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Chapter 9

ADMS 2610 Chapter Notes - Chapter 9: Embezzlement, Inequality Of Bargaining Power, Insurable Interest


Department
Administrative Studies
Course Code
ADMS 2610
Professor
Robert Levine
Chapter
9

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CHAPTER 9. LEGAL CAPACITY TO CONTRACT AND THE REQUIREMENT OF LEGALITY
1. The minor or infant: A person who has not reached the age of majority (21, 19, 18 or younger)
should not be bound by their promises and are not liable on most contracts that they might
negotiate.
Exceptions: contracts for necessary items are enforceable against a minor.
a. Enforceability and the right of repudiation: enforceability depends on the partial or
complete execution of performance by minor.
- Full performance will bind the minor to the agreement unless he can prove that he was
taken advantage of + return the goods.
- Partial performance then the agreement is voidable (if for non-necessary item) at the
minor’s option.
- Note: any business firm or merchant entering into a contract with a minor assumes the
risk that the minor might repudiate the contract ( in which case, minor is not bound to
the agreement)
- An infant will be bound by contracts for necessaries and will be liable for a reasonable
price for the goods received or the services supplied.
b. Criteria for Necessary: goods supplied to the minor are necessary if the minor is not already
well supplied with similar goods.
- Contracts of employment or apprenticeship are contracts considered to be beneficial to
minors and are enforceable against them
- Education ventures that involve minors may not be considered by the courts as being
beneficial, many are held enforceable even when the educational aspect is unusual.
c. The effect of repudiation: The minor is entitled to a return of any deposit/monies paid and
the minor must return the goods, any damages or wear and tear that was not a deliberate
act of the minor is not recoverable or deductable from funds repayable, as the parties were
aware of the possibility of damage or wear and tear in the subject matter of the contract.
d. Fraudulent misrepresentation as to age:
- Non necessary items- merchant can recover the goods based on fraud by minor.
- Criminal law relating to obtaining goods under false pretences may also be applicable.
- Treatment of minor- matter of equity
- Solution: provide the other contracting party with a remedy for the loss caused by the
infant, or prevent the infant from avoiding liability under the contract.
e. Ratification and repudiation:
Ratification- the adoption of a contract or act of another by a party who was not originally
bound by the contract or act
Repudiation- the refusal to perform an agreement or promise.
- For continuing or permanent contracts w/ benefits and obligations- minor can repudiate
before reaching age of majority or be bound by it till the end of the term( ratification is
implied)

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- For non-necessary items, minor should ratify (acknowledge and agree to perform) such
a contract on attaining the age of majority in order to be bound by it.
f. Statutory protection of minors: the province of New Brunswick, Newfoundland, nova
Scotia, Ontario and prince Edward island have all passed legislation requiring the ratification
to be in writing before it will be binding on the infant.
- BC does not allow the infant to ratify the contract in any fashion possible that would
render it enforceable.
- Contracts for non-necessaries and debt contracts “absolutely void”.
g. Minors engaged in business:
- Employment- infant can terminate with reasonable notice of termination
- Contract for non-necessaries are voidable at the option of the minor and if there hasn’t
been a delivery, the minor can repudiate the contract and obtain refund
- If delivery has occurred, minor may return the goods and cancel its obligation.
- If goods are damaged while in possession of the minor, he will not be liable for the
damages and no claims for damage can be made by the other party.
- If goods are resold- minor would have to give up any monies received.
- In the case of sale of goods by minor, contract is voidable at the option of the minor and
she would not be required to deliver the goods, however, refund must be made.
- Partnership- minor in a contract for non necessaries is voidable by the minor, even
though the other parties may be bound.
- Repudiation under partnership- minor would not be entitled to withdraw any
contribution to the partnership until the debts of the partnership has been settled.
h. The parent-infant relationship: under family-law legislation, parents of a child 16 and below
are jointly and severally liable with the child for any necessaries supplied to the child by the
merchants.
- Parents become “ agent of necessity”
- Even when the parents appointed the child to act as his or her agent, the principal-agent
relationship makes the parent liable for all acts of the minor.
- Credit purchases- if the parents continue to pay the merchant and conduct in such a
way as to show that they would continue to honour the debts incurred, all future debts
would bind them for payments due.
- Solution: parent must specifically state that they do not intend to be bound by
subsequent purchases made by the infant.
2. DRUNKEN AND INSANE PERSONS
Persons committed to a mental institution cannot normally incur any liability in contract
- Persons suffering from mental impairment due to physical/ mental damage, alcohol/
drug abuse will be liable for all contracts for necessaries and will be obliged to pay
reasonable price for goods/ services.
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