Chapter 14 Capacity and Legality

Contractual Capacity

the legal ability to enter into contracts.

Age of Majority

The age at which one is no longer an infant and can no longer disaffirm a contract.

Emancipation

The act of being freed from parental control.

Minors

the general rule is that a minor can enter into any contract that an adult can, except contracts prohibited by law for minors.

Disaffirmance

The legal avoidance, or setting aside, of a contractual obligation.

Exceptions to a Minor's right to Disaffirm

- For public-policy reasons, some contracts cannot be avoided. Ex: marriage contracts, or enlist in armed services.

- Some state laws prohibit minors who misrepresented their age when entering into a contract form later disaffirming it.

- A minor who enters into a contract for necessaries may disaffirm the contract but remains liable for the reasonable value of the goods.

Necessaries

- Necessities required for life, such as food, shelter, clothing, and medical attention.

Ratification

The act of accepting and giving legal force to an obligation that previously was not enforceable.

Parent's Liability

As a general rule, parents are not liable for contracts made by minor children acting on their own, except contracts for necessaries, which parents are legally required to provide.

- Businesses ordinarily require parents to cosign any contract made with a minor.

Intoxication

Is a condition in which a person's normal capacity to act or thing is inhibited by alcohol or some other drug.

Mental Incompetence

Contract made by mentally incompetent persons can be either:

- Void

- Voidable

- Valid

Legality

for a contract to be valid and enforceable, it must be formed for a legal purpose.

Contracts Contrary to Statute

- Contracts to Commit a Crime: any contract to commit a crime is a violation of statute.

- Object or performance of a contract is rendered illegal by a statute after the parties entered into the contract.

- Usury: most states set the maximum rate of interest that can be charged for different types of transactions.

Usury

Charging an illegal rate of interest.

Gambling

is the creation of risk of the purpose of assuming it.

Licensing Statutes

All states require members of certain professions to have licenses.

Contract Contrary to Public Policy

Although contracts involve private parties, some are not enforceable because of the negative impact they would have on society.

Covenant not to Compete

a contractual promise to refrain form competing with another party for a certain period of time and within a certain geographic area.

Reformation

A court ordered correction of a written contact so that it reflects the true intentions of the parties.

Unconscionable Contracts or Clauses

A contract or clause that is void on the basis of public policy because one party is forced to accept terms that are unfairly burdensome and that unfairly benefit the dominating party

- A court ordinarily does not look at the fairness or equity of a contract. (or inquire into the adequacy of consideration)

Procedural Unconscionably

Occurs if a contract is entered into, or a term becomes part of the contract, because of a party's lack of knowledge or understating of the contract or the term.

Substantive Unconscionably

Exists when a contract, or one of its terms, is oppressive or overly harsh.

Exculpatory Clauses

A clause that release a contractual party from liability in the event of monetary or physical injury, no matter who is at fault.

Will Enforce if:

- They are reasonable

- They do not violate public policy

- They do not protect parties from liability for intentional misconduct.

- The language used is not ambiguous

- The parties are in relatively equal bargaining positions.

Discriminatory Contracts

Contracts in which a party promises to discriminate on the basis of race, color, national origin, religion, gender, age, or a disability are contrary to both statute and public policy and are thus unenforceable.

Effect of Illegality

In general, an illegal contract is void-that is, the contract is deemed never to have existed, and the courts will not aid either party.

Justifiable Ignorance of the Facts

Sometimes, one of the parties to a contract has no reason to know that the contract is illegal and thus is relatively innocent.

Withdrawal from an Illegal Agreement

If the illegal part of a bargain has not yet been performed, the party rendering performance can withdraw form the contract and recover the performance or its value.

Severable, or Divisible Contracts

A contract that is severable, or divisible, consists of distancing parts that can be performed separately, with separate consideration provided for each part.