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Lecture 3

Management and Organizational Studies 2275A/B Lecture 3: Business Law 2275- Lecture 3


Department
Management and Organizational Studies
Course Code
MOS 2275A/B
Professor
Philip King
Lecture
3

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Business Law 2275: Lecture 3
Contract Essentials
Consensus preroach
Consideration
Intent
Legality
Capacity
Void vs. Voidable vs. Unenforceable
3 types of unenforceable contracts
o Void Contracts: do not exist
Illegal or lacks consent
o Voidable contracts: exist, but may be avoided
Lacks capacity- means it can be avoided by one of the parties.
This is a contract where one party lacks capacity, and it is
voidable by the part who lacks capacity. This is called Recision,
where you put the parties back where they were before.
o Valid but Unenforceable contracts: exist, but cannot be enforced
Certain contracts are required to be in writing to be
enforceable. The difference is that these contracts can be valid,
even though they're enforceable
ie. Statute of Frauds
Says there are 3 contracts that must be in writing: for
purchase of land, guaranteed contracts, and contracts that
are for deals more than 1 year away.
If I say I will buy your house and the other says I accept
then we have a verbal contract, but it is voidable, because

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according to the statute of frauds, it must be in writing.
But, if this contract went through, I get the house and pay,
then the other person cannot take me to court, because
the contract has been completed. We have self enforced it,
so this is the difference. If the contract was void or
voidable, then we could get out of it. But here, the contract
is valid, so the courts will not allow us to reverse our
situation
Legality
2 requirements:
o Purpose must be legal
Cant have a contract to murder someone, or commit fraud. A
contract that is illegal is void.
o Cannot be contrary to public policy
Contracts will be void for illegality if they are contrary to public
policy. These are tricky because its hard to find out what is
contrary to public policy. Its fairly uncertain because there is no
book of public policy. This comes up with restrictive covenence.
These involve some restriction to carry on business- an
example is a non competition clause- "I wont compete with
your business" or a non solicitation "I wont compete with for
your customers". These contracts are void if they're contrary to
public policy.
This is where courts will say: if these restrictive concenence are
reasonable (fair) then they will be enforced. "reasonable"
depends on: is the degree of protection required? (do we need
this protection) and the scope of the legal protection (5years
versus 6 months, anywhere in Canada versus anywhere in
North America)
Capacity
Also has 2 different branches:

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o Age (varies by province)
A contract with a minor is unenforceable against a minor- in
other words, it is voidable. The minor can enforce it, but it cant
be enforced against the minor. Age of majority is set by
provinces.
Exceptions: contracts for benefit of minor (ie. OHL contracts
with 17year old hockey players have contracts that are
enforceable) . Contracts for necessaries (ie. Minors can rent
and cant be told no by a landlord since it cant be enforced. It
can because it’s a basic necessity.)
o Competence (two-part test)
Lacks capacity to agree: impaired, mental illness
In order to prove the person lacked capacity: have to prove
that the person couldn't understand what they were doing and
what the consequences would be. In addition, you have to
prove that the other person knew that the other person was
incompetent. Has to have these two factors present to get out
of the contract. This makes the contract voidable. Not void,
VOIDABLE. At the option of the party who lacks capacity.
Voidable Contracts
One party can resin or claim Recision of the contract, where the
court will put the parties back in the position that they were before.
Duress
Where it was not made clear the circumstances under
which the contract was agreed upon. Looking only at the
written contract it looks legally binding, but then when you
find out the circumstance then it becomes voidable at the
option of the other party.
Undue influence
Someone over power says if you sign this contract then…
so same thing here where if you look at the written
contract it looks fair, but then finding there was a power
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