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MIDTERM Sheet #10.docx

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Ryerson University
Law and Business
LAW 122
Sari Graben

CHAPTER 10: Contractual Defects Incapacity to Contract (Pg. 226) • Capacity is the legal power to give consent. • Groups of persons with no capacity or limited capacity are: o Minors o Mentally disabled persons o Intoxicated persons o Corporations o Associations o Indian bands and aboriginal persons o Public authorities Minors (Pg. 226) • Minor = person under the age of majority. • Age of majority = the age at which a person is held fully accountable in law. • Age varies between jurisdictions (as it is set by legislation): e.g. 18 in Ont.; 19 in BC. • Most minors’ contracts are voidable: o Protection against exploitation and immaturity. o Rule applies even if child appeared older. • Process of avoidance: o Minor has option to accept or avoid contract. o Should move to set contract aside as quickly as possible. o Must choose soon after reaching majority. o Must return benefits if avoid contract. • Some minors’ contracts are enforceable: o Contracts for necessities of life (e.g. food, clothing, education, medical treatment, legal advice). o Such contracts must be fair to the minor. o Minor must pay reasonable price. Mental Incapacity & Intoxication (Pg. 228) Mental Incapacity • Judicially declared mentally incompetent: o Total incapacity to contract. o Contract is void. • Mentally incompetent but not judicially declared: o Most contracts voidable if other party should have known about the problem. Intoxication • Agreements are voidable if two conditions are met: o Person must be so drunk they could not know or appreciate what they were doing (heightened excitement or diminished judgment not enough). o Other party must be aware that person was very drunk. • Election to set aside must be made immediately upon sobering up. Business Corporations & Associations (Pg. 229) • Corporations are treated as legal persons who can sue and be sued. • Most Canadian corporations are statutory corporations. • Statutory corporations may make enforceable contracts only within the legal objects and purposes of the corporation. • When they act ultra vires, the agreement is unenforceable. • Most associations (e.g. private clubs and charities) do not have independent legal existence and capacity to contract. • Contracts must be made by one of the members for the association’s benefit. • That member carries the liability for the contract. • Some provinces have legislation giving contractual capacity to certain associations. Public Authorities (Pg. 231) • Generally, public authorities acting on behalf of government bodies have the capacity to contract, even though there is no specific statutory authority. • Limited by the division of powers under the Constitution Act, 1867 (sections 91 and 92). Absence of Writing (Pg. 231) • The normal rule is that there is no requirement that contracts be in writing to be enforceable. • Some exceptions: o Statute of Frauds (original English legislation, 1677)  Recent technology (e-documents and computer software) has resulted in many jurisdictions amending this law (recommended in Ontario but not yet done). o Consumer Protection legislation o Sale of Goods legislation Statute of Frauds (Pg. 231) • Types of contracts governed by this law: o Guarantees, but not indemnities. o Contracts for the sale of an interest in land. o Contracts not to be performed within one year. • Unless these contracts are in writing, they are unenforceable, but not void. • Guarantee- a contractual promise by a third party (guarantor) to satisfy a debtor’s obligation if that debtor fails to do so. Form of Writing Required (Pg. 233) • Document does not have to take any particular form. • Must provide evidence of the essential elements of the contract (usually the parties, subject matter of the contract, and price). • Normal rule for signature is that of the party against whom the agreement is being enforced. • Not necessary to have a single document (can be the combined effect of several documents). • Guarantee has to be in writing. E.g. Bank gives you a loan but you state a friend so if you can’t pay for it, your friend will pay for it. • Bank cannot sue if there is no contract (Contractual Defect). • Sale of an interest in land has to be in writing. • Contracts not to be performed within one year has to be in writing. • Cannot be performed within the first year (a condo being built and you sign a lease to live after). Frustration (Pg. 237) • A frustrating event takes place AFTER the contract is already in place. • A contract becomes impossible or very difficult to perform. • The doctrine applies ONLY when neither party is responsible for the relevant event. • A contract may determine consequences of event. • Common law rules (all-or-nothing):  Purchaser can recover price if no benefit received.  No recovery even if very small benefit received.  Seller has no claim even if expenses incurred. • Statutory rules (variations between provin
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