1. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-1 CANADIAN BUSINESS AND THE LAW Second Edition by Dorothy Duplessis Steven Enman Shannon O’Byrne Sally Gunz Presentation prepared by Allan Elliott, Southern Alberta Institute of Technology

2. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-2 CHAPTER EIGHT NONENFORCEMENT OF CONTRACTS OBJECTIVES:  Why enforcement of contracts is the norm  The exceptional circumstances in which contracts are not enforced  Which contracts must be in writing, and why

3. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-3 NONENFORCEMENT OF CONTRACTS EXCEPTIONS TO THE GENERAL RULE THAT A CONTRACT IS ENFORCEABLE  an unequal relationship between the parties  misrepresentations or important mistakes  a defect within the contract itself

4. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-4 VOIDABLE/VOID CONTRACTS VOIDABLE CONTRACT  a contract that in certain circumstances an aggrieved party can choose to keep in force or bring to an end VOID CONTRACT  a contract involving a defect so substantial that the contract is of no force or effect

5. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-5 CONTRACTS BASED ON UNEQUAL RELATIONSHIPS LEGAL CAPACITY  the ability to make binding contracts MINORS  General rule – minors are not obligated by the contracts they make – usually voidable at the option of the minor alone MENTAL INCAPACITY  Must understand the nature and consequences of agreement. Those impaired through illness, alcohol, or drugs may not appreciate the nature and consequence of actions.

6. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-6 CONTRACTS BASED ON UNEQUAL RELATIONSHIPS DURESS  the threat of physical or economic harm that results in a contract UNDUE INFLUENCE  unfair manipulation that compromises someone’s free will – the contract is voidable UNCONSCIONABILITY  an unfair contract formed when one party takes advantage of the weakness of the other

7. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-7 MISREPRESENTATIONS AND IMPORTANT MISTAKES MISREPRESENTATION  a false statement of fact that causes someone to enter into a contract RESCISSION  the remedy that results in the parties being returned to their pre-contractual positions

8. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-8 MISREPRESENTATIONS AND IMPORTANT MISTAKES INGREDIENTS OF ACTIONABLE MISREPRERESENTATION MUST PROVE THAT THE STATEMENT IS:  false  clear and unambiguous  material to the contract  one that actually induces the aggrieved party to enter the contract  concerned with a fact

9. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-9 TYPE OF MISREPRESENTATION Fraudulent Negligent Innocent REMEDY Rescission in contract Damages in tort Rescission in contract Damages in tort Rescission in contract REMEDIES FOR MISREPRESENTATION Figure 8.2

10. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-10 MISREPRESENTATIONS AND IMPORTANT MISTAKES MISTAKE  an error made by one or both of the parties that seriously undermines a contract

11. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-11 CONTRACTS BASED ON A DEFECT ILLEGAL CONTRACT  a contract that cannot be enforced because it is contrary to legislation or public policy ILLEGALITY  a contract is illegal if it: a) is contrary to a specific statute and/or b) violates public policy

12. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-12 CONTRACTS BASED ON A DEFECT ILLEGAL BY STATUTE  contravenes one of the following laws: - Criminal Code - Competition Act - Real Estate and Business Brokers Act CONTRARY TO PUBLIC POLICY  contracts which are considered to injure the public interest  International Perspective – securing contracts illegally – paying bribes to a foreign official

13. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-13 WRITING AS A REQUIREMENT STATUTE OF FRAUDS REQUIRES THAT CERTAIN CONTRACTS MUST BE IN WRITING TO BE ENFORCEABLE For example:  guarantees  contracts not to be performed within a year  contracts dealing with land  contracts for the sale of goods – generally over $50

14. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-14 TECHNOLOGY AND THE LAW: E-SIGNATURES  Most provinces have provided for electronic signatures according to various rules  For example – Ontario Electronic Commerce Act, 2000 E-SIGNATURES

15. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 8-15 MANAGING THE RISKS OF UNENFORCEABILITY Are the parties to the contract under any legal incapacities? Has one party taken unfair advantage of the other? Has one party misled the other? Has a substantial mistake been made? Is the contract contrary to legislation or in violation of public policy? Is the contract required to be in writing?