Textbook Notes (362,837)
Canada (158,073)
MGSC30H3 (57)
Jeff Rybak (14)

Legal Environment - Lecture 009

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University of Toronto Scarborough
Management (MGS)
Jeff Rybak

CONTRACTUAL DEFECTS 18 March 2014 (Chapter 10, p. 237-256) IMCAPACITY TO CONTRACT A person cannot enter a contract unless they have the legal power to give consent (IE: 10 year old who is able to understand, read, and sign a contractual document may not be legally bound by it). To protect specific groups of people, the law has drawn a distinction between those who have the capacity to contract and those who do not. APACITY is the legal power to give consent; the ability to understand the nature and consequences of their acts. 7 groups of people who have no capacity or limited capacity to create a contract: • Personal Incapacity o Minors  M INORS are people who have not reached the age of majority  A GE OF M AJORITY is the age at which a person id held fully accountable in law  V OIDABLE is when a minor is entitled to avoid the legal obligations that the contract would have otherwise created  Minors who elect to avoid contracts must give back any benefits that they received under them  Contract is enforced only if it is either affirmed or has not been repudiated within a year of the minor attaining the age of majority o Mentally Incapacitated Persons  If a court declared a person to be lacking in mental capacity, their contracts are void and cannot be enforced at all  If there is no court declaration, a person may still be considered mentally incompetent if they lack the mental capacity to contract at the time the contract is formed; their contracts are voidable o Intoxicated Persons  Person must have been so drunk that they could not know or appreciate what they were doing  Other contractual party must have been alerted to that fact • Corporations o CHARTERED CORPORATIONS are treated the same as individuals who have reached the age of majority  If enter contract in breach of charter, charter may be forfeited but contracts made is still binding o STATUTORY C ORPORATIONS have limited contractual capacity given through legislation  If it attempts to contract that exceeds statutory powers it acts ultra vires (beyond the authority) and lacks the capacity to contract, unenforceable • Associations o ASSOCIATIONS are usually unincorporated business organizations that lack contractual capacity (IE: Private clubs, charities, religious societies)  Do not enjoy independent legal existence, incapable of contracting  If association attempts to contract outside of limits, it lacks capacity, agreement is ineffective • Indian Bands and Aboriginal Persons o INDIAN BAND is a body of Aboriginal people whose land and money are held by the Crown  Same contractual capacity as corporations: can sue or be sued  Individual Aboriginal persons who qualify as “Indians” under the Act have limits • Public Authorities o Public authority acting on behalf of a governmental body has the capacity to contract, independent of any specific statutory authority to do so o Limit is the division of powers section of the Constitution Act 1867 that in order to have capacity, action must be consistent with that division of powers ABSENCE OF WRITING Certain types of contracts must be evidenced in writing. STATUTE OF FRAUDS Required contracts to be evidenced in writing to reduce risk of perjury, or lying. Intended to discourage people from falsely claiming the existence of oral contracts. Types of contracts that must be evidenced in writing: o G UARANTEE is a contractual promise by a third party, guarantor, to satisfy a debtor’s obligation if that debtor fails to do so o INDEMNITY is an unconditional promise to assume another’s debt completely o Contracts for the sale of an interest in land o Contracts not to be performed within a year Writing Requirements o Evidence of essential elements of contract (parties names, subject matter, price) o Signed by parties against whom agreement is being enforced (or letterhead) MISTAKES Contracts: Meeting of minds (shared mutual agreement to enter enforceable transaction). G ENERAL PRINCIPLES Mistakes occur when an error affects the basic process of contract formation. Mistake may negate existence of agreement between parties, without agreement there cannot be a contract. M ISTAKESP REVENTING THE CREATION OF C ONTRACTS o Mistaken Identity o People are more willing to invest in institutions known to be reliable o Financial institutions are more willing to lend money or give credit to people who have a history of paying their debts o Mistaken identity will not render a contract defective unless:  The mistake was known to the other contractual party  Mistake was material • M ATERIAL MISTAKE is one that matters to the mistaken party in an important way o Mistake about Subject Matter o Mutually mistaken about subject matter of agreement o Contract to buy cotton
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