12.3: Contractual Capacity, Legality, Form, and Third Party Rights

Courts generally assume the existence of contractual capacity.

True

Adults who enter into contracts with minors can avoid their contractual duties just as the minor can.

False

If a person was sufficiently intoxicated to lack the ___ capacity to comprehend the legal consequences of entering into the contract, the contract may be ___ at the option of the ___ person.

mental

voidable

intoxicated

Ronald suffers from dementia that impacts his brain function, but he also has healthy periods of time when is mind is fully functioning. During one of these healthy periods, Ronald enters into a contract, which he later seeks to avoid. in a majority of states, the contract will not be enforced because of Ronald's dementia.

False

Any contract to commit a crime is a violation of a statute and is therefore unenforceable.

True

A usurious contract involves ___.

an illegally high rate of interest

Which professionals do NOT need to be licensed to engage in legal and enforceable contracts?

d. Tarot card readers

**a. Architects

**b. Attorneys

**c. Electricians

**e. Real estate brokers

**f. accountants

**g. Stock brokers

**h. Physicians

Contracts to commit an immoral act, such as selling a child, and contracts that prohibit marriage are contrary to public policy.

True

Seven companies agree that they will not compete against each other, will set prices, and not hire each other's employees. Such contract will be:

an illegal contract in restraint of trade.

When bargains are so oppressive that the court decides to relieve innocent parties of their duties, such bargains are deemed ___.

unconscionable

Exculpatory clauses release a party from liability in the event of monetary or physical injury no matter who is at fault.

True

The Statute of Frauds does what?

Denies enforceability to certain contracts that are not in writing.

Contracts that must be in writing include contracts involving interests in ___, contracts that cannot by their terms be performed within ___from the day after the date of formation, ___, or secondary, contracts, such as promises to answer for the debt or duty of another, promises made in consideration of ___, and under the Uniform Commercial Code, contracts for the sale of goods priced at ___ or more.

land

one year

collateral

marriage

$500

Traditionally only parties to a contract had the right and liabilities under the contract. This was known as the principle of ___.

privity of contract

Transferring all of the duties arising under a contract to another person.

Delegation

Transferring all the rights arising under a contract to another person.

Assignment

A person who is not a party to a contract but who will benefit by the performance of the contract.

Third party beneficiary

A person who is not a party to a contract but who the contracting parties meant to benefit from the contract and has rights to sue if the contract is not performed.

Intended beneficiary

A person who is not a party to a contract but who will benefit from the performance of a contract but has no right to sue is the contract is not performed.

Incidental beneficiary

A contractual promise to refrain from competing with another party for a certain period of time and within a certain geographic area. Although covenants not to compete restrain trade, they are commonly found in partnership agreements, business sale agreements, and employment contracts. If they are ancillary to such agreements, covenants not to compete will normally be enforced by the courts unless the time period or geographic area is deemed unreasonable.

covenant not to compete

Charging an illegal rate of interest.

usury

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

disaffirmance

Barred, impeded, or precluded

estopped

A doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies. Such a promise is binding if justice will be better served by the enforcement of the promise.

promissory estoppel

A debt that is uncertain in amount.

unliquidated debt

A debt that is due and certain in amount.

liquidated debt