CHAPTER 5 - CONTRACT LAW: ESSENTIALS OF A VALID CONTRACT

NECESSARIES OF LIFE CONTRACT

- Subject matter of contract qualifies as a necessary of life. - Within the minor's station in life. - Minor does not already have the item. - Goods were delivered to the minor.

CONTRACTS CONTRARY TO PUBLIC POLICY

A contract that has the purpose of defeating public Justice, policy, and morality is Illegal and void.

FRUSTRATED CONTRACT

A legal contract may be frustrated because of a change in the law.

RESTRAINT OF TRADE

Any contract to limit trade and commerce must be reasonable and not deny the public service. Generally, free enterprise is seen as a good thing, and a contract that attempts to prevent trade is bad: it is void and unenforceable. Although, governments may impose limitations through validly passed legislation to protect the public.

COMPETENCE TO CONTRACT

Basic principle of law: a contract cannot be enforced against a person having special status, not mentally competent, not having true freedom to contract, such as: 1. Minors, 2. Intoxicated people, 3. Mentally impaired people, 4. Native people on reserves, 5. Business organizations.

ILLEGAL INTEREST

Charging too high an interest rate is usury and renders a contract void. Criminal rate of interest - Criminal Code of Canada: 60%.

USURY

Common law term for an interest rate that was too high (although no criminal), not enforceable.

Legal capacity

Contract law recognizes that some classes may not be able to recognize the nature and consequences of entering into a contract. Contract law gives special status to some whose legal capacity to enter into a contract is of concern: minor's, intoxicated persons, mentally incapable persons, native persons living on a reserve, corporations whose powers are limited. While it is legal to enter into a contract with a member of a protected class, there is a risk -the contract may not be enforceable. Some contracts may be voidable at the option of the protected person. Some contracts will be void.

INTOXICATED PEOPLE

INTOXICATION: Used to be called DRUNKENNESS. Contracts signed while drunk are avoidable if action is taken quickly. Contractd are voidable at option of incapacitated person, unless it's a necessaries of life contract. Drunkenness must have caused one party to lose the capacity to make sound judgments. Factors to prove when a party wants to escape the contract: 1. Was the person really impaired? 2. Did the other party know or ought to have known? 3. Did the party try to repudiate the Contract within a reasonable time? Don't wait too long! 4. Any benefit received should be returned.

UNLICENSED WORK

If an unlicensed person enters into a work contract involving his or her unauthorized status, that contract is illegal and void. A person who performs work without a proper license cannot sue for payment.

CONTRACT TO RESTRAIN TRADE

If entering into a contract, limitations on the ability to carry on business or trade must be reasonable, or the terms will be void. You will see such terms incorporated in employment, non-competition, sale, or other types of contracts. The court will consider: - Limitation based on time: reasonable periods of time, e.g. A year. - Limitation based on distance: e.g. The purchaser of a business will demand the seller to not set a similar business at certain distance from him to protect his investment. Entire restrain of trade makes contract null and void. E.g. Employment contract: employee learns about trade's secrets and company's clients. After leaving the ex employee can't set his own business exploiting the information he got, nor can work for a competitor using that information.

ILLEGALITY

Illegal Subject Matter: Legal capacity, competence, considers whether a particular person is capable of entering into a valid contract. With illegality, we are examining the terms and circumstances surrounding the contract that may prevent the contract from being valid and enforceable In a court. Items of concern: 1. Illegal subject matter 2. Performance becomes illegal following creation of contract. Illegal contracts are tainted and therefore void: 1. Unlicensed work (case Battison & sons v. Mauti - Ontario, 1989), 2. Illegal interest rate, 3. Restraint of trade, 4. Contracts contrary to public policy: it's not in these interest of the public to enforce that contract. It's not criminal behaviour but it's not ethical or is immoral (e.g. Ex turpi cases), 5. Contracts made on Sunday: we're null and void in Ontario until 1985 case R. v. Big M Drug. Contracts on Sunday are valid now. 6. Gambling agreements.

GAMBLING AGREEMENTS

Illegal gambling debts cannot be collected by court action. Gambling debts incurred where gambling is legal may be enforceable by court action.

INTEREST ACT

Legislation that prescribed requirements to collect interest. Interest rates must be disclosed and expressed in accordance with legislation. If it's not indicated in the contract: interest rate is 5%. The higher the amount at risk, the higher the interest. If failure to disclose or failure to express rate in accordance with legislation, the interest will be non-collectible, and any contract with too high interest rate will be unenforceable.

MENTALLY IMPAIRED PEOPLE

Mentally incapable persons: Contract law makes a contract with a mentally incapable person void. One Exception: Necessaries of life contracts: People who are mentally ill must pay for necessaries of life. Illiteracy or infirmity may be reasons to cancel a contract. There was no protection in common law for persons who where not completely mentally incapable. Legislation may create a right: in Ontario we would rely on the Consumer Protection Act, formerly in the Business Practices Act. (Amend page 131 in your text with updated title).

MINORS

Minor, infant or child): until they reach a certain age, upon which they "attain their majority" and become adults. In Ontario the age is 18. The age of majority varies from province-to-province and country-to-country. General principle: a contract entered into with a minor is voidable at the minor's option. Minors can cancel most contracts without penalty. Exceptions: necessaries of life contracts, employment contracts. A minor must pay for necessaries of life. The necessaries must be suitable to the minor's station in life. A parent must provide necessaries for a child living at home. If a child has or her own means of support, a parent is relieved of any support obligations. When a child becomes an adult, contracts affording continuous benefits may become binding.

REGULAR PARTNERSHIP

One of the partners must sign and all partners will be bound by the contract.

SOLE PROPRIETORSHIP

Sole proprietorship: sole proprietor must be bound by the contract.

COLLATERAL CONTRACT

Some additional agreement or contract between the parties, affecting the meaning and scope of the first contract. It must meet the same requirements as any contract. It must be definite and supported by consideration. A warranty is a collateral contract outside of the basic contract of sale. A warranty that makes specific claims can be an enforceable contract.

CONTRACTS MADE ON A SUNDAY

There is no meaningful restriction against entering into a contract on a Sunday.

NATIVE PEOPLE ON RESERVES

They are limited in their powers to contract. Not only because the land doesn't belong to them and they cannot give it as collateral to borrow money, but because people from First Nations themselves are considered vulnerable population since 1800s according the Indian Act. They can only enter into contract for necessaries of life. They can do it freely when they live off the reserves though.

BUSINESS ORGANIZATIONS

They may enter into contracts within their specific powers. The Crown is a corporation and may sign contracts. A corporation is an artificial person and may sign contracts in its own name. Business can be carried on using different business structures. Always know who you are dealing with in order to determine if your contract will be valid and enforceable. Some corporations may have their powers restricted in the document that created them. If a corporation attempts to enter into a contract outside its powers, the contract will be void and unenforceable. Unincorporated associations cannot enter into valid contracts unless permitted by legislation. The person who signed on behalf of the organization will be personally liable for performing the contract.