Chapter 15: Voidable Contracts – Capacity & Consent

Vocabulary flashcards covering Chapter 15: Voidable Contracts – Capacity & Consent, including definitions of void vs. voidable contracts, minor rights, mental capacity rules, fraud, mistakes, duress, and undue influence.

Void Contract

A contract that has no legal effect from the beginning, is invalid from the start, and cannot be enforced by either party (e.g., illegal contracts).

Voidable Contract

A legally valid contract that one protected party can choose to cancel/rescind or enforce (e.g., contracts involving minors, fraud, or duress).

Capacity

The legal ability to enter into a contract, which generally excludes or protects minors, mentally impaired individuals, and intoxicated persons.

Disaffirmance

The process by which a minor cancels a contract orally, in writing, or by refusing to perform, exercisable before turning 18 or within a reasonable time thereafter.

Restitution

The obligation of a protected party (such as a minor or mentally impaired person) to return the consideration or benefits received, as much as possible, upon cancelling a contract.

Ratification

The act of accepting a contract after turning 18 by continuing to make payments or fulfilling terms, which causes the former minor to lose the right to cancel.

Majority Rule (Minor Refunds)

The rule used in most states under which a minor who cancels a contract receives a full refund, even if the item was damaged or destroyed.

Status Quo Rule

The rule used in fewer states permitting a seller to deduct depreciation or losses from a minor's refund to restore the seller's original financial position.

Necessaries

Essential items such as food, clothing, housing, and medical care; contracts for them can be cancelled by minors, but the minor must pay the reasonable value of what was received.

Court-Declared Incompetence

A formal judicial ruling declaring a person incompetent, which makes all of their future contracts void from the beginning.

Intoxication Defense

A basis for cancelling a contract requiring proof that the person could not understand the transaction's nature and consequences, and that the other party knew or should have known and took advantage.

Fraud

An intentional or reckless false statement of a material fact that is justifiably relied upon by another party, permitting both contract rescission and recovery of monetary damages.

Innocent Misrepresentation

A false statement of a material fact made by a person who reasonably believed it was true; it allows rescission of the contract only and does not permit monetary damages.

Puffery

Exaggerated sales talk or expressions of opinion (such as claiming a car is "the best car on the market") that do not qualify as factual claims or fraud.

Caveat Emptor

A legal maxim meaning "Let the buyer beware," reflecting the general rule that sellers are not required to disclose everything to buyers.

Unilateral Mistake

An incorrect belief about an important fact held by only one party; usually enforceable unless the other party knew/should have known, the error was mechanical/mathematical, or enforcement would be unconscionable.

Mutual Mistake

A fundamental factual error shared by both parties regarding the existence or identity of the contract's subject matter, rendering the contract voidable by either party.

Sherwood v. Walker

A landmark case where both parties agreed to sell a cow for $80$ believing she was barren; discovery that she was pregnant and valuable allowed the seller to cancel based on a shared fundamental factual mistake.

Duress

An improper threat (such as physical harm) that forces a party to enter into an agreement when they have no reasonable alternative.

Economic Duress

The use of improper financial threats to compel a contract, evaluated by absence of legitimate business purpose, unequal bargaining power, unusually large benefits, and immediate financial distress.

Undue Influence

Unfair pressure applied by a person in a position of power or trust onto a vulnerable individual, requiring both a relationship of trust or domination and improper persuasion.