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Business 4000 Chapter 1 Law and Society

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					Business 4000
Chapter 7       Capacity to Contract and
                Legality of Object
Important Concepts
1. Void vs. Voidable contracts
 Void Contract: a nullity from the
   beginning; treated as if never formed
 Voidable Contract: one capable of
   becoming void at the option of a party
Business 4000
Chapter 7        Capacity to Contract and
                 Legality of Object
2. Burden of Proof
 Courts will presume both the contractual
   capacity of the defendant and legality of the
   contract’s object/purpose
 Defendant must prove the absence of these
   elements
Business 4000
Chapter 7            Capacity to Contract and
                     Legality of Object
  Capacity of Minors (under 19 years of age)
General Rule:
 Contracts made by minors are not enforceable against them
  (but are enforceable by them)
 Upon attaining age of majority, minor must ratify
  (acknowledge and promise to perform) contract to be
  bound by it (otherwise voidable)
 Minor must take action to ratify to be bound
 Contracts which are prejudicial and unfair to minors are
  void and cannot be “saved” by ratification (e.g. forfeiture
  or penalty clauses)
Business 4000
Chapter 7             Capacity to Contract and
                      Legality of Object
Exceptions where Minors Bound:
1.   Necessaries – essential goods and services
           Examples are food, clothing, lodging, medical
            attention, legal advice, transportation to work
           Bound to pay reasonable price only; not
            necessarily the contract price
           Goods must be delivered
2.   Beneficial contracts of service
           Contracts of employment or apprenticeship
            where for minor’s benefit and not exploitative
Business 4000
Chapter 7             Capacity to Contract and
                      Legality of Object
Middle Ground – Repudiation
   Contracts providing “an interest of a permanent
    continuous nature”, e.g. contracts for rights in land and
    partnership agreements
   Must be repudiated upon coming of age, otherwise
    minor will become liable (voidable)
   Minor must take action to repudiate to avoid obligations
   Right to repudiate will be lost if not done promptly or if
    she accepts the benefits of the contract after attaining
    majority
Business 4000
Chapter 7       Capacity to Contract and
                Legality of Object
Effect of Repudiation
 If minor is buyer, she must return goods in
   her possession – will not recover monies
   already paid for benefit received
 If minor is seller, must return purchase
   price to recover the goods
Business 4000
Chapter 7              Capacity to Contract and
                       Legality of Object
     Other Persons of Diminished Contractual
     Capacity
      Contracts for necessaries treated the same way; other
       contracts voidable
      Party seeking to avoid the contract must:
    1.     Prove he was incapable of a rational decision at time
           of agreement
    2.     Prove the other party was aware of his condition
    3.     Have acted promptly to repudiate contract upon
           emerging from state of incapacity
      Problems with proof
Business 4000
Chapter 7          Capacity to Contract and
                   Legality of Object
Legality of Object
Approach of Courts:
  Void contracts: court will do its best to restore
   parties to their pre-contract positions
  Illegal contracts: court will refuse to aid either
   party (position of defendant is the stronger); no
   severance and enforcement of legal aspects of
   contract
Business 4000
Chapter 7             Capacity to Contract and
                      Legality of Object
Contracts void by statute:
    Where agreement contrary to purpose of legislation, e.g.
     deprivation of rights under Workers’ Compensation Act
     or Labour Standards Act
    Promise to pay a betting debt
         Exceptions:
            insurance contracts where insurable interest
             exists or is waived
            bona fide contracts for purchase/sale of shares
            contracts for the future delivery of goods
Business 4000
Chapter 7       Capacity to Contract and
                Legality of Object
Contracts illegal by statute:
 Those whose objects are illegal by statute
   (includes provision of goods/services
   without necessary licensing or
   registration)
Business 4000
Chapter 7        Capacity to Contract and
                 Legality of Object
Contracts illegal by common law:
  Those contemplating the commission of a tort
  Those containing an undertaking to indemnify
   against damages for tort committed during
   performance
      Exceptions for:
          auto insurance
          professional indemnity insurance
          exemption for negligence provided by
           contract
Business 4000
Chapter 7          Capacity to Contract and
                   Legality of Object
Contracts illegal by public policy:
  Those prejudicial to interests of Canada, its
   foreign relations, national defence or public
   service; or the administration of justice
  Those having perversion of justice as object
  Those indemnifying parties posting bail
  Agreements not to carry out duty to inform
   police
  Those promoting unnecessary litigation
Business 4000
Chapter 7        Capacity to Contract and
                 Legality of Object
    Agreements in restraint of trade
      those diminishing competition
      may be void or illegal
      restrictive covenants presumed to
       restrain trade, but rebuttable if
       reasonable arrangement between the
       parties, reasonable in terms of time and
       geography

				
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