Business 4000 Chapter 1 Law and Society

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Business 4000 Chapter 1 Law and Society

  1. 1. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Important Concepts 1.Void vs. Voidable contracts  Void Contract: a nullity from the beginning; treated as if never formed  Voidable Contract: one capable of becoming void at the option of a party
  2. 2. Business 4000 Chapter 7 Capacity to Contract and Legality of Object 2.Burden of Proof  Courts will presume both the contractual capacity of the defendant and legality of the contract’s object/purpose  Defendant must prove the absence of these elements
  3. 3. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Capacity of Minors (under 19 years of age) General Rule:  Contracts made by minors are not enforceable against them (but are enforceable by them)  Upon attaining age of majority, minor must ratify (acknowledge and promise to perform) contract to be bound by it (otherwise voidable)  Minor must take action to ratify to be bound  Contracts which are prejudicial and unfair to minors are void and cannot be “saved” by ratification (e.g. forfeiture or penalty clauses)
  4. 4. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Exceptions where Minors Bound: 1. Necessaries – essential goods and services  Examples are food, clothing, lodging, medical attention, legal advice, transportation to work  Bound to pay reasonable price only; not necessarily the contract price  Goods must be delivered 2. Beneficial contracts of service  Contracts of employment or apprenticeship where for minor’s benefit and not exploitative
  5. 5. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Middle Ground – Repudiation  Contracts providing “an interest of a permanent continuous nature”, e.g. contracts for rights in land and partnership agreements  Must be repudiated upon coming of age, otherwise minor will become liable (voidable)  Minor must take action to repudiate to avoid obligations  Right to repudiate will be lost if not done promptly or if she accepts the benefits of the contract after attaining majority
  6. 6. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Effect of Repudiation  If minor is buyer, she must return goods in her possession – will not recover monies already paid for benefit received  If minor is seller, must return purchase price to recover the goods
  7. 7. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Other Persons of Diminished Contractual Capacity  Party seeking to avoid the contract must: 1. Prove he was incapable of a rational decision at time of agreement 2. Prove the other party was aware of his condition 3. Have acted promptly to repudiate contract upon emerging from state of incapacity  Problems with proof
  8. 8. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Legality of Object Approach of Courts:  Void contracts: court will do its best to restore parties to their pre-contract positions  Illegal contracts: court will refuse to aid either party (position of defendant is the stronger); no severance and enforcement of legal aspects of contract
  9. 9. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Contracts void by statute:  Where agreement contrary to purpose of legislation, e.g. deprivation of rights under Workerplace Health and Safety Compensation Act or Labour Standards Act  Promise to pay a betting debt  Exceptions:  insurance contracts where insurable interest exists or is waived  bona fide contracts for purchase/sale of shares  contracts for the future delivery of goods
  10. 10. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Contracts illegal by statute:  Those whose objects are illegal by statute (includes provision of goods/services without necessary licensing or registration)
  11. 11. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Contracts illegal by common law:  Those contemplating the commission of a tort  Those containing an undertaking to indemnify against damages for tort committed during performance  Exceptions for:  auto insurance  professional indemnity insurance  exemption for negligence provided by contract
  12. 12. Business 4000 Chapter 7 Capacity to Contract and Legality of Object Contracts illegal by public policy:  Those prejudicial to interests of Canada, its foreign relations, national defence or public service; or the administration of justice  Those having perversion of justice as object  Those indemnifying parties posting bail  Agreements not to carry out duty to inform police  Those promoting unnecessary litigation
  13. 13. Business 4000 Chapter 7 Capacity to Contract and Legality of Object  Agreements in restraint of trade  those diminishing competition  may be void or illegal  restrictive covenants presumed to restrain trade, but rebuttable if reasonable arrangement between the parties, reasonable in terms of time and geography

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