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Chapter 7

BU231 Chapter 7

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Keith Masterman

1 READING NOTES Chapter 7: Capacity to Contract & Legality of Object Complete discussion of essential elements with two elements assumed to be present unless shown otherwise. First being capacity to contract and second being the way our legal system makes certain contracts unenforceable. Note on Void vs. Voidable • Voidable – Refers to a contract that exists until set aside by the courts • Void – In contrast to voidable, a void contract is treated as if it never existed • If this happens the court will grant the remedy of recission placing the parties back to their original positions Meaning of Capacity to Contract • Legal capacity to contract refers to the competence of someone to bind themselves to legally binding contracts • Although the requirements of [o,a,c,i] may be satisfied, as a matter of policy the law may excuse a party from their obligations if they are found not to have the capacity to contract • Burden of proof is on the party alleging a lack of capacity Groups to Consider • Minors o A minor is a person who has not of age of majority in their province (18 in Ontario) o Works in a one-sided manner where a contract is not binding for the minor, while still binding for the non-minor o But, following these above conditions minors could disregard contracts with impunity and consequently no one would ever contract with… that is why there are exceptions  Exceptions: • A minor is bound to pay for all necessaries (essential goods and services like food or clothing) o Minor’s may always repudiate a contract for non-necessaries, even if those necessaries are beneficial… must return them though o When a minor is living at home and supported by his parents, his purchases are less likely to be considered as necessaries o Also, minors are not liable for necessaries that are ordered but not yet received • Minors are also bound by beneficial contracts of service (ie. employment or apprenticeship) when they are found not to be exploitative o Freedom from liability only applies to contracts, still very liable for torts unless they occurred as a result of a contract o What happens when they become age of majority?  In contracts of a continuous nature a minor must repudiate the contract upon turning 18 if they want to call it quits • Silence means the contract stands 2  In one-time contracts they must be ratified or acknowledged to remain in force, silence means the contract is over • If the contract was originally unfair and prejudicial to minors it is considered void and thus doesn’t matter that the minor ratified it o Eg. Girl Scouts selling cookies  Girls scouts go out and sell cookies, yet they are too young to be under contract, what happens if a girl scout oversells herself and wants her cookies back? • You’ve gotta give them back if you haven’t eaten them already • Unsound Mind / Incapacitated o Law protects people of unsound mind or incapacitated through drinking or drugs in same way as a minor o There is an additional burden for the party seeking to avoid the contract, they must show that they were incapable of rational decision and prove that the other party was aware of this condition  Ie. The tattoo guy had to know you were drunk out of your mind! o Party seeking to avoid must act promptly upon sobering up, unless repudiation comes within a reasonable time the privilege is lost • Corporations o When you incorporate you form a separate legal entity, limits liability of the persons involved in the corporation o Date of incorporation is considered the birthday of your corporation  Therefore if you personally hire someone before the birthday of the corporation you accept all liability  Solve this by getting the corporation to ratify the contracts done before incorporating o Also, obligations that corporations purport to undertake but are outside the statute (with respect to their legislated contractual capacity) will be declared as ultra vires (beyond powers of) and thus void • Labour Unions o In collective bargaining the labour union itself doesn’t have capacity to contract, requires the support of the membership for ratification o If an employer doesn’t implement the decision of an arbitrator the union may apply to a labour relations board for permission to prosecute o Also, if a union reject the arbitrator’s decision and causes an illegal strike damages have occasionally been awarded against the union • Enemy Aliens o If your country is at war with Canada, your capacity to contract may be adversely affected o Makes the contract void, rights and liabilities are wholly dissolved 3 • Aboriginal Peoples o Distinction between native’s who live on-reserve and those who don’t  Legal position of native’ living on reservations is set out in detail in the Indian Act  Those native’s living off the reserve have the same contractual capacity as any other c
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