ACTG Chapter 7
Forming a contract, capacity and legality
Burden of proving essential elements of contracts: Once a plaintiff shows there was an offer,
with acceptance and consideration for the promise, the court will presume there is a legal relationship.
The court will also assume two elements are present: the defendant has the capacity to make a
contract and that the contract is legal.
Capacity to contract: when forming a contract, we assume both parties have the capacity to make a
contract and be bound by it.
Legal Capacity: competence to bind oneself legally
Repudiate: reject or declare not to be bound (by the contract)
Minors : a person who has not attained the age of majority in the province
Until a person reaches an age of majority they are exempt from binding contracts, although if
the other party is not a minority it is still binding to them.
If a minor owns assets or needs to contract their parents or legal guardian may sign on their
behalf and look after their affairs
There are exceptions to this, for example if a minor needs necessaries (food, water, clothing,
shelter, medicine) and cannot pay, he can enter a contract to repay a vendor at a reasonable
price (i.e. the vendor cannot charge more than he would others)
Beneficial contracts of service: contracts of employment or apprenticeship found to be in the
minors benefit and not exploitative (i.e. part time job vs child labour)
A minor can always repudiate a contract for non-necessaries
If a minor sells something he can ask for it back only if the money is returned
Vendors can sell non-necessities to minors, but cannot take a promise of future payment or
promise of parental payment
If a minor benefits from a contract of non-necessaries, they cannot recover the money already
paid but can repudiate for the remaining liability
When a minor attains the age of majority, their liability to pay for necessaries and beneficial
contracts of service continue, and they may become liable for obligations that were
unenforceable when they were a minor
Voidable contract: a contract that may be rendered non-binding at the option of either parties
o If a minor becomes a major he must quickly repudiate the contract promptly or be held
liable like any other adult
Ratify: acknowledge and promise to perform
o A minority must ratify a contract after reaching age of majority to be held liable to it.
Other persons who lack capacity of contract: The law protects these parties the same way it
protects minorities, these parties can pay a fair price for necessaries but nothing else is enforceable.
These groups include:
The insane or mentally handicapped or elderly people suffering from illnesses
Those under the influence of alcohol or drugs
o In this instance, one must prove that he was so intoxicated that he did not know what
he was doing o He must also prove that the other party was aware of the condition, which may be hard
if he was unable to determine what he himself was doing (thus witnesses are beneficial)
o As with a child reaching majority, the repudiation must come quickly after recovering
from the influence, waiting too long to repudiate can lead to the loss of that ability
The law may give corporations the capacity to enter legal contracts, however legislatures have
not granted the widest possible contractual capacity, and they are still restricted by statutes.
Any obligations that are made outside the power granted by statutes will be declared void
Law relating to principal and agent: determines if a person claiming to act on behalf of
corporations have the power to bind said corporation in a contract.
Labour unions, associations and other organizations: They are not recognized as legal entities
until they either incorpor