Chapter 7: The Elements of a Contract: Capacity, Legality, and Intention Flashcards
Capacity
LO 7.1 Explain the capacity of minors
LO 7.1 Explain the capacity of minors
The age of majority
The age of majority was 21 at common law, but it has been reduced by
statute to 18 or 19, depending on the province
Infants
persons under the age of majority; also known as minors
Minors
persons under the age of majority ; also known as infants
Infants Act
This legislation states that, in most cases, a contract made by a minor is unenforceable against him.
The minor may, however, enforce the
contract against an adult party to the contract
Except in BC, minors are bound by contract’s for necessities and contracts for service
Necessaries
the essential goods or services required to function in society, such as food, clothing, and shelter
The courts have held that medical, dental, and
legal services, along with toiletries, uniforms, and even a house, will be considered as necessaries in different situations. It is unlikely, however, that they will find that a car qualifies as a necessary
On Becoming an Adult
That is, ratifying the contract makes a voidable
contract binding.
For example, if a minor agrees to pay $5000 for an
automobile in a series of instalment payments, he cannot be forced to pay
If, however, the minor, after becoming an adult, makes an instalment payment or provides a written statement indicating that he intends to be bound, the contract will then be binding
Executory contract
a contract yet to be performed; a contract at the stage when an agreement has been made but before performance is due
Partially executed contract
a contract at the stage when one party has performed and the other has not
A deposit is not part performance but construction could be
Executed
a fully performed contract; a contract at the stage when both parties have performed or fulfilled their obligations
Parents’ Liability
As a general rule, parents are not responsible
for the torts of their children, nor are they responsible for the contractual obligations of their children in the absence of specific legislation creating such a responsibility.
However, if the child is acting as an agent on behalf of the parents or if the parent cosigns on a loan
Infants’ Liability for Torts
If the minor used the subject matter of the contract in a way that would be expected under the contract, then the adult must sue in contract, not tort, despite the protection given to the minor by the law of
contracts.
Insanity and Drunkenness
LO 7.2 Compare the capacity of the insane and the drunk
LO 7.2 Compare the capacity of the insane and the drunk
People who lose their ability to reason through intoxication, whether from alcohol or drugs, _______________
are treated in the same way as people incapacitated by insanity or mental incompetence
The person could not understand the nature of the act being performed
Hesitation to repudiate makes the contract binding
Repudiation
an indication by one party to the other that there will be a failure to honour the contract (the expression of which can be expressed or implied)
Others of Limited Capacity
LO 7.3 Review the law for others of limited capacity
LO 7.3 Review the law for others of limited capacity
_______________ have their capacity to contract determined by the legislation
under which they are incorporated.
Corporations
Other corporate bodies are created by special legislation. ___________________
These include some private companies, Crown corporations, and other government bodies that have been created to accomplish particular government
purposes.
Aliens and representatives of foreign governments
also gives rise to capacity issues.
When at war
Any contract with a resident of an
enemy country is void if detrimental to Canada
A Bankrupt
is a person who has made an assignment in bankruptcy or been forced into bankruptcy through a court order obtained by a creditor and who has not
been discharged from bankruptcy
Indian Act
The capacity of some Indigenous persons is limited by this
Businesspeople contracting with Indians must therefore be aware of their
limited contractual capacity
Contracts Performed Illegally
LO 7.4 Discuss the law relating to contracts performed illegally
LO 7.4 Discuss the law relating to contracts performed illegally
Illegality as to formation of the contract
the contract itself is illegal
Illegality as to performance
the contract is performed in an illegal way
Public policy
the public good; some acts, although not illegal, will not be enforced by the courts because they are socially distasteful (against public policy)
Contracts Formed Illegally
LO 7.5 Discuss the law relating to contracts formed illegally
LO 7.5 Discuss the law relating to contracts formed illegally
Illegal contract
a contract that is illegal at the time it was formed. As the Supreme Court observed, an illegal contract
will not be enforced; it is void.
When void, the court usually restores the parties back to where they started, however if deemed illegal this is not the case unless one of them is innocent of any wrongdoing
List of illegal contracts
Examples of illegal contracts (includes contracts that are both in violation of legislation or against public policy)
1) Contracts to commit a crime
2) Contracts to commit a tort
3) Contracts involving immoral acts
4) Contracts that are bets and wagers
5) Contracts in restraint of marriage or in favour of
divorce
6) Contracts that promote litigation
7) Contracts that obstruct justice
8) Contracts that injure the state
9) Contracts that injure public service
10) Contracts between businesses to fix prices or
otherwise reduce competition
11) Contracts that unduly restrain trade
1) Contracts to commit a crime
Agreements involving murder, drug dealing, or even charging a high rate of interest are contrary
to the Criminal Code and are therefore illegal contracts.
2) Contracts to commit a tort
If Mullins offers Nowak $100 to falsely claim that Abercromby did a poor job of repairing his house, that would be defamation. The contract to pay Nowak to defame Abercromby would be illegal.
3) Contracts involving immoral acts
As indicated previously, prostitution is not illegal in Canada.
However, a prostitute could not expect the courts to enforce an agreement made with a client. Prostitution is considered immoral and the contract would therefore be illegal.
4) Contracts that are bets and wagers
Historically, the courts would not enforce contracts related to gambling activities because they were against public policy. Now this area is covered by statute and the rules vary from province to province.
5) Contracts in restraint of marriage or in favour of divorce
Any contract that has as its object the prevention or dissolution of marriage is against public policy. An agreement to pay someone $100 000 in return for a promise never to marry would be an illegal contract.
6) Contracts that promote litigation
An agreement in which one person, to satisfy some ulterior motive, pays another to sue a
third party would be an illegal contract and therefore void because it promotes litigation
7) Contracts that obstruct justice
If the effect of a contract is to interfere with the judicial process, it is against public policy.
An agreement that encourages criminal activity by providing to pay a person a salary whenever he is in jail would involve such an obstruction of justice.
8) Contracts that injure the state
An example is a contract to sell
secret military information.
9) Contracts that injure public service
Bribing a public official to
vote a certain way is an example of an illegal contract
10) Contracts between businesses to fix prices or otherwise reduce competition
These types of contracts are controlled by the
federal Competition Act
Thus, if two merchants agreed not to sell a particular commodity below a certain price, or not to open up branches that would compete with each other in specified communities, and they were the only ones selling the products in that community, such
agreements would likely be illegal contracts and void.
11) Contracts that unduly restrain trade
When a business is sold, the contract often includes a clause prohibiting the seller from opening another business in competition with the business she is
selling
Goodiwll
a business’s reputation and ongoing relations with customers and product identification
Intention
LO 7.6 Review the contractual element of intention
LO 7.6 Review the contractual element of intention
The following examples illustrate situations in which the issue of intention arises and indicate the courts’ probable responses:
1) Stated intention of the parties
2) Commercial relations
3) Domestic and social relations
4) Social and business relations
5) Exaggerated claims
6)
Stated intention of the parties
If the parties clearly state that they do not wish to be legally bound by their agreement, or that their agreement is not to be enforceable in any court, that
instruction will be honoured.
Sometimes the parties are in precontract
negotiations and are not yet ready to be bound
Example: Letters of intention LOI
2) Commercial relations
If the relationship between the contracting parties is primarily commercial in nature, the courts will presume that the parties intended to be legally bound by their agreement. The contract will be binding on them in the absence of any evidence or clear instructions to the contrary
3) Domestic and social relations
When an agreement is between members of a family, or friends involved in domestic (nonbusiness)
activities, there is a presumption that the parties do not intend legal consequences to flow from their agreement
Example: if members of a family informally agree to make payments to each other, such as a child agreeing to pay room and board or parents agreeing to pay an allowance, the courts would assume that there is no intention to be legally bound and would therefore not enforce the agreement
4) Social and business relations
Problems occur when the relationship involved is a mixture of social and commercial relations.
Such an example arises when friends jointly enter a
contest and then disagree on the distribution of the prize
5) Exaggerated claims
Merchants often exaggerate the qualities of their products in advertisements or when they talk to customers.
They may, for example, claim that their product is “the biggest” or “the best.”
Form of the Contract
LO 7.7 Examine the requirement that contracts be in writing
LO 7.7 Examine the requirement that contracts be in writing
We have established that the essential elements of contracts are
consensus, consideration, capacity, legality, and intention
The Requirement of Writing
Today, there is no general rule that a contract must take a certain form, although most jurisdictions have statutory requirements regarding
the transfer of land
Deed
Promises were enforceable because they were contained in sealed documents known as deeds
What form can a contract be in?
Contracts may be in writing, they may be under
seal, they may simply be verbal, or they may even be implied from the conduct of the parties.
A verbal contract can be just as binding as a written contract
When Writing is Required
In some limited circumstances, a contract is required by statute to be evidenced in writing to be enforceable.
These requirements for writing
are found primarily in the Statute of Frauds
The following is a discussion of the types of contracts generally included under the Statute of Frauds in Canada
1) Contracts not to be performed within one year
2) Land dealings
3) Guarantees and indemnities
4) Others
1) Contracts not to be performed within one year
When the terms of the agreement make it impossible to perform the contract within one full year from the time the contract is entered into, there must be evidence in writing for it to be enforceable
2) Land dealings
Any contract that affects a party’s interest in land
must be evidenced in writing to be enforceable. It is often difficult to determine what types of contracts affect interest (or ownership) in land and what types do not.
3) Guarantees and indemnities
When creditors are not satisfied with the creditworthiness of a debtor, they may insist that someone else also assume responsibility for the debt
AKA mom and dad cosigning Kendra and Joe’s apartment
Guarentee
a written commitment whereby a guarantor agrees to pay a debt if the debtor does not
Indemnity
a primary obligation of a third party to pay a debt along with the debtor
4) Others
The original Statute of Frauds required that whenever the purchase price of goods sold exceeded a specified minimum, there had to be evidence in writing for the sale to be enforceable.
What Constitutes Evidence in Writing
The essential terms are
normally an indication of the parties, the subject matter of the contract,
and the consideration to be paid.
Evidence in writing
any document that provides information or proof
Electronic Contracts
Many land registries, for example, have
created computer databases of their registration system that now allow
lawyers to transfer property and register interests online
The Personal Information Protection and Electronic Documents Act
adapts federal laws to the electronic environment, recognizing electronic
documents and electronic signatures
Part Performance
LO 7.8 Describe the principle of part performance
LO 7.8 Describe the principle of part performance
Capacity covers
- Minors / infants
- Insanity and drunkenness
- Other of limited capacity
2 tests to prove you did not meet the element of capacity
1) You were incapacitated
2) The party knew you were incapacitated or ought to know
Legality from lecture
A contract must be legal and not against public policy to be binding
- Distinction made between the illegality as to the formation of the contract vs. the illegality as to the performance of the contract
- If a contract is illegal at the time is formed it will be void (missing the element of legality)
- Sometimes immoral conduct may be treated as illegal conduct for purposes of making contract void (i.e. agreement with a prostitute)
- If only a portion of the contract is illegal, the court may server the illegal portion. Also, severance may be notional (meaning that courts can rewrite a portion of the contract)
Intention definition from class
The parties must intend for legal consequences to flow from the contract
This is all about legal consequences flowing from the contract
It is NOT the parties intent to enter a contract (that is consensus)
If a contract does not comply with the Statutes of Fraud (outside of BC)
It is unenforceable but it is not void
