Business Law in Canada, 7/e

1. 6-1 Business Law in Canada, 7/e Chapter 6 Formation of Contracts Continued

2. 6-2 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.

3. 6-3 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

4. (d) Native Indians Status Indians have capacity to contract limited when living on a reserve (e) Corporations Crown bodies may be limited by legislation (f) Enemy Aliens Contracts void or suspended 6-4 Capacity/3 Continued on 6-5

5. 6-5 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. 6-6 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 The sisters then rescinded thedeal claiming insanity... Continued on 6-7

7. 6-7 Case Summary/2 • The court found nothing to alert buyers to her insanity and found the contract to be reasonable

8. 6-8 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

9. 6-9 Question for Discussion • Courts refuse to enforce contracts that entail an act that is against public policy--for example, prostitution. Continued on 6-10

10. 6-10 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?

11. 6-11 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.

12. 6-12 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

13. 6-13 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?

14. 6-14 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 6-15

15. 6-15 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