Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Business Law in Canada, 7/e Chapter 6 Formation of Contracts Continued 6-1

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Capacity - Infants (a) Infants - under age of majority necessaries fair price exception - beneficial contracts of service adults bound ratification The court found it to be a reasonable contract and declared it valid. 6-2

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Capacity/2 - Insanity (b) Insanity Person claiming insanity must show no understanding other person knew or should have known of insanity repudiate when sane (c) Drunk treated like insanity 6-3

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Capacity/3 (d) Native Indians Status Indians have capacity to contract limited when living on a reserve Continued on (e) Corporations Crown bodies may be limited by legislation (f) Enemy Aliens Contracts void or suspended

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Capacity/4 (g) Unions contracts must relate to union activities (h) Bankrupts must notify potential contracting parties (i) Government bodies may be limited by legislation 6-5

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Case Summary Hardman v Falk Two sisters negotiated a deal to sell property on behalf of their mother who was mentally disabled, although this was not apparent to the realtor who got her to sign the contract for sale. The sisters then rescinded the deal claiming insanity... Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Case Summary/2 The court found nothing to alert buyers to her insanity and found the contract to be reasonable 6-7

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Legality Object of agreement must be legal not contrary to law, e.g., drug deals not against public policy, e.g., prostitution If contract is illegal or against public policy contract is void court won’t assist either party 6-8

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Question for Discussion Courts refuse to enforce contracts that entail an act that is against public policy--for example, prostitution. Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Question for Discussion/2 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? 6-10

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Intention Protects 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 exaggerated claims. 6-11

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Form of the Contract Verbal contracts are binding Statute of Frauds requires written evidence of contracts that are: longer than one year for land transactions guarantees promises in consideration of marriage value of goods exceeds specified minimum 6-12

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Question for Discussion When dealing with the Statute of Frauds, the courts first decide whether a binding contract exists and then see if the Statute applies. Is there ever a justification for refusing to enforce a contract merely because some formal requirements of the Statute have not been met? 6-13

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Case Summary Hill v. Nova Scotia The province expropriated land and built a highway allowing the owner of the land to use part of the highway for his own purposes for 27 years. Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 6 Case Summary/2 The court determined that his use of the highway constituted the written evidence of the agreement required by the Statute of Frauds 6-15