Chapter 8


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Capacity, Legality, Assent, and Form

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Chapter 8

  1. 1. CHAPTER 8 Capacity, Legality, Assent, and Form
  2. 2. <ul><li>What are some exceptions to the rule that a minor can disaffirm (avoid) any contract? </li></ul><ul><li>Does an intoxicated person have the capacity to enter into an enforceable contract? </li></ul><ul><li>In what types of situations might genuineness of assent to a contract’s terms be lacking? </li></ul><ul><li>What elements must exist for fraudulent misrepresentation to occur? </li></ul><ul><li>What contracts must be in writing to be enforceable? </li></ul>Learning Objectives
  3. 3. Contractual Capacity <ul><li>Contractual Capacity. </li></ul><ul><ul><li>The legal ability to enter into a contractual relationship. </li></ul></ul><ul><ul><ul><li>Full competence. </li></ul></ul></ul><ul><ul><ul><li>No competence. </li></ul></ul></ul><ul><ul><ul><li>Limited competence. </li></ul></ul></ul><ul><li>Legality. </li></ul><ul><ul><li>The agreement must not call for the performance of any act that is criminal, tortious, or otherwise opposed to public policy. </li></ul></ul>
  4. 4. Minors <ul><li>In most states, a person is no longer a minor for contractual purposes at the age 18. </li></ul><ul><li>A minor can enter into any contract that an adult can. </li></ul><ul><li>A contract entered into by a minor is voidable at the option of that minor. </li></ul>
  5. 5. Minor’s Right to Disaffirm <ul><li>A contract can be disaffirmed at any time during minority or for a reasonable period after the minor comes of age. </li></ul><ul><li>Minor must disaffirm the entire contract. </li></ul><ul><li>Disaffirmance can be expressed or implied. </li></ul>
  6. 6. <ul><li>In most states, minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor’s possession or control. </li></ul><ul><li>In increasing number of states, the minor must restore the adult to the position held before the contract was made. </li></ul>Minor’s Obligation on Disaffirmance
  7. 7. Exceptions to Minor’s Right to Disaffirm <ul><li>Misrepresentation of Age. </li></ul><ul><ul><li>Generally, minor can disaffirm the contract. </li></ul></ul><ul><ul><li>But some states prohibit disaffirmance and hold the minor liable. </li></ul></ul><ul><li>Contracts for Necessaries. </li></ul><ul><ul><li>Contracts for food, clothing, shelter may be disaffirmed by minor, who remains liable for the reasonable value of goods or services. </li></ul></ul><ul><ul><li>Yale Diagnostic Radiology v. Estate of Harun (2004). </li></ul></ul>
  8. 8. Exceptions to Minor’s Right to Disaffirm <ul><li>Insurance. </li></ul><ul><ul><li>Not viewed as necessaries, so minor can disaffirm contract and recover all premiums paid. </li></ul></ul><ul><li>Loans. </li></ul><ul><ul><li>Seldom considered to be necessaries. </li></ul></ul><ul><ul><li>Exception: </li></ul></ul><ul><ul><ul><li>Loan to a minor for the express purpose of enabling the minor to purchase necessaries. </li></ul></ul></ul>
  9. 9. Ratification <ul><li>Occurs when a minor, on or after reaching majority, indicates (expressly or impliedly) an intention to become bound by a contract made as a minor. </li></ul><ul><li>Executed v. Executory contracts. </li></ul>
  10. 10. <ul><li>Contracts. </li></ul><ul><ul><li>Parents not liable (This is why parents are usually required to sign any contract made with a minor). </li></ul></ul><ul><li>Torts (Statutes Vary): </li></ul><ul><ul><li>Minors are personally liable for their own torts. </li></ul></ul><ul><ul><li>Liability imposed on parents only for willful acts of their minor children. </li></ul></ul><ul><ul><li>Liability imposed on parents for their children negligent acts that result from their parents’ negligence. </li></ul></ul>Parent’s Liability
  11. 11. Intoxicated Persons <ul><li>Lack of contractual capacity at the time the contract is being made. </li></ul><ul><li>Contract can be either voidable or valid. </li></ul><ul><ul><li>Courts look at objective indications to determine if contract is voidable. </li></ul></ul><ul><li>If voidable: </li></ul><ul><ul><li>Person has the option to disaffirm, or </li></ul></ul><ul><ul><li>Person may ratify the contract expressly or impliedly. </li></ul></ul>
  12. 12. Mentally Incompetent Persons <ul><li>Void. </li></ul><ul><ul><li>If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed. </li></ul></ul><ul><li>Voidable. </li></ul><ul><ul><li>If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences. </li></ul></ul><ul><li>Valid. </li></ul><ul><ul><li>If person is able to understand the nature and effect of entering into a contract yet lacks capacity to engage in other activities. </li></ul></ul><ul><ul><li>Lucid Interval. </li></ul></ul>
  13. 13. Legality <ul><li>A contract to do something prohibited by federal or state statutory law is illegal and therefore void (never existed). </li></ul><ul><ul><li>Contract that calls for for a tortious act. </li></ul></ul><ul><ul><li>Contract that calls for an act contrary to public policy. </li></ul></ul>
  14. 14. Contracts Contrary to Statute <ul><li>Usury. </li></ul><ul><li>Gambling. </li></ul><ul><li>Sabbath Laws. </li></ul><ul><li>Licensing Statutes. </li></ul><ul><li>Contracts to Commit a Crime. </li></ul>
  15. 15. Contracts Contrary to Public Policy <ul><li>Contracts contrary to public policy are void. </li></ul><ul><li>Unconscionable Contracts or Clauses. </li></ul><ul><li>Procedural or Substantive Unconscionability. </li></ul><ul><li>Exculpatory Clauses. </li></ul><ul><li>Discriminatory Contracts. </li></ul><ul><li>Contracts for the Commission of a Tort. </li></ul>
  16. 16. Contracts Contrary to Public Policy <ul><li>Contracts in Restraint of Trade </li></ul><ul><ul><li>Anti-Competitive Agreements are void. </li></ul></ul><ul><ul><ul><li>Exception: Covenant not to Compete and Sale of Business. </li></ul></ul></ul><ul><ul><ul><li>Exception: Covenant not to Compete in Employment. </li></ul></ul></ul><ul><li>Unconscionable Contracts/Clauses. </li></ul><ul><ul><li>Exculpatory clauses. </li></ul></ul><ul><ul><li>Beaver v. Grand Prix Karting Association, Inc. (2001). </li></ul></ul>
  17. 17. Illegality: Exceptions <ul><li>Justifiable Ignorance of the Facts. </li></ul><ul><li>Members of Protected Classes. </li></ul><ul><li>Withdrawal from an Illegal Agreement. </li></ul><ul><li>Contract Illegal through Fraud, Duress, or Undue Influence. </li></ul><ul><li>Severable or Divisible Contracts. </li></ul>
  18. 18. Mistake <ul><li>Mistake of Value (or Quality). </li></ul><ul><ul><li>Contract is enforceable. </li></ul></ul><ul><li>Mistake of Fact. </li></ul><ul><ul><li>Unilateral Mistake of Material Fact—mistaken party does not have the right to cancel contract unless: </li></ul></ul><ul><ul><ul><li>(1) the non-mistaken party knew or should have known about the mistake, or </li></ul></ul></ul><ul><ul><ul><li>(2) there is a clerical error. </li></ul></ul></ul>
  19. 19. Mistake <ul><li>Bilateral Mistakes—if both are mistaken either one can cancel the contract. </li></ul><ul><ul><li>Roberts v. Century Contractors, Inc. (2004). </li></ul></ul>
  20. 20. Fraudulent Misrepresentation <ul><li>Innocent party can cancel the contract. </li></ul><ul><li>Plaintiff must show: </li></ul><ul><ul><li>Misrepresentation of a material fact (not opinion) by conduct, silence or words. </li></ul></ul><ul><ul><li>Intent to deceive. </li></ul></ul><ul><ul><ul><li>Sarvis v. Vermont State Colleges (2001). </li></ul></ul></ul><ul><ul><li>Innocent party must justifiably rely on the misrepresentation. </li></ul></ul><ul><ul><li>Plaintiff must have suffered a legal injury. </li></ul></ul>
  21. 21. Undue Influence & Duress <ul><li>Undue Influence. </li></ul><ul><ul><li>Arises from a special relationship of trust. </li></ul></ul><ul><ul><li>A stronger party overcomes a weaker party’s free will by exerting psychological influence. </li></ul></ul><ul><li>Duress. </li></ul><ul><ul><li>Threat of physical force or extortion. </li></ul></ul><ul><ul><li>Can serve as basis for rescission of contract. </li></ul></ul><ul><ul><li>Economic need, by itself, is not duress. </li></ul></ul>
  22. 22. Statute of Frauds <ul><li>Requires certain contracts to be in writing and signed to be enforceable. </li></ul><ul><ul><li>A contract involving an interest in land. </li></ul></ul><ul><ul><li>A contract that by its terms cannot be performed within 1 year of execution. </li></ul></ul><ul><ul><li>Collateral promises to answer for the debt of another. </li></ul></ul>
  23. 23. Statute of Frauds <ul><ul><li>Prenuptial agreement. </li></ul></ul><ul><ul><li>Contracts for sale of goods over $500. </li></ul></ul><ul><li>Exceptions: </li></ul><ul><ul><li>Partial performance and detrimental reliance. </li></ul></ul><ul><li>Sufficiency of the writing. </li></ul><ul><li>What must be contained in the writing? </li></ul><ul><ul><li>Essential Terms: parties, subject matter, consideration and quantity. </li></ul></ul>