Business Law In Canada Chapter 7 PDF

Business Law in Canada Thirteenth Canadian Edition Chapter 7 The Elements of a Contract: Capacity, Legality, and Intention...

Business Law in Canada Thirteenth Canadian Edition Chapter 7 The Elements of a Contract: Capacity, Legality, and Intention Copyright © 2024 Pearson Canada Inc. 7-1 Learning Objectives (1 of 2) When you complete Chapter 7, you should be able to: 7.1 Review the law relating to the capacity of minors, the insane, the intoxicated, and others of limited capacity 7.2 Discuss the element of legality relating to contracts performed illegally and to contracts formed illegally Copyright © 2024 Pearson Canada Inc. 7-2 Learning Objectives (2 of 2) 7.3 Explain the contractual element of intention 7.4 Examine the form of the contract, including the requirement that contracts be in writing and the principle of part performance Copyright © 2024 Pearson Canada Inc. 7-3 Capacity Contracting parties must have the capacity to contract Lawmakers recognize that some people are more vulnerable and receive special protection Protections include having the ability to contract limited or eliminated completely in some cases Copyright © 2024 Pearson Canada Inc. 7-4 Minors/Infants Minors (or infants): under age of majority, are not bound by their agreements – Age of majority varies with provinces Adults bound when contracting with minors – Voidable by minor Online jurisdictional issues regarding age – Online contracts should include restrictions Copyright © 2024 Pearson Canada Inc. 7-5 Necessaries and Beneficial Contracts of Service Minors are bound by contracts (except in B C) – For the acquisition of necessaries – Contracts of employment – Services that benefit the minor Minors must pay only a reasonable price for necessaries There is an obligation to repay a loan used for necessaries – Only if the funds advanced are actually used for necessaries Contracts of employment for service are binding Copyright © 2024 Pearson Canada Inc. 7-6 On Becoming an Adult Ratifying contract at age of majority results in lost ability to void contract – Ratification can be express (written) or implied (by obtaining benefit) Ratification must be complete – Cannot pick only the good terms Contractual Relationships: – Executory contract – Partially executed contract – Executed contract Copyright © 2024 Pearson Canada Inc. 7-7 Parents’ Liability Parents are not responsible for minors’ contracts Exceptions: – Legislation creating responsibility in many jurisdictions – When the minor is acting as an agent having the appropriate authority to bind the parent in contract – Parent guaranteed minors’ obligations Copyright © 2024 Pearson Canada Inc. 7-8 Infants’ Liability for Torts A breach of contract will sometimes also be the tort of negligence – Courts will not let an adult succeed in a tort action against a minor if they would fail in contract for the same act – If tort is a separate act from the breach of contract, then no bar to action Copyright © 2024 Pearson Canada Inc. 7-9 Question for Discussion If minors today are more sophisticated than in previous generations due to globalisation and ease of communication, should the age for minor treatment in law be lowered to sixteen? Copyright © 2024 Pearson Canada Inc. 7 - 10 Insanity and Intoxication Insanity: – No understanding of the nature of the transaction – Person claiming insanity has onus to prove it – Other person knew or ought to have known of insanity – May repudiate when sane Intoxication – Treated like insanity Weakened intellect – Unconscionable transaction Copyright © 2024 Pearson Canada Inc. 7 - 11 Others of Limited Capacity (1 of 3) Corporations – Contracting powers of natural persons – In some jurisdictions, capacity of a corporation can be limited ▪ Parties are affected by that limitation only if they have notice of it Crown bodies – Capacity to contract may be limited by legislation or by regulations Copyright © 2024 Pearson Canada Inc. 7 - 12 Others of Limited Capacity (2 of 3) Enemy Aliens – Contracts void, if detrimental to Canada or suspended for duration of war Foreign Governments – Are treated as all other parties for simple commercial activities (no matters of state) – Foreign diplomats have immunity Trade Unions – Contracts should relate to union activities – Capacity governed by legislation Copyright © 2024 Pearson Canada Inc. 7 - 13 Others of Limited Capacity (3 of 3) Bankrupts – Limited capacity Indigenous Persons – Capacity of First Nations is limited to some extent by the Indian Act – Limits to securing and seizing property on a reserve – Difficult for First Nation persons to use personal property as collateral for loans Copyright © 2024 Pearson Canada Inc. 7 - 14 Question for Discussion (1 of 3) A person usually choses to become intoxicated. Are there public policy reasons you can think of about circumstances when an intoxicated person without capacity to contract should not later be able to repudiate a contract? Copyright © 2024 Pearson Canada Inc. 7 - 15 Contracts Performed Illegally (1 of 2) Agreements must be legal and not contrary to public interest Contracts performed illegally – Lawful contract performed in an illegal way may be enforced by the court – Illegal performance of a lawful contract often involves a breach of regulatory legislation that may void the contract Copyright © 2024 Pearson Canada Inc. 7 - 16 Contracts Performed Illegally (2 of 2) If contract is performed illegally or against public policy, the Court may order – Contract is void and restore parties to their original positions – Severance of the illegal performance – Enforcement, if violation is procedural and not substantive Copyright © 2024 Pearson Canada Inc. 7 - 17 Contracts Formed Illegally (1 of 2) The contract itself is illegal – Courts will not restore parties to original position unless one is innocent of wrongdoing Illegal contracts involves unacceptable or immoral conduct Object of agreement must be legal – Not contrary to law, eg drug deals – Not against public policy, eg Prostitution Courts may sever the illegal provisions of the contract, leaving the balance of the contract enforceable to avoid inequitable judgments Copyright © 2024 Pearson Canada Inc. 7 - 18 Contracts Formed Illegally (2 of 2) Examples of contracts formed illegally: – to commit a crime or a tort – involving immoral acts – that are bets and wagers – in restraint of marriage or in favour of divorce – that promote litigation – that obstruct justice – that injure the state or public service – to fix prices or reduce competition – that unduly restrain trade (restrictive covenant) Copyright © 2024 Pearson Canada Inc. 7 - 19 Restrictive Covenants (1 of 2) Customers and customer lists are part of the goodwill of a business Goodwill needs to be preserved upon – Sale of Business – Change of Employment – Leaving a professional partnership Limit ability to compete for existing customers Copyright © 2024 Pearson Canada Inc. 7 - 20 Restrictive Covenants (2 of 2) Restrictive covenants must be reasonable – An agreement is against the public interest when it interferes with free trade, drives up prices, decreases service, or has any other effect whereby the public may be harmed The court will consider: – Time limit – Geographic limit Restrictive covenants in employment contracts are subject to stricter limits Copyright © 2024 Pearson Canada Inc. 7 - 21 Question for Discussion (2 of 3) Would it be better to limit the courts’ power to refuse to enforce contracts to those situations where a law is broken or a crime committed? Would this approach be more consistent with the notion of freedom of contract? Copyright © 2024 Pearson Canada Inc. 7 - 22 Intention Not all agreements are legal contracts the parties must have intended legal consequences from an agreement Courts enforce reasonable expectations or intentions clearly stated in contract – Intention presumed in commercial relationships – No intention presumed in social or domestic relationships – Reasonable person test applied in cases of when social and business relations mix and exaggerated claims Copyright © 2024 Pearson Canada Inc. 7 - 23 Form of the Contract No general rule that a contract must take a certain form Contracts are required by statute to be in writing to be enforceable in limited circumstances – E.g. Transfer of Land Verbal contracts are binding Copyright © 2024 Pearson Canada Inc. 7 - 24 Written Contract Required Types of contracts generally included under the Statute of Frauds and required to be in writing: – Longer than one year – Land transactions – Guarantees and indemnities – When goods are sold over a specific value – Promises in consideration of marriage – Promises of an executor to pay a debt of deceased from the executor’s own assets Copyright © 2024 Pearson Canada Inc. 7 - 25 Evidence in Writing Essential terms must be in writing: – Indication of the parties, the subject matter and the consideration to be paid – Other terms may become essential depending on the nature of the contract Can be actual agreement, receipt, note or email May be created after the fact Person denying the existence of the contract must have signed or initialed Copyright © 2024 Pearson Canada Inc. 7 - 26 Effect of the Statute of Frauds (1 of 2) Contract is binding on the parties – But the Court will not enforce it if not in writing The parties may be able to enforce the contract without the help of the court for a: – Lien (a right to seize property) – Right to set off a debt against the obligations created by the contract Copyright © 2024 Pearson Canada Inc. 7 - 27 Effect of the Statute of Frauds (2 of 2) Figure 7.1 Effect of Statute of Frauds Copyright © 2024 Pearson Canada Inc. 7 - 28 Question for Discussion (3 of 3) When dealing with the Statute of Frauds, the Court first decides whether a binding contract exists and then sees if the statute applies. What may be the public policy justification for refusing to enforce a contract merely because some formal requirements of the statute have not been met? Copyright © 2024 Pearson Canada Inc. 7 - 29 Electronic Contracts Electronic records and communications have become more common A signed, printed document may be needed to provide evidence in writing Electronic documents have legal effect and are enforceable Federal and provincial legislation recognizes electronic documents and signatures – Does not apply to wills, trusts, powers of attorneys, land transfers or negotiable instruments Copyright © 2024 Pearson Canada Inc. 7 - 30 Part Performance Requirement of writing waived if contract dealing with land has been partially performed Payment of money owed not usually acceptable as proof of part performance Permission to enter land to start construction usually acceptable evidence of partial performance Copyright © 2024 Pearson Canada Inc. 7 - 31 Contract Formation Table 7.1 Summary of Contract Formation No consensus Contract void But must pay for requested services No consideration Contract void But note promissory estoppel, gift, and seal No capacity Contract voidable But infants can enforce contracts with adults But infants are bound by contracts for necessaries and beneficial contracts of service Contract void But mentally incompetent persons must show the Blank others knew of the mental incompetence Illegal Contract void But depends on statute No intention Contract void Note presumptions No writing Valid But note Statute of Frauds exceptions Copyright © 2024 Pearson Canada Inc. 7 - 32 Summary Capacity – Each of the parties must have legal capacity Legality – Contact must be legal and be performed legally Intention – Each of the parties must intend to be bound by the contract Form of the contract Copyright © 2024 Pearson Canada Inc. 7 - 33