BCOR 3000 Chapter 11 BCOR 3000 Chapter 11 Professor Michael Maciszewski Professor Michael Maciszewski part 2 part 2 Esquire Esquire October 13 2015 October 13 2015 Agenda Agenda 1 1 Reminder Elements of a Contract Reminder Elements of a Contract Contractual Capacity 2 2 Contractual Capacity 3 3 Legality Legality 4 4 The Effect of Illegality The Effect of Illegality Reminder Elements of a Reminder Elements of a Contract Contract Agreement offer and acceptance Consideration something of value Elements for an enforceable contract 1 2 received or to make a deal 3 4 goal that is legal and not against public policy Capacity both parties must be competent Legality purpose must be to accomplish a promised to convince a person Contractual Capacity Contractual Capacity Contractual Capacity capacity required by the law for a party who enters into a contract to be bound by that contract Legal ability to enter into a contractual relationship We will analyze this concept with respect to Minors Intoxicated Persons Mentally Incompetent Persons Contractual Capacity Contractual Capacity Intoxicated Persons Intoxicated Persons Intoxication condition in which a person s normal capacity to act or think is inhibited by alcohol or some other drug Contract entered into by an intoxicated person might be voidable at that person s option he or she must return all consideration received Must prove the intoxication impaired his or her reason and judgment so severely that he or she did not comprehend the legal consequences of entering into the contract Even though he or she voluntarily entered into it Contractual Capacity Contractual Capacity Mentally Incompetent Persons Mentally Incompetent Persons Contracts made by mentally incompetent persons can be void voidable or valid Void i e not valid if a court has previously determined that a person is mentally incompetent and has appointed a guardian to represent the person behalf Only guardian can enter into binding contract on that person s Voidable if a court has not previously judged a person to be mentally incompetent and the person did not know he or she was entering into the contract or the person lacked the mental capacity to comprehend its nature purpose and consequences other party Can only be voided by the mentally incompetent person not Valid if person was competent when contract was formed Legality Legality Legality is the fourth element of a valid contract To be enforced contract must be formed for a legal purpose Contract to do something prohibited under federal or state statutory law is illegal void and unenforceable from outset Ex Craigslist advertisement to purchase a kidney Federal law prohibits the sale of human organs Offer purchase kidney for 250 000 in paintings Would not be enforceable Legality cont d d Legality cont Contracts Contrary to Statute If the object or performance of a contract is rendered illegal by statute after the contract has been formed the contract is considered to be discharged made illegal Usury charging an illegal rate of interest for a transaction Ex Gambling Video poker machine manufacturer agreed with restaurant company to install machines in stores Dispute occurred Contract not upheld by court because manufacturer had not obtained approval from state video gaming commission Legality cont d d Legality cont Contracts Contrary to Public Policy Contract is not enforceable because of the negative impact it would have on society Father offers young man 50 000 not to marry his daughter If young man accepts no contract is formed because it s contrary to public policy Public policy encourages marriage What about a business context Legality cont d d Legality cont Contracts Contrary to Public Policy Contracts in restraint of trade Strong public policy favoring competition in the economy Mergers often violate public policy and antitrust law Other examples Covenant not to compete 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 geographic area Within context of the sale of a company Within context of an employment contract contract between employer and employee in which the terms and conditions of employment are outlined Legality cont d d Legality cont Unconscionable Contracts or Clauses Unconscionable contract or clause that is void on basis of public policy because one party was forced to accept terms that are unfairly burdensome and unfairly benefit stronger party Procedural unconscionability often involves inconspicuous print unintelligible language lack of an opportunity to read the contract or ask questions about its meaning party s lack of knowledge or understanding of the deprives him or her of any contract meaningful choice Legality cont d d Legality cont Unconscionable Contracts or Clauses Unconscionable contract or clause that is void on basis of public policy because one party was forced to accept terms that are unfairly burdensome and unfairly benefit stronger party Substantive unconscionability when contract or a provision is oppressive or overly harsh focus on provisions that deprive one party of the benefits of without remedy for the other the agreement or leave the party nonperformance by Legality cont d d Legality cont Exculpatory Clauses 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 Not typically enforced Residential property leases Employment contracts which remove employer s potential liability for injuries to employees Can be enforced Those that limit but do not release a party from liability are not ambiguous and do not claim to protect parties from liabilities for intentional misconduct and involve non essential services Health clubs race tracks amusement parks skiing facilities People contract for these services voluntarily The Effect of Illegality The Effect of Illegality General rule neither party to an illegal bargain can sue for breach and neither party can recover for performance rendered Exception to that general rule Justifiable ignorance of the facts When one party has no reason to know that the contract is illegal that party can often recover any benefits given up in a partially executed contract restores party to original position Ex trucking company can still collect its fees even though it has transported illegal goods i e the shipment of those goods is illegal The Effect of Illegality