Chapter 13 - Contractual Capacity

This set of flashcards covers key concepts from Chapter 13 on contractual capacity, including the rules concerning minors, intoxicated persons, and mentally incompetent individuals, as well as details on legality, usury, and unconscionable contracts.

What are the three protected classes in contractual capacity?

Minors, intoxicated persons, mentally incompetent persons.

What is the age of a minor?

Under 18.

What is an adult in terms of age?

18 – age of majority (some states: ends upon marriage).

Can minors enter into contracts?

Yes, minors have the capacity to enter legal contracts.

What is emancipation?

Treated as adult (16–17), parent/guardian released (court action).

How can a minor become emancipated?

By leaving home & supporting themselves or through the court system.

Can minors cancel contracts?

Yes, minors can avoid or disaffirm most contracts.

Who can disaffirm a contract?

Only the minor.

Are minor contracts void or voidable?

Voidable.

When can a minor cancel a contract?

Anytime under 18 or within a reasonable time after turning 18 (a couple of weeks).

What happens if a minor waits too long after turning 18?

Ratification; the contract becomes valid.

Does a minor have to pay for damaged or used goods?

No, according to common law, they are entitled to a full refund.

What is the modern rule on damage caused by minors?

It is determined on a case by case basis; they may have to pay based on the status quo.

Does an adult have to pay for damage caused by a minor?

Yes, the adult bears the loss.

What are necessaries in a contract?

Food, clothes, medical care, shelter.

Is a minor liable for necessaries?

Yes, minors must pay for necessaries.

What affects what counts as necessaries?

Social status and situation.

Are parents liable for necessaries?

Yes, parents are liable for necessaries.

Are parents liable for non-necessaries?

No, unless they co-sign.

Can parents take a minor's money?

Yes, parents can take their minor's money.

Are parents liable for their children's torts?

Only for intentional malicious torts, up to $2,500.

Are minors responsible for their own torts?

Yes, minors are responsible for their own torts.

What contracts can minors NOT disaffirm?

Some enlistment contracts, bank accounts, life insurance, school loans, entertainment, and sports contracts.

What happens if a minor lies about their age?

They may NOT disaffirm the contract.

What must a minor do if they misrepresent their age?

They must pay for damaged or used goods.

Can minors cancel insurance or loans?

yes, minors can cancel insurance and loans.

What is ratification in contracts?

At 18, not canceling the contract makes it valid.

Are intoxicated contracts valid?

It depends on the situation.

When can intoxicated persons cancel a contract?

If they are extremely intoxicated.

What must intoxicated persons prove to cancel a contract?

They must prove their intoxication.

What must intoxicated persons return when canceling a contract?

They must return the status quo (what was used or damaged).

If a court adjudicated someone as mentally incompetent, what happens to the contract?

The contract is void.

If a person is not adjudged incompetent, what status does the contract hold?

The contract is voidable.

What must a mentally incompetent person prove in a contract?

They must prove mental impairment.

Are mentally incompetent persons liable for necessaries?

Yes, they are liable for necessaries.

Are mentally incompetent persons liable if the other party didn't know their status?

Yes, they are liable under the status quo.

Are mentally incompetent persons liable during their lucid periods?

Yes, they are liable during lucid periods.

When else are mentally incompetent persons liable?

If they regain capacity (ratification) or if a guardian approves.

What is usury?

Maximum interest rates.

What is an example of a usury rate?

Land contracts capped at 11%.

What are exceptions to usury laws?

Cash advances, corporate loans, credit cards (no maximum up to 79%), pawn brokers, tax refund services.

Are late fees considered interest under usury laws?

No.

What happens in illegal gambling contracts?

You lose money.

What types of gambling are legal?

Lotteries, casinos, and sports betting.

What are blue laws?

Laws that impose restrictions on Sundays.

Give an example of blue laws.

Auto dealers cannot sell on Sundays (Michigan).

What is a Type 1 license?

Hard to obtain, protects the public.

What is an example of a Type 1 license?

Doctor's license, which if not held makes the contract VOID.

What is a Type 2 license?

A license primarily for revenue raising.

What is the effect of missing a Type 2 license?

The contract is usually okay, just subject to fines.

What is restraint of trade?

Anti-competition contracts.

What is a waiver?

A contract that relinquishes a right.

What is a covenant not to compete?

A contract that restricts business or work.

What must be reasonable in a covenant not to compete?

The geographic area, time, and scope of the restriction.

Are severance or gag orders legal?

Yes.

What about taking customers or employees?

It must be reasonable.

What is procedural unconscionability?

Fine print trickery and pressure.

What is an adhesion contract?

A take it or leave it contract.

Can courts help with unconscionable contracts?

Courts may reform the contract.

What are exculpatory clauses?

Clauses stating one party is 'not at fault.'

When are exculpatory clauses upheld?

In risk activities, such as skydiving.

When are exculpatory clauses NOT upheld?

For professionals like doctors and surgeons.

What do courts do with illegal contracts?

They won’t enforce or rescind them.

What is reformation in contracts?

Enforcing the legal parts of an otherwise illegal contract.

Give an example of reformation.

A camera contract is valid, while a gun contract is not.

What are exceptions to the illegality rule?

Justifiable ignorance, protected classes, withdrawal before the act, and fraud, duress, undue influence.