Untitled Flashcards Set

Legality of Contracts

A contract must have a legal purpose to be enforceable. If the contract involves illegal activity, it is void and cannot be enforced by law.

Key Points:

• Illegal Contracts: Any contract that involves illegal activities (such as committing a crime or violating public policy) is void.

  • Example: A contract to sell illegal drugs or to bribe someone is void and unenforceable.

• Contracts in Restraint of Trade: Contracts that unreasonably restrict trade or competition may be illegal under antitrust laws.

  • Example: Price-fixing agreements, monopolistic practices, or agreements that significantly reduce competition.

• Contracts that Violate Public Policy: Even if not directly illegal, certain contracts may be unenforceable because they are against public policy.

  • Example: Contracts that involve an employee agreeing not to report illegal activities.

Exceptions to Legality:

• Severability Clauses: A contract may still be enforceable if the illegal portion can be separated from the legal portion.

• Contracts with a party unaware of the illegality: A person who unknowingly enters into an illegal contract may have an opportunity to recover damages.

Capacity to Contract

For a contract to be enforceable, both parties must have the legal capacity to enter into the contract. This is typically determined by factors such as age, mental competence, and intoxication.

Key Points:

• Minors: Generally, people under the age of 18 (in most jurisdictions) do not have the legal capacity to enter into contracts. Contracts entered into by minors are voidable at the minor’s discretion.

  • Exception: Contracts for necessities (e.g., food, shelter, clothing) are enforceable against minors.

  • Example: A minor entering a lease for an apartment could disaffirm the contract unless it’s for essential services.

• Mental Incompetence: A contract entered into by a person who is mentally incompetent (due to a mental illness, mental disability, or similar condition) may be voidable.

  • Example: A contract made by someone who is legally declared incompetent is void.

• Intoxication: If one party to a contract is intoxicated (due to alcohol or drugs), the contract may be voidable. The intoxicated party must prove they were unable to understand the contract's nature.

  • Example: If a person enters into a contract while intoxicated, they may claim they lacked the mental capacity to comprehend the agreement.

3. Consent in Contracts

Consent refers to the agreement by both parties to enter into a contract. If consent is not freely given (i.e., due to mistake, fraud, undue influence, or duress), the contract may be voidable.

Key Points:

• Mistake: A mistake in contract law can be of two types:

  • Mutual Mistake: Both parties misunderstand a key fact in the contract. If the mistake is material (e.g., both parties think an object exists when it does not), the contract may be voidable.

    • Example: A contract to sell a painting that both parties believe is an original, but it turns out to be a forgery.

  • Unilateral Mistake: Only one party is mistaken. Generally, the contract is still enforceable unless the other party knew or should have known about the mistake.

    • Example: A person offers to sell a car for $1,000 by mistake, and the buyer accepts. The seller may be able to rescind the contract.

• Fraud: Fraud occurs when one party intentionally misrepresents a material fact with the intent to deceive the other party. A contract based on fraud is voidable by the deceived party.

  • Example: A seller knowingly sells a product with false claims (e.g., falsely claiming a product is brand new when it’s used).

• Undue Influence: This occurs when one party uses their position of trust or authority over the other party to get them to agree to a contract.

  • Example: A caregiver convinces an elderly person to sign over their property by exploiting the person’s trust.

• Duress: If one party is forced or threatened into entering a contract under threat of harm, the contract is voidable.

  • Example: A person signs a contract under threat of physical violence or blackmail.

4. Statute of Frauds

The Statute of Frauds requires certain types of contracts to be in writing to be enforceable. This is to prevent fraud and misunderstandings in certain important transactions.

Key Types of Contracts Covered by the Statute of Frauds:

1. Contracts for the Sale of Land: Any contract involving the sale, lease, or transfer of real estate must be in writing.

   • Example: A contract to sell a house must be in writing.

2. Contracts that Cannot Be Performed in One Year: Contracts that cannot be completed within one year from the date of agreement must be in writing.

   • Example: A contract to provide services for the next five years must be in writing.

3. Contracts for the Sale of Goods over $500 (UCC Rule): Contracts for the sale of goods priced at $500 or more must be in writing.

   • Example: A contract for the sale of a computer valued at $1,000 requires a written agreement.

4. Suretyship Contracts: A contract where one party agrees to be responsible for another party’s debt must be in writing.

   • Example: A person co-signs a loan for someone else.

5. Marriage Contracts: Contracts made in consideration of marriage must be in writing.

   • Example: A prenuptial agreement must be in writing.

Writing Requirement: A written contract must include the essential terms, such as the parties’ identities, subject matter, and price, among others. A signature from the party against whom enforcement is sought is generally required.

Exceptions to the Statute of Frauds:

• Partial Performance: If one party has performed part of their obligations under the contract, the contract may be enforceable even without a written agreement.

• Admission: If the party against whom enforcement is sought admits in court that a contract existed, it may be enforced.

• Promissory Estoppel: If one party has reasonably relied on an oral promise to their detriment, the contract may be enforced even without writing.