Chapter 9 Presentation (Week 5)

Chapter 9: Capacity and Legality

Introduction

• The importance of understanding contractual elements: Offer, Acceptance, Consideration, Capacity, and Legality.

Learning Objectives

• Review the Element of an Agreement (Offer & Acceptance).

• Review the Element of Consideration.

• Articulate the legal requirement of Capacity and identify categories of persons lacking full legal capacity.

• Distinguish between bright-line rules (age of majority) and flexible standards (mental competence).

• Articulate the concept of Legality (lawful object).

Elements of a Valid Contract

1. Agreement

   • Must indicate willingness through words or behavior; mutual assent through offer and acceptance.

2. Consideration

   • Exchange of value; each party obtains something and gives up something of value.

3. Contractual Capacity

   • Parties must have legal standing.

4. Lawful Object

   • Contract must have a legal purpose to be enforceable.

Status of Contracts Based on Elements

• Valid: Meets all required elements.

• Void: Lacks required elements; not legally binding.

• Voidable: One party may cancel under circumstances.

• Unenforceable: May be valid but cannot be enforced due to legal defenses.

Agreement: Offer

• Definition: Promise to perform or abstain from a specified action.

• Objective Intent: A reasonable person concludes that the offeror intends to contract seriously.

Agreement: Acceptance

• Acceptance: Offeree's agreement to the offer.

• The offeror retains power to modify or terminate before acceptance.

Consideration

• Mutual Exchange: Benefits and detriments exchanged.

  • Legal Benefit: Receiving value.

  • Legal Detriment: Giving up value.

  • Forbearance: Promise to refrain from an action.

• Value in Consideration: Does not need to be equal.

• Nominal Consideration: Minimal value can validate a contract.

Capacity

• Definition: Legal doctrine to protect parties unable to understand the agreement's terms.

• Lacking Capacity: Minors, mentally incompetent persons, intoxicated individuals.

• Contracts made by these individuals may be voidable.

Minors

• Contracts are voidable at the minor's option.

• Ratification: Acts indicating intent to be bound by a promise.

• Disaffirmance: Action to avoid obligations can rescind a contract.

• Necessities: Minors can be liable for essential purchases (food, medical care).

Mental Competency

• Limited Capacity: Mental incompetents lack the ability to understand contracts.

• Includes those with mental disorders or temporary incompetence (e.g., due to intoxication).

Lucid Period Rule

• Definition: Contract validity relies on whether the person is lucid at the time of contracting.

  • Cannot understand the contract's nature or act reasonably if aware of their condition.

Intoxicated Persons

• Intoxication from drugs or alcohol affects contractual capacity.

• Courts assess if a reasonable person would assume the intoxicated person had sufficient capacity.

Bright-Line Rules vs. Flexible Standards

• Bright-Line Rules: Clear criteria (e.g., age of majority).

• Flexible Standards: General guidelines requiring interpretation (e.g., defining mental competence).

Legality

• Contracts must have a legal subject matter and performance.

  • Statute Violations: Some contracts are illegal because they violate laws.

  • Public Policy: Contracts may be illegal if they go against societal objectives (e.g., restraint of trade).

Exceptions to the Nonenforcement Rule

• General Rule: Courts will not enforce illegal agreements.

• Exception: If a protection class party is involved in an illegal contract, they may enforce or regain benefits.

Conclusion

• Next Chapter: Chapter 10 (Enforceability)