Ch.9 Legal Capacity to Contract the Requirement of Legality Flashcards
Capacity
The ability to enter into a contract
Not all persons can enter into contracts
The law protects those:
- Who may lack the ability to appreciate the nature of their acts
- Who would not be in an equal bargaining position
Infant
a person who has not reached the age of majority
Common Law
a person under age of 21
- Legislation sets the age of majority in each province (for some 18, others 19)
- Public policy dictates minors should not be bound by their promises
- Contract is enforceable by the minor but not against the minor (voidable at the option of the minor)
Necessary or Beneficial Contracts
To determine what is necessary courts will consider:
- Social position of minor
- If minor already has adequate supply of such goods
Minor is liable on such contracts
- Necessaries: food, clothing, shelter, certain types of transportation, and other necessaries
Beneficial contract
employment/apprenticeship contracts which are beneficial to the minor
Effect of Repudiation
Rule relating to executory (not fully performed) contracts for non-necessary goods or services:
- Minor may repudiate contract at any time
- If repudiated:
– Minor is entitled to return of any deposit paid
– Minor must return goods
– Normal wear and tear to goods is not recoverable by merchant
– Merchant/adult can not sue in tort if an action lies in contract
Fraudulent Misrepresentation as to Age
Minors cannot use rules of protection to perpetrate contract fraud
- Adult entering into contract with minor who misrepresented their age cannot hold minor to the contract
- Merchant may be entitled to recover goods on basis of minor’s fraud
- Online commerce - seller can no longer determine if customer is a minor thus must use blind faith
Repudiation
refusal to perform an agreement or promise
- Occurs when minor reaches age of majority and wishes to end contract of continuing or permanent nature
Ratification
adoption of a contract entered into as a minor but actively continued once the minor reaches the age of majority
Minors Engaged in Business
- Contracts of employment binding on minors
- Sole proprietor
– Must repudiate after attaining age of majority or will continue to be bound - Minor as merchant:
– Rules consistent with those for minors in general
– Not necessary for minor to engage in business
– Contracts usually treated as contracts for non-necessaries
Temporary or Permanent Mental Impairment
- Person committed to mental health institutions cannot incur liability (contract is void)
- Varying degrees of mental impairment
– Person suffering from dementia, stroke, or injury, distinguished from person with permanent mental illness
– Caused by physical or mental damage as a result of drugs or alcohol
Types of corporations:
Regular corporations
– Same powers as a natural person
– Limitations through internal bylaws (articles of incorporation) not public knowledge but may in certain cases bind the public
“Special-Act” corporations
– Powers controlled by Special Act
– Limitations are public knowledge because are contained in a statue
– Ultra vires
Ultra vires
act that is beyond the legal authority or power of a legislature or corporate body
First Nations Bands
A bands capacity is an inherent aspect of sovereignty
Not recognized as legal entities or person under Indian Act, considered to be unincorporated associations with a right to sue
Labour Unions
Ability to enter contracts (collective bargaining agreements) allowed under labour
legislation
- Normally would be unenforceable (restraint of trade)
Bankrupt Persons
Declared bankrupts have limited capacity to contract
Until receipt of discharge bankrupts can only enter into contracts for necessaries
Contracts that offend public good are not enforceable
Contracts whose purpose is illegal, may be illegal, and are unenforceable
Certain contracts void by public policy or by specific statutes
- Voidable if the parties do not comply with statute or the policy
Generally, illegal contracts include:
Agreement to commit a crime or any other act prohibited by the Criminal Code
Embezzlement of funds by employee
- If employee, when crime is discovered, promises to repay employer in return for not reporting
Illegal contracts are unenforceable
Competition Act
Renders illegal any contract that represents restraint of competition
-Price fixing
-Reducing number of competitors
-Allocating markets
-Restricting market output
Applies to contracts concerning both goods and services
Provides balance between freedom of trade and consumer protection
Administrative Acts
Some statutes render agreements made in violation of the Act void and unenforceable:
Workers’s compensation legislation
Land-use planning legislation
Wagering laws
In contrast to illegal contracts, void contracts carry no criminal penalties
(Un)Licensed Persons
Contract with unlicensed tradesperson or professional is illegal
- Purpose is protection of the public
- Must still pay for goods supplied but not for services rendered
- Only voidable at option of party who is not the tradesperson or professional
Public Policy
unwillingness of courts to enforce rights contrary to general interests of public
Examples:
- Contracts designed to obstruct justice, injure public service, injure the state, stifle prosecution
- Contract for the commission of a tort, or dishonest/immoral act
Some are merely unenforceable whereas others are unenforceable and illegal
Legality at Common Law: Public Policy
3 Categories
- Agreements contrary to the Competition Act
- Non-competition agreements with the purchase and sale of business
- Non-competition agreements in employment contracts
- Last 2 subject to Common Law public-policy rules - restrictions must be reasonable and not adversely affect public
- All contracts in restraint of trade are prima facie - “on first appearance” void and unenforceable
Restrictive covenant
contractual clause limiting future behaviour
- E.g. Vendor promises purchaser he or she will not establish new business in vicinity, nor engage in direct competition
- Purchaser must convince courts that restriction is reasonable and does not adversely affect public interest
– Generally allowed if the restriction is reasonable as to time, business restricted, geographical area
Non-compete employment clause:
Employer requires employee not to compete with employer upon termination
Attempt to protect business practices/secrets
Legality of non-compete closely scrutinized by courts
- Different criteria applied than law established for sale of business
Confidentiality agreements:
Employee to keep confidential any information concerning the employer’s business
Enforceable more often than non-competitions clauses
- Based on duties of employee in the employment relationship not upon a restrain in trade
Balancing public interests:
Restrictive covenant against employees who provide an essential service may not be enforceable if would result in injury to the public
