Chapter 10 - Contractual Defects Flashcards Preview

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Flashcards in Chapter 10 - Contractual Defects Deck (43)
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A person must have capacity in order to enter into a contract, meaning they have legal power to give consent


7 Groups of persons who may either have no capacity or only limited capacity to create a contract:

1. Minors
2. Mentally disabled persons
3. Intoxicated persons
4. Corporations
5. Associations
6. Indian bands and Aboriginal persons
7. Public authorities



A minor person under the age of majority (18 or 19)

Contracts with minors are either: enforceable or avoidable at the option of the minor


Minors and Enforceable Contracts
The Rule:

Some contracts with minors are enforceable (the minor cannot avoid these contracts) - ensures that minors will not be denied contracts, that are to their benefit (teen entering contract to rent apartment)

Contracts for necessities of life such as food, clothing, shelter, education, medicine, legal advice, employment contracts that are to their benefit


Minors and Voidable Contracts
The Rule:

Most contracts with minors are avoidable. They can choose to accept or avoid. If the contract is affirmed, they lose the ability to avoid.

Rule applies even if child appeared older


Mental Incapacity
The Rule:

1. If there is a Judicially Declaration/Court Order
This person has no legal capacity: any contract entered into with this person will be void.

2. Mentally incompetent

Party should have known that the person that they were contracting with had mental incapacity


Intoxicated Persons
The Rule:

1. The drunk person was “too drunk to understand circumstances” so they could not know or appreciate what they were doing; and
2. The other party was aware of the above.

In order to avoid, immediately upon becoming sober, take steps to avoid the contract...


Business Corporations
Chartered Corporation

Full Contractual capacity


Business Corporations
Statutory Corporation

Limited Contractual capacity

Contract enforceable if within valid powers (contract outside the statutory powers is ultra vires - beyond the powers)



Only legal persons can have capacity to enter into a contract

Legal persons can be human beings and corporations, therefore associations are unincorporated and do not have capacity


Exception to Rule:

Indian Bands and Trade Unions do have capacity for some kinds of contracts


Indian Bands

Body of Aboriginal people living on land given by the Crown.

Have full capacity to create contracts, to sue and be sued

Property on reserve land cannot be used as security for debt and cannot be transferred to another member without Crown's consent


Public Authorities

Public authorities are federal, provincial, and municipal levels that generally have full capacity to contract

Limited by Constitutional division of powers


Absence of Writing
The Rule:

As a general rule, a contract is enforceable, whether it is verbal or written.


Absence of Writing
The Rule Exceptions:

o Contracts to which the Statute of Frauds applies; and
o Contracts to which consumer protection legislation applies.

written documents for contract's essential elements, namely: parties, subject matter, price


Types of Contracts that must be Evidenced in Writing

1. The Statute of Frauds applies to: Contract of Guarantee

A Guarantee is a contractual promise by a 3rd party (called a Guarantor) to a creditor, in which the Guarantor promises to satisfy a debtor’s obligation if the debtor fails to do so.

Distinguish from indemnity: this is an unconditional promise to assume another’s debt completely.

Must be in Writing


Types of Contracts that must be Evidenced in Writing

2. Contracts for the Sale of an Interest in Land

Contracts for the sale of land including farmland, a building, a house, and so on, must be in writing, to be enforceable.

o A short-term lease need not be in writing to be enforceable, but a long term lease must be in writing to be enforceable (i.e.. Duration of more than 3 months)


Types of Contracts that must be Evidenced in Writing

3. Contracts not to be Performed within a Year

If a contract does not need to be performed within 1 year from the date of signature, then it must be in writing, to be enforceable.


Consumer Protection Legislation

Some consumer protection laws require certain agreements to be made in writing to protect consumers and prevent the exploitation of consumers and to reduce the incidence of disputes


Contractual Mistake - 2 Mistakes that prevent the contract from being formed and make it void

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


Mistaken Identity
Mistaken identity will render a contract defective if:

1. The mistake was known to the other contractual party (the crook);
2. The mistake mattered to the mistaken party in a material way.


Mistaken Identity
Mutual mistake about subject matter

If the parties both have a mistake about the subject matter of the contract, then the contract has not formed, it is void, because there is no consensus ad idem.


Mutual Mistake about an Existing Fact
General Rule:

The General Rule is that when there is a mutual mistake about an existing fact, the contract is impossible to perform. The contract is not void; however, it is usually not enforceable insofar as neither party can sue to enforce the contract/sue for damages

Eg.) Two parties sign lease agreement, but turns out the house was burned down, and neither of them knew at the time the contract was agreed upon


Force Majeure Clause

A Force Majeure clause states which party will bear the financial responsibility if the contract cannot be fulfilled due to some circumstance outside of a party’s control.


Mistake of a future fact - Frustration

 The doctrine of frustration applies if the parties make an erroneous assumption about a future fact.
 Frustration occurs not when a contract is difficult to perform; but when it is impossible to perform.

Only relevant if neither party is responsible for the relevant event that made the contract impossible to perform


Frustration - Apportionment of Damages
Who bears the risk if the contract cannot be fulfilled?

 If there is a force majeure clause in the agreement, the risk of loss will fall upon the party stipulated.
 If there is no force majeure clause, then the Court must rely upon rules at common law and under statute. (All or nothing Rule)


All or Nothing Rule

A purchaser can recover all of his contractual payments if he has not received any benefit from the seller. If he has received some benefit, he cannot recover any payments. The seller cannot demand payment from the purchaser, even if the seller has incurred substantial expenses under the agreement.


Documents Mistakenly Signed
General Rule:

• The general rule is that signature is proof of assent, therefore if you have the other party’s signature on your contract, then they are bound by the terms of the contract.


Documents Mistakenly Signed: Non Est Factum
General Rule Exceptions:

An unusual or onerous term is not binding on a party, unless the other party specifically brought it to their attention before they signed the contract (Tilden Rent a Car)

o Doctrine of Non est factum (“this is not my deed”)
This doctrine states that a signatory to a contract is allowed to avoid the contract when there is a fundamental or radical difference between what they signed and what they thought they were signing.

High Threshold to prove!


Unfairness During Bargaining
Duress of Person

Threat of physical harm to party or loved one