Capacity & Consent in contract

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Capacity & Consent

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Capacity & Consent in contract

  1. 1. Capacity and Consent CHAPTER 14
  2. 2. Quote of the Day <ul><li>“ I am not young enough to know everything .” </li></ul><ul><li>J.M. Barrie, </li></ul><ul><li>British playwright </li></ul>
  3. 3. Capacity <ul><li>Capacity is the legal ability to enter into a contract. </li></ul><ul><li>A voidable contract may be canceled by the party to the contract who lacks capacity. </li></ul><ul><li>In some cases, lack of capacity creates a void contract. </li></ul>
  4. 4. Minors <ul><li>Disaffirmance </li></ul><ul><ul><li>A minor generally may disaffirm a contract; that is, he may notify the other party he refuses to be bound by the agreement. </li></ul></ul><ul><ul><li>The minor also has the option of filing a suit to rescind the contract, that is, to have a court formally cancel it. </li></ul></ul><ul><li>Restitution </li></ul><ul><ul><li>A minor who disaffirms a contract must return the consideration he has received, to the extent he is able. </li></ul></ul>
  5. 5. Minors -- Exceptions <ul><li>Fully Executed Contracts </li></ul><ul><ul><li>In some states, minors may not disaffirm fully executed contracts. </li></ul></ul><ul><li>Timing </li></ul><ul><ul><li>Minors may disaffirm a contract up to a reasonable time after turning 18, unless they ratify the contract after turning 18. </li></ul></ul>
  6. 6. Minors -- Exceptions <ul><li>Necessaries </li></ul><ul><ul><li>A necessary is something essential to the minor’s life and welfare. </li></ul></ul><ul><ul><li>On a contract for necessaries, a minor must pay for the value of the benefit received. </li></ul></ul><ul><li>Misrepresentation of Age </li></ul><ul><ul><li>Some states will not allow a minor to disaffirm if he has lied about his age. </li></ul></ul><ul><ul><li>Other states allow the minor to receive only the value of the returned goods. </li></ul></ul>
  7. 7. Mentally Impaired Persons <ul><li>Definition </li></ul><ul><ul><li>A person with mental illness or defect, who is unable to understand the nature and consequences of a transaction. </li></ul></ul><ul><ul><li>Generally creates only a voidable contract. </li></ul></ul><ul><li>Intoxication </li></ul><ul><ul><li>When an intoxicated person makes a contract, it is voidable. </li></ul></ul><ul><li>Restitution </li></ul><ul><ul><li>A mentally infirm party who seeks to void a contract must make restitution. </li></ul></ul>
  8. 8. Misrepresentation and Fraud <ul><li>Innocent misrepresentation </li></ul><ul><ul><li>means the owner believes the statement to be true and has a good reason for that belief. </li></ul></ul><ul><li>Fraudulent misrepresentation </li></ul><ul><ul><li>means the owner knows that the statement is false. </li></ul></ul>
  9. 9. Misrepresentation and Fraud <ul><li>To rescind a contract based on misrepresentation or fraud, a party must show three things: </li></ul><ul><ul><li>(1) there was a false statement of fact; </li></ul></ul><ul><ul><ul><li>Puffery (exaggerated “sales talk”) is not a statement of fact. </li></ul></ul></ul><ul><ul><li>(2) the statement was fraudulent or material; and </li></ul></ul><ul><ul><li>(3) the injured person justifiably relied on the statement. </li></ul></ul>
  10. 10. Plaintiff’s Remedy for Misrepresentation or Fraud <ul><li>If the maker’s statement is fraudulent, the injured party generally has a choice of rescinding the contract or suing for damages. </li></ul><ul><li>Sale of Goods </li></ul><ul><ul><li>UCC §2-721 permits a party to rescind a contract and then sue for damages whether the misrepresentation was fraudulent or innocent. </li></ul></ul>
  11. 11. Nondisclosure of a Fact <ul><li>Is misrepresentation only: </li></ul><ul><ul><li>To Correct a Previous Assertion </li></ul></ul><ul><ul><li>To Correct a Basic Mistaken Assumption </li></ul></ul><ul><ul><ul><li>A seller must report any known latent defect that the buyer is not expected to discover himself. </li></ul></ul></ul><ul><ul><li>To Correct a Mistaken Understanding about a Writing </li></ul></ul><ul><ul><li>In A Relationship of Trust </li></ul></ul><ul><ul><ul><li>When one party naturally expects openness and honesty, based on a close relationship, the other party must act accordingly. </li></ul></ul></ul>
  12. 12. Mistake -- Bilateral <ul><li>A bilateral mistake occurs when both parties negotiate based on the same factual error. </li></ul><ul><ul><li>If the parties contract based on an important factual error, the contract is voidable by the injured party. </li></ul></ul><ul><li>Conscious Uncertainty </li></ul><ul><ul><li>No rescission is allowed where one of the parties knows she is taking a risk. </li></ul></ul>
  13. 13. Mistake -- Unilateral <ul><li>Sometimes only one party enters a contract under a mistaken assumption, a situation called unilateral mistake. </li></ul><ul><ul><li>to rescind for unilateral mistake, a party must demonstrate that she entered the contract of a basic factual error and that either </li></ul></ul><ul><ul><ul><li>(1) enforcing the contract would be unconscionable or </li></ul></ul></ul><ul><ul><ul><li>(2) the nonmistaken party knew of the error. </li></ul></ul></ul>
  14. 14. Undue Influence <ul><li>To prove, one must demonstrate: </li></ul><ul><ul><li>A relationship between the two parties either of trust or of domination, and </li></ul></ul><ul><ul><li>Improper persuasion of the stronger party </li></ul></ul><ul><li>If one party makes a threat that causes the victim to enter into a contract, with no reasonable alternative, the contract is voidable. </li></ul>Duress
  15. 15. Economic Duress <ul><li>In analyzing a claim of economic duress, courts look at these factors: </li></ul><ul><ul><li>Acts that have no legitimate business purpose </li></ul></ul><ul><ul><li>Greatly unequal bargaining power </li></ul></ul><ul><ul><li>An unnaturally large gain for one party </li></ul></ul><ul><ul><li>Financial distress for one party </li></ul></ul>
  16. 16. “ Both parties must have the capacity to make a deal, and both must give genuine consent.”

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