Textbook Chapter 8.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 2275A/B
Philip King

Chapter 8 – Non – Enforcement of Contracts The Importance of Enforcing Contracts  Voidable contract: a contract that, in certain circumstances, an aggrieved 受害的 party can choose to keep in force or bring to an end  Void contract: a contract involving a defect so substantial that it is of no force or effect  Exceptions to the general rule that a contract, once formed, is enforceable  An unequal relationship between the two parties  Misrepresentation or important mistakes concerning the contract  A defect within the contract itself Contracts Based on Unequal Relationships  Legal Capacity  Define; the ability to make binding contracts  Minors  Age of majority (18 – 19)  General Rule : Minors are not obligated by the contracts the make  Contracts with minor are usually avoidable, at the option of the minor alone  Minors are obligated by contracts for “necessaries” and are required to pay a reasonable price for them 1. Is the item being acquired necessary to this minor? 2. Does this minor already have an adequate supply of the item?  Beneficial contracts of service are also binding if they are considered largely for the benefit of the mEx> employment contract  When a minor reaches the age of majority, 1) the contract still remains unenforceable unless they involve necessaries or beneficial service contracts 2) person expressly adopts or ratifies the agreement does it become enforceable  Exceptions: - permanent or continuous agreement Ex> Partnership agreement The minor, upon attaining the age of majority, must reject this obligation, even if it is for non-necessaries. If he fails to do so, liability will be imposed from the time minor becomes of age  BC Infant Act Contracts for necessities and beneficial contracts of service are unenforceable  Mental incapacity  Mentally impaired people are not bound by the contract law  Elderly does not mean lack mental capacity  Duress  Physical duress  Economic duress Contracts signed under durvoidable  Undue Influence  Define: unfair manipulation that compromises someone’s free will  Actual Pressure  Presumed pressure (relationship gives a rise to assumption)le  One way of proving that the contract was freely chosen is to arrange for the weaker party to get independent legal advice concerning the transaction before it is entered into  Case: Bank of Montreal v Duguid (2000) Factual Background: Mr. Duguid went to bank to apply for a loan, and the bank said it would need Mrs. Duguid to cosign the contract. Mrs. Duguid signed it and her husband declared bankruptcy. The banked sued Mrs. Duguid for the outstanding amount plus interest Results: a presumption of undue influence had been established. Since the bank failed to advise her to get independent legal advice, Mrs. Duguid’s loan should be set aside due to undue influence  Unconscionability  Define: an unfair contract formed when one party takes advantage of the weakness of another  Two-step process 1. Proof of inequality between the parties 2. Prof of an improvident bargain or proof of exploitation  Inequality between the Parties  Unsophisticated, poorly educated, lacks language facility, lower economic standing  An Improvident Bargain  The disadvantaged party must be proof of substantial unfairness  Case: Atlas Supply Co of Canada v Yarmouth Equip (1991) Factual Background: A provided B a misleading proposal and B signed a contract with A. There was an entire agreement as one of the cause on the agreement. B’s operation failed and closed in less than a year. B was called upon to pay a substantial sum under his personal guarantee of B company’s debt to A. Result: the court ruled 2 to 1 in favour of A. It was unconscionable for A to give B misleading information while withholding contrary information. The judge refused to allow A to rely on the exclusion clauses. Moreover, A was a very experienced business person. Misrepresentations and Important Mistakes  Misrepresentation of Relevant Facts  Basic rule: parties are responsible for looking after their own interests and if they want infor, they should ask for it  In the following scenarios, parties do owe a duty to disclose information  One party provides only partial information to the other side –
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