Ch 16-Capacity and Legality

Contractual Capacity

the legal ability to enter into a contractual relationship

-to have legal capacity, one must have the mental ability to understand rights and obligatons under a contract and therefore be able to comply with terms

no capacity, limited capacity, complete incapacity

what are the 3 kinds of capacity?

full

general rule of law: natural persons over the age of majority are presumed to have BLANK legal capacity to enter into binding legal contracts

minors, those suffering from mental deficiency rendering them incapable of understanding the nature or obligations of contracts, those who are intoxicated/drug impaired

who are the individuals who have limited capacity to contract?

voidable

minors can enter into only BLANK contracts until they minor reach the age of majority

disaffirmance

minors' right, until a reasonable time after reaching the age of majority, to disaffirm/void their contracts

-to exercise this right, minors need to demonstrate (through words/actions) intent to rescind the contract

-minor must return any consideration received (even if it's not in good condition)

contract for necessaries

contracts that supply minior with the basic necessity of life

ratification

acceptance of terms of contract (entered into as a minor) after reaching age of majority

express ratification

when, after reaching age of majority, individual states (either orally or in writing) intent to be bound by contract entered into while a minor

implied ratification

when former minor takes action after reaching age of majority consistent with intent to ratify contract

contract for necessaries and ratification

what are the 2 exceptions to minors' right to disaffirm contracts"

valid, voidable, void

what kinds of contracts can persons with limited mental capacities make?

voidable

contracts of an intoxicated person are BLANK if the other party knew the intoxication rendered either person's ability to understand the contract

void contracts

what kind of contracts can a person who is adjudicated insane make?

discarded

what happens to contracts that were once legal but is now not?

necessaries

parents are not liable for contracts entered into by their minor children, except contracts for BLANK

supervise

parents are not liable for torts committed by their minor children, except failure to properly BLANK their child, causing other unreasonable risk of harm

licensing statutes

purpose of BLANK:

-Give the government control over which people and how many people can perform certain jobs

-By charging for licenses the government can gain revenue

-Protection of the public's health, safety, and welfare, is related to the public interest

usury

occurs when a party gives a loan at an interest rate exceeding the legal maximum

-purpose: if a business needs money to expand is willing to pay a higher interest rate --> corporations should be afforded the opportunity to borrow

valid

if intoxication merely causes person to exercise poor judgement the contract is BLANK

-unless other party unfairly capitalized on the impaired judgement

agreements to commit a crime/tort, licensing statutes, usury, gambling, sabbath laws

what are contracts that violate state or federal statutes?

price fixing

an agreement among firms to charge one price for the same good; restraint of trade

covenants not to compete

-limits the right to compete with a business for a certain amount of time and within a specified geographical area

-only enforceable if its terms are reasonable and necessary to protect the legitimate business interests of the employer

-can be struck or modified if overly restrictive or made without a mutual exchange of consideration

gambling

aggreements where parties pay consideration (money placed during bets) for the chance to obtain an amount of money or property; aka gaming

sabbath laws

limit business activities on sundays