Chapter 7: The Elements of a Contract: Capacity, Legality, and Intention Flashcards

1
Q

Capacity

LO 7.1 Explain the capacity of minors

A

LO 7.1 Explain the capacity of minors

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2
Q

The age of majority

A

The age of majority was 21 at common law, but it has been reduced by
statute to 18 or 19, depending on the province

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3
Q

Infants

A

persons under the age of majority; also known as minors

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4
Q

Minors

A

persons under the age of majority ; also known as infants

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5
Q

Infants Act

A

This legislation states that, in most cases, a contract made by a minor is unenforceable against him.

The minor may, however, enforce the
contract against an adult party to the contract

Except in BC, minors are bound by contract’s for necessities and contracts for service

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6
Q

Necessaries

A

the essential goods or services required to function in society, such as food, clothing, and shelter

The courts have held that medical, dental, and
legal services, along with toiletries, uniforms, and even a house, will be considered as necessaries in different situations. It is unlikely, however, that they will find that a car qualifies as a necessary

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7
Q

On Becoming an Adult

A

That is, ratifying the contract makes a voidable
contract binding.

For example, if a minor agrees to pay $5000 for an
automobile in a series of instalment payments, he cannot be forced to pay

If, however, the minor, after becoming an adult, makes an instalment payment or provides a written statement indicating that he intends to be bound, the contract will then be binding

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8
Q

Executory contract

A

a contract yet to be performed; a contract at the stage when an agreement has been made but before performance is due

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9
Q

Partially executed contract

A

a contract at the stage when one party has performed and the other has not

A deposit is not part performance but construction could be

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10
Q

Executed

A

a fully performed contract; a contract at the stage when both parties have performed or fulfilled their obligations

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11
Q

Parents’ Liability

A

As a general rule, parents are not responsible
for the torts of their children, nor are they responsible for the contractual obligations of their children in the absence of specific legislation creating such a responsibility.

However, if the child is acting as an agent on behalf of the parents or if the parent cosigns on a loan

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12
Q

Infants’ Liability for Torts

A

If the minor used the subject matter of the contract in a way that would be expected under the contract, then the adult must sue in contract, not tort, despite the protection given to the minor by the law of
contracts.

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13
Q

Insanity and Drunkenness

LO 7.2 Compare the capacity of the insane and the drunk

A

LO 7.2 Compare the capacity of the insane and the drunk

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14
Q

People who lose their ability to reason through intoxication, whether from alcohol or drugs, _______________

A

are treated in the same way as people incapacitated by insanity or mental incompetence

The person could not understand the nature of the act being performed

Hesitation to repudiate makes the contract binding

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15
Q

Repudiation

A

an indication by one party to the other that there will be a failure to honour the contract (the expression of which can be expressed or implied)

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16
Q

Others of Limited Capacity

LO 7.3 Review the law for others of limited capacity

A

LO 7.3 Review the law for others of limited capacity

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17
Q

_______________ have their capacity to contract determined by the legislation
under which they are incorporated.

A

Corporations

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18
Q

Other corporate bodies are created by special legislation. ___________________

A

These include some private companies, Crown corporations, and other government bodies that have been created to accomplish particular government
purposes.

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19
Q

Aliens and representatives of foreign governments

A

also gives rise to capacity issues.

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20
Q

When at war

A

Any contract with a resident of an

enemy country is void if detrimental to Canada

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21
Q

A Bankrupt

A

is a person who has made an assignment in bankruptcy or been forced into bankruptcy through a court order obtained by a creditor and who has not
been discharged from bankruptcy

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22
Q

Indian Act

A

The capacity of some Indigenous persons is limited by this

Businesspeople contracting with Indians must therefore be aware of their
limited contractual capacity

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23
Q

Contracts Performed Illegally

LO 7.4 Discuss the law relating to contracts performed illegally

A

LO 7.4 Discuss the law relating to contracts performed illegally

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24
Q

Illegality as to formation of the contract

A

the contract itself is illegal

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Illegality as to performance
the contract is performed in an illegal way
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Public policy
the public good; some acts, although not illegal, will not be enforced by the courts because they are socially distasteful (against public policy)
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Contracts Formed Illegally LO 7.5 Discuss the law relating to contracts formed illegally
LO 7.5 Discuss the law relating to contracts formed illegally
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Illegal contract
a contract that is illegal at the time it was formed. As the Supreme Court observed, an illegal contract will not be enforced; it is void. When void, the court usually restores the parties back to where they started, however if deemed illegal this is not the case unless one of them is innocent of any wrongdoing
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List of illegal contracts Examples of illegal contracts (includes contracts that are both in violation of legislation or against public policy)
1) Contracts to commit a crime 2) Contracts to commit a tort 3) Contracts involving immoral acts 4) Contracts that are bets and wagers 5) Contracts in restraint of marriage or in favour of divorce 6) Contracts that promote litigation 7) Contracts that obstruct justice 8) Contracts that injure the state 9) Contracts that injure public service 10) Contracts between businesses to fix prices or otherwise reduce competition 11) Contracts that unduly restrain trade
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1) Contracts to commit a crime
Agreements involving murder, drug dealing, or even charging a high rate of interest are contrary to the Criminal Code and are therefore illegal contracts.
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2) Contracts to commit a tort
If Mullins offers Nowak $100 to falsely claim that Abercromby did a poor job of repairing his house, that would be defamation. The contract to pay Nowak to defame Abercromby would be illegal.
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3) Contracts involving immoral acts
As indicated previously, prostitution is not illegal in Canada. However, a prostitute could not expect the courts to enforce an agreement made with a client. Prostitution is considered immoral and the contract would therefore be illegal.
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4) Contracts that are bets and wagers
Historically, the courts would not enforce contracts related to gambling activities because they were against public policy. Now this area is covered by statute and the rules vary from province to province.
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5) Contracts in restraint of marriage or in favour of divorce
Any contract that has as its object the prevention or dissolution of marriage is against public policy. An agreement to pay someone $100 000 in return for a promise never to marry would be an illegal contract.
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6) Contracts that promote litigation
An agreement in which one person, to satisfy some ulterior motive, pays another to sue a third party would be an illegal contract and therefore void because it promotes litigation
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7) Contracts that obstruct justice
If the effect of a contract is to interfere with the judicial process, it is against public policy. An agreement that encourages criminal activity by providing to pay a person a salary whenever he is in jail would involve such an obstruction of justice.
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8) Contracts that injure the state
An example is a contract to sell | secret military information.
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9) Contracts that injure public service
Bribing a public official to | vote a certain way is an example of an illegal contract
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10) Contracts between businesses to fix prices or otherwise reduce competition
These types of contracts are controlled by the federal Competition Act Thus, if two merchants agreed not to sell a particular commodity below a certain price, or not to open up branches that would compete with each other in specified communities, and they were the only ones selling the products in that community, such agreements would likely be illegal contracts and void.
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11) Contracts that unduly restrain trade
When a business is sold, the contract often includes a clause prohibiting the seller from opening another business in competition with the business she is selling
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Goodiwll
a business’s reputation and ongoing relations with customers and product identification
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Intention LO 7.6 Review the contractual element of intention
LO 7.6 Review the contractual element of intention
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The following examples illustrate situations in which the issue of intention arises and indicate the courts’ probable responses:
1) Stated intention of the parties 2) Commercial relations 3) Domestic and social relations 4) Social and business relations 5) Exaggerated claims 6)
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Stated intention of the parties
If the parties clearly state that they do not wish to be legally bound by their agreement, or that their agreement is not to be enforceable in any court, that instruction will be honoured. Sometimes the parties are in precontract negotiations and are not yet ready to be bound Example: Letters of intention LOI
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2) Commercial relations
If the relationship between the contracting parties is primarily commercial in nature, the courts will presume that the parties intended to be legally bound by their agreement. The contract will be binding on them in the absence of any evidence or clear instructions to the contrary
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3) Domestic and social relations
When an agreement is between members of a family, or friends involved in domestic (nonbusiness) activities, there is a presumption that the parties do not intend legal consequences to flow from their agreement Example: if members of a family informally agree to make payments to each other, such as a child agreeing to pay room and board or parents agreeing to pay an allowance, the courts would assume that there is no intention to be legally bound and would therefore not enforce the agreement
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4) Social and business relations
Problems occur when the relationship involved is a mixture of social and commercial relations. Such an example arises when friends jointly enter a contest and then disagree on the distribution of the prize
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5) Exaggerated claims
Merchants often exaggerate the qualities of their products in advertisements or when they talk to customers. They may, for example, claim that their product is “the biggest” or “the best.”
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Form of the Contract LO 7.7 Examine the requirement that contracts be in writing
LO 7.7 Examine the requirement that contracts be in writing
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We have established that the essential elements of contracts are
consensus, consideration, capacity, legality, and intention
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The Requirement of Writing
Today, there is no general rule that a contract must take a certain form, although most jurisdictions have statutory requirements regarding the transfer of land
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Deed
Promises were enforceable because they were contained in sealed documents known as deeds
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What form can a contract be in?
Contracts may be in writing, they may be under seal, they may simply be verbal, or they may even be implied from the conduct of the parties. A verbal contract can be just as binding as a written contract
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When Writing is Required
In some limited circumstances, a contract is required by statute to be evidenced in writing to be enforceable. These requirements for writing are found primarily in the Statute of Frauds
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The following is a discussion of the types of contracts generally included under the Statute of Frauds in Canada
1) Contracts not to be performed within one year 2) Land dealings 3) Guarantees and indemnities 4) Others
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1) Contracts not to be performed within one year
When the terms of the agreement make it impossible to perform the contract within one full year from the time the contract is entered into, there must be evidence in writing for it to be enforceable
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2) Land dealings
Any contract that affects a party’s interest in land must be evidenced in writing to be enforceable. It is often difficult to determine what types of contracts affect interest (or ownership) in land and what types do not.
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3) Guarantees and indemnities
When creditors are not satisfied with the creditworthiness of a debtor, they may insist that someone else also assume responsibility for the debt AKA mom and dad cosigning Kendra and Joe's apartment
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Guarentee
a written commitment whereby a guarantor agrees to pay a debt if the debtor does not
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Indemnity
a primary obligation of a third party to pay a debt along with the debtor
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4) Others
The original Statute of Frauds required that whenever the purchase price of goods sold exceeded a specified minimum, there had to be evidence in writing for the sale to be enforceable.
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What Constitutes Evidence in Writing
The essential terms are normally an indication of the parties, the subject matter of the contract, and the consideration to be paid.
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Evidence in writing
any document that provides information or proof
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Electronic Contracts
Many land registries, for example, have created computer databases of their registration system that now allow lawyers to transfer property and register interests online
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The Personal Information Protection and Electronic Documents Act
adapts federal laws to the electronic environment, recognizing electronic documents and electronic signatures
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Part Performance LO 7.8 Describe the principle of part performance
LO 7.8 Describe the principle of part performance
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Capacity covers
- Minors / infants - Insanity and drunkenness - Other of limited capacity
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2 tests to prove you did not meet the element of capacity
1) You were incapacitated | 2) The party knew you were incapacitated or ought to know
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Legality from lecture
A contract must be legal and not against public policy to be binding - Distinction made between the illegality as to the formation of the contract vs. the illegality as to the performance of the contract - If a contract is illegal at the time is formed it will be void (missing the element of legality) - Sometimes immoral conduct may be treated as illegal conduct for purposes of making contract void (i.e. agreement with a prostitute) - If only a portion of the contract is illegal, the court may server the illegal portion. Also, severance may be notional (meaning that courts can rewrite a portion of the contract)
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Intention definition from class
The parties must intend for legal consequences to flow from the contract This is all about legal consequences flowing from the contract It is NOT the parties intent to enter a contract (that is consensus)
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If a contract does not comply with the Statutes of Fraud (outside of BC)
It is unenforceable but it is not void