CAPACITY (PowerPoint download)

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					THE DEFENCES OF CAPACITY
     AND ILLEGALITY



         Class 6
CAPACITY
               Incapacity
• A defence to contract formation.
• The law will excuse parties from
  contractual obligations because they lack
  the competence to enter into such relations,
  even if all contractual formalities are
  present.
• Competence means the ability to understand
  the ramifications of one’s actions.
                 Capacity
1. Minors
• A minor is a person who has yet to attain
  the age of majority in their province (in
  Ontario it is 18).

• General Rule: minors are said not to have
  the capacity to enter into binding contracts.
          Capacity - Minors
• Specific Rule #1: Contracts generally are
  not enforceable against a minor.

• Specific Rule #2: Contracts are enforceable
  by a minor against others having contractual
  capacity.
          Capacity - Minors
Exceptions to Specific Rule #1:
1. Contracts for necessaries (e.g. food,
   clothing, medicine, legal fees).

2. Beneficial Contracts of Service.
           Capacity - Minors
What happens when a minor reaches the age
of majority?
1. Contracts for necessaries and beneficial
    contracts of service are still binding.
2. Minor remains bound by contracts of a
    permanent continuous nature unless
    repudiated.
3. Minor not bound by any other contract
    entered into as a minor unless ratified – in
    writing.
                 Capacity
2. Diminished Capacity
• The law will not enforce contracts against
  persons of unsound mind, or who are
  incapacitated because of alcohol or drugs
  when they enter the contract.
Capacity – Diminished Capacity
To prove diminished capacity, the defendant
must show:
1. She was unable to make a rational
   decision at the time of the contract; and
2. The other contracting party knew this.
               Capacity
3. Other Forms of (In)Capacity
• Corporate entities.
• Bankrupt debtors.
• Labour Unions and other unincorporated
  entities.
• Enemy aliens.
• Aboriginal people.
ILLEGALITY
                 Illegality
• A party may plead that a contract is not
  enforceable against it because the contract
  is illegal – illegality is a contractual
  defence.
• The question of legality goes to the object
  of the contract, not how the contract was
  formed.
                  Illegality
A contract can be illegal if:

1. A statute or common law deems that type
   of contract to be illegal.
2. The contract offends public policy.
                Illegality
1. Illegal by Law

  1. By statute – e.g. BIA; ITA.
  2. By common law:
          (a) wagering contracts
          (b) contracts for the purpose of
          committing a crime or tort.
                 Illegality
2. Contrary to Public Policy

  Public Policy: A judge-made concept,
  public policy means that which the
  Canadian public would accept, or: “would
  this contract be prejudicial to Canadian
  society or the administration of justice in
  Canada?”
e.g. Restraint of Trade clauses.
Illegality – No-Compete Clauses
• (See sample posted at web site.)
• Restrictive covenants are prime facie
  against common law public policy
• They will be enforced where:
  – there is a reasonable need;
  – consideration is paid; and
  – they include reasonable limits.

				
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posted:9/12/2011
language:English
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