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 Mentally disabled persons
o Intoxicated persons
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,
o Such contracts must be fair to the minor.
o Minor must pay reasonable price.
Mental Incapacity & Intoxication (Pg. 228)
• 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.
• 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
• 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
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
• Not necessary to have a single document (can be the combined effect of several
• 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
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