Contract Law Chapter 7: Capacity and Legality

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

• Capacity: Contracting parties must have the ability to contract. Lawmakers protect vulnerable people, sometimes limiting or eliminating their ability to contract.
• Minors/Infants: Individuals under the age of majority (which varies by province) aren't typically bound by their agreements. Adults contracting with minors are bound, though the minor can void the contract. Minors can be bound by contracts for essential goods and services (like education)
• Necessaries and Beneficial Contracts: Minors are bound if it's for essential goods (like food and shelter), and in beneficial contracts. Contracts for employment services can also apply to minors (except in British Columbia). Minors should only pay a fair price for necessaries. A loan used only for necessaries also necessitates repaying the entire loan.
• Ratification: Upon reaching majority, individuals can ratify a contract or void it. Ratification is considered complete and can't just pick the good terms. It applies to executory, partially executed, and executed contracts.
• Parents' Liability: Typically, parents aren't responsible for the contracts of a minor. Exceptions exist when the minor acts as an agent or if the parent guarantees a minor's obligations.
• Infants' Liability for Torts: Breach of contract possibly also a tort of negligence. Courts refuse to let adults sue minors when a contractual conflict exists.
• Insanity: Individuals lacking understanding of the contract's nature, usually voidable contracts. The person claiming insanity bears the burden of proof. Other parties have to prove that the individual knew or should have known of the insanity.
• Intoxication: Treated similarly to insanity.Weakened intellect leading to unconscionable (unethical or unfair) contracts.
• Others with Limited Capacity: Corporations' contracting powers can differ by jurisdiction. Crown bodies (like provincial/state governments) may have limited contract capacity. Enemy aliens have contracts that are often void. Foreign governments/diplomats can have exceptions and limitations.. Trade Unions have capacity governed by legal restrictions related to union activities. Bankruptcy and Indigenous people also affect contract capacity and limitations (limits related to the Indian Act), specifically related to property on reserves and use of assets as collateral for loans)..

Legality

• Contracts Performed Illegally: Agreements must be legal and not against public interest. A lawful contract performed unlawfully can still be enforced. An illegal performance of a lawful contract because of violating a regulatory law may thus void a contract. If a contract is performed illegally or against public policy, courts usually void the contract and return the parties to their original position.
• Contracts Formed Illegally: The contract itself is illegal. Courts won't restore parties if one knowingly took part in wrong-doing. Illegal contracts involve unacceptable or immoral conduct. Illegal contracts (regarding a legal subject matter) or those against public policy (like drug deals or prostitution) are generally void.
• Examples of contracts against public policy: committing crime/a tort, immoral acts, bets and wagers, marriage/divorce restrictions, promoting litigation, obstructing justice, harming the state/public service, price-fixing, unduly restraining trade.

Intention

• Intent: Not all agreements are legal contracts. The parties must have intended it to have legal consequences. Courts enforce reasonable intentions clearly stated in contracts. Commercial relationships usually presume intention. Social or domestic relationships generally don't presume intention. A reasonable person test is often applied when social and business affairs overlap with issues like exaggerated claims.

Form of the Contract

• . General Rule: No general rule that a contract must follow a specific form. However, some circumstances require a written contract. For example, a land transfer requires a written contract.
• Statute of Frauds: Some contract types need a written form (like a transfer of land, goods value above a certain threshold, promises for marriage, guarantees, or promises from executors)
• Written Contract Requirement: Essential terms of parties, subject matter and consideration must be in writing. Other details might be needed depending on context. This can exist in different forms (agreement, notice, email). A person who denies the contract's existence must show signed/initialled evidence
• Effect of the Statute of Frauds: A written contract is legally binding. If not in writing, courts won't enforce it. Parties may be able to apply other legal tactics to enforce verbal contracts (example: lien, right to set off debt).
• Electronic Contracts: Electronic documents are generally enforceable. Some circumstances (like property transfers) might still require physical document signing.
• Part Performance: For land contracts, requirements of writing can be waived if the contract is partially performed