Chapter 7 Contracts: Capacity, Legality, Assent and Form

 What are some exceptions to a minor’s disaffirmance of a contract?  When does intoxication make a contract voidable?  When does mental incapacity render a contract void?  What contracts must be in writing to be enforceable?  What are some exceptions to a minor’s disaffirmance of a contract?  When does intoxication make a contract voidable?  When does mental incapacity render a contract void?  What contracts must be in writing to be enforceable? Learning Objectives

Contractual Capacity  Minors (under 18) Contracts with minors are voidable by the minor (not the innocent party) even if there is fraud, but liable for necessaries. Disaffirmance of the contract by the minor or within a reasonable time after he turns 18. Minor must return goods in a timely manner. Emancipated minor can ratify the contract.  Minors (under 18) Contracts with minors are voidable by the minor (not the innocent party) even if there is fraud, but liable for necessaries. Disaffirmance of the contract by the minor or within a reasonable time after he turns 18. Minor must return goods in a timely manner. Emancipated minor can ratify the contract.

Contractual Capacity  Intoxicated Person If sufficiently intoxicated, contract is voidable, but courts rarely permit this.  Mentally Incompetent Person (MIP) MIP is adjudicated (by a court) and has a guardian appointed. Only guardian can sign an enforceable contract. If MIP signs contract, it is voidable.  Intoxicated Person If sufficiently intoxicated, contract is voidable, but courts rarely permit this.  Mentally Incompetent Person (MIP) MIP is adjudicated (by a court) and has a guardian appointed. Only guardian can sign an enforceable contract. If MIP signs contract, it is voidable.

Legality  Contracts Contrary to Statute: VOID Usury Gambling Licensing statutes Is a contract with an unlicensed person enforceable?  Contracts Contrary to Public Policy Contracts in Restraint of Trade (price fixing) Covenants Not to Compete (OK if ancillary) Unconscionable Contracts or Clauses  Contracts Contrary to Statute: VOID Usury Gambling Licensing statutes Is a contract with an unlicensed person enforceable?  Contracts Contrary to Public Policy Contracts in Restraint of Trade (price fixing) Covenants Not to Compete (OK if ancillary) Unconscionable Contracts or Clauses

 Exculpatory Clauses Seek to release a party from liability no matter who is at fault. Generally unenforceable if the business is important to the public interest (schools, banks, common carriers). May be enforceable if private and not in the public interest (amusement park).  Exculpatory Clauses Seek to release a party from liability no matter who is at fault. Generally unenforceable if the business is important to the public interest (schools, banks, common carriers). May be enforceable if private and not in the public interest (amusement park). Legality

Effect of Illegality  Court will not enforce an illegal agreement.  Exceptions: Justifiable ignorance of the facts. Members of a protected class. Withdrawal from the agreement. Fraud, Duress or Undue Influence.  Court will not enforce an illegal agreement.  Exceptions: Justifiable ignorance of the facts. Members of a protected class. Withdrawal from the agreement. Fraud, Duress or Undue Influence.

Genuineness of Assent  Mistakes Mistake of Value (contract is enforceable) Mistake of Fact Unilateral Mistake of Material Fact—mistaken party does not have the right to cancel contract unless (1) the non-mistaken party knew or should have known about the mistake, or (2) there is a clerical error. Bilateral Mistakes—if both are mistaken either one can cancel the contract.  Mistakes Mistake of Value (contract is enforceable) Mistake of Fact Unilateral Mistake of Material Fact—mistaken party does not have the right to cancel contract unless (1) the non-mistaken party knew or should have known about the mistake, or (2) there is a clerical error. Bilateral Mistakes—if both are mistaken either one can cancel the contract.

Fraudulent Misrepresentation  Innocent party can cancel the contract.  Plaintiff must show: Misrepresentation of a material fact (not opinion) by conduct, silence or words Intent to deceive Innocent party must justifiably rely on the misrepresentation. Plaintiff must have suffered a legal injury  Innocent party can cancel the contract.  Plaintiff must show: Misrepresentation of a material fact (not opinion) by conduct, silence or words Intent to deceive Innocent party must justifiably rely on the misrepresentation. Plaintiff must have suffered a legal injury

Undue Influence & Duress  Undue Influence Arises from a special relationship of trust. A stronger party overcomes a weaker party’s free will by exerting psychological influence.  Duress Threat of physical force or extortion Can serve as basis for rescission of contract. Economic need, by itself, is not duress.  Undue Influence Arises from a special relationship of trust. A stronger party overcomes a weaker party’s free will by exerting psychological influence.  Duress Threat of physical force or extortion Can serve as basis for rescission of contract. Economic need, by itself, is not duress.

Statute of Frauds  Requires certain contracts to be in writing and signed to be enforceable. A contract involving an interest in land. A contract that by its terms cannot be performed within 1 year of execution. Collateral contracts to answer for the debt of another. Prenuptial agreement. Contracts for sale of goods over $500.  Requires certain contracts to be in writing and signed to be enforceable. A contract involving an interest in land. A contract that by its terms cannot be performed within 1 year of execution. Collateral contracts to answer for the debt of another. Prenuptial agreement. Contracts for sale of goods over $500.

Statute of Frauds  Writing must be signed by the party against whom enforcement is sought.  Exceptions to S/F: Partial performance Admissions Promissory Estoppel/ Detrimental reliance.  Writing must be signed by the party against whom enforcement is sought.  Exceptions to S/F: Partial performance Admissions Promissory Estoppel/ Detrimental reliance.