MGMT 402 - Exam #2 - Ch 11 - Short

What is contractual capacity?

The legal ability to enter a contract, including understanding the nature of the transaction when agreeing. Old age or later regret alone does not establish incapacity.

What are the three I's of contractual capacity?

Insane (mentally incompetent), intoxicated, and infants (minors, generally under 18 for this course).

How does a void contract differ from a voidable contract?

Void means unenforceable from the beginning; voidable means the protected party can choose to cancel.

What is disaffirmance?

A protected party's cancellation of a voidable contract because of a capacity problem.

Under your professor's rule, what happens when someone already judicially declared incompetent personally enters a contract?

The agreement is void under the circumstances he describes; a court-appointed representative handles the person's transactions.

What happens if someone lacked understanding when contracting but had no prior court declaration of incompetence?

The contract may be voidable because of temporary mental incapacity. Example: A person buys a car during a period of confusion without understanding the transaction.

How does intoxication affect contractual capacity?

If impairment prevents understanding the transaction, the contract may be voidable after sobriety. Example: An unexpected medication interaction causes severe impairment during a purchase.

What warning does your professor give about intentionally becoming intoxicated?

Some states restrict disaffirmance when intoxication was intentionally self-inflicted; being intoxicated does not automatically permit cancellation.

What is the general rule for minors' contracts?

Minors can generally disaffirm ordinary nonessential contracts, making those agreements voidable rather than automatically void.

What is the duty of restitution under your professor's rule?

Qualifying intoxicated or temporarily mentally incapacitated people must return what they received in its original received condition upon disaffirmance.

What is the duty of restoration under your professor's rule?

Minors return what they received in its condition at disaffirmance. Example: In his Xbox example, the minor returns the damaged Xbox.

Why does your professor place greater disaffirmance risk on adults contracting with minors?

Adults can generally verify age through identification, while intoxication or temporary mental incapacity may be harder to recognize.

How do necessaries of life affect a minor's ability to disaffirm?

Necessaries create an exception to ordinary avoidance and can require payment for their reasonable value. Example: Necessary housing for a 17-year-old college student.

Are parents automatically liable for every contract their minor child makes?

No. Your professor describes parental liability for necessaries, but actual liability depends on applicable rules and facts.

What does legality require?

A contract must have a lawful purpose. Your professor's general rule is that illegal bargains are void and courts will not enforce them.

What is a contract to commit a crime?

An agreement requiring illegal conduct and therefore unenforceable. Example: Promising someone $500 to drive while intoxicated.

What is a usurious contract?

A loan charging interest above the applicable legal ceiling. Example: Charging 30% when a covered loan has a 15% legal limit and no exemption applies; these percentages are hypothetical.

What is a contract that violates public policy?

An agreement conflicting with important legal principles protecting society. Example: The professor's California employment non-compete restricting lawful competing work.

How can violating a licensing statute affect a contract?

A provider lacking a required license may be unable to enforce payment for covered work. Example: An unlicensed contractor seeks payment for work legally requiring a license.

What is a severable contract, and what is its limit?

A severability clause allows an unlawful provision to be removed while preserving a workable lawful remainder. Example: Removing an unlawful non-compete while keeping lawful employment terms. It cannot save a bargain whose central purpose is illegal.