Chapter 8 Capacity Legality and Enforceability Contractual Capacity The capacity required by the law for a party who enters into a contract to be bound by that contract Minors Under 18 General Rule Contracts with minors are voidable at the option of the minor Emancipation In regard to minors the act of being freed from parental control Parents Liability Generally except for the contracts for necessaries parents are not liable for the contracts made by minor children acting on their own Disaffirmance The legal avoidance or setting aside of a contractual obligation Exceptions to a Minor s Right to Disaffirm 1 Some contracts such as marriage contracts and contracts to enlist in the armed services cannot be avoided as a matter of law on the ground of public policy 2 Although minors can ordinarily disaffirm contracts even when they have misrepresented their age a growing number of states have enacted laws to prohibit minors from disaffirming contracts in such situations Some state laws also prohibit minors from disaffirming contracts entered into by a minor who is engaged in business as an adult 3 A minor who enters into a contract for necessaries may disaffirm the contract but remains liable for the reasonable value of goods Necessaries Necessities required for life such as food shelter clothing and medical attention Ratification The acceptance or confirmation of an act or agreement that gives legal force to an obligation that previously was not enforceable Express Ratification Occurs when the minor in writing or orally explicitly assumed the obligations imposed by the contract Implied Ratification Occurs when the conduct of the minor is inconsistent with disaffirmance or when the minor fails to disaffirm on executed contract within a reasonable time after reaching the age of majority Intoxicated Persons Intoxication is a condition which a person s normal capacity to act or think is inhibited by alcohol or some other drug A contract entered into by an intoxicated person is voidable at the option of the intoxicated person if the person was sufficiently intoxicated to lack mental capacity even if the intoxication was voluntary A contract with an intoxicated person is enforceable if despite being intoxicated the person understood the legal consequence of entering into the contract Mentally Incompetent Persons If a court has previously determined that a person is mentally incompetent and has appointed a guardian to represent the person any contract made by that person is void no contract exists Only the guardian can enter into a binding contract If a court has not previously judged a person to be mentally incompetent a contract entered into by the person may be voidable A contract entered into by a mentally incompetent person who has not been diagnoses may be valid if he she was capable when contract was formed Usury Charging an illegal rate of interest Covenant Not to Compete A contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographical area Employment Contract A contract between an employer and an employee in which the terms and conditions of employment are stated Contracts in Restraint of Trade 1 Noncompete 2 Employment Reformation A court ordered correction of a written contract so that it reflects the true intentions of the parties Unconscionable Unscrupulous or grossly unfair Procedural Focuses on the parties understanding of the contract Substantive Looks at the terms of the contract to see if they are grossly unfair Adhesion Contract A standard form contract in which the stronger party dictates the terms Exculpatory Clause A clause that releases a contractual party from liability in the event of monetary or physical injury no matter who is at fault What s reasonable Unintentional What s not reasonable Recklessness The Effect of Illegality In General an illegal contract is void the contract is deemed never to have existed and the courts will not aid either party In most illegal contracts both parties are considered to be equally at fault in pari delicto If the contract is executory not yet fulfilled neither party can enforce it If it has been executed neither party can recover damages The courts usually are not concerned if one party is unjustly enriched at the expense of the other Neither party can recover Except under the following circumstances Justifiable ignorance of the facts 1 2 Members of a protected class 3 Withdrawal from an illegal agreement 4 Severable or divisible contracts 5 Fraud duress or undue influence Unilateral Mistakes Generally the mistaken party is bound to the contract This rule has at least two exceptions 1 If the other party to the contract knows or should have known that mistake of fact was made the contract may not be enforceable 2 When a unilateral mistake of fact was due to a mathematical mistake that was made inadvertently and without gross extreme negligence the contract may not be enforceable Thus if a contractor s bid was significantly low because he or she made a mistake in addition when totaling the estimated costs any contract resulting from the bid normally can be rescinded In both situations the mistake must involve a material fact 3 Bilateral Mutual Mistakes Both parties are mistaken and the contract can be rescinded by either party The mistake must be about a material fact When a bilateral mistake occurs normally the contract is voidable by the adversely affected party and can be rescinded Fraudulent Misrepresentation To collect damages a party must have been harmed as a result of the misrepresentation 1 A misrepresentation of a material fact must occur 2 There must be an intent to deceive 3 The innocent party must justifiably rely on the misrepresentation Misrepresentation by Conduct Often occurs when a party takes specific actin to conceal a fact that is material to the contract Statements of Opinion Generally not subject to claims of fraud Every person is expected to exercise care and judgment when entering into contracts and the law will not come to the aid of one who simply makes an unwise bargain Misrepresentation of Law Ordinarily does not entitle a party to be relieved of a contract Exceptions to this rule occur when the misrepresenting party is in a profession known to require greater knowledge of the law than the average citizen possess Misrepresentation by Silence Ordinarily neither party to a contract has a duty to come
View Full Document
Unlocking...