Chapters 3 Contracts.pptx Chapters 3 Contracts.pptx

Chapters 3 Contracts.pptx

1. Welcome to class . We will begin shortly.

2. IMPORTANT DATES ASSSIGNMENT S – November 10 (Fri) MIDTERM – November 1 7 (Fri) FINAL EXAM: NOVEMBER 23 ( Thurs )

3. INTRODUCTION TO THE LAW OF CONTRACTS CHAPTER 3

4. Chapters we will cover today  

5. Chapter 3 – Protecting Weaker Parties After completing this chapter, you should be able to: • Explain what the term “legal capacity” means. • Explain the difference between an unlawful and an illegal contract and describe the impact on the remedy available to the parties in the event of a breach. • Describe the difference between a simple contract and a formal contract. • Distinguish between the treatment of contracts for necessaries and contracts for non-necessaries. • Identify when employment contracts with minors are enforceable. • Explain the effect of drunkenness on the validity of a contract.

6. Capacity to Contract

7. Legal Capacity to contract: Not everyone is legally entitled to enter into contracts. Some persons, by their status, are presumed not to have the ability to enter into contracts or have limited rights to contract. The purpose here is to protect the weaker party from the stronger and more able party. This class of persons who lack or have limited capacity to contract includes minors and persons under mental disability.

8. Legal Capacity to contract: Minors The general rule is that contracts with minors are not enforceable against the minor. At common law, a minor is an individual who is under 21 years of age. The common- law definition of age has been replaced by statutory definitions in most provinces, where, as in Ontario, the age of majority is now 18 for the purposes of entering into contracts. The reason for this rule is that minors are presumed to be naive, inexperienced, and easily taken advantage of, so some protection is required

9. Legal Capacity to contract: Minors While the general rule is that contracts with minors are not enforceable against minors, contracts for necessaries of life made by a minor are enforceable, but other contracts are not if the minor repudiates them. Contracts with minors for non-necessaries are another matter. Here, the law recognizes two types of contracts: • contracts that are void ab initio • contracts that are voidable at the option of the minor

10. Legal Capacity to contract: Minors void ab initio invalid from the beginning; no rights can arise under a contract that is void ab initio voidable contract a contract that may be avoided or declared void at the option of one party to the contract; once it is declared invalid no further rights can be obtained under it, but benefits obtained before the declaration are not forfeit

11. Legal Capacity to contract: The concept of legal capacity to contract is fundamental in contract law, determining whether an individual or entity can enter into a binding agreement. Understanding the legal capacity to contract is essential for ensuring the validity and enforceability of agreements. Both individuals and entities must be mindful of these principles to avoid entering contracts that could later be deemed invalid. Always consult legal professionals for specific advice and guidance tailored to individual circumstances and jurisdictions.

12. Enforceable Contracts: Purchases of Necessaries As in most provinces, the Ontario Sale of Goods Act provides that a minor is liable to pay a reasonable price for goods that are necessaries that have been sold and delivered to the minor. It follows from this that a minor may be able to repudiate a contract for the sale of goods if it is an executory contract. An executory contract is one where the obligations are performed after the contract is made. Thus, a minor may repudiate a contract for the sale of necessary goods between the time the minor agreed to purchase the goods but before they are delivered. If the contract is partly performed—for example, goods are delivered but not yet paid for—the minor is bound.

13. Contracts for Necessaries

14. Enforceable Contracts: Employment Generally, minors who enter into employment contracts, formal or informal, are bound by their terms unless the terms are not beneficial to the minor. Presumably, minors accept employment to meet their needs, so an employment contract could be viewed as a contract for necessaries. However, just as an article of clothing can be a luxury or a necessity, depending on what it is for, so can a job be classed that way. A minor who works because his or her needs would not be met otherwise is in a different position from a minor who works to acquire spending money for luxuries.

15. Enforceable Contracts: Employment However, the case law does not focus on whether work is a necessity; rather, it accepts a service contract as enforceable by both parties unless the contract does not benefit the minor. “Benefit” has been held by the courts to include an appropriate salary, but also may include consideration of whether there was a general advantage for the minor in acquiring skills and satisfying aims or desires, and whether the minor was taken advantage of.

16. Enforceable Contracts: Employment Enforceable employment contracts are legal agreements between an employer and an employee that detail the terms of employment and are legally binding. Enforceable employment contracts are crucial for defining the terms of the employment relationship and protecting the interests of both employers and employees. They should be drafted with care to ensure all legal requirements are met. Consulting with legal professionals during the drafting and review process can help prevent disputes and ensure compliance with applicable laws.

17. Contracts for Employment

18. Contracts for Non-Necessaries Where a minor has entered into a contract for non-necessaries, the contract is always enforceable by the minor, but the minor may be able to avoid enforcement of the contract against him or her in some circumstances. If the contract is not fully executed, the minor may avoid the contract (as is the case for contracts for necessaries). If the contract for non-necessaries has been fully executed so that goods and money have changed hands, the contract cannot be set aside. If the contract is ongoing, as, for example, if the minor has joined a monthly CD or book club, he or she can repudiate any future liability, but cannot recover money spent for benefits already received. If the creditor has loaned money for non-necessaries to a minor, the creditor cannot recover the debt if the minor chooses not to pay.

19. Contracts for Non-Necessaries Contracts for non-necessaries, often referred to as non-essential items or services, involve goods and services that are not deemed essential for a person's basic living needs. These types of contracts can present unique challenges, especially when dealing with parties who may not have full legal capacity, such as minors or individuals lacking mental competence. Contracts for non-necessaries present specific challenges, particularly concerning the enforceability of agreements involving minors and mentally incompetent individuals. These contracts are generally voidable at the discretion of the disadvantaged party. To ensure fair treatment and compliance with legal standards, parties engaging in such contracts should be mindful of the capacity and rights of the individuals involved. Legal advice is often beneficial to navigate these complex issues and ensure that all contractual agreements are fair and enforceable.

20. Effect of Reaching the Age of Majority on Minors’ Contracts Where a contract is for necessaries, the liability continues. However, if the contract is for non-necessaries and has not been repudiated by the minor during his or her minority, the contract has to be classified as to type. For this purpose, there are two types.

21. Effect of Reaching the Age of Majority on Minors’ Contracts 1.Contracts for non necessaries that are valid unless the minor repudiates them. These are contracts that confer ongoing or continuous benefits that are made while an individual is a minor, and which carry on after the age of majority has been reached. The contract will continue to bind the individual unless he or she, before or shortly after reaching the age of majority, does something that constitutes repudiation of the agreement. 2. Contracts for non necessaries that are invalid unless ratified by the minor. These are contracts that confer a one-time benefit, for example, where goods are ordered while the individual is a minor but are not to be delivered to complete contract performance until the minor has reached the age of majority. These contracts must be ratified in writing by the minor during his or her minority or shortly thereafter. If the minor does not ratify the contract, the seller must return the deposit. These two types of contracts are discussed below.

22. Effect of Reaching the Age of Majority on Minors’ Contracts When a minor reaches the age of majority, which is typically 18 in most jurisdictions, it has significant legal implications for contracts they entered into while still a minor. Reaching the age of majority brings significant changes to the enforceability of contracts made during minority. The key actions—ratification and disaffirmance—determine whether these contracts will be upheld or voided. It's crucial for individuals and businesses to understand these principles to handle such contracts appropriately and ensure compliance with legal standards. Consulting with legal professionals can provide clarity and guidance tailored to specific situations.

23. Voidable Ongoing Benefit Contracts for Non-Necessaries: Valid Unless Repudiated Where a minor acquires by contract permanent property that carries some obligations for the minor, the contract is presumed to be valid and enforceable unless the minor repudiates it during his or her minority or shortly after reaching the age of majority. “Shortly after” appears to be measured in weeks or months rather than years.

24. Contract That Is Valid Until Repudiated

25. Consequences of Repudiation Contracts are enforceable and effective until they are repudiated. The minor, on repudiating the contract, is relieved of future obligations and accrued but undischarged obligations. Money paid by the minor before repudiation may not be recoverable if the adult party performed his or her obligations under the contract before repudiation by the minor. The minor may also recover property such as goods after repudiation if the goods have not been consumed and can be restored to the minor.

26. Consequences of Repudiation Repudiation in contract law refers to one party's refusal to fulfill their obligations under a contract, which can result in various legal consequences. The non-breaching party has several options in response to repudiation, including terminating the contract and seeking remedies. Repudiation has significant legal consequences, allowing the non-breaching party to terminate the contract and seek various remedies, including damages, specific performance, restitution, and rescission. The non-breaching party must also mitigate their losses to ensure they receive appropriate compensation. Understanding these consequences helps parties navigate breaches of contract more effectively and pursue appropriate legal actions to protect their interests.

27. Voidable One-Time Benefit Contracts for Non-Necessaries: Void Unless Ratified All other contracts for non-necessaries made by a minor must be ratified when the minor reaches the age of majority, or they cease to be valid and enforceable against the minor who has now reached the age of majority. Such contracts, being for non- necessaries, also could have been repudiated by the minor before reaching the age of majority but were presumed valid unless challenged. In Canada, the ratification must be in writing and signed by the minor.

28. Voidable One-Time Benefit Contracts for Non-Necessaries: Void Unless Ratified Contracts for non-necessaries (non-essential items or services) entered into by minors or individuals lacking full legal capacity are generally considered voidable. These contracts are distinct in that they can be voided by the disadvantaged party unless they are ratified upon reaching the age of majority or when full legal capacity is regained. Contracts for non-necessaries entered into by minors or individuals lacking full legal capacity are generally voidable unless ratified upon reaching the age of majority or regaining capacity. The ability to void or ratify these contracts provides protection to individuals who may not fully understand the implications of their agreements. Understanding the processes of ratification and disaffirmance, and their timing, is crucial for both parties in managing these contracts effectively. Legal advice is often beneficial in navigating these issues to ensure that rights and obligations are appropriately addressed.

29. Contracts That Must be Ratified to Be Valid

30. Consequences of Invalidation from Failure to Ratify Prior to validation, the minor can enforce the contract against the adult, but not vice versa. A third party cannot rely on the invalidity of a contract to escape liability. For example, an adult who agrees to indemnify another for a minor’s debt is still bound even if the minor fails to validate the contract by ratifying it.11 If the minor does not ratify, he or she is not liable for future accrued liabilities under the contract. If the minor does not ratify, money can be recovered provided the minor can restore the adult to his or her pre-contract position. If the minor has paid in part and then refuses to ratify, he or she must return the goods and may lose the deposit, although he or she may recover other moneys paid.

31. Consequences of Invalidation from Failure to Ratify When a contract for non-necessaries entered into by a minor or an individual lacking full legal capacity is not ratified upon reaching the age of majority, it can lead to invalidation. The failure to ratify a contract for non-necessaries entered into by a minor or a legally incapacitated individual typically results in the contract becoming void. This leads to both parties being released from their obligations and the restoration of their pre-contract positions. It is crucial for both parties to act within a reasonable time frame and understand their legal rights and responsibilities. Legal advice is often beneficial to navigate the complexities of these situations and ensure fair and compliant handling of contract invalidation.

32. Void Contracts In Canada, some minors’ contracts have been held to be void ab initio. Some cases have held that a contract that is not beneficial is void without the minor having to do anything. But the better view is that to fall into the void ab initio category, a contract would have to be more than “not beneficial”—it would have to be clearly prejudicial or harmful, which is a more stringent requirement for holding a contract to be void.

33. Void Contracts A void contract is a legal agreement that is unenforceable from the moment it is created because it lacks one or more of the essential elements required for a valid contract. This means that the contract has no legal effect and cannot be enforced by either party. Void contracts are fundamentally flawed and unenforceable from their inception. They fail to meet one or more essential elements required for a valid contract and thus have no legal effect. Understanding the characteristics and consequences of void contracts helps parties avoid entering into unenforceable agreements and ensures they take appropriate steps to seek restitution if necessary. Legal advice is often beneficial to navigate the complexities of void contracts and protect one's legal interests.

34. Contracts Void Ab Initio

35. Basic Principles in the Roman Law of Contracts

36. Break Time!

37. Consequences for Void Contracts The minor is entitled, not being bound, to have all of his or her money or property returned, and the adult need not be restored to his or her pre-contract position.

38. Consequences for Void Contracts When a contract is deemed void, it has several significant legal consequences that affect the parties involved. A void contract is considered null and unenforceable from the outset, meaning it lacks legal effect entirely. The consequences of a void contract primarily involve its unenforceability and the need to restore the parties to their pre-contractual state through restitution. No legal obligations or remedies can arise from a void contract, and any benefits exchanged under such an agreement must be returned to avoid unjust enrichment. Understanding these consequences helps parties handle void contracts appropriately and seek equitable outcomes. Legal advice is often essential in navigating the complexities and ensuring that all actions comply with relevant laws and principles.

39. Alternative Remedies for Void or Void Ab Initio Contracts If a minor is immune from liability in contract because the contract is void, the adult cannot make an end run around contractual immunity by suing the minor in tort. This is certainly true for the tort of negligence, but willful destruction of the subject matter of the contract by the minor may give rise to an action for an intentional tort such as trespass to goods. If the minor misrepresents his or her age, claiming to have reached the age of majority, at common law an action for the tort of fraudulent misrepresentation will not be permitted.15 However, the adult may invoke equitable remedies under which the minor must restore goods purchased in a contract where the minor fraudulently misrepresented his or her age.

40. Law Affecting Minors in British Columbia The law affecting minors in British Columbia is somewhat different from the law in other common-law provinces and Quebec. It is summarized as follows. A minor’s contract is unenforceable against the minor unless one of these conditions is met: • the contract is enforceable under some statute, • the minor validates the contract on attaining the age of majority, • the minor wholly or partly performs the contract shortly after attaining the age of majority, or • the contract is not repudiated by the minor within a year of having attained the age of majority.

41. Legal Capacity to contract: Capacity of Drunkards and Persons Under Mental Disability to Contract The law will intervene in some circumstances where someone who is intoxicated enters into an agreement.

42. Legal Capacity to contract: Mental Disability Some types of mental disability may be sufficient to allow a person to repudiate a contract in certain circumstances. Generally, the law is concerned with the lack of capacity arising from mental disability. For example, people who have schizophrenia may have delusions, but if they can manage their own daily and business affairs and look after their personal finances, they may have the capacity to enter into some contracts. The mentally disabled persons that the law protects are those who are unable to manage their own affairs or are unable to appreciate the nature and consequences of their actions.

43. Legal Capacity to contract: Mental Disability The law deals in the following ways with those who are unable to manage their affairs: • Provincial legislation provides that a person can be declared to be unable to manage his or her affairs. If there has been such a judicial finding, contracts made after the judicial finding are void on the ground that there is a lack of capacity to consent to the provisions of a contract. Contracts made prior to the finding may be voidable, as noted below. • If a person lacks capacity because he or she is unable to handle his or her affairs, but there has been no judicial finding, the contracts made are voidable at the option of the person who is mentally disabled. If the contracts are not repudiated, they are presumed to be enforceable.

44. Legal Capacity to contract: Mental Disability In contract law, mental capacity refers to a person's ability to understand the nature and consequences of their actions, including entering into a contract. When it comes to mental disability, the capacity to contract may be impaired, raising questions about the validity and enforceability of contracts entered into by individuals with mental disabilities. Mental disability can significantly impact a person's legal capacity to contract. While individuals with mental disabilities are not automatically barred from entering into contracts, their capacity to understand and consent to contractual terms may be impaired. Contract law provides mechanisms to protect individuals with mental disabilities, including the ability to void contracts that they lack the capacity to understand. Legal advice and oversight are essential to ensure that contracts involving individuals with mental disabilities are fair, equitable, and legally valid.

45. Contracts Void Ab Initio

46. Lack of Capacity | Contracts | Defenses and Excuses

47. Chapter 3 summary

48. REFERENCE Olivo, L. M., & Fitzgerald, J. (2013). Fundamentals of Contract Law (3rd ed.). Emond Montgomery.