Duplessis.SG.Chapter 8.pdf

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Department
Management and Organizational Studies
Course
Management and Organizational Studies 2275A/B
Professor
Henry Meredith
Semester
Winter

Description
CHAPTER8NON–ENFORCEMENT OF CONTRACTS C HAPTER 8 N ON –E NFORCEMENT OF C ONTRACTS Objectives After studying this chapter, you should have an understanding of: • why enforcement of contracts is the norm • the exceptional circumstances in which contracts are not enforced • which contracts must be in writing, and why Learning Outcomes • Understand the general rule on the enforcement of contracts (page 173) • Understand why the court makes exceptions to the general rule on enforceability (page 173) • Understand when the court will make exceptions to the rule on enforceability (page 173) • Understand the special situation of contracts made by minors (page 174) • Recognize an unconscionable transaction (page 178) • Understand the difference between an action for misrepresentation and breach of contract (page 181) • Understand when the court will not enforce a noncompetition clause (page 187) • Recognize which contracts must be in writing (page 190) Chapter Summary There is a broad range of doctrines available to cancel all or part of a contract, but they apply only in relatively unusual or exe circum stances. Moreover, courts are justifiably demanding in what parties must prove in order to be released from their obligations. Courts expect parties to negotiate carefully and delib erately to ensure that any comm itment they make accurately reflects their intentions. If the deal merely turns out to be less desirable than expected, th e doctrines in th is chap ter ar e unlikelyith lim ited exceptions, contracts made by m inors are no t enforceable against them. At common law, unless the contract is for a necessary or amounts to a beneficial contract of service, it is unenforceable at the election of the minor. In British Columbia, minors have even more protection through legislation. Persons suffefrom a m ental impairment also do not generally have the capacity to contract when they are incapable of understanding the transaction. The doctrine of duress permits a court to set aside a contract when one of the parties was subjected to such coercion that true consent to the contract was never given. The doctrine of undue influence permits the sam e outcome if one party, short of issuing threats, has un fairly influenced or manipulated someone else into entering into a contract. Unconscionability also considers the unequal relationship between the two contrparties. If both in equality between th e parties and an im provident bargain can be esta blished, the contract can be rescinded by the court. If the transaction is sufficiently divergent from community standards of conduct, this may signal the presence of exploitation alead to a finding of unconscionability. Misrepresentation concerns the parties’ know ledge of th e circum stances underlying a 117 PART2:CONTRACTS contract. If one party misrepresents a relevant fact and thereby induces the other side to enter into the contract, the innocent party can seek to have the contract set aside or rescinded. If the misrepresentation also counts as a tort, the innocent party is entitled to damages as well. A party who has entered into a contract based on wrong infor mation can try to have the contract set aside on the basis of mistake, but this strategy will rarely be successful because mistake is an exceed ingly narrow legal doctrin e. Contracts that are illegal bece they violate a statute or ae at odd s with pub lic p olicy can a lso be rescinded. Courts are increasingly looking at all the circum stances surrounding the con tract and will not automatically set them aside. The S tatute of Frauds, in its various form s, seeks to prevent fraud and perjury by requiring written proof of cer tain kinds of contracts. W ith the use of electronic and Internet contracts becoming more and more common, modern legislation also seeks to address the sam e types of problem s in the new environm ent of technologica l commerce. Study Outline Use this outline to prepare a complete set of notes for this chapter. The Importance of Enforcing Contracts – page 173 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Contracts Based on Unequal Relationships – page 174 Legal capacity__________________________________________________________ ______________________________________________________________________ Minors __________________________________________________________ Age of majority___________________________________________________ Necessary items __________________________________________________ Mental incapacity ____________________________________________________ Economic Duress _______________________________________________________ ______________________________________________________________________ Undue influence ________________________________________________________ ______________________________________________________________________ Unconscionability_______________________________________________________ Traditional test: inequality between the parties in an unfair bargain _____________ ______________________________________________________________________ Legislation and unconcsionability _______________________________________ ______________________________________________________________________ Misrepresentations and Important Mistakes – page 181 ______________________________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER8:NON–ENFORCEMENT OF CONTRACTS ______________________________________________________________________ Misrepresentation of relevant facts__________________________________________ ______________________________________________________________________ Ingredients of an actionable misrepresentation______________________________ ______________________________________________________________________ Categories of actionable misrepresentation ________________________________ ______________________________________________________________________ Remedies for misrepresentation _________________________________________ ______________________________________________________________________ Mistake __________________________________________________________ ______________________________________________________________________ Contracts Based on Defects – page 186 ______________________________________________________________________ ______________________________________________________________________ Illegality __________________________________________________________ ______________________________________________________________________ Illegal by statute _____________________________________________________ Contrary to public policy ______________________________________________ Noncompetition covenants in contracts Writing as a requirement__________________________________________________ ______________________________________________________________________ Contracts of guarantee ________________________________________________ Contracts not to be performed within a year________________________________ E-contracts _________________________________________________________ Contracts dealing with land ____________________________________________ Contracts for the sale of goods __________________________________________ ______________________________________________________________________ Managing the Risks of Enforceability – page 193 ______________________________________________________________________ ______________________________________________________________________ SELF-ASSESSMENT Key Terms Briefly define each term in the space provided Voidable contract – page 174 ______________________________________________________________________ 119 PART2:CONTRACTS ______________________________________________________________________ ______________________________________________________________________ Void contract – page 174 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Legal capacity – page 174 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Age of majority – page 174 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Economic Duress – page 176 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Undue influence – page 177 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Unconscionable contract – page 178 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Misrepresentation – page 182 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Rescission – page 182 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Mistake – page 184 ______________________________________________________________________ ______________________________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER8:NON–ENFORCEMENT OF CONTRACTS ______________________________________________________________________ Common Mistake – page 184 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Illegal contract – page 187 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Public policy – page 187 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Non-solicitation clause – page 189 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Non-competition clause – page 189 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Guarantee – page 190 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 121 PART2:CONTRACTS Matching Match the correct letter of each term in the space provided before each sentence. A Guarantee B illegal contract C Minor D Misrep resentation E Mistak e F Rescission G Unconscionable contract H Undue influence I Void contract J Voidable contract 1. ____ A contract where the injured party may elect to keep the contract in force or bring it to an end. 2. ____ A contract with a defect so substantial that it is of no force or effect. 3. ____ A person under the age of majority, usually 18 or 19. 4. ____ Pressure to enter into a contract. 5. ____ An unfair contract made when one party took advantage of a weaker party. 6. ____ A false statement of fact that induces someone to enter into a contract. 7. ____ A remedy that returns the parties to their original positions. 8. ____ An error made by one or both parties that seriously undermines a contract. 9. ____ A contract that is contrary to public policy such as a noncompetition contract. 10. ____ A promise to pay the debt of someone else. Questions Write a short, poin t-form answer for each ques tion in the space prov ided. To assist you in understanding the chapter, it is recommended that you also us e additional paper to write a full and complete essay answer for each question. 1. How are the legal doctrines that are exceptions to the general rule that a contract, once formed, is enforceable categorized? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER8:NON–ENFORCEMENT OF CONTRACTS 2. If an aggrieved party can bring itself within one of the exception doctrines, what are the possible outcomes? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 3. What is a void contract? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 4. What is the general principle relating to legal capacity to form contracts? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 5. Identify the most common categories of necessaries for contracts involving minors. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 6. In order for an employment contract to be enforceable against a minor, what must the employer prove? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 7. Under common law, what effect does reaching the age of majority have on contracts formed while one of the parties was underaged? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 123 PART2:CONTRACTS 8. Identify the doctrines that all raise the issue of whether a party had sufficient mental capacity to freely enter into a contract. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 9. What form does duress typically take in commercial dealings? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 10. When does undue influence typically operate? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 11. What is the two-step process that must be used to establish unconscionability? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 12. What circumstances result in inequality between the parties? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 13. When is a party required to demonstrate the existence of an improvident bargain? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER8:NON–ENFORCEMENT OF CONTRACTS 14. What is the legal effect of onparty pr oviding partial inform ation to the other party during contract negotiations? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 15. What does insurance law provide an example of? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 16. Why is the difference between a statem ent made prior to entering into a contract and a statement made in a contract considered crucial in contract law? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 17. What is the legal significance of rescission? ______________________________________________________________________ ________________________________________
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