Chapter 14

What is contractual capacity in contract law?

Refers to the legal ability to enter into contracts. It is the mental capacity required by law for a party to be bound by a contract. Certain individuals, like minors and those mentally incompetent, may lack this capacity.

How does the law treat minors in terms of contractual capacity?

Minors (infants) are typically not bound by contracts they enter into. They have the right to disaffirm or avoid a contract, which means they can legally set aside the contract. An adult party to the contract cannot avoid their obligations based on the minor's ability to disaffirm.

What is disaffirmance in contract law?

The legal act of setting aside a contractual obligation. To disaffirm, a minor must express their intent to not be bound by the contract, either through words or conduct, and must disaffirm the entire contract, not just part of it.

How does intoxication affect a contract's enforceability?

A contract made by an intoxicated person can be voidable or valid. If the intoxication was severe enough to impair mental capacity, the contract may be voidable, even if the intoxication was voluntary. If the person understood the legal consequences, the contract is enforceable. Courts rarely allow contracts to be avoided due to intoxication.

What is the legal effect of mental incompetence on contracts?

Contracts made by mentally incompetent individuals can be:

• Void: If the person is deemed mentally incompetent by the court.

• Voidable: If mental competence has not been adjudicated, the contract may be voidable by the individual.

• Valid: If the person has mental capacity to understand the contract.

What is the role of a guardian in contracts for mentally incompetent individuals?

When someone is determined mentally incompetent, the court appoints a guardian to represent the individual. Only the guardian can enter into binding legal obligations on behalf of the mentally incompetent person.

What is the legality requirement in contract law?

For a contract to be valid and enforceable, it must have a legal purpose. A contract that involves an illegal act, such as committing a crime or a tort, is void and unenforceable.

What are contracts contrary to statute?

Contracts that involve actions prohibited by law, such as usury (charging illegal interest rates), gambling contracts, or agreements to hide legal violations, are unenforceable and void.

What are contracts contrary to public policy?

Some contracts are unenforceable because they negatively impact society. Examples include:

1. Contracts that promote immoral acts, such as selling a child.

2. Business contracts in restraint of trade, such as those that violate antitrust laws.

What is an example of a contract in restraint of trade?

A covenant not to compete is an example of a contract in restraint of trade. For example, a merchant selling a store may agree not to open a new store in the same location for a certain period after the sale.

What are unconscionable contracts?

Unconscionable contracts are those that are unfair or one-sided to the extent that they shock the conscience. These contracts may be unenforceable, especially if they exploit a weaker party's lack of bargaining power.

What is usury in contract law?

Usury is the practice of charging an interest rate higher than the maximum rate allowed by law. A contract involving usurious terms is illegal and unenforceable.

What is accord and satisfaction in the settlement of claims?

Accord and satisfaction occurs when a debtor offers to pay a lesser amount than what is claimed, and the creditor accepts. The accord is the agreement to settle for a lesser amount, and the satisfaction is the performance (payment) that follows.

What is the rescind concept in contract law?

Rescission refers to the mutual agreement to cancel a contract, returning the parties to the positions they were in before the contract was made. Sometimes, parties rescind a contract and form a new one simultaneously.