  Trade union maybe also given capacity  Like statutory corporations: they cannot attempt to contract outside those limits  Because association generally lacks capacity, one of its members many enter into a contract for its benefit. But it is that individual member who becomes liable under the agreement.  Unlike corporate officers and directors, individuals cannot escape liability by pleading that they were merely contracting on the association's behalf. Indian Bands and Aboriginal Persons  Indian band is a body of aboriginal people whose land and money are held by the Crown. o Aboriginal persons generally have capacity and are free to contract just like any other person  Except: under section 28 of the Indian act, any deed, lease, contract, instrument, document, or agreement purporting to permit a person other than a member of a band to occupy or use a reserve or to reside or otherwise exercise any rights on a reserve, is void, unless approved by the Crown. Public Authorities  A public authority acting on behalf of a governmental body has the capacity to contract, independent of any specific statutory authority to do so. The only limit on a particular official's capacity to contract is the division of powers section of the Constitution Act 1867 - in order to have capacity, the action must be consistent with that division of powers. Managing Risk in Association with Incapacity Train employees to identify potential capacity problems in the contracts that your business enters into. Be aware of the rules governing contracts with minors, particularly if your business is likely to enter into contracts with minors. In potential cases of contracts involving minors, mental incapacity, or intoxication, take steps that will help to show that the other party has affirmed the contract. Be aware of whether your company may contract with statutory corporations, associations, Indian bands, individual First Nations' people, and public authorities, and act accordingly. Where you are not certain about the other party's capacity, you might consider requiring a written representation from the other party in the contract which states that they have the capacity to enter and fulfill the contract. If it later turns out that they did not have capacity, then you may have an action against them in tort for misrepresentation. Absence of Writing: most contracts have no formal requirement. But a certain types of contracts must be evidenced in writing.  Statute Of Frauds: o Statute of frauds required some contracts to be evidenced in writing as a way of reducing the rish of perjury, or lying in legal proceedings. o This requirement was intended to discourage people from falsely claiming the existence of oral contracts.  Types of contracts that must be evidenced in writing o Guarantees: is a contractual promise by a third party, called a guarantor, to satisfy a debtor's obligation if that debtor fails to do so.  EX: the guarantor does not promise to pay, no matter what. Rather, the guarantor gives a conditional promise.  Indemnity: is an unconditional promise to assume another's debt completely.  Different from guarantees because it is not a promise to answer for another's debt, but is a promise to assume another's debt altogether. o Contacts for the sale of an interest in land:  Unenforceable unless they are evidenced in writing.  EX: a contract to repair a building need not be evidenced in writing, nor must an agreement for room and board. On the other hand, a long-term lease of land clearly must be evidenced in writing o Contracts not to be performed within a year:  Also unenforceable unless in writing.  They usually say that a contract is not caught if it could possibly be performed within one year. And sometimes they go to great lengths to enforce oral agreements, notwithstanding the existence of the Statute.  Form and Content of the Note or Memorandum o Either the contract must be in writing or there must be a note or memorandum that provides evidence of it.  The document does not have to take any particular form, but has to:  Provide evidence of the essential elements of the contract (parties' names, subject matter of the agreement, and the price)  Be signed by the party against whom the agreement is being enforced. o Effect of non-compliance:  Some contracts cannot support an action for breach of contract where the defendant pleads the statute of frauds as a def
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