1. Capacity & Legality Chapter 13

2. Contractual Capacity Contractual Capacity. Legality.
The legal ability to enter into a contractual relationship.
Legality.
The agreement must not call for the performance of any act that is criminal, tortious, or otherwise opposed to public policy.

3. VOID AND VOIDABLE VOID: Unenforceable on its face
VOIDABLE: Contract is presumed enforceable
but for contractual capacity which
allows the party lacking capacity
to avoid contractual obligations.

4. Minors A minor can enter into any contract that an adult can.
A contract entered into by a minor is voidable at the option of that minor.

5. Minor’s Right to Disaffirm
A contract can be disaffirmed at any time during minority or for a reasonable period after the minor comes of age.
Minor must disaffirm the entire contract.
Disaffirmance can be expressed or implied.

6. Minor’s Obligations on Disaffirmance
Majority rule: minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor’s possession or control.
Minority rule: increasing number of states hold the minor must restore the adult to the position held before the contract was made.

7. Minor Contracts
Judy K’s with David’s Electronics for $ IPOD. Judy looks much older than her 16 years. Judy’s parents find out about the K and bring it back to the store. Judy disaffirms K.
What if Judy keeps the IPOD and disaffirms K?
What if it were a car from David’s used cars? What if Judy wrecked the car totally it. David wants to sue Judy’s parents?

8. Exceptions to Minor’s Right to Disaffirm
Misrepresentation of Age.
Generally, minor can disaffirm the contract.
But some states prohibit disaffirmance and hold the minor liable.
Contracts for Necessaries.
Contracts for food, clothing, shelter may be disaffirmed by minor, who remains liable for the reasonable value of goods or services.

9. Exceptions to Minor’s Right to Disaffirm
Insurance.
Not viewed as necessaries, so minor can disaffirm contract and recover all premiums paid.
Loans.
Seldom considered to be necessaries.
Exception:
Loan to a minor for the express purpose of enabling the minor to purchase necessaries.

10. Ratification
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.

11. Parent’s Liability Contracts. Torts (Statutes Vary):
Parents not liable (This is why parents are usually required to sign any contract made with a minor).
Torts (Statutes Vary):
Minors are personally liable for their own torts.
Liability imposed on parents only for willful acts of their minor children.
Liability imposed on parents for their children negligent acts that result from their parents’ negligence.

12. Intoxication
Lack of contractual capacity at the time the contract is being made.
Contract can be either voidable or valid.
Courts look at objective indications to determine if contract is voidable.
If voidable:
Person has the option to disaffirm, or
Person may ratify the contract expressly or impliedly.

13. Mental Incompetence
Void: If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed.
Voidable: 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.
Valid: If person is able to understand the nature and effect of entering into a contract yet lacks capacity to engage in other activities. Lucid Interval.

14. Legality
A contract to do something prohibited by federal or state statutory law is illegal and therefore void (never existed).
Contract that calls for for a tortious act.
Contract that calls for an act contrary to public policy.

15. Contracts Contrary to Statute
Usury.
Gambling.
Sabbath Laws.
Licensing Statutes.
Contracts to Commit a Crime.

16. Legality Problem
Marsha and Mark were boyfriend/girlfriend. Mark started seeing Betty. Marsha was very angry and told her friend Doug, she would pay him $ if he would go to Betty’s house and slash all of her tires. Doug had Marsha sign a paper to that effect. After Doug slashed the tires he demanded the $ but Marsha refused to pay. Doug wants to sue Marsha for breach of K.

17. Contracts Contrary to Public Policy
Contracts contrary to public policy are void.
Unconscionable Contracts or Clauses.
Procedural or Substantive Unconscionability.
Exculpatory Clauses.
Discriminatory Contracts.
Contracts for the Commission of a Tort.

18. Contracts Contrary to Public Policy
Contracts in Restraint of Trade
Anti-Competitive Agreements are void.
Exception: Covenant not to Compete and Sale of Business.
Exception: Covenant not to Compete in Employment.

19. Contracts Contrary to Public Policy
Unconscionable Contracts/Clauses.
Exculpatory clauses.
Other Contracts Contrary to Public Policy.
Contracts that promise to discriminate.