Chapters 3 Contracts.pptx Chapters 3 Contracts.pptx

Welcome to class. We will
begin shortly.

IMPORTANT
DATES
ASSSIGNMENTS – November
10 (Fri)
MIDTERM – November 17
(Fri)
FINAL EXAM: NOVEMBER 23
(Thurs)

INTRODUCTION TO THE
LAW OF CONTRACTS
CHAPTER 3

Chapters we will cover today
Legal Capacity to Contract
Minors
Capacity of Drunkards and Persons Under
Mental Disability to Contract

Chapter 3 – Protecting Weaker Parties
After completing this chapter, you should be able to:
• Explain what the term “legal capacity” means.
• Explain the difference between an unlawful and an illegal
contract and describe the impact on the remedy available to
the parties in the event of a breach.
• Describe the difference between a simple contract and a
formal contract.
• Distinguish between the treatment of contracts for
necessaries and contracts for non-necessaries.
• Identify when employment contracts with minors are
enforceable.
• Explain the effect of drunkenness on the validity of a
contract.

Legal Capacity to
contract:
Not everyone is legally entitled to enter into
contracts. Some persons, by their status, are
presumed not to have the ability to enter into
contracts or have limited rights to contract.
The purpose here is to protect the weaker
party from the stronger and more able party.
This class of persons who lack or have limited
capacity to contract includes minors and
persons under mental disability.

Legal Capacity to
contract:
Minors
The general rule is that contracts with minors are not
enforceable against the minor. At common law, a minor is an
individual who is under 21 years of age. The common- law
definition of age has been replaced by statutory definitions in
most provinces, where, as in Ontario, the age of majority is
now 18 for the purposes of entering into contracts. The reason
for this rule is that minors are presumed to be naive,
inexperienced, and easily taken advantage of, so some
protection is required

Legal Capacity to
contract:
Minors
While the general rule is that contracts with minors are not
enforceable against minors, contracts for necessaries of life
made by a minor are enforceable, but other contracts are not if
the minor repudiates them.
Contracts with minors for non-necessaries are another matter.
Here, the law recognizes two types of contracts:
• contracts that are void ab initio
• contracts that are voidable at the option of the minor

Legal Capacity to
contract:
Minors
void ab initio
invalid from the beginning; no rights can arise under a contract
that is void ab initio
voidable contract
a contract that may be avoided or declared void at the option
of one party to the contract; once it is declared invalid no
further rights can be obtained under it, but benefits obtained
before the declaration are not forfeit

Legal Capacity to
contract:
The concept of legal capacity to contract is fundamental in
contract law, determining whether an individual or entity can
enter into a binding agreement. Understanding the legal
capacity to contract is essential for ensuring the validity and
enforceability of agreements. Both individuals and entities
must be mindful of these principles to avoid entering contracts
that could later be deemed invalid. Always consult legal
professionals for specific advice and guidance tailored to
individual circumstances and jurisdictions.

Enforceable
Contracts:
Purchases of
Necessaries
As in most provinces, the Ontario Sale of Goods Act provides
that a minor is liable to pay a reasonable price for goods that
are necessaries that have been sold and delivered to the
minor. It follows from this that a minor may be able to
repudiate a contract for the sale of goods if it is an executory
contract. An executory contract is one where the obligations
are performed after the contract is made. Thus, a minor may
repudiate a contract for the sale of necessary goods between
the time the minor agreed to purchase the goods but before
they are delivered. If the contract is partly performed—for
example, goods are delivered but not yet paid for—the minor
is bound.

Enforceable
Contracts:
Employment
Generally, minors who enter into employment contracts,
formal or informal, are bound by their terms unless the terms
are not beneficial to the minor. Presumably, minors accept
employment to meet their needs, so an employment contract
could be viewed as a contract for necessaries. However, just as
an article of clothing can be a luxury or a necessity, depending
on what it is for, so can a job be classed that way. A minor
who works because his or her needs would not be met
otherwise is in a different position from a minor who works to
acquire spending money for luxuries.

Enforceable
Contracts:
Employment
However, the case law does not focus on whether work is a
necessity; rather, it accepts a service contract as enforceable
by both parties unless the contract does not benefit the
minor. “Benefit” has been held by the courts to include an
appropriate salary, but also may include consideration of
whether there was a general advantage for the minor in
acquiring skills and satisfying aims or desires, and whether the
minor was taken advantage of.

Enforceable
Contracts:
Employment
Enforceable employment contracts are legal agreements
between an employer and an employee that detail the terms
of employment and are legally binding. Enforceable
employment contracts are crucial for defining the terms of the
employment relationship and protecting the interests of both
employers and employees. They should be drafted with care
to ensure all legal requirements are met. Consulting with legal
professionals during the drafting and review process can help
prevent disputes and ensure compliance with applicable laws.

Contracts for
Non-Necessaries
Where a minor has entered into a contract for non-
necessaries, the contract is always enforceable by the minor,
but the minor may be able to avoid enforcement of the
contract against him or her in some circumstances. If the
contract is not fully executed, the minor may avoid the
contract (as is the case for contracts for necessaries). If the
contract for non-necessaries has been fully executed so that
goods and money have changed hands, the contract cannot be
set aside. If the contract is ongoing, as, for example, if the
minor has joined a monthly CD or book club, he or she can
repudiate any future liability, but cannot recover money spent
for benefits already received. If the creditor has loaned money
for non-necessaries to a minor, the creditor cannot recover
the debt if the minor chooses not to pay.

Contracts for
Non-Necessaries
Contracts for non-necessaries, often referred to as non-
essential items or services, involve goods and services that are
not deemed essential for a person's basic living needs. These
types of contracts can present unique challenges, especially
when dealing with parties who may not have full legal
capacity, such as minors or individuals lacking mental
competence. Contracts for non-necessaries present specific
challenges, particularly concerning the enforceability of
agreements involving minors and mentally incompetent
individuals. These contracts are generally voidable at the
discretion of the disadvantaged party. To ensure fair
treatment and compliance with legal standards, parties
engaging in such contracts should be mindful of the capacity
and rights of the individuals involved. Legal advice is often
beneficial to navigate these complex issues and ensure that all
contractual agreements are fair and enforceable.

Effect of Reaching
the Age of Majority
on Minors’
Contracts
Where a contract is for necessaries, the liability continues.
However, if the contract is for non-necessaries and has not
been repudiated by the minor during his or her minority, the
contract has to be classified as to type. For this purpose, there
are two types.

Effect of Reaching
the Age of Majority
on Minors’
Contracts
1.Contracts for non necessaries that are valid unless the minor
repudiates them. These are contracts that confer ongoing or
continuous benefits that are made while an individual is a
minor, and which carry on after the age of majority has been
reached. The contract will continue to bind the individual
unless he or she, before or shortly after reaching the age of
majority, does something that constitutes repudiation of the
agreement.
2. Contracts for non necessaries that are invalid unless ratified
by the minor. These are contracts that confer a one-time
benefit, for example, where goods are ordered while the
individual is a minor but are not to be delivered to complete
contract performance until the minor has reached the age of
majority. These contracts must be ratified in writing by the
minor during his or her minority or shortly thereafter. If the
minor does not ratify the contract, the seller must return the
deposit. These two types of contracts are discussed below.

Effect of Reaching
the Age of Majority
on Minors’
Contracts
When a minor reaches the age of majority, which is typically
18 in most jurisdictions, it has significant legal implications for
contracts they entered into while still a minor. Reaching the
age of majority brings significant changes to the enforceability
of contracts made during minority. The key actions—
ratification and disaffirmance—determine whether these
contracts will be upheld or voided. It's crucial for individuals
and businesses to understand these principles to handle such
contracts appropriately and ensure compliance with legal
standards. Consulting with legal professionals can provide
clarity and guidance tailored to specific situations.

Voidable Ongoing
Benefit Contracts
for Non-
Necessaries: Valid
Unless Repudiated
Where a minor acquires by contract permanent property that
carries some obligations for the minor, the contract is
presumed to be valid and enforceable unless the minor
repudiates it during his or her minority or shortly after
reaching the age of majority. “Shortly after” appears to be
measured in weeks or months rather than years.

Contract That
Is Valid Until
Repudiated

Consequences of
Repudiation
• Contracts are enforceable and effective until they are
repudiated.
• The minor, on repudiating the contract, is relieved of future
obligations and accrued but undischarged obligations.
• Money paid by the minor before repudiation may not be
recoverable if the adult party performed his or her
obligations under the contract before repudiation by the
minor.
• The minor may also recover property such as goods after
repudiation if the goods have not been consumed and can
be restored to the minor.

Consequences of
Repudiation
Repudiation in contract law refers to one party's refusal to
fulfill their obligations under a contract, which can result in
various legal consequences. The non-breaching party has
several options in response to repudiation, including
terminating the contract and seeking remedies. Repudiation
has significant legal consequences, allowing the non-
breaching party to terminate the contract and seek various
remedies, including damages, specific performance,
restitution, and rescission. The non-breaching party must also
mitigate their losses to ensure they receive appropriate
compensation. Understanding these consequences helps
parties navigate breaches of contract more effectively and
pursue appropriate legal actions to protect their interests.

Voidable One-Time
Benefit Contracts
for Non-
Necessaries: Void
Unless Ratified
All other contracts for non-necessaries made by a minor must
be ratified when the minor reaches the age of majority, or
they cease to be valid and enforceable against the minor who
has now reached the age of majority. Such contracts, being for
non- necessaries, also could have been repudiated by the
minor before reaching the age of majority but were presumed
valid unless challenged. In Canada, the ratification must be in
writing and signed by the minor.

Voidable One-Time
Benefit Contracts
for Non-
Necessaries: Void
Unless Ratified
Contracts for non-necessaries (non-essential items or services)
entered into by minors or individuals lacking full legal capacity
are generally considered voidable. These contracts are distinct
in that they can be voided by the disadvantaged party unless
they are ratified upon reaching the age of majority or when
full legal capacity is regained. Contracts for non-necessaries
entered into by minors or individuals lacking full legal capacity
are generally voidable unless ratified upon reaching the age of
majority or regaining capacity. The ability to void or ratify
these contracts provides protection to individuals who may
not fully understand the implications of their agreements.
Understanding the processes of ratification and disaffirmance,
and their timing, is crucial for both parties in managing these
contracts effectively. Legal advice is often beneficial in
navigating these issues to ensure that rights and obligations
are appropriately addressed.

Contracts That
Must be
Ratified to Be
Valid

Consequences of
Invalidation from
Failure to Ratify
• Prior to validation, the minor can enforce the contract
against the adult, but not vice versa.
• A third party cannot rely on the invalidity of a contract to
escape liability. For example, an adult who agrees to
indemnify another for a minor’s debt is still bound even if
the minor fails to validate the contract by ratifying it.11
• If the minor does not ratify, he or she is not liable for
future accrued liabilities under the contract.
• If the minor does not ratify, money can be recovered
provided the minor can restore the adult to his or her pre-
contract position. If the minor has paid in part and then
refuses to ratify, he or she must return the goods and may
lose the deposit, although he or she may recover other
moneys paid.

Consequences of
Invalidation from
Failure to Ratify
When a contract for non-necessaries entered into by a minor
or an individual lacking full legal capacity is not ratified upon
reaching the age of majority, it can lead to invalidation. The
failure to ratify a contract for non-necessaries entered into by
a minor or a legally incapacitated individual typically results in
the contract becoming void. This leads to both parties being
released from their obligations and the restoration of their
pre-contract positions. It is crucial for both parties to act
within a reasonable time frame and understand their legal
rights and responsibilities. Legal advice is often beneficial to
navigate the complexities of these situations and ensure fair
and compliant handling of contract invalidation.

Void Contracts
In Canada, some minors’ contracts have been held to be void
ab initio. Some cases have held that a contract that is not
beneficial is void without the minor having to do anything.
But the better view is that to fall into the void ab initio
category, a contract would have to be more than “not
beneficial”—it would have to be clearly prejudicial or harmful,
which is a more stringent requirement for holding a contract
to be void.

Void Contracts
A void contract is a legal agreement that is unenforceable
from the moment it is created because it lacks one or more of
the essential elements required for a valid contract. This
means that the contract has no legal effect and cannot be
enforced by either party.
Void contracts are fundamentally flawed and unenforceable
from their inception. They fail to meet one or more essential
elements required for a valid contract and thus have no legal
effect. Understanding the characteristics and consequences of
void contracts helps parties avoid entering into unenforceable
agreements and ensures they take appropriate steps to seek
restitution if necessary. Legal advice is often beneficial to
navigate the complexities of void contracts and protect one's
legal interests.

Basic Principles
in the Roman
Law of
Contracts

Consequences for
Void Contracts
• The minor is entitled, not being bound, to have all of his or
her money or property returned, and the adult need not be
restored to his or her pre-contract position.

Consequences for
Void Contracts
When a contract is deemed void, it has several significant legal
consequences that affect the parties involved. A void contract
is considered null and unenforceable from the outset,
meaning it lacks legal effect entirely. The consequences of a
void contract primarily involve its unenforceability and the
need to restore the parties to their pre-contractual state
through restitution. No legal obligations or remedies can arise
from a void contract, and any benefits exchanged under such
an agreement must be returned to avoid unjust enrichment.
Understanding these consequences helps parties handle void
contracts appropriately and seek equitable outcomes. Legal
advice is often essential in navigating the complexities and
ensuring that all actions comply with relevant laws and
principles.

Alternative
Remedies for Void
or Void Ab Initio
Contracts
If a minor is immune from liability in contract because the
contract is void, the adult cannot make an end run around
contractual immunity by suing the minor in tort. This is
certainly true for the tort of negligence, but willful destruction
of the subject matter of the contract by the minor may give
rise to an action for an intentional tort such as trespass to
goods.
If the minor misrepresents his or her age, claiming to have
reached the age of majority, at common law an action for the
tort of fraudulent misrepresentation will not be permitted.15
However, the adult may invoke equitable remedies under
which the minor must restore goods purchased in a contract
where the minor fraudulently misrepresented his or her age.

Law Affecting
Minors in British
Columbia
The law affecting minors in British Columbia is somewhat
different from the law in other common-law provinces and
Quebec. It is summarized as follows.
A minor’s contract is unenforceable against the minor unless
one of these conditions is met:
• the contract is enforceable under some statute,
• the minor validates the contract on attaining the age of
majority,
• the minor wholly or partly performs the contract shortly
after attaining the age of majority, or
• the contract is not repudiated by the minor within a year of
having attained the age of majority.

Legal Capacity to
contract:
Capacity of Drunkards and Persons Under Mental Disability to
Contract
The law will intervene in some circumstances where
someone who is intoxicated enters into an agreement.

Legal Capacity to
contract:
Mental Disability
Some types of mental disability may be sufficient to allow a
person to repudiate a contract in certain circumstances.
Generally, the law is concerned with the lack of capacity arising
from mental disability. For example, people who have
schizophrenia may have delusions, but if they can manage their
own daily and business affairs and look after their personal
finances, they may have the capacity to enter into some
contracts. The mentally disabled persons that the law protects
are those who are unable to manage their own affairs or are
unable to appreciate the nature and consequences of their
actions.

Legal Capacity to
contract:
Mental Disability
The law deals in the following ways with those who are unable
to manage their affairs:
• Provincial legislation provides that a person can be declared
to be unable to manage his or her affairs. If there has been
such a judicial finding, contracts made after the judicial finding
are void on the ground that there is a lack of capacity to
consent to the provisions of a contract. Contracts made prior to
the finding may be voidable, as noted below.
• If a person lacks capacity because he or she is unable to
handle his or her affairs, but there has been no judicial finding,
the contracts made are voidable at the option of the person
who is mentally disabled. If the contracts are not repudiated,
they are presumed to be enforceable.

Legal Capacity to
contract:
Mental Disability
In contract law, mental capacity refers to a person's ability to
understand the nature and consequences of their actions,
including entering into a contract. When it comes to mental
disability, the capacity to contract may be impaired, raising
questions about the validity and enforceability of contracts
entered into by individuals with mental disabilities. Mental
disability can significantly impact a person's legal capacity to
contract. While individuals with mental disabilities are not
automatically barred from entering into contracts, their
capacity to understand and consent to contractual terms may
be impaired. Contract law provides mechanisms to protect
individuals with mental disabilities, including the ability to void
contracts that they lack the capacity to understand. Legal
advice and oversight are essential to ensure that contracts
involving individuals with mental disabilities are fair, equitable,
and legally valid.

Lack of Capacity | Contracts | Defenses
and Excuses

Chapters 3 Contracts.pptx Chapters 3 Contracts.pptx

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