Ch.9 Legal Capacity to Contract the Requirement of Legality

Question 1

Capacity

Answer 1

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

Question 2

Infant

Answer 2

a person who has not reached the age of majority

Question 3

Common Law

Answer 3

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)

Question 4

Necessary or Beneficial Contracts

Answer 4

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

Question 5

Beneficial contract

Answer 5

employment/apprenticeship contracts which are beneficial to the minor

Question 6

Effect of Repudiation

Answer 6

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

Question 7

Fraudulent Misrepresentation as to Age

Answer 7

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

Question 8

Repudiation

Answer 8

refusal to perform an agreement or promise
- Occurs when minor reaches age of majority and wishes to end contract of continuing or permanent nature

Question 9

Ratification

Answer 9

adoption of a contract entered into as a minor but actively continued once the minor reaches the age of majority

Question 10

Minors Engaged in Business

Answer 10

• 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

Question 11

Temporary or Permanent Mental Impairment

Answer 11

• 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

Question 12

Types of corporations:

Answer 12

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

Question 13

Ultra vires

Answer 13

act that is beyond the legal authority or power of a legislature or corporate body

Question 14

First Nations Bands

Answer 14

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

Question 15

Labour Unions

Answer 15

Ability to enter contracts (collective bargaining agreements) allowed under labour
legislation
- Normally would be unenforceable (restraint of trade)

Question 16

Bankrupt Persons

Answer 16

Declared bankrupts have limited capacity to contract

Until receipt of discharge bankrupts can only enter into contracts for necessaries

Question 17

Contracts that offend public good are not enforceable

Answer 17

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

Question 18

Generally, illegal contracts include:

Answer 18

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

Question 19

Competition Act

Answer 19

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

Question 20

Administrative Acts

Some statutes render agreements made in violation of the Act void and unenforceable:

Answer 20

Workers’s compensation legislation

Land-use planning legislation

Wagering laws

In contrast to illegal contracts, void contracts carry no criminal penalties

Question 21

(Un)Licensed Persons

Answer 21

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

Question 22

Public Policy

Answer 22

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

Question 23

Legality at Common Law: Public Policy

3 Categories

Answer 23

1. Agreements contrary to the Competition Act
2. Non-competition agreements with the purchase and sale of business
3. 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

Question 24

Restrictive covenant

Answer 24

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

Question 25

Non-compete employment clause:

Answer 25

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

Question 26

Confidentiality agreements:

Answer 26

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

Question 27

Balancing public interests:

Answer 27

Restrictive covenant against employees who provide an essential service may not be enforceable if would result in injury to the public