ch 8

Capacity and Consideration

I. Capacity to Contract

  • Definition: Not everyone has the "mental capacity" to understand that an offer and acceptance generally forms a binding contract enforceable in court.
  • Legal Capacity to Contract:
    • All persons are capable of contracting except:
    • Minors
    • Persons of unsound mind
    • Persons deprived of civil rights
  • Statutory Reference: Civil Code § 1550
A. Minors
  • Definition of an Adult: An adult is an individual who is 18 years of age or older based on Family Code § 6501.
  • Definition of a Minor: A minor is an individual under the age of 18.
  • Calculation of Minority: Calculated from the first minute of the day on which the individual is born to the same minute on the corresponding day completing the period of minority.
B. Void Contracts for Minors
  1. General Rule: A minor may make a contract in the same manner as an adult, subject to the power of disaffirmance [Family Code § 6700].
  2. Prohibitions for Minors:
    • Delegation of Power:
    • Definition: An authorization by one capable person empowering another to act.
    • Prohibition: California Family Code section 6701(a) prohibits minors from delegating authority to enter into contracts.
    • Real Property Contracts:
    • Minors cannot enter contracts relating to real estate or interests therein.
    • A minor may receive title through inheritance or gift but cannot sell the title without a guardian.
    • Personal Property Contracts:
    • Minors cannot contract for personal property not in their immediate possession or control [Family Code § 6701].
C. Voidable Contracts
  • Definition: Voidable contracts can be made void.
  • Disaffirmance: Minors can disaffirm a contract, which means the contract has no legal effect if the minor chooses to disaffirm.
  • Timing:
    • A minor can disaffirm before reaching the age of majority or within a reasonable time thereafter.
    • Heirs or personal representatives can disaffirm if the minor dies within the period [Family Code § 6710].
    • Disaffirmance can be express (through words) or implied (through conduct).
  • Complete Disaffirmance Requirement:
    • The disaffirmance must be total; the minor cannot disaffirm part of the contract.
    • A minor must return any received consideration still in their possession.
D. Enforceable Minor Contracts (Binding)
  • Necessaries for Minors: Contracts for necessary support are binding [Fam. Code § 6712].
  • Contracts for Medical Treatment: Minors may contract for medical services if certain conditions are met, such as:
    • Those 15 years or older can contract if living apart from parents and managing finances independently.
    • Minors 12 years and older can consent to mental health treatment.
    • HIV/AIDS and pregnancy-related medical services can be consented to by minors 12 and older.
  • Contracts for Attorney's Fees: Contracts for legal representation are void unless approved by the court [Fam. Code § 6602].
  • Entertainment and Sports Contracts: Contracts in the arts, entertainment, and professional sports are enforceable if court-approved.
  • Plea Bargains: Courts do not allow disaffirmance of guilty pleas in criminal contexts, as these are not contracts.
  • Emancipated Minors: An emancipated minor can enter into contracts like an adult [Fam. Code §§ 7000-7143].
E. Persons of Unsound Mind
  1. Insanity and Contractual Capacity: Individuals entirely without understanding cannot contract, but are liable for the reasonable value of necessities furnished [Civil Code § 38].
  2. Classification of Unsound Mind:
    • Unsound mind means unable to understand the nature or consequences of transactions they are involved in, but not entirely without understanding.
  3. Case Study - Lucy v. Zehmer:
    • Context: Contract signed under intoxication, deemed valid by court.
    • Finding: Intention behind the agreement is irrelevant if the words and actions are clear.
F. Persons Incarcerated
  • Incarcerated individuals retain the right to own and manage property but with limitations due to their status.

II. Consideration

A. The Concept
  • Definition: Consideration involves the benefit or detriment exchanged by parties for a contract.
  • Principle of Quid Pro Quo: A favor or advantage granted in exchange for something else.
B. Presumption of Consideration
  • Written agreements carry a presumption of consideration under [Civ. Code §§ 1614-1615].
C. Value of Consideration
  • Consideration does not need to be of equal value; courts do not generally investigate adequacy of consideration exchanged.
  • Exceptions apply for specific performance cases.
D. Gifts
  • Definition: A gift is a transfer of property made voluntarily without consideration [Civil Code § 1146].
E. When Gifts May Be Revoked
  1. Impending Death: A gift can be revoked if made in anticipation of death [Civil Code § 1148].
  2. Contemplation of Marriage: Gifts exchanged before marriage may be recoverable upon refusal to marry [Civil Code § 1590].
F. Unrequested Merchandise
  • Unordered items sent to individuals are considered unconditional gifts with no obligation for payment [Civil Code § 1584.5].
G. Past Consideration
  • Past acts do not constitute consideration for future promises; generally deemed unenforceable.
H. Illusory Promises
  • A promise is illusory if it lacks commitment from the promisor and does not induce legal detriment.
I. Needs and Requirements vs. Desires and Wants
  • Agreements that address requirements lead to enforceable contracts while mere desires do not.
J. Pre-Existing Duties
  • Performing an existing duty does not constitute consideration for additional promises.
K. Contract Modifications Supported by Consideration
  • Modifications are enforceable if consideration exists.
L. Unforeseen Conditions
  • Unforeseen circumstances impacting contract performance could entitle parties to recover additional compensation depending on whether the conditions could have been foreseen.
M. Pre-existing Duty to Third Persons
  • The performance of a pre-existing contractual duty cannot be considered sufficient consideration.
N. Sale of Goods
  • Contract modifications for sales do not require consideration but must meet good faith requirements [Cal. U. Com. Code § 1148].
O. Settlement of Claims
  1. Liquidated Debts: A liquidated debt is one with no dispute about the owed amount.
  2. Accord and Satisfaction: Acceptance of different performance as full payment constitutes accord and satisfaction.
  3. Written Releases: Written agreements can extinguish obligations even if consideration is lacking.
  4. Unliquidated Claims: Disputed claims can be settled via accord and satisfaction.
P. Revival of Debt Barred by Statute of Limitations
  • Signing a written agreement to pay a barred debt renews its enforceability [CCP § 360].
Q. Promissory Estoppel
  • Definition: A legal concept enforcing promises even in the absence of consideration if the promisee relied on the promise to their detriment.
  • Key Elements:
    1. The promisor knew the promise would induce reliance.
    2. The promisee relied justifiably on the promise.
    3. Enforcing the promise is necessary to avoid injustice.

III. Chapter Summary

  1. Minors are limited in contracting rights, unable to engage in real estate or certain personal property contracts.
  2. Most minor contracts are voidable; ratification occurs post-age of majority.
  3. Parents can agree for minors in binding contracts.
  4. Enforceable contracts include necessaries, medical treatment, and jobs for emancipated minors.
  5. Individuals declared insane or without understanding cannot validly contract.
  6. Consideration is crucial; gifts and past considerations lack enforceability.
  7. Illusory promises do not offer legal detriment.
  8. Modification agreements are enforceable regardless of consideration if made in good faith.
  9. Promissory estoppel applies to enforce promises made without consideration.

IV. Chapter Problems - Specific Cases

  1. Complex cases involving disbanded contracts, minors, and their capacity to contract.
  2. Issues surrounding promissory estoppel claims involving loan agreements.
  3. Disputes over informal promises regarding significant financial considerations.

V. Terms

  • Key Terms Include: Accord and Satisfaction, Gift, Minor, Consideration, Illusory, etc.

VI. Chapter Quiz

  • Multiple-choice questions reflect material learned, covering essential definitions and concepts of capacity and consideration in contracts.