Copyright © 2008 Pearson Education Canada7-1 Chapter 7: Formation of Contracts (Continued)

Copyright © 2008 Pearson Education Canada 7-1

Chapter 7:Chapter 7:

Formation of Formation of Contracts Contracts

(Continued)(Continued)


Capacity - Infants Capacity - Infants

Infants - under age Infants - under age (18 yrs)(18 yrs) of majority of majority NecessariesNecessaries

• Food Food • ClothingClothing• ShelterShelter

fair pricefair price exception - beneficial contracts of serviceexception - beneficial contracts of service

Adults boundAdults bound Ratification when reach majorityRatification when reach majority

AdvertentAdvertent Inadvertent by obtaining benefitInadvertent by obtaining benefit


What do infants, drunks, Lunatics. Enemy aliens, What do infants, drunks, Lunatics. Enemy aliens, foreign governments, bankrupts, corporations, foreign governments, bankrupts, corporations, Native Indians on Reserves have in common?Native Indians on Reserves have in common?

They have capacity issue in contract law!They have capacity issue in contract law! Q is avoidableQ is avoidable Infant under 18 (AB) and 19 (BC)?Infant under 18 (AB) and 19 (BC)? In common law, there is no statue under 21!In common law, there is no statue under 21! Objective (Legal) Test is to look at Birth Objective (Legal) Test is to look at Birth

Certificate?Certificate?


If there is VOIDABLE INFANT Q: Infant is If there is VOIDABLE INFANT Q: Infant is NOT bound, but Adult is bound.NOT bound, but Adult is bound.

Exceptions:Exceptions: Food, Clothing, ShelterFood, Clothing, Shelter

Are adults liable for Infant Q’s?Are adults liable for Infant Q’s? No, but there are exceptions.No, but there are exceptions.

• Child is acting as Adult’s agent (e.g., buying Child is acting as Adult’s agent (e.g., buying cigarette).cigarette).

• Child purchasing necessaries where the parents Child purchasing necessaries where the parents have obligation to provide!have obligation to provide!


Capacity, Drunks and LunaticsCapacity, Drunks and Lunatics

Subjective test that must proveSubjective test that must prove1.1. Insanity & Drunkenness (Objective)Insanity & Drunkenness (Objective)

2.2. The party know or ought to have known incapacityThe party know or ought to have known incapacity

3.3. Upon regaining capacity must repudiate Q quicklyUpon regaining capacity must repudiate Q quickly

Subjective test: What the other person know?Subjective test: What the other person know? Foreign Governments in Ottawa: Their Foreign Governments in Ottawa: Their

countries are not bound by Canadian Law.countries are not bound by Canadian Law. They never pay parking lot.They never pay parking lot.


Capacity/2 - Insanity Capacity/2 - Insanity

InsanityInsanity Person claiming insanity must showPerson claiming insanity must show No understandingNo understanding Other person knew or should have known of Other person knew or should have known of

insanityinsanity Repudiate when saneRepudiate when sane

DrunkDrunk Treated like insanityTreated like insanity


Capacity/3 Capacity/3 Native IndiansNative Indians

Status Indians have capacity to contract limited when living on Status Indians have capacity to contract limited when living on a reservea reserve

Off-reserves, these rules do not apply.Off-reserves, these rules do not apply. CorporationsCorporations Crown bodies may be limited by legislationCrown bodies may be limited by legislation Enemy AliensEnemy Aliens

Contracts void or suspended Contracts void or suspended Alien: A Alien: A personperson who is a who is a citizencitizen of a of a countrycountry other than the country other than the country

in which he or she in which he or she residesresides. . Enemy Alien: In Enemy Alien: In lawlaw, an , an enemy enemy alienalien is a citizen of a country which is a citizen of a country which

is in a state of conflict with the land in which he or she is is in a state of conflict with the land in which he or she is located. Usually, but not always, the countries are in a state of located. Usually, but not always, the countries are in a state of declared war. declared war.


Capacity/4Capacity/4

UnionsUnions Contracts must relate to union activitiesContracts must relate to union activities

BankruptsBankrupts Must notify potential contracting partiesMust notify potential contracting parties Lack of capacityLack of capacity

Government bodies may be limited by Government bodies may be limited by legislationlegislation


Case SummaryCase Summary

Hardman v FalkHardman v Falk Two sisters negotiated a deal to sell Two sisters negotiated a deal to sell

property on behalf of their mother who was property on behalf of their mother who was mentally disabled, although this was not mentally disabled, although this was not apparent to the realtor who got her to sign apparent to the realtor who got her to sign the contract for sale. The sisters then the contract for sale. The sisters then rescinded the deal claiming insanity...rescinded the deal claiming insanity...


Case Summary/2 Case Summary/2

The court found nothing to alert The court found nothing to alert buyers to her insanity and found the buyers to her insanity and found the contract to be reasonablecontract to be reasonable


Legality Legality

Object of agreement must be legal Object of agreement must be legal not contrary to law, e.g., drug dealsnot contrary to law, e.g., drug deals not against public policy, e.g., prostitutionnot against public policy, e.g., prostitution Has to have a legal purposeHas to have a legal purpose

If contract is illegal or against public If contract is illegal or against public policy policy

contract is voidcontract is void court won’t assist court won’t assist or help or help either partyeither party


LegalityLegality illegal informationillegal information illegal in purposeillegal in purpose

• Formation was legal but performance was illegal, e.g., home Formation was legal but performance was illegal, e.g., home renovations that is illegally performed in case no building permit and renovations that is illegally performed in case no building permit and no business licence is present.no business licence is present.

Court will have a graduated response and may assist innocent parties Court will have a graduated response and may assist innocent parties or may order partial compensation. In other words, illegal contractsor may order partial compensation. In other words, illegal contracts

1.1. Q’s interfere with government or prosecution of the offences, e.g., Q’s interfere with government or prosecution of the offences, e.g., bribes. Agreement NOT prosecute!bribes. Agreement NOT prosecute!

2.2. Contract promotes litigation (suing people)Contract promotes litigation (suing people)3.3. Bets + Wagers= legal except government authorized banningBets + Wagers= legal except government authorized banning4.4. Q’s that unduly restrict TRADE. Restrictive covenants.Q’s that unduly restrict TRADE. Restrictive covenants.5.5. Price FixingPrice Fixing6.6. Qs to restrict MarriageQs to restrict Marriage7.7. Immoral Qs: Illegality compasses. E.g.., Solicitation: Offering money Immoral Qs: Illegality compasses. E.g.., Solicitation: Offering money

for sex.for sex.


Question for Discussion Question for Discussion

Courts refuse to enforce contracts Courts refuse to enforce contracts that entail an act that is against that entail an act that is against public policy—for example, public policy—for example, prostitution.prostitution.


Question for Discussion/2Question for Discussion/2

Would it be better to limit the courts’ Would it be better to limit the courts’ power to refuse to enforce contracts to power to refuse to enforce contracts to those situations where a law is broken or those situations where a law is broken or a crime committed? Would this approach a crime committed? Would this approach be more consistent with the notion of be more consistent with the notion of freedom of contract?freedom of contract?


Intention Intention

Protects reasonable expectations or Protects reasonable expectations or intentions clearly stated in contractintentions clearly stated in contract

Intention presumed in commercial Intention presumed in commercial relationshipsrelationships

No intention presumed in social or No intention presumed in social or domestic relationshipsdomestic relationships

Reasonable person test applied in cases Reasonable person test applied in cases of exaggerated claims.of exaggerated claims.


IntentionIntention

Q to be enforced in Court of Law.Q to be enforced in Court of Law. Not all agreements are Qs. For example.Not all agreements are Qs. For example.

Social arrangementsSocial arrangements Family domestic agreementsFamily domestic agreements Presumption (assume a state of fact) against Contractual Presumption (assume a state of fact) against Contractual

Intention in case of family or domestic arrangementIntention in case of family or domestic arrangementPresumption overcome by evidence Q (contractual) intention, e.g., Presumption overcome by evidence Q (contractual) intention, e.g.,

writing. writing. The flip side of that, The flip side of that, there is a presumption for Q there is a presumption for Q intention in commercial relationships.intention in commercial relationships.

Exaggerated Claims (what is being said could NOT be true): Exaggerated Claims (what is being said could NOT be true): Presumption against the intention. However, S.C.C. may Presumption against the intention. However, S.C.C. may overrule.overrule.


IntentionIntention

Mixed Social/Commercial ArrangementMixed Social/Commercial Arrangement Lottery Pool: Name on it. Back of the winner Lottery Pool: Name on it. Back of the winner

ticket for all of them.ticket for all of them. Parties to an agreement can explicitly state an Parties to an agreement can explicitly state an

intention NOT to be BOUND.intention NOT to be BOUND. Example: Memorandum of understanding. Example: Memorandum of understanding.

M.U: Titles irrelevant (read the document). M.U: Titles irrelevant (read the document). Parties agree to bound in Q.Parties agree to bound in Q.


Form of the Contract Form of the Contract Verbal contracts are bindingVerbal contracts are binding Statute of FraudsStatute of Frauds (1677, English Statute) (1677, English Statute) requires requires

written evidence of contracts that are:written evidence of contracts that are: longer than one yearlonger than one year for land transactionsfor land transactions guaranteesguarantees promises in consideration of marriagepromises in consideration of marriage value of goods exceeds specified minimumvalue of goods exceeds specified minimum

These requirements are reduced in many jurisdictionsThese requirements are reduced in many jurisdictionsNote: Before 1677, the truth teller was disbelieved if Note: Before 1677, the truth teller was disbelieved if one is believed to say right. After 1677, Certain Qs are one is believed to say right. After 1677, Certain Qs are valid but NOT enforceable unless in writing signed by valid but NOT enforceable unless in writing signed by the person to be BOUND. the person to be BOUND.


ExceptionException

A. Qs involving land, buy, sell, lease, renting and A. Qs involving land, buy, sell, lease, renting and mortgage, really tough to forge it.mortgage, really tough to forge it.

1.1. Leases under 3 yrs = No need leases.Leases under 3 yrs = No need leases.2.2. Part performance: no writing required but Part performance: no writing required but

certain condition be satisfied: certain condition be satisfied: Contractual Acts refer ONLY to sale of Land.Contractual Acts refer ONLY to sale of Land. If the oral contract is NOT enforced: A FraudIf the oral contract is NOT enforced: A Fraud Oral Q must be an interest in landOral Q must be an interest in land Q must be valid and legalQ must be valid and legalIn the absence of these circumstances, you need piece In the absence of these circumstances, you need piece

of paper! MUST BE IN WRITING.of paper! MUST BE IN WRITING.


B. Qs in consideration of marriageB. Qs in consideration of marriage C. Guarantees (involves always 3 people).C. Guarantees (involves always 3 people).

A. Bank, B: Debtor, and C. GurantorA. Bank, B: Debtor, and C. Gurantor D. Q, NOT to be performed for 1 year or D. Q, NOT to be performed for 1 year or

moremore E. Promises of Executors: Representative E. Promises of Executors: Representative

of a deceased personof a deceased person F. New Goods over $50F. New Goods over $50


Question for Discussion Question for Discussion

When dealing with the Statute of Frauds, When dealing with the Statute of Frauds, the courts first decide whether a binding the courts first decide whether a binding contract exists and then see if the contract exists and then see if the Statute applies.Statute applies.

Is there ever a justification for refusing to Is there ever a justification for refusing to enforce a contract merely because some enforce a contract merely because some formal requirements of the Statute have formal requirements of the Statute have not been met?not been met?


Case Summary Case Summary

Hill v. Nova ScotiaHill v. Nova Scotia The province expropriated land and built The province expropriated land and built

a highway allowing the owner of the land a highway allowing the owner of the land to use part of the highway for his own to use part of the highway for his own purposes for 27 years.purposes for 27 years.


Case Summary/2 Case Summary/2

The court determined that his use of The court determined that his use of the highway constituted the written the highway constituted the written evidence of the agreement required evidence of the agreement required by the Statute of Fraudsby the Statute of Frauds

Copyright © 2008 Pearson Education Canada7-1 Chapter 7: Formation of Contracts (Continued)

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Transcript of Copyright © 2008 Pearson Education Canada7-1 Chapter 7: Formation of Contracts (Continued)