Chapter 10: Contractual Defects Flashcards Preview

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Flashcards in Chapter 10: Contractual Defects Deck (75):
1

Contractual Defects

Provide one of the parties with a defence when the other party commences a lawsuit.

2

5 contractual defects studied:

- Incapacity to contract.
- Absence of writing.
- Mistake.
- Unfairness during bargaining.
- Illegality.

3

Capacity

Legal power to give consent.

4

Age of Majority

The age at which a person is held fully accountable in law.

5

Minors

People who have not reached the age of majority.

6

Voidable

A contract is voidable if a minor is entitled to avoid the legal obligations that the contract would have otherwise created.

7

Is every contract with a minor void at the outset?

Not necessarily.

8

What is affirming the contract?

Losing the right to void a contract.

9

What happens to contracts when a minor reaches the age of majority?

The minor must decide, within a reasonable time frame, whether they want to avoid the contract they created as a minor.

10

A minor creates a contract and collects benefits. However, upon reaching the age of majority, that minor decides to void the contract. What occurs next?

The minor must give back the benefits they received from the contract.

11

What are some contracts that minors cannot avoid?

Contracts for necessary goods such as food, clothing, education, medical treatment, and medical treatment.

12

Can minors avoid contracts of employment that are to their benefit?

No.

13

What are the two situations in which people can lack capacity because of a deficient intellect?

1. If a court has declared a person to be lacking in mental capacity.
2. If they lack the mental capacity to contract at the time the contract is formed.

14

What are the two criteria for voiding a contract due to intoxication?

1. The person must have been so drunk they could not know or appreciate what they were doing.
2. The other contractual party must have been alerted to that fact.

15

Chartered Corporations

Treated the same as individuals who have reached the age of majority.

16

Statutory Corporations

Have limited contractual capacity.

17

Difference between chartered and statutory corporations:

Chartered corporations are treated the same as individuals who have reached the age of majority, while statutory corporations have limited contractual capacity.

18

Statutory corporations are limited to the...

Powers given to them through legislation.

19

Ultra Vires

Beyond the authority.

20

What happens when a corporation acts ultra vires?

It lacks the capacity to contract, and are consequently unenforceable.

21

Associations

Are usually unincorporated business organizations that lack contractual capacity.

22

How does an association enter into a contract?

An individual can enter into a contract for its benefit.

23

Indian Band

A body of Aboriginal people whose land and money are held by the Crown.

24

Can unincorporated associations have legal capacity to contract?

Yes, if it is granted to them through legislation.

25

Do Indian Bands have contractual capacity?

Yes.

26

How are Indian Bands restricted in their contractual capacity?

They cannot enter a deed, lease, contract, instrument, document, or agreement purporting to permit a person other than a member of a band to occur or use a reserve, or to reside or otherwise exercise any rights on a reserve.

27

The capacity to contract by public authorities is restricted by...

The division of powers in the Constitution Act 1867.

28

Statute of Frauds

Requires some contracts to be evidenced in writing as a way of reducing the risk of perjury.

29

Does the Statute of Frauds apply to guarantees?

Yes.

30

Guarantee

A contractual promise by a third party, called a guarantor, to satisfy a debtor's obligation if that debtor fails to do so.

31

Indemnity

An unconditional promise to assume another's debt completely.

32

What is the difference between a guarantee and an indemnity?

A guarantee is conditional, while an indemnity is not.

33

An indemnity is not a promise to answer for another's debt, it is...

A promise to assume another's debt altogether.

34

In a number of provinces, the Statute of Frauds applies to contracts of (guarantee/indemnity) but not (guarantee/indemnity).

Guarantee, indemnity.

35

What are contracts that fall under the Statute of Frauds?

Guarantees, contracts for the sale of an interest in land. contracts not to be performed within a year.

36

What must be contained in writing for the Statute of Frauds?

1. There must be evidence of the essential elements of the contract.
2. It must be signed by the party again whom he agreement is being enforced.

37

True or false? Courts are generally very tough on the drafters of documents in the Statute of Frauds.

False, they are generally quite lenient.

38

Does the Statute of Frauds void a contract?

No, it simply makes it unenforceable.

39

Quantum Meruit

A reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract.

40

What types of consumer protection laws require written agreements?

All personal development services (health, fitness, diet, modelling, talent, martial arts, sports, and dance).

41

Consensus Ad Idem

Meeting of the Minds.

42

Do contracts require consensus ad idem?

Yes.

43

Say that a mistake occurs when an error affects the basic process of contract formation. What is the effect on the contract?

The contract cannot exist.

44

Say that a mistake makes it impossible for the object of the contract to be achieved. What is the effect on the contract?

The contract may be defective.

45

What are the two types of mistakes that prevent the creation of contracts?

1. Mistaken identity.
2. Mistake about subject matter.

46

What two criteria need to be present in order to cause mistaken identity to render a contract defective?

1. A mistake was known to the other contractual party.
2. The mistake was material.

47

Material Mistake

One that matters to the mistaken party in an important way.

48

Mistake about Existence of the Subject Matter

Both parties make the same mistake, not that is usually based on a false assumption. I sell you a beach house, we both don't know that it burned down a week ago.

49

How can a business protect itself from a common mistake about the existence of a subject matter?

By inserting a force majeure, or irresistible force.

50

Force Majeure Clause

States which party in a contract bears the hardship if the subject matter of the contract is destroyed or if some other unexpected event occurs.

51

How would a party deal with a force majeure clause?

Purchase insurance.

52

Frustration

A contract is frustrated when some event makes performance possible or radically undermines its very purpose.

53

Does the doctrine of frustration apply if a party is responsible for a relevant event?

No, no one must be responsible.

54

How does a party transfer responsibility in cases where the doctrine of frustration may apply?

By inserting a force majeure clause.

55

What is the all or nothing rule for the doctrine of frustration?

A purchaser can recover all of their contractual patients if they haven to achieved any benefit from the seller, but if they had received some benefit, they cannot recover any payments.

56

What happens to a situation where frustration occurs, and the purchaser neither paid money nor received a benefit under the contract?

The entire burden of the frustrating event falls on the seller.

57

Non Est Factum

Literally means "this is not my deed."

58

When is non est fact available?

When there is a fundamental, total, or radical difference between what a person signed and what the person thought they were signing.

59

Duress of Person

Refers to physical violence of the threat of violence.

60

Duress of Goods

Occurs when one person seizes or threatens to seize another person's goods to force that person to create a contract.

61

Economic Duress

Arises when a person enters into a contractual arrangement after being threatened with financial harm.

62

Economic duress is considered to be more legitimate if:

- One party was dealing in bad faith.
- Could not have reasonably resisted.
- Started legal proceedings promptly.
- Victim protested.
- Victim succumbed to the pressure without legal advice.

63

Undue Influence

The abuse of a relationship in order to influence someone and induce an argument.

64

Fiduciary Relationship

A relationship in which one person is in a position of dominance over the other.

65

There is a presumption of ___ ___ whenever a fiduciary is involved in a transaction.

Undue influence.

66

Unconscionable Transaction

An agreement that no right-minded person would ever make and no fair-minded person would ever accept.

67

Improvident Bargain

A bargain made without regard to the future.

68

What must be established in unconscionable transactions?

1. There was an improvident bargain.
2. There was an inequality in the bargaining position of the two parties.

69

If the two elements are satisfied, court assume that there is an unconscionable transaction. True or false?

True.

70

Illegal Agreements

Expressly or implicitly prohibited by statute.

71

Regulatory Statute

Purpose is to not punish individuals for wrongdoing, but rather to regulate their conduct through an administrative regime.

72

A mobster hires a thug to kill politician, but the thug runs with the money. Can the mobster sue the thug?

No.

73

Can a court strike down a contract simply because it is contrary to public policy?

Yes.

74

Covenant in Restraint of Trade

A contractual term that unreasonably restricts one party's liberty to carry on a trade, business, or profession in a particular way.

75

What do covenants in restraint of trade require?

1. Trade or not trade with someone in particular.
2. Work for someone in particular, or not work for anyone else.