Chapter 14-Capacity & Legality

contractual capacity

-Minors

-Intoxication

-Mentally Incompetent Person

Minors

-statues

-general rule

-right to disaffirm

-exceptions to right to disaffirm

-ratification

-parents liability for minor childrens contract and torts

statutes prescribing age

-under 18 and not emancipated

-hasnt joined military

-hasnt been married

-isnt moved out and living by themself

general rule for minors

-can enter into any contract adult can as long as its not against law for minor

-NO alcohol

-completed contracts will be voidable until 18 for reasonable time

-parents NOT liable for breaches of contracts entered into by minor & NOT liable for torts committed by minor

minors right to disaffirmance

-general definition

-minors obligation

-majority view

disaffirmance in general

-walk away from contract

-withdraw from contract

-words or conduct can be used by minor to express intent not to be bound

-may disaffirm contracts during minority and for a reasonable time after attaining age of majority

-must disaffirm the entire contract

-contract is voidable by the minor NOT the adult-protect minor

-parents have right to earnings/control/etc

minors obligation on disaffirmance

-each party must make restitution by returning the consideration received from other party

-give back what received-money/item

-sue minor if goods are gone or damaged when minor disaffirms

-majority view

-minority view

majority view

-most common

-minor must only return goods that are in minors possession and control

-even if goods damaged minor has right to disaffirm and get money back

minority view

-duty of restitution

-if goods damaged minor is required to compensate adult with reasonable amount for damages

-NOT all money back

exceptions to minors right to disaffirm

-misrepresentation of age

-liability for necessities

misrepresentation of age

-majority view-in some states if minor misrepresents his/her age in order to induce another person to enter into contract minor may still disaffirm contract-fake ID

-other states have statutes prohibiting minors who misrepresent their age from disaffirming contracts-adult can sue minor for fraud

Necessaries

-necessities

-food

-clothing

-shelter

-medicine

-services for protection-ER/ambulence-depends on how minor leaves

liability for necessities general rule

-minor may disaffirm contract for necessities

-liable for reasonable value of necessities that were furnished to minor

-insurance NOT necessity

ratification

-giving contract legal voice

-act of accepting legal responsibilities of contract

-contract will be enforceable if minor indicates intention to be bound AFTER reaching the age of majority

-express ratification

-implied ratification

implied ratification

-act like you are bound to contract

express ratification

-oral or written words

parents liability for minors contract/torts

-parent is NOT LIABLE for performance of a contract made by minor child unless parent personally obligated themself as a party to the contract or contract was for necessaries which parent failed to furnish

-parents NOT LIABLE for torts committed by minor but may be liable for negligence in failing to exercise parental control over child

intoxication definition

-condition in which normal capacity to think/act is inhibited by alcohol or other substance

-prove at time of deal you were intoxicated

intoxication law rules

-contract is voidable if it was made by intoxicated person who had impaired judgement and they did not comprehend nature of transaction and legal consequences of entering contract

-if contracting party understands consequences even if intoxicated the contract is NOT voidable

-contract is voidable if other party fraudulently induced person to be intoxicated

intoxication disaffirmance

-contract may be disaffirmed while person is intoxicated or within reasonable time period after they become sober

-restitution must be made

-intoxicated person must pay reasonable value for necessaries that were furnished

mentally incompetent persons

-contracts can be void/voidable/valid

void contracts (mentally incompetent person)

-person declared judicially incompetent in court of law

-AND guardian is appointed to represent them

-contracts entered into by adjudicated incompetent are void

-only guardian can enter into a contract for adjudicated incompetent

-guardian can ratify contract

voidable contracts (mentally incompetent person)

-person NOT adjudicated mentally incompetent is considered mentally incompetent if his/her judgement impaired because he or she cannot understand/comprehend nature and effect of transaction

-once proven incompetent person can disaffirm or ratify within reasonable period of time

-contract voidable by incompetent ONLY

valid contracts (mentally incompetent person)

-contract entered into by mentally ill person are valid if contract entered during lucid interval

lucid interval

-period during which intelligence/judgement/will are temporarily restored

capacity and legality

-contractual capacity

-legality

legality

-contracts contrary to statute

-contracts contrary to public policy

-effect of legality

contracts contrary to statute

-contracts to commit crimes

-usury

-gambling

-licensing statutes

contracts to commit crimes

-agreements are void

-if purpose/performance becomes illegal because of enactment of statute after contract entered into-parties discharged from obligations by operation of law

usury

-fix the max lawful contract rate of interest that can be charged for loan

-rate varies from state to state over time

-exceptions

-if more than max rate charged

exceptions for usury

-risk-borrower

-if borrower wants small loan

-borrower is corporation/entity that is created

gambling

-creation of risk and distribution of property by chance among persons who have given consideration in order to participate

-contracts illegal and void

-all states have statutes that regulate gambling-exceptions

-have to ensure gambling is legal in state where you gambled-can sue in that state

licensing statutes

-all states have statutes that require licenses to be obtained in order to engage in certain trades/professions/business

-ex:plumber,ac tech

-enforceability of contracts made by unlicensed person

enforceability of contracts made by unlicensed person

-some statutes expressly provide that contracts made by unlicensed person are void and unenforceable

-if purpose is regulatory-to protect public from unauthorized practitioners-contracts are void and unenforceable (majority)

-if purpose is to raise government revenue-contracts are enforceable-fine unlicensed person

contracts contrary to public policy (outline)

-contracts in restraint of trade

-unconscionable contracts or clauses

-exculpatory clauses

-discriminatory contracts

contracts contrary to public policy (definition)

-an agreement which injures established interest of society or which has a negative effect on society is void and will not be enforced

-ex: right to marry taken away

contracts in restraint of trade

-actions that interfere with free competition in market

-if two or more parties enter into agreement to mutually not compete with each other and their only objective is to restrict competition-agreement void because against strong public policy favoring free fair competition

-secondary/ancillary covenant not to compete

-contract for sale of business

-employment contracts

secondary/ancillary covenant not to compete

-ancillary/subsidiary/secondary covenant not to compete will be enforced if promise is reasonable-employee signs non compete

-must be secondary to contract

-must be no more extensive than necessary under circumstances to protect property or other valuable interest of promisee

-dependant and all work together

-time-how long restricted-depends on industry-1-2 years

-geogrpahical area

-scope

contract for the sale of a business

-seller of business agrees not to open another competing store within area of store that he is selling

-reasonableness of ancillary covenant not to compete is determined by nature of business/period of duration/goegraphic area covered

employment contracts

-covenant that an employee will not start competing business for certain period after termination of employment

-such covenant is legal so long as time period and geographical area restrictions are reasonable

unconscionable contracts or clauses

-whole/part shocking to conscience

-contract may be unconscionable if party receiving unusually greater benefit has superior bargaining power-take it or leave it situation

-contract may be unconscionable if it shocks the conscience of the court

exculpatory clauses definition

-clause or entire contract

-clause within contract that purports to release party from any and all liability for property damages or personal injury

-leasing contract-party=landlord

exculpatory clauses

-is not enforced when party seeking enforcement engages in business that is important to public

-employment contracts relieving employer of liability for employees on the job injury

-rental of commercial property

-residential property leases

-often enforced when parties seeking enforcement are NOT engaging in businesses that are essential to the public

-parties must have generally equal bargaining power

-language must not be ambiguous

-ex: recreational facilities-skydiving, gyms

discriminatory contracts

-promises to discriminate based upon color/race/religion/national origin/gender violate statutes and are contrary to public policy

effect of illegality

-an illegal agreement is void and court cannot aid either party

-exceptions

-severable or divisible contracts

exceptions to general rule (illegality)

-justifiable ignorance to the facts that caused the agreement to be illegal (14.10)

-member of class intended to be protected by statute prohibiting specific activity may enforce contract

-withdrawal from illegal agreement before illegal performance is rendered

-contract illegal through fraud/duress/undue influence-party who was induced to enter into an illegal bargain may recover the consideration that was paid to the guilty party

severable or divisible contracts

-courts will enforce legal provisions of a contract if the illegal portions can be severed